N-CSR/A 1 ncsr.txt OMB APPROVAL OMB Number: 3235-0570 Expires: September 30, 2007 Estimated average burden hours per response.....19.4 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, 2005 through December 31, 2005 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. [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Variable Contracts Trust -- Class I Shares Pioneer Emerging Markets VCT Portfolio Pioneer Europe VCT Portfolio Pioneer International Value VCT Portfolio Pioneer Small Cap Value VCT Portfolio Pioneer Small Company VCT Portfolio Pioneer Mid Cap Value VCT Portfolio Pioneer Growth Shares VCT Portfolio Pioneer Real Estate Shares VCT Portfolio Pioneer Fund VCT Portfolio ANNUAL REPORT December 31, 2005 Pioneer Equity Income VCT Portfolio Pioneer Balanced VCT Portfolio Pioneer High Yield VCT Portfolio Pioneer Strategic Income VCT Portfolio Pioneer America Income VCT Portfolio Pioneer Money Market VCT Portfolio Drowning in Paper? Go Paperless! Go Electronic! We now offer electronic access to your variable annuity prospectuses and annual and semi-annual reports. It takes only minutes to enroll. Simply visit: www.e-z-delivery.com. Make sure that you have your Client I.D. handy (from the upper left corner on your Quarterly Statements). You need to enter it when you enroll. PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Table of Contents Letter to Shareowners 1 Comparing Ongoing Portfolio Expenses 2 Pioneer Emerging Markets VCT Portfolio Portfolio and Performance Update 4 Portfolio Management Discussion 5 Pioneer Europe VCT Portfolio Portfolio and Performance Update 6 Portfolio Management Discussion 7 Pioneer International Value VCT Portfolio Portfolio and Performance Update 8 Portfolio Management Discussion 9 Pioneer Small Cap Value VCT Portfolio Portfolio and Performance Update 10 Portfolio Management Discussion 11 Pioneer Small Company VCT Portfolio Portfolio and Performance Update 13 Portfolio Management Discussion 14 Pioneer Mid Cap Value VCT Portfolio Portfolio and Performance Update 15 Portfolio Management Discussion 16 Pioneer Growth Shares VCT Portfolio Portfolio and Performance Update 18 Portfolio Management Discussion 19 Pioneer Real Estate Shares VCT Portfolio Portfolio and Performance Update 21 Portfolio Management Discussion 22 Pioneer Fund VCT Portfolio Portfolio and Performance Update 23 Portfolio Management Discussion 24 Pioneer Equity Income VCT Portfolio Portfolio and Performance Update 26 Portfolio Management Discussion 27 Pioneer Balanced VCT Portfolio Portfolio and Performance Update 29 Portfolio Management Discussion 30 Pioneer High Yield VCT Portfolio Portfolio and Performance Update 32 Portfolio Management Discussion 33 Pioneer Strategic Income VCT Portfolio Portfolio and Performance Update 34 Portfolio Management Discussion 35 Pioneer America Income VCT Portfolio Portfolio and Performance Update 37 Portfolio Management Discussion 38 Pioneer Money Market VCT Portfolio Portfolio and Performance Update 39 Schedules of Investments Pioneer Emerging Markets VCT Portfolio 40 Pioneer Europe VCT Portfolio 44 Pioneer International Value VCT Portfolio 46 Pioneer Small Cap Value VCT Portfolio 50 Pioneer Small Company VCT Portfolio 54 Pioneer Mid Cap Value VCT Portfolio 58 Pioneer Growth Shares VCT Portfolio 61 Pioneer Real Estate Shares VCT Portfolio 63 Pioneer Fund VCT Portfolio 64 Pioneer Equity Income VCT Portfolio 68 Pioneer Balanced VCT Portfolio 71 Pioneer High Yield VCT Portfolio 78 Pioneer Strategic Income VCT Portfolio 84 Pioneer America Income VCT Portfolio 95 Pioneer Money Market VCT Portfolio 100 Financial Statements 102 Notes to Financial Statements 126 Report of Independent Registered Public Accounting Firm 144 Factors Considered by the Independent Trustees in Approving the Management Contract 145
PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- LETTER TO SHAREOWNERS 12/31/05 -------------------------------------------------------------------------------- Dear Shareowner, As 2005 came to a close, U.S. investors looked back on a year of major challenges, though without much change in the market indices. The war in Iraq continued, oil prices soared, then dropped, while short-term interest rates ratcheted steadily higher and intermediate and long-term rates stayed about the same. Natural disasters also threatened economic expansion. Still, the economy moved forward as corporate earnings grew. The hope of a growing economy was not reflected by the small gains or losses in the major U.S. market indices. Among capitalization ranges, midcap issues made the most headway. Bond prices held firm and yields remained low, perhaps a sign that the Federal Reserve Board's interest rate hikes would temper the inflationary pressures induced by a growing economy. Among the nagging issues facing the U.S. economy in 2006 is the potential impact of high energy prices on consumer spending and corporate profits. Also unknown at this time is whether the Federal Reserve Board will continue to raise interest rates under its new chairman, Ben Bernanke, who stated his top priority will be to maintain continuity. Rising interest rates and improving business conditions made U.S. holdings more attractive to foreign investors, helping to strengthen the dollar versus the euro and other key currencies. Investors in many foreign markets enjoyed stellar returns. Double-digit gains were widespread in Europe, Asia and Latin America. Even the long-dormant Japanese economy began to stir, while emerging markets, especially those rich in natural resources, fed global economic growth. The disparity of returns among countries and sectors underscores the importance for investors to maintain a well-diversified portfolio. We believe this may be a good time for investors to review their holdings with their advisor and determine if they reflect the wide range of opportunities that exist across many asset classes, as last year's results make clear. Investing for income with Pioneer Adding one or more of Pioneer's income-oriented funds to your investment program may help improve your portfolio's overall balance. As a premier provider of fixed-income investments, Pioneer offers you a broad selection of actively managed bond funds to help meet a variety of investment needs. Pioneer also offers income-oriented equity funds, each managed using a value-oriented, total return investment philosophy that seeks enhanced return potential and lower volatility through active diversification. Your financial advisor can help you select among Pioneer's fixed-income choices. Respectfully, /s/ Osbert M. Hood Osbert M. Hood President Pioneer Investment Management, Inc. Any information in this shareholder report regarding market or economic trends or the factors influencing the Portfolios' 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. Before investing, consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Read it carefully. 1 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a beneficial owner of one or more Portfolios, you incur two types of costs: (1) transactions costs, including sales charges (loads) at the time of purchase and redemption fees upon redemption of your shares, and (2) ongoing costs including management fees and other Portfolio expenses. The examples below are based on investment of $1,000 at the beginning of the period and held for the entire period (July 1, 2005 - December 31, 2005). These examples are intended to help you understand your ongoing costs (in dollars), of investing in a Portfolio and to compare these costs to investing in other variable annuity portfolios. Actual Expenses The first line of the table below for each Portfolio provides information about the actual account values and actual expenses. You may use the information in the line, together with amount you invested, to estimate the expenses that you paid over the period. Simply divide you account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiple the result by the number in the first line for a Portfolio under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during the period. Hypothetical Example for Comparison Purposes The second line of the table below for each Portfolio provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in each Portfolio. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other variable annuities. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher.
Class I Shares ------------------------------------------------------ Beginning Ending Account Account Expenses Paid Value Value During Period 7/1/05 12/31/05 (7/1/05 - 12/31/05) ------------------------------------------------------------------------------------------------------ Pioneer Emerging Markets VCT Portfolio Actual $ 1,000.00 $ 1,308.33 $ 10.18 Hypothetical $ 1,000.00 $ 1,016.38 $ 8.89 Pioneer Europe VCT Portfolio Actual $ 1,000.00 $ 1,095.95 $ 7.92 Hypothetical $ 1,000.00 $ 1,017.64 $ 7.63 Pioneer International Value VCT Portfolio Actual $ 1,000.00 $ 1,201.58 $ 8.49 Hypothetical $ 1,000.00 $ 1,017.49 $ 7.78 Pioneer Small Cap Value VCT Portfolio Actual $ 1,000.00 $ 1,095.50 $ 6.07 Hypothetical $ 1,000.00 $ 1,019.41 $ 5.85 Pioneer Small Company VCT Portfolio Actual $ 1,000.00 $ 1,049.60 $ 6.46 Hypothetical $ 1,000.00 $ 1,018.90 $ 6.36 Pioneer Mid Cap Value VCT Portfolio Actual $ 1,000.00 $ 1,034.32 $ 3.63 Hypothetical $ 1,000.00 $ 1,021.57 $ 3.61 Pioneer Growth Shares VCT Portfolio Actual $ 1,000.00 $ 1,058.51 $ 4.98 Hypothetical $ 1,000.00 $ 1,020.37 $ 4.89
2 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Class I Shares ------------------------------------------------------ Beginning Ending Account Account Expenses Paid Value Value During Period 7/1/05 12/31/05 (7/1/05 - 12/31/05) ----------------------------------------------------------------------------------------------------- Pioneer Real Estate Shares VCT Portfolio Actual $ 1,000.00 $ 1,077.39 $ 4.92 Hypothetical $ 1,000.00 $ 1,020.47 $ 4.79 Pioneer Fund VCT Portfolio Actual $ 1,000.00 $ 1,068.97 $ 3.65 Hypothetical $ 1,000.00 $ 1,021.68 $ 3.57 Pioneer Equity Income VCT Portfolio Actual $ 1,000.00 $ 1,036.88 $ 3.65 Hypothetical $ 1,000.00 $ 1,021.63 $ 3.62 Pioneer Balanced VCT Portfolio Actual $ 1,000.00 $ 1,040.07 $ 4.73 Hypothetical $ 1,000.00 $ 1,020.57 $ 4.69 Pioneer High Yield VCT Portfolio Actual $ 1,000.00 $ 1,026.79 $ 3.91 Hypothetical $ 1,000.00 $ 1,021.21 $ 3.90 Pioneer Strategic Income VCT Portfolio Actual $ 1,000.00 $ 1,010.52 $ 4.51 Hypothetical $ 1,000.00 $ 1,020.72 $ 4.53 Pioneer America Income VCT Portfolio Actual $ 1,000.00 $ 1,000.78 $ 4.14 Hypothetical $ 1,000.00 $ 1,021.07 $ 4.18 Pioneer Money Market VCT Portfolio Actual $ 1,000.00 $ 1,014.96 $ 3.71 Hypothetical $ 1,000.00 $ 1,021.53 $ 3.72
(a) reflecting a 5% return per year before expenses Expenses are equal to the annualized expense ratio of a Portfolio's Class I shares (as indicated in the table below), multiplied by 184/365 (to reflect the one-half year period.)
Annualized Expense Ratio --------------------------------------------------------------- Pioneer Emerging Markets VCT Portfolio 1.75% Pioneer Europe VCT Portfolio 1.50% Pioneer International Value VCT Portfolio 1.53% Pioneer Small Cap Value VCT Portfolio 1.15% Pioneer Small Company VCT Portfolio 1.25% Pioneer Mid Cap Value VCT Portfolio 0.71% Pioneer Growth Shares VCT Portfolio 0.96% Pioneer Real Estate Shares VCT Portfolio 0.94% Pioneer Fund VCT Portfolio 0.70% Pioneer Equity Income VCT Portfolio 0.71% Pioneer Balanced VCT Portfolio 0.92% Pioneer High Yield VCT Portfolio 0.77% Pioneer Strategic Income VCT Portfolio 0.89% Pioneer America Income VCT Portfolio 0.82% Pioneer Money Market VCT Portfolio 0.73%
3 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
International Common Stocks 64.0% Depositary Receipts for International Stocks 22.9% Temporary Cash Investment 5.7% U.S. Common Stocks 4.9% International Preferred Stocks 2.5%
Geographical Distribution Portfolio (As a percentage of equity holdings) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
South Korea 22.1% Brazil 17.8% South Africa 10.0% Taiwan 9.6% Russia 6.4% People's Republic of China 4.9% India 4.7% Turkey 4.6% Thailand 3.7% Israel 3.1% Mexico 2.8% Indonesia 1.7% Malaysia 1.3% Poland 1.2% Hong Kong 1.0% Philippines 1.0% Other (individually less than 1%) 4.1%
Five Largest Holdings (As a percentage of equity holdings) 1. Petrobras Brasileiro (A.D.R.) 3.96% 2. Companhia Vale do Rio Doce (A.D.R.) 2.21 3. Hyundai Motor Co., Ltd. 2.17 4. Samsung Electronics 2.04 5. Anglo American Platinum Corp. 1.88
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 28.09 $ 20.48
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.1249 $ - $ -
-------------------------------------------------------------------------------- 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 Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Date Pioneer Emerging Markets VCT MSCI Emerging Portfolio Markets Index --------------------------------------------------- 10/1998 $10,000 $10,000 --------------------------------------------------- $10,490 $10,675 --------------------------------------------------- 12/1999 $18,750 $17,764 --------------------------------------------------- $12,337 $12,326 --------------------------------------------------- 12/2001 $11,450 $12,034 --------------------------------------------------- $11,312 $11,312 --------------------------------------------------- 12/2003 $17,893 $17,678 --------------------------------------------------- $21,292 $22,265 --------------------------------------------------- 12/2005 $29,374 $29,956 ---------------------------------------------------
The Morgan Stanley Capital International (MSCI) Emerging Markets Index measures the performance of emerging market stocks. 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- Life-of-Class 16.22% (10/30/98) 5 Years 18.95% 1 Year 37.95%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- In the following interview, Christopher Smart, the Portfolio Manager of Pioneer Emerging Market VCT Portfolio, discusses the factors that influenced performance during the 12 months ended December 31, 2005. Q. Emerging markets equities performed well during the reporting period. What factors underpinned this powerful upward move? A. The rally in emerging markets stocks during the past twelve months follows four years of outperformance for the asset class relative to the developed markets. In our view, three key factors have contributed to this outcome. First, economic growth in emerging markets has been much stronger than that of the developed markets. This has been the result of both rising value of commodities exports, as well as increasing domestic consumption by an emerging middle class. Second, valuations have been well below those of the developed market stocks, and remain so even after several years of outperformance. Third, the risk of investing in the emerging markets is much lower than it was even as recently as the late 1990s. Both corporations and countries have paid down their debts and rebuilt their balance sheets, putting the asset class on a much healthier footing to withstand external shocks. Taken together, those factors have led to significant outperformance for emerging markets stocks: for the five-year period ended December 31, the average annual return of the MSCI Emerging Markets Index was 19.44%, well ahead of the 4.55% annual return of the MSCI EAFE Index. Q. How did the Portfolio perform? A. For the 12 months ended December 31, 2005, the Portfolio's Class I shares had a total return of 37.95% at net asset value. We are pleased to report that the Portfolio outpaced the 34.54% return of the Morgan Stanley Capital International (MSCI) Emerging Markets Index during the period. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. What factors helped and hurt the Portfolio's performance? A. The most significant contributions came from the Portfolio's positions in South Korea, Brazil and South Africa. In South Korea, our stocks produced an aggregate return well ahead of the benchmark. Our positions in shipbuilding stocks such as Samsung Heavy Industries and Hyundai Heavy Industries delivered particularly strong returns, as the rising demand for new ships led to improved pricing power and a three-year order backlog for companies in the sector. South Korean stocks positioned to benefit from the recovery in the domestic economy, such as Kookmin Bank and Hyundai Motor, also did well. Like South Korea, Brazil has benefited from the release of pent-up consumer demand. With inflation low and interest rates beginning to decline, the demand for credit has expanded. The result has been improving bottom lines for the nation's banks, including the portfolio's holding in Banco Itau. Another strong performer was our position in Net Servicos, a cable television provider that is expanding into high speed internet and telephone services in Brazil's major cities. The South African economy also has been improving, due in part to the government's substantial outlays for infrastructure projects such as roads and ports. A key beneficiary of this trend was Aveng, a construction company that also has holdings in steel and cement. Another top contributor was Anglo Platinum, which benefited as the price of platinum surged to nearly US $1000 per ounce. There were few significant detractors during the past year. The Fund's underweight in Russian oil stocks was a slight negative for relative performance. Our belief was that Russian energy companies would earn less money than their global peers due to the government's taxation policies, but investors largely ignored this issue. An underweight in Mexico also had a small negative impact on relative performance. Q. What is your broad view regarding emerging markets equities? A. Despite nearly five years of outperformance by emerging markets stocks, we believe that the elements underpinning the recent gains remain in place: economic growth remains strong, valuations are attractive and debt levels remain low. As a higher-risk asset class, emerging markets naturally will be more vulnerable in the event of rapidly rising global interest rates or heightened risk aversion among investors. However, we believe that the combination of stronger balance sheets and better economic management will help guard against the dangers of global economic turbulence. 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. A Word About Risk: Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 5 Pioneer Europe VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
International Common Stocks 95.4% International Preferred Stocks 2.6% U.S. Common Stocks 2.0%
Geographical Distribution (As a percentage of equity holdings) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
United Kingdom 26.4% France 25.1% Germany 14.5% Switzerland 13.9% Netherlands 6.1% Ireland 5.4% Spain 3.5% Italy 3.1% Panama 2.0%
Five Largest Holdings (As a percentage of equity holdings) 1. Royal Bank of Scotland Group Plc 5.14% 2. BP Amoco Plc 4.94 3. BNP Paribas SA 4.47 4. TNT Post Group N.V. 4.34 5. CS Group 4.23
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 11.42 $ 10.64
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.0703 $ - $ -
-------------------------------------------------------------------------------- Performance of a $10,000 Investment 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. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer MSCI Europe VCT Europe Date Portfolio Index --------------------------------------------------- 10/1998 $10,000 $10,000 --------------------------------------------------- $10,600 $10,998 --------------------------------------------------- 12/1999 $13,618 $12,783 --------------------------------------------------- $11,104 $11,742 --------------------------------------------------- 12/2001 $8,587 $9,436 --------------------------------------------------- $6,955 $7,729 --------------------------------------------------- 12/2003 $9,269 $10,754 --------------------------------------------------- $10,982 $13,054 --------------------------------------------------- 12/2005 $11,866 $14,351 ---------------------------------------------------
The Morgan Stanley Capital International (MSCI) Europe Index measures the performance of stocks in European developed markets. 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- Life-of-Class 2.42% (10/30/98) 5 Years 1.34% 1 Year 8.05%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 6 Pioneer Europe VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- European stocks posted strong positive returns in 2005, supported by solid company earnings growth and an improving economic backdrop. In the discussion below, Andrew Arbuthnott, who is responsible for the day-to-day management of Pioneer Europe VCT Portfolio, discusses the factors that influenced the Portfolio's performance over the year. Q. How did the Portfolio perform? A. For the 12 months ended December 31, 2005, Class I shares returned 8.05% at net asset value. In comparison, our benchmark, the Morgan Stanley Capital International (MSCI) Europe Index, posted a return of 9.42%. Returns for the Portfolio and the Index reflect the negative impact for U.S. investors with holdings denominated in euros due to the euro's decline over the year versus the dollar. Nevertheless, European equity returns were strong both in absolute terms and relative to U.S. domestic equity indices. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. What factors influenced the Portfolio's relative performance? A. The Portfolio's underperformance relative to the benchmark was largely the result of our exposure to the telecommunications and automobile sectors. We were overweight in the telecommunications sector, which underperformed in 2005. France Telecom was the key detractor as the market worried about the impact of new technologies such as internet telephone calls (VOIP) on its revenue growth potential. In autos, the market reacted negatively to Porsche's decision to purchase a 20% stake in Volkswagen, although in our opinion the investment should not undermine the underlying profitability of Porsche. Disappointing results from Peugeot also held back overall returns, while Michelin underperformed amid sluggish sales of truck tires. Q. Which positions were positive contributors to the Portfolio's performance? A. Our overweight position in diversified financials was the leading positive contributor for the Portfolio in 2005. The sector saw strong relative performance driven by generally supportive operating conditions, and our stock selection within the sector outperformed as well. In particular, holdings in Credit Suisse, Deutsche Bank and UBS rose on very solid quarterly results throughout the year. We were also overweight in capital goods, which outperformed the broader market in 2005, but our stock selection was particularly robust within the sector. Siemens outperformed as it continued to restructure under the guidance of its new CEO, moving to concentrate on its more profitable industrial business and away from communication equipment and IT services. ACS (a Spanish construction company) strengthened on good financial results and robust order levels, while Schneider Electric performed well on optimism for increased returns to shareholders. Finally, we were overweighted in pharmaceuticals throughout the year. Our positions in AstraZeneca and Roche outperformed, and we continue to view both as attractive on the basis of strong new drug pipelines. Q. Would you discuss the Portfolio's overall approach? A. Mid-way through the year, the Portfolio moved to a concentrated equity approach. As a result, the Portfolio now holds around 30 stocks, comprising our strongest investment ideas. We believe this shift will help maximize the benefits of our bottom-up stock selection process - while at the same time continuing to allow us to construct a diversified, multi-cap portfolio. Despite the Portfolio's higher degree of concentration under its new investment approach, our goal is for its overall level of volatility to remain broadly comparable to that of its benchmark. This is due to our consistent application of a rigorous investment process, through which we aim to achieve a deep understanding of our holdings. The goal is to find those securities with upside potential that we believe have the possibility to also offer limited downside risk. Q. What is your outlook? A. Our outlook is positive for the European equity markets in 2006. Thanks to strong earnings growth, valuations remain attractive versus fixed income, and European equities continue to offer solid dividend yields. From a global perspective, the macroeconomic environment remains favourable to the equity markets, with positive growth expected to continue. Following years of successful cost cutting and restructuring, corporate earnings growth is likely to slow in 2006; however, we feel that valuations have taken this into account. Equity markets may also continue to benefit from share buy-backs and merger and acquisition activity. While we are positive on the market, we would be surprised if equity returns in 2006 were as high as those in 2005. In terms of our currency outlook, the euro may gain against the dollar during 2006, if the focus of investors moves back to the large U.S. trade and current account deficits. 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. A Word About Risk: Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. The Portfolio may invest a substantial amount of its assets in issuers located in a limited number of countries and therefore is susceptible to adverse economic, political or regulatory developments affecting those countries. The Portfolio invests in a limited number of securities and, as a result, the Portfolio's performance may be more volatile than the performance of other portfolios holding more securities. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 7 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
International Common Stocks 87.3% Depositary Receipts for International Stocks 6.0% U.S. Common Stocks 4.8% Temporary Cash Investment 1.3% International Preferred Stocks 0.6%
Geographical Distribution (As a percentage of equity holdings) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Japan 28.0% United Kingdom 14.8% France 10.8% Switerland 9.5% Germany 5.8% South Korea 4.7% Brazil 3.3% Spain 3.0% Netherlands 3.0% United States 2.1% Sweden 1.9% Russia 1.8% Australia 1.5% People's Republic of China 1.4% Ireland 1.0% Singapore 1.0% Other (individually less than 1%) 6.4%
Five Largest Holdings (As a percentage of equity holdings) 1. Total SA 2.45% 2. Roche Holdings AG 1.97 3. CS Group 1.86 4. Repsol SA 1.67 5. Sumitomo Mitsui Financial Group, Inc. 1.67
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 13.71 $ 11.88
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.0178 $ - $ -
-------------------------------------------------------------------------------- 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 (ex. U.S.) Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer International Value VCT MSCI AC Wld Date Portfolio (ex. U.S)Index ------------------------------------------------- 12/1995 $10,000 $10,000 ------------------------------------------------- $10,854 $10,668 ------------------------------------------------- 12/1997 $11,383 $10,886 ------------------------------------------------- $11,004 $12,459 ------------------------------------------------- 12/1999 $15,888 $16,310 ------------------------------------------------- $12,313 $13,850 ------------------------------------------------- 12/2001 $9,389 $11,150 ------------------------------------------------- $8,139 $9,514 ------------------------------------------------- 12/2003 $10,586 $13,454 ------------------------------------------------- $12,567 $16,327 ------------------------------------------------- 12/2005 $14,526 $19,121 ------------------------------------------------
The Morgan Stanley Capital International (MSCI) All Country World (ex. U.S.) Index measures the performance of developed and emerging market stock markets. 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- 10 Years 3.80% 5 Years 3.36% 1 Year 15.58%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 8 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- International markets rallied considerably in the second half of Pioneer International Value VCT Portfolio's fiscal year. Investments in emerging markets and Japan were particularly rewarding, contributing strongly to its double-digit returns for the 12-months ended December 31, 2005. In the following interview, lead portfolio manager Christopher Smart discusses the factors that influenced this performance. Q. How did the Portfolio perform for fiscal year? A. For the 12 months ended December 31, 2005, Class I shares rose 15.58% at net asset value. The Portfolio lagged the 16.53% return of the Morgan Stanley Capital International (MSCI) All Country World (ex. U.S.) Index excluding the United States. We attribute the underperformance to a handful of stocks in Europe and Japan. Perhaps the biggest disappointment was Vodafone, a sizable holding in the portfolio, which fell sharply in response to the company's announcement of lower-than-expected profitability over the next several years due to increased competition. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. Emerging markets stocks rose sharply during the Portfolio's fiscal year. What contributed to those dramatic returns? A. In our view, three main factors contributed to the outcome. First, economic growth in emerging markets has been much stronger than that of the developed markets, with countries such as Russia, China and Turkey expanding between 5% and 10% per year. Second, valuations have been much lower than those of the developed market stocks, and they remain so even after several years of outperformance. Third, the risk of investing in emerging markets is much lower than it was even as recently as the late 1990s. Both corporations and countries have paid down their debts and rebuilt their balance sheets, putting the asset class on a much healthier footing to withstand external shocks. Q. Could you mention some of the holdings that capture this growth potential in emerging markets? A. Certainly. With inflation low and interest rates beginning to decline in Brazil, pent-up consumer spending is increasing the demand for credit. The Portfolio's investments in Unibanco, the country's largest retail bank, were very rewarding. In South Korea, the Portfolio's holdings that are positioned to benefit from the recovery in the domestic economy also did well. In recent years, high levels of consumer debt contributed to slower growth and reduced earnings for companies in the financial and retail sectors. With the problem now largely resolved, bank stocks - such as Fund holding Kookmin Bank - have recovered nicely. Q. Why did investments in Japan contribute so favorably to performance? A. Effective stock selection and a resurging stock market contributed to strong returns from Japanese stocks. An improving economy is raising consumer confidence and giving companies an incentive to build new factories and infrastructure. In addition, the recent reelection of Prime Minister Koizumi brought more of his reformist allies into the legislature, which should help expedite his privatization efforts. Two of the Fund's investments - the department store chain Takashimaya and commercial and residential builder Shimizu - made strong gains. Q. How did investments in the more mature markets of Europe fare? A. Investment returns from stocks across Europe were less dramatic than those outside the region, but still contributed positively to performance overall. Economic growth across Europe is modest, but business confidence is strong and valuations are attractive on a stock-by-stock basis. Stat Oil (Norway) and Repsol (Spain) are profiting from higher oil prices, but also represent good value relative to the rest of their competitors. In the pharmaceutical sector, Roche Holdings (Switzerland), which produces the flu vaccine Tamiflu, and AstraZeneca (United Kingdom) appreciated considerably. Q. What holdings detracted from performance? A. Royal Bank of Scotland Group, like many of the portfolio's U.K. bank stocks, underperformed as a result of rising interest rates and slower loan growth. Television broadcaster Mediaset suffered in response to Italy's slowing economy and the shrinking demand for advertising. Finally, computer integration consulting services provider OBIC (Japan) struggled - as did the software services sector in general. Q. What is your outlook for international equities in 2006? A. We remain positive in our outlook for international equity markets. We are watching for inflationary signs that could cause interest rates to rise quickly, but so far we see none. Rising oil prices are a concern, but we think that the declining costs of exports and technology coming from Asia and other developing countries have offset these pressures to a large extent. Given our expectations for a moderate pace of global growth in 2006, we will continue to focus on high-quality markets and stocks that offer attractive valuations and good prospects for appreciation. 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. A Word About Risk: Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. The Portfolio may invest a substantial amount of its assets in issuers located in a limited number of countries and therefore is susceptible to adverse economic, political or regulatory developments affecting those countries. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 9 Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 77.6% Temporary Cash Investments 15.5% International Common Stocks 2.5% Depositary Receipts for International Stocks 2.5% Exchange Traded Fund 1.9%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Sector Distribution (As a percentage of equity holdings)
Financials 28.7% Industrials 18.6% Information Technology 16.3% Energy 13.9% Health Care 6.6% Consumer Discretionary 6.3% Consumer Staples 3.3% Materials 3.3% Utilities 2.0% Telecommunication Services 1.0%
Five Largest Holdings (As a percentage of equity holdings) 1. Southwestern Energy Co. 2.47% 2. Avid Technology, Inc. 1.90 3. Insight Enterprises, Inc. 1.81 4. Sterling Bancshares, Inc. 1.61 5. On Assignment, Inc. 1.45
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 16.19 $ 15.02
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ - $ - $ 0.4861
-------------------------------------------------------------------------------- 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. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Date Pioneer Russell Small Cap 2000 Value VCT Value Portfolio Index 11/01 10000 10000 --------------------------------------- 10574 10612 --------------------------------------- 8979 9400 --------------------------------------- 12/03 12160 13726 --------------------------------------- 14611 16780 --------------------------------------- 12/05 16275 17570 ---------------------------------------
The Russell 2000 Value Index measures the performance of U.S. small-cap value stocks. 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- Life-of-Class 13.22% (11/8/01) 1 Year 11.39%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 10 Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- Continued adherence to established disciplines enabled Pioneer Small Cap Value VCT Portfolio to outperform its benchmark index over this period. In the following discussion, portfolio manager David Adams and assistant portfolio manager John McPherson review the economic background and describe some of the decisions that aided performance. Q. How did the Portfolio perform over this period? A. For the twelve months ended December 31, 2005, Class I shares of the Portfolio returned 11.39% at net asset value. The results comfortably outdistanced the 4.71% return on the Russell 2000 Value Index, the benchmark over the same period. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. Please describe the investment background over the past year and how it affected small-cap stocks. A. It was a year in which small-caps outpaced large, value and growth were essentially in line, and stocks of better-quality companies trumped lower-quality issues. Rising energy prices and shifting views on the economy, the dollar, and interest rates kept equity markets in a narrow range. Solid earnings growth gave smaller-company stocks renewed impetus after large caps briefly outperformed early in the year. The Portfolio's positive results validated our longstanding investment thesis that, despite higher interest rates and record energy prices, the healthy economy would enable well-managed small companies to boost operating results. Q. Which of your investment decisions had the most favorable impact on results? A. Our bottom-up stock selection process led us to overweight energy stocks for some time. The resulting overweight stance compared with the benchmark was an important contributor to the period's strong results, as prices for oil and natural gas reached record levels. We were also overweight and outperformed the benchmark in health care. Successful stock selection allowed the Portfolio to better the index's results among financial issues despite our underweight position. Results were also favorable in the information technology sector, where the Portfolio's exposure was about equal to the benchmark's. Southwestern Energy, an independent oil and gas producer operating in Arkansas and Oklahoma, was one of the period's top performers, thanks to continued strong financial performance and the possibility that a new gas field may yield massive reserves. We have been taking profits in this long-term holding, bearing out our patient approach. In energy services, TODCO, which operates drilling rigs in the Gulf of Mexico, benefited when competitors sought better conditions elsewhere. That shrank the number of available rigs just prior to a surge in demand for natural gas that allowed TODCO to hike its billing rates. Similarly, the demand for Gulfmark Offshore's supply boats rose as worldwide energy demand stimulated North Sea drilling activity. In health care, shares of Kendle International rose due to healthy demand for laboratory services tied to the search for new drug compounds. We took partial profits in shares of NASDAQ Stock Market, the period's biggest financial sector gainer. NASDAQ has successfully leveraged its core trading business by offering a series of new products and services to its customers as the investment business continues to become more electronically based. Apollo Investment, which provides financing for mid-sized businesses, recorded a gain thanks to its solid underwriting capabilities, savvy management and strong network of funding sources. And our patience was rewarded when municipal bond insurer Assured Guaranty saw its credit rating strengthen, providing better entree to business opportunities. In technology, SPSS, makers of analytical software for researchers, enjoyed an uptick in results thanks to better planning and new initiatives. Video specialist Avid Technology continued to ride the move from film-based, analog editing to digital formats in TV newsrooms and elsewhere. Avid is also poised to benefit as high-definition broadcasts become the television norm. A Word About Risk: Investments in small companies may offer the potential for higher returns, but are also subject to greater short-term price fluctuations than larger, more established companies. The Portfolio invests in REIT securities, the value of which can fall for a variety of reasons, such as declines in rental income, fluctuating interest rates, poor property management, environmental liabilities, uninsured damage, increased competition, or changes in real estate tax laws. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 11 Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 (continued) -------------------------------------------------------------------------------- Q. Which of your choices held back results? A. AMERIGROUP, a Medicaid HMO and for some time a successful holding, shocked the investment community by revisiting earlier financial results, citing unexpectedly high costs for patient care. Specialty insurer Quanta Capital Holdings, a recent entrant to the business, suffered a terrible sequence of hurricane losses over the past two years. New management and revised business practices encouraged us to add to this holding when prices fell. Montreal-based Domtar suffered from the slowing demand that has plagued the paper industry. Strength in the Canadian dollar also reduced the exchange value of U.S. assets. Retailer Hancock Fabrics is trying to reinvigorate sales at its home decor and sewing outlets after a series of problems, including the lack of up-to-date inventory systems and damaged relationships with store managers. Shares fell further when the company eliminated its dividend. A new infrastructure and merchandising approach encourage us to maintain this small position. Q. What is your outlook for the economy and how have you positioned the Portfolio? A. We think that good stocks bought at prices that appear reasonable should do well in the moderate-growth environment that we foresee. Compelling ideas continue to emerge in the technology arena, where we have increased the Portfolio's exposure. We are also adding some financial stocks while scaling back others. On the other hand, we are not finding good value among consumer-discretionary issues, a sector that could feel pressure if households reduce spending in the face of big energy bills and rising interest rates. Persistent demand and high prices make us comfortable with our current large exposure to energy stocks; we would view any sharp decline in this sector as an opportunity. Finally, we will continue to employ our proven discipline in an effort to ferret out superior opportunities, and take profits as valuations approach our targets. 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. 12 Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 85.0% Temporary Cash Investment 10.0% Depositary Receipts for International Stocks 2.6% International Common Stocks 1.6% Exchange Traded Fund 0.8%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution (As a percentage of equity holdings) Industrials 19.5% Financials 18.9% Health Care 15.4% Information Technology 14.3% Consumer Discretionary 10.4% Energy 9.2% Materials 5.6% Consumer Staples 3.0% Utilities 2.9% Telecommunication Services 0.8%
Five Largest Holdings (As a percentage of equity holdings) 1. Swift Transportation Co., Inc. 1.47% 2. Cerner Corp. 1.45 3. Stage Stores, Inc. 1.39 4. Skechers U.S.A. 1.32 5. Cubist Pharmaceuticals, Inc. 1.26
The Portfolio is actively managed, and current holdings may be different. ------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 ------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 11.85 $ 12.97
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ - $ - $ 1.2777
-------------------------------------------------------------------------------- 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. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
--------------------------------------- Pioneer Small Company Russell VCT 2000 Date Portfolio Index --------------------------------------- 1/2001 $10,000 $10,000 --------------------------------------- $10,498 $9,741 --------------------------------------- $8,739 $7,746 --------------------------------------- 12/2003 $10,951 $11,406 --------------------------------------- $12,415 $13,497 --------------------------------------- 12/2005 $12,636 $14,112 ---------------------------------------
Index comparison begins 1/31/01. The Russell 2000 Index measures U.S. small-cap stocks. 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, 2005)
------------------------------------------------------------------------------- Net Asset Value ------------------------------------------------------------------------------- Life-of-Class 5.78% (1/19/01) 1 Year 1.78%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 13 Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 ------------------------------------------------------------------------------- Co-managers Diego Franzin and Michael Rega describe conditions in the small-company universe for 2005, and the stocks that affected the Portfolio's performance. Q. How did Pioneer Small Company VCT Portfolio perform over this period? A. For the twelve months ended December 31, 2005, Class I shares of the Portfolio returned 1.78% at net asset value. The result trailed the Portfolio's benchmark, the Russell 2000 Index, which returned 4.55% over the same period. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. Please describe the background for small-company stocks over this period. A. Whether - or when - escalating energy prices and higher interest rates might cause consumers to retrench was a major investor preoccupation in 2005. A fall-off in consumer spending, which represents the bulk of U.S. economic activity, could signal trouble for the ongoing economic expansion. In fact, a slide in energy prices following post-hurricane peaks boosted consumer confidence and spending levels stayed healthy. Through the year, value and growth stocks vied for small-cap leadership, with value holding an edge at year's end. Q. Which stocks or sectors affected Portfolio performance? A. Energy was the year's top sector. High prices for oil and gas stimulated drilling activity, boosting earnings for NSS Services, which manufactures seamless piping used in oil wells. Forest Oil, a North American oil and gas exploration company, also rose. In health care, strength in Cubist Pharmaceuticals reflected rising sales of Cubicin, a drug whose effectiveness is making it the treatment of choice for hospital-based staph infections. Sales of Cerner's software, which lets medical professionals view x-rays and lab results on their computers, also grew. Hospitals are increasingly adopting systems that provide current patient data at the point of care. We took losses in generic drug maker Able Laboratories when failure to follow standardized lab procedures led to inventory recalls and cessation of manufacturing. We are still holding Seralogicals despite slowing sales of its culture media and other laboratory products at a time of payroll expansion. Among consumer discretionary issues, Guess?, makers of jeans and other casual wear for children, teens and adults, benefited from skilled management and successful execution of its business plan. But teen retailer Aeropostale stumbled. Poor product choices led to markdowns that ate into profit margins, and a new store concept failed to gain traction. We also took losses in Rewards Network when discount dining programs saw shrinking membership and investors lost confidence. Elsewhere, we took profits in Administaff, whose human resources services found growing acceptance among smaller companies lacking staff to deal with regulatory requirements. Boston Communications Group, one of our holdings in the telecommunications services sector, provides a product that allows consumers to purchase pre-paid wireless service. The company learned in May that the technology used to provide the service was in violation of a patent held by a competitor. This news led to a decline in the company's stock price. We sold the stock after the announcement, and in hindsight this was the right move as the stock price continued to fall further. Connetics, a specialty pharmaceutical company declined after receiving a Non-Approvable letter from the FDA for one of its products in development. We think the market over-reacted to this news, and we believe that the company's past history of developing well received products, as well as their aggressive sales force provide what we see as a solid foundation for growth. Q. What is your outlook for the months ahead? A. We think high energy prices will persist and that the Federal Reserve Board will hike rates a bit more. With little clear consensus on the economy's direction, however, stock selections may be more important than sector weightings in the period ahead. Our goal is to maintain a well-diversified portfolio that limits exposure to any one security, basing our selections on a combination of quantitative and fundamental analysis. Using that process, we believe prospects for many health care companies are better than current valuations might imply. In the volatile technology sector, we favor companies whose products can bolster business efficiency. An eventual end to rate hikes could revitalize housing stocks for a time, but we cut exposure to that sector in 2005 and remain wary of it for now. 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. A Word About Risk: Investments in small companies may offer the potential for higher returns, but are also subject to greater short-term price fluctuations than larger, more established companies. The Portfolio invests in REIT securities, the value of which can fall for a variety of reasons, such as declines in rental income, fluctuating interest rates, poor property management, environmental liabilities, uninsured damage, increased competition, or changes in real estate tax laws. Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 14 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 97.3% Temporary Cash Investment 1.9% Depositary Receipts for International Stocks 0.8%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution (As a percentage of equity holdings) Financials 23.7% Consumer Discretionary 13.2% Information Technology 10.3% Health Care 10.2% Industrials 9.9% Materials 8.8% Consumer Staples 8.1% Utilities 7.8% Energy 6.7% Telecommunication Services 1.3%
Five Largest Holdings (As a percentage of equity holdings) 1. Foot Locker, Inc. 2.16% 2. Symbol Technologies, Inc. 2.14 3. Federated Investors, Inc. 2.06 4. W.W. Grainger, Inc. 2.03 5. Republic Services, Inc. 2.00
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 25.00 $ 24.67
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.0771 $ 0.1221 $ 1.3647
-------------------------------------------------------------------------------- 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. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Date Pioneer Mid Cap Value VCT Russell MidCap Portfolio Value Index -------------------------------------- 12/1995 $10,000 $10,000 -------------------------------------- $11,503 $12,026 -------------------------------------- 12/1997 $14,343 $16,159 -------------------------------------- $13,776 $16,981 -------------------------------------- 12/1999 $15,574 $16,962 -------------------------------------- $18,378 $20,215 -------------------------------------- 12/2001 $19,570 $20,685 -------------------------------------- $17,376 $18,690 -------------------------------------- 12/2003 $23,888 $25,805 -------------------------------------- $29,172 $31,922 -------------------------------------- 12/2005 $31,472 $35,960 --------------------------------------
The Russell Midcap Value Index measures the performance of U.S. mid-cap value stocks. 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- 10 Years 12.15% 5 Years 11.36% 1 Year 7.88%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 15 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- The equity markets exhibited considerable volatility during 2005. Stock valuations moved up and down without any clear direction for most of the period before finishing strongly in the final two months of the year on evidence that the economic recovery was persisting and that corporate profits were continuing to improve. In the following discussion, Rod Wright, the leader of the team that manages Pioneer Mid Cap Value VCT Portfolio, provides an update on the Portfolio and his investment strategies during 2005. Q. How did the Portfolio perform? A. Class I shares of Pioneer Mid Cap Value VCT Portfolio had a total return of 7.88% at net asset value during the 12 months ended December 31, 2005. During the same period, the Standard & Poor's 500 Index returned 4.91%, while the Russell Midcap Value Index returned 12.65%. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. What were the principal factors that affected Portfolio performance? A. The Portfolio's relative performance improved substantially in the final two months of 2005 as many of the individual stocks that we had favored during the year finally started to produce good results. Our strategy is to manage the Portfolio by emphasizing individual security selection rather than sector weightings based on macro-economic forecasts. We emphasize better-quality companies with reasonable prices that have potential catalysts for improved results and better-than-average long-term business prospects. Our tactical objective is to outperform the overall market, as reflected by the S&P 500, while seeking superior-long-term results. Overall, our stock selection was good in most sectors during 2005, with our holdings in the information technology, industrials, financials and consumer staples sectors performing particularly well. However, our selection in the consumer discretionary sector was far less successful, and we also lagged in the energy, basic materials and health care sectors. Q. What were some of the investments that helped support Portfolio performance? A. During a year in which corporate merger-and-acquisition activity picked up, three holdings that received attractive acquisition proposals were major contributors: IVAX, a generic pharmaceutical company which is in the process of being taken over by Teva, another generic manufacturer, at a premium to its stock valuation; SunGard Data Systems, which provides software and information technology systems to large enterprises, and was acquired by a group of private equity investors; and Scientific-Atlanta, producer of television set-top systems for cable television users, which is being acquired by Cisco Systems. Within the energy sector, investments that helped significantly included: Devon, an exploration and production company; Transocean, a deep-water drilling corporation; and Occidental Petroleum, an integrated refining, marketing and distribution company. Among other stocks that had a positive influence on returns were Imation, which produces tapes for communications networks, and Triad Hospitals, which operates hospitals and surgery centers in 15 states; and Xerox, the office equipment company. Q. What were some of the investments that detracted from results? A. Our holdings in the consumer discretionary sector had the greatest detrimental impact on results. The sector in general was affected by both higher energy costs, which squeezed the budgets of some consumers, and by investor concerns that high personal debt loads would lead to a downturn in consumer spending patterns. However, our biggest disappointments also were affected by their own issues. The share price of Interpublic Group, which operates a large group of advertising and marketing agencies, plummeted in the midst of an SEC investigation of its accounting practices and the resignations of the company's chief executive and chief financial officers. Another consumer-related holding that disappointed was Blockbuster. Its movie rental business received a stiff challenge from on-line competitors at the same time that revenues from its core business slowed because of a weak schedule of new films and a change in policy to eliminate late fees. A third disappointment was Foot Locker, the chain of athletic footwear stores. It had disappointing earnings because of intense price competition in the United Kingdom and France. Outside the consumer area, a noteworthy disappointment was Tenet Health Care, a hospital chain whose holdings included several hospitals in Louisiana that were heavily damaged by Hurricane Katrina. Besides reacting to the physical damage to the hospitals and the loss of revenues, investors worried about the impact of investigations into how hospitals treated patients in the days after the onslaught of the hurricane. In addition, the market was disappointed by the chief financial officer's decision to leave for an attractive position at the company where he worked prior to Tenet. A Word About Risk: Investments in mid-sized companies may offer the potential for higher returns, but are also subject to greater short-term price fluctuations than larger, more established companies. Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 16 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Q. What is your investment outlook? A. As we enter the new year, investors continue to be concerned about the two overriding issues that held back stock market returns in 2005: rising short-term interest rates and higher energy prices. However, several factors are positive - including persistent growth in corporate earnings helped by a backdrop of rising Gross Domestic Product (GDP), and low inflation. We are watching for evidence that consumer spending may slacken. Given these issues, we have adopted a conservative approach in investing, judging investment opportunities on a stock-by-stock basis and particularly trying to avoid those companies that are vulnerable to the effects of higher interest rates. We believe the Portfolio is well positioned for the investment environment with positions in quality companies selling at reasonable 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. 17 Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 94.8% Depositary Receipts for International Stocks 5.2%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution (As a percentage of equity holdings) Information Technology 29.5% Health Care 23.7% Consumer Discretionary 13.1% Consumer Staples 12.4% Industrials 11.8% Financials 5.7% Energy 1.5% Telecommunication Services 1.2% Materials 1.1%
Five Largest Holdings (As a percentage of equity holdings) 1. Microsoft Corp. 5.96% 2. Cisco Systems, Inc. 4.20 3. Intel Corp. 4.14 4. Dell, Inc. 3.90 5. Amgen, Inc. 3.71
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 13.39 $ 13.04
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.0994 $ - $ -
-------------------------------------------------------------------------------- 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. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
---------------------------------------- Pioneer Growth Shares VCT Russell 1000 Date Portfolio Growth Index ---------------------------------------- 10/1997 $10,000 $10,000 ---------------------------------------- $10,227 $10,542 ---------------------------------------- $13,561 $14,622 ---------------------------------------- 12/1999 $14,637 $19,470 ---------------------------------------- $13,484 $15,104 ---------------------------------------- 12/2001 $10,962 $12,019 ---------------------------------------- $7,157 $8,668 ---------------------------------------- 12/2003 $8,971 $11,247 ---------------------------------------- $9,573 $11,955 ---------------------------------------- 12/2005 $9,906 $12,584 ----------------------------------------
The Russell 1000 Growth Index measures the performance of large-cap U.S. growth stocks. 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- Life-of-Class -0.12% (10/31/97) 5 Years -5.98% 1 Year 3.48%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 18 Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- The nation's economy and corporate profits both grew steadily throughout 2005, which normally would have provided a favorable backdrop for equity investments. The economy proved resilient in the face of a number of issues, including hurricane damage in the Gulf Coast, sharply rising energy costs and the continued efforts of the Federal Reserve Board to raise short-term interest rates. The Fed raised the fed funds rate eight different times during the calendar year. These issues weighed on the minds of many investors, while stocks on average appreciated only modestly. In the following interview, Christopher M. Galizio and Stephen A. Balter, co-managers of Pioneer Growth Shares VCT Portfolio, discuss the markets and the factors that affected performance. Q. How did the Portfolio perform? A. Pioneer Growth Shares VCT Portfolio (Class I shares) had a total return of 3.48% at net asset value during the 12 months ended December 31, 2005. During the same period, the Russell 1000 Growth Index returned 5.26%. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. What were the principal factors that affected Portfolio performance? A. In 2005, we were well into the economic recovery in the United States, and we positioned the Fund with an emphasis on growth companies in sectors such as health care and information technology. For much of the year, we had less emphasis on the more cyclical sectors, such as energy, industrials and basic materials, although we did have a strong position in basic materials early in the year. While the Portfolio achieved positive results, it trailed its benchmark, primarily because of stock selection rather than sector positioning. However, the de-emphasis of energy stocks also detracted from results during a period in which the energy sector was by far the strongest performing part of the market. The major story in the stock market during 2005 was the effect of the dramatic increases in commodity prices, which helped lift valuations in the energy and basic materials sectors, both of which tend to be populated predominately with value stocks. This was a major factor in the performance advantage that value stocks enjoyed over growth stocks for most of the year. We believe, however, that the strong price appreciation of value stocks in recent years has resulted in a situation in which growth companies now offer superior relative value in relation to their long-term prospects. Q. What were some of the individual investments that helped performance? A. Our stock selection was good in the consumer area, both in the consumer discretionary and consumer staples sectors. Among our staples holdings, Altria Group was a stand-out performance. Shares of Altria, the parent company of Philip Morris, rose on continued consistent earnings and several court victories that appeared to reduce its exposure to tobacco liability lawsuits. Femsa, the Mexican-based soft drink bottler that also owns the Dos Equis beer brand, was another staples holding that performed very well. Its share price has risen by 70% since our initial investment in 2004. Within our consumer discretionary holdings, stocks that did particularly well included athletic footwear company Reebok and retailers Lowe's and Best Buy. Reebok was acquired by Addidas at a substantial premium to its stock price. Home improvements store Lowe's showed strong earnings growth throughout the year, while electronics retailer Best Buy benefited from a restructuring that placed more emphasis on expert service both before and after the sale. We have taken profits and sold our positions in both Lowe's and Reebok. Our strategy in health care also helped. We avoided the largest pharmaceutical companies, focusing on smaller companies, including some mid-cap firms - with greater growth prospects. Two of our more successful positions were generic pharmaceutical companies. IVAX, which had a strong new product pipeline, received an attractive acquisition offer from a larger competitor, Teva. Endo Pharmaceuticals, which specializes in pain medications and therapies, obtained the rights to a generic version of Oxycontin and also has developed a new patch to treat chronic pain. In information technology, two investments that supported performance were Qualcomm and Texas Instruments, both of which are positioned to benefit from advances in wireless communications. A new generation of wireless phones is to be based on Qualcomm's latest CDMA technology, for which the company has licensing rights, while Texas Instruments stands to benefit from its increasing focus on producing more specialized - and more profitable - semiconductors. A Word About Risk: Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. The Portfolio invests in REIT securities, the value of which can fall for a variety of reasons, such as declines in rental income, fluctuating interest rates, poor property management, environmental liabilities, uninsured damage, increased competition, or changes in real estate tax laws. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 19 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Shares VCT Portfolio -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 (continued) -------------------------------------------------------------------------------- Q. What were some of the investments that held back results? A. Avaya, a producer of telecommunications equipment for large enterprises, was a major disappointment, although its stock price did recover somewhat in the second half of the year. It was caught in the gap between the decline of an old technology and the acceptance of a new technology. While sales of its traditional phone systems slowed, revenues from its new system, based on voice-over-Internet technology, were slower than had been anticipated. However, we have retained our position because of what we believe is the strong potential of the new Avaya system. Two other disappointments in the information technology sector were Symantec and Dell. Symantec, a leader in supplying security and anti-virus software for computer systems, reported disappointing earnings in the face of more intense price competition, including for systems providing security for wide networks. Dell's competitive price advantage over other personal computer manufacturers shrank somewhat during the year, and revenue growth was slower than had been anticipated. We continue to think both Symantec and Dell offer interesting opportunities. We have retained our investment in Symantec and have added to our position in Dell because of its attractive stock price. Among our consumer holdings, one disappointment was Avon Products. Sale of its beauty products in emerging markets, including China, grew more slowly than had been anticipated. However, the stock has been trading at a very low valuation, and we continue to hold the position. Q. What is your investment outlook? A. We think stocks have the potential to produce positive returns, close to long-term averages in 2006, but performance leadership should change in favor of the secular growth stocks that we have emphasized. We expect corporate earnings to continue to grow during the new year, although growth may be at a slower rate than in 2005. We think energy prices finally have begun to stabilize, although at relatively high levels. The impacts of higher energy costs will be felt in the economy, but probably not too dramatically. We already have started to see the effects of higher energy prices on lower-income consumers whose spending budgets have been squeezed. We continue to favor secular growth sectors, including information technology and health care. In information technology, we have positioned the Portfolio to benefit from new technologies, especially in communications technology. Longer-term demographic trends - including the aging of the baby boomer generation - should continue to offer opportunities in health care. The companies that should benefit will include those offering new products and devices and those that can benefit from cost-containment programs, including generic drug manufacturers. 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. 20 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 84.9% Temporary Cash Investment 15.1%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution (As a percentage of equity holdings) Office 19.6% Apartment 18.5% Industrial 14.6% Regional Mall 13.8% Shopping Center 12.7% Hotel 10.2% Self Storage 4.4% Diversified 4.2% Triple-Net Lease 1.2% Manufactured Homes 0.4% Health Care 0.4%
Five Largest Holdings (As a percentage of equity holdings) 1. Simon Property Group, Inc. 7.09% 2. ProLogis Trust 6.04 3. Boston Properties, Inc. 5.51 4. AvalonBay Communities, Inc. 4.99 5. Equity Residential Property Trust 4.26
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 26.13 $ 24.30
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.3941 $ 0.0513 $ 1.2587
-------------------------------------------------------------------------------- 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. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
------------------------------------------- Date Pioneer Wilshire Real Real Estate Estate Shares VCT Securities Portfolio Index ------------------------------------------- 12/1995 $10,000 $10,000 ------------------------------------------- $13,573 $13,687 ------------------------------------------- 12/1997 $16,446 $16,397 ------------------------------------------- $13,364 $13,540 ------------------------------------------- 12/1999 $12,806 $13,108 ------------------------------------------- $16,585 $17,137 ------------------------------------------- 12/2001 $17,879 $18,928 ------------------------------------------- $18,332 $19,417 ------------------------------------------- 12/2003 $24,702 $26,615 ------------------------------------------- $33,530 $35,879 ------------------------------------------- 12/2005 $38,605 $40,924 -------------------------------------------
The Wilshire Real Estate Securities 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- 10 Years 14.46% 5 Years 18.41% 1 Year 15.13%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 21 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- Real estate stocks produced strong returns for 2005 - outperforming the broader stock market for the sixth year in a row. While this achievement is gratifying, the real estate market also experienced above-average volatility and variability across the different property types comprising this asset class. As Matthew Troxell of AEW Capital Management, L.P. (the Portfolio's subadviser) explains in the following interview, maintaining competitive relative performance in 2006 will depend on astute stock picking. Q. How did Pioneer Real Estate Shares VCT Portfolio perform during fiscal 2005? A. Class I shares posted a total return of 15.13% at net asset value for the 12 months ended December 31, 2005. The performance surpassed the 14.06% return for the Wilshire Real Estate Securities Index. We attribute the outperformance to successful stock selection, particularly the Portfolio's investments in AvalonBay Communities in the apartment sector and Simon DeBartolo Group in the regional mall sector. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. What contributed to the increased volatility in the real estate sector? A. We think the volatility was due in large part to the mixed signals by investors. On one hand, we saw institutions and private investors willing to pay more for real estate investments - suggesting that they perceived the assets to be undervalued. On the other hand, public investors were not big buyers of the assets because they thought they were overvalued and too expensive. Despite the seesaw effect of the two opposing views, many investors believe that the fundamentals of these property types - with the possible exception of the office sector - are improving and the underlying assets are underpriced. Hence the 14% return for the benchmark. Q. Could you comment on the underlying fundamentals of the various property types that the Portfolio is invested in? A. Certainly. The regional mall real estate investment trusts (REITs) were a strong contributor to performance for the fiscal year given their relative outperformance and considerable weighting in the Portfolio. Healthy consumer spending supported strong operating results at the property level. The Portfolio holds mall REITs with high-quality tenants that represent some of the most recognized and financially solid retailers. The fundamentals are rapidly improving in the multi-family sector, which contributed favorably to your Portfolio's results. The impact of these holdings was magnified by the fact that the Portfolio holds a greater weighting in the sector than the benchmark. The apartment sector has remained resilient due to strong economic growth and the resulting improvement in employment. Should interest rates continue to rise, pinching potential homeowners out of buying condominiums, presumably more people would be willing to rent - boosting demand for apartments. Perhaps the most surprising performance came from the lodging sector, which we think experienced the best improvement in fundamentals of any property type during 2005. Hotels saw strong room rate growth and occupancy growth - two measures of profitability. However, despite the improved profitability at the corporate level, the lodging sector as a property type still lagged most sectors of the real estate market as well as the benchmark. We think that the lodging sector represents good investment value because prices do not reflect the rapidly improving fundamentals. We think that investor fears of low non-business demand and rising energy prices are overblown. We believe prospects for the lodging sector are promising in the foreseeable future. We limited the Portfolio's exposure to the office sector during the year because the fundamentals are improving more slowly than other property types. The lag is due to the inability of office REITs to reprice as a result of their longer lease terms, which typically run five to 10 years. While the longer lease terms can provide protection in a declining market, office REITs do not tend to respond as quickly to changing market conditions as other property types with shorter lease terms. Despite our decision to underweight this sector, the holdings in the office sector performed better than the benchmark's investments in the same sector. Q. After a multi-year rally, are you still optimistic about the performance of real estate stocks looking ahead? A. Yes. We remain cautiously upbeat in our outlook. We do not expect real estate stocks to repeat the dramatic returns of recent years, but we would not be surprised to see these investments earn competitive returns relative to the rest of the equity markets given their underlying fundamentals. Astute stock picking will be as important as ever, as we assess the growth prospects and price valuations of the holdings in your portfolio relative to the rest of the real estate market. 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. A Word About Risk: The Portfolio invests in REIT securities, the value of which can fall for a variety of reasons, such as declines in rental income, fluctuating interest rates, poor property management, environmental liabilities, uninsured damage, increased competition, or changes in real estate tax laws. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 22 PIONEER VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 94.1% Depositary Receipts for International Stocks 3.6% International Common Stocks 2.3%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution (As a percentage of equity holdings) Financials 17.6% Consumer Discretionary 15.3% Information Technology 13.2% Industrials 13.0% Health Care 11.5% Consumer Staples 10.2% Energy 7.0% Materials 7.0% Telecommunication Services 3.7% Utilities 1.5%
Five Largest Holdings (As a percentage of equity holdings) 1. Rio Tinto Plc 2.19% 2. ChevronTexaco Corp. 2.04 3. United Technologies Corp. 2.04 4. Norfolk Southern Corp. 2.00 5. Target Corp. 1.96
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 21.55 $ 20.57
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.2796 $ - $ -
-------------------------------------------------------------------------------- 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. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Date Fund VCT Portfolio S&P 500 --------------------------------------- 10/1997 $10,000 $10,000 --------------------------------------- $10,550 $10,642 --------------------------------------- $13,296 $13,686 --------------------------------------- 12/1999 $15,411 $16,564 --------------------------------------- $15,600 $15,057 --------------------------------------- 12/2001 $13,908 $13,268 --------------------------------------- $11,261 $10,337 --------------------------------------- 12/2003 $13,936 $13,300 --------------------------------------- $15,504 $14,747 --------------------------------------- 12/2005 $16,462 $15,470 ---------------------------------------
The Standard & Poor's 500 Stock Index (the S&P 500) is a commonly used measure of the broad U.S. stock 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- Life-of-Class 6.29% (10/31/97) 5 Years 1.08% 1 Year 6.17%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 23 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- In the following discussion, portfolio manager John Carey discusses the performance of Pioneer Fund VCT Portfolio, as well as the investment environment over the twelve-month period ended December 31, 2005. Q. Please describe the investment environment in 2005, particularly the second half, and the performance of Pioneer Fund VCT Portfolio. A. After a listless first half for the stock market, the second half of 2005 saw gains. For the year 2005 as a whole, the Standard & Poor's 500 Index, an unmanaged index of the general stock market, showed a total return of 4.91%. We were pleased that Class I shares of Pioneer Fund VCT Portfolio did better, with a total return for the year of 6.17% at net asset value. All of the increase took place in the final six months, indeed much of it in the last couple of months, of the year. For those six months ended December 31, Class I shares of Pioneer Fund VCT Portfolio increased by 6.90% at net asset value, versus an increase of 5.76% for the S&P 500. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. As we discussed in our June 30 letter, investors responded to the high prices for oil and natural gas early in the year by piling into everything related to energy, including utilities. We noted, though, that changes were occurring beneath the surface and that other sectors appeared to be emerging as better values. That came to pass particularly in the fourth quarter, when energy and utilities were the two worst performing sectors of the S&P 500, both showing declines versus an index rising overall. Being somewhat underweight in those two sectors was helpful to the Portfolio's performance in the fourth quarter, as was our being overweight in the still strongly performing materials sector. Otherwise our good stock selection in both health care and industrials contributed positively. For the second six months of 2005, our investments in those same three sectors, materials, health care, and industrials, also provided the positive difference in our performance. Especially big contributors among individual stocks over the six months were Rio Tinto and Phelps Dodge in materials, Barr Pharmaceuticals in health care, and Norfolk Southern and Burlington Northern Santa Fe in industrials. Our weakest second half performance was in consumer staples, where our holdings in Hershey and Sysco both declined. Within the energy sector, our de-emphasis of the energy equipment-and-services industry detracted, as that industry had superior returns to those of its sector. With regard again to the investing environment in general in the second half, there were shifts underway as investors diversified their portfolios. High growth situations seemed especially to attract investors, as exemplified by the stunning upward move in the share price of Google, a stock we have not owned, from what we thought were already quite elevated levels in terms of price to earnings and sales. However, the persistently high energy and other commodity prices, as well as projections for increased capital spending in capacity-constrained industries, continued to provide firm support for the so-called "old economy." So it has been something of a bifurcated market and one in which one treads with care. It does seem, though, that an underlying "theme" to investor behavior has been a powerful attraction to potential for above-average earnings growth, whether from high tech or low tech. We take that as our cue to maintain our focus on companies with compelling fundamentals regardless of industry or sector. Q. Did you make changes to the Portfolio in the second half? Please discuss. A. We saw a fair amount of merger-and-acquisition activity in our own portfolio, and we made our customary changes based on our views of relative valuations. Taken together, the trades in the second half resulted in the addition of fifteen positions and the deletion of fifteen. Sector by sector, starting with energy, we took profits on Schlumberger, thinking that the price reflected our estimate of earnings potential. In materials, we added Dow Chemical, which has impressed us with its improved operations, and realized gains on Phelps Dodge and Newmont Mining. Allegheny Technologies, a stainless-steel producer that has returned to significant profitability in the past year and a half, was a second new entry in materials. In industrials, Masco, manufacturer of plumbing supplies and other home-improvement products, 3M, world leader in adhesives, and Parker Hannifin, major supplier of fluid-control systems and components, were new. Consumer discretionary saw the addition of Yum Brands, former restaurant division of Pepsico and operator of Pizza Hut, Taco Bell, and Kentucky Fried Chicken, among other popular chains. Also new was Federated Department Stores, received in exchange for part of our former holding May Department Stores, which Federated acquired for cash and stock. Disappointment with earnings progress led to our sale of Family Dollar Stores. A Word About Risk: At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 24 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- We added three holdings to health care: C. R. Bard and St. Jude Medical, both leaders in medical devices, and Pfizer, which seemed to us to have declined to a price representing good value. We took profits in Guidant following its receipt of a premium acquisition offer from Johnson & Johnson, and we sold Mylan Laboratories, which no longer appeared to us to have a clear path to growth. Financials saw our addition of Compass Bancshares, based in Birmingham, Alabama, and Golden West Financial, headquartered in Oakland, California. Both banks have the combination of competitive return on assets and return on equity that we seek, as well as reasonable share prices. We took profits in our long-term holding Bank of New York, and we sold Montpelier Re Holdings, judging that weather-related losses had seriously impaired its reinsurance business. Finally, Ameriprise Financial, investment services, came into the portfolio as a spin-out from our holding American Express. Information technology witnessed the acquisition for cash of SunGard Data Systems. VERITAS Software was also acquired, it by another company we also owned, Symantec. Following the acquisition, discouraged by the prospects for the combined venture, we liquidated all of our shares of Symantec, including the new shares we had received for VERITAS. We also exited Diebold and Computer Sciences, long-term disappointments with respect to earnings growth. While selling those technology positions, we added Cisco Systems, dominant supplier of routers and switches for the internet. After years of "correction" in its share price, Cisco at last sold at a price-to-earnings ratio we regarded as justified. Growth prospects, while more moderate than in the past, still exceed those of many other companies. Lastly, in utilities, we sold, at a large percentage gain, our position in Aqua America, which we thought adequately priced, and purchased shares of PG&E (Pacific Gas and Electric), a recovering California utility with a growing dividend yield. Q. What is your outlook for 2006? A. Our outlook for 2006 is cautious. We think that the moderate expectations for economic growth can be met, and we also look for higher earnings and dividends. The broad consensus estimate of roughly 3.5% real GDP growth looks reasonable to us, and we likewise think that 6-8% earnings growth for the S&P 500 is doable. However, we are starting to see powerful headwinds in the form of higher short-term interest rates, stubbornly high oil and natural gas prices, and a slowing housing market. We also watch international events out of the corner of our eye, and we remember that there are U.S. congressional elections this fall. Finally, as was certainly impressed on us in 2005, the weather and other natural disasters can throw quite a wrench in the works. The result of all those crosscurrents could be a more volatile market than we've seen in a while. We believe that another result might be defensive positioning by investors. Certainly the higher yields on money-market and other short-term debt instruments are already providing tougher competition for stocks. Our emphasis in this environment will be on stocks with good earnings and dividend support. If it is a softer economy that lies ahead, the companies less vulnerable to large earnings declines may prove better bets. Thank you as always for your 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 realized. 25 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 96.2% Temporary Cash Investments 3.3% Convertible Preferred Stocks 0.5%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution (As a percentage of equity holdings) Financials 26.4% Utilities 14.8% Industrials 10.8% Consumer Discretionary 9.1% Health Care 8.7% Telecommunication Services 8.5% Consumer Staples 7.9% Materials 7.2% Energy 5.6% Information Technology 1.0%
Five Largest Holdings (As a percentage of equity holdings) 1. PACCAR, Inc. 3.67% 2. Questar Corp. 3.22 3. Washington Mutual, Inc. 3.11 4. T. Rowe Price Associates, Inc. 2.88 5. Merck & Co., Inc. 2.37
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 21.25 $ 20.58
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.4957 $ - $ -
-------------------------------------------------------------------------------- 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. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Date Pioneer Equity Income VCT Russell 1000 Portfolio Value Index ---------------------------------------- 12/1995 $10,000 $10,000 ---------------------------------------- $11,519 $12,164 ---------------------------------------- 12/1997 $15,577 $16,444 ---------------------------------------- $18,973 $19,014 ---------------------------------------- 12/1999 $19,203 $20,411 ---------------------------------------- $22,054 $21,843 ---------------------------------------- 12/2001 $20,517 $20,622 ---------------------------------------- $17,272 $17,421 ---------------------------------------- 12/2003 $21,177 $22,652 ---------------------------------------- $24,646 $26,389 ---------------------------------------- 12/2005 $26,055 $28,250 ----------------------------------------
The Russell 1000 Value Index measures the performance of large-cap U.S. value stocks. 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- 10 Years 10.05% 5 Years 3.39% 1 Year 5.72%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 26 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- In the following discussion, portfolio manager John Carey discusses the performance of Pioneer Equity Income VCT Portfolio, as well as the investment environment over the twelve-month period ended December 31, 2005. Q. Please discuss the performance of the portfolio versus its benchmark, the Russell 1000 Value index. A. For the year ended December 31, 2005, Class I shares of Pioneer Equity Income VCT Portfolio showed a total return of 5.72% at net asset value. By comparison, the Russell 1000 Value Index, an unmanaged index of the general stock market replicating to an extent the universe of stocks in which value and income-oriented funds often invest, rose 7.05%. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Throughout the year, our overweight in the strongly performing utilities sector helped results, while our underweight in the top-performing energy sector, as well as our de-emphasis of the above-average performing energy equipment-and-services industry within the energy sector, hurt. Late in the year, our underweight in the recovering financials sector was also a negative. On the whole, it was a year of shifting tides, with investors first concerned about higher energy and other commodity prices and the implications for inflation and interest rates, and later expectant of a halt to rate increases as inflationary pressures appeared to ebb. The fourth quarter rally in the financial sector reflected that change of thinking. We would note, however, that the course of economic events is never entirely predictable. Certainly there remain some very different views among economists about the direction of interest rates and everything else. Our focus will remain on finding stocks that we think have good prospects for earnings and dividend growth over the next two to three years regardless of sector. Q. Please discuss changes you made to the portfolio during the year. A. In all, we added some eighteen positions to the portfolio and liquidated sixteen. The effects of the changes, which we made on the basis of the attractiveness to us of individual stocks, were to increase portfolio weightings in consumer staples, health care, financials, and telecommunications services and to decrease weightings in energy, industrials, consumer discretionary, information technology, and utilities. The weighting in materials stayed about the same. Some of the changes in weightings were augmented by stock-market fluctuations. Financials saw the most new entries. We thought that the prices of two of the biggest financial-services companies, Citigroup and Bank of America, represented particularly good value and that the dividend yields were also compelling. Enlarging our exposure to life insurance, we purchased Jefferson Pilot, slated to be merged into Lincoln National. PNC Financial is a successful regional bank with majority ownership of a growing asset-management business. Whitney Holdings, a New Orleans-based bank, traded down after Hurricane Katrina devastated its home city, but we felt that the bank had adequate resources and management experience to prosper as the area recovered. Finally, we invested in two REITs, Archstone-Smith Trust and Kimco Realty. Archstone operates apartments, and Kimco is involved with shopping centers. Our other new purchases covered a variety of sectors. Dow Chemical and Olin (materials) are chemical producers with good prospects for better earnings over the next year or two with improved operating efficiencies. Citizens Communications (telecommunications services) is a high-dividend-yielding telecomm company based in Stamford, Connecticut. Pfizer (health care) and Coca-Cola (consumer staples) were examples of blue-chip names fallen from investor favor and selling at low prices relative to their historical price ranges. Albertson's (consumer staples) is a grocery-store and drugstore company with potential for realizing higher shareholder value through restructuring. PG&E (Pacific Gas and Electric; utilities) is a recovering California utility with a growing dividend yield. Deere (industrials) is the premier manufacturer of farm equipment, and Genuine Parts (consumer discretionary) occupies the same top spot in the auto-parts distribution business. Hewlett-Packard (information technology) seems to have turned the corner and resumed its growth under new management. Finally, we received Federated Department Stores (consumer discretionary) in exchange for part of our position in May Department Stores (consumer discretionary), which Federated acquired for a combination of stock and cash. Deletions included, in addition to May, a number of stocks that we felt were fully valued. In that category were Motorola, American Electric Power, FPL Group, Constellation Energy, Aqua America, Occidental Petroleum, Boeing, General Dynamics, Simon Property, and Microsoft. Due to a more mixed view on their prospects, we sold Du Pont, General Motors, Diebold, International Business Machines, and the Gap 5.75% convertible debenture. A Word About Risk: The Portfolio invests in REIT securities, the value of which can fall for a variety of reasons, such as declines in rental income, fluctuating interest rates, poor property management, environmental liabilities, uninsured damage, increased competition, or changes in real estate tax laws. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 27 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 (continued) -------------------------------------------------------------------------------- Q. What is your outlook for 2006? A. Our outlook for 2006 is cautious. We think that the moderate expectations for economic growth can be met, and we also look for higher earnings and dividends. The broad consensus estimate of roughly 3.5% real GDP growth looks reasonable to us, and we likewise think that 6-8% earnings growth for the S&P 500 is doable. However, we are starting to see powerful headwinds in the form of higher short-term interest rates, stubbornly high oil and natural gas prices, and a slowing housing market. We also watch international events out of the corner of our eye, and we remember that there are U.S. congressional elections this fall. Finally, as was certainly impressed on us in 2005, the weather and other natural disasters can throw quite a wrench in the works. The result of all those crosscurrents could be a more volatile market than we have seen in a while. We believe that another result might be defensive positioning by investors. Certainly the higher yields on money-market and other short-term debt instruments are already providing tougher competition for stocks. Our emphasis in this environment will be on stocks with good earnings and dividend support. If it is a softer economy that lies ahead, the companies less vulnerable to large earnings declines may prove better bets. Thank you as always for your 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 realized. 28 Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 64.0% U.S. Government Agency Obligations 23.8% U.S. Corporate Bonds 9.7% Depositary Receipts for International Stocks 1.5% Asset Backed Securities 0.6% Collateralized Mortgage Obligations 0.4%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution (As a percentage of long-term holdings) Government Obligations 23.9% Financials 13.3% Information Technology 11.6% Health Care 11.3% Consumer Staples 10.3% Consumer Discretionary 8.3% Industrials 7.4% Materials 5.9% Energy 5.5% Telecommunication Services 2.0% Utilities 0.5%
Five Largest Holdings (As a percentage of long-term holdings) 1. Berkshire Hathaway, Inc. (Class B) 3.43% 2. Microsoft Corp. 3.27 3. PepsiCo, Inc. 3.17 4. First Data Corp. 3.16 5. Northrop Grumman Corp. 3.15
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 14.71 $ 14.40
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.2713 $ - $ -
-------------------------------------------------------------------------------- Performance of a $10,000 Investment 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 and the Lehman Brothers Aggregate Bond Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Lehman Balanced Brothers VCT Aggregate S&P 500 Portfolio Bond Index Date --------------------------------------------------- 12/1995 $10,000 $10,000 $10,000 --------------------------------------------------- $11,426 $10,363 $12,295 --------------------------------------------------- 12/1997 $13,385 $11,364 $16,395 --------------------------------------------------- $13,793 $12,351 $21,084 --------------------------------------------------- 12/1999 $14,142 $12,249 $25,518 --------------------------------------------------- $14,913 $13,673 $23,196 --------------------------------------------------- 12/2001 $14,576 $14,828 $20,441 --------------------------------------------------- $13,080 $16,348 $15,925 --------------------------------------------------- 12/2003 $15,266 $17,019 $20,490 --------------------------------------------------- $15,997 $17,758 $22,718 --------------------------------------------------- 12/2005 $16,649 $18,189 $23,833 ---------------------------------------------------
The Standard & Poor's 500 Stock Index (the S&P 500) is a commonly used measure of the broad U.S. stock market. The Lehman Brothers Aggregate Bond Index is a measure of the U.S. bond 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 any Index. -------------------------------------------------------------------------------- Average Annual Total Returns (As of December 31, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- 10 Years 5.23% 5 Years 2.23% 1 Year 4.08%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 29 Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- The nation's economy grew persistently throughout 2005, producing strong earnings growth and healthier corporate balance sheets. The economy proved resilient to the effects of a variety of challenges, from hurricane damage in the Gulf Coast to sharply rising energy and commodity prices. To head off the possibility that inflationary pressures would build up as the economy grew, the U.S. Federal Reserve continued to tighten monetary policy. The Fed raised the Fed Funds rate eight different times during the calendar year. In the following interview, Timothy Mulrenan, who is responsible for the equity portfolio of Pioneer Balanced VCT Portfolio, and Richard Schlanger, who is responsible for the Portfolio's fixed-income investments, discuss the markets and the factors that affected performance. Q. How did the Portfolio perform, and what were the principal factors that affected Portfolio performance? A. Class I shares of Pioneer Balanced VCT Portfolio returned 4.08% at net asset value during the 12 months ended December 31, 2005. In comparison, the Standard & Poor's 500 Index and the Lehman Brothers Aggregate Bond Index returned 4.91% and 2.43%, respectively, over the same period. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Throughout the 12 months, we overweighted equities, with a target allocation of about 64% of Portfolio assets versus a 60% normal allocation. We invested the remaining 36% of assets in fixed income securities. We placed this emphasis on stocks because of the favorable earnings environment and our view that stocks were likely to produce positive returns during the year. At the same time, we were not sure how far the Federal Reserve Board intended to push short-term interest rates, and we believed bonds, in general, were fully valued in the market. The equity market did have a positive year, buoyed by positive earnings - profits of S&P 500 companies grew approximately 13%. Despite rising short-term interest rates and higher commodity prices, long-term interest rates were essentially unchanged over the 12 months. Other factors giving support to stock valuations included many stock buyback programs, initiated by corporations with more cash on their balance sheets, and increasing merger-and-acquisition activity. Despite all these positive factors, stock performance was held back by a number of concerns, including fears that higher short-term interest rates and high energy costs might undermine future corporate profitability. The major development in the fixed-income market was the dramatic flattening of the yield curve - which reflects the difference in yields between short-term and long-term securities. Normally, the yield curve steepens - yield differences become greater - the greater the difference in maturity between short- and long-term securities. However, the yield curve became so flat that it actually partially inverted by the end of the year, a highly unusual phenomenon in which 10-year yields actually became slightly lower than two-year yields. Despite the efforts of the Federal Reserve to raise short-term rates, long-term rates tended to fall or remain stable because of strong demand for U.S. Treasuries by international bond investors. Q. What areas in the equity and fixed income market performed better than others? A. In the equity market, mid-cap stocks did better than either small- or large-cap stocks, continuing a multi-year run for medium-sized companies. The value style of investing slightly outperformed the growth style, but the growth style performed somewhat better in the final two months of the year. Driven by the dramatic increases in oil and natural gas prices, energy stocks were by far the performance leaders in the equity market. On average, energy stocks rose by 30%. Utilities also performed relatively well, while consumer discretionary stocks - especially in the automotive and media industries - lagged. In the fixed-income market, long-term investments outperformed short- and intermediate-term investments. With a backdrop of rising profits, investment grade and high-yield corporate bonds tended to do well. The notable exception was among a few fallen angels whose financial problems led to credit rating downgrades. Two highly visible examples were General Motors and Ford, both of which were downgraded from investment grade to high yield. Among governments, Treasuries outperformed mortgages, with long-term Treasuries doing especially well. A Word About Risk: When interest rates rise, the prices of fixed income securities in the Portfolio will generally fall. Conversely, when interest rates fall the prices of fixed income securities in the Portfolio will generally rise. Investments in the Portfolio are subject to possible loss due to the financial failure of underlying securities and their inability to meet their debt obligations. Prepayment risk is the chance that mortgage-backed bonds will be paid off early if falling interest rates prompt homeowners to refinance their mortgages. Forced to reinvest the unanticipated proceeds at lower interest rates, the Portfolio would experience a decline in income and lose the opportunity for additional price appreciation associated with falling interest rates. The Portfolio invests in REIT securities, the value of which can fall for a variety of reasons, such as declines in rental income, fluctuating interest rates, poor property management, environmental liabilities, uninsured damage, increased competition, or changes in real estate tax laws. Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. The Portfolio may invest in mortgage-backed securities, which during times of fluctuating interest rates may increase or decrease more than other fixed-income securities. Mortgage-Backed securities are also subject to pre-payments. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 30 Pioneer Balanced Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Q. What equity investments had the greatest influence on performance? A. Our overweight position in energy stocks for most of the year and our stock selection within the energy sector helped boost performance. Two standout selections were National Oilwell Varco, a leading provider of oil field equipment, and ENSCO International, a prominent offshore contract driller. National Oilwell Varco's stock price rose substantially, driven by robust earnings, favorable pricing and a growing backlog of orders. We trimmed the position and took profits during the year. ENSCO's stock price appreciated by about 40% as the day rates for its oil rigs surged against a backdrop of growing demand and a tight supply of the drilling platforms. By the end of the year, we had taken some profits, but still hold ENSCO, and moved to a slight underweight position in energy. Our investments in health care also did well. Shares of generic pharmaceutical manufacturer IVAX doubled. The company was helped by both an impressive pipeline of new drugs approaching market and an acquisition offer from a competitor. Amgen, a major biotechnology firm, benefited from strong revenue gains across all its product lines and its own promising pipeline of new products under development, including prospective drugs for treatment of cancer and arthritis. Among the more disappointing positions was our investment in Symantec, a leading software security firm. Its stock price declined after the company in the second half of the year announced earnings that failed to meet expectations. Investors also became concerned about price competition in the software security industry and the possibility of new competition from Microsoft. The U.K.-based telecommunications services giant Vodafone also declined as its profit margins came under pressure because of difficulties in operations in Japan and in Europe. Also detracting from results was our investment in Family Dollar, a low-price retailer. Lower-income consumers, who make up a substantial part of Family Dollar's customer base, were particularly hard hit by rising energy prices. We eliminated our positions in Symantec and in Family Dollar. Q. What fixed-income investments had the greatest influence on performance? A. Our positioning on the yield curve did not help. In a period in which short-term interest rates were rising and longer-term rates were relatively stable, the best positioning would have been a bar-belled approach. That would place greater emphasis both on short-term securities - to take advantage of rising yields - and on long-term securities to take advantage of their high yields and price stability. However, we pursued a bulleted-approach with investments throughout the yield curve - including in the intermediate-term securities which tended to underperform other parts of the market. Also holding back results was our investment in bonds of auto parts manufacturer Delphi, which filed for bankruptcy protection during the year. We had liquidated our position in Delphi prior to their bankruptcy filing. During the year, as yields in many part of the market rose, we extended duration - a measure of sensitivity to interest rate changes. Duration on December 31, 2005, was 4.67 years, compared to 4.13 years six months earlier. Average credit quality remained at AA-, although we did reduce our exposure to high-yield securities. We also cut our mortgage position, while raising our allocation to Treasuries and agencies. Mortgages, however, still represented the largest sector weighting. Q. What is your investment outlook? A. We expect positive performance in the equity market in an environment of rising profits and strengthening balance sheets. We believe two key factors should influence the equity markets in 2006: the continued revival of corporate capital spending, which already grew by 20% during 2005 and the emergence of a performance edge by growth stocks, which have underperformed value stocks for several years. As we enter a new year, value stocks have reached price levels on a par with growth stocks, and we believe growth stocks should begin to outperform because of their greater earnings growth potential. Given this view, we have added to our positions in companies that can benefit from increasing capital spending, with investments in industrials, telecommunications equipment and information technology companies. We also have reduced our exposure to consumer discretionary stocks, although we continue to emphasize consumer staples with their more consistent earnings. For the fixed-income market, we anticipate that the Federal Reserve will move cautiously because of concerns about high debt levels of consumers. We believe the Fed may raise short-term rates two or three times more, with the fed funds rate leveling off in the range of 4.75% to 5.00%. Historically, the Fed has begun lowering rates four to six months after the end of its rate-hike cycles, and we believe this may occur again late in 2006. If that occurs, we expect the short-end and the intermediate parts of the yield curve to outperform the long-end, and we would position the portfolio accordingly. Because of the tightening labor supply and high energy costs, we are carefully watching inflation trends and are prepared to become more defensive. We already have established a position in Treasury Inflation Protective Securities (TIPS) to guard against the impact of higher inflation. 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. 31 Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment in securities) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Corporate Bonds 77.8% Convertible Corporate Bonds 9.5% U.S. Common Stocks 7.1% Convertible Preferred Stocks 3.5% Temporary Cash Investment 2.1%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Maturity Distribution (As a percentage of total investment in securities) 0-1 years 0.8% 1-3 years 19.3% 3-4 years 19.7% 4-6 years 40.3% 6-8 years 14.2% 8+ years 5.7%
Five Largest Holdings (As a percentage of long-term holdings) 1. Mueller Industries, Inc., 6.0%, 11/1/14 4.83% 2. Novelis, Inc., 7.25%, 2/15/15 3.48 3. Allegheny Energy Supply, 7.8%, 3/15/11 3.25 4. Valeant Pharmaceuticals, 7.0%, 12/15/11 3.02 5. Gardner Denver, Inc., 8.0%, 5/1/13 (144A) 2.94
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 10.88 $ 11.67
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.6128 $ 0.0579 $ 0.3211
-------------------------------------------------------------------------------- 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. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
ML Convertible Pioneer ML High Yield Bonds High Yield Master II (Speculative Date VCT Portfolio Index Quality) Index ------------------------------------------------------------ 5/2000 $10,000 $10,000 $10,000 ------------------------------------------------------------ $10,623 $9,769 $8,424 ------------------------------------------------------------ 12/2001 $12,387 $10,206 $7,883 ------------------------------------------------------------ $12,211 $10,013 $7,747 ------------------------------------------------------------ 12/2003 $16,214 $12,831 $10,535 ------------------------------------------------------------ $17,517 $14,226 $11,867 ------------------------------------------------------------ 12/2005 $17,856 $14,615 $11,485 ------------------------------------------------------------
Index comparisons begin on 4/30/00. The ML High Yield Master II Index is a commonly accepted measure of the performance of high yield securities. The ML Index of Convertible Bonds (speculative quality) is a commonly accepted measure of the performance of speculative grade convertible bond 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- Life-of-Class 10.38% (5/1/00) 5 Years 10.95% 1 Year 1.95%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 32 Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- During the 12 months ended December 31, 2005, high-yield bonds offered modestly positive returns, generated mainly by interest income. In the interview below, Portfolio Manager Margaret Patel describes the factors that drove the high-yield market and explains the Portfolio's underperformance of its benchmark. Q. How did the Portfolio perform? A. During the 12 months ended December 31, 2005, the Portfolio's Class I shares had a total return based on net asset value of 1.95%. By comparison, the Merrill Lynch High Yield Master II Index returned 2.74%. On December 31, 2005, the SEC standardized 30-day yield for Class I shares was 5.67%. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. What factors drove the performance of the high-yield market during 2005? A. The economy continued to grow, which helped keep the yield spread - or yield advantage offered by high-yield bonds over comparable Treasuries - relatively narrow and below historical averages. Returns for the high-yield market were modestly positive, with the regular coupon payments provided by the securities offset by lower bond prices. Those bond price declines resulted from generally rising interest rates in both the Treasury and high-yield markets. Defaults declined during the period and approached the historical low of less than 2% seen in 1997. A major event in the market occurred in May, when the credit ratings of Ford and General Motors were downgraded to below investment grade. There was some short-term volatility caused by the moves, as investors pondered the effect that the large influx of Ford and GM debt might have on the market. Overall, however, the market absorbed the transfer with no major disruptions. Q. Why did the Portfolio lag the Merrill Lynch High Yield Master II Index? A. While investments in convertible bonds - a cornerstone of our approach for some time - historically have helped the Portfolio's relative performance, they underperformed conventional high-yield issues, particularly from the beginning of 2005 through April. The low volatility experienced by the convertible bonds' underlying stocks worked to compress the premium investors were willing to pay for convertibles. In addition, many convertible bonds offer relatively low coupons and are generally of shorter maturity, two attributes that resulted in negative price performance as the Federal Reserve Board steadily raised short-term interest rates during the period. However, convertible bonds performed better during the second half of the period as stock prices improved and equity market volatility increased. Q. Which investments performed best during the fiscal year? Which disappointed? A. The convertible securities of Roper Industries (1.30% of the Portfolio at the end of the period), which makes industrial controls and fluid handling equipment, enjoyed price appreciation due to improving demand. The biotechnology firm holding, IVAX, benefited from better operating results and its acquisition by Teva Pharmaceuticals scheduled to be close by the end of January 2006. Our convertible bonds held in Vertex Pharmaceuticals (0.72%) increased substantially with the underlying stock price, due to advances in the company's drug pipeline and the achievement of several strategic partnerships. And copper and gold producer Freeport-McMoRan (1.29%) was an outstanding winner, as it benefited from higher metals prices. Disappointments included Epix Medical (0.21%), which manufacturers contrast agents for the treatment of vascular diseases. Epix declined because its products required more clinical testing. Auto parts retailer Pep Boys (1.87%) fell as the company's turnaround took longer than expected. Interpublic Group (1.98%), a large advertising agency, saw the value of its common stock and associated convertible bonds decline due to concerns about management changes and the firm's delay in releasing required compliance information. Finally, Valiant Pharmaceuticals (2.97%) dropped because of an uncertain outlook for its products and the relatively slow pace of the company's new-drug development. Q. What is your outlook? A. We are optimistic about the health of the economy and the corporate high-yield market. If the economy continues to grow faster than the historical long-term average - as the Fed gradually moves interest rates higher - high-yield bonds could continue to produce moderately positive results and coupon income. The major credit rating agencies predict modest increases in defaults going forward, but still well below the historical average of about 4.75%. In addition, we believe the Fund is well positioned - through its holdings in convertible bonds, convertible preferred securities and common stock - to offer shareholders the opportunity for capital appreciation, should stocks participate in the continued economic advance that we expect. 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. A Word About Risk: Investments in high-yield or lower-rated securities are subject to greater-than-average risk. When interest rates rise, the prices of fixed-income securities in the Portfolio will generally fall. Conversely, when interest rates fall the prices of fixed income securities in the Portfolio will generally rise. Investments in the Portfolio are subject to possible loss due to the financial failure of underlying securities and their inability to meet their debt obligations. Prepayment risk is the chance that mortgage-backed bonds will be paid off early if falling interest rates prompt homeowners to refinance their mortgages. Forced to reinvest the unanticipated proceeds at lower interest rates, the Portfolio would experience a decline in income and lose the opportunity for additional price appreciation associated with falling interest rates. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 33 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Corporate Bonds 45.0% U.S. Government Securities 41.3% Foreign Government Bonds 7.9% Asset Backed Securities 2.9% Municipal Bonds 1.0% Temporary Cash Investment 0.9% Collateralized Mortgage Obligations 0.7% Convertible Corporate Bonds 0.3%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Maturity Distribution (As a percentage of total investment portfolio) 0-1 year 7.6% 1-3 years 15.3% 3-4 years 15.8% 4-6 years 39.9% 6-8 years 14.3% 8+ years 7.1%
Five Largest Holdings (As a percentage of long-term holdings) 1. U.S. Treasury Inflation Protected Security, 3.5%, 1/15/11 6.54% 2. U.S. Treasury Bonds, 5.25%, 11/15/28 2.54 3. U.S. Treasury Strip, 0.0%, 11/15/13 2.21 4. U.S. Treasury Inflation Protected Security, 3.0%, 7/15/12 1.53 5. Federal Home Loan Mortgage Corp., 4.5%, 4/1/20 1.44
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 10.76 $ 11.26
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.6400 $ 0.0045 $ 0.1523
-------------------------------------------------------------------------------- Performance of a $10,000 Investment 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. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Strategic Lehman Income U.S. VCT Universal Date Portfolio Index --------------------------------------- 7/1999 $10,000 $10,000 --------------------------------------- $10,070 $10,136 --------------------------------------- $10,525 $11,234 --------------------------------------- 12/2001 $11,252 $12,144 --------------------------------------- $12,458 $13,338 --------------------------------------- 12/2003 $15,104 $14,117 --------------------------------------- $16,651 $14,817 --------------------------------------- 12/2005 $17,108 $15,219 ---------------------------------------
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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- Life-of-Class 8.72% (7/29/99) 5 Years 10.20% 1 Year 2.74%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 34 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- Most sectors in the fixed income market produced positive, if modest, results during 2005. The most noteworthy exception to this overall trend was in emerging market debt, which outperformed other parts of the global bond markets as the strong worldwide growth persisted. Within the U.S., rising interest rates for bonds of most maturities caused some price erosion, although not enough to erase the positive benefits of income produced by bonds. In the following interview, Kenneth J. Taubes discusses the factors that influenced the Strategic Income Portfolio's performance during the 12 months. Mr. Taubes, Director of Pioneer's Fixed Income Group, oversees the team responsible for the daily management of the Portfolio. Q: How did the Portfolio perform during the 12 months ended December 31, 2005? A: The Portfolio performed modestly above its benchmark. Strategic Income Portfolio Class I Shares had a total return of 2.74% at net asset value for the year. During the same 12 months, the benchmark Lehman U.S. Universal Bond Index returned 2.61%. The Portfolio also continued to deliver a competitive stream of income. On December 31, 2005, the SEC standardized 30-day yield for Class I shares was 4.69%. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q: How would you describe the overall investment environment during the year? A: Against a backdrop of persistent economic growth, the Federal Reserve Board continued to tighten monetary policy in the United States. The central bank raised the key fed funds rate eight different times during the period as the rate rose from 2.25% to 4.25% by the end of 2005. While the rate hikes were widely expected, they nevertheless had an impact on the financial markets. Yields on securities of most maturities rose, and prices declined. That particularly affected short to intermediate treasury securities. The principal exception was the 30-year Treasury bond, where the yields actually declined. Over the year, the difference between the yields of shorter- and longer-term securities grew smaller, which means the yield curve flattened. At year's end, the yield curve had inverted in some places. This phenomenon, when interest rates of shorter maturity securities become higher than some longer maturity securities, is a reversal of the usual relationships and has been associated with a relatively restrictive Federal Reserve monetary policy. Because of the flattening yield curve, fixed income portfolio performance was heavily influenced by the distribution of maturities of the securities held in the portfolio. Intermediate term bonds--those in the middle of the yield curve--tended to perform relatively poorly. Corporate bonds delivered modestly positive results, with both investment grade and high yield producing similar results on a total return basis. The primary difference was that high yield bonds tended to lose more principal, although the higher income of those lower-rated securities made up the difference on a total return basis. Mortgages generally outperformed corporate bonds as well as Treasuries, as they offered relatively good yield with less principal loss than other sectors. High yield corporate bonds from developed nations, in local currencies, outperformed U.S. high yield debt, but returns were eroded by the strength of the dollar. Helped by a yield advantage of U.S. short-term securities over comparable maturity debt, primarily from Japan and European countries, the U.S. dollar appreciated more than 10% against major foreign currencies during 2005. Emerging market securities were by far the best-performing part of the fixed income market. Benchmarks for emerging market debt were about 12% for the year, as the continuing global economic strength raised commodity prices, including oil and other basic materials, supporting the economies of many developing nations. Q: What types of investments most influenced Portfolio performance? A: We continued to maintain a well-diversified portfolio and our investments in emerging market debt had a substantial positive impact on results. We typically had about 12% of Portfolio assets invested in developing nation securities. They were a primary contributor to results. We also had a healthy allocation to investment-grade corporate and government bonds denominated in major foreign currencies. They accounted for about 11% of Portfolio assets at year-end. While those securities outperformed comparable U.S. debt in their local currencies, the effect of the strengthening of the U.S. dollar held back the final results to the Portfolio. However, we did hedge part of our foreign currency exposure, partially easing the effects of the dollar's appreciation on Portfolio performance. A Word About Risk: When interest rates rise, the prices of fixed-income securities in the Portfolio will generally fall. Conversely, when interest rates fall the prices of fixed-income securities in the Portfolio will generally rise. Investments in the Portfolio are subject to possible loss due to the financial failure of underlying securities and their inability to meet their debt obligations. Prepayment risk is the chance that mortgage-backed bonds will be paid off early if falling interest rates prompt homeowners to refinance their mortgages. Forced to reinvest the unanticipated proceeds at lower interest rates, the Portfolio would experience a decline in income and lose the opportunity for additional price appreciation associated with falling interest rates. The securities issued by U.S. Government sponsored entities (i.e., FNMA, Freddie Mac) are neither guaranteed nor issued by the U.S. Government. The Portfolio may invest in mortgage-backed securities, which during times of fluctuating interest rates may increase or decrease more than other fixed-income securities. Mortgage-Backed securities are also subject to pre-payments. Investments in high yield or lower-rated securities are subject to greater-than-average risk. Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 35 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 (continued) -------------------------------------------------------------------------------- Within the U.S., we tended to focus on securities with a yield advantage. In investing in government debt, we favored mortgages over Treasuries, and that helped performance. On December 31, 2005, approximately 22.3% of Portfolio assets were invested in mortgage-backed securities, 18.2% invested in Treasuries, with a growing allocation to Treasury Inflation-Protected Securities (TIPS) that tended to perform well. In addition, we were well positioned on the yield curve, with a greater emphasis on higher-yielding, longer-maturity bonds that outperformed intermediates. Although we upgraded overall credit quality during the year and reduced our investment in domestic high-yield corporate bonds, we still maintained a healthy allocation to this sector, which comprised about 25.5% of Portfolio assets on December 31, 2005, compared to 29.3% one year earlier. Overall, average credit quality stood at A- at the end of 2005. Effective duration -- a measure of sensitivity to changes in interest rates -- was 4.72 years on December 31, 2005, while the average maturity of Portfolio holdings was 6.75 years. Individual contributors to performance included bonds issued by: UnumProvident, a major disability insurer that is undergoing a successful restructuring; J. Ray McDermott, an oil and gas drilling company; and VALE Overseas, the Brazilian company which is the world's largest iron ore mine operator and which announced a tender offer for part of its high-yield debt. While we underweighted bonds of the poor-performing automotive industry within our domestic portfolio, we did own bonds issued by Delphi, the major auto components company that filed for bankruptcy protection. We have sold that position. However, we have retained a position in another disappointing investment, bonds of Northwest Airlines, which also filed for bankruptcy during 2005. Q: What is your investment outlook? A: We expect to continue to upgrade the overall credit quality of our Portfolio while keeping it well-diversified to take advantage of opportunities throughout the world. Overall, economic growth may continue, but values of debt securities could be less attractive than last year. The continued dynamic expansion of the economy in China should drive the growth of emerging markets throughout the globe as well as in Asia, which could also be affected by recovery in Japan. This could be felt most in countries rich in commodities such as iron, copper, nickel and oil. However, emerging market bonds do not offer compelling values, as their prices already reflect an optimistic outlook. Interest rates offered by foreign, high-yield corporate bonds also are not as attractive as they were earlier in light of their strong performance in local currencies over the year. However, we think the U.S. dollar may begin to weaken again against foreign currencies as other countries begin to raise their rates higher than the U.S. Federal Reserve. Within the U.S., we expect that the pace of economic growth may slow in 2006, but the economy should continue to expand. The Federal Reserve Board may continue to raise short-term rates in the early part of the year, but we do not anticipate that monetary policy will become so restrictive as to push the economy into recession. At a time when spreads -- the differences between yields -- are narrow between yields of fixed income securities of different credit quality, we expect to continue to upgrade overall credit quality. For one thing, increased corporate merger-and-acquisition activity poses a potential threat to holders of investment grade corporate bonds, as many merger deals benefit shareholders more than bondholders. We anticipate maintaining an emphasis on mortgage-backed securities over corporate bonds, which offer only slightly less yield than investment grade corporate bonds, but without the risk of merger-and-acquisition. Within our Treasury holdings, we expect to continue to focus on TIPS (Treasury Inflation-Protected Securities). The easing of global monetary policies over the past several years has potentially provided an environment for inflation to pick-up. 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. 36 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Government Securities 93.4% U.S. Government Agency Obligations 6.1% U.S. Corporate Bonds 0.5%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Maturity Distribution (As a percentage of total investment portfolio) 0-1 year 2.5% 1-3 years 38.7% 3-4 years 27.8% 4-6 years 16.2% 6-8 years 6.8% 8+ years 8.0%
Five Largest Holdings (As a percentage of long-term holdings) 1. U.S. Treasury Notes, 6.5%, 2/15/10 10.01% 2. U.S. Treasury Inflation Protected Securities, 3.375%, 1/15/12 7.81 3. U.S. Treasury Bonds, 6.25%, 8/15/23 5.54 4. U.S. Treasury Notes, 6.375%, 8/15/27 2.47 5. U.S. Treasury Notes, 4.25%, 11/15/14 1.85
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 9.84 $ 10.11
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.4702 $ - $ -
-------------------------------------------------------------------------------- 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. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Lehman Lehman America Brothers Brothers Income VCT Government Fixed-Rate Date Portfolio Bond Index Mortgage Index --------------------------------------------------- 12/1995 $10,000 $10,000 $10,000 --------------------------------------------------- $10,130 $10,406 $10,535 --------------------------------------------------- 12/1997 $10,985 $11,210 $11,535 --------------------------------------------------- $11,880 $12,161 $12,338 --------------------------------------------------- 12/1999 $11,581 $12,220 $12,567 --------------------------------------------------- $12,943 $13,500 $13,969 --------------------------------------------------- 12/2001 $13,786 $14,636 $15,118 --------------------------------------------------- $15,208 $16,047 $16,440 --------------------------------------------------- 12/2003 $15,484 $16,414 $16,944 --------------------------------------------------- $16,013 $16,797 $17,741 --------------------------------------------------- 12/2005 $16,336 $17,080 $18,205 ---------------------------------------------------
The Lehman Brothers Government Bond Index measures the performance of the U.S. government bond market. The Lehman Brothers Fixed-Rate Mortgage Index measures the performance of the government and mortgage securities markets. 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- 10 Years 5.03% 5 Years 4.77% 1 Year 2.02%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 37 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- In a year marked by hurricanes, high energy prices, concerns about accelerating inflation and rising short-term interest rates, shareholders in Pioneer America Income Trust VCT Portfolio earned a positive return on their investment. In the interview below, Richard Schlanger, a member of the Pioneer fixed-income team, discusses the factors that affected the fixed-income market and the Trust over the past 12 months. Q. How did the Trust perform during the period? A. For the 12-month period ended December 31, 2005, Class I shares of Pioneer America Income Trust VCT Portfolio produced a total return of 2.02% at net asset value. The Trust underperformed its benchmark, the Lehman Brothers Government Bond Index, which returned 2.65% for the same period. It also fell short of the 2.61% return provided by the Lehman Brothers Fixed-Rate Mortgage-Backed Index. At the end of the period, the 30-day SEC yield for Class I shares was 3.67. The Trust had 229 issues and the average quality of the portfolio was AAA. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. What was the investment environment like during the period? A. Economic growth was relatively strong, and productivity remained high. In this environment, the Federal Reserve continued to reverse its accommodative monetary policy and raised interest rates eight times during the year, each time by a quarter point. At the end of 2005, the federal funds target rate was 4.25%, up from 2.25% in January 2005. (The federal funds rate is the rate banks charge for overnight loans.) Since June 2004, the Fed has hiked interest rates 13 times, taking the federal funds rate from a 40-year low of 1.00% to the current 4.25%. The net effect of the Fed's actions was a flattening of the yield curve, where short-term yields and longer-term yields were approximately the same. On December 30, 2005, the yield curve inverted slightly, with longer-term yields falling below short-term yields. (The yield curve shows the relationship between bond yields and maturity lengths.) During the year, government bonds benefited from an influx of money from both foreign and domestic investors. While long-term yields on U.S. Treasuries were relatively low, they were among the highest of the developed countries and attractive to overseas investors. The performance of government bonds was also enhanced by a flight to quality. At a time when long-term yields declined and the debt of General Motors and Ford was downgraded by credit rating agencies, domestic investors saw little advantage to taking on risk. As a result, they moved into the relative safety of government securities. Q. What strategies did you use in managing the Trust? A. As interest rates rose, we extended duration, or sensitivity to interest-rate changes, by reducing exposure to mortgage securities and adding to positions in Treasury issues and in Treasury Inflation Protected Securities (TIPS). TIPS are securities whose principal is tied to the consumer price index, a monthly indicator that measures the price inflation of a representative basket of goods and services. When inflation accelerates, the principal on TIPS increases in value. The interest-rate payment on TIPS is calculated on the inflated principal. While inflation was not a problem in 2005, we are concerned about the potential for it to pick up. Oil prices are over $60 a barrel, the price of gold is at a 25-year high and the unemployment rate fell below 5%. These factors and others could lead to an upturn in inflation. At the end of the period, 54.8% of the portfolio was in mortgage pass-through securities issued by the Government National Mortgage Association (Ginnie Mae), 44.4% was in Treasury issues, TIPS and agency securities issued by the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Association (Freddie Mac), the Federal Home Loan Bank, and the Federal Farm Credit Bank. About .80% of the portfolio was in cash. Q. What detracted from performance? A. Our positioning on the yield curve held back return. Throughout the 12 months, we maintained a bulleted strategy, which means we invested in bonds across the maturity spectrum, with the biggest concentration in the intermediate-term range of two-years to ten-years. While our short-term and long-term bonds did well, our intermediate-term bonds detracted from performance. In hindsight, it would have been more advantageous to have had a barbelled configuration, overweighting the short and long ends of the yield curve and holding relatively few intermediate-term bonds. Q. What contributed to performance? A. Mortgages issued by Ginnie Mae outperformed those issued by Fannie Mae and Freddie Mac, two agencies that had been in the headlines because of accounting problems. During the second half of 2005, yields on 10-year Treasuries traded in a relatively narrow range of roughly 3.90% to a high of roughly 4.68%. As 10-year Treasuries declined in price and rose in yield, we extended duration. This aided results because 10-year Treasuries closed the year at 4.40%, down from their highs. A longer duration usually benefits a portfolio when yields decline. The performance of TIPS also helped boost the Trust's return. Q. What is your outlook? A. In general we are positive in looking ahead. While we believe the inverted yield curve may be indicating some moderating in economic growth, we do not think it is signaling recession. When the Fed began raising interest rates, the federal funds rate was extremely low at 1.00%. We think that the current 4.25% level is not restrictive, especially with an inflation rate of roughly 2.0% to 2.5%. While we think the consumer may cut back on spending, it is likely that business will pick up the slack. An increase in capital spending on the part of corporations may be enough to keep the economy growing at a respectable rate. The Fed may be in the late stages of its rate-raising cycle. Should the Fed ease rates somewhat, we believe intermediate-term securities will outperform longer-term securities. We are well-positioned should this occur. As we move into 2006, we believe the Trust should continue to provide a relatively safe haven for investors who want to avoid the risk associated with the more volatile areas of the fixed-income market and with equities. 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. A Word About Risk: When interest rates rise, the prices of fixed-income securities in the Portfolio will generally fall. Conversely, when interest rates fall the prices of fixed-income securities in the Portfolio will generally rise. Prepayment risk is the chance that mortgage-backed bonds will be paid off early if falling interest rates prompt homeowners to refinance their mortgages. Forced to reinvest the unanticipated proceeds at lower interest rates, the Portfolio would experience a decline in income and lose the opportunity for additional price appreciation associated with falling interest rates. The Portfolio may invest in mortgage-backed securities, which during times of fluctuating interest rates may increase or decrease more than other fixed--income securities. Mortgage-backed securities are also subject to pre-payments. Government guarantees apply to the underlying securities only and not to the prices and yields of the portfolio. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 38 Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO AND PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- As the U.S. economy grew persistently throughout 2005, the U.S. Federal Reserve continued to act aggressively to prevent any acceleration of inflationary pressures by raising short-term rates. The Fed hiked the influential Fed Funds rate eight different times during the year, each time by one-quarter of one percent (25 basis points), to end the year at 4.25%. As a consequence, yields of shorter-term securities, including money market instruments, also rose. Pioneer Money Market VCT Portfolio currently invests exclusively in high-quality money market instruments issued by the U.S. government and domestic corporations and banks. All issues have the highest ratings from the two nationally recognized ratings organizations: A1 by Standard & Poor's Investors Services and P1 by Moody's Investor Services. (Ratings apply to underlying securities, not Portfolio shares.) In the following discussion, Andrew D. Feltus reviews the investment environment and the strategies that affected Pioneer Money Market VCT Portfolio over the 12 months ended December 31, 2005. Mr. Feltus is a member of Pioneer's Fixed Income Group, which is responsible for the daily management of the Portfolio. Q. How did the Portfolio perform during 2005? A. For the 12 months ended December 31, 2005, Class I shares of Pioneer Money Market VCT Portfolio had a total return of 2.47% at net asset value. On December 31, 2005, the Portfolio's seven-day effective yield for Class A shares was 3.43%. Net asset value of Portfolio shares remained stable at $1.00 throughout the year. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. What were the principal factors that influenced Portfolio performance? A. Despite intermittent worries about its health, the U.S. economy grew briskly throughout the year. In response to the steady growth, the Federal Reserve continued its policy of tightening monetary policy by hiking rates eight different times in 2005. The Fed Funds rate ended the year at 4.25%, or 325 basis points higher than the 1.00% level when the Fed started its rate hike cycle in June 2004. Rising energy and commodity prices and the weakening of the U.S. dollar in relation to major foreign currencies all were factors that encouraged the Fed to raise rates and head off any significant increase in general inflationary pressures. As the year ended, the Fed began to hint that it might be nearing the end of its rate increases, although at least one further hike was anticipated in 2006. The higher rates constituted good news to money market fund investors, as yields at the end of the year were significantly higher than they were 12 months and 18 months earlier. In light of the steady increases in short-term rates, we reduced the Portfolio's average maturity and duration so that we could take advantage of opportunities to invest at higher rates as they became available. The average maturity of the Portfolio's investments at the end of 2005 was just 54.5 days. We maintained our policy of investing in only very high-quality securities and we had no credit problems during the year. Q. What is your investment outlook? A. As we enter 2006, the Federal Reserve appears to be closer to the end of its cycle of interest rate hikes than the beginning. We certainly don't expect that the Fed will be as aggressive in the next year as it has been for the past 18 months. As we get further into 2006 and it is evident that the Federal Reserve is acting more cautiously, we will expect to increase the Portfolio's overall duration somewhat with an eye toward adding more yield to the portfolio. We expect to continue to invest in only very high-quality securities. Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 1.00 $ 1.00
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.025 $ - $ -
A Word About Risk: Although the Portfolio seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Portfolio. Portfolio shares are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. --------------------- Average Annual Total Returns (As of December 31, 2005)
--------------------------------- Net Asset Value --------------------------------- 10 Years 3.20% 5 Years 1.65% 1 Year 2.47%
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. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. 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. 39 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value PREFERRED STOCKS - 3.3% Materials - 0.6% Steel - 0.6% 239,300 Caemi Mineracao E Metalurgia SA $ 348,977 ----------- Total Materials $ 348,977 ----------- Capital Goods - 0.1% Industrial Conglomerates - 0.1% 3,445 LG Corp. $ 72,264 ----------- Total Capital Goods $ 72,264 ----------- Media - 0.8% Broadcasting & Cable TV - 0.8% 963,400 Net Servicos de Comunicacao SA* $ 440,849 ----------- Total Media $ 440,849 ----------- Banks - 1.1% Diversified Banks - 1.1% 23,930 Banco Itau Holding Financeira $ 576,170 ----------- Total Banks $ 576,170 ----------- Telecommunication Services - 0.7% Integrated Telecommunication Services - 0.7% 22,801 Tele Norte Leste Participacoes (A.D.R.) $ 408,594 ----------- Total Telecommunication Services $ 408,594 ----------- TOTAL PREFERRED STOCKS (Cost $1,198,560) $ 1,846,854 ----------- COMMON STOCKS - 95.8% Energy - 15.5% Coal & Consumable Fuels - 0.4% 313,200 Yanzhou Coal Mining $ 200,234 ----------- Integrated Oil & Gas - 11.7% 485,600 China Petroleum & Chemicals $ 241,987 13,800 Gazprom (A.D.R.)* 1,002,266 16,000 Lukoil Holding (A.D.R.) 948,800 3,400 Mol Magyar Olaj 318,093 33,700 Petrobras Brasileiro (A.D.R.) 2,169,269 540,000 PetroChina Co., Ltd. 442,593 48,500 PTT Public Co., Ltd. 267,179 9,000 Repsol SA (A.D.R.) 264,690 14,500 Surgutneftegaz (A.D.R.)(a) 794,033 ----------- $ 6,448,910 ----------- Oil & Gas Equipment & Services - 0.7% 3,500 TelecomAsia Corp. $ 400,750 ----------- Oil & Gas Exploration & Production - 0.7% 584,000 Cnooc, Ltd. $ 396,487 ----------- Oil & Gas Refining & Marketing - 1.7% 19,800 Polski Koncern Naftowy Orlen SA $ 382,426 14,300 Reliance Industries, Ltd. (144A) 562,133 ----------- $ 944,559 -----------
Shares Value Oil & Gas Storage & Transportation - 0.3% 11,718 Ultrapar Participacoes SA $ 162,868 ----------- Total Energy $ 8,553,808 ----------- Materials - 11.8% Construction Materials - 2.6% 7,450 Asia Cement Co., Ltd. $ 294,603 3,530 Hanil Cement Co., Ltd. 254,162 954,000 Indocement Tunggal Prakarsa Tbk* 343,542 721,100 Lafarge Malayan Cement Berhad 117,139 66,100 Siam City Cement Co., Ltd. 425,961 ----------- $ 1,435,407 ----------- Diversified Metals & Mining - 1.2% 899,000 Aneka Tambang Tbk $ 325,928 6,000 Freeport-McMoRan Copper & Gold, Inc. (Class B) 322,800 ----------- $ 648,728 ----------- Fertilizers & Agricultural Chemicals - 0.4% 44,000 Makhteshim-Agan Industries, Ltd. $ 253,067 ----------- Gold - 2.7% 14,500 Anglogold Ashanti, Ltd. (A.D.R.)(a) $ 715,285 36,100 IAMGOLD Corp. 282,302 1,070,000 Zijin Mining Group Co., Ltd. 471,789 ----------- $ 1,469,376 ----------- Precious Metals & Minerals - 2.7% 14,200 Anglo American Platinum Corp. $ 1,029,162 15,900 Compania de Minas Buenaventura SA 449,970 ----------- $ 1,479,132 ----------- Steel - 2.2% 33,300 Companhia Vale do Rio Doce (A.D.R.) $ 1,207,125 ----------- Total Materials $ 6,492,835 ----------- Capital Goods - 11.9% Aerospace & Defense - 0.4% 9,100 Elbit Systems, Ltd. $ 221,793 ----------- Building Products - 0.5% 73,900 Trakya Cam Sanayii AS $ 287,390 ----------- Construction & Engineering - 4.8% 134,200 Aveng, Ltd. $ 380,422 1,003,020 Continental Engineering Corp. 396,090 4,369 Daelim Industrial Co. 309,809 99,017 Empressa ICA Sociedad Controladora SA de CV* 242,425 8,300 GS Engineering & Construction Corp. 435,538 15,440 Kyeryong Construction Industrial Co., Ltd. 460,057 10,900 Larsen & Toubro, Ltd. 447,161 ----------- $ 2,671,502 -----------
40 The accompanying notes are an integral part of these financial statements. Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Construction, Farm Machinery & Heavy Trucks - 3.3% 21,400 Daewoo Heavy Industries & Machinery, Ltd. $ 580,403 8,030 Hyundai Heavy Industries 610,950 36,500 Samsung Heavy Industries Co., Ltd. 636,792 ----------- $ 1,828,145 ----------- Heavy Electrical Equipment - 0.8% 13,600 Bharat Heavy Electricals (Demat Shares) $ 419,729 ----------- Industrial Conglomerates - 0.8% 45,075 KOC Holding AS $ 211,827 6,825 LG Corp. 211,832 ----------- $ 423,659 ----------- Industrial Machinery - 1.3% 27,900 Doosan Heavy Industries & Construction Co. $ 498,650 389,000 Yungtay Engineering Co., Ltd. 249,252 ----------- $ 747,902 ----------- Total Capital Goods $ 6,600,120 ----------- Transportation - 1.9% Airlines - 0.8% 15,100 Gol-Linhas Aereas Inteligentes SA $ 428,919 ----------- Marine - 1.1% 466,000 China Shipping Development Co., Ltd. $ 341,704 103,200 Malaysia International Shipping Bhd. 270,379 ----------- $ 612,083 ----------- Total Transportation $ 1,041,002 ----------- Automobiles & Components - 2.8% Automobile Manufacturers - 2.8% 12,400 Hyundai Motor Co., Ltd. $ 1,188,614 47,700 Ssangyong Motor Co.* 382,259 ----------- $ 1,570,873 ----------- Total Automobiles & Components $ 1,570,873 ----------- Consumer Durables & Apparel - 1.5% Homebuilding - 0.8% 34,320 Cyrela Brazil Realty SA $ 469,675 ----------- Household Appliances - 0.7% 53,240 Arcelik AS $ 370,748 ----------- Total Consumer Durables & Apparel $ 840,423 ----------- Consumer Services - 0.8% Hotels, Resorts & Cruise Lines - 0.8% 21,300 Indian Hotels Co., Ltd.* $ 469,193 ----------- Total Consumer Services $ 469,193 -----------
Shares Value Media - 2.5% Broadcasting & Cable TV - 1.4% 459,000 BEC World Public Co., Ltd. $ 151,042 4,947 Grupo Televisa SA (A.D.R.) 398,234 47,000 Television Broadcasts, Ltd. 250,384 ----------- $ 799,660 ----------- Publishing - 1.0% 144,116 Hurriyet Gazetecilik ve Matbaacilik AS $ 565,869 ----------- Total Media $ 1,365,529 ----------- Retailing - 3.2% Apparel Retail - 0.8% 121,200 Truworths International, Ltd. $ 460,420 ----------- Department Stores - 1.0% 6,300 Hyundai Department Store Co., Ltd. $ 530,896 ----------- General Merchandise Stores - 0.7% 11,900 Lojas Renner SA* $ 381,637 ----------- Homefurnishing Retail - 0.7% 38,200 Ellerine Holdings, Ltd. $ 374,772 ----------- Total Retailing $ 1,747,725 ----------- Food & Drug Retailing - 2.8% Food Retail - 0.7% 199,000 President Chain Store Corp. $ 417,371 ----------- Hypermarkets & Supercenters - 2.1% 13,100 Brasil Distr Pao Acu (A.D.R.)(a) $ 430,990 34,200 Massmart Holdings, Ltd. 279,752 1,000 Shinsegae Co., Ltd. 437,014 ----------- $ 1,147,756 ----------- Total Food & Drug Retailing $ 1,565,127 ----------- Food, Beverage & Tobacco - 3.6% Brewers - 0.5% 8,850 Efes Breweries International (144A) (G.D.R.)* $ 250,013 ----------- Packaged Foods & Meats - 1.5% 5,480 CJ Corp. $ 564,792 12,300 Tiger Brands, Ltd. 283,163 ----------- $ 847,955 ----------- Soft Drinks - 1.6% 12,200 Fomento Economico Mexicano SA de CV $ 884,622 ----------- Total Food, Beverage & Tobacco $ 1,982,590 -----------
The accompanying notes are an integral part of these financial statements. 41 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value Household & Personal Products - 1.0% Personal Products - 1.0% 6,150 Natura Cosmeticos SA $ 270,849 9,100 Oriflame Cosmetics SA 262,183 ----------- $ 533,032 ----------- Total Household & Personal Products $ 533,032 ----------- Pharmaceuticals & Biotechnology - 0.6% Pharmaceuticals - 0.6% 9,500 PT Tempo Scan Pacific $ 5,438 7,700 Teva Pharmaceutical Industries, Ltd. (A.D.R.)(a) 331,177 ----------- $ 336,615 ----------- Total Pharmaceuticals & Biotechnology $ 336,615 ----------- Banks - 11.8% Diversified Banks - 11.8% 22,932 Banco Bradesco SA(a) $ 668,468 25,000 Banco do Brasil SA 451,182 88,300 Bangkok Bank, Ltd. 247,719 133,900 Bank Hapoalim, Ltd. 619,981 18,563 Bank of Baroda 99,485 206,500 Bumiputra-Commerce Holdings Bhd. 311,370 149,906 FirstRand, Ltd. 443,418 155,300 Kasikornbank (Class F) 284,096 1,900 Kookmin Bank 142,582 12,000 Kookmin Bank (A.D.R.)(a) 896,520 966,400 Krung Thai Bank Public Co., Ltd. 259,120 221,500 Metropolitan Bank & Trust Co. 133,623 769,500 PT Bank Central Asia Tbk 265,489 28,249 Standard Bank Group, Ltd. 338,484 13,600 State Bank of India 274,114 47,825 Turkiye Is Bankasi (Isbank) 413,959 10,562 Uniao de Bancos Brasileiros SA 671,426 (Unibanco) (G.D.R.) (144A) ----------- $ 6,521,036 ----------- Total Banks $ 6,521,036 ----------- Diversified Financials - 3.4% Investment Banking & Brokerage - 1.1% 10,400 Samsung Securities Co., Ltd. $ 632,279 ----------- Multi-Sector Holding - 0.7% 18,600 Remgro, Ltd. $ 358,968 ----------- Diversified Financial Services - 1.6% 418,000 Fubon Group $ 359,023 11,110 Hana Financial Holdings* 509,461 ----------- $ 868,484 ----------- Total Diversified Financials $ 1,859,731 -----------
Shares Value Insurance - 4.7% Life & Health Insurance - 2.6% 20,500 Cathay Financial Holding Co., Ltd. (144A) (G.D.R.) $ 377,200 334,000 China Life Insurance Co., Ltd.* 294,804 145,000 Ping An Insurance Company of China, Ltd. 268,038 194,490 Sanlam, Ltd. 467,239 ----------- $ 1,407,281 ----------- Property & Casualty Insurance - 2.1% 85,567 Aksigorta AS $ 653,018 4,100 Samsung Fire & Marine Insurance 517,299 ----------- $ 1,170,317 ----------- Total Insurance $ 2,577,598 ----------- Real Estate - 0.3% Real Estate Management & Development - 0.3% 1,095,400 SM Prime Holdings $ 163,077 ----------- Total Real Estate $ 163,077 ----------- Software & Services - 0.6% IT Consulting & Other Services - 0.6% 4,732 Infosys Technologies, Ltd. $ 315,555 ----------- Total Software & Services $ 315,555 ----------- Technology Hardware & Equipment - 3.7% Computer Hardware - 1.2% 134,240 ACER Sertek, Inc. $ 335,294 228,900 Quanta Computer, Inc. 322,726 ----------- $ 658,020 ----------- Computer Storage & Peripherals - 1.2% 90,000 Asustek Computer, Inc. $ 275,861 320,800 LITE-ON IT Corp. 414,291 ----------- $ 690,152 ----------- Electronic Manufacturing Services - 1.3% 127,158 Hon Hai Precision Industry $ 696,819 ----------- Total Technology Hardware & Equipment $ 2,044,991 ----------- Semiconductors - 3.4% Semiconductors - 3.4% 1,730 Samsung Electronics $ 1,118,098 239,704 Taiwan Semiconductor Manufacturing Co. 453,839 31,499 Taiwan Semiconductor Manufacturing Co. 312,155 (A.D.R.) ----------- $ 1,884,092 ----------- Total Semiconductors $ 1,884,092 -----------
42 The accompanying notes are an integral part of these financial statements. Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Telecommunication Services - 5.9% Integrated Telecommunication Services - 1.6% 8,900 Brasil Telecom Participacoes SA $ 332,415 7,700 Philippine Long Distance Telephone Co. 263,891 36,100 Telekomunikacja Polska SA 259,951 ----------- $ 856,257 ----------- Wireless Telecommunication Services - 4.3% 13,200 Korea Telecom Freetel Co. $ 321,226 9,900 Mobile Telesystems (A.D.R.) 346,500 33,400 MTN Group, Ltd. 328,287 29,100 Partner Communications Co., Ltd. 244,706 381,700 Shinawatra Computer Co., Plc 393,098 448,000 Taiwan Mobile Co., Ltd. 390,920 8,900 Vimpel-Communications (A.D.R.)* 393,647 ----------- $ 2,418,384 ----------- Total Telecommunication Services $ 3,274,641 ----------- Utilities - 2.1% Electric Utilities - 0.6% 9,000 Cemig SA (A.D.R.) (a) $ 331,740 ----------- Gas Utilities - 1.5% 593,000 Panva Gas Holdings, Ltd.* $ 315,435 4,100 Samchully Co., Ltd. 488,329 ----------- $ 803,764 ----------- Total Utilities $ 1,135,504 ----------- TOTAL COMMON STOCKS (Cost $35,426,515) $52,875,097 ----------- RIGHTS/WARRANTS - 0.0% Commercial Services & Supplies - 0.0% Diversified Commercial Services - 0.0% 1,580 Bidvest Group, Ltd., Exp 12/8/06* $ 7,506 ----------- Total Commercial Services & Supplies $ 7,506 ----------- TOAL RIGHTS/WARRANTS (Cost $0) $ 7,506 ----------- TEMPORARY CASH INVESTMENTS - 6.0% Security Lending Collateral - 6.0% 3,324,063 Securities Lending Investment Fund, 4.24% $ 3,324,063 ----------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $3,324,063) $ 3,324,063 ----------- TOTAL INVESTMENT IN SECURITIES - 105.1% (Cost $39,949,138) (b) $58,053,520 ----------- OTHER ASSETS AND LIABILITIES - (5.1)% $(2,821,958) ----------- TOTAL NET ASSETS - 100.0% $55,231,562 ===========
(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, 2005, the value of these securities amounted to $1,860, 772 or 3.4% of total net assets. (a) At December 31, 2005, the following securities were out on loan:
SharesSecurity Value 13,690 Anglogold Ashanti, Ltd. (A.D.R.) $ 675,328 21,646 Banco Bradesco SA 630,981 12,445 Brasil Distr Pao Acu (A.D.R.) 409,441 8,470 Cemig SA (A.D.R.) 312,204 2,060 Kookmin Bank (A.D.R.) 153,903 14,440 Surgutneftegaz (A.D.R.) 790,747 6,569 Teva Pharmaceutical Industries, Ltd. (A.D.R.) 282,533 ---------- Total $3,255,137 ==========
(b) Distributions of investments by country of issue, as a percentage of total equity holdings (excluding temporary cash investments) is as follows: South Korea 22.1% Brazil 17.8 South Africa 10.0 Taiwan 9.6 Russia 6.4 People's Republic of China 4.9 India 4.7 Turkey 4.6 Thailand 3.7 Israel 3.1 Mexico 2.8 Indonesia 1.7 Malaysia 1.3 Poland 1.2 Hong Kong 1.0 Philippines 1.0 Other (individually less than 1%) 4.1 ----- 100.0% ======
The accompanying notes are an integral part of these financial statements. 43 Pioneer Europe VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value PREFERRED STOCK - 2.5% Automobiles & Components - 2.5% Automobile Manufacturers - 2.5% 658 Porsche AG $ 472,253 ----------- TOTAL PREFERRED STOCK (Cost $411,979) $ 472,253 ----------- COMMON STOCK - 95.7% Energy - 11.3% Integrated Oil & Gas - 11.3% 84,652 BP Amoco Plc $ 906,190 20,168 Eni SpA 562,124 21,728 Repsol SA Regd 637,257 ----------- $ 2,105,571 ----------- Total Energy $ 2,105,571 ----------- Materials - 11.3% Construction Materials - 6.5% 21,189 CRH Plc $ 622,955 6,584 Lafarge Br 591,985 ----------- $ 1,214,940 ----------- Diversified Metals & Mining - 2.3% 9,195 Rio Tinto Plc $ 419,761 ----------- Fertilizers & Agricultural Chemicals - 2.5% 3,784 Syngenta AG* $ 470,580 ----------- Total Materials $ 2,105,281 ----------- Capital Goods - 6.9% Building Products - 3.3% 10,367 Compagnie de Saint Gobain $ 616,276 ----------- Industrial Conglomerates - 3.6% 7,900 Siemens $ 676,639 ----------- Total Capital Goods $ 1,292,915 ----------- Transportation - 4.3% Air Freight & Couriers - 4.3% 25,504 TNT NV $ 796,613 ----------- Total Transportation $ 796,613 ----------- Automobiles & Components - 7.2% Automobile Manufacturers - 2.1% 6,723 PSA Peugeot Citroen $ 386,670 ----------- Tires & Rubber - 5.1% 5,301 Continental AG $ 469,809 8,850 Compagnie Generale des Etablissements Michelin 496,738 ----------- $ 966,547 ----------- Total Automobiles & Components $ 1,353,217 -----------
Shares Value Consumer Durables & Apparel - 4.9% Apparel, Accessories & Luxury Goods - 2.7% 2,680 Adidas-Salomon AG $ 506,979 ----------- Homebuilding - 2.2% 18,968 Persimmon Plc $ 408,382 ----------- Total Consumer Durables & Apparel $ 915,361 ----------- Consumer Services - 2.0% Hotels, Resorts & Cruise Lines - 2.0% 6,812 Carnival Corp. $ 364,238 ----------- Total Consumer Services $ 364,238 ----------- Media - 4.6% Advertising - 2.9% 49,530 WPP Group PLC $ 534,710 ----------- Publishing - 1.7% 16,053 Wolters Kluwer NV* $ 324,399 ----------- Total Media $ 859,109 ----------- Food & Drug Retailing - 3.6% Drug Retail - 1.6% 28,832 Boots Co. Plc $ 300,838 ----------- Hypermarkets & Supercenters - 2.0% 7,774 Carrefour Supermarch* $ 364,098 ----------- Total Food & Drug Retailing $ 664,936 ----------- Pharmaceuticals & Biotechnology - 6.3% Pharmaceuticals - 6.3% 10,691 Astrazeneca Plc $ 520,925 4,402 Roche Holdings AG 660,619 ----------- $ 1,181,544 ----------- Total Pharmaceuticals & Biotechnology $ 1,181,544 ----------- Banks - 19.1% Diversified Banks - 19.1% 17,413 Allied Irish Banks Plc $ 372,627 67,587 Barclays Plc 710,074 10,136 BNP Paribas SA 819,802 31,220 Royal Bank of Scotland Group Plc 942,651 5,931 Societe Generale 729,206 ----------- $ 3,574,360 ----------- Total Banks $ 3,574,360 ----------- Diversified Financials - 10.5% Diversified Capital Markets - 10.5% 15,233 CS Group $ 776,072 5,549 Deutsche Bank AG 537,725 6,793 UBS AG 646,399 ----------- $ 1,960,196 ----------- Total Diversified Financials $ 1,960,196 -----------
44 The accompanying notes are an integral part of these financial statements. Pioneer Europe VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Telecommunication Services - 3.7% Integrated Telecommunication Services - 3.2% 24,070 France Telecom SA $ 597,774 ----------- Wireless Telecommunication Services - 0.5% 42,393 Vodafone Group Plc $ 92,034 ----------- Total Telecommunication Services $ 689,808 ----------- TOTAL COMMON STOCK (Cost $15,365,193) $17,863,149 ----------- TOTAL INVESTMENT IN SECURITIES - 98.2% (Cost $15,777,172)(a) $18,335,402 ----------- OTHER ASSETS AND LIABILITIES - 1.8% $ 336,302 ----------- TOTAL NET ASSETS - 100.0% $18,671,704 ===========
* 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 26.4% France 25.1 Germany 14.5 Switzerland 13.9 Netherlands 6.1 Ireland 5.4 Spain 3.5 Italy 3.1 Panama 2.0 ----- 100.0% =======
The accompanying notes are an integral part of these financial statements. 45 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value PREFERRED STOCK - 0.6% Utilities - 0.6% Multi-Utilities - 0.6% 2,400 RWE AG - Non-Voting $ 154,366 ----------- TOTAL PREFERRED STOCK (Cost $139,965) $ 154,366 ----------- COMMON STOCKS - 99.7% Energy - 9.3% Integrated Oil & Gas - 7.8% 28,910 BP Amoco Plc $ 309,478 2,100 Gazprom (A.D.R.)* 152,519 3,300 Lukoil Holding (A.D.R.) 195,690 3,700 Petrobras Brasileiro (A.D.R.) 238,169 15,400 Repsol SA 451,664 3,400 Statoil SA 78,079 2,630 Total SA 661,524 ----------- $ 2,087,123 ----------- Oil & Gas Equipment & Services - 0.8% 4,900 Saipem S.p.A. $ 80,361 2,160 Technip 130,947 ----------- $ 211,308 ----------- Oil & Gas Exploration & Production - 0.7% 284,000 CNOOC, Ltd. $ 192,812 ----------- Total Energy $ 2,491,243 ----------- Materials - 8.4% Construction Materials - 1.6% 8,800 CRH Plc $ 258,607 2,600 Holcim, Ltd. 176,954 ----------- $ 435,561 ----------- Diversified Chemical - 0.4% 1,400 BASF India, Ltd. $ 107,187 ----------- Diversified Metals & Mining - 3.3% 17,002 Broken Hill Proprietary Co., Ltd. $ 284,341 6,750 Freeport-McMoRan Copper & Gold, Inc. (Class B) 363,150 5,490 Rio Tinto Plc 250,624 ----------- $ 898,115 ----------- Fertilizers & Agricultural Chemicals - 0.7% 1,400 Syngenta AG* $ 174,105 ----------- Specialty Chemicals - 0.8% 4,300 Shin-Etsu Chemical Co., Ltd. $ 227,017 ----------- Steel - 1.5% 7,300 Companhia Vale do Rio Doce (A.D.R.) $ 264,625 13,200 Hitachi Metals, Ltd. 143,482 ----------- $ 408,107 ----------- Total Materials $ 2,250,092 -----------
Shares Value Capital Goods - 12.3% Building Products - 2.2% 23,000 Asahi Glass Co., Ltd. $ 294,160 2,600 Compagnie de Saint Gobain 154,560 3,200 Wienerberger AG 127,349 ----------- $ 576,069 ----------- Construction & Farm Machinery & Heavy Trucks - 3.2% 13,700 Daewoo Heavy Industries & Machinery, Ltd. $ 371,566 3,900 Hyundai Heavy Industries 296,725 12,000 Komatsu, Ltd. 200,750 ----------- $ 869,041 ----------- Heavy Electrical Equipment - 1.3% 50,000 Mitsubishi Electric Corp. $ 357,293 ----------- Industrial Conglomerates - 1.3% 1 KOC Holding AS $ 4 4,190 Siemens 358,876 ----------- $ 358,880 ----------- Industrial Machinery - 2.3% 8,600 Atlas Copco AB $ 191,468 2,600 Fanuc, Ltd. 222,519 16,000 Nabtesco Corp. 208,060 ----------- $ 622,047 ----------- Trading Companies & Distributors - 2.0% 20,800 Mitsui & Co., Ltd. $ 268,837 21,000 Sumitomo Corp. 270,103 ----------- $ 538,940 ----------- Total Capital Goods $ 3,322,270 ----------- Transportation - 2.8% Air Freight & Couriers - 0.5% 4,800 TNT Post Group NV $ 149,927 ----------- Airport Services - 0.9% 22,100 BAA Plc $ 238,752 ----------- Railroads - 1.4% 55 East Japan Railway Co. $ 376,950 ----------- Total Transportation $ 765,629 ----------- Automobiles & Components - 4.8% Auto Parts & Equipment - 1.0% 7,900 Denso Corp. $ 274,760 ----------- Automobile Manufacturers - 2.5% 2,700 Hyundai Motor Co., Ltd. $ 258,811 8,000 Toyota Motor Co. 418,246 ----------- $ 677,057 -----------
46 The accompanying notes are an integral part of these financial statements. Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Tires & Rubber - 1.3% 3,200 Compagnie Generale des Etablissements Michelin $ 179,612 1,800 Continental AG 159,528 ----------- $ 339,140 ----------- Total Automobiles & Components $ 1,290,957 ----------- Consumer Durables & Apparel - 3.2% Apparel, Accessories & Luxury Goods - 0.6% 650 Adidas-Salomon AG $ 122,961 3,385 Burberry Group Plc 24,787 ----------- $ 147,748 ----------- Consumer Electronics - 2.0% 8,200 Philips Electronics NV $ 254,658 6,900 Sony Corp. 281,540 ----------- $ 536,198 ----------- Footwear - 0.3% 300 Puma AG Rudolf Dassler Sport $ 87,496 ----------- Homebuilding - 0.3% 4,200 Persimmon Plc $ 90,426 ----------- Total Consumer Durables & Apparel $ 861,868 ----------- Consumer Services - 1.2% Casinos & Gaming - 0.4% 3,300 Opap SA* $ 113,554 ----------- Hotels, Resorts & Cruise Lines - 0.8% 4,100 Carnival Corp. $ 219,227 ----------- Total Consumer Services $ 332,781 ----------- Media - 2.0% Advertising - 0.7% 16,600 WPP Group Plc $ 179,208 ----------- Broadcasting & Cable TV - 0.8% 2,700 Grupo Televisa SA (A.D.R.) $ 217,350 ----------- Movies & Entertainment - 0.5% 4,500 Vivendi Universal $ 141,304 ----------- Total Media $ 537,862 ----------- Retailing - 2.2% Apparel Retail - 0.6% 42,300 Truworths International, Ltd. $ 160,691 ----------- Catalog Retail - 0.6% 9,546 GUS Plc $ 169,174 ----------- Department Stores - 1.0% 15,700 Takashimaya Co., Ltd. $ 252,567 ----------- Total Retailing $ 582,432 -----------
Shares Value Food & Drug Retailing - 3.0% Food Retail - 0.9% 39,600 Tesco Plc $ 224,951 ----------- Hypermarkets & Supercenters - 2.1% 12,200 Aeon Co., Ltd. $ 311,771 4,000 Brasil Distr Pao Acu (A.D.R.) 131,600 300 Shinsegae Co., Ltd. 131,104 ----------- $ 574,475 ----------- Total Food & Drug Retailing $ 799,426 ----------- Food, Beverage & Tobacco - 2.1% Packaged Foods & Meats - 2.1% 1,200 Nestle SA $ 358,118 13,000 Toyo Suisan Kaisha, Ltd. 209,437 ----------- $ 567,555 ----------- Total Food. Beverage & Tobacco $ 567,555 ----------- Health Care Equipment & Services - 0.8% Health Care Equipment - 0.8% 1,900 Synthes, Inc. $ 213,215 ----------- Total Health Care Equipment & Services $ 213,215 ----------- Pharmaceuticals & Biotechnology - 7.8% Pharmaceuticals - 7.8% 5,800 Astellas Pharma, Inc. $ 224,865 7,032 AstraZeneca Plc 342,638 12,700 Daiichi Sankyo Co., Ltd.* 244,731 7,890 GlaxoSmithKline Plc 198,661 3,300 Novartis 173,197 3,538 Roche Holdings AG 530,957 1,400 Schering AG 93,727 5,500 Shire Pharmaceuticals Group Plc (A.D.R.) 213,345 1,400 UCB S.A. 65,715 ----------- $ 2,087,836 ----------- Total Pharmaceuticals & Biotechnology $ 2,087,836 -----------
The accompanying notes are an integral part of these financial statements. 47 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) -------------------------------------------------------------------------------
Shares Value Banks - 15.6% Diversified Banks - 15.6% 14,700 Banco Bilbao Vizcaya Argentaria, SA $ 262,198 2,100 Banco Itau SA* 50,442 38,925 Barclays Plc 408,949 4,700 BNP Paribas SA 380,137 4,100 Commonwealth Bank of Australia 128,582 4,745 Credit Agricole SA 149,411 27,800 Development Bank of Singapore, Ltd. 275,764 18,200 HSBC Holding Plc 291,960 2,800 Kookmin Bank (A.D.R.) (b) 209,188 30 Mitsubishi UFJ Financial Group, Inc. 410,927 12,720 Royal Bank of Scotland Group Plc 384,065 3,019 Societe Generale 371,181 42 Sumitomo Mitsui Financial Group, Inc. 449,609 27,240 Turkiye Is Bankasi (Isbank) 235,782 3,100 Uniao de Bancos Brasileiros S.A. (Unibanco) (G.D.R.) (144A) 197,067 ----------- $ 4,205,262 ----------- Total Banks $ 4,205,262 ----------- Diversified Financials - 5.9% Asset Management & Custody Banks - 0.4% 1,300 Julius Baer Holding $ 92,034 ----------- Diversified Capital Markets - 3.4% 9,830 CS Group $ 500,808 1,400 Deutsche Bank AG 135,667 2,850 UBS AG 271,196 ----------- $ 907,671 ----------- Investment Banking & Brokerage - 0.6% 15,000 Daiwa Securities Group, Inc. $ 171,916 ----------- Diversified Financial Services - 1.5% 11,900 ING Groep N.V. $ 412,517 ----------- Total Diversified Financials $ 1,584,138 ----------- Insurance - 4.8% Life & Health Insurance - 0.7% 4,900 China Life Insurance Co. (A.D.R.)*(b) $ 172,872 ----------- Multi-Line Insurance - 3.2% 18,100 Aviva Plc $ 218,548 10,900 AXA 352,059 1,380 Zurich Financial Services* 294,209 ----------- $ 864,816 ----------- Property & Casualty Insurance - 0.9% 19,500 Mitsui Sumitomo Insurance Co. $ 241,125 ----------- Total Insurance $ 1,278,813 -----------
Shares Value Real Estate - 1.3% Real Estate Management & Development - 1.3% 16,900 Mitsui Fudosan Co. $ 345,038 ----------- Total Real Estate $ 345,038 ----------- Software & Services - 1.2% IT Consulting & Other Services - 1.2% 2,000 Nomura Research Institute, Ltd. $ 244,613 1,200 Atos Origin* 78,987 ----------- $ 323,600 ----------- Total Software & Services $ 323,600 ----------- Technology Hardware & Equipment - 3.3% Communications Equipment - 1.1% 91,400 Ericsson LM $ 313,985 ----------- Computer Hardware - 1.1% 48,000 Toshiba Corp. $ 288,960 ----------- Office Electronics - 1.1% 5,000 Canon, Inc. $ 293,802 ----------- Total Technology Hardware & Equipment $ 896,747 ----------- Semiconductors - 0.8% 19,500 Hon Hai Precision Industry (G.D.R.) $ 222,323 ----------- Total Semiconductors $ 222,323 ----------- Telecommunication Services - 4.4% Integrated Telecommunication Services - 2.3% 13,000 France Telecom SA $ 322,853 6,923 Telefonica SA 104,117 5,000 Telekom Austria AG 112,210 10,500 Telekomunikacja Polska SA 75,609 ----------- $ 614,789 ----------- Wireless Telecommunication Services - 2.1% 115 NTT Mobile Communications, Inc. $ 175,974 4,000 Mobile Telesystems (A.D.R.) 140,000 112,411 Vodafone Group Plc 244,040 ----------- $ 560,014 ----------- Total Telecommunication Services $ 1,174,803 ----------- Utilities - 2.5% Electric Utilities - 1.2% 3,333 E.On AG $ 344,756 ----------- Gas Utilities - 0.5% 31,000 Tokyo Gas Co., Ltd. $ 137,729 ----------- Multi-Utilities - 0.7% 20,446 National Grid Plc $ 199,152 ----------- Total Utilities $ 681,637 -----------
48 The accompanying notes are an integral part of these financial statements. Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value TOTAL COMMON STOCKS (Cost $21,297,641) $26,815,527 ----------- TEMPORARY CASH INVESTMENT - 1.4% Security Lending Collateral - 1.4% 372,684 Securities Lending Collateral Fund, 4.24% $ 372,684 ----------- TOTAL TEMPORARY CASH INVESTMENT (Cost $372,684) $ 372,684 ----------- TOTAL INVESTMENT IN SECURITIES - 101.7% (Cost $21,810,290)(a) $27,342,577 ----------- OTHER ASSETS AND LIABILITIES - (1.7)% $ (440,853) ----------- TOTAL NET ASSETS - 100.0% $26,901,724 ===========
* 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, 2005, the value of these securities amounted to $197,067 or 0.7% of net assets. (a) Distributions of investments by country of issue, as percentage of total equity holdings (excluding temporary cash investments) is as follows: Japan 30.6% France 16.3% United Kingdom 15.9% Switzerland 7.9% Germany 5.4% Spain 4.9% Italy 4.2% Netherlands 3.6% South Korea 1.5 Ireland 1.5 Turkey 1.3 Brazil 1.1 Belgium 1.0 Australia 1.0 Other (individually less than 1%) 3.8 ----- 100.0% ======
(b) At December 31, 2005, the following securities were out on loan:
Shares Security Market Value 4,580 China Life Insurance Co. (A.D.R.)* $161,582 2,660 Kookmin Bank (A.D.R.) 198,729 -------- Total $360,311 ========
The accompanying notes are an integral part of these financial statements. 49 Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 88.8% Energy - 12.6% Coal & Consumable Fuels - 1.5% 8,100 Alpha Natural Resources, Inc.* $ 155,601 12,164 Massey Energy Co.(a) 460,651 ----------- $ 616,252 ----------- Integrated Oil & Gas - 0.5% 10,700 CNX Gas Corp. (144A)* $ 222,025 ----------- Oil & Gas Drilling - 2.4% 7,500 Bronco Drilling Co., Inc.* $ 172,575 11,775 Todco 448,157 7,019 Unit Corp.* 386,256 ----------- $ 1,006,988 ----------- Oil & Gas Equipment & Services - 2.7% 15,325 Gulfmark Offshore, Inc.* $ 453,927 32,661 Key Energy Services, Inc.* 439,944 6,440 Maverick Tube Corp.*(a) 256,698 ----------- $ 1,150,569 ----------- Oil & Gas Exploration & Production - 5.3% 5,075 Forest Oil Corp.* $ 231,268 7,200 Penn Virginia Corp. 413,280 17,500 Riata Energy, Inc. (144A)* 266,875 16,900 Rosetta Resources, Inc. (144A)* 304,200 26,346 Southwestern Energy Co.* 946,875 2,145 Swift Energy Co.* 96,675 ----------- $ 2,259,173 ----------- Oil & Gas Storage & Transportation - 0.2% 3,050 Arlington Tankers, Ltd. $ 66,338 ----------- Total Energy $ 5,321,345 ----------- Materials - 3.0% Gold - 1.3% 34,450 Cambior, Inc.* $ 96,460 8,950 Glamis Gold, Ltd.* 245,946 29,700 IAMGOLD Corp. 232,254 ----------- $ 574,660 ----------- Paper Products - 0.4% 27,793 Domtar, Inc. $ 160,644 ----------- Specialty Chemicals - 0.3% 9,281 Chemtura Corp. $ 117,869 ----------- Steel - 1.0% 4,350 Carpenter Technology $ 306,545 9,571 NN, Inc. 101,453 ----------- $ 407,998 ----------- Total Materials $ 1,261,171 -----------
Shares Value Capital Goods - 8.1% Aerospace & Defense - 0.2% 6,633 NCI, Inc.* $ 91,071 ----------- Construction & Engineering - 0.9% 19,900 Insituform Technologies, Inc.* $ 385,463 ----------- Construction, Farm Machinery & Heavy Trucks - 3.6% 13,400 Commercial Vehicle Group, Inc.* $ 251,652 12,720 Federal Signal Corp. 190,927 8,670 Joy Global, Inc. 346,800 2,344 Nacco Industries, Inc. 274,600 17,725 Wabtec Corp. 476,803 ----------- $ 1,540,782 ----------- Electrical Component & Equipment - 1.9% 13,700 C&D Technologies, Inc. $ 104,394 56,468 Graftech International, Ltd.*(a) 351,231 56,979 Power-One, Inc.* 343,014 ----------- $ 798,639 ----------- Industrial Machinery - 1.0% 10,775 Flowserve Corp.* $ 426,259 ----------- Trading Companies & Distributors - 0.5% 5,879 Applied Industrial Technologies, Inc. $ 198,064 ----------- Total Capital Goods $ 3,440,278 ----------- Commercial Services & Supplies - 4.5% Diversified Commercial Services - 2.0% 25,385 Cornell Companies, Inc.* $ 350,821 4,700 Corrections Corporation of America* 211,359 35 Profit Recovery Group International* 21 7,823 School Specialty, Inc.* 285,070 ----------- $ 847,271 ----------- Human Resource & Employment Services - 2.5% 9,345 Korn/Ferry International* $ 174,658 51,175 On Assignment, Inc.* 558,319 11,700 Watson Wyatt Worldwide, Inc. 326,430 ----------- $ 1,059,407 ----------- Total Commercial Services & Supplies $ 1,906,678 ----------- Transportation - 4.2% Air Freight & Couriers - 0.8% 5,175 Forward Air Corp. $ 189,664 5,500 Pacer International, Inc. 143,330 ----------- $ 332,994 -----------
50 The accompanying notes are an integral part of these financial statements. Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Marine - 1.4% 5,800 Dryships, Inc.(a) $ 70,875 6,400 Eagle Bulk Shipping, Inc. 101,888 11,050 Excel Maritime Carriers, Ltd.* 126,523 5,450 Genco Shipping & Trading, Ltd. 95,048 18,900 Quintana Maritime, Ltd. 192,402 ----------- $ 586,736 ----------- Railroads - 1.0% 11,918 Genesee & Wyoming, Inc.* $ 446,925 ----------- Trucking - 1.0% 4,793 Dollar Thrifty Automotive Group* $ 172,882 10,750 Universal Truckload Services, Inc.* 247,250 ----------- $ 420,132 ----------- Total Transportation $ 1,786,787 ----------- Automobiles & Components - 0.4% Tires & Rubber - 0.4% 10,900 Cooper Tire & Rubber* $ 166,988 ----------- Total Automobiles & Components $ 166,988 ----------- Consumer Durables & Apparel - 0.6% Housewares & Specialties - 0.6% 8,505 Jarden Corp.*(a) $ 256,426 ----------- Total Consumer Durables & Apparel $ 256,426 ----------- Consumer Services - 0.8% Casinos & Gaming - 0.4% 12,375 Alliance Gaming Corp.*(a) $ 161,123 ----------- Restaurants - 0.4% 11,719 O'Charley's, Inc.* $ 181,762 ----------- Total Consumer Services $ 342,885 ----------- Retailing - 3.9% Apparel Retail - 0.4% 6,280 Stage Stores, Inc. $ 187,018 ----------- Catalog Retail - 1.7% 35,425 Insight Enterprises, Inc.* $ 694,684 ----------- Computer & Electronics Retail - 0.3% 21,650 Tweeter Home Entertainment Group, Inc.* $ 123,838 ----------- General Merchandise Stores - 0.6% 15,525 Fred's, Inc.(a) $ 252,592 ----------- Specialty Stores - 0.9% 28,582 Hancock Fabrics, Inc.(a) $ 116,329 41,355 Rent-Way, Inc.* 264,258 ----------- $ 380,587 ----------- Total Retailing $ 1,638,719 -----------
Shares Value Food, Beverage & Tobacco - 1.2% Agricultural Products - 0.6% 11,258 Fresh Del Monte Produce, Inc. (a) $ 256,345 ----------- Packaged Foods & Meats - 0.6% 18,175 B & G Foods, Inc. $ 263,901 ----------- Total Food, Beverage & Tobacco $ 520,246 ----------- Household & Personal Products - 1.8% Personal Products - 1.8% 4,400 Herbalife, Ltd.* $ 143,088 5,875 NBTY, Inc.* 95,469 29,629 Nu Skin Enterprises, Inc. 520,876 ----------- $ 759,433 ----------- Total Household & Personal Products $ 759,433 ----------- Health Care Equipment & Services - 5.8% Health Care Equipment - 1.0% 9,100 Analogic Corp. $ 435,435 ----------- Health Care Facilities - 0.3% 3,358 Triad Hospitals, Inc.* $ 131,734 ----------- Health Care Services - 3.4% 7,106 Chemed Corp. $ 353,026 24,225 Cross Country Healthcares, Inc.* 430,721 3,527 Pediatrix Medical Group, Inc.* 312,386 12,350 Providence Service Corp.* 355,557 ----------- $ 1,451,690 ----------- Health Care Supplies - 0.4% 13,700 Merit Medical Systems, Inc.* $ 166,318 ----------- Managed Health Care - 0.7% 14,420 AMERIGROUP Corp.* $ 280,613 ----------- Total Health Care Equipment & Services $ 2,465,790 ----------- Pharmaceuticals & Biotechnology - 0.2% Biotechnology - 0.2% 2,455 Kendle International, Inc.* $ 63,192 ----------- Total Pharmaceuticals & Biotechnology $ 63,192 ----------- Banks - 6.7% Regional Banks - 4.9% 7,875 Alliance Bankshares Corp.* $ 126,079 33,550 Cardinal Financial Corp. 369,050 4,700 City National Corp. 340,468 5,650 Signature Bank* 158,596 3,100 Southwest Bancorp, Inc.* 62,000 40,100 Sterling Bancshares, Inc. 619,144 17,225 Texas Capital Bancshares, Inc.* 386,012 ----------- $ 2,061,349 -----------
The accompanying notes are an integral part of these financial statements. 51 Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value Thrifts & Mortgage Finance - 1.8% 16,505 BankAtlantic Bancorp, Inc. $ 231,070 5,150 BankUnited Financial Corp.(a) 136,833 11,550 First Niagara Financial Group, Inc. 167,129 13,550 Provident Financial Services, Inc. 250,811 ----------- $ 785,843 ----------- Total Banks $ 2,847,192 ----------- Diversified Financials - 7.3% Asset Management & Custody Banks - 1.2% 28,385 Apollo Investment Corp. $ 508,943 ----------- Consumer Finance - 2.5% 8,575 Advanta Corp. $ 258,365 9,203 Advanta Corp. (Class B) 298,545 10,025 Cash America International, Inc. 232,480 7,900 The First Marblehead Corp.(a) 259,594 ----------- $ 1,048,984 ----------- Investment Banking & Brokerage - 2.4% 7,550 A.G. Edwards, Inc. $ 353,793 12,600 OptionsXpress Holdings, Inc.(a) 309,330 9,175 Piper Jaffray Co's.* 370,670 ----------- $ 1,033,793 ----------- Specialized Finance - 1.2% 7,143 Financial Federal Corp. $ 317,506 5,075 Nasdaq Stock Market, Inc.* 178,539 ----------- $ 496,045 ----------- Total Diversified Financials $ 3,087,765 ----------- Insurance - 6.4% Life & Health Insurance - 0.2% 6,600 American Equity Investment Life Holding* $ 86,130 ----------- Multi-Line Insurance - 1.4% 66,775 Quanta Capital Holdings (144A)* $ 340,553 10,200 Quanta Capital Holdings* 260,100 ----------- $ 600,653 ----------- Property & Casualty Insurance - 1.9% 21,575 Assured Guaranty, Ltd. $ 547,789 4,525 National Interstate Corp. 86,292 3,075 Selective Insurance Group, Inc. 163,283 ----------- $ 797,364 ----------- Reinsurance - 2.9% 18,126 IPC Holdings, Ltd. $ 496,290 11,700 Max Re Capital, Ltd. 303,846 8,500 Odyssey Re Holdings Corp.(a) 213,180 6,125 Platinum Underwriter Holdings, Ltd. 190,304 ----------- $ 1,203,620 ----------- Total Insurance $ 2,687,767 -----------
Shares Value Real Estate - 3.6% Real Estate Management & Development - 1.0% 32,300 Deerfield Triarc Capital Corp. $ 442,510 ----------- Real Estate Investment Trusts - 2.6% 15,913 BioMed Property Trust, Inc. $ 388,277 13,000 Capital Trust, Inc. 380,640 26,350 Feldman Mall Properties, Inc. 316,464 ----------- $ 1,085,381 ----------- Total Real Estate $ 1,527,891 ----------- Software & Services - 6.6% Application Software - 3.5% 57,000 Aspen Technology, Inc.* $ 447,450 16,570 Bottomline Technologies, Inc.* 182,601 11,500 Sonic Solutions* 173,765 14,054 SPSS, Inc.* 434,690 34,200 TIBCO Software, Inc.* 255,474 ----------- $ 1,493,980 ----------- Data Processing & Outsourced Services - 0.7% 5,925 Intrado, Inc.* $ 136,394 19,742 Pegusus Systems, Inc.*(a) 177,086 ----------- $ 313,480 ----------- IT Consulting & Other Services - 0.4% 12,275 Gartner Group, Inc.* $ 158,348 ----------- Systems Software - 2.0% 56,450 Borland Software Corp.* $ 368,619 12,725 Internet Security Systems, Inc.* 266,589 8,575 Sybase, Inc.* 187,450 ----------- $ 822,658 ----------- Total Software & Services $ 2,788,466 ----------- Technology Hardware & Equipment - 7.5% Communications Equipment - 2.8% 10,425 Black Box Corp. $ 493,937 13,250 Dycom Industries, Inc.* 291,500 1 Powerwave Technologies, Inc.* 13 46,500 Symmetricom, Inc.* 393,853 ----------- $ 1,179,303 ----------- Computer Hardware - 1.7% 13,300 Avid Technology, Inc.* $ 728,308 ----------- Computer Storage & Peripherals - 0.4% 6,160 Electronics for Imaging, Inc.* $ 163,918 ----------- Electronic Equipment & Instruments - 2.1% 17,600 Electro Scientific Industrials* $ 425,040 16,900 Planar Systems, Inc.*(a) 141,453 18,175 Technitrol, Inc. 310,793 ----------- $ 877,286 -----------
52 The accompanying notes are an integral part of these financial statements. Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Electronic Manufacturing Services - 0.5% 10,300 Mercury Computer Systems, Inc.* $ 212,489 ----------- Total Technology Hardware & Equipment $ 3,161,304 ----------- Semiconductors - 0.8% Semiconductor Equipment - 0.4% 11,000 Brooks Automation, Inc.* $ 137,830 ----------- Semiconductors - 0.4% 41,350 Lattice Semiconductor Corp.* $ 178,632 ----------- Total Semiconductors $ 316,462 ----------- Telecommunication Services - 1.0% Integrated Telecommunication Services - 1.0% 40,200 Alaska Communications Systems Group, Inc. $ 408,432 ----------- Total Telecommunication Services $ 408,432 ----------- Utilities - 1.8% Gas Utilities - 1.8% 7,975 AGL Resources, Inc. $ 277,607 5,750 Energen Corp. 208,840 8,005 People's Energy Corp. 280,735 ----------- $ 767,182 ----------- Total Utilities $ 767,182 ----------- TOTAL COMMON STOCKS (Cost $31,436,831) $37,522,399 ----------- EXCHANGE TRADED FUNDS - 2.1% 4,500 Russell 2000 Exchange Traded Fund (a) $ 300,105 4,500 Russell 2000 Growth Exchange Traded Fund (a) 313,335 3,875 Russell 2000 Value Exchange Traded Fund (a) 255,789 ----------- $ 869,229 ----------- TOTAL EXCHANGE TRADED FUNDS (Cost $792,156) $ 869,229 -----------
Principal Amount Value TEMPORARY CASH INVESTMENTS - 16.6% Repurchase Agreement - 7.5% $ 3,200,000 UBS Warburg, Inc., 3.25%, dated 12/30/05, repurchase price of $3,200,000 plus accrued interest on 1/3/06 collateralized by $3,336,000 U.S. Treasury Bill, 4.36%, 6/29/06 $ 3,200,000 ----------- Shares Security Lending Collateral - 9.1% 3,838,966 Securities Lending Investment Fund, 4.24% $ 3,838,966 ----------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $7,038,966) $ 7,038,966 ----------- TOTAL INVESTMENT IN SECURITIES - 107.5% (Cost $39,267,953) $45,430,594 ----------- OTHER ASSETS AND LIABILITIES - (7.5)% $(3,176,387) ----------- TOTAL NET ASSETS - 100.0% $42,254,207 ===========
* 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, 2005, the value of these securities amounted to $1,133,653 or 2.7% of total net assets. (a) At December 31, 2005, the following securities were out on loan:
Shares Security Value 11,756 Alliance Gaming Corp.* $ 153,063 129 BankUnited Financial Corp. 3,428 5,460 Dryships, Inc. 66,721 10,720 The First Marblehead Corp. 352,259 14,749 Fred's, Inc. 239,966 8,260 Fresh Del Monte Produce, Inc. 188,080 25,380 Graftech International, Ltd.* 157,864 27,153 Hancock Fabrics, Inc. 110,513 8,080 Jarden Corp.* 243,612 11,556 Massey Energy Co. 437,626 6,118 Maverick Tube Corp.* 243,863 8,075 Odyssey Re Holdings Corp. 202,521 11,878 OptionsXpress Holdings, Inc. 291,605 14,301 Pegusus Systems, Inc.* 128,280 10,830 Planar Systems, Inc.* 90,647 4,225 Russell 2000 Exchange Traded Fund 281,765 4,275 Russell 2000 Growth Exchange Traded Fund 297,668 3,276 Russell 2000 Value Exchange Traded Fund 216,249 ---------- Total $3,705,730 ==========
The accompanying notes are an integral part of these financial statements. 53 Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value COMMON STOCK - 96.5% Energy - 8.8% Oil & Gas Equipment & Services - 4.9% 4,400 Gulfmark Offshore, Inc.* $ 130,328 2,900 Lone Star Technologies, Inc.* 149,814 3,500 Maverick Tube Corp.*(a) 139,510 3,200 NS Group, Inc.* 133,792 3,100 Offshore Logistics, Inc.* 90,520 ----------- $ 643,964 ----------- Oil & Gas Exploration & Production - 3.4% 2,425 Forest Oil Corp.* $ 110,507 2,900 Swift Energy Co.* 130,703 2,100 Stone Energy Corp.* 95,613 2,000 Houston Exploration Co.* 105,600 ----------- $ 442,423 ----------- Oil & Gas Storage & Transportation - 0.5% 1,300 Overseas Shipholding Group, Inc. $ 65,507 ----------- Total Energy $ 1,151,894 ----------- Materials - 5.4% Aluminum - 0.9% 4,500 Century Aluminum Co.* $ 117,945 ----------- Construction Materials - 1.0% 2,950 Mega Bloks, Inc. (144A)* $ 70,068 1,200 Texas Industries, Inc. 59,808 ----------- $ 129,876 ----------- Diversified Chemical - 0.8% 2,100 FMC Corp.* $ 111,657 ----------- Diversified Metals & Mining - 0.6% 4,900 Brush Engineered Materials, Inc.* $ 77,910 ----------- Specialty Chemicals - 1.2% 2,800 H.B. Fuller Co. $ 89,796 9,700 PolyOne Corp.* 62,371 ----------- $ 152,167 ----------- Steel - 0.9% 1,600 Carpenter Technology $ 112,752 ----------- Total Materials $ 702,307 ----------- Capital Goods - 10.8% Aerospace & Defense - 1.5% 5,600 Hexcel Corp.* $ 101,080 7,300 Orbital Sciences Corp.* 93,732 ----------- $ 194,812 -----------
Shares Value Construction & Farm Machinery & Heavy Trucks - 5.5% 4,500 AGCO Corp.* $ 74,565 6,700 Commercial Vehicle Group, Inc.* 125,826 5,100 Federal Signal Corp. 76,551 800 Nacco Industries, Inc. 93,720 2,000 Terex Corp.* 118,800 2,400 The Toro Co. 105,048 4,400 Wabtec Corp. 118,360 ----------- $ 712,870 ----------- Electrical Component & Equipment - 1.1% 23,700 Power-One, Inc.* $ 142,674 ----------- Industrial Machinery - 2.7% 3,200 Albany International Corp. $ 115,712 3,100 Flowserve Corp.* 122,636 2,175 Kennametal, Inc. 111,012 ----------- $ 349,360 ----------- Total Capital Goods $ 1,399,716 ----------- Commercial Services & Supplies - 3.9% Commercial Printing - 1.4% 1,800 Consolidated Graphics, Inc.* $ 85,212 2,575 John H. Harland Co. 96,820 ----------- $ 182,032 ----------- Diversified Commercial Services - 0.8% 2,301 The Brinks Co. $ 110,241 ----------- Human Resource & Employment Services - 1.7% 3,200 Administaff, Inc.(a) $ 134,560 4,400 Korn/Ferry International* 82,236 ----------- $ 216,796 ----------- Total Commercial Services & Supplies $ 509,069 ----------- Transportation - 4.2% Air Freight & Couriers - 0.4% 2,100 Pacer International, Inc. $ 54,726 ----------- Railroads - 1.6% 3,400 Genesee & Wyoming, Inc.* $ 127,500 6,900 RailAmerica, Inc.* 75,831 ----------- $ 203,331 ----------- Trucking - 2.2% 2,300 Arkansas Best Corp.(a) $ 100,464 9,100 Swift Transportation Co., Inc.* 184,730 ----------- $ 285,194 ----------- Total Transportation $ 543,251 -----------
54 The accompanying notes are an integral part of these financial statements. Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Automobiles & Components - 0.8% Auto Parts & Equipment - 0.8% 5,400 Aftermarket Technology Corp.* $ 104,976 ----------- Total Automobiles & Components $ 104,976 ----------- Consumer Durables & Apparel - 3.5% Footwear - 2.2% 10,800 Skechers U.S.A.* $ 165,456 5,450 Wolverine World Wide, Inc. 122,407 ----------- $ 287,863 ----------- Housewares & Specialties - 1.2% 3,000 American Greetings Corp.(a) $ 65,910 3,375 Yankee Candle Co. 86,400 ----------- $ 152,310 ----------- Leisure Products - 0.1% 625 Mega Blocks* $ 14,845 ----------- Total Consumer Durables & Apparel $ 455,018 ----------- Consumer Services - 2.2% Casinos & Gaming - 0.8% 3,900 Scientific Games Corp.* $ 106,392 ----------- Restaurants - 1.4% 5,000 O'Charley's, Inc.* $ 77,550 3,400 Rare Hospitality International, Inc.* 103,326 ----------- $ 180,876 ----------- Total Consumer Services $ 287,268 ----------- Media - 0.9% Advertising - 0.9% 1,800 R.H. Donnelley Corp.* $ 110,916 ----------- Total Media $ 110,916 ----------- Retailing - 2.7% Apparel Retail - 2.7% 7,100 Charming Shoppes, Inc.* $ 93,720 2,300 Guess?, Inc.* 81,880 5,850 Stage Stores, Inc. 174,213 ----------- $ 349,813 ----------- Total Retailing $ 349,813 ----------- Food, Beverage & Tobacco - 1.4% Packaged Foods & Meats - 1.4% 2,400 Lancaster Colony Corp. $ 88,920 2,139 The J.M. Smucker Co. 94,116 ----------- $ 183,036 ----------- Total Food, Beverage & Tobacco $ 183,036 ----------- Household & Personal Products - 1.5% Household Products - 0.8% 2,300 Central Garden & Pet Co.* $ 105,662 -----------
Shares Value Personal Products - 0.7% 5,050 Nu Skin Enterprises, Inc. $ 88,779 ----------- Total Household & Personal Products $ 194,441 ----------- Health Care Equipment & Services - 11.1% Health Care Equipment - 0.8% 4,300 Steris Corp. $ 107,586 ----------- Health Care Facilities - 3.0% 2,500 Kindred Healthcare, Inc.* $ 64,400 2,500 Lifepoint Hospitals, Inc.* 93,750 3,804 Sunrise Senior Living, Inc.*(a) 128,233 2,100 Universal Health Services, Inc. (Class B) 98,154 ----------- $ 384,537 ----------- Health Care Services - 4.9% 2,000 Cerner Corp.*(a) $ 181,820 1,200 Chemed Corp. 59,616 9,000 eResearch Technology, Inc.*(a) 135,900 3,900 Lifeline Systems, Inc.* 142,584 1,325 Pediatrix Medical Group, Inc.* 117,355 ----------- $ 637,275 ----------- Health Care Supplies - 1.3% 1,975 Haemonetics Corp.* $ 96,499 5,800 Merit Medical Systems, Inc.* 70,412 ----------- $ 166,911 ----------- Managed Health Care - 1.1% 3,500 Amerigroup Corp.* $ 68,110 1,356 Coventry Health Care, Inc* 77,238 ----------- $ 145,348 ----------- Total Health Care Equipment & Services $ 1,441,657 ----------- Pharmaceuticals & Biotechnology - 3.8% Biotechnology - 3.2% 7,425 Cubist Pharmaceuticals, Inc.* $ 157,781 7,300 InterMune, Inc.*(a) 122,640 7,100 Serologicals Corp.*(a) 140,154 ----------- $ 420,575 ----------- Pharmaceuticals - 0.6% 5,100 Connetics Corp.* $ 73,695 ----------- Total Pharmaceuticals & Biotechnology $ 494,270 ----------- Banks - 7.1% Regional Banks - 2.4% 4,700 Community Bank System, Inc. $ 105,985 3,200 Provident Bankshares Corp. 108,064 4,400 Susquehanna Bancshares, Inc. 104,192 ----------- $ 318,241 -----------
The accompanying notes are an integral part of these financial statements. 55 Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value Thrifts & Mortgage Finance - 4.7% 4,300 BankAtlantic Bancorp, Inc. $ 60,200 3,100 BankUnited Financial Corp.(a) 82,367 5,000 Commercial Capital Bankcorp, Inc. 85,600 4,500 Charter Municipal Mortgage Acceptance Co. 95,310 6,800 First Niagara Financial Group, Inc. 98,396 4,800 Provident Financial Services, Inc. 88,848 2,125 Webster Financial Corp. 99,663 ----------- $ 610,384 ----------- Total Banks $ 928,625 ----------- Diversified Financials - 1.8% Asset Management & Custody Banks - 0.8% 6,078 Apollo Investment Corp. $ 108,979 ----------- Consumer Finance - 1.0% 4,078 Advanta Corp. (Class B) $ 132,290 ----------- Total Diversified Financials $ 241,269 ----------- Insurance - 3.9% Life & Health Insurance - 0.3% 3,000 American Equity Investment Life Holding* $ 39,150 ----------- Property & Casualty Insurance - 1.9% 5,600 Assured Guaranty, Ltd. $ 142,184 2,900 Infinity Property & Casualty Corp. 107,909 ----------- $ 250,093 ----------- Reinsurance - 1.7% 4,800 IPC Holdings, Ltd. $ 131,424 3,400 Max Re Capital, Ltd. 88,298 ----------- $ 219,722 ----------- Total Insurance $ 508,965 ----------- Real Estate - 5.4% Real Estate Management & Development - 0.8% 7,000 Deerfield Triarc Capital Corp. $ 95,900 ----------- Real Estate Investment Trusts - 4.6% 8,500 Anworth Mortgage Asset Corp. $ 62,050 4,577 BioMed Property Trust, Inc. 111,679 2,550 Capital Trust, Inc. 74,664 2,800 Heritage Property Investment Trust(a) 93,520 10,000 MFA Mortgage Investments, Inc. 57,000 2,800 Newcastle Investment Corp. 69,580 1,600 Redwood Trust, Inc.(a) 66,016 5,900 Saxon Capital, Inc. 66,847 ----------- $ 601,356 ----------- Total Real Estate $ 697,256 -----------
Shares Value Software & Services - 7.3% Application Software - 4.0% 16,600 Parametric Technology Co.* $ 101,260 8,500 Sonic Solutions* 128,435 5,000 SPSS, Inc.* 154,650 10,400 TIBCO Software, Inc.* 77,688 2,300 Net 1 UEPS Technologies, Inc.* 66,355 ----------- $ 528,388 ----------- Data Processing & Outsourced Services - 0.6% 5,700 The BISYS Group, Inc.* $ 79,857 ----------- Internet Software & Services - 1.1% 7,000 Earthlink, Inc.*(a) $ 77,770 12,300 Skillsoft PLC* 67,650 ----------- $ 145,420 ----------- IT Consulting & Other Services - 1.0% 9,900 Gartner Group, Inc.* $ 127,710 ----------- Systems Software - 0.6% 3,500 Internet Security Systems, Inc* $ 73,325 ----------- Total Software & Services $ 954,700 ----------- Technology Hardware & Equipment - 4.7% Communications Equipment - 2.8% 6,300 AudioCodes, Ltd.* $ 69,930 2,800 Black Box Corp. 132,664 4,800 CommScope, Inc.* 96,624 7,700 Packeteer, Inc.* 59,829 ----------- $ 359,047 ----------- Electronic Equipment & Instruments - 1.3% 7,575 Aeroflex, Inc.* $ 81,431 5,400 Technitrol, Inc. 92,340 ----------- $ 173,771 ----------- Technology Distributors - 0.6% 4,400 Agilysys, Inc. $ 80,168 ----------- Total Technology Hardware & Equipment $ 612,986 ----------- Semiconductors - 1.8% Semiconductor Equipment - 0.5% 2,500 ADE Corp.* $ 60,150 ----------- Semiconductors - 1.3% 22,000 Lattice Semiconductor Corp.* $ 95,040 500 PortalPlayer, Inc.* 14,160 3,300 Semtech Corp.* 60,258 ----------- $ 169,458 ----------- Total Semiconductors $ 229,608 -----------
56 The accompanying notes are an integral part of these financial statements. Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Telecommunication Services - 0.7% Integrated Telecommunication Services - 0.7% 9,400 Alaska Communications Systems Group, Inc. $ 95,504 ----------- Total Telecommunication Services $ 95,504 ----------- Utilities - 2.8% Electric Utilities - 0.7% 3,100 IDACORP, Inc. $ 90,830 ----------- Gas Utilities - 1.3% 4,600 Atmos Energy Corp. $ 120,336 1,500 People's Energy Corp. 52,605 ----------- $ 172,941 ----------- Multi-Utilities - 0.8% 2,100 CH Energy Group, Inc. $ 96,389 ----------- Total Utilities $ 360,160 ----------- TOTAL COMMON STOCKS (Cost $11,616,160) $12,556,705 ----------- TEMPORARY CASH INVESTMENT - 10.7% Security Lending Collateral - 10.7% 1,399,038 Securities Lending Investment Fund, 4.24% $ 1,399,038 ----------- TOTAL TEMPORARY CASH INVESTMENT (Cost $1,399,038) $ 1,399,038 ----------- TOTAL INVESTMENT IN SECURITIES - 107.2% (Cost $13,015,198) $13,955,743 ----------- OTHER ASSETS AND LIABILITIES - (7.2)% $ (939,304) ----------- TOTAL NET ASSETS - 100.0% $13,016,439 ===========
* 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, 2005, the value of these securities amounted to $70,068 or 0.5% of net assets. (a) At December 31, 2005, the following securities were out on loan:
Shares Security Market Value 3,040 Administaff, Inc. $ 127,832 2,850 American Greetings Corp. 62,615 2,185 Arkansas Best Corp. 95,441 2,945 BankUnited Financial Corp. 78,249 1,900 Cerner Corp.* 172,729 6,650 Earthlink, Inc.* 73,882 8,550 eResearch Technology, Inc.* 129,105 2,660 Heritage Property Investment Trust 88,844 6,935 InterMune, Inc.* 116,508 3,325 Maverick Tube Corp.* 132,535 1,520 Redwood Trust, Inc. 62,715 4,370 Serologicals Corp.* 86,264 3,614 Sunrise Senior Living, Inc.* 121,828 ---------- Total $1,348,547 ==========
The accompanying notes are an integral part of these financial statements. 57 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 97.5% Energy - 6.5% Integrated Oil & Gas - 1.2% 54,709 Occidental Petroleum Corp. $ 4,370,155 ------------ Oil & Gas Drilling - 1.9% 49,417 ENSCO International, Inc. $ 2,191,644 30,185 Nabors Industries, Inc.* 2,286,514 38,054 Transocean Offshore Inc.* 2,651,983 ------------ $ 7,130,141 ------------ Oil & Gas Equipment & Services - 0.6% 62,552 Weatherford International, Inc.* $ 2,264,382 ------------ Oil & Gas Exploration & Production - 2.0% 44,700 Apache Corp. $ 3,062,844 74,583 Devon Energy Corp. 4,664,421 ------------ $ 7,727,265 ------------ Oil & Gas Refining & Marketing - 0.8% 49,004 Tesoro Petroleum Corp. $ 3,016,196 ------------ Total Energy $ 24,508,139 ------------ Materials - 8.5% Aluminum - 0.7% 128,762 Novelis, Inc. $ 2,689,838 ------------ Diversified Chemical - 2.4% 104,959 Ashland, Inc. $ 6,077,126 52,892 PPG Industries, Inc. 3,062,447 ------------ $ 9,139,573 ------------ Diversified Metals & Mining - 0.9% 65,617 Freeport-McMoRan Copper & Gold, Inc. (Class B) $ 3,530,195 ------------ Industrial Gases - 1.9% 121,072 Air Products & Chemicals, Inc. $ 7,166,252 ------------ Metal & Glass Containers - 1.8% 169,126 Ball Corp. $ 6,717,685 ------------ Specialty Chemicals - 0.8% 88,600 International Flavor & Fragrances, Inc. $ 2,968,100 ------------ Total Materials $ 32,211,643 ------------ Capital Goods - 4.7% Building Products - 1.1% 107,688 American Standard Companies, Inc. $ 4,302,136 ------------ Construction & Farm Machinery & Heavy Trucks - 1.6% 90,236 Deere & Co. $ 6,145,974 ------------ Trading Companies & Distributors - 2.0% 104,736 W.W. Grainger, Inc. $ 7,446,730 ------------ Total Capital Goods $ 17,894,840 ------------
Shares Value Commercial Services & Supplies - 4.1% Commercial Printing - 1.1% 117,383 R.R. Donnelley & Sons Company $ 4,015,672 ------------ Diversified Commercial Services - 1.0% 59,311 The Dun & Bradstreet Corp.* $ 3,971,465 ------------ Environmental & Facilities Services - 2.0% 196,163 Republic Services, Inc. $ 7,365,921 ------------ Total Commercial Services & Supplies $ 15,353,058 ------------ Transportation - 0.8% Railroads - 0.8% 39,220 Canadian National Railway Co. $ 3,137,208 ------------ Total Transportation $ 3,137,208 ------------ Consumer Durables & Apparel - 1.6% Apparel, Accessories & Luxury Goods - 0.6% 65,399 Liz Claiborne, Inc. $ 2,342,592 ------------ Photographic Products - 1.0% 153,473 Eastman Kodak Co. $ 3,591,268 ------------ Total Consumer Durables & Apparel $ 5,933,860 ------------ Consumer Services - 2.3% Casinos & Gaming - 1.0% 52,800 Harrah's Entertainment Inc.* $ 3,764,112 ------------ Hotels, Resorts & Cruise Lines - 1.3% 105,169 Royal Caribbean Cruises, Ltd. $ 4,738,915 ------------ Total Consumer Services $ 8,503,027 ------------ Media - 4.3% Advertising - 1.6% 602,480 The Interpublic Group of Companies, Inc.* $ 5,813,932 ------------ Broadcasting & Cable TV - 2.4% 139,602 Clear Channel Communications, Inc. $ 4,390,483 153,915 Entercom Communications Corp.* 4,566,658 ------------ $ 8,957,141 ------------ Movies & Entertainment - 0.3% 17,450 CCE Spinco, Inc.* $ 228,598 55,602 Regal Entertainment Group 1,057,550 ------------ $ 1,286,148 ------------ Total Media $ 16,057,221 ------------ Retailing - 4.8% Apparel Retail - 2.1% 335,943 Foot Locker, Inc. $ 7,924,895 ------------ Department Stores - 1.2% 68,861 Federated Department Stores, Inc. $ 4,567,550 ------------
58 The accompanying notes are an integral part of these financial statements. Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Internet Retail - 1.5% 235,308 Expedia, Inc.* $ 5,637,980 ------------ Total Retailing $ 18,130,425 ------------ Food & Drug Retailing - 4.4% Drug Retail - 0.9% 137,150 CVS Corp. $ 3,623,503 ------------ Food Retail - 1.9% 301,888 Safeway, Inc. $ 7,142,670 ------------ Hypermarkets & Supercenters - 1.6% 203,373 BJ'S Wholesale Club, Inc.* $ 6,011,706 ------------ Total Food & Drug Retailing $ 16,777,879 ------------ Food, Beverage & Tobacco - 3.5% Brewers - 1.4% 78,521 Molson Coors Brewing Co. (Class B) $ 5,260,122 ------------ Packaged Foods & Meats - 0.9% 99,025 H.J. Heinz Co., Inc. $ 3,339,123 ------------ Tobacco - 1.2% 108,700 UST, Inc.* $ 4,438,221 ------------ Total Food, Beverage & Tobacco $ 13,037,466 ------------ Health Care Equipment & Services - 7.7% Health Care Distributors - 0.5% 39,279 McKesson Corp. $ 2,026,404 ------------ Health Care Equipment - 1.4% 223,800 Boston Scientific Corp.* $ 5,480,862 ------------ Health Care Facilities - 1.8% 511,379 Tenet Healthcare Corp.* $ 3,917,163 69,324 Triad Hospitals, Inc.* 2,719,581 ------------ $ 6,636,744 ------------ Health Care Services - 2.6% 99,752 Laboratory Corp. of America Holdings* $ 5,371,645 174,900 IMS Health, Inc. 4,358,508 ------------ $ 9,730,153 ------------ Managed Health Care - 1.4% 46,104 CIGNA Corp. $ 5,149,817 ------------ Total Health Care Equipment & Services $ 29,023,980 ------------ Pharmaceuticals & Biotechnology - 2.2% Pharmaceuticals - 2.2% 254,423 Perrigo Co. $ 3,793,447 118,356 Shire Pharmaceuticals Group Plc (A.D.R.) 4,591,029 ------------ $ 8,384,476 ------------ Total Pharmaceuticals & Biotechnology $ 8,384,476 ------------
Shares Value Banks - 7.5% Regional Banks - 5.0% 55,456 City National Corp. $ 4,017,233 138,015 Key Corp. 4,544,834 79,900 Marshall & Ilsley Corp. 3,438,896 124,594 North Fork Bancorporation, Inc. 3,408,892 45,365 Zions Bancorporation 3,427,779 ------------ $ 18,837,634 ------------ Thrifts & Mortgage Finance - 2.5% 203,001 Hudson City Bancorp, Inc. $ 2,460,372 170,089 The PMI Group, Inc. 6,985,555 ------------ $ 9,445,927 ------------ Total Banks $ 28,283,561 ------------ Diversified Financials - 6.4% Asset Management & Custody Banks - 3.9% 204,104 Federated Investors, Inc.* $ 7,560,012 205,849 Mellon Bank Corp. 7,050,328 ------------ $ 14,610,340 ------------ Investment Banking & Brokerage - 2.5% 72,884 A.G. Edwards, Inc. $ 3,415,344 51,391 Bear Stearns Companies Inc. 5,937,202 ------------ $ 9,352,546 ------------ Total Diversified Financials $ 23,962,886 ------------ Insurance - 9.2% Insurance Brokers - 2.4% 138,300 Marsh & McLennan Co., Inc. $ 4,392,408 122,846 Willis Group Holdings, Ltd. 4,537,931 ------------ $ 8,930,339 ------------ Life & Health Insurance - 1.6% 263,381 UNUM Corp. $ 5,991,918 ------------ Multi-Line Insurance - 2.1% 108,160 Assurant, Inc. $ 4,703,878 92,400 Genworth Financial, Inc. 3,195,192 ------------ $ 7,899,070 ------------ Property & Casualty Insurance - 2.1% 79,183 Safeco Corp. $ 4,473,840 6,598 White Mountains Insurance Group, Ltd. 3,685,313 ------------ $ 8,159,153 ------------ Reinsurance - 1.0% 121,292 Platinum Underwriter Holdings Corp. $ 3,768,542 ------------ Total Insurance $ 34,749,022 ------------ Software & Services - 1.5% Data Processing & Outsourced Services - 1.5% 401,162 The BISYS Group, Inc.* $ 5,620,280 ------------ Total Software & Services $ 5,620,280 ------------
The accompanying notes are an integral part of these financial statements. 59 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value Technology Hardware & Equipment - 8.6% Communications Equipment - 2.0% 79,159 Scientific-Atlanta, Inc. $ 3,409,378 370,949 Tellabs, Inc.* 4,043,344 ------------ $ 7,452,722 ------------ Computer Hardware - 1.4% 154,000 NCR Corp.* $ 5,226,760 ------------ Computer Storage & Peripherals - 1.3% 105,471 Imation Corp. $ 4,859,049 ------------ Electronic Equipment & Instruments - 2.1% 612,970 Symbol Technologies, Inc. $ 7,858,275 ------------ Office Electronics - 1.8% 470,879 Xerox Corp.* $ 6,898,377 ------------ Total Technology Hardware & Equipment $ 32,295,183 ------------ Telecommunication Services - 1.3% Integrated Telecommunication Services - 1.3% 877,113 Cincinnati Bell, Inc.* $ 3,078,667 59,046 Century Telephone Enterprises, Inc. 1,957,965 ------------ $ 5,036,632 ------------ Total Telecommunication Services $ 5,036,632 ------------ Utilities - 7.6% Electric Utilities - 2.3% 98,300 Allegheny Energy, Inc.* $ 3,111,195 121,871 Edison Intl. 5,314,794 3,240 Entergy Corp. 222,426 ------------ $ 8,648,415 ------------ Independent Power Producer & Energy Traders - 2.8% 95,237 Constellation Energy Group $ 5,485,651 103,656 NRG Energy, Inc.* 4,884,271 ------------ $ 10,369,922 ------------ Multi-Utilities - 2.5% 144,474 NSTAR $ 4,146,404 146,361 PG&E Corp. 5,432,920 ------------ $ 9,579,324 ------------ Total Utilities $ 28,597,661 ------------ TOTAL COMMON STOCKS (Cost $321,641,094) $367,498,447 ------------
Principal Amount Value TEMPORARY CASH INVESTMENT - 1.9% Repurchase Agreement - 1.9% $ 7,000,000 UBS Warburg, Inc., 3.25% dated 12/31/05, repurchase price of $7,000,000 plus accrued interest on 1/3/06 collateralized by $7,297,000 U.S. Treasury Bill, 4.2%, 6/29/06 $ 7,000,000 ------------ TOTAL TEMPORARY CASH INVESTMENT (Cost $7,000,000) $ 7,000,000 ------------ TOTAL INVESTMENT IN SECURITIES - 99.4% (Cost $328,641,094) $374,498,447 ------------ OTHER ASSETS AND LIABILITIES - 0.6% $ 2,555,530 ------------ TOTAL NET ASSETS - 100.0% $377,053,977 ============
* Non-income producing security (A.D.R.) American Depositary Receipt 60 The accompanying notes are an integral part of these financial statements. Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 100.2% Energy - 1.5% Integrated Oil & Gas - 1.5% 2,600 Occidental Petroleum Corp. $ 207,688 10,000 Repsol SA (A.D.R.) 294,100 ----------- $ 501,788 ----------- Total Energy $ 501,788 ----------- Materials - 1.1% Diversified Chemical - 1.1% 8,700 Dow Chemical Co. $ 381,234 ----------- Total Materials $ 381,234 ----------- Capital Goods - 11.1% Aerospace & Defense - 3.0% 3,400 L-3 Communications Holdings, Inc. $ 252,790 13,500 United Technologies Corp. 754,785 ----------- $ 1,007,575 ----------- Building Products - 1.8% 15,600 American Standard Companies, Inc. $ 623,220 ----------- Construction, Farm Machinery & Heavy Trucks - 1.6% 8,000 Deere & Co. $ 544,880 ----------- Industrial Conglomerates - 3.6% 6,800 3M Co. $ 527,000 24,200 Tyco International, Ltd. 698,412 ----------- $ 1,225,412 ----------- Industrial Machinery - 1.1% 4,300 Illinois Tool Works, Inc. (a) $ 378,357 ----------- Total Capital Goods $ 3,779,444 ----------- Commercial Services & Supplies - 0.7% Diversified Commercial Services - 0.7% 3,500 The Dun & Bradstreet Corp.* $ 234,360 ----------- Total Commercial Services & Supplies $ 234,360 ----------- Consumer Durables & Apparel - 1.7% Apparel, Accessories & Luxury Goods - 0.8% 7,200 Liz Claiborne, Inc. $ 257,904 ----------- Housewares & Specialties - 0.9% 4,000 Fortune Brands, Inc.* $ 312,080 ----------- Total Consumer Durables & Apparel $ 569,984 ----------- Consumer Services - 1.4% Education Services - 0.7% 7,479 Career Education Corp.* $ 252,192 ----------- Hotels, Resorts & Cruise Lines - 0.7% 4,400 Carnival Corp. $ 235,268 ----------- Total Consumer Services $ 487,460 -----------
Shares Value Media - 4.2% Advertising - 0.8% 3,200 Omnicom Group $ 272,416 ----------- Broadcasting & Cable TV - 3.4% 95,700 Liberty Media Corp.* 753,159 12,500 Viacom, Inc. (Class B) 407,500 ----------- $ 1,160,659 ----------- Total Media $ 1,433,075 ----------- Retailing - 5.8% Apparel Retail - 2.7% 4,500 Abercrombie & Fitch Co. $ 293,310 27,200 TJX Companies, Inc. 631,856 ----------- $ 925,166 ----------- Home Improvement Retail - 3.1% 26,000 Home Depot, Inc. $ 1,052,480 ----------- Total Retailing $ 1,977,646 ----------- Food & Drug Retailing - 2.2% Drug Retail - 2.2% 28,800 CVS Corp. $ 760,896 ----------- Total Food & Drug Retailing $ 760,896 ----------- Food, Beverage & Tobacco - 5.1% Soft Drinks - 1.5% 6,900 Fomento Economico Mexicano SA de CV $ 500,319 ----------- Tobacco - 3.6% 16,600 Altria Group, Inc. $ 1,240,352 ----------- Total Food, Beverage & Tobacco $ 1,740,671 ----------- Household & Personal Products - 5.1% Household Products - 3.4% 19,700 Procter & Gamble Co. $ 1,140,236 ----------- Personal Products - 1.7% 20,600 Avon Products, Inc. $ 588,130 ----------- Total Household & Personal Products $ 1,728,366 ----------- Health Care Equipment & Services - 10.4% Health Care Distributors - 2.1% 10,400 Cardinal Health, Inc. $ 715,000 ----------- Health Care Equipment - 6.3% 14,600 Biomet, Inc. $ 533,922 32,800 Boston Scientific Corp.* 803,272 12,330 Guidant Corp. 798,368 ----------- $ 2,135,562 ----------- Health Care Services - 0.8% 11,800 IMS Health, Inc. $ 294,056 -----------
The accompanying notes are an integral part of these financial statements. 61 Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value Health Care Supplies - 1.2% 7,800 Cooper Companies, Inc. $ 400,140 ----------- Total Health Care Equipment & Services $ 3,544,758 ----------- Pharmaceuticals & Biotechnology - 13.4% Biotechnology - 4.8% 16,058 Amgen, Inc.* $ 1,266,334 6,800 Gilead Sciences, Inc.* 357,884 ----------- $ 1,624,218 ----------- Pharmaceuticals - 8.6% 11,800 Astrazeneca Plc (A.D.R.) $ 573,480 21,700 IVAX Corp.* 679,861 20,000 Johnson & Johnson 1,202,000 15,092 Par Pharmaceutical Co., Inc.*(a) 472,983 ----------- $ 2,928,324 ----------- Total Pharmaceuticals & Biotechnology $ 4,552,542 ----------- Banks - 0.9% Diversified Banks - 0.9% 5,900 Wachovia Corp. $ 311,874 ----------- Total Banks $ 311,874 ----------- Diversified Financials - 2.3% Diversified Financial Services - 2.3% 16,400 Citigroup, Inc. $ 795,892 ----------- Total Diversified Financials $ 795,892 ----------- Insurance - 2.5% Multi-Line Insurance - 2.5% 12,300 American International Group, Inc. $ 839,229 ----------- Total Insurance $ 839,229 ----------- Software & Services - 13.8% IT Consulting & Other Services - 1.0% 12,100 Accenture, Ltd. $ 349,327 ----------- Systems Software - 12.8% 39,100 Macrovision Corp.* $ 654,143 77,800 Microsoft Corp. 2,034,470 72,900 Oracle Corp.* 890,109 43,700 Symantec Corp.* 764,750 ----------- $ 4,343,472 ----------- Total Software & Services $ 4,692,799 ----------- Technology Hardware & Equipment - 11.7% Communications Equipment - 7.8% 48,000 Avaya, Inc.* $ 512,160 83,800 Cisco Systems, Inc.* 1,434,656 16,300 Qualcomm, Inc. 702,204 ----------- $ 2,649,020 -----------
Shares Value Computer Hardware - 3.9% 44,400 Dell, Inc.* $ 1,331,556 ----------- Total Technology Hardware & Equipment $ 3,980,576 ----------- Semiconductors - 4.1% Semiconductors - 4.1% 56,700 Intel Corp. $ 1,415,231 ----------- Total Semiconductors $ 1,415,231 ----------- Telecommunication Services - 1.2% Wireless Telecommunication Services - 1.2% 19,400 Vodafone Group Plc (A.D.R.) $ 416,518 ----------- Total Telecommunication Services $ 416,518 ----------- TOTAL COMMON STOCKS (Cost $33,251,207) $34,144,343 ----------- TEMPORARY CASH INVESTMENT - 2.4% Security Lending Collateral - 2.4% 836,722 Securities Lending Investment Fund, 4.24% $ 836,722 ----------- TOTAL TEMPORARY CASH INVESTMENT (Cost $836,722) $ 836,722 ----------- TOTAL INVESTMENT IN SECURITIES - 102.6% (Cost $34,087,929) $34,981,065 ----------- OTHER ASSETS AND LIABILITIES - (2.6)% $ (899,380) ----------- TOTAL NET ASSETS - 100.0% $34,081,685 ===========
* Non-income producing security. (A.D.R.) American Depositary Receipt. (a) At December 31, 2005, the following securities were out on loan:
Shares Security Value 4,035 Illinois Tool Works, Inc. $355,040 14,337 Par Pharmaceutical Co., Inc.* 449,322 -------- Total $804,362 ========
62 The accompanying notes are an integral part of these financial statements. Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 98.8% Consumer Services - 5.7% Hotels, Resorts & Cruise Lines - 5.7% 84,300 Hilton Hotels Corp. $ 2,032,473 57,000 Starwood Hotels & Resorts 3,640,020 ------------ $ 5,672,493 ------------ Total Consumer Services $ 5,672,493 ------------ Real Estate - 93.1% Real Estate Management & Development - 3.6% 122,000 Brookfield Properties Corp. $ 3,589,240 ------------ Real Estate Investment Trusts - 89.5% 43,700 AMB Property Corp. (a) $ 2,148,729 31,000 Apartment Investment & Management Co. 1,173,970 95,000 Archstone Communities Trust 3,979,550 9,000 Arden Realty Group, Inc. 403,470 55,000 AvalonBay Communities, Inc. 4,908,750 32,500 BioMed Property Trust, Inc. 793,000 73,000 Boston Properties, Inc. 5,411,490 40,300 Brandywine Realty Trust 1,124,773 45,000 Camden Property Trust 2,606,400 16,000 Carramerica Realty Corp. 554,080 26,500 Corporate Office Properties 941,810 68,900 Developers Diversifies Realty Corp. 3,239,678 35,000 Duke Realty Investments, Inc. 1,169,000 8,000 Equity Lifestyle Properties, Inc. 356,000 46,000 Equity Office Properties Trust 1,395,180 107,000 Equity Residential Property Trust 4,185,840 24,300 Extra Space Storage, Inc.* 374,220 35,000 Federal Realty Investment Trust 2,122,750 15,800 First Potomac Realty Trust 420,280 68,000 General Growth Properties, Inc. (a) 3,195,320 13,500 Healthcare Realty Trust, Inc. 449,145 52,600 Highwoods Properties, Inc. 1,496,470 14,500 Hospitality Properties Trust 581,450 176,800 Host Marriott Corp. (a) 3,350,360 24,500 iStar Financial, Inc. 873,425 12,000 Kilroy Realty Corp. 742,800 67,000 Kimco Realty Corp. (a) 2,149,360 40,900 Kite Realty Group Trust 632,723 84,000 Liberty Property Trust 3,599,400 9,200 The Macerich Co. 617,688 12,500 Mills Corp. 524,250
Shares Value 30,200 Pan Pacific Retail Properties, Inc. $ 2,020,078 45,500 Prentiss Properties Trust 1,850,940 127,000 ProLogis Trust 5,933,440 22,000 PS Business Par, Inc. 1,082,400 44,000 Public Storage, Inc. 2,979,680 39,500 Regency Centers Corp. 2,328,525 17,500 Shurgard Storage Centers, Inc. 992,425 91,000 Simon Property Group, Inc. (a) 6,973,330 27,500 Spirit Finance Corp. 312,125 17,500 Strategic Hotel Capital, Inc. 360,150 67,000 Taubman Centers, Inc. 2,328,250 73,300 Trizec Properties, Inc. 1,680,036 57,000 United Dominion Realty Trust 1,336,080 40,000 Vornado Realty Trust 3,338,800 ------------ $ 89,037,620 ------------ Total Real Estate $ 92,626,860 ------------ TOTAL COMMON STOCKS (Cost $60,502,235) $ 98,299,353 ------------ TEMPORARY CASH INVESTMENT - 17.7% Security Lending Collateral - 17.7% 17,545,193 Securities Lending Investment Fund, 4.24% $ 17,545,193 ------------ TOTAL TEMPORARY CASH INVESTMENT (Cost $17,545,193) $ 17,545,193 ------------ TOTAL INVESTMENT IN SECURITIES - 116.5% (Cost $78,047,428) $115,844,546 ------------ OTHER ASSETS AND LIABILITIES - (16.5)% $(16,375,292) ------------ TOTAL NET ASSETS - 100.0% $ 99,469,254 ============
* Non-income producing security. (a) At December 31, 2005, the following securities were out on loan:
Shares Security Value 40,650 AMB Property Corp. $ 1,998,761 64,400 General Growth Properties, Inc. 3,026,156 167,460 Host Marriott Corp. 3,173,367 64,350 Kimco Realty Corp. 2,064,348 89,100 Simon Property Group, Inc. 6,827,733 ----------- Total $17,090,365 ===========
The accompanying notes are an integral part of these financial statements. 63 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 100.0% Energy - 7.0% Integrated Oil & Gas - 5.4% 179,531 Chevron Corp. $ 10,191,975 88,025 ConocoPhillips 5,121,295 114,668 Exxon Mobil Corp. 6,440,902 63,625 Occidental Petroleum Corp. 5,082,365 ------------ $ 26,836,537 ------------ Oil & Gas Equipment & Services - 0.3% 42,162 Weatherford International, Inc.* $ 1,526,264 ------------ Oil & Gas Exploration & Production - 1.3% 48,194 Apache Corp. $ 3,302,253 67,515 Pioneer Natural Resources Co. 3,461,494 ------------ $ 6,763,747 ------------ Total Energy $ 35,126,548 ------------ Materials - 7.0% Aluminum - 0.4% 72,726 Alcoa, Inc. $ 2,150,508 ------------ Diversified Chemical - 1.2% 70,100 Dow Chemical Co. $ 3,071,782 44,427 E.I. du Pont de Nemours & Co. 1,888,148 20,057 PPG Industries, Inc. 1,161,300 ------------ $ 6,121,230 ------------ Diversified Metals & Mining - 3.6% 90,507 BHP Billiton, Ltd. (A.D.R.) $ 3,024,744 98,510 Inco, Ltd. 4,292,081 239,324 Rio Tinto Plc 10,930,255 ------------ $ 18,247,080 ------------ Gold - 0.2% 21,960 Newmont Mining Corp. $ 1,172,664 ------------ Industrial Gases - 0.9% 25,334 Air Products & Chemicals, Inc. $ 1,499,519 53,762 Praxair, Inc. 2,847,236 ------------ $ 4,346,755 ------------ Paper Products - 0.3% 50,997 Meadwestvaco Corp. $ 1,429,446 ------------ Specialty Chemicals - 0.3% 37,481 Ecolab, Inc. $ 1,359,436 ------------ Steel - 0.1% 7,255 Allegheny Technologies, Inc. $ 261,760 ------------ Total Materials $ 35,088,879 ------------ Capital Goods - 9.5% Aerospace & Defense - 3.0% 43,011 General Dynamics Corp. $ 4,905,405 181,953 United Technologies Corp. 10,172,992 ------------ $ 15,078,397 ------------
Shares Value Building Products - 0.1% 8,309 Masco Corp. $ 250,849 ------------ Construction & Farm Machinery & Heavy Trucks - 3.7% 99,679 Caterpillar, Inc. $ 5,758,456 94,266 Deere & Co. 6,420,457 91,215 PACCAR, Inc. 6,314,814 ------------ $ 18,493,727 ------------ Electrical Component & Equipment - 1.2% 55,395 Emerson Electric Co. $ 4,138,007 29,606 Rockwell International Corp. 1,751,491 ------------ $ 5,889,498 ------------ Industrial Conglomerates - 1.3% 7,200 3M Co. $ 558,000 169,108 General Electric Co. 5,927,235 ------------ $ 6,485,235 ------------ Industrial Machinery - 0.2% 16,367 Parker Hannifin Corp. $ 1,079,567 ------------ Total Capital Goods $ 47,277,273 ------------ Transportation - 3.6% Airlines - 0.5% 151,393 Southwest Airlines Co. $ 2,487,387 ------------ Railroads - 3.1% 74,802 Burlington Northern, Inc. $ 5,297,478 222,911 Norfolk Southern Corp. 9,993,100 ------------ $ 15,290,578 ------------ Total Transportation $ 17,777,965 ------------ Automobiles & Components - 2.5% Auto Parts & Equipment - 1.5% 101,606 Johnson Controls, Inc. $ 7,408,093 ------------ Automobile Manufacturers - 1.0% 628,984 Ford Motor Corp. $ 4,855,756 ------------ Total Automobiles & Components $ 12,263,849 ------------ Consumer Durables & Apparel - 0.2% Apparel, Accessories & Luxury Goods - 0.2% 23,883 Liz Claiborne, Inc. $ 855,489 ------------ Total Consumer Durables & Apparel $ 855,489 ------------ Consumer Services - 0.1% Restaurants - 0.1% 7,325 Tricon Global Restaurants, Inc. $ 343,396 ------------ Total Consumer Services $ 343,396 ------------ Media - 5.7% Advertising - 0.7% 42,090 Omnicom Group $ 3,583,122 ------------
64 The accompanying notes are an integral part of these financial statements. Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Movies & Entertainment - 0.8% 162,516 The Walt Disney Co. $ 3,895,509 ------------ Publishing - 4.2% 41,058 Elsevier NV $ 573,242 100,160 Gannett Co. 6,066,691 125,263 John Wiley & Sons, Inc. 4,890,268 188,438 McGraw-Hill Co., Inc. 9,729,054 ------------ $ 21,259,255 ------------ Total Media $ 28,737,886 ------------ Retailing - 6.8% Apparel Retail - 0.2% 60,617 Gap Inc. $ 1,069,284 ------------ Computer & Electronics Retail - 0.1% 9,295 GameStop Corp. (Class B)* $ 268,626 ------------ Department Stores - 2.1% 50,178 Federated Department Stores, Inc. $ 3,328,307 193,453 Nordstrom, Inc. 7,235,142 ------------ $ 10,563,449 ------------ General Merchandise Stores - 1.9% 177,813 Target Corp. $ 9,774,381 ------------ Home Improvement Retail - 1.9% 121,451 Home Depot, Inc. $ 4,916,336 70,792 Lowe's Companies, Inc. 4,718,995 ------------ $ 9,635,331 ------------ Specialty Stores - 0.6% 29,018 Barnes & Noble, Inc. $ 1,238,198 69,072 Staples, Inc. 1,568,625 ------------ $ 2,806,823 ------------ Total Retailing $ 34,117,894 ------------ Food & Drug Retailing - 3.3% Drug Retail - 2.1% 75,467 CVS Corp. $ 1,993,838 190,303 Walgreen Co. 8,422,811 ------------ $ 10,416,649 ------------ Food Distributors - 1.0% 161,566 Sysco Corp. $ 5,016,624 ------------ Hypermarkets & Supercenters - 0.2% 19,649 Costco Wholesale Corp. $ 972,036 ------------ Total Food & Drug Retailing $ 16,405,309 ------------
Shares Value Food, Beverage & Tobacco - 5.2% Packaged Foods & Meats - 3.5% 83,259 Campbell Soup Co. $ 2,478,620 97,063 General Mills, Inc. 4,787,147 145,574 H.J. Heinz Co., Inc. 4,908,755 52,617 Hershey Foods Corp. 2,907,089 23,685 Kellogg Co. 1,023,666 73,473 Sara Lee Corp. 1,388,640 ------------ $ 17,493,917 ------------ Soft Drinks - 1.7% 146,681 PepsiCo, Inc. $ 8,665,913 ------------ Total Food, Beverage & Tobacco $ 26,159,830 ------------ Household & Personal Products - 1.7% Household Products - 1.2% 96,982 Colgate-Palmolive Co. $ 5,319,463 14,255 Clorox Co. 810,967 ------------ $ 6,130,430 ------------ Personal Products - 0.5% 67,208 Estee Lauder Co.* $ 2,250,124 ------------ Total Household & Personal Products $ 8,380,554 ------------ Health Care Equipment & Services - 2.6% Health Care Equipment - 2.6% 28,200 C. R. Bard, Inc. $ 1,858,944 71,108 Becton, Dickinson & Co. 4,272,169 63,338 Biomet, Inc. 2,316,271 39,539 Medtronic, Inc. 2,276,260 21,100 St. Jude Medical, Inc.* 1,059,220 30,665 Stryker Corp. 1,362,446 ------------ $ 13,145,310 ------------ Total Health Care Equipment & Services $ 13,145,310 ------------ Pharmaceuticals & Biotechnology - 8.9% Biotechnology - 0.8% 53,778 Amgen, Inc.* $ 4,240,933 ------------ Pharmaceuticals - 8.1% 102,710 Abbott Laboratories $ 4,049,855 53,017 Barr Laboratorie, Inc.* 3,302,429 119,085 Bristol-Myers Squibb Co. 2,736,573 80,039 Eli Lilly & Co. 4,529,407 137,058 Johnson & Johnson 8,237,186 95,767 Merck & Co., Inc. 3,046,348 77,980 Novartis AG (A.D.R.) 4,092,390 103,100 Pfizer, Inc. 2,404,292 36,377 Roche Holdings AG (A.D.R.) 2,731,040 175,915 Schering-Plough Corp. 3,667,828 35,811 Teva Pharmaceutical Industries, Ltd. 1,540,231 ------------ $ 40,337,579 ------------
The accompanying notes are an integral part of these financial statements. 65 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value Total Pharmaceuticals & Biotechnology $ 44,578,512 ------------ Banks - 9.0% Diversified Banks - 4.2% 66,429 Bank of America Corp. $ 3,065,698 235,635 U.S. Bancorp 7,043,130 39,577 Wachovia Corp. 2,092,040 140,973 Wells Fargo & Co. 8,857,334 ------------ $ 21,058,202 ------------ Regional Banks - 3.1% 13,577 Compass Bancshares, Inc. $ 655,633 83,035 First Horizon National Corp. 3,191,865 170,284 National City Corp. 5,716,434 55,102 SunTrust Banks, Inc. 4,009,222 21,817 Zions Bancorporation 1,648,493 ------------ $ 15,221,647 ------------ Thrifts & Mortgage Finance - 1.7% 34,700 Golden West Financial Corp. $ 2,290,200 146,301 Washington Mutual, Inc. 6,364,094 ------------ $ 8,654,294 ------------ Total Banks $ 44,934,143 ------------ Diversified Financials - 6.1% Asset Management & Custody Banks - 3.5% 22,545 Ameriprise Financial, Inc. $ 924,345 43,970 Federated Investors, Inc.* 1,628,649 104,482 State Street Corp. 5,792,482 124,803 T. Rowe Price Associates, Inc. 8,989,560 ------------ $ 17,335,036 ------------ Consumer Finance - 1.2% 112,725 American Express Co. $ 5,800,829 ------------ Investment Banking & Brokerage - 0.8% 58,452 Merrill Lynch & Co., Inc. $ 3,958,954 ------------ Diversified Financial Services - 0.6% 66,850 Citigroup, Inc. $ 3,244,231 ------------ Total Diversified Financials $ 30,339,050 ------------ Insurance - 2.4% Multi-Line Insurance - 0.2% 13,522 Hartford Financial Services Group, Inc. $ 1,161,405 ------------ Property & Casualty Insurance - 2.2% 20,832 ACE, Ltd. $ 1,113,262 40,815 Axis Capital Holdings, Ltd. 1,276,693 68,753 Chubb Corp. 6,713,730 34,082 Safeco Corp. 1,925,633 ------------ $ 11,029,318 ------------ Total Insurance $ 12,190,723 ------------
Shares Value Software & Services - 4.1% Application Software - 0.7% 86,186 Adobe Systems, Inc. $ 3,185,435 ------------ Data Processing & Outsourced Services - 2.2% 181,884 Automatic Data Processing, Inc. $ 8,346,657 25,841 DST Systems, Inc.* 1,548,134 28,113 Fiserv, Inc.* 1,216,450 ------------ $ 11,111,241 ------------ Systems Software - 1.2% 229,175 Microsoft Corp. $ 5,992,926 ------------ Total Software & Services $ 20,289,602 ------------ Technology Hardware & Equipment - 6.2% Communications Equipment - 2.9% 139,000 Cisco Systems, Inc.* $ 2,379,680 313,651 Motorola, Inc. 7,085,375 274,102 Nokia Corp. (A.D.R.) 5,016,067 ------------ $ 14,481,122 ------------ Computer Hardware - 2.2% 106,976 Dell, Inc.* $ 3,208,210 176,511 Hewlett-Packard Co. 5,053,510 703,372 Sun Microsystems, Inc.* 2,947,129 ------------ $ 11,208,849 ------------ Computer Storage & Peripherals - 0.4% 134,374 EMC Corp.* $ 1,830,174 ------------ Office Electronics - 0.7% 57,242 Canon, Inc. (A.D.R.) $ 3,367,547 ------------ Total Technology Hardware & Equipment $ 30,887,692 ------------ Semiconductors - 3.0% Semiconductor Equipment - 0.4% 96,070 Applied Materials, Inc. $ 1,723,495 ------------ Semiconductors - 2.6% 20,845 Freescale Semiconductor, Inc. (Class B)* $ 524,669 236,129 Intel Corp. 5,893,780 211,248 Texas Instruments, Inc. 6,774,723 ------------ $ 13,193,172 ------------ Total Semiconductors $ 14,916,667 ------------ Telecommunication Services - 3.7% Integrated Telecommunication Services - 3.4% 279,088 AT&T Corp. $ 6,834,865 141,901 BellSouth Corp. 3,845,517 74,411 Century Telephone Enterprises, Inc. 2,467,468 129,130 Verizon Communications, Inc. 3,889,396 ------------ $ 17,037,246 ------------
66 The accompanying notes are an integral part of these financial statements. Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Wireless Telecommunication Services - 0.3% 23,216 Alltel Corp. $ 1,464,930 ------------ Total Telecommunication Services $ 18,502,176 ------------ Utilities - 1.5% Electric Utilities - 0.5% 15,000 Exelon Corp. $ 797,100 56,177 Southern Co. 1,939,792 ------------ $ 2,736,892 ------------ Multi-Utilities - 1.0% 34,904 Consolidated Edison, Inc. $ 1,617,100 74,103 KeySpan Energy Corp. 2,644,736 13,700 PG&E Corp. 508,542 ------------ $ 4,770,378 ------------ Total Utilities $ 7,507,270 ------------ TOTAL COMMON STOCKS (Cost $396,395,153) $499,826,017 ------------ TOTAL INVESTMENT IN SECURITIES - 100.0% (Cost $396,395,153) $499,826,017 ------------ OTHER ASSETS AND LIABILITIES - 0.0% $ (196,475) ------------ TOTAL NET ASSETS - 100.0% $499,629,542 ============
(A.D.R.) American Depositary Receipt * Non-income producing security The accompanying notes are an integral part of these financial statements. 67 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value CONVERTIBLE PREFERRED STOCK - 0.5% Automobiles & Components - 0.5% Automobile Manufacturers - 0.5% 60,747 Ford Cap Trust, 6.5%, 1/15/32 $ 1,674,187 ------------ Total Automobiles & Components $ 1,674,187 ------------ Pharmaceuticals & Biotechnology - 0.0% Pharmaceuticals - 0.0% 4,255 Schering-Plough Corp., 6.0%, 9/14/07 $ 227,643 ------------ Total Pharmaceuticals & Biotechnology $ 227,643 ------------ TOTAL CONVERTIBLE PREFERRED STOCK (Cost $3,070,923) $ 1,901,830 ------------ COMMON STOCK - 96.9% Energy - 5.5% Integrated Oil & Gas - 5.5% 144,649 Chevron Corp. $ 8,211,724 115,922 ConocoPhillips 6,744,342 84,898 Exxon Mobil Corp. 4,768,721 ------------ $ 19,724,787 ------------ Total Energy $ 19,724,787 ------------ Materials - 7.0% Construction Materials - 0.8% 40,637 Vulcan Materials Co. $ 2,753,157 ------------ Diversified Chemical - 2.1% 73,300 Dow Chemical Co. $ 3,212,006 82,800 Olin Corp. 1,629,504 46,965 PPG Industries, Inc. 2,719,274 ------------ $ 7,560,784 ------------ Diversified Metals & Mining - 0.3% 43,156 Compass Minerals International, Inc. $ 1,059,048 ------------ Industrial Gases - 1.2% 71,152 Air Products & Chemicals, Inc. $ 4,211,487 ------------ Paper Products - 0.6% 79,793 Meadwestvaco Corp. $ 2,236,598 ------------ Specialty Chemicals - 0.7% 105,965 Valspar Corp. $ 2,614,157 ------------ Steel - 1.3% 61,162 Nucor Corp. (a) $ 4,080,729 24,009 Roanoke Electric Steel Corp. 566,612 ------------ $ 4,647,341 ------------ Total Materials $ 25,082,572 ------------ Capital Goods - 9.1% Aerospace & Defense - 1.6% 103,955 United Technologies Corp. $ 5,812,124 ------------
Shares Value Construction & Farm Machinery & Heavy Trucks - 4.3% 38,489 Deere & Co. $ 2,621,486 185,643 PACCAR, Inc. 12,852,065 ------------ $ 15,473,551 ------------ Electrical Component & Equipment - 1.9% 91,501 Emerson Electric Co. $ 6,835,125 ------------ Industrial Machinery - 1.3% 30,350 Gorman-Rupp Co. $ 671,039 117,902 The Timken Co. 3,775,222 ------------ $ 4,446,261 ------------ Total Capital Goods $ 32,567,061 ------------ Transportation - 1.4% Railroads - 1.4% 72,891 Burlington Northern, Inc. $ 5,162,141 ------------ Total Transportation $ 5,162,141 ------------ Automobiles & Components - 2.6% Auto Parts & Equipment - 1.9% 93,560 Johnson Controls, Inc. $ 6,821,460 ------------ Automobile Manufacturers - 0.7% 318,322 Ford Motor Corp. $ 2,457,446 ------------ Total Automobiles & Components $ 9,278,906 ------------ Consumer Durables & Apparel - 0.8% Housewares & Specialties - 0.8% 123,380 Tupperware Brands Corp. $ 2,763,712 ------------ Total Consumer Durables & Apparel $ 2,763,712 ------------ Consumer Services - 1.9% Leisure Facilities - 1.5% 184,827 Cedar Fair, L.P. $ 5,274,963 ------------ Specialized Consumer Services - 0.4% 134,841 Servicemaster Co. $ 1,611,350 ------------ Total Consumer Services $ 6,886,313 ------------ Media - 1.6% Publishing - 1.6% 113,625 McGraw-Hill Co., Inc. $ 5,866,459 ------------ Total Media $ 5,866,459 ------------ Retailing - 1.5% Department Stores - 1.1% 59,221 Federated Department Stores, Inc. $ 3,928,129 ------------ Distributors - 0.4% 36,130 Genuine Parts Co. $ 1,586,830 ------------ Total Retailing $ 5,514,959 ------------
68 The accompanying notes are an integral part of these financial statements. Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Food & Drug Retailing - 0.4% Food Retail - 0.4% 73,200 Albertson's, Inc. $ 1,562,820 ------------ Total Food & Drug Retailing $ 1,562,820 ------------ Food, Beverage & Tobacco - 5.0% Packaged Foods & Meats - 3.6% 188,614 Campbell Soup Co. $ 5,615,039 60,831 General Mills, Inc. 3,000,185 94,243 H.J. Heinz Co., Inc. 3,177,874 59,974 Sara Lee Corp. 1,133,509 ------------ $ 12,926,607 ------------ Soft Drinks - 1.4% 72,855 Coca-Cola Co. $ 2,936,785 36,572 PepsiCo, Inc. 2,160,674 ------------ $ 5,097,459 ------------ Total Food, Beverage & Tobacco $ 18,024,066 ------------ Household & Personal Products - 2.3% Household Products - 2.3% 76,594 Colgate-Palmolive Co. $ 4,201,181 70,315 Clorox Co. 4,000,220 ------------ $ 8,201,401 ------------ Total Household & Personal Products $ 8,201,401 ------------ Health Care Equipment & Services - 0.7% Health Care Equipment - 0.7% 41,439 Becton, Dickinson & Co. $ 2,489,655 ------------ Total Health Care Equipment & Services $ 2,489,655 ------------ Pharmaceuticals & Biotechnology - 7.7% Pharmaceuticals - 7.7% 123,566 Abbott Laboratories $ 4,872,207 227,507 Bristol-Myers Squibb Co. 5,228,111 74,039 Eli Lilly & Co. 4,189,867 73,265 Johnson & Johnson 4,403,227 260,932 Merck & Co., Inc. 8,300,247 36,900 Pfizer, Inc. 860,508 ------------ $ 27,854,167 ------------ Total Pharmaceuticals & Biotechnology $ 27,854,167 ------------ Banks - 13.8% Diversified Banks - 4.7% 35,852 Bank of America Corp. $ 1,654,570 31,452 Comerica, Inc. 1,785,216 110,101 U.S. Bancorp 3,290,919 103,024 Wachovia Corp. 5,445,849 74,937 Wells Fargo & Co. 4,708,292 ------------ $ 16,884,846 ------------
Shares Value Regional Banks - 6.1% 88,467 First Horizon National Corp. $ 3,400,671 123,911 National City Corp. 4,159,692 54,800 PNC Bank Corp. 3,388,284 94,678 SunTrust Banks, Inc. 6,888,771 144,505 Whitney Holding Corp. 3,982,558 ------------ $ 21,819,976 ------------ Thrifts & Mortgage Finance - 3.0% 250,458 Washington Mutual, Inc. $ 10,894,923 ------------ Total Banks $ 49,599,745 ------------ Diversified Financials - 5.7% Asset Management & Custody Banks - 4.5% 152,899 Eaton Vance Corp. $ 4,183,317 34,424 State Street Corp. 1,908,467 139,943 T. Rowe Price Associates, Inc. 10,080,094 ------------ $ 16,171,878 ------------ Investment Banking & Brokerage - 0.7% 55,113 A.G. Edwards, Inc. $ 2,582,595 ------------ Diversified Financial Services - 0.5% 37,890 Citigroup, Inc. $ 1,838,802 ------------ Total Diversified Financials $ 20,593,275 ------------ Insurance - 4.9% Life & Health Insurance - 1.2% 72,900 Jefferson - Pilot Corp. $ 4,150,197 ------------ Property & Casualty Insurance - 3.7% 71,246 Chubb Corp. $ 6,957,172 110,994 Safeco Corp. 6,271,161 ------------ $ 13,228,333 ------------ Total Insurance $ 17,378,530 ------------ Real Estate - 1.3% Real Estate Investment Trusts - 1.3% 56,454 Archstone Communities Trust $ 2,364,858 72,900 Kimco Realty Corp. 2,338,632 ------------ $ 4,703,490 ------------ Total Real Estate $ 4,703,490 ------------ Software & Services - 0.6% Data Processing & Outsourced Services - 0.6% 50,297 Automatic Data Processing, Inc. $ 2,308,129 ------------ Total Software & Services $ 2,308,129 ------------ Technology Hardware & Equipment - 0.3% Computer Hardware - 0.3% 36,500 Hewlett-Packard Co. $ 1,044,995 ------------ Total Technology Hardware & Equipment $ 1,044,995 ------------
The accompanying notes are an integral part of these financial statements. 69 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value Telecommunication Services - 8.4% Integrated Telecommunication Services - 7.2% 305,096 AT&T Corp. $ 7,471,801 251,696 BellSouth Corp. 6,820,962 309,779 Citizens Utilities Co. (Class B) 3,788,597 254,800 Verizon Communications, Inc. 7,674,576 ------------ $ 25,755,936 ------------ Wireless Telecommunication Services - 1.2% 66,304 Alltel Corp. $ 4,183,782 ------------ Total Telecommunication Services $ 29,939,718 ------------ Utilities - 14.4% Electric Utilities - 2.6% 134,311 Great Plains Energy, Inc.(a) $ 3,755,336 157,858 Southern Co. 5,450,837 ------------ $ 9,206,173 ------------ Gas Utilities - 4.5% 19,070 Atmos Energy Corp. $ 498,871 124,038 Equitable Resources, Inc. 4,550,954 148,981 Questar Corp. 11,277,862 ------------ $ 16,327,687 ------------ Multi-Utilities - 7.3% 98,272 Ameren Corp. $ 5,035,457 94,780 Consolidated Edison, Inc. 4,391,157 158,706 KeySpan Energy Corp. 5,664,217 143,415 NSTAR 4,116,011 193,900 PG&E Corp. 7,197,561 ------------ $ 26,404,403 ------------ Total Utilities $ 51,938,263 ------------ TOTAL COMMON STOCK (Cost $291,121,572) $348,485,164 ------------ Principal Amount TEMPORARY CASH INVESTMENTS - 3.3% Repurchase Agreement - 1.8% $6,300,000 UBS Warburg, Inc., 3.25% dated 12/31/05, repurchase price of $6,300,000 plus accrued interest on 1/3/06 collateralized by $6,567,000 U.S. Treasury Bill, 3.25%, 6/29/06 $ 6,300,000 ------------
Shares Value Security Lending Collateral - 1.5% 5,595,647 Securities Lending Collateral Fund, 4.24% $ 5,595,647 ------------ TOTAL TEMPORARY CASH INVESTMENTS (Cost $11,895,647) $ 11,895,647 ------------ TOTAL INVESTMENT IN SECURITIES - 100.7% (Cost $306,088,142) $362,282,641 ------------ OTHER ASSETS AND LIABILITIES - (0.7)% $ (2,575,311) ------------ TOTAL NET ASSETS - 100.0% $359,707,330 ============
(a) At December 31, 2005, the following securities were out on loan:
Shares Security Market Value 58,299 Great Plains Energy, Inc. $ 1,630,040 56,659 Nucor Corp. 3,780,288 ----------- Total $ 5,410,328 ===========
70 The accompanying notes are an integral part of these financial statements. Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 64.7% Energy - 5.0% Integrated Oil & Gas - 0.5% 3,900 Exxon Mobil Corp. $ 219,063 ------------ Oil & Gas Drilling - 2.0% 19,500 ENSCO International, Inc. $ 864,825 ------------ Oil & Gas Equipment & Services - 2.0% 13,298 National-Oilwell Varco, Inc.* $ 833,785 ------------ Oil & Gas Exploration & Production - 0.4% 2,700 Encana Corp. $ 121,932 1,100 Pioneer Natural Resources Co. 56,397 ------------ $ 178,329 ------------ Total Energy $ 2,096,002 ------------ Materials - 4.5% Gold - 2.1% 16,800 Newmont Mining Corp. $ 897,120 ------------ Industrial Gases - 2.4% 19,000 Praxair, Inc. $ 1,006,240 ------------ Total Materials $ 1,903,360 ------------ Capital Goods - 4.6% Aerospace & Defense - 3.1% 21,800 Northrop Grumman Corp. $ 1,310,398 ------------ Industrial Conglomerates - 1.4% 7,900 3M Co. $ 612,250 ------------ Total Capital Goods $ 1,922,648 ------------ Commercial Services & Supplies - 0.5% Diversified Commercial Services - 0.5% 4,600 Cintas Corp. $ 189,428 ------------ Total Commercial Services & Supplies $ 189,428 ------------ Transportation - 2.0% Air Freight & Couriers - 2.0% 11,200 United Parcel Service $ 841,680 ------------ Total Transportation $ 841,680 ------------ Consumer Durables & Apparel - 1.5% Apparel, Accessories & Luxury Goods - 1.5% 18,100 Liz Claiborne, Inc. $ 648,342 ------------ Total Consumer Durables & Apparel $ 648,342 ------------ Media - 3.4% Broadcasting & Cable TV - 3.4% 18,100 Comcast Corp.* 464,989 29,319 Viacom, Inc. (Class B) 955,799 ------------ $ 1,420,788 ------------ Total Media $ 1,420,788 ------------
Shares Value Retailing - 1.4% Apparel Retail - 1.4% 20,500 Ross Stores, Inc. $ 592,450 ------------ Total Retailing $ 592,450 ------------ Food & Drug Retailing - 3.0% Drug Retail - 2.7% 43,400 CVS Corp. $ 1,146,628 ------------ Hypermarkets & Supercenters - 0.3% 2,500 Wal-Mart Stores, Inc. $ 117,000 ------------ Total Food & Drug Retailing $ 1,263,628 ------------ Food, Beverage & Tobacco - 6.4% Brewers - 0.6% 5,900 Anheuser-Busch Companies, Inc. $ 253,464 ------------ Packaged Foods & Meats - 1.7% 10,700 William Wrigley Jr. Co. $ 711,443 ------------ Soft Drinks - 4.1% 10,000 Coca-Cola Co. $ 403,100 22,300 PepsiCo, Inc. 1,317,484 ------------ $ 1,720,584 ------------ Total Food, Beverage & Tobacco $ 2,685,491 ------------ Household & Personal Products - 0.7% Personal Products - 0.7% 9,300 Estee Lauder Co.* $ 311,364 ------------ Total Household & Personal Products $ 311,364 ------------ Health Care Equipment & Services - 2.9% Health Care Distributors - 1.0% 6,400 Cardinal Health, Inc. $ 440,000 ------------ Health Care Equipment - 1.9% 11,100 Biomet, Inc. $ 405,927 6,000 Guidant Corp. 388,500 ------------ $ 794,427 ------------ Total Health Care Equipment & Services $ 1,234,427 ------------ Pharmaceuticals & Biotechnology - 7.5% Biotechnology - 2.2% 11,616 Amgen, Inc.* $ 916,038 ------------ Pharmaceuticals - 5.3% 4,000 Eli Lilly & Co. $ 226,360 22,900 IVAX Corp.* 717,457 20,788 Pfizer, Inc. 484,776 17,800 Wyeth 820,046 ------------ $ 2,248,639 ------------ Total Pharmaceuticals & Biotechnology $ 3,164,677 ------------
The accompanying notes are an integral part of these financial statements. 71 Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value Banks - 1.3% Diversified Banks - 1.3% 11,900 Bank of America Corp. $ 549,185 ------------ Total Banks $ 549,185 ------------ Diversified Financials - 3.4% Asset Management & Custody Banks - 1.4% 960 Ameriprise Financial, Inc. $ 39,360 17,200 The Bank of New York Co., Inc. 547,820 ------------ $ 587,180 ------------ Consumer Finance - 1.5% 12,300 American Express Co. $ 632,958 ------------ Investment Banking & Brokerage - 0.4% 2,900 Merrill Lynch & Co., Inc. $ 196,417 ------------ Total Diversified Financials $ 1,416,555 ------------ Insurance - 4.4% Property & Casualty Insurance - 4.4% 485 Berkshire Hathaway, Inc. (Class B)* $ 1,423,718 3,700 Progressive Corp. 432,086 ------------ $ 1,855,804 ------------ Total Insurance $ 1,855,804 ------------ Software & Services - 6.3% Data Processing & Outsourced Services - 3.1% 30,500 First Data Corp. $ 1,311,805 ------------
Shares Value Systems Software - 3.2% 52,000 Microsoft Corp. $ 1,359,800 ------------ Total Software & Services $ 2,671,605 ------------ Technology Hardware & Equipment - 3.9% Communications Equipment - 2.3% 12,900 Avaya, Inc.* $ 137,643 21,900 Cisco Systems, Inc.* 374,928 10,900 Qualcomm, Inc. 469,572 ------------ $ 982,143 ------------ Computer Hardware - 1.5% 21,622 Hewlett-Packard Co. $ 619,038 ------------ Electronic Manufacturing Services - 0.0% 900 Molex, Inc. $ 22,131 ------------ Total Technology Hardware & Equipment $ 1,623,312 ------------ Semiconductors - 0.5% 7,800 Intel Corp. $ 194,688 ------------ Total Semiconductors $ 194,688 ------------ Telecommunication Services - 1.5% Wireless Telecommunication Services - 1.5% 28,500 Vodafone Group Plc (A.D.R.) $ 611,894 ------------ Total Telecommunication Services $ 611,894 ------------ TOTAL COMMON STOCKS (Cost $22,776,857) $ 27,197,328 ------------
72 The accompanying notes are an integral part of these financial statements. Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value ASSET BACKED SECURITIES - 0.6% Diversified Financials - 0.2% Diversified Financial Services - 0.2% 76,659 BBB-/Baa2 PF Export Receivable Master Trust, 6.436%, 6/1/15 (144A) $ 76,541 ----------- Total Diversified Financials $ 76,541 ----------- Utilities - 0.4% Electric Utilities - 0.3% 65,325 BBB-/Baa3 FPL Energy Wind Funding, 6.876%, 6/27/17 (144A) $ 65,243 89,110 BB-/Ba2 FPL Energy America Wind LLC, 6.639%, 6/20/23 (144A) 92,661 ----------- Total Utilities $ 157,904 ----------- TOTAL ASSET BACKED SECURITIES (Cost $235,943) $ 234,445 ----------- COLLATERALIZED MORTGAGE OBLIGATIONS - 0.3% Diversified Financials - 0.3% Diversified Financial Services - 0.3% 100,000 BBB-/Baa3 Tower 2004-1A E, 5.395%, 1/15/34 $ 96,213 50,000 BBB-/Baa3 Tower 2004-2A F, 6.376%, 12/15/14 49,862 ----------- $ 146,075 ----------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $150,000) $ 146,075 ----------- CORPORATE BONDS - 9.6% Energy - 0.4% Integrated Oil & Gas - 0.1% 40,000 A-/A3 Occidental Petroleum, 6.75%, 1/15/12 $ 43,904 ----------- Oil & Gas Exploration & Production - 0.3% 100,000 BBB-/Baa3 Gazprom International SA., 7.201%, 2/1/20 (144A) $ 106,850 ----------- Oil & Gas Refining & Marketing - 0.0% 25,000 BBB/Baa2 Boardwalk Pipelines LLC, 5.5%, 2/1/17 $ 24,795 ----------- Total Energy $ 175,549 ----------- Materials - 1.3% Aluminum - 0.1% 50,000 B/B1 Novelis, Inc., 7.25%, 02/15/15 $ 46,625 ----------- Commodity Chemicals - 0.3% 100,000 BB+/Ba2 Nova Chemicals, Ltd., 6.5%, 1/15/12 $ 96,875 ----------- Diversified Metals & Mining - 0.3% 125,000 BBB-/Baa3 Inco, Ltd., 7.2%, 9/15/32 $ 137,530 ----------- Metal & Glass Containers - 0.1% 40,000 BBB/Baa2 Tenneco Packaging, 8.125%, 6/15/17 $ 45,373 ----------- Paper Products - 0.5% 100,000 BB-/Ba3 Abitibi-Consolidated, Inc., 6.95%, 4/1/08 $ 100,000 100,000 B/B2 MDP Acquisitions, 9.625%, 10/1/12 100,000 ----------- $ 200,000 ----------- Total Materials $ 526,403 -----------
The accompanying notes are an integral part of these financial statements. 73 Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Capital Goods - 0.3% Electrical Component & Equipment - 0.1% 25,000 NR/Ba1 Orcal Geothermal, 6.21%, 12/30/20 (144A) $ 25,070 ----------- Industrial Conglomerates - 0.2% 55,000 AAA/Aaa General Electric Capital Corp., 6.125%, 2/22/11 $ 57,863 30,000 AAA/Aaa General Electric Capital Corp., 6.75%, 3/15/32 35,216 ----------- $ 93,079 ----------- Total Capital Goods $ 118,149 ----------- Automobiles & Components - 0.4% Auto Parts & Equipment - 0.1% 40,000 B+/Ba2 Sun Sage BV, 8.25%, 3/26/09 (144A) $ 42,150 ----------- Automobile Manufacturers - 0.3% 200,000 BB/Baa3 General Motors, 7.2%, 1/15/11 (a) $ 140,500 ----------- Total Automobiles & Components $ 182,650 ----------- Media - 1.3% Broadcasting & Cable TV - 0.9% 250,000 BBB+/Baa2 Comcast Cable Corp., 7.125%, 6/15/13 $ 271,735 100,000 BBB-/Baa3 Cox Communications, 7.125%, 10/1/12 107,148 ----------- $ 378,883 ----------- Publishing - 0.4% 170,000 BBB-/Baa3 News America, Inc., 7.3%, 4/30/28 $ 186,518 ----------- Total Media $ 565,401 ----------- Retailing - 0.1% Specialty Stores - 0.1% 50,000 BBB-/Baa3 Tanger Factory Outlet Centers, Inc., 6.15%, 11/15/15 $ 50,509 ----------- Total Retailing $ 50,509 ----------- Health Care Equipment & Services - 0.7% Health Care Facilities - 0.5% 200,000 BB+/Ba2 HCA, Inc., 6.3%, 10/1/12 $ 200,999 ----------- Health Care Supplies - 0.2% 100,000 BBB/Baa3 Bausch & Lomb, 7.125%, 8/1/28 $ 108,211 ----------- Total Health Care Equipment & Services $ 309,210 ----------- Banks - 0.3% Diversified Banks - 0.3% 50,000 NR/Aaa KFW-Kredit Wiederaufbau, 2.75%, 5/8/07 $ 48,879 75,000 AA-/Aa2 National Westminster, 7.375%, 10/1/09 81,424 ----------- $ 130,303 ----------- Total Banks $ 130,303 ----------- Diversified Financials - 0.9% Consumer Finance - 0.2% 100,000 A/A2 SLM Corp., Floating Rate Note, 7/25/14 $ 94,027 ----------- Investment Banking & Brokerage - 0.1% 75,000 B+/B1 E*Trade Financial Corp., 8.0%, 6/15/11 $ 78,000 -----------
74 The accompanying notes are an integral part of these financial statements. Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Diversified Financial Services - 0.5% 100,000 A-/Baa3 Brascan Corp., 5.75%, 3/1/10 $ 101,554 100,000 BBB-/Baa3 Glencore Funding LLC, 6.0%, 4/15/14 (144A) 94,054 ----------- $ 195,608 ----------- Total Diversified Financials $ 367,635 ----------- Insurance - 1.3% Life & Health Insurance - 0.2% 100,000 BB+/Ba1 Provident Co., Inc., 7.0%, 7/15/18 $ 103,405 ----------- Multi-Line Insurance - 0.1% 50,000 A/Baa1 Loew Corp., 5.25%, 3/15/16 $ 49,414 ----------- Property & Casualty Insurance - 0.6% 85,000 BBB-/NR Kingsway America, Inc., 7.5%, 2/1/14 $ 87,581 150,000 BB/Baa3 Ohio Casualty Corp., 7.3%, 6/15/14 161,223 ----------- $ 248,804 ----------- Reinsurance - 0.3% 100,000 BBB-/Baa3 Odyssey Re Holdings, 7.65%, 11/1/13 $ 104,491 50,000 BBB/Baa3 Platinum Underwriters HD, 7.50%, 6/1/17 50,954 ----------- $ 155,445 ----------- Total Insurance $ 557,068 ----------- Real Estate - 1.0% Real Estate Investment Trusts - 1.0% 100,000 BBB-/Baa3 Colonial Reality LP, 6.15%, 4/15/13 $ 102,584 100,000 BBB-/Baa3 Health Care, Inc., 6.2%, 6/1/16 100,042 107,000 B+/Ba3 Host Marriott LP, 6.375%, 3/15/15 106,733 75,000 B+/B1 Trustreet Properties Inc., 7.5%, 4/1/15 75,000 50,000 BB/Ba3 Ventas Realty Capital Corp., 7.125%, 6/1/15 (144A) 52,500 ----------- $ 436,859 ----------- Total Real Estate $ 436,859 ----------- Technology Hardware & Equipment - 0.6% Computer Hardware - 0.6% 250,000 BBB-/Baa3 NCR Corp., 7.125%, 6/15/09 $ 261,511 ----------- Total Technology Hardware & Equipment $ 261,511 ----------- Semiconductors - 0.2% 85,000 BBB-/Baa3 Chartered Semiconductor, 6.375%, 8/3/15 $ 84,508 ----------- Total Semiconductors $ 84,508 ----------- Telecommunication Services - 0.6% Integrated Telecommunication Services - 0.6% 100,000 BBB+/Baa2 Telecom Italia Capital, 5.25%, 11/15/13 $ 98,127 140,000 BBB+/Baa2 Telecom Italia Capital, 4.875%, 10/1/10 137,254 ----------- $ 235,381 ----------- Total Telecommunication Services $ 235,381 -----------
The accompanying notes are an integral part of these financial statements. 75 Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Utilities - 0.1% Electric Utilities - 0.1% 50,000 BBB+/Baa3 Entergy Gulf States, 5.7%, 6/1/15 $ 48,931 ----------- Total Utilities $ 48,931 ----------- TOTAL CORPORATE BONDS (Cost $3,993,144) $ 4,050,067 ----------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 23.6% Government - 23.6% 100,000 Federal Home Loan Bank, 5.27%, 12/28/12 $ 99,880 149,538 Federal Home Loan Mortgage Corp., 4.5%, 12/1/20 145,516 210,875 Federal Home Loan Mortgage Corp., 5.0%, 5/1/34 204,568 107,559 Federal Home Loan Mortgage Corp., 5.5%, 10/1/16 108,320 174,289 Federal Home Loan Mortgage Corp., 5.5%, 12/1/35 172,727 150,000 Federal Home Loan Mortgage Corp., 5.75%, 1/15/12 157,382 945,583 Federal Home Loan Mortgage Corp., 6.0%, 1/1/33 956,663 231,738 Federal Home Loan Mortgage Corp., 6.0%, 11/1/33 234,324 34,234 Federal Home Loan Mortgage Corp., 6.0%, 6/1/34 34,579 21,615 Federal Home Loan Mortgage Corp., 6.5%, 5/1/09 22,128 15,199 Federal Home Loan Mortgage Corp., 6.5%, 11/1/33 15,644 124,701 Federal National Mortgage Association, 5.0%, 6/1/34 121,072 166,264 Federal National Mortgage Association, 5.5%, 2/1/17 167,483 143,830 Federal National Mortgage Association, 5.5%, 9/1/17 144,778 182,707 Federal National Mortgage Association, 5.5%, 11/1/33 181,367 350,765 Federal National Mortgage Association, 5.5%, 1/1/34 347,889 95,092 Federal National Mortgage Association, 5.5%, 3/1/34 94,252 177,101 Federal National Mortgage Association, 5.5%, 4/1/34 175,536 215,192 Federal National Mortgage Association, 5.5%, 9/1/34 213,291 248,203 Federal National Mortgage Association, 5.5%, 10/1/34 246,010 93,092 Federal National Mortgage Association, 5.5%, 12/1/34 92,269 78,534 Federal National Mortgage Association, 6.0%, 1/1/32 79,513 99,621 Federal National Mortgage Association, 6.0%, 12/1/33 100,661 110,000 Federal National Mortgage Association, 6.125%, 3/15/12 117,714 14,682 Federal National Mortgage Association, 6.5%, 8/1/13 15,104 12,747 Federal National Mortgage Association, 6.5%, 8/1/14 13,115 48,954 Federal National Mortgage Association, 6.5%, 12/1/21 50,599 48,249 Federal National Mortgage Association, 6.5%, 4/1/29 50,490 62,271 Federal National Mortgage Association, 6.5%, 7/1/32 64,010 95,315 Federal National Mortgage Association, 6.5%, 7/1/32 97,958 47,497 Federal National Mortgage Association, 6.5%, 9/1/32 49,078 28,657 Federal National Mortgage Association, 6.5%, 10/1/32 29,452 14,258 Federal National Mortgage Association, 6.5%, 10/1/32 14,654 10,000 Federal National Mortgage Association, 7.125%, 6/15/10 10,938 26,858 Federal National Mortgage Association, 9.0%, 4/1/33 28,354 41,439 Government National Mortgage Association, 4.5%, 1/15/35 39,769 98,994 Government National Mortgage Association, 4.5%, 4/15/35 95,004 92,251 Government National Mortgage Association, 5.0%, 4/15/34 91,149 315,457 Government National Mortgage Association, 5.0%, 10/15/34 311,704 52,644 Government National Mortgage Association, 5.5%, 4/15/33 53,058 170,262 Government National Mortgage Association, 5.5%, 6/15/33 171,601 137,610 Government National Mortgage Association, 5.5%, 7/15/33 138,691 199,735 Government National Mortgage Association, 5.5%, 8/15/19 202,683
76 The accompanying notes are an integral part of these financial statements. Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value U.S. Government and Agency Obligations (Cont.) 150,112 Government National Mortgage Association, 5.5%, 8/15/33 $ 151,292 35,403 Government National Mortgage Association, 5.5%, 9/15/33 35,687 251,537 Government National Mortgage Association, 6.0%, 8/15/32 257,825 80,051 Government National Mortgage Association, 6.0%, 9/15/32 82,064 67,080 Government National Mortgage Association, 6.5%, 5/15/33 70,079 162,673 Government National Mortgage Association, 6.0%, 8/15/34 166,592 293,382 Government National Mortgage Association, 6.0%, 9/15/33 300,740 38,465 Government National Mortgage Association, 6.5%, 10/15/28 40,276 141,677 Government National Mortgage Association II, 5.5%, 2/20/34 142,296 49,940 Government National Mortgage Association II, 6.0%, 10/20/33 51,255 15,976 Government National Mortgage Association II, 7.5%, 9/20/29 16,731 50,000 U.S. Treasury Bonds, 4.0%, 2/15/14 48,645 175,000 U.S. Treasury Bonds, 5.25%, 11/15/28 190,873 100,000 U.S. Treasury Bonds, 6.25%, 8/15/23 119,414 470,000 U.S. Treasury Notes, 4.0%, 11/15/12 459,884 175,000 U.S. Treasury Notes, 4.125%, 5/15/15 171,165 100,000 U.S. Treasury Notes, 4.25%, 8/15/15 98,707 500,000 U.S. Treasury Notes, 4.25%, 11/15/14 494,180 200,000 U.S. Treasury Notes, 4.75%, 5/15/14 204,867 300,000 U.S. Treasury Notes, 4.75%, 11/15/08 302,883 130,000 U.S. Treasury Notes, 5.375%, 2/15/31 146,027 250,000 U.S. Treasury Notes, 5.625%, 5/15/08 256,817 257,486 U.S. Treasury Inflation Protected Security, 3.5%, 1/15/11 275,184 100,000 U.S. Treasury Strip, 0.0%, 11/15/15 64,393 ----------- Total Government $ 9,908,853 ----------- TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost $10,008,942) $ 9,908,853 ----------- Shares TEMPORARY CASH INVESTMENT - 0.3% Security Lending Collateral - 0.3% 141,455 Securities Lending Investment Fund, 4.24% $ 141,455 ----------- TOTAL TEMPORARY CASH INVESTMENT (Cost $141,455) $ 141,455 ----------- TOTAL INVESTMENTS IN SECURITIES - 99.1% (Cost $37,306,341) $41,678,223 ----------- OTHER ASSETS AND LIABILITIES - 0.9% $ 402,093 ----------- TOTAL NET ASSETS - 100.0% $42,080,316 ===========
(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, 2005, the value of these securities amounted to $555,069 or 1.3% of net assets. N/R Not rated by either S&P or Moody's. (a) At December 31, 2005, the following security was out on loan:
Principal Amount Security Market Value $ 190,000 General Motors, 7.2%, 1/15/11 $139,821 -------- Total $139,821 ========
The accompanying notes are an integral part of these financial statements. 77 Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 -------------------------------------------------------------------------------
S&P/Moody's Ratings Shares (unaudited) Value CONVERTIBLE PREFERRED STOCK - 1.7% Materials - 1.3% Diversified Metals & Mining - 1.2% 1,200 B-/B1 Freeport-MC Copp., 5.5%, 12/31/49 $ 1,406,100 ------------ Steel - 0.1% 1,750 B-/NR TXI Capital Trust I, 5.5%, 6/30/28 $ 90,125 ------------ Total Materials $ 1,496,225 ------------ Banks - 0.4% Thrifts & Mortgage Finance - 0.4% 10,000 BB/Ba1 Sovereign Cap Trust IV, 4.375%, 3/1/34 $ 437,500 ------------ Total Banks $ 437,500 ------------ TOTAL CONVERTIBLE PREFERRED STOCK (Cost $1,726,088) $ 1,933,725 ------------ Principal Amount CONVERTIBLE CORPORATE BONDS - 9.4% Materials - 0.9% Commodity Chemicals - 0.3% $ 200,000 B+/B1 Millennium Chemicals, Inc., 4.0%, 11/15/23 $ 374,750 ------------ Gold - 0.6% 800,000 NR/NR Coeur D'Alene Mines Corp., 1.25%, 1/15/24 $ 648,000 ------------ Total Materials $ 1,022,750 ------------ Capital Goods - 1.6% Construction & Engineering - 0.3% 400,000 NR/NR Quanta Services, Inc., 4.0%, 7/1/07 $ 386,000 ------------ Electrical Component & Equipment - 1.3% 2,595,000 NR/B1 Roper Industries, Inc., 1.4813%, 1/15/34 $ 1,420,763 ------------ Total Capital Goods $ 1,806,763 ------------ Consumer Services - 1.3% Specialized Consumer Services - 1.3% 1,500,000 B+/Ba3 SCI Systems, Inc., 3.0%, 3/15/07 $ 1,436,250 ------------ Total Consumer Services $ 1,436,250 ------------ Media - 1.7% Advertising - 1.7% 1,800,000 BB+/Baa3 Interpublic Group Cos., 4.5%, 3/15/23 $ 1,874,250 ------------ Total Media $ 1,874,250 ------------ Retailing - 0.9% Automotive Retail - 0.9% 1,000,000 B+/B3 Sonic Automotive, Inc., 5.25%, 5/7/09 $ 980,000 ------------ Total Retailing $ 980,000 ------------
78 The accompanying notes are an integral part of these financial statements. Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
S&P/Moody's Principal Ratings Amount (unaudited) Value Health Care Equipment & Services - 0.7% Health Care Equipment - 0.7% $ 375,000 NR/NR Epix Medical, 3.0%, 6/15/24 (144A) $ 225,000 600,000 NR/NR Wilson Greatbatch Tech., 2.25%, 6/15/13 525,000 ------------ $ 750,000 ------------ Total Health Care Equipment & Services $ 750,000 ------------ Pharmaceuticals & Biotechnology - 0.3% Biotechnology - 0.3% 300,000 NR/NR Cubist Pharmaceuticals, 5.5%, 11/1/08 $ 282,375 ------------ Total Pharmaceuticals & Biotechnology $ 282,375 ------------ Software & Services - 0.2% Application Software - 0.2% 200,000 NR/NR Mentor Graphics, 6.875%, 6/15/07 $ 198,750 ------------ Total Software & Services $ 198,750 ------------ Technology Hardware & Equipment - 1.4% Electronic Equipment & Instruments - 1.1% 300,000 B+/NR Flir Systems, Inc., 3.0%, 6/1/23 $ 352,125 1,000,000 NR/NR Veeco Instruments, 4.125%, 12/21/08 938,750 ------------ $ 1,290,875 ------------ Technology Distributors - 0.3% 300,000 NR/R Bell Microproducts, Inc., 3.75%, 3/5/24 $ 285,690 ------------ Total Technology Hardware & Equipment $ 1,576,565 ------------ Semiconductors - 0.4% Semiconductor Equipment - 0.4% 500,000 B-/NR Cymer, Inc., 3.5%, 2/15/09 $ 489,375 ------------ Total Semiconductors $ 489,375 ------------ TOTAL CONVERTIBLE CORPORATE BONDS (Cost $11,038,877) $ 10,417,078 ------------ Shares PREFERRED STOCK - 1.7% Real Estate - 1.7% Real Estate Management & Development - 1.7% 75,000 BB-/Ba3 Forest City Enterprises, 7.375%, 2/1/34 $ 1,899,000 ------------ TOTAL PREFERRED STOCK (Cost $1,917,000) $ 1,899,000 ------------ COMMON STOCK - 7.0% Materials - 1.2% Commodity Chemicals - 0.1% 3,500 Georgia Gulf Corp.* $ 106,470 ------------ Specialty Chemicals - 1.1% 1,700 Arch Chemicals, Inc. $ 50,830 63,100 RPM, Inc. 1,096,047 ------------ $ 1,146,877 ------------ Total Materials $ 1,253,347 ------------
The accompanying notes are an integral part of these financial statements. 79 Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
S&P/Moody's Ratings Shares (unaudited) Value Household & Personal Products - 1.0% Personal Products - 1.0% 24,600 Alberto-Culver Co. (Class B) $ 1,125,450 ------------ Total Household & Personal Products $ 1,125,450 ------------ Health Care Equipment & Services - 1.1% Health Care Equipment - 1.1% 18,000 Bio-Rad Laboratories, Inc.* $ 1,177,920 ------------ Total Health Care Equipment & Services $ 1,177,920 ------------ Pharmaceuticals & Biotechnology - 1.9% Biotechnology - 1.0% 11,900 Protein Design Labs, Inc.* $ 338,198 28,400 Vertex Pharmaceuticals, Inc.* 785,828 ------------ $ 1,124,026 ------------ Pharmaceuticals - 0.9% 43,900 Bristol-Myers Squibb Co. $ 1,008,822 ------------ Total Pharmaceuticals & Biotechnology $ 2,132,848 ------------ Real Estate - 0.5% Real Estate Investment Trusts - 0.5% 60,900 MeriStar Hospitality Corp.* $ 572,460 ------------ Total Real Estate $ 572,460 ------------ Utilities - 1.3% Indep Power Producer & Energy Traders - 1.3% 31,100 NRG Energy, Inc.* $ 1,465,432 ------------ Total Utilities $ 1,465,432 ------------ TOTAL COMMON STOCK (Cost $7,185,758) $ 7,727,457 ------------ Principal Amount CORPORATE BONDS - 77.1% Energy - 6.7% Coal & Consumable Fuels - 2.3% $2,500,000 BB-/B1 Massey Energy Co., 6.875%, 12/15/13 (144A) $ 2,521,875 ------------ Oil & Gas Equipment & Services - 0.9% 1,000,000 B+/Ba3 Holly Energy Partners LP, 6.25%, 3/1/15 $ 968,750 ------------ Oil & Gas Refining & Marketing - 3.5% 1,031,000 Frontier Oil Corp., 6.625%, 10/1/11 $ 1,051,620 2,850,000 BB-/B2 Tesoro Petroleum Corp., 6.25%, 11/1/12 (144A) 2,864,250 ------------ $ 3,915,870 ------------ Total Energy $ 7,406,495 ------------ Materials - 22.1% Aluminum - 3.4% 4,000,000 B/B1 Novelis, Inc., 7.25%, 2/15/15 $ 3,730,000 ------------
80 The accompanying notes are an integral part of these financial statements. Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
S&P/Moody's Ratings Shares (unaudited) Value Commodity Chemicals - 6.4% 1,750,000 BB-/Ba3 Arco Chemical Co., 9.8%, 2/1/20 $ 1,964,375 2,500,000 BB+/Ba2 Nova Chemicals Corp., 7.875%, 9/15/25 2,468,750 2,650,000 BB+/Ba2 Nova Chemicals Corp., 7.4%, 4/1/09 2,709,625 ------------ $ 7,142,750 ------------ Construction Materials - 1.4% 1,500,000 BB-/Ba3 Texas Industries, Inc., 7.25%, 7/15/13 (144A) $ 1,556,250 ------------ Diversified Metals & Mining - 0.9% 1,000,000 B+/B1 Freeport-McMoran Copper & Gold, 6.875%, 2/1/09 $ 1,010,000 ------------ Fertilizers & Agricultural Chemicals - 1.1% 1,150,000 B+/Ba2 Scotts Co., 6.625%, 11/15/13 $ 1,164,375 ------------ Metal & Glass Containers - 0.7% 800,000 B/B3 Crown Cork and Seal Co., Inc., 7.375%, 12/15/26 $ 732,000 ------------ Paper Products - 5.5% 200,000 BB-/Ba3 Abitibi-Consolidated, Inc., 6.0%, 6/20/13 $ 169,500 2,250,000 BB-/Ba3 Abitibi-Consolidated, Inc., 8.55%, 8/1/10 (a) 2,278,125 885,000 BB/Ba3 Bowater Canada Finance, 7.95%, 11/15/11 858,450 3,100,000 BB/Ba3 Bowater, Inc., 6.5%, 6/15/13 2,774,500 ------------ $ 6,080,575 ------------ Specialty Chemicals - 2.7% 1,950,000 BB-/B1 Millenium America, Inc., 7.625%, 11/15/26 $ 1,862,250 1,000,000 BB-/B1 Millenium America, Inc., 9.25%, 6/15/08 1,078,750 ------------ $ 2,941,000 ------------ Total Materials $ 24,356,950 ------------ Capital Goods - 13.4% Aerospace & Defense - 4.6% 3,200,000 B/B2 DRS Technologies, Inc., 6.875%, 11/1/13 $ 3,060,000 2,000,000 B+/B1 Esterline Technology, 7.75%, 6/15/13 2,090,000 ------------ $ 5,150,000 ------------ Industrial Machinery - 8.8% $ 3,000,000 B/B2 Gardner Denver, Inc., 8.0%, 5/1/13 (144A) $ 3,150,000 517,000 B+/B3 JLG Industries, Inc., 8.375%, 6/15/12 545,435 800,000 B+/B1 Manitowoc Co., Inc., 7.125%, 11/1/13 822,000 5,400,000 NR/NR Mueller Industries, Inc., 6.0%, 11/1/14 5,184,000 ------------ $ 9,701,435 ------------ Total Capital Goods $ 14,851,435 ------------ Automobiles & Components - 0.3% Tires & Rubber - 0.3% 300,000 B-/B3 Goodyear Tire & Rubber, 7.857%, 8/15/11 $ 293,250 ------------ Total Automobiles & Components $ 293,250 ------------
The accompanying notes are an integral part of these financial statements. 81 Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
S&P/Moody's Ratings Shares (unaudited) Value Consumer Durables & Apparel - 1.0% Homebuilding - 1.0% 1,000,000 BB/Ba1 Beazer Homes U.S.A., 6.875%, 7/15/15 $ 958,750 185,000 BB-/Ba3 Meritage Homes Corp., 6.25%, 3/15/15 168,350 ------------ $ 1,127,100 ------------ Total Consumer Durables & Apparel $ 1,127,100 ------------ Media - 2.0% Advertising - 2.0% 2,300,000 BB-/Baa3 Interpublic Group, Inc., 7.25%, 8/15/11 $ 2,162,000 ------------ Total Media $ 2,162,000 ------------ Retailing - 4.1% Automotive Retail - 1.8% 2,290,000 B/B1 Pep Boys-Manny Moe Jack, 7.5%, 12/15/14 $ 2,038,100 ------------ Distributors - 2.3% 2,500,000 B/B2 Wesco Distribution, Inc., 7.5%, 10/15/17 (144A) $ 2,515,625 ------------ Total Retailing $ 4,553,725 ------------ Health Care Equipment & Services - 1.6% Health Care Supplies - 1.6% 1,700,000 CCC+/Caa1 Inverness Medical Innovation, 8.75%, 2/15/12 $ 1,725,500 ------------ Total Health Care Equipment & Services $ 1,725,500 ------------ Pharmaceuticals & Biotechnology - 2.9% Pharmaceuticals - 2.9% 3,300,000 BB-/B1 Valeant Pharmaceuticals, 7.0%, 12/15/11 $ 3,242,250 ------------ Total Pharmaceuticals & Biotechnology $ 3,242,250 ------------ Real Estate - 8.3% Real Estate Management & Development - 2.8% 2,935,000 BB-/Ba3 Forest City Enterprises, 7.625%, 6/1/15 $ 3,111,100 ------------ Real Estate Investment Trusts - 5.5% 1,500,000 B+/B3 BF Saul Real Estate Investment Trust, 7.5%, 3/1/14 $ 1,526,250 2,300,000 B+/B1 Crescent Real Estate, 9.25%, 4/15/09 2,420,750 2,000,000 CCC+/B2 MeriStar Hospitality Corp., 9.125%, 1/15/11 2,180,000 ------------ $ 6,127,000 ------------ Total Real Estate $ 9,238,100 ------------ Technology Hardware & Equipment - 5.4% Electronic Equipment & Instruments - 1.7% $ 1,835,000 B/B2 General Cable Corp., 9.5%, 11/15/10 $ 1,945,100 ------------ Technology Distributors - 3.7% 1,500,000 BB+/Ba1 Anixter International Corp., 5.95%, 3/1/15 $ 1,357,390 2,550,000 BBB-/Baa3 Arrow Electronic, Inc., 6.875%, 6/1/18 2,708,615 ------------ $ 4,066,005 ------------ Total Technology Hardware & Equipment $ 6,011,105 ------------
82 The accompanying notes are an integral part of these financial statements. Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
S&P/Moody's Ratings Shares (unaudited) Value Utilities - 9.3% Electric Utilities - 6.1% 3,200,000 B/Ba3 Allegheny Energy Supply, 7.8%, 3/15/11 $ 3,488,000 1,750,000 B/Ba3 Allegheny Energy Supply, 8.25% 4/15/12 (144A) 1,973,125 1,200,000 B+/B1 CMS Energy Corp., 7.5%, 1/15/09 1,236,000 ------------ $ 6,697,125 ------------ Multi-Utilities - 3.2% 450,000 B+/B1 CMS Energy Corp., 6.875%, 12/15/15 $ 453,938 3,000,000 B+/B1 CMS Energy Corp., 7.75%, 8/1/10 3,146,250 ------------ $ 3,600,188 ------------ Total Utilities $ 10,297,313 ------------ TOTAL CORPORATE BONDS $ 85,265,223 ------------ (Cost $85,580,009) Shares TEMPORARY CASH INVESTMENTS - 2.1% Security Lending Collateral - 2.1% 2,282,850 Securities Lending Investment Fund, 4.24% $ 2,282,850 ------------ TOTAL TEMPORARY CASH INVESTMENTS (Cost $2,282,850) $ 2,282,850 ------------ TOTAL INVESTMENT IN SECURITIES - 99.0% (Cost $109,730,582) $109,525,333 ------------ OTHER ASSETS AND LIABILITIES - 1.0% $ 1,095,615 ------------ TOTAL NET ASSETS - 100.0% $110,620,948 ============
N/R Not rated by either S&P or Moody's * 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, 2005, the value of these securities amounted to $14,806,125 or 13.5% of net assets. (a) At December 31, 2005, the following security was out on loan:
Principal Amount Security Market Value $ 2,137,500 Abitibi-Consolidated, Inc., 8.55%, 8/1/10 $2,164,219 ==========
The accompanying notes are an integral part of these financial statements. 83 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value CONVERTIBLE CORPORATE BONDS - 0.3% Semiconductors - 0.3% Semiconductor Equipment - 0.3% 170,000 NR/NR Brooks Automation, Inc., 4.75%, 6/1/08 $ 163,413 ----------- Total Semiconductors $ 163,413 ----------- TOTAL CONVERTIBLE CORPORATE BONDS (Cost $155,654) $ 163,413 ----------- ASSET BACKED SECURITIES - 2.7% Diversified Financials - 1.0% Consumer Finance - 0.0% DKK 27,955 AA+/Aa1 Realkredit Danmark, 7.0%, 10/1/32 $ 4,766 ----------- Diversified Financial Services - 1.0% 277,230 BB-/Ba2 Caithness Coso Fund Corp., 6.263%, 6/15/14 (144A) $ 282,897 195,478 BBB-/Baa2 PF Export Receivable Master Trust, 6.436%, 6/1/15 (144A) 195,177 151,798 BBB/Baa2 Power Receivables Finance, 6.29%, 1/1/12 (144A) 154,309 ----------- $ 632,383 ----------- Total Diversified Financials $ 637,149 ----------- Utilities - 1.7% Electric Utilities - 1.7% 174,150 BBB-/Baa3 Empressa Electric, 8.625%, 4/30/13 (144A) $ 195,128 339,690 BB-/Ba2 FPL Energy Wind Funding, 6.876%, 6/27/17 (144A) 339,265 392,644 NR/NR Ormat Funding Corp., 8.25%, 12/30/20 396,571 84,715 B+/B1 Tenaska Alabama, Floating Rate Note, 6/30/21 (144A) (b) 85,226 ----------- $ 1,016,190 ----------- Total Utilities $ 1,016,190 ----------- TOTAL ASSET BACKED SECURITIES (Cost $1,640,571) $ 1,653,339 ----------- COLLATERALIZED MORTGAGE OBLIGATIONS - 0.7% Diversified Financials - 0.7% Diversified Financial Services - 0.7% 160,000 BBB-/Baa3 Tower 2004-1A E, 5.395%, 1/15/34 $ 153,941 265,000 NR/Ba2 Tower 2004-2A F, 6.376%, 12/15/14 264,266 ----------- $ 418,207 ----------- Total Diversified Financials $ 418,207 ----------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $425,000) $ 418,207 ----------- CORPORATE BONDS - 43.0% Energy - 5.1% Coal & Consumable Fuels - 0.5% 283,924 BBB-/NR Indocoal Exports Cayman, 7.134%, 7/6/12 (144A) $ 283,214 ----------- Oil & Gas Equipment & Services - 1.2% 350,000 CCC+/Caa1 J. Ray McDermott SA, 11.0%, 12/15/13 (144A) $ 413,000 170,000 B-/B2 Targa Resources, Inc., 8.5%, 11/1/13 (144A) 175,321 150,000 B+/B1 Semgroup LP, 8.75%, 11/15/15 (144A) 153,375 ----------- $ 741,696 -----------
84 The accompanying notes are an integral part of these financial statements. Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Oil & Gas Exploration & Production - 3.1% 70,000 B+/B1 Atlas Pipeline Partners, 8.125%, 12/15/15 (144A) $ 70,613 210,000 B-/B3 Baytex Energy, Ltd., 9.625%, 7/15/10 220,500 200,000 B-/B3 Clayton Williams Energy, 7.75%, 8/1/13 192,000 145,000 B/B2 Compton Petroleum Corp., 7.625%, 12/1/13 (144A) 148,263 75,000 B-/B3 Delta Petroleum Corp., 7.0%, 4/1/15 69,187 500,000 BBB-/Baa3 Gazprom International SA, 7.201%, 2/1/20 (144A) 534,250 ITL 275,000,000 BBB-/Baa2 Petroleos Mexicanos, 7.375%, 8/13/07 178,603 300,000 CCC+/Caa1 Petroquest Energy, Inc., 10.375%, 5/15/12 313,500 200,000 B+/B2 Stone Energy Corp., 6.75%, 12/15/14 189,500 ----------- $ 1,916,416 ----------- Oil & Gas Storage & Transportation - 0.3% 176,000 B/B3 Transmontaigne, Inc., 9.125%, 6/1/10 $ 172,920 ----------- Total Energy $ 3,114,246 ----------- Materials - 8.2% Aluminum - 0.8% 370,000 BB/Ba3 Asia Aluminum Holdings, 8.0%, 12/23/11 (144A) $ 361,213 140,000 B/B1 Novelis, Inc., 7.25%, 2/15/15 130,550 ----------- $ 491,763 ----------- Commodity Chemicals - 1.0% 110,000 BB-/B1 Arco Chemical Co., 9.8%, 2/1/20 $ 123,475 125,000 CCC+/B3 Aventine Renewable Energy, Floating Rate Note, 12/15/11 (b) 129,375 300,000 B+/B1 Invista, 9.25%, 5/1/12 (144A) 320,250 ----------- $ 573,100 ----------- Diversified Chemical - 0.7% 100,000 BB-/Ba3 Braskem International, Ltd., 9.375%, 6/1/15 (144A) $ 110,000 150,000 BB+/NR LPG International, Inc., 7.25%, 12/20/15 (144A) 148,050 EURO 145,000 B-/B2 Nell AF Sarl, 8.375%, 8/15/15 (144A) 174,138 ----------- $ 432,188 ----------- Diversified Metals & Mining - 1.5% 200,000 B+/B1 Freeport-McMoran Copper & Gold, 6.875%, 2/1/09 $ 202,000 400,000 NR/Ba1 Vale Overseas, Ltd., 8.25%, 1/17/34 460,500 280,000 BB+/Ba2 Vedenta Resources Plc, 6.625%, 2/22/10 (144A) 272,393 ----------- $ 934,893 ----------- Forest Products - 1.2% 505,000 B+/B1 Ainsworth Lumber, 6.75%, 3/15/14 $ 433,038 290,000 BB-/Ba2 Sino Forest Corp., 9.125%, 8/17/11 (144A) 311,025 ----------- $ 744,063 ----------- Metal & Glass Containers - 0.2% 130,000 BB-/B1 Greif Brothers Corp., 8.875%, 8/1/12 $ 138,450 ----------- Paper Packaging - 0.3% 160,000 CCC+/Caa2 Graham Packaging Co., 9.875%, 10/15/14 $ 156,000 -----------
The accompanying notes are an integral part of these financial statements. 85 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Paper Products - 0.5% 100,000 BB-/Ba3 Abitibi-Consolidated, Inc., 6.0%, 6/20/13 $ 84,750 200,000 BB-/Ba3 Bowater, Inc., 6.5%, 6/15/13 179,000 55,000 B/Caa1 Mercer International, Inc., 9.25%, 2/15/13 46,338 ----------- $ 310,088 ----------- Specialty Chemicals - 1.5% 130,000 BBB-/Baa3 Basell Finance Co., 8.1%, 3/15/27 (144A) $ 118,950 350,000 B-/Caa2 Crystal US Holdings, Inc., Floating Rate Note, 10/1/14 (b) 255,500 300,000 BB/Ba1 Ferro Corp., 7.125%, 4/1/28 305,171 25,000 BB/Ba1 Ferro Corp., 7.625%, 5/1/13 25,527 EURO 140,000 CCC+/B3 Rhodia SA, 8.0%, 6/1/10 173,931 EURO 45,000 CCC+/Caa1 Rhodia SA, 9.25%, 6/1/11 56,705 ----------- $ 935,784 ----------- Steel - 0.4% 105,000 BB/Ba2 International Steel Group, 6.5%, 4/15/14 $ 105,000 135,000 BBB/Ba1 Ispat Inland ULC, Floating Rate Note, 4/1/10 (b) 140,400 ----------- $ 245,400 ----------- Total Materials $ 4,961,729 ----------- Capital Goods - 3.7% Building Products - 2.1% 355,000 B-/B3 Builders Firstsource, Inc., Floating Rate Note, 2/15/12 (b) $ 361,213 180,000 BB-/B1 Caue Finance, Ltd., 8.875%, 8/1/15 (144A) 196,200 250,000 BB-/Ba3 Desarrolladora Homex SA, 7.5%, 9/28/15 (144A) 245,625 195,000 B+/B2 Resolution Perform Production, 8.0%, 12/15/09 198,900 275,000 B-/B3 U.S. Concrete, Inc., 8.375%, 4/1/14 274,313 ----------- $ 1,276,251 ----------- Construction & Engineering - 0.3% 160,000 B+/Ba2 Dycom Industries, 8.125%, 10/15/15 (144A) $ 160,000 ----------- Construction, Farm Machinery & Heavy Trucks - 0.3% 70,000 B-/B3 American Rock Salt Co., 9.5%, 3/15/14 $ 70,700 115,000 BB-/Ba3 Navistar International, 6.25%, 3/1/12 102,924 ----------- $ 173,624 ----------- Industrial Machinery - 0.3% 150,000 B/B2 Gardner Denver, Inc., 8.0%, 5/1/13 (144A) $ 157,500 53,000 B/B3 JLG Industries, Inc., 8.375%, 6/15/12 55,915 ----------- $ 213,415 ----------- Trading Companies & Distributors - 0.7% 475,000 BB+/Ba1 Noble Group, Ltd., 6.625%, 3/17/15 (144A) $ 437,421 ----------- Total Capital Goods $ 2,260,711 ----------- Commercial Services & Supplies - 1.8% Diversified Commercial Services - 1.2% 205,000 B+/Ba2 FTI Consulting, 7.625%, 6/15/13 (144A) $ 211,150 290,000 CCC+/Caa1 Park-Ohio Industries, Inc., 8.375%, 11/15/14 253,750 275,000 B+/B2 United Rentals NA, Inc., 7.75%, 11/15/13 268,125 ----------- $ 733,025 ===========
86 The accompanying notes are an integral part of these financial statements. Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Environmental & Facilities Services - 0.6% 130,000 B/B3 Clean Harbors, Inc., 11.25%, 7/15/12 (144A) $ 146,250 240,000 B-/Caa1 Hydrochem Industrial Service, 9.25%, 2/15/13 (144A) 230,400 ----------- $ 376,650 ----------- Total Commercial Services & Supplies $ 1,109,675 ----------- Transportation - 3.6% Air Freight & Couriers - 0.2% 130,000 BB-/B1 Petroleum Helicopters, 9.375%, 5/1/09 $ 136,988 ----------- Airlines - 0.4% 85,000 CCC/Caa2 AMR Corp., 9.8%, 10/1/21 $ 63,538 150,000 B/B3 Continental Air, Inc., 7.568%, 12/1/06 147,797 ----------- $ 211,335 ----------- Airport Services - 0.1% 55,000 B-/Caa1 K&F Acquisition, Inc., 7.75%, 11/15/14 $ 55,688 ----------- Marine - 1.9% NOK 3,530,000 NR/NR Kvaerner ASA, 0.0%, 10/30/11 $ 531,993 325,000 B/B2 Ship Finance International, Ltd., 8.5%, 12/15/13 303,875 315,000 BB-/Ba3 Stena AB, 7.0%, 12/1/16 288,225 40,000 B-/B3 Trailer Bridge, Inc., 9.25%, 11/15/11 41,150 ----------- $ 1,165,243 ----------- Railroads - 0.5% 210,000 CCC+/B3 Atlantic Express Transport, 12.0%, 4/15/08 $ 182,700 130,000 B+/B2 TFM SA De CV, 9.375%, 5/1/12 (144A) 142,350 ----------- $ 325,050 ----------- Trucking - 0.5% 320,000 B+/B1 Greenbrier Co., Inc., 8.375%, 5/15/15 $ 326,400 ----------- Total Transportation $ 2,220,704 ----------- Automobiles & Components - 0.9% Auto Parts & Equipment - 0.4% 130,000 B+/Ba3 Commercial Vehicle Group, 8.0%, 7/1/13 $ 128,700 125,000 B+/Ba2 Sun Sage BV, 8.25%, 3/26/09 (144A) 131,718 ----------- $ 260,418 ----------- Tires & Rubber - 0.5% 280,000 B-/B3 Goodyear Tire & Rubber, 9.0%, 7/1/15 (144A) $ 276,500 ----------- Total Automobiles & Components $ 536,918 ----------- Consumer Durables & Apparel - 1.1% Footwear - 0.3% 153,000 BB-/B1 Brown Shoe Co., Inc., 8.75%, 5/1/12 $ 159,885 ----------- Homebuilding - 0.8% 148,000 BB-/Ba3 Meritage Homes Corp., 6.25%, 3/15/15 $ 134,680 250,000 B+/Ba3 WCI Communities, Inc., 6.625%, 3/15/15 217,500 150,000 B+/Ba3 WCI Communities, Inc., 7.875%, 10/1/13 141,375 ----------- $ 493,555 ----------- Total Consumer Durables & Apparel $ 653,440 -----------
The accompanying notes are an integral part of these financial statements. 87 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Consumer Services - 0.2% Hotels, Resorts & Cruise Lines - 0.2% 100,000 B-/Caa1 Trump Entertainment Resorts, 8.5%, 6/1/15 $ 97,500 ----------- Total Consumer Services $ 97,500 ----------- Media - 1.5% Broadcasting & Cable TV - 0.6% 145,000 B-/B3 Innova S De R.L., 9.375%, 9/19/13 $ 160,950 200,000 B-/B2 Kabel Deutschland GMBH, 10.625%, 7/1/14 210,500 ----------- $ 371,450 ----------- Movies & Entertainment - 0.6% 335,000 B+/Ba2 Corp Interamer De Entret, 8.875%, 6/14/15 (144A) $ 328,300 ----------- Publishing - 0.3% 200,000 B/B1 Sheridan Acquisition Corp., 10.25%, 8/15/11 $ 205,750 ----------- Total Media $ 905,500 ----------- Retailing - 0.9% Automotive Retail - 0.1% 35,000 B/B3 Pep Boys-Manny Moe Jack, 7.5%, 12/15/14 $ 31,150 ----------- Computer & Electronics Retail - 0.1% 95,000 B+/Ba3 GSC Holdings Corp., 8.0%, 10/1/12 (144A) $ 89,538 ----------- Distributors - 0.5% EURO 215,000 B-/B2 Central Eur Distribution Corp., 8.0%, 7/25/12 (144A) $ 275,374 ----------- Specialty Stores - 0.2% 145,000 B/B3 Asbury Automotive Group, 8.0%, 3/15/14 $ 138,475 ----------- Total Retailing $ 534,537 ----------- Food & Drug Retailing - 0.3% Drug Retail - 0.3% 145,000 CCC+/Caa1 Duane Reade, Inc., 9.75%, 8/1/11 (a) $ 97,150 110,000 B-/B2 Duane Reade, Inc., Floating Rate Note, 12/15/10 (b) 102,300 ----------- $ 199,450 ----------- Total Food & Drug Retailing $ 199,450 ----------- Food, Beverage & Tobacco - 0.9% Brewers - 0.7% 202,000 B-/B3 Argentine Beverages, 7.375%, 3/22/12 (144A) $ 203,010 220,000 BBB-/Baa3 Cia Brasileira de Bebida, 8.75%, 9/15/13 257,125 ----------- $ 460,135 ----------- Soft Drinks - 0.2% 80,000 BBB-/Baa3 Cia Brasileira de Bebida, 10.5%, 12/15/11 $ 98,400 ----------- Total Food, Beverage & Tobacco $ 558,535 ----------- Health Care Equipment & Services - 0.8% Health Care Distributors - 0.1% 60,000 BB+/Ba2 Omnicare, Inc., 6.125%, 6/1/13 $ 58,950 ----------- Health Care Equipment - 0.2% 165,000 B-/B3 Medical Services Co., Floating Rate Note, 10/15/11 (144A) (b) $ 127,050 -----------
88 The accompanying notes are an integral part of these financial statements. Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Health Care Services - 0.3% 175,000 CCC+/Caa1 Rural/Metro Corp., 9.875%, 3/15/15 (144A) $ 178,500 ----------- Health Care Supplies - 0.2% 125,000 CCC+/Caa1 Inverness Medical Innovation, 8.75%, 2/15/12 $ 126,874 ----------- Total Health Care Equipment & Services $ 491,374 ----------- Pharmaceuticals & Biotechnology - 0.3% Pharmaceuticals - 0.3% 180,000 CCC+/Caa1 Warner Chilcott Corp., 8.75%, 2/1/15 (144A) $ 165,600 ----------- Total Pharmaceuticals & Biotechnology $ 165,600 ----------- Banks - 1.2% Diversified Banks - 1.2% 185,000 B/Ba1 ATF Bank JSC, 9.25%, 4/12/12 (144A) $ 195,564 170,000 BB/Baa2 Kazkommerts International BV, 8.0%, 11/3/15 180,200 150,000 B+/Ba2 Russian Stand Bank, 7.5%, 10/7/10 (144A) 146,625 15,000 BBB+/A1 Skandinaviska Enskilda Bank, 8.125%, 9/6/49 (144A) 15,333 175,000 NR/Baa2 Turanalem Finance BV, 8.5%, 2/10/15 (144A) 188,020 ----------- $ 725,742 ----------- Total Banks $ 725,742 ----------- Diversified Financials - 2.7% Consumer Finance - 1.0% 340,000 BB+/Baa2 Ford Motor Credit Co., 5.7%, 1/15/10 (a) $ 289,021 35,000 BB+/Baa2 Ford Motor Credit Co., 5.8%, 1/12/09 30,537 320,000 A/A2 SLM Corp., Floating Rate Note, 7/25/14 (b) 300,886 ----------- $ 620,444 ----------- Investment Banking & Brokerage - 0.6% 325,000 B+/B1 E*Trade Financial Corp., 8.0%, 6/15/11 $ 338,000 ----------- Diversified Financial Services - 1.1% 210,000 B/B3 Dollar Financial Group, 9.75%, 11/15/11 $ 216,300 325,000 BBB-/Baa3 Glencore Funding LLC, 6.0%, 4/15/14 (144A) 305,676 170,000 B-/B3 Harvest Operations Corp., 7.875%, 10/15/11 169,150 ----------- $ 691,126 ----------- Total Diversified Financials $ 1,649,570 ----------- Insurance - 3.6% Life & Health Insurance - 1.0% 390,000 B-/B2 Presidential Life Corp., 7.875%, 2/15/09 $ 386,100 200,000 BB+/Ba1 Provident Companies., Inc., 7.0%, 7/15/18 206,811 ----------- $ 592,911 ----------- Multi-Line Insurance - 0.5% 325,000 BB/Ba1 Hanover Insurance Group, 7.625%, 10/15/25 $ 333,297 ----------- Property & Casualty Insurance - 1.1% 285,000 BBB-/NR Kingsway America, Inc., 7.5%, 2/1/14 $ 293,652 350,000 BB/Baa3 Ohio Casualty Corp., 7.3%, 6/15/14 376,187 ----------- $ 669,839 -----------
The accompanying notes are an integral part of these financial statements. 89 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Reinsurance - 1.0% 200,000 BBB-/Baa3 Odyssey Re Holdings, 7.65%, 11/1/13 $ 208,981 365,000 BBB/Baa2 Platinum Underwriters Financial, 7.5%, 6/1/17 371,963 ----------- $ 580,944 ----------- Total Insurance $ 2,176,991 ----------- Real Estate - 2.1% Real Estate Management & Development - 0.2% 125,000 BB-/Ba3 Forest City Enterprises, 7.625%, 6/1/15 $ 132,500 ----------- Real Estate Investment Trusts - 1.9% 120,000 B+/B3 BF Saul Real Estate Investment Trust, 7.5%, 3/1/14 $ 122,100 95,000 B+/B1 Crescent Real Estate, 9.25%, 4/15/09 99,987 374,000 B+/Ba3 Host Marriott LP, 6.375%, 3/15/15 373,065 340,000 B+/B1 Trustreet Properties, Inc., 7.5%, 4/1/15 340,000 180,000 BB/Ba3 Ventas Realty Capital Corp., 7.125%, 6/1/15 (144A) 189,000 ----------- $ 1,124,152 ----------- Total Real Estate $ 1,256,652 ----------- Software & Services - 0.4% Internet Software & Services - 0.4% 250,000 BB/Ba2 Hanarotelecom, Inc., 7.0%, 2/1/12 (144A) $ 246,282 ----------- Total Software & Services $ 246,282 ----------- Technology Hardware & Equipment - 0.7% Communications Equipment - 0.1% 50,000 BB+/Ba2 Corning, Inc., 5.9%, 3/15/14 $ 50,480 ----------- Electronic Manufacturing Services - 0.2% 125,000 B/B1 Sanmina-Sci Corp., 6.75%, 3/1/13 (a) $ 118,906 ----------- Technology Distributors - 0.4% 256,000 BB+/Ba1 Anixter International Corp., 5.95%, 3/1/15 $ 231,661 ----------- Total Technology Hardware & Equipment $ 401,047 ----------- Semiconductors - 0.3% Semiconductors - 0.3% 175,000 BBB-/Baa3 Chartered Semiconductor, 6.375%, 8/3/15 $ 173,987 ----------- Total Semiconductors $ 173,987 ----------- Telecommunication Services - 1.3% Integrated Telecommunication Services - 0.3% 315,000 B/B3 Zeus Special Sub, Ltd., Floating Rate Note, 2/1/15 (144A) (b) $ 207,113 ----------- Wireless Telecommunication Services - 1.0% 115,000 BB-/Ba3 Mobile Telesystems Finance, 8.375%, 10/14/10 (144A) $ 120,014 CAD 240,000 BB/Ba3 Rogers Cantel, Inc., 10.5%, 6/1/06 211,638 CAD 200,000 BB/Ba3 Rogers Wireless, Inc., 7.625%, 12/15/11 184,031 63,000 NR/Baa3 Tele Norte Leste Participacoes , 8.0%, 12/18/13 66,780 ----------- $ 582,463 ----------- Total Telecommunication Services $ 789,576 -----------
90 The accompanying notes are an integral part of these financial statements. Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Utilities - 1.4% Electric Utilities - 1.3% 331,771 NR/NR Juniper Generation, 6.79%, 12/31/14 (144A) $ 323,225 250,000 BBB-/Baa3 Kiowa Power Partners LLC, 5.737%, 3/30/21 (144A) 250,735 190,000 BB-/Ba3 MSW Energy Holdings, 7.375%, 9/1/10 195,225 ----------- $ 769,185 ----------- Multi-Utilities - 0.1% 120,000 B+/B1 Reliant Energy, Inc., 6.75%, 12/15/14 $ 104,700 ----------- Total Utilities $ 873,885 ----------- TOTAL CORPORATE BONDS (Cost $25,608,281) $26,103,651 ----------- U.S. GOVERNMENT & AGENCY OBLIGATIONS - 39.5% 848,109 Federal Home Loan Mortgage Corp., 4.5%, 4/1/20 $ 825,301 485,131 Federal Home Loan Mortgage Corp., 4.5%, 7/1/20 472,084 287,205 Federal Home Loan Mortgage Corp., 4.5%, 4/1/35 270,212 42,819 Federal Home Loan Mortgage Corp., 5.0%, 5/1/34 41,539 148,818 Federal Home Loan Mortgage Corp., 5.0%, 6/1/35 144,074 53,779 Federal Home Loan Mortgage Corp., 5.5%, 10/1/16 54,160 822,876 Federal Home Loan Mortgage Corp., 5.5%, 11/1/34 816,533 357,027 Federal Home Loan Mortgage Corp., 5.5%, 1/1/35 354,100 265,061 Federal Home Loan Mortgage Corp., 6.0%, 6/1/17 270,577 14,901 Federal Home Loan Mortgage Corp., 6.0%, 1/1/33 15,075 10,769 Federal Home Loan Mortgage Corp., 6.0%, 2/1/33 10,896 265,910 Federal Home Loan Mortgage Corp., 6.0% 11/1/33 268,879 224,757 Federal Home Loan Mortgage Corp., 6.0%, 1/1/34 227,022 241,850 Federal Home Loan Mortgage Corp., 6.0%, 4/1/35 244,294 248,106 Federal Home Loan Mortgage Corp., 6.0%, 6/1/35 250,613 304,298 Federal National Mortgage Association, 4.5%, 5/1/20 296,114 195,471 Federal National Mortgage Association, 4.5%, 9/1/20 190,214 154,126 Federal National Mortgage Association, 4.5%, 3/1/35 145,151 183,714 Federal National Mortgage Association, 5.0%, 2/1/20 181,759 205,883 Federal National Mortgage Association, 5.0%, 10/1/20 203,692 43,118 Federal National Mortgage Association, 5.5%, 3/1/18 43,404 86,632 Federal National Mortgage Association, 5.5%, 12/1/18 87,207 98,590 Federal National Mortgage Association, 5.5%, 4/1/19 99,271 187,500 Federal National Mortgage Association, 5.5%, 5/1/34 185,843 91,701 Federal National Mortgage Association, 6.0%, 7/1/17 93,738 4,573 Federal National Mortgage Association, 6.0%, 12/1/31 4,627 10,140 Federal National Mortgage Association, 6.0%, 2/1/32 10,260 6,330 Federal National Mortgage Association, 6.0% 11/1/32 6,401 324,814 Federal National Mortgage Association, 6.0%, 11/1/33 328,206 219,147 Federal National Mortgage Association, 6.0%, 12/1/33 221,435
The accompanying notes are an integral part of these financial statements. 91 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) -------------------------------------------------------------------------------
Principal Amount USD ($) Value U.S. Government & Agency Obligations (Cont.) 117,794 Federal National Mortgage Association, 6.0%, 1/1/34 $ 118,907 800,000 Federal National Mortgage Association, 6.375%, 8/15/07 592,998 1,449 Federal National Mortgage Association, 6.5%, 7/1/31 1,491 4,872 Federal National Mortgage Association, 6.5%, 10/1/31 5,008 9,385 Federal National Mortgage Association, 6.5%, 2/1/32 9,648 1,011 Federal National Mortgage Association, 7.0%, 9/1/29 1,056 224,302 Government National Mortgage Association, 4.5%, 9/15/33 215,266 175,062 Government National Mortgage Association, 4.5%, 5/15/34 167,980 676,875 Government National Mortgage Association, 4.5%, 4/15/35 649,589 222,697 Government National Mortgage Association, 5.0%, 12/15/34 220,037 479,134 Government National Mortgage Association, 5.0%, 4/15/35 473,145 391,182 Government National Mortgage Association, 5.5%, 10/15/19 396,957 224,837 Government National Mortgage Association, 5.5%, 1/15/34 226,382 427,099 Government National Mortgage Association, 5.5%, 4/15/34 430,033 146,159 Government National Mortgage Association, 5.5%, 4/20/34 146,798 54,870 Government National Mortgage Association, 5.5%, 7/15/34 55,247 421,840 Government National Mortgage Association, 5.5%, 10/15/34 424,739 397,578 Government National Mortgage Association, 5.5%, 6/15/35 400,312 465,258 Government National Mortgage Association, 6.0%, 8/15/16 477,883 25,835 Government National Mortgage Association, 6.0%, 5/15/17 26,537 228,059 Government National Mortgage Association, 6.0%, 6/15/17 234,255 262,225 Government National Mortgage Association, 6.0%, 2/15/18 269,356 169,092 Government National Mortgage Association, 6.0%, 8/15/19 173,687 30,408 Government National Mortgage Association, 6.0%, 2/15/33 31,171 108,048 Government National Mortgage Association, 6.0%, 3/15/33 110,758 52,775 Government National Mortgage Association, 6.0%, 6/15/33 54,099 113,469 Government National Mortgage Association, 6.0%, 7/15/33 116,315 194,584 Government National Mortgage Association, 6.0%, 9/15/33 199,465 71,144 Government National Mortgage Association, 6.0%, 10/15/33 72,928 244,010 Government National Mortgage Association, 6.0%, 8/15/34 249,888 30,862 Government National Mortgage Association, 6.5%, 3/15/29 32,295 7,128 Government National Mortgage Association, 6.5%, 1/15/30 7,453 2,080 Government National Mortgage Association, 6.5%, 6/15/31 2,174 21,864 Government National Mortgage Association, 6.5%, 2/15/32 22,846 24,442 Government National Mortgage Association, 6.5%, 3/15/32 25,540 30,214 Government National Mortgage Association, 6.5%, 11/15/32 31,578 25,396 Government National Mortgage Association, 6.5%, 1/15/33 26,531 41,189 Government National Mortgage Association, 6.5%, 5/15/33 43,031 77,333 Government National Mortgage Association, 6.5%, 1/15/34 80,729 821 Government National Mortgage Association, 7.0%, 3/15/31 862 9,147 Government National Mortgage Association, 7.5%, 5/15/23 9,631 2,787 Government National Mortgage Association, I, 7.0%, 3/15/31 2,926 138,615 Government National Mortgage Association II, 5.5%, 3/20/34 139,221 267,730 Government National Mortgage Association II, 6.0%, 11/20/33 273,861 1,340,000 U.S. Treasury Bonds, 5.25%, 11/15/28 1,461,542 125,000 U.S. Treasury Bonds, 6.25%, 8/15/23 149,268 580,000 U.S. Treasury Bonds, 7.25%, 5/15/16 712,177 830,813 U.S. Treasury Inflation Protected Security, 3.0%, 7/15/12 878,455 431,855 U.S. Treasury Inflation Protected Security, 3.375%, 1/15/12 464,361 3,518,969 U.S. Treasury Inflation Protected Security, 3.5%, 1/15/11 3,760,898 700,000 U.S. Treasury Notes, 4.0%, 2/15/15 678,672
92 The accompanying notes are an integral part of these financial statements. Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value U.S. Government & Agency Obligations (Cont.) 275,000 U.S. Treasury Notes, 4.25%, 11/15/14 $ 271,799 265,000 U.S. Treasury Notes, 4.875%, 2/15/12 272,070 255,000 U.S. Treasury Notes, 5.25%, 2/15/29 278,259 150,000 U.S. Treasury Notes, 5.375%, 2/15/31 168,492 1,800,000 U.S. Treasury Strip, 0.0%, 11/15/13 1,270,139 ----------- $23,979,426 ----------- TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $24,113,594) $23,979,426 ----------- FOREIGN GOVERNMENT BONDS - 7.6% ITL 195,000,000 B+/B1 Banco Nac De Desen Econo, 8.0%, 4/28/10 $ 132,283 CAD 399,000 AAA/Aaa Government of Canada, 4.25%, 9/1/09 347,158 CAD 315,000 AAA/Aaa Government of Canada, 5.25%, 6/1/12 291,029 EURO 343,000 AAA/Aaa Government of France, 3.0%, 7/25/09 484,375 SEK 3,445,000 TSY/Aaa Government of Sweden, 5.25%, 3/15/11 476,353 SEK 2,955,000 TSY/Aaa Government of Sweden, 5.5%, 10/8/12 421,978 SEK 2,150,000 TSY/Aaa Government of Sweden, 8.0%, 8/15/07 293,367 NOK 1,500,000 AAA/Aaa Norwegian Government, 5.5%, 5/15/09 237,245 NOK 1,320,000 TSY/Aaa Norwegian Government 6.0%, 5/16/11 218,945 NOK 3,410,000 TSY/Aaa Norwegian Government, 6.75%, 1/15/07 525,093 AUD 532,000 AA/Aa2 Ontario Province, 5.5%, 4/23/13 386,160 AUD 207,000 NR/Aaa Queensland Treasury, 6.0%, 8/14/13 158,025 444,768 BB+/Ba2 Republic of Columbia, 9.75%, 4/9/11 500,364 DEM 180,000 BBB-/Baa3 United Mexican States, 8.25%, 2/24/09 124,571 ----------- $ 4,596,946 ----------- TOTAL FOREIGN GOVERNMENT BONDS (Cost $4,223,559) $ 4,596,946 ----------- MUNICIPAL BONDS - 0.9% Muni Airport - 0.4% 50,000 B/Caa2 New Jersey Economic Development Authority, 6.25%, 9/15/29 $ 46,501 175,000 B/Caa2 New Jersey Economic Development Authority Special Facility Revenue, 7.0%, 11/15/30 170,168 100,000 NR/NR Wayne Charter County SPL, 6.75%, 12/1/15 52,384 ----------- $ 269,053 ----------- Muni Tobacco - 0.5% 90,000 BBB/Baa3 Golden State Tobacco Securitization, 6.75%, 6/1/39 $ 101,140 105,000 BBB/Baa3 Tobacco Settlement Authority Washington, 6.625%, 6/1/32 113,304 60,000 BBB/Baa3 Tobacco Settlement Financing Corp., 7.0%, 6/1/41 68,396 ----------- $ 282,840 ----------- TOTAL MUNICIPAL BONDS (Cost $483,225) $ 551,893 -----------
The accompanying notes are an integral part of these financial statements. 93 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value RIGHTS/WARRANTS - 0.0% Transportation - 0.0% Railroads - 0.0% 210 Atlantic Express Transportation, Exp. 4/15/08* $ -- ----------- Total Transportation $ -- ----------- TOTAL RIGHTS/WARRANTS (Cost $0) $ -- ----------- TEMPORARY CASH INVESTMENTS - 0.8% Security Lending Collateral - 0.8% 508,725 Securities Lending Investment Fund, 4.24% $ 508,725 ----------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $508,725) $ 508,725 ----------- TOTAL INVESTMENT IN SECURITIES - 95.5% (Cost $57,158,609) $57,975,600 ----------- OTHER ASSETS AND LIABILITIES - 4.5% $ 2,731,811 ----------- TOTAL NET ASSETS - 100.0% $60,707,411 ===========
* Non-income producing. 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, 2005, the value of these securities amounted to $11,574,898 or 19.1% of total net assets. TSY Treasury Security NR Not rated by either S&P or Moody's. (a) At December 31, 2005, the following securities were out on loan:
Principal Amount Security Value $ 137,750 Duane Reade, Inc., 9.75%, 8/1/11 $ 92,293 323,000 Ford Motor Credit Co., 5.7%, 1/15/10 274,570 118,750 Sanmina-Sci Corp., 6.75%, 3/1/13 112,961 -------- Total $479,824 ========
(b) 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. NOTE: Principal amounts are denominated in U.S. dollars unless otherwise noted. DEM Deutsche Marks EURO Euro SEK Swedish Krona NOK Norwegian Kroner ITL Italian Lira CAD Canadian Dollar AUD Australian Dollar DKK Danish Kroner 94 The accompanying notes are an integral part of these financial statements. Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Principal Amount Value COLLATERALIZED MORTGAGE OBLIGATIONS - 1.5% Government - 1.5% $ 234,973 Federal Home Loan Bank, 4.75%, 10/25/10 $ 232,917 131,942 Federal Home Loan Bank, 5.0%, 1/15/16 131,763 350,000 Federal Home Loan Bank, 5.5%, 7/15/28 351,532 ----------- $ 716,212 ----------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $728,765) $ 716,212 ----------- CORPORATE BONDS - 0.5% Diversified Financials - 0.5% Specialized Finance - 0.5% 250,000 Private Export Funding, 3.375%, 2/15/09 $ 240,665 ----------- TOTAL CORPORATE BONDS (Cost $250,000) $ 240,665 ----------- U.S. GOVERNMENT AGENCY OBLIGATIONS - 96.4% Government - 96.4% 250,000 Federal Farm Credit Bank, 3.25%, 6/15/07 $ 244,792 250,000 Federal Farm Credit Bank, 4.45%, 6/1/15 242,934 400,000 Federal Farm Credit Bank, 4.9%, 3/17/14 389,932 100,000 Federal Farm Credit Bank, 5.3%, 9/28/15 97,837 100,000 Federal Farm Credit Bank, 5.88%, 9/8/08 102,891 200,000 Federal Farm Credit Bank, 6.38%, 11/27/06 202,832 250,000 Federal Home Loan Bank, 4.0%, 2/12/10 242,558 250,000 Federal Home Loan Bank, 4.25%, 10/10/08 247,258 250,000 Federal Home Loan Bank, 4.25%, 2/16/10 244,759 300,000 Federal Home Loan Bank, 4.43%, 4/7/08 297,907 200,000 Federal Home Loan Bank, 4.5%, 11/15/12 196,873 500,000 Federal Home Loan Bank, 4.75%, 12/10/10 499,375 300,000 Federal Home Loan Bank, 5.89%, 6/30/08 308,372 250,000 Federal Home Loan Mortgage Corp., 4.9%, 11/3/08 249,142 300,000 Federal Home Loan Mortgage Corp., 5.25%, 11/15/12 296,132 237,523 Federal Home Loan Mortgage Corp., 5.5%, 9/1/34 235,576 226,089 Federal Home Loan Mortgage Corp., 5.5%, 12/1/34 224,235 70,482 Federal Home Loan Mortgage Corp., 6.0%, 10/1/32 71,308 497,629 Federal Home Loan Mortgage Corp., 6.0%, 11/1/32 503,460 163,395 Federal Home Loan Mortgage Corp., 6.0%, 12/1/32 165,309 189,250 Federal Home Loan Mortgage Corp., 6.0%, 2/1/33 191,468 844,359 Federal Home Loan Mortgage Corp., 6.0%, 3/1/33 853,785 564,481 Federal Home Loan Mortgage Corp., 6.0%, 5/1/34 570,171 73,375 Federal Home Loan Mortgage Corp., 6.5%, 3/1/11 75,361 219,713 Federal Home Loan Mortgage Corp., 6.5%, 7/1/16 225,803 53,923 Federal Home Loan Mortgage Corp., 6.5%, 1/1/29 55,487 30,729 Federal Home Loan Mortgage Corp., 6.5%, 3/1/29 31,609 31,871 Federal Home Loan Mortgage Corp., 6.5%, 4/1/31 32,727 85,317 Federal Home Loan Mortgage Corp., 6.5%, 10/1/31 87,610 39,714 Federal Home Loan Mortgage Corp., 6.5%, 2/1/32 40,782 204,842 Federal Home Loan Mortgage Corp., 6.5%, 4/1/32 210,296 69,307 Federal Home Loan Mortgage Corp., 6.5%, 7/1/32 71,153 2,681 Federal Home Loan Mortgage Corp., 7.0%, 4/1/30 2,793 18,919 Federal Home Loan Mortgage Corp., 7.0%, 2/1/31 19,709
The accompanying notes are an integral part of these financial statements. 95 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Principal Amount Value U.S. Government Agency Obligations (Cont.) $ 2,780 Federal Home Loan Mortgage Corp., 7.0%, 7/1/31 $ 2,902 5,125 Federal Home Loan Mortgage Corp., 7.0%, 9/1/31 5,340 31,051 Federal Home Loan Mortgage Corp., 7.0%, 3/1/32 32,525 34,899 Federal Home Loan Mortgage Corp., 7.0%, 4/1/32 36,357 34,317 Federal Home Loan Mortgage Corp., 7.5%, 8/1/31 36,016 235,081 Federal National Mortgage Association, 4.5%, 4/1/19 229,102 75,567 Federal National Mortgage Association, 5.0%, 3/1/09 75,269 217,203 Federal National Mortgage Association, 5.0%, 7/1/19 214,993 283,420 Federal National Mortgage Association, 5.5%, 3/1/18 285,379 326,526 Federal National Mortgage Association, 5.5%, 4/1/18 329,079 352,107 Federal National Mortgage Association, 5.5%, 4/1/19 354,540 219,244 Federal National Mortgage Association, 5.5%, 6/1/23 219,287 320,507 Federal National Mortgage Association, 5.5%, 11/1/23 320,571 215,169 Federal National Mortgage Association, 5.5%, 3/1/24 214,884 379,347 Federal National Mortgage Association, 5.5%, 11/1/33 376,565 186,183 Federal National Mortgage Association, 5.5%, 12/1/34 184,538 66,283 Federal National Mortgage Association, 5.5%, 2/1/33 65,631 165,088 Federal National Mortgage Association, 5.5%, 6/1/33 166,811 307,203 Federal National Mortgage Association, 5.5%, 9/1/33 304,950 235,831 Federal National Mortgage Association, 5.5%, 3/1/34 233,747 182,523 Federal National Mortgage Association, 6.0%, 12/1/11 186,443 30,487 Federal National Mortgage Association, 6.0%, 12/1/31 30,847 41,953 Federal National Mortgage Association, 6.0%, 10/1/32 42,424 390,300 Federal National Mortgage Association, 6.0%, 11/1/32 394,676 499,985 Federal National Mortgage Association, 6.0%, 3/1/33 505,590 111,476 Federal National Mortgage Association, 6.0%, 4/1/33 112,725 107,155 Federal National Mortgage Association, 6.0%, 6/1/33 108,274 145,580 Federal National Mortgage Association, 6.0%, 7/1/34 146,956 138,438 Federal National Mortgage Association, 6.0%, 9/1/34 139,747 39,463 Federal National Mortgage Association, 6.5%, 7/1/21 40,789 92,346 Federal National Mortgage Association, 6.5%, 11/1/28 95,127 51,776 Federal National Mortgage Association, 6.5%, 1/1/29 53,320 63,288 Federal National Mortgage Association, 6.5%, 10/1/31 65,055 74,995 Federal National Mortgage Association, 6.5%, 1/1/32 77,089 30,948 Federal National Mortgage Association, 6.5%, 2/1/32 31,812 174,246 Federal National Mortgage Association, 6.5%, 3/1/32 179,030 81,977 Federal National Mortgage Association, 6.5%, 4/1/32 84,250 71,095 Federal National Mortgage Association, 6.5%, 7/1/32 73,066 262,423 Federal National Mortgage Association, 6.5%, 8/1/32 269,714 33,191 Federal National Mortgage Association, 6.5%, 9/1/32 34,111 329,070 Federal National Mortgage Association, 6.5%, 7/1/34 337,596 43,002 Federal National Mortgage Association, 7.0%, 9/1/18 45,083 26,838 Federal National Mortgage Association, 7.0%, 8/1/19 28,117 7,636 Federal National Mortgage Association, 7.0%, 1/1/29 7,976 135,136 Federal National Mortgage Association, 7.0%, 9/1/30 141,145 3,932 Federal National Mortgage Association, 7.0%, 5/1/31 4,104 19,370 Federal National Mortgage Association, 7.0%, 7/1/31 20,220 24,441 Federal National Mortgage Association, 7.0%, 1/1/32 25,514 16,146 Federal National Mortgage Association, 7.5%, 2/1/31 16,922 54,317 Federal National Mortgage Association, 9.0%, 4/1/33 57,343
96 The accompanying notes are an integral part of these financial statements. Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal Amount Value U.S. Government Agency Obligations (Cont.) $ 250,000 Federal National Mortgage Association, Floating Rate Note, 3/1/19 $ 249,147 290,126 Government National Mortgage Association, 4.5%, 4/15/20 284,404 366,395 Government National Mortgage Association, 4.5%, 8/15/33 351,635 648,903 Government National Mortgage Association, 4.5%, 6/15/34 622,653 281,464 Government National Mortgage Association, 5.0%, 7/15/17 281,790 206,292 Government National Mortgage Association, 5.0%, 11/20/19 205,149 165,799 Government National Mortgage Association, 5.0%, 1/20/20 164,843 187,019 Government National Mortgage Association, 5.0%, 2/15/20 186,545 99,188 Government National Mortgage Association, 5.0%, 10/15/20 98,936 184,271 Government National Mortgage Association, 5.0%, 9/15/33 182,114 582,552 Government National Mortgage Association, 5.0%, 4/15/35 575,271 267,300 Government National Mortgage Association, 5.5%, 6/15/17 271,264 157,273 Government National Mortgage Association, 5.5%, 2/15/19 159,588 359,968 Government National Mortgage Association, 5.5%, 7/15/19 362,567 140,654 Government National Mortgage Association, 5.5%, 4/15/31 141,816 182,728 Government National Mortgage Association, 5.5%, 3/15/33 184,164 265,079 Government National Mortgage Association, 5.5%, 4/15/33 267,163 228,017 Government National Mortgage Association, 5.5%, 7/15/33 229,809 189,676 Government National Mortgage Association, 5.5%, 10/15/34 190,979 241,432 Government National Mortgage Association, 5.5%, 1/15/35 238,414 123,014 Government National Mortgage Association, 6.0%, 6/20/16 125,969 106,954 Government National Mortgage Association, 6.0%, 5/15/17 109,860 193,626 Government National Mortgage Association, 6.0%, 2/15/18 198,891 148,694 Government National Mortgage Association, 6.0%, 8/15/19 152,734 362,736 Government National Mortgage Association, 6.0%, 7/15/23 372,463 163,451 Government National Mortgage Association, 6.0%, 4/15/28 167,659 120,095 Government National Mortgage Association, 6.0%, 9/15/32 123,115 339,163 Government National Mortgage Association, 6.0%, 10/15/32 347,692 354,993 Government National Mortgage Association, 6.0%, 11/15/32 364,232 242,488 Government National Mortgage Association, 6.0%, 12/15/32 249,079 326,712 Government National Mortgage Association, 6.0%, 1/15/33 334,908 495,657 Government National Mortgage Association, 6.0%, 2/15/33 508,088 277,532 Government National Mortgage Association, 6.0%, 9/15/33 284,493 242,842 Government National Mortgage Association, 6.0%, 12/15/33 248,932 591,471 Government National Mortgage Association, 6.0%, 3/15/34 605,717 321,202 Government National Mortgage Association, 6.0%, 8/15/34 329,061 114,201 Government National Mortgage Association, 6.0%, 9/15/34 116,952 618,817 Government National Mortgage Association, 6.0%, 10/15/34 633,723 143,279 Government National Mortgage Association, 6.5%, 4/15/17 148,001 17,662 Government National Mortgage Association, 6.5%, 6/15/17 18,245 14,671 Government National Mortgage Association, 6.5%, 3/15/26 15,363 86,878 Government National Mortgage Association, 6.5%, 6/15/28 90,971 25,540 Government National Mortgage Association, 6.5%, 2/15/29 26,726 342,050 Government National Mortgage Association, 6.5%, 5/15/29 358,025 8,930 Government National Mortgage Association, 6.5%, 6/15/29 9,344 49,287 Government National Mortgage Association, 6.5%, 5/15/31 51,515 277,925 Government National Mortgage Association, 6.5%, 6/15/31 290,488 85,739 Government National Mortgage Association, 6.5%, 7/15/31 89,614
The accompanying notes are an integral part of these financial statements. 97 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Principal Amount Value U.S. Government Agency Obligations (Cont.) $ 69,261 Government National Mortgage Association, 6.5%, 9/15/31 $ 72,391 89,672 Government National Mortgage Association, 6.5%, 10/15/31 93,725 76,797 Government National Mortgage Association, 6.5%, 12/15/31 80,268 9,021 Government National Mortgage Association, 6.5%, 2/15/32 9,470 59,601 Government National Mortgage Association, 6.5%, 4/15/32 62,278 85,797 Government National Mortgage Association, 6.5%, 6/15/32 89,651 71,688 Government National Mortgage Association, 6.5%, 7/15/32 74,909 115,999 Government National Mortgage Association, 6.5%, 1/15/34 121,093 12,942 Government National Mortgage Association, 7.0%, 1/15/26 13,624 44,620 Government National Mortgage Association, 7.0%, 7/15/26 46,972 15,448 Government National Mortgage Association, 7.0%, 9/15/27 16,247 48,023 Government National Mortgage Association, 7.0%, 2/15/28 50,470 12,363 Government National Mortgage Association, 7.0%, 3/15/28 12,993 21,109 Government National Mortgage Association, 7.0%, 4/15/28 22,184 40,072 Government National Mortgage Association, 7.0%, 11/15/28 42,113 26,140 Government National Mortgage Association, 7.0%, 1/15/29 27,458 32,388 Government National Mortgage Association, 7.0%, 6/15/29 34,021 40,413 Government National Mortgage Association, 7.0%, 7/15/29 42,450 4,843 Government National Mortgage Association, 7.0%, 12/15/30 5,086 18,075 Government National Mortgage Association, 7.0%, 2/15/31 18,977 20,396 Government National Mortgage Association, 7.0%, 5/15/31 21,414 23,765 Government National Mortgage Association, 7.0%, 8/15/31 24,951 113,475 Government National Mortgage Association, 7.0%, 5/15/32 119,129 7,643 Government National Mortgage Association, 7.5%, 10/15/22 8,096 1,801 Government National Mortgage Association, 7.5%, 6/15/23 1,906 1,637 Government National Mortgage Association, 7.5%, 8/15/23 1,733 1,770 Government National Mortgage Association, 7.5%, 8/15/29 1,862 25,609 Government National Mortgage Association, 7.5%, 10/15/29 26,947 38,568 Government National Mortgage Association, 7.5%, 11/15/29 40,584 13,184 Government National Mortgage Association, 7.5%, 1/15/31 13,864 16,348 Government National Mortgage Association, 7.5%, 1/15/32 17,191 106,654 Government National Mortgage Association I, 6.0%, 2/15/29 109,357 37,615 Government National Mortgage Association I, 7.0%, 11/15/30 39,499 39,205 Government National Mortgage Association I, 7.0%, 12/15/30 41,168 317,317 Government National Mortgage Association II, 5.0%, 12/20/18 315,706 361,777 Government National Mortgage Association II, 5.5%, 7/20/19 365,989 169,565 Government National Mortgage Association II, 5.5%, 11/20/34 170,306 354,192 Government National Mortgage Association II, 5.5%, 2/20/34 355,741 51,694 Government National Mortgage Association II, 6.0%, 12/20/18 52,939 143,776 Government National Mortgage Association II, 6.0%, 7/20/19 147,192 193,253 Government National Mortgage Association II, 6.0%, 11/20/33 197,678 29,079 Government National Mortgage Association II, 6.5%, 8/20/28 30,242 38,585 Government National Mortgage Association II, 6.5%, 12/20/28 40,125 28,221 Government National Mortgage Association II, 6.5%, 9/20/31 29,294 38,488 Government National Mortgage Association II, 7.0%, 5/20/26 40,252 74,140 Government National Mortgage Association II, 7.0%, 2/20/29 77,369 14,114 Government National Mortgage Association II, 7.0%, 1/20/31 14,721 6,449 Government National Mortgage Association II, 7.5%, 8/20/27 6,762 2,322 Government National Mortgage Association II, 8.0%, 8/20/25 2,477
98 The accompanying notes are an integral part of these financial statements. Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal Amount Value U.S. Government Agency Obligations (Cont.) $ 12,000 Tennessee Valley Authority, Variable Rate Note, 6/1/28 $ 288,000 850,000 U.S. Treasury Bonds, 4.0%, 2/15/14 826,957 2,150,000 U.S. Treasury Bonds, 6.25%, 8/15/23 2,567,403 400,000 U.S. Treasury Bonds, 7.25%, 5/15/16 491,156 3,365,100 U.S. Treasury Inflation Protected Security, 3.375%, 1/15/12 3,618,401 228,876 U.S. Treasury Inflation Protected Security, 3.5%, 1/15/11 244,611 500,000 U.S. Treasury Notes, 4.0%, 11/15/12 489,239 870,000 U.S. Treasury Notes, 4.25%, 11/15/14 859,872 300,000 U.S. Treasury Notes, 4.25%, 8/15/15 296,121 475,000 U.S. Treasury Notes, 4.75%, 5/15/14 486,560 925,000 U.S. Treasury Notes, 6.375%, 8/15/27 1,145,880 4,300,000 U.S. Treasury Notes, 6.5%, 2/15/10 4,638,457 ----------- $45,399,429 ----------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $45,430,211) $45,399,429 ----------- TOTAL INVESTMENT IN SECURITIES - 98.4% (Cost $46,408,976) $46,356,306 ----------- OTHER ASSETS AND LIABILITIES - 1.6% $ 761,864 ----------- TOTAL NET ASSETS - 100.0% $47,118,170 ===========
The accompanying notes are an integral part of these financial statements. 99 Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Principal Amount Value COLLATERALIZED MORTGAGE OBLIGATIONS - 3.0% Banks - 3.0% Thrifts & Mortgage Finance - 3.0% $ 981,854 Federal Home Loan Mortgage Corp. Multifamily VRD Certificate, 4.13%, 1/15/42 $ 981,854 ----------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $981,854) $ 981,854 ----------- CORPORATE BONDS - 54.3% Capital Goods - 3.9% Industrial Conglomerates - 3.9% 500,000 General Electric Capital Corp., Floating Rate Note, 10/17/06 $ 500,000 800,000 GE Capital Corp., Floating Rate Note, 1/9/07 800,000 ----------- Total Capital Goods $ 1,300,000 ----------- Commercial Services & Supplies - 4.5% Office Services & Supplies - 4.5% 1,500,000 Pitney Bowes, Inc., 5.875%, 5/1/06 $ 1,509,960 ----------- Total Commercial Services & Supplies $ 1,509,960 ----------- Automobiles & Components - 4.5% Automobile Manufacturers - 4.5% 1,500,000 Toyota Motor Credit, Floating Rate Note, 6/23/06 $ 1,500,143 ----------- Total Automobiles & Components $ 1,500,143 ----------- Food & Drug Retailing - 2.3% Hypermarkets & Supercenters - 2.3% 750,000 Wal-Mart Stores, Floating Rate Note, 3/16/06 $ 749,846 ----------- Total Food & Drug Retailing $ 749,846 ----------- Pharmaceuticals & Biotechnology - 4.5% Pharmaceuticals - 4.5% 1,000,000 Abbott Laboratories, 5.625%, 7/1/06 $ 1,006,960 500,000 Pfizer Inc., 5.625%, 2/1/06 500,985 ----------- $ 1,507,945 ----------- Total Pharmaceuticals & Biotechnology $ 1,507,945 -----------
Principal Amount Value Banks - 7.6% Diversified Banks - 7.6% $ 1,000,000 Bank of America Corp., 7.125%, 5/1/06 $ 1,010,866 1,000,000 Wells Fargo & Co., Floating Rate Note, 3/3/06 1,000,199 500,000 Wells Fargo & Co., Floating Rate Note, 6/12/06 500,217 ----------- $ 2,511,282 ----------- Total Banks $ 2,511,282 ----------- Diversified Financials - 27.0% Consumer Finance - 6.8% 1,000,000 SLM Corp., Floating Rate Note, 3/15/06 $ 1,000,437 500,000 SLM Corp., Floating Rate Note, 4/25/06 500,312 250,000 National Rural Utilities, 6.0%, 5/15/06 252,037 500,000 National Rural Utilities, Floating Rate Note, 2/17/06 499,992 ----------- $ 2,252,778 ----------- Investment Banking & Brokerage - 20.2% 1,000,000 Merrill Lynch, Floating Rate Note, 1/11/07 $ 1,000,158 1,000,000 Merrill Lynch & Co., Floating Rate Note, 3/17/06 1,000,167 1,500,000 Lehman Brothers Holdings, 6.25%, 5/15/06 1,513,708 1,500,000 Credit Suisse First Boston, Floating Rate Note, 6/19/06 1,502,080 1,700,000 Morgan Stanley Dean Witter, Floating Rate Note, 3/27/06 1,701,259 ----------- Total Diversified Financials $ 6,717,372 ----------- TOTAL CORPORATE BONDS (Cost $18,049,326) $18,049,326 -----------
100 The accompanying notes are an integral part of these financial statements. Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal Amount Value TEMPORARY CASH INVESTMENTS - 47.1% Commercial Paper - 38.7% $ 1,000,000 Coca Cola Co., 4.25%, 2/27/06 $ 993,271 1,500,000 Deutsche Bank Financial LLC, 4.31%, 1/30/06 1,494,792 1,500,000 Federal Home Loan Bank, 4.05%, 1/27/06 1,495,612 3,307,000 Federal Home Loan Mortgage Corp., 4.162%, 1/31/06 3,295,519 1,000,000 Federal Home Loan Mortgage Corp., 4.165%, 1/3/06 999,768 1,500,000 Federal Home Loan Mortgage Corp., 4.17%, 2/7/06 1,494,231 1,000,000 Federal Home Loan, Zero Coupon, 1/13/06 998,607 1,500,000 Minnesota Mining & Manufacturing, 4.15%, 2/2/06 1,494,467 585,000 Paccar Financial Corp., 4.32%, 2/28/06 580,928 ----------- $12,847,195 -----------
Principal Amount Value Repurchase Agreement - 8.4% $ 2,800,000 UBS Warburg, Inc., 3.25% dated 12/30/05, repurchase price of $2,800,000 plus accrued interest on 1/3/06, collateralized by $2,919,000, U.S. Treasury Bill, 6/29/06 $ 2,800,000 ----------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $15,647,195) $15,647,195 ----------- TOTAL INVESTMENTS IN SECURITIES - 104.4% (Cost $34,678,375) $34,678,375 ----------- OTHER ASSETS AND LIABILITIES - (4.4%) $(1,462,280) ----------- TOTAL NET ASSETS - 100.0% $33,216,095 ===========
The accompanying notes are an integral part of these financial statements. 101 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 20.48 $ 17.37 $ 11.03 $ 11.23 $ 12.10 ------- ------- ------- ------- ------- Increase (decrease) from investment operations: Net investment income $ 0.22 $ 0.22 $ 0.20 $ 0.06 $ 0.15 Net realized and unrealized gain (loss) on investments and foreign currency transactions 7.51 3.04 6.20 (0.19) (1.02) ------- ------- ------- ------- ------- Net increase (decrease) from investment operations $ 7.73 $ 3.26 $ 6.40 $ (0.13) $ (0.87) Distributions to shareowners: Net investment income (0.12) (0.15) (0.06) (0.07) -- ------- -------- -------- ------- ------- Net increase (decrease) in net asset value $ 7.61 $ 3.11 $ 6.34 $ (0.20) $ (0.87) ------- -------- -------- ------- ------- Net asset value, end of period $ 28.09 $ 20.48 $ 17.37 $ 11.03 $ 11.23 ======= ======== ======== ======== ======= Total return* 37.95% 18.93% 58.17% (1.20)% (7.19)% Ratio of net expenses to average net assets+ 1.75% 1.75% 1.75% 1.75% 1.66% Ratio of net investment income to average net assets+ 0.94% 1.12% 1.43% 0.63% 1.30% Portfolio turnover rate 74% 66% 79% 124% 175% Net assets, end of period (in thousands) $11,205 $ 8,633 $ 8,399 $ 5,886 $ 6,896 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.77% 1.87% 2.51% 2.88% 3.83% Net investment income (loss) 0.92% 1.00% 0.67% (0.50)% (0.87)% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 1.75% 1.75% 1.75% 1.75% 1.66% Net investment income 0.94% 1.12% 1.43% 0.63% 1.30%
* 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. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. 102 The accompanying notes are an integral part of these financial statements. Pioneer Europe VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 10.64 $ 9.05 $ 6.82 $ 8.42 $ 11.07 ------- ------- ------ -------- -------- Increase (decrease) from investment operations: Net investment income (loss) $ 0.12 $ 0.11 $ 0.09 $ 0.05 $ 0.01 Net realized and unrealized gain (loss) on investments and foreign currency transactions 0.73 1.55 2.17 (1.65) (2.51) ------- ------- ------ -------- -------- Net increase (decrease) from investment operations $ 0.85 $ 1.66 $ 2.26 $ (1.60) $ (2.50) Distributions to shareowners: Net investment income (0.07) (0.07) (0.03) -- (0.15) Net realized gain -- -- -- -- -- -------- ------- ------- -------- -------- Net increase (decrease) in net asset value $ 0.78 $ 1.59 $ 2.23 $ (1.60) $ (2.65) -------- ------- ------- -------- -------- Net asset value, end of period $ 11.42 $ 10.64 $ 9.05 $ 6.82 $ 8.42 ======== ======= ======= ======== ======== Total return* 8.05% 18.48% 33.26% (19.00)% (22.66)% Ratio of net expenses to average net assets+ 1.50% 1.50% 1.50% 1.50% 1.50% Ratio of net investment income (loss) to average net assets+ 0.97% 0.92% 1.14% 0.68% 0.25% Portfolio turnover rate 95% 55% 52% 94% 73% Net assets, end of period (in thousands) $ 8,714 $ 9,478 $ 9,330 $ 8,696 $ 12,417 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.76% 1.94% 2.52% 2.21% 1.99% Net investment income (loss) 0.71% 0.48% 0.12% 0.03% (0.24)% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 1.50% 1.50% 1.50% 1.50% 1.50% Net investment income (loss) 0.97% 0.92% 1.14% 0.68% 0.25%
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 11.88 $ 10.06 $ 7.79 $ 9.00 $ 11.83 ------- ------- ------- -------- -------- Increase (decrease) from investment operations: Net investment income (loss) $ 0.10 $ 0.05 $ 0.07 $ 0.03 $ 0.02 Net realized and unrealized gain (loss) on investments and foreign currency transactions 1.75 1.82 2.26 (1.23) (2.83) ------- ------- ------- -------- -------- Net increase (decrease) from investment operations $ 1.85 $ 1.87 $ 2.33 $ (1.20) $ (2.81) Distributions to shareowners: Net investment income (0.02) (0.05) (0.06) (0.01) (0.02) Net realized gain -- -- -- -- -- ------- ------- ------- -------- -------- Net increase (decrease) in net asset value $ 1.83 $ 1.82 $ 2.27 $ (1.21) $ (2.83) ------- ------- ------- -------- -------- Net asset value, end of period $ 13.71 $ 11.88 $ 10.06 $ 7.79 $ 9.00 ======= ======= ======= ======== ======== Total return* 15.58% 18.71% 30.06% (13.31)% (23.74)% Ratio of net expenses to average net assets+ 1.53% 1.75% 1.69% 1.46% 1.38% Ratio of net investment income (loss) to average net assets+ 0.70% 0.45% 0.68% 0.62% 0.21% Portfolio turnover rate 108% 129% 99% 31% 39% Net assets, end of period (in thousands) $21,176 $22,859 $22,506 $ 21,271 $ 32,083 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.53% 1.75% 1.69% 1.46% 1.38% Net investment income 0.70% 0.45% 0.68% 0.62% 0.21% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 1.53% 1.75% 1.69% 1.46% 1.38% Net investment income 0.70% 0.45% 0.68% 0.62% 0.21%
* 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. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. The accompanying notes are an integral part of these financial statements. 103 Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended Year Ended Class I 12/31/05 12/31/04 Net asset value, beginning of period $ 15.02 $ 12.50 ------- ------- Increase (decrease) from investment operations: Net investment income (loss) $ 0.05 $ (0.03) Net realized and unrealized gain (loss) on investments and foreign currency transactions 1.61 2.55 ------- ------- Net increase (decrease) from investment operations $ 1.66 $ 2.52 Distributions to shareowners: Net investment income -- -- Net realized gain (0.49) -- ------- ------- Net increase (decrease) in net asset value $ 1.17 $ 2.52 ------- ------- Net asset value, end of period $ 16.19 $ 15.02 ======= ======= Total return* 11.39% 20.16% Ratio of net expenses to average net assets+ 1.15% 1.25% Ratio of net investment income (loss) to average net assets+ 0.35% (0.21)% Portfolio turnover rate 38% 36% Net assets, end of period (in thousands) $20,555 $17,993 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.15% 1.30% Net investment income (loss) 0.35% (0.26)% Ratios with waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.15% 1.25% Net investment income (loss) 0.35% (0.21)% 11/8/01(a) Year Ended Year Ended to Class I 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 9.23 $ 10.87 $ 10.00 ------- --------- -------- Increase (decrease) from investment operations: Net investment income (loss) $ -- $ (0.01) $ 0.01 Net realized and unrealized gain (loss) on investments and foreign currency transactions 3.27 (1.63) 0.86 ------- --------- -------- Net increase (decrease) from investment operations $ 3.27 $ (1.64) $ 0.87 Distributions to shareowners: Net investment income -- (0.00)(b) -- Net realized gain -- (0.00)(b) -- ------- --------- ---------- Net increase (decrease) in net asset value $ 3.27 $ (1.65) $ 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. (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. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. 104 The accompanying notes are an integral part of these financial statements. Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended Year Ended Class I 12/31/05 12/31/04 Net asset value, beginning of period $ 12.97 $ 11.44 ------- ------- Increase (decrease) from investment operations: Net investment income (loss) $ 0.02 $ (0.03) Net realized and unrealized gain (loss) on investments and foreign currency transactions 0.14 1.56 ------- ------- Net increase (decrease) from investment operations $ 0.16 $ 1.53 Distributions to shareowners: Net investment income -- -- Net realized gain (1.28) -- ------- ------- Net increase (decrease) in net asset value $ (1.12) $ 1.53 ------- ------- Net asset value, end of period $ 11.85 $ 12.97 ======= ======= Total return* 1.78% 13.38% Ratio of net expenses to average net assets+ 1.25% 1.25% Ratio of net investment income (loss) to average net assets+ (0.15)% (0.25)% Portfolio turnover rate 65% 114% Net assets, end of period (in thousands) $ 3,285 $ 3,784 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.61% 1.53% Net investment income (loss) (0.21)% (0.53)% Ratio with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 1.25% 1.25% Net investment income (loss) (0.15)% (0.25)% 1/19/01(a) Year Ended Year Ended to Class I 12/31/03 12/31/02 12/31/01 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 realized gain -- -- -- --------- -------- --------- 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%**
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 24.67 $ 20.47 $ 14.94 $ 17.35 $ 17.79 ------- ------- ------- -------- -------- Increase (decrease) from investment operations: Net investment income (loss) $ 0.15 $ 0.08 $ 0.14 $ 0.07 $ 0.07 Net realized and unrealized gain (loss) on investments 1.75 4.41 5.45 (1.97) 1.06 ------- ------- ------- -------- -------- Net increase (decrease) from investment operations $ 1.90 $ 4.49 $ 5.59 $ (1.90) $ 1.13 Distributions to shareowners: Net investment income (0.08) (0.08) (0.06) (0.05) (0.10) Net realized gain (1.49) (0.21) -- (0.46) (1.47) -------- -------- -------- -------- -------- Net increase (decrease) in net asset value $ 0.33 $ 4.20 $ 5.53 $ (2.41) $ (0.44) -------- -------- -------- -------- -------- Net asset value, end of year $ 25.00 $ 24.67 $ 20.47 $ 14.94 $ 17.35 ======== ======== ========= ========= ========= Total return* 7.88% 22.12% 37.48% (11.21)% 6.49% Ratio of net expenses to average net assets+ 0.71% 0.72% 0.76% 0.80% 0.79% Ratio of net investment income (loss) to average net assets+ 0.58% 0.53% 0.86% 0.46% 0.45% Portfolio turnover rate 42% 55% 52% 68% 95% Net assets, end of period (in thousands) $288,837 $303,138 $170,237 $120,687 $128,340 Ratio with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.71% 0.72% 0.76% 0.80% 0.79% Net investment income (loss) 0.58% 0.53% 0.86% 0.46% 0.45% Ratio with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.71% 0.72% 0.76% 0.80% 0.79% Net investment income (loss) 0.58% 0.53% 0.86% 0.46% 0.45%
(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. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. The accompanying notes are an integral part of these financial statements. 105 Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended Year Ended Class I 12/31/05 12/31/04 Net asset value, beginning of period $ 13.04 $ 12.22 ------- ------- Increase (decrease) from investment operations: Net investment income (loss) $ 0.04 $ 0.09 Net realized and unrealized gain (loss) on investments 0.41 0.73 ------- ------- Net increase (decrease) from investment operations $ 0.45 $ 0.82 Distributions to shareowners: Net investment income (0.10) -- ------- ------- Net increase (decrease) in net asset value $ 0.35 $ 0.82 ------- ------- Net asset value, end of period $ 13.39 $ 13.04 ======= ======== Total return* 3.48% 6.71% Ratio of net expenses to average net assets+ 0.96% 0.96% Ratio of net investment income (loss) to average net assets+ 0.19% 0.71% Portfolio turnover rate 79% 206% Net assets, end of period (in thousands) $26,986 $32,300 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.96% 0.97% Net investment income (loss) 0.19% 0.71% Ratios with waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.96% 0.96% Net investment income (loss) 0.19% 0.71% Year Ended Year Ended Year Ended Class I 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 9.75 $ 14.95 $ 18.39 --------- -------- --------- Increase (decrease) from investment operations: Net investment income (loss) $ (0.01) $ 0.00(a) $ 0.01 Net realized and unrealized gain (loss) on investments 2.48 (5.19) (3.45) --------- --------- --------- Net increase (decrease) from investment operations $ 2.47 $ (5.19) $ (3.44) Distributions to shareowners: Net investment income (0.00)(a) (0.01) -- --------- --------- --------- Net increase (decrease) in net asset value $ 2.47 $ (5.20) $ (3.44) --------- --------- --------- Net asset value, end of period $ 12.22 $ 9.75 $ 14.95 ========= ========= ========== Total return* 25.35% (34.71)% (18.71)% Ratio of net expenses to average net assets+ 1.08% 0.97% 0.85% Ratio of net investment income (loss) to average net assets+ (0.05)% 0.01% 0.07% Portfolio turnover rate 58% 86% 111% Net assets, end of period (in thousands) $ 35,750 $ 34,746 $ 72,456 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.08% 0.97% 0.85% Net investment income (loss) (0.05)% 0.01% 0.07% Ratios with waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.08% 0.97% 0.85% Net investment income (loss) (0.05)% 0.01% 0.07%
Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 24.30 $ 18.57 $ 14.47 $ 14.77 $ 14.42 ------- ------- ------- ------- ------- Increase (decrease) from investment operations: Net investment income (loss) $ 0.43 $ 0.52 $ 0.74 $ 0.62 $ 0.68 Net realized and unrealized gain (loss) on investments 3.10 5.99 4.16 (0.23) 0.40 ------- ------- ------- ------- ------- Net increase from investment operations $ 3.53 $ 6.51 $ 4.90 $ 0.39 $ 1.08 Distributions to shareowners: Net investment income (0.39) (0.45) (0.64) (0.69) (0.56) Net realized gain (1.31) (0.33) -- -- -- Tax return of capital -- -- (0.16) -- (0.17) ------- ------- ------- ------- ------- Net increase (decrease) in net asset value $ 1.83 $ 5.73 $ 4.10 $ (0.30) $ 0.35 ------- ------- ------- ------- ------- Net asset value, end of period $ 26.13 $ 24.30 $ 18.57 $ 14.47 $ 14.77 ======= ======= ======= ======= ======= Total return* 15.13% 35.74% 34.75% (2.53)% 7.80% Ratio of net expenses to average net assets+ 0.94% 0.98% 1.03% 1.07% 1.16% Ratio of net investment income to average net assets+ 1.65% 2.41% 4.49% 4.76% 4.71% Portfolio turnover rate 12% 35% 20% 29% 34% Net assets, end of period (in thousands) $32,086 $36,447 $31,891 $29,873 $33,026 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.94% 0.98% 1.03% 1.07% 1.16% Net investment income 1.65% 2.41% 4.49% 4.76% 4.71% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.94% 0.98% 1.03% 1.07% 1.16% Net investment income 1.65% 2.41% 4.49% 4.76% 4.71%
(a) 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. + Ratios with no reduction for fees paid indirectly. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. 106 The accompanying notes are an integral part of these financial statements. Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 20.57 $ 18.70 $ 15.28 $ 19.08 $ 22.67 ------- ------- ------- ------- -------- Increase (decrease) from investment operations: Net investment income (loss) $ 0.27 $ 0.24 $ 0.20 $ 0.19 $ 0.17 Net realized and unrealized gain (loss) on investments 0.99 1.85 3.41 (3.81) (2.57) ------- ------- ------- -------- -------- Net increase (decrease) from investment operations $ 1.26 $ 2.09 $ 3.61 $ (3.62) $ (2.40) Distributions to shareowners: Net investment income (0.28) (0.22) (0.19) (0.18) (0.17) Net realized gain -- -- -- -- (1.02) -------- -------- -------- -------- -------- Net increase (decrease) in net asset value $ 0.98 $ 1.87 $ 3.42 $ (3.80) $ (3.59) -------- -------- -------- -------- -------- Net asset value, end of period $ 21.55 $ 20.57 $ 18.70 $ 15.28 $ 19.08 ======== ======== ======== ======== ======== Total return* 6.17% 11.26% 23.76% 19.03% (10.85)% Ratio of net expenses to average net assets+ 0.70% 0.71% 0.76% 0.80% 0.74% Ratio of net investment income (loss) to average net assets+ 1.26% 1.26% 1.16% 1.09% 0.83% Portfolio turnover rate 23% 17% 11% 11% 7% Net assets, end of period (in thousands) $382,973 $454,136 $154,839 $141,892 $199,160 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.70% 0.71% 0.76% 0.80% 0.74% Net investment income (loss) 1.26% 1.26% 1.16% 1.09% 0.83% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.70% 0.71% 0.76% 0.80% 0.74% Net investment income (loss) 1.26% 1.26% 1.16% 1.09% 0.83%
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 20.58 $ 18.09 $ 15.11 $ 18.40 $ 21.28 ------- ------- ------- -------- ------- Increase (decrease) from investment operations: Net investment income (loss) $ 0.51 $ 0.44 $ 0.41 $ 0.42 $ 0.40 Net realized and unrealized gain (loss) on investments 0.66 2.49 2.96 (3.30) (1.86) ------- ------- ------- -------- ------- Net increase (decrease) from investment operations $ 1.17 $ 2.93 $ 3.37 $ (2.88) $ (1.46) Distributions to shareowners: Net investment income (0.50) (0.44) (0.39) (0.41) (0.36) Net realized gain -- -- -- -- (1.06) -------- -------- -------- -------- ------- Net increase (decrease) in net asset value $ 0.67 $ 2.49 $ 2.98 $ (3.29) $ (2.88) -------- -------- -------- -------- ------- Net asset value, end of period $ 21.25 $ 20.58 $ 18.09 $ 15.11 $ 18.40 ======== ======== ======== ======== ======== Total return* 5.72% 16.39% 0.86% (15.82)% (6.97)% Ratio of net expenses to average net assets+ 0.71% 0.72% 0.78% 0.80% 0.75% Ratio of net investment income (loss) to average net assets+ 2.56% 2.40% 2.55% 2.48% 2.07% Portfolio turnover rate 22% 19% 12% 12% 13% Net assets, end of period (in thousands) $232,249 $188,234 $155,634 $133,258 $164,019 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.71% 0.72% 0.78% 0.80% 0.75% Net investment income (loss) 2.56% 2.40% 2.55% 2.48% 2.07% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.71% 0.72% 0.78% 0.80% 0.75% Net investment income (loss) 2.56% 2.40% 2.55% 2.48% 2.07%
* 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. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. The accompanying notes are an integral part of these financial statements. 107 Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01(a) Net asset value, beginning of period $ 14.40 $ 14.04 $ 12.27 $ 13.91 $ 14.60 ------- ------- ------- -------- ------- Increase (decrease) from investment operations: Net investment income (loss) $ 0.25 $ 0.28 $ 0.23 $ 0.21 $ 0.34 Net realized and unrealized gain (loss) on investments 0.33 0.39 1.80 (1.63) (0.67) ------- ------- ------- -------- ------- Net increase (decrease) from investment operations $ 0.58 $ 0.67 $ 2.03 $ (1.42) $ (0.33) Distributions to shareowners: Net investment income (0.27) (0.31) (0.26) (0.22) (0.36) Net realized gain -- -- -- -- -- ------- ------- ------- -------- ------- Net increase (decrease) in net asset value $ 0.31 $ 0.36 $ 1.77 $ (1.64) $ (0.69) ------- ------- ------- -------- ------- Net asset value, end of period $ 14.71 $ 14.40 $ 14.04 $ 12.27 $ 13.91 ======= ======= ======= ======== ======= Total return* 4.08% 4.79% 16.71% (10.27)% (2.26)% Ratio of net expenses to average net assets+ 0.92% 0.90% 0.91% 0.95% 0.84% Ratio of net investment income to average net assets+ 1.66% 1.96% 1.75% 1.62% 2.42% Portfolio turnover rate 25% 30% 37% 179% 136% Net assets, end of period (in thousands) $29,420 $35,312 $40,773 $ 42,849 $56,890 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.92% 0.90% 0.91% 0.95% 0.84% Net investment income 1.66% 1.96% 1.75% 1.62% 2.42% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.92% 0.90% 0.91% 0.95% 0.84% Net investment income 1.66% 1.96% 1.75% 1.62% 2.42%
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 11.67 $ 11.45 $ 9.27 $ 10.33 $ 9.82 ------- ------- ------- ------- ------- Increase (decrease) from investment operations: Net investment income (loss) $ 0.61 $ 0.62 $ 0.76 $ 0.92 $ 0.95 Net realized and unrealized gain (loss) on investments (0.41) 0.27 2.18 (1.06) 0.62 ------- ------- ------- ------- ------- Net increase (decrease) from investment operations $ 0.20 $ 0.89 $ 2.94 $ (0.14) $ 1.57 Distributions to shareowners: Net investment income (0.61) (0.62) (0.76) (0.92) (0.95) Net realized gain (0.38) (0.05) -- -- (0.11) ------- ------- ------- ------- ------- Net increase (decrease) in net asset value $ (0.79) $ 0.22 $ 2.18 $ (1.06) $ 0.51 -------- ------- ------- ------- ------- Net asset value, end of period $ 10.88 $ 11.67 $ 11.45 $ 9.27 $ 10.33 ======== ======= ======= ======= ======= Total return* 1.95% 8.03% 32.78% (1.42)% 16.60% Ratio of net expenses to average net assets+ 0.77% 0.78% 0.89% 1.02% 1.15% Ratio of net investment income (loss) to average net assets+ 5.52% 5.40% 7.22% 9.39% 9.15% Portfolio turnover rate 37% 42% 48% 42% 36% Net assets, end of period (in thousands) $ 63,452 $70,890 $66,587 $41,111 $32,331 Ratios with no waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.77% 0.78% 0.89% 1.02% 1.28% Net investment income (loss) 5.52% 5.40% 7.22% 9.39% 9.02%
(a) The Portfolio began accreting discounts and amortizing premiums on debt securities. The effect of this change for the year ended December 31, 2001, was to decrease net investment income by $0.00, increase net realized and unrealized gain (loss) by $0.00 (both amounts round to less than one cent per share) and to decrease the ratio of net investment income to average net assets with waiver of management fees by PIM and reduction for fees paid indirectly. * 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. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. 108 The accompanying notes are an integral part of these financial statements. Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 11.26 $ 11.01 $ 9.67 $ 9.33 $ 9.43 ------- ------- ------- ------ ------ Increase (decrease) from investment operations: Net investment income (loss) $ 0.61 $ 0.60 $ 0.62 $ 0.65 $ 0.67 Net realized and unrealized gain (loss) on investments and foreign currency transactions (0.31) 0.47 1.38 0.32 (0.04) ------- ------- ------- ------ ------- Net increase from investment operations $ 0.30 $ 1.07 $ 2.00 $ 0.97 $ 0.63 Distributions to shareowners: Net investment income (0.64) (0.66) (0.66) (0.63) (0.67) Net realized gain (0.16) (0.16) -- -- (0.06) ------- ------- ------- ------- ------- Net increase (decrease) in net asset value $ (0.50) $ 0.25 $ 1.34 $ 0.34 $ (0.10) -------- ------- ------- ------- ------- Net asset value, end of period $ 10.76 $ 11.26 $ 11.01 $ 9.67 $ 9.33 ======== ======= ======= ======= ======== Total return* 2.74% 10.25% 21.24% 10.72% 6.90% Ratio of net expenses to average net assets+ 0.89% 1.03% 1.25% 1.25% 1.25% Ratio of net investment income to average net assets+ 5.57% 5.52% 5.95% 6.75% 7.16% Portfolio turnover rate 46% 53% 68% 50% 55% Net assets, end of period (in thousands) $ 20,662 $20,814 $19,312 $14,692 $ 7,479 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.89% 1.03% 1.25% 1.62% 2.44% Net investment income 5.57% 5.52% 5.95% 6.38% 5.97% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.89% 1.03% 1.25% 1.25% 1.25% Net investment income 5.57% 5.52% 5.95% 6.75% 7.16%
* 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. + Ratios with no reduction for fees paid indirectly. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. The accompanying notes are an integral part of these financial statements. 109 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01(a) Net asset value, beginning of period $ 10.11 $ 10.35 $ 10.59 $ 10.06 $ 9.97 ------- ------- ------- ------- ------- Increase (decrease) from investment operations: Net investment income (loss) $ 0.38 $ 0.37 $ 0.35 $ 0.46 $ 0.52 Net realized and unrealized gain (loss) on investments (0.18) (0.03) (0.16) 0.56 0.12 ------- ------- ------- ------- ------- Net increase (decrease) from investment operations $ 0.20 $ 0.34 $ 0.19 $ 1.02 $ 0.64 Distributions to shareowners: Net investment income (0.47) (0.58) (0.43) (0.49) (0.55) Net realized gain -- -- -- -- -- ------- ------- ------- ------- ------- Net increase (decrease) in net asset value $ (0.27) $ (0.24) $ (0.24) $ 0.53 $ 0.09 -------- -------- -------- ------- ------- Net asset value, end of period $ 9.84 $ 10.11 $ 10.35 $ 10.59 $ 10.06 ======== ======== ======== ======= ======= Total return* 2.02% 3.42% 1.81% 10.32% 6.48% Ratio of net expenses to average net assets+ 0.82% 0.79% 0.78% 0.81% 0.83% Ratio of net investment income (loss) to average net assets+ 4.05% 3.74% 3.45% 4.39% 5.19% Portfolio turnover rate 23% 37% 34% 54% 71% Net assets, end of period (in thousands) $ 25,767 $ 32,342 $ 44,526 $69,551 $37,381 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.82% 0.79% 0.78% 0.81% 0.85% Net investment income (loss) 4.05% 3.74% 3.45% 4.39% 5.17% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.82% 0.79% 0.78% 0.81% 0.82% Net investment income (loss) 4.05% 3.74% 3.45% 4.39% 5.20%
Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 1.00 $ 1.000 $ 1.000 $ 1.00 $ 1.00 ------- ------- ------- ------ ------ Increase (decrease) from investment operations: Net investment income $ 0.025 $ 0.007 $ 0.006 $ 0.01 $ 0.03 Net realized and unrealized gain (loss) on investments -- -- -- -- -- -------- -------- -------- ------- ------- Net increase (decrease) from investment operations $ 0.025 $ 0.007 $ 0.006 $ 0.01 $ 0.03 Distributions to shareowners: Net investment income (0.025) (0.007) (0.006) (0.01) (0.03) -------- -------- -------- ------- ------- Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======== ======== ======== ======= ======== Total return* 2.47 % 0.65 % 0.56 % 1.19% 3.39% Ratio of net expenses to average net assets+ 0.73 % 0.74 % 0.72 % 0.78% 0.78% Ratio of net investment income to average net assets+ 2.40 % 0.66 % 0.58 % 1.11% 3.16% Net assets, end of period (in thousands) $33,216 $42,896 $34,736 $59,521 $49,545 Ratios with no waiver of fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.73 % 0.74 % 0.72 % 0.78% 0.78% Net investment income 2.40 % 0.66 % 0.58 % 1.11% 3.16% Ratios with waiver of fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.73 % 0.74 % 0.72 % 0.78% 0.78% Net investment income 2.40 % 0.66 % 0.58 % 1.11% 3.16%
(a) The Portfolio began accreting discounts and amortizing premiums on debt securities. The effect of this change for the year ended December 31, 2001, was to decrease net investment income by $0.00, increase net realized and unrealized gain (loss) by $0.00 (both amounts round to less than one cent per share) and to decrease the ratio of net investment income to average net assets with waiver of management fees by PIM and reduction for fees paid indirectly from 5.38% to 5.17%. * 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. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. 110 The accompanying notes are an integral part of these financial statements. (This page has been left blank intentionally.) Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES 12/31/05 --------------------------------------------------------------------------------
Pioneer Emerging Pioneer Markets Europe VCT Portfolio VCT Portfolio ASSETS: Investment in securities, at value (including securities loaned of $3,255,137, $0, $360,311, $3,705,730, $1,348,547, $0 and $804,362, respectively) (Cost $39,949,138, $15,777,172, $21,810,290, $39,267,953, $13,015,198, $328,641,094 and $34,087,929, respectively) $ 58,053,520 $ 18,335,402 Cash -- 360,949 Foreign currencies, at value (Cost $246,193, $0, $0, $0, $0, $0, $0, and $0, 249,693 -- respectively) Receivables -- Investment securities sold 425,551 -- Fund shares sold 1,718 4,979 Variation margin -- -- Dividends, interest and foreign taxes withheld 115,610 24,054 Other 3,608 -- ------------ ------------ Total assets $ 58,849,700 $ 18,725,384 ------------ ------------ LIABILITIES: Payables -- Investment securities purchased $ -- $ -- Fund shares repurchased 107,737 1,370 Dividends -- -- Upon return of securities loaned 3,324,063 -- Variation margin -- -- Reserve for repatriation taxes 52,359 -- Due to bank 32,753 -- Due to affiliates 7,846 4,020 Accrued expenses 93,380 48,290 ------------ ------------ Total liabilities $ 3,618,138 $ 53,680 ------------ ------------ NET ASSETS: Paid-in capital $ 32,037,155 $ 20,701,846 Undistributed net investment income 24,792 106,090 Accumulated net realized gain (loss) 5,114,124 (4,694,306) Net unrealized gain (loss) on: Investments 18,052,022 2,558,230 Futures contracts -- -- Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 3,469 (156) ------------ ------------ Total net assets $ 55,231,562 $ 18,671,704 ------------ ------------ NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 11,205,395 $ 8,714,040 Shares outstanding 398,940 763,219 ------------ ------------ Net asset value per share $ 28.09 $ 11.42 Class II: (No par value, unlimited number of shares authorized) Net assets $ 44,026,167 $ 9,957,664 Shares outstanding 1,581,297 889,288 ------------ ------------ Net asset value per share $ 27.84 $ 11.20
112 The accompanying notes are an integral part of these financial statements. Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Pioneer Pioneer Pioneer Pioneer Pioneer International Small Cap Small Mid Cap Growth Value Value Company Value Shares VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio $ 27,342,577 $45,430,594 $ 13,955,743 $ 374,498,447 $ 34,981,065 -- 854,630 545,788 2,963,747 -- -- -- -- -- -- -- 105,024 9,459 542,016 -- 3,044 40,895 1,621 175,302 -- -- -- -- -- -- 32,223 66,521 21,524 404,805 33,532 869 324 -- 5,510 472 ------------ ----------- ------------ ------------- ------------- $ 27,378,713 $46,497,988 $ 14,534,135 $ 378,589,827 $ 35,015,069 ------------ ----------- ------------ ------------- ------------- $ -- $ 207,694 $ -- $ 807,739 $ -- 7,885 100,575 41,334 577,539 15,640 -- -- -- -- -- 372,684 3,838,966 1,399,038 -- 836,722 -- 3,800 -- -- -- -- -- -- -- -- 17,439 -- -- -- 12,857 6,479 8,104 9,766 22,486 5,126 72,502 84,642 67,558 128,086 63,039 ------------ ----------- ------------ ------------- ------------- $ 476,989 $ 4,243,781 $ 1,517,696 $ 1,535,850 $ 933,384 ------------ ----------- ------------ ------------- ------------- $ 31,131,519 $33,361,929 $ 11,957,445 $ 236,779,575 $ 69,764,312 120,607 94,683 1,307 2,874,732 49,058 (9,882,195) 2,652,682 117,142 91,542,317 (36,624,821) 5,532,287 6,162,641 940,545 45,857,353 893,136 -- (17,728) -- -- -- (494) -- -- -- -- ------------ ----------- ------------ ------------- ------------- $ 26,901,724 $42,254,207 $ 13,016,439 $ 377,053,977 $ 34,081,685 ------------ ----------- ------------ ------------- ------------- $ 21,175,902 $20,554,697 $ 3,284,702 $ 288,836,624 $ 26,986,164 1,544,426 1,269,643 277,175 11,553,502 2,015,777 ------------ ----------- ------------ ------------- ------------- $ 13.71 $ 16.19 $ 11.85 $ 25.00 $ 13.39 $ 5,725,822 $21,699,510 $ 9,731,737 $ 88,217,353 $ 7,095,521 420,103 1,350,250 831,281 3,569,045 537,490 ------------ ----------- ------------ ------------- ------------- $ 13.63 $ 16.07 $ 11.71 $ 24.72 $ 13.20
The accompanying notes are an integral part of these financial statements. 113 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES 12/31/05 (continued) --------------------------------------------------------------------------------
Pioneer Real Estate Pioneer Shares Fund VCT Portfolio VCT Portfolio ASSETS: Investment in securities, at value (including securities loaned of $17,090,365, $0, $5,410,328, $139,821, $2,164,219, $479,824, $0 and $0, respectively) (Cost $78,047,428, $396,395,153, $306,088,142, $37,306,341, $109,730,582, $57,158,609, $46,408,976 and $34,678,375, respectively) $ 115,844,546 $ 499,826,017 Cash 992,681 952,541 Foreign currencies, at value (Cost $0, $0, $0, $0, $0, $9,491, $0 and $0, respectively) -- -- Receivables -- Investment securities sold 282,762 -- Fund shares sold 42,554 22,858 Variation margin -- -- Dividends, interest and foreign taxes withheld 494,270 958,591 Forward foreign currency settlement contracts, net -- -- Forward foreign currency portfolio hedge contracts, open -- net -- -- Due from Pioneer Investment Management, Inc. -- 8,177 Other 1,934 12,616 ------------- ------------- Total assets $ 117,658,747 $ 501,780,800 ------------- ------------- LIABILITIES: Payables -- Investment securities purchased $ -- $ -- Fund shares repurchased 546,900 1,997,352 Dividends -- -- Upon return for securities loaned 17,545,193 -- Due to affiliates 9,274 21,577 Accrued expenses 88,126 132,329 ------------- ------------- Total liabilities $ 18,189,493 $ 2,151,258 ------------- ------------- NET ASSETS: Paid-in capital $ 56,459,993 $ 436,333,003 Undistributed (distributions in excess of) net investment income (loss) 211,528 27,272 Accumulated net realized gain (loss) 5,000,615 (40,161,597) Net unrealized gain (loss) on: Investments 37,797,118 103,430,864 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies -- -- ------------- ------------- Total net assets $ 99,469,254 $ 499,629,542 ------------- ------------- NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 32,086,132 $ 382,973,420 Shares outstanding 1,227,893 17,771,437 ------------- ------------- Net asset value per share $ 26.13 $ 21.55 Class II: (No par value, unlimited number of shares authorized) Net assets $ 67,383,122 $ 116,656,122 Shares outstanding 2,583,192 5,427,712 ------------- ------------- Net asset value per share $ 26.09 $ 21.49
114 The accompanying notes are an integral part of these financial statements. Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Pioneer Pioneer Pioneer Pioneer Pioneer Equity Pioneer High Strategic America Money Income Balanced Yield Income Income Market VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio $ 362,282,641 $ 41,678,223 $109,525,333 $ 57,975,600 $ 46,356,306 $34,678,375 1,343,083 423,014 682,465 2,421,786 359,270 640,143 -- -- -- 9,479 -- -- 270,080 80,932 -- 82,733 -- -- 718,286 10,632 1,304,169 50,370 63,211 -- -- -- -- -- -- -- 1,205,543 159,754 1,544,979 852,240 431,824 114,691 -- -- -- -- -- -- -- -- -- 13,826 -- -- -- -- -- -- -- -- 1,190 -- -- -- 43 615 ------------- ------------ ------------ ------------ ------------ ----------- $ 365,820,823 $ 42,352,555 $113,056,946 $ 61,406,034 $ 47,210,654 $35,433,824 ------------- ------------ ------------ ------------ ------------ ----------- $ -- $ 43,301 $ -- $ 55,611 $ -- $ 2,074,707 390,376 5,240 68,166 58,139 7,943 95,618 -- -- -- -- -- 2,863 5,595,647 141,455 2,282,850 508,725 -- -- 18,516 5,636 8,448 6,656 5,662 4,610 108,954 76,607 76,534 69,492 78,879 39,931 ------------- ------------ ------------ ------------ ------------ ----------- $ 6,113,493 $ 272,239 $ 2,435,998 $ 698,623 $ 92,484 $ 2,217,729 ------------- ------------ ------------ ------------ ------------ ----------- $ 295,718,431 $ 41,790,013 $109,236,906 $ 59,217,713 $ 48,837,957 $33,218,610 1,751,090 (4,725) 59,865 397,503 (322,520) 333 6,043,310 (4,076,854) 1,529,426 265,546 (1,344,597) (2,974) 56,194,499 4,371,882 (205,249) 816,991 (52,670) 126 -- -- -- 9,658 -- -- ------------- ------------ ------------ ------------ ------------ ----------- $ 359,707,330 $ 42,080,316 $110,620,948 $ 60,707,411 $ 47,118,170 $33,216,095 ------------- ------------ ------------ ------------ ------------ ----------- $ 232,248,734 $ 29,419,900 $ 63,451,822 $ 20,662,447 $ 25,766,723 $33,216,095 10,927,244 2,000,046 5,831,312 1,920,286 2,619,336 33,222,976 ------------- ------------ ------------ ------------ ------------ ----------- $ 21.25 $ 14.71 $ 10.88 $ 10.76 $ 9.84 $ 1.00 $ 127,458,596 $ 12,660,416 $ 47,169,126 $ 40,044,964 $ 21,351,447 $ -- 5,964,294 862,830 4,335,176 3,721,336 2,167,193 -- ------------- ------------ ------------ ------------ ------------ ----------- $ 21.37 $ 14.67 $ 10.88 $ 10.76 $ 9.85 $ --
The accompanying notes are an integral part of these financial statements. 115 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS 12/31/05 --------------------------------------------------------------------------------
Pioneer Pioneer Emerging Markets Europe VCT Portfolio VCT Portfolio Year Year Ended Ended 12/31/05 12/31/05 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $167,202, $63,473, $75,067, $884, $74, $19,183 and $2,445, respectively) $ 1,160,247 $ 436,678 Interest 17,442 6,748 Income on securities loaned, net 8,599 -- ----------- ------------ Total investment income $ 1,186,288 $ 443,426 ----------- ------------ EXPENSES: Management fees $ 510,446 $ 181,631 Transfer agent fees and expenses 7,715 2,753 Distribution fees (Class II) 87,711 22,956 Administrative reimbursements 18,512 18,512 Custodian fees 135,998 37,053 Professional fees 71,787 42,316 Printing expense 10,670 12,988 Fees and expenses of nonaffiliated trustees 4,569 4,005 Miscellaneous 17,186 20,492 ----------- ------------ Total expenses $ 864,594 $ 342,706 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (10,565) (47,561) Less fees paid indirectly -- -- ----------- ------------ Net expenses $ 854,029 $ 295,145 ----------- ------------ Net investment income $ 332,259 $ 148,281 ----------- ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments (net of foreign capital gain taxes of $34,788, $0, $0, $0, $0, $0 and $0, respectively) $ 7,432,445 $ 3,151,091 Redemptions in kind -- -- Futures contracts -- -- Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (126,742) (42,124) ----------- ------------ $ 7,305,703 $ 3,108,967 ----------- ------------ Change in net unrealized gain (loss) from: Investments (net of the change in reserve for repatriation taxes of $16,869, $0, $0, $0, $0, $0 and $0, respectively) $ 7,394,630 $ (1,854,575) Futures contracts -- -- Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (4,278) (2,742) ----------- ------------ $ 7,390,352 $ (1,857,317) ----------- ------------ Net gain (loss) on investments, futures contracts and foreign currency transactions $14,696,055 $ 1,251,650 =========== ============ Net increase in net assets resulting from operations $15,028,314 $ 1,399,931 =========== ============
116 The accompanying notes are an integral part of these financial statements. Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Pioneer Pioneer Pioneer Pioneer Pioneer International Value Small Cap Value Small Company Mid Cap Value Growth Shares VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio Year Year Year Year Year Ended Ended Ended Ended Ended 12/31/05 12/31/05 12/31/05 12/31/05 12/31/05 $ 541,725 $ 418,320 $ 163,632 $ 8,645,128 $ 414,616 12,408 102,972 15,206 431,672 7,418 21,147 11,006 8,882 88,225 2,263 ---------- ---------- --------- ------------- ------------ $ 575,280 $ 532,298 $ 187,720 $ 9,165,025 $ 424,297 ---------- ---------- --------- ------------- ------------ $ 258,471 $ 262,583 $ 99,091 $ 4,812,824 $ 258,486 8,676 3,000 7,715 7,468 7,468 12,164 39,927 24,684 1,087,653 19,680 18,512 18,512 18,512 148,904 18,512 29,895 33,950 26,871 54,824 28,449 49,782 45,919 33,845 65,495 32,252 12,970 28,855 17,234 92,301 3,007 3,983 4,025 3,901 14,074 3,964 16,902 3,277 2,955 19,212 4,454 ---------- ---------- --------- ------------- ------------ $ 411,355 $ 440,048 $ 234,808 $ 6,302,755 $ 376,272 -- -- (47,244) -- -- -- -- (139) (14,320) (1,220) ---------- ---------- --------- ------------- ------------ $ 411,355 $ 440,048 $ 187,425 $ 6,288,435 $ 375,052 ---------- ---------- --------- ------------- ------------ $ 163,925 $ 92,250 $ 295 $ 2,876,590 $ 49,245 ---------- ---------- --------- ------------- ------------ $4,225,791 $2,937,296 $ 167,549 $ 97,033,276 $ 3,211,502 -- -- -- 49,200,447 -- -- 87,722 -- -- -- (39,160) -- -- -- -- ---------- ---------- --------- ------------- ------------ $4,186,631 $3,025,018 $ 167,549 $ 146,233,723 $ 3,211,502 ---------- ---------- --------- ------------- ------------ $ (618,775) $1,061,614 $ 39,771 $ (98,298,212) $ (2,083,627) -- (50,893) -- -- -- 841 -- -- -- -- ---------- ---------- --------- ------------- ------------ $ (617,934) $1,010,721 $ 39,771 $ (98,298,212) $ (2,083,627) ---------- ---------- --------- ------------- ------------ $3,568,697 $4,035,739 $ 207,320 $ 47,935,511 $ 1,127,875 ========== ========== ========= ============= ============ $3,732,622 $4,127,989 $ 207,615 $ 50,812,101 $ 1,177,120 ========== ========== ========= ============= ============
The accompanying notes are an integral part of these financial statements. 117 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS 12/31/05 (continued) --------------------------------------------------------------------------------
Pioneer Pioneer Real Estate Shares Fund VCT Portfolio VCT Portfolio Year Year Ended Ended 12/31/05 12/31/05 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $10,451, $67,202, $0, $560, $0, $0, $0 and $0, respectively) $ 2,522,994 $ 10,293,023 Interest 27,159 132,621 Income on securities loaned, net 16,232 22,461 ----------- ------------- Total investment income $ 2,566,385 $ 10,448,105 ----------- ------------- EXPENSES: Management fees $ 782,628 $ 3,461,438 Transfer agent fees and expenses 3,000 5,974 Distribution fees (Class II) 162,146 305,003 Administrative reimbursements 18,700 105,852 Custodian fees 22,345 14,300 Professional fees 41,419 48,553 Printing expense 32,568 77,940 Fees and expenses of nonaffiliated trustees 4,858 9,634 Miscellaneous 9,767 12,496 ----------- ------------- Total expenses $ 1,077,431 $ 4,041,190 Less fees paid indirectly -- -- ----------- ------------- Net expenses $ 1,077,431 $ 4,041,190 ----------- ------------- Net investment income $ 1,488,954 $ 6,406,915 ----------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ 6,859,537 $ 29,925,821 Redemptions in kind -- 16,752,070 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies -- 1,179 ----------- ------------- $ 6,859,537 $ 46,679,070 ----------- ------------- Change in net unrealized gain (loss) from: Investments $ 5,415,473 $ (23,029,256) Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies -- -- ----------- ------------- $ 5,415,473 $ (23,029,256) ----------- ------------- Net gain (loss) on investments, futures contracts and foreign currency transactions $12,275,010 $ 23,649,814 =========== ============= Net increase in net assets resulting from operations $13,763,964 $ 30,056,729 =========== =============
118 The accompanying notes are an integral part of these financial statements. Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Pioneer Pioneer Pioneer Pioneer Pioneer Pioneer America Money Equity Income Balanced High Yield Strategic Income Income Market VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio Year Year Year Year Year Year Ended Ended Ended Ended Ended Ended 12/31/05 12/31/05 12/31/05 12/31/05 12/31/05 12/31/05 $ 10,276,103 $ 319,740 $ 250,030 $ 3,555,083 $ -- $ -- 339,380 826,374 6,763,663 7,305 2,250,256 1,229,389 3,025 2,706 14,050 -- -- -- ------------ ---------- ------------ ------------ ---------- ---------- $ 10,618,508 $1,148,820 $ 7,027,743 $ 3,562,388 $2,250,256 $1,229,389 ------------ ---------- ------------ ------------ ---------- ---------- $ 2,107,678 $ 289,737 $ 725,723 $ 359,166 $ 258,627 $ 196,195 7,715 7,714 7,715 7,715 7,715 6,091 283,178 30,536 117,009 85,494 44,260 -- 62,333 18,512 22,311 18,512 18,512 18,512 38,630 16,760 20,659 22,421 22,493 22,067 37,638 49,599 41,351 50,166 49,758 32,754 40,238 16,402 33,849 15,635 14,371 3,576 4,224 4,606 5,115 4,888 4,444 3,879 8,884 10,779 7,045 13,040 11,265 3,723 ------------ ---------- ------------ ------------ ---------- ---------- $ 2,590,518 $ 444,645 $ 980,777 $ 577,037 $ 431,445 $ 286,797 (35,127) -- -- -- -- -- ------------ ---------- ------------ ------------ ---------- ---------- $ 2,555,391 $ 444,645 $ 980,777 $ 577,037 $ 431,445 $ 286,797 ------------ ---------- ------------ ------------ ---------- ---------- $ 8,063,117 $ 704,175 $ 6,046,966 $ 2,985,351 $1,818,811 $ 942,592 ------------ ---------- ------------ ------------ ---------- ---------- $ 19,415,048 $1,339,268 $ 1,530,055 $ 482,520 $ (8,670) $ 85 -- -- -- -- -- -- -- -- -- 28,986 -- -- ------------ ---------- ------------ ------------ ---------- ---------- $ 19,415,048 $1,339,268 $ 1,530,055 $ 511,506 $ (8,670) $ 85 ------------ ---------- ------------ ------------ ---------- ---------- $ (9,053,445) $ (318,959) $ (5,535,598) $ (2,112,657) $ (945,559) $ 126 -- -- -- 77,046 -- -- ------------ ---------- ------------ ------------ ---------- ---------- $ (9,053,445) $ (318,959) $ (5,535,598) $ (2,035,611) $ (945,559) $ 126 ------------ ---------- ------------ ------------ ---------- ---------- $ 10,361,603 $1,020,309 $ (4,005,543) $ (1,524,105) $ (954,229) $ 211 ============ ========== ============ ============ ========== ========== $ 18,424,720 $1,724,484 $ 2,041,423 $ 1,461,246 $ 864,582 $ 942,803 ============ ========== ============ ============ ========== ==========
The accompanying notes are an integral part of these financial statements. 119 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS 12/31/05 --------------------------------------------------------------------------------
Pioneer Emerging Pioneer Markets VCT Portfolio Europe VCT Portfolio Year Year Year Year Ended Ended Ended Ended 12/31/05 12/31/04 12/31/05 12/31/04 FROM OPERATIONS: Net investment income (loss) $ 332,259 $ 322,489 $ 148,281 $ 118,530 Net realized gain on investments 7,305,703 5,573,183 3,108,967 1,154,559 Change in net unrealized gain (loss) on investments, futures contracts and foreign currency transactions 7,390,352 22,693 (1,857,317) 1,402,807 ------------- ------------- ------------ ------------ Net increase in net assets resulting from operations $ 15,028,314 $ 5,918,365 $ 1,399,931 $ 2,675,896 ------------- ------------- ------------ ------------ DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (50,778) $ (65,091) $ (58,420) $ (65,951) Class II (161,235) (196,317) (44,828) (38,910) Net realized gain Class I -- -- -- -- Class II -- -- -- -- ------------- ------------- ------------ ------------ Total distributions to shareowners $ (212,013) $ (261,408) $ (103,248) $ (104,861) ------------- ------------- ------------ ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 13,210,315 $ 9,587,268 $ 3,090,347 $ 3,890,105 Reinvestment of distributions 210,764 259,912 103,248 104,862 Cost of shares repurchased (11,986,023) (11,459,650) (3,544,212) (3,175,336) ------------- ------------- ------------ ------------ Net increase (decrease) in net assets resulting from Fund share transactions $ 1,435,056 $ (1,612,470) $ (350,617) $ 819,631 ------------- ------------- ------------ ------------ Net increase (decrease) in net assets $ 16,251,357 $ 4,044,487 $ 946,066 $ 3,390,666 ------------- ------------- ------------ ------------ NET ASSETS: Beginning of year $ 38,980,205 $ 34,935,718 $ 17,725,638 $ 14,334,972 ------------- ------------- ------------ ------------ End of year $ 55,231,562 $ 38,980,205 $ 18,671,704 $ 17,725,638 ============= ============= ============ ============ Undistributed net investment income, end of year $ 24,792 $ 44,879 $ 106,090 $ 103,181 ============= ============= ============ ============
120 The accompanying notes are an integral part of these financial statements. Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Pioneer International Pioneer Small Cap Value Pioneer Small Company Value VCT Portfolio VCT Portfolio VCT Portfolio Year Year Year Year Year Year Ended Ended Ended Ended Ended Ended 12/31/05 12/31/04 12/31/05 12/31/04 12/31/05 12/31/04 $ 163,925 $ 93,454 $ 92,250 $ (55,495) $ 295 $ (46,684) 4,186,631 2,810,326 3,025,018 1,744,190 167,549 2,015,360 (617,934) 1,310,186 1,010,721 2,532,121 39,771 (384,806) ------------ ------------ ------------ ------------ ------------ ------------ $ 3,732,622 $ 4,213,966 $ 4,127,989 $ 4,220,816 $ 207,615 $ 1,583,870 ------------ ------------ ------------ ------------ ------------ ------------ $ (31,154) $ (113,573) $ -- $ -- $ -- $ -- (3,084) (8,890) -- -- -- -- -- -- (593,880) -- (336,596) -- -- -- (497,417) -- (1,039,487) -- ------------ ------------ ------------ ------------ ------------ ------------ $ (34,238) $ (122,463) $ (1,091,297) $ -- $ (1,376,083) $ -- ------------ ------------ ------------ ------------ ------------ ------------ $ 3,244,454 $ 4,380,480 $ 20,346,152 $ 14,302,057 $ 1,818,697 $ 4,450,765 34,238 122,460 -- -- 1,363,305 -- (7,067,685) (5,189,620) (9,966,656) (4,493,153) (2,867,211) (3,135,048) ------------ ------------ ------------ ------------ ------------ ------------ $ (3,788,993) $ (686,680) $ 10,379,496 $ 9,808,904 $ 314,791 $ 1,315,717 ------------ ------------ ------------ ------------ ------------ ------------ $ (90,609) $ 3,404,823 $ 13,416,188 $ 14,029,720 $ (853,677) $ 2,899,587 ------------ ------------ ------------ ------------ ------------ ------------ $ 26,992,333 $ 23,587,510 $ 28,838,019 $ 14,808,299 $ 13,870,116 $ 10,970,529 ------------ ------------ ------------ ------------ ------------ ------------ $ 26,901,724 $ 26,992,333 $ 42,254,207 $ 28,838,019 $ 13,016,439 $ 13,870,116 ============ ============ ============ ============ ============ ============ $ 120,607 $ 30,080 $ 94,683 $ 260 $ 1,307 $ -- ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. 121 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS 12/31/05 (continued) --------------------------------------------------------------------------------
Pioneer Mid Cap Pioneer Growth Value VCT Portfolio Shares VCT Portfolio Year Year Year Year Ended Ended Ended Ended 12/31/05 12/31/04 12/31/05 12/31/04 FROM OPERATIONS: Net investment income $ 2,876,590 $ 2,164,987 $ 49,245 $ 271,723 Net realized gain on investments, redemptions in kind and foreign currency transactions 146,233,723 53,898,712 3,211,502 1,562,700 Change in net unrealized gain (loss) on investments, futures contracts and foreign currency transactions (98,298,212) 70,310,429 (2,083,627) 618,844 -------------- ------------- ------------ ------------ Net increase in net assets resulting from operations $ 50,812,101 $ 126,374,128 $ 1,177,120 $ 2,453,267 -------------- ------------- ------------ ------------ DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (980,182) $ (711,725) $ (221,887) $ -- Class II (1,186,576) (1,067,643) (50,023) -- Net realized gain Class I (18,901,870) (1,863,831) -- -- Class II (33,992,323) (3,740,321) -- -- -------------- ------------- ------------ ------------ Total distributions to shareowners $ (55,060,951) $ (7,383,520) $ (271,910) $ -- -------------- ------------- ------------ ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 138,080,446 $ 331,791,818 $ 2,192,354 $ 5,638,676 Class I shares issued in reorganization -- 49,670,328 -- -- Reinvestment of distributions 55,060,951 7,383,520 271,910 -- Cost of shares repurchased (163,603,573) (49,217,509) (9,337,142) (6,840,932) Redemptions in kind (488,210,933) -- -- -- -------------- ------------- ------------ ------------ Net increase (decrease) in net assets resulting from Fund share transactions $ (458,673,109) $ 339,628,157 $ (6,872,878) $ (1,202,256) -------------- ------------- ------------ ------------ Net increase (decrease) in net assets $ (462,921,959) $ 458,618,765 $ (5,967,668) $ 1,251,011 -------------- ------------- ------------ ------------ NET ASSETS: Beginning of year $ 839,975,936 $ 381,357,171 $ 40,049,353 $ 38,798,342 -------------- ------------- ------------ ------------ End of year $ 377,053,977 $ 839,975,936 $ 34,081,685 $ 40,049,353 ============== ============= ============ ============ Undistributed net investment income, end of year $ 2,874,732 $ 2,164,900 $ 49,058 $ 271,723 ============== ============= ============ ============
122 The accompanying notes are an integral part of these financial statements. Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Pioneer Real Estate Pioneer Fund Pioneer Equity Shares VCT Portfolio VCT Portfolio Income VCT Portfolio Year Year Year Year Year Year Ended Ended Ended Ended Ended Ended 12/31/05 12/31/04 12/31/05 12/31/04 12/31/05 12/31/04 $ 1,488,954 $ 1,806,090 $ 6,406,915 $ 3,200,048 $ 8,063,117 $ 5,474,342 6,859,537 7,508,438 46,679,070 1,084,379 19,415,048 2,001,864 5,415,473 15,633,552 (23,029,256) 30,978,376 (9,053,445) 29,937,321 ------------- ------------- -------------- ------------- ------------- ------------- $ 13,763,964 $ 24,948,080 $ 30,056,729 $ 35,262,803 $ 18,424,720 $ 37,413,527 ------------- ------------- -------------- ------------- ------------- ------------- $ (513,835) $ (707,216) $ (5,374,313) $ (1,685,576) $ (5,101,572) $ (3,809,792) (868,561) (916,414) (1,440,262) (1,069,680) (2,458,044) (1,595,526) (1,720,481) (493,376) -- -- -- -- (3,467,765) (803,210) -- -- -- -- ------------- ------------- -------------- ------------- ------------- ------------- $ (6,570,642) $ (2,920,216) $ (6,814,575) $ (2,755,256) $ (7,559,616) $ (5,405,318) ------------- ------------- -------------- ------------- ------------- ------------- $ 14,850,583 $ 20,027,996 $ 42,859,167 $ 60,072,885 $ 96,224,481 $ 63,295,941 -- -- 53,856,933 298,220,832 -- -- 6,570,642 2,920,216 6,814,325 2,755,256 7,559,617 5,405,317 (27,391,461) (18,513,875) (139,175,447) (48,119,744) (36,867,650) (34,772,572) -- -- (75,731,419) -- -- -- ------------- ------------- -------------- ------------- ------------- ------------- $ (5,970,236) $ 4,434,337 $ (111,376,441) $ 312,929,229 $ 66,916,448 $ 33,928,686 ------------- ------------- -------------- ------------- ------------- ------------- $ 1,223,086 $ 26,462,201 $ (88,134,287) $ 345,436,776 $ 77,781,552 $ 65,936,895 ------------- ------------- -------------- ------------- ------------- ------------- $ 98,246,168 $ 71,783,967 $ 587,763,829 $ 242,327,053 $ 281,925,778 $ 215,988,883 ------------- ------------- -------------- ------------- ------------- ------------- $ 99,469,254 $ 98,246,168 $ 499,629,542 $ 587,763,829 $ 359,707,330 $ 281,925,778 ============= ============= ============== ============= ============= ============= $ 211,528 $ 286,854 $ 27,272 $ 433,753 $ 1,751,090 $ 1,228,049 ============= ============= ============== ============= ============= =============
The accompanying notes are an integral part of these financial statements. 123 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS 12/31/05 (continued) --------------------------------------------------------------------------------
Pioneer Pioneer High Yield Balanced VCT Portfolio VCT Portfolio Year Year Year Year Ended Ended Ended Ended 12/31/05 12/31/04 12/31/05 12/31/04 FROM OPERATIONS: Net investment income $ 704,175 $ 857,444 $ 6,046,966 $ 5,467,810 Net realized gain (loss) on investments 1,339,268 1,099,149 1,530,055 3,746,873 Change in net unrealized gain (loss) on investments, futures contracts and foreign currency transactions (318,959) 127,896 (5,535,598) (1,480,061) ------------ ------------ ------------- ------------- Net increase in net assets resulting from operations $ 1,724,484 $ 2,084,489 $ 2,041,423 $ 7,734,622 ------------ ------------ ------------- ------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (588,607) $ (789,468) $ (3,563,099) $ (3,715,003) Class II (208,623) (155,092) (2,466,908) (1,764,209) Net realized gain Class I -- -- (2,147,727) (265,040) Class II -- -- (1,587,624) (135,300) ------------ ------------ ------------- ------------- Total distributions to shareowners $ (797,230) $ (944,560) $ (9,765,358) $ (5,879,552) ------------ ------------ ------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 4,365,660 $ 8,978,890 $ 43,512,782 $ 75,619,514 Class I shares issued in reorganization -- -- -- -- Reinvestment of distributions 797,221 944,549 9,721,259 5,846,576 Cost of shares repurchased (9,774,029) (9,461,531) (57,690,620) (44,707,455) ------------ ------------ ------------- ------------- Net increase (decrease) in net assets resulting from Fund share transactions $ (4,611,148) $ 461,908 $ (4,456,579) $ 36,758,635 ------------ ------------ ------------- ------------- Net increase (decrease) in net assets $ (3,683,894) $ 1,601,837 $ (12,180,514) $ 38,613,705 ------------ ------------ ------------- ------------- NET ASSETS: Beginning of year $ 45,764,210 44,162,373 $ 122,801,462 $ 84,187,757 ------------ ------------ ------------- ------------- End of year $ 42,080,316 $ 45,764,210 $ 110,620,948 $ 122,801,462 ============ ============ ============= ============= Undistributed (distributions in excess of) net investment income, end of year $ (4,725) $ 14,409 $ 59,865 $ 42,906 ============ ============ ============= =============
124 The accompanying notes are an integral part of these financial statements. Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Pioneer Strategic Pioneer America Pioneer Money Income VCT Portfolio Income VCT Portfolio Market VCT Portfolio Year Year Year Year Year Year Ended Ended Ended Ended Ended Ended 12/31/05 12/31/04 12/31/05 12/31/04 12/31/05 12/31/04 $ 2,985,351 $ 1,817,102 $ 1,818,811 $ 1,625,595 $ 942,592 $ 205,313 511,506 1,081,207 (8,670) 206,989 85 -- (2,035,611) 767,697 (945,559) (352,583) 126 -- ------------ ------------ ------------- ------------- ------------- ------------- $ 1,461,246 $ 3,666,006 $ 864,582 $ 1,480,001 $ 942,803 $ 205,313 ------------ ------------ ------------- ------------- ------------- ------------- $ (1,227,712) $ (1,210,066) $ (1,378,835) $ (2,102,796) $ (944,260) $ (203,312) (1,916,310) (733,628) (792,466) (401,489) -- -- (308,227) (294,736) -- -- -- -- (487,951) (171,204) -- -- -- -- ------------ ------------ ------------- ------------- ------------- ------------- $ (3,940,200) $ (2,409,634) $ (2,171,301) $ (2,504,285) $ (944,260) $ (203,312) ------------ ------------ ------------- ------------- ------------- ------------- $ 19,663,891 $ 25,764,732 $ 11,779,535 $ 15,160,465 $ 19,583,940 $ 18,483,037 -- -- -- -- -- 21,976,837 3,902,297 2,367,418 2,174,179 2,504,258 942,853 203,307 (6,220,715) (6,523,479) (11,661,922) (17,669,980) (30,205,433) (32,505,228) ------------ ------------ ------------- ------------- ------------- ------------- $ 17,345,473 $ 21,608,671 $ 2,291,792 $ (5,257) $ (9,678,640) $ 8,157,953 ------------ ------------ ------------- ------------- ------------- ------------- $ 14,866,519 $ 22,865,043 $ 985,073 $ (1,029,541) $ (9,680,097) $ 8,159,954 ------------ ------------ ------------- ------------- ------------- ------------- $ 45,840,892 $ 22,975,849 $ 46,133,097 $ 47,162,638 $ 42,896,192 $ 34,736,238 ------------ ------------ ------------- ------------- ------------- ------------- $ 60,707,411 $ 45,840,892 $ 47,118,170 $ 46,133,097 $ 33,216,095 $ 42,896,192 ============ ============ ============= ============= ============= ============= $ 397,503 $ 311,542 $ (322,520) $ (264,827) $ 333 $ 2,001 ============ ============ ============= ============= ============= =============
The accompanying notes are an integral part of these financial statements. 125 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Variable Contracts Trust (the "Trust") is a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty-nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts or by qualified pension and retirement plans. The financial statements of Value Portfolio, AmPac Growth Portfolio, Small and Mid Cap Growth Portfolio, Oak Ridge Large Cap Growth Portfolio, Growth Opportunities Portfolio, Small Cap Value II Portfolio, Bond Portfolio, Cullen Value Portfolio, Equity Opportunity Portfolio, Core Bond Portfolio, Global High Yield Portfolio, Ibbotson Aggressive Allocation Portfolio, Ibbotson Moderate Allocation Portfolio and Ibbotson Growth Allocation Portfolio and the Class II financial highlights of all the Portfolios are presented in separate books. Emerging Markets Portfolio, Europe Portfolio and International Value Portfolio seek long-term capital growth. Small Company Portfolio, Small Cap Value Portfolio, Mid Cap Value Portfolio and Growth Shares Portfolio seek capital appreciation. Real Estate Shares Portfolio pursues long-term capital growth and, secondarily, current income. Pioneer Fund Portfolio seeks reasonable income and growth of capital. Equity Income Portfolio seeks current income and long-term capital growth. Balanced Portfolio seeks capital growth and current income. High Yield Portfolio seeks to maximize total return through a combination of income and capital appreciation. Strategic Income Portfolio seeks to produce a high level of current income. America Income Portfolio seeks a high level of current income as consistent with preservation of capital. Money Market Portfolio seeks current income consistent with preserving capital and providing liquidity. The Trust's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Trust to, among other things, make estimates and assumptions 126 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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 years. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Trust in the preparation of its financial statements, which are consistent 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 (NYSE) is open, as of the close of regular trading on the NYSE. 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 NYSE. The value of such securities used in computing the net asset value of a Portfolio's shares is based on the last sale price on the principal exchange where they traded. 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. The Portfolios also may use the fair value of a security, including a non-U.S. security, when the closing market price on the primary exchange where the security is traded no longer accurately reflects the value of the security as of the close of the exchange. At December 31, 2005, there were no fair valued securities except as follows. All securities that trade in foreign markets whose closing prices are as of times prior to the close of the NYSE and that are held by Emerging Markets Portfolio, Europe Portfolio and International Value Portfolio are fair valued using vendor-supplied pricing updates for each security to the time of the close of the NYSE. The principal exchanges and markets for such securities have closing times prior to the close of the NYSE. However, the value of these securities may be influenced by changes in global markets occurring after the closing times of the local exchanges and markets up to the time the Portfolios determine their net asset values. Consequently, the Board of Trustees of the Trust has determined that the use of daily fair valuations as provided by a pricing service is appropriate for these Portfolios. The Portfolios may also take into consideration other significant events in determining the fair value of these securities. Thus, a Portfolio's securities valuations may differ from prices reported by the various local exchanges and markets. Temporary cash investments and securities held by any 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. Discounts and premiums on fixed income securities are accreted and amortized, respectively, on a yield-to-maturity basis and are included in interest income. 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 of 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. Information regarding the Trust's principal investment risks is contained in the Trust's prospectus. Please refer to those documents when considering the Trust's risks. Because Real Estate Shares Portfolio invests 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 and return of capital distributions 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. Emerging Markets, International Value and Europe Portfolios' investments in emerging markets or 127 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- countries with limited or developing markets may subject these 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 Portfolios' investments and income generated by these investments, as well as the Portfolios' ability to repatriate such amounts. High Yield and Strategic Income Portfolios invest in below investment grade (high yield) debt securities and preferred stocks. Some of these high yield securities may be convertible into equity securities of the issuer. Debt securities rated below 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 periods of economic uncertainty or change, than higher rated debt securities. Small capitalization stocks, such as those in the Small Company and Small Cap Value Portfolios 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 Portfolios 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 Portfolios are 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 Portfolios 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 such as the 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 Portfolios' hedging and trading strategies and potentially result in a loss. As of December 31, 2005, open contracts are shown in the table below. C. Foreign Currency Translation The books and records of the Portfolios are maintained in U.S. dollars. Amounts denominated in foreign currencies are translated into U.S. dollars using current exchange rates. Net realized gains and losses on foreign currency transactions represent 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. dollars 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.
------------------------------------------------------------------------------------------------------------ Number of Contracts Settlement Unrealized Portfolio Type Long/(Short) Month Market Value Gain/(Loss) ------------------------------------------------------------------------------------------------------------ Small Cap Value Portfolio Russell 2000 4 March 2006 $1,356,600 $(17,728)
D. Forward Foreign Currency Contracts Certain Portfolios are authorized to enter into forward foreign currency contracts (contracts) for the purchase or sale of a specific foreign currency at a fixed price on a future date as a hedge or cross-hedge against either specific investment transactions (settlement hedges) or portfolio positions (portfolio hedges). All contracts are marked to market daily at the applicable exchange rates, and any resulting unrealized gains or losses are recorded in the Portfolios' financial statements. The Portfolios record realized gains and losses at the time a portfolio hedge is offset by entry into a closing transaction or extinguished by delivery of the currency. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of the contract and from unanticipated movements in the value of foreign currencies relative to the U.S. dollar (see Note 8). 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. 128 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- In addition to the requirements of the Internal Revenue Code, the Portfolios 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, 2005, no such taxes were paid. In determining the daily net asset value, the Portfolios estimate the reserve for such taxes, if any, associated with investments in certain countries. Any 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. As of December 31, 2005, the Portfolios had no reserves related to taxes on capital gains, except Emerging Markets Portfolio, which had $52,359 in reserve related to capital gains. The amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal 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 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, and those determined to be capital gains are reflected as such in the Statement of Operations. Capital loss carryforwards are available to offset future realized capital gains. At December 31, 2005, certain Portfolios had capital loss carryforwards and expirations as follows:
------------------------------------------------------------------------------------------------------- International Mid Cap Growth Expires in Europe Value Value Shares Fiscal Year Ending Portfolio Portfolio Portfolio Portfolio ------------------------------------------------------------------------------------------------------- 2006 $ -- $ -- $ -- $ -- 2007 $ -- $ -- $ -- $ -- 2008 $ -- $ -- $ -- $ -- 2009 $ 1,921,644 $2,426,453 $1,330,134 $ 9,618,208 2010 $ 1,896,288 $5,309,516 $2,529,788 $19,245,183 2011 $ 783,043 $2,130,998 $ -- $ 7,319,241 2012 $ -- $ -- $ -- $ -- 2013 $ -- $ -- $ -- $ -- ------------------------------------------------------------------------- Total $ 4,600,975 $9,866,967 $3,859,922 $36,182,632 ========================================================================= America Money Expires in Fund Balanced Income Market Fiscal Year Ending Portfolio Portfolio Portfolio Portfolio ------------------------------------------------------------------------------------------------------- 2006 $ -- $ -- $ -- $ -- 2007 $ -- $ -- $ -- $ -- 2008 $ -- $ -- $ 382,424 $ -- 2009 $ -- $ -- $ -- $ -- 2010 $26,951,317 $1,409,746 $ -- $ 2,728 2011 $13,017,527 $2,590,145 $ 435,523 $ -- 2012 $ -- $ -- $ 171,643 $ 246 2013 $ -- $ -- $ 241,325 $ -- ------------------------------------------------------------------------- Total $39,968,844 $3,999,891 $1,230,915 $ 2,974 ========================================================================= -------------------------------------------------------------------------------------------------------
129 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- The following Portfolios elected to defer capital and/or currency losses recognized between November 1, 2005 and December 31, 2005 to their fiscal year ending December 31, 2006.
-------------------------------------------------------------------------------- Portfolio Capital Losses Currency Losses -------------------------------------------------------------------------------- Europe Portfolio $ 17,485 $-- America Income Portfolio $109,707 $-- Strategic Income Portfolio $ 40,713 $-- --------------------------------------------------------------------------------
At December 31, 2005, certain Portfolios made reclassifications as described below. These reclassifications have no impact on the net asset values of the respective Portfolios and are designed to present the Portfolios' capital accounts on a tax basis.
----------------------------------------------------------------------------------------- Undistributed Accumulated Net Investment Realized Gain/Net Paid-in Portfolio Income (Loss) (Loss) Capital ----------------------------------------------------------------------------------------- Emerging Markets Portfolio $ (140,333) $ 140,333 $ -- Europe Portfolio (42,124) 42,124 -- International Value Portfolio (39,160) 39,160 -- Small Cap Value Portfolio 2,173 5,404 (7,577) Small Company Portfolio 1,012 11,033 (12,045) Mid Cap Value Portfolio -- (47,572,810) 47,572,810 Growth Shares Portfolio -- -- -- Real Estate Shares Portfolio (181,884) 102,715 79,169 Fund Portfolio 1,179 (16,707,826) 16,706,647 Equity Income Portfolio 19,540 26,171 (45,711) Balanced Portfolio 73,921 (73,808) (113) High Yield Portfolio -- -- -- Strategic Income Portfolio 244,632 (244,632) -- America Income Portfolio 294,797 (294,797) -- Money Market Portfolio -- -- -- -----------------------------------------------------------------------------------------
The following chart shows the distributions paid during the fiscal years ended December 31, 2005 and 2004, and the components of distributable earnings (accumulated losses) as of December 31, 2005, on a tax basis.
------------------------------------------------------------------------------------------------------------------------------- Pioneer Pioneer Pioneer Pioneer Emerging Markets Emerging Markets Europe Europe VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio 2005 2004 2005 2004 ------------------------------------------------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 212,013 $261,408 $ 103,248 $ 104,861 Long-Term capital gain -- -- -- -- ------------------------------------------------------------- $ 212,013 $261,408 $ 103,248 $ 104,861 Return of Capital $ -- $ -- $ -- $ -- ------------------------------------------------------------- Total distributions $ 212,013 $261,408 $ 103,248 $ 104,861 ------------------------------------------------------------- Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 220,926 $ 106,090 Undistributed long-term gain/(Capital Loss carryforward) 5,193,430 (4,600,975) Post-October loss deferred (17,485) Unrealized appreciation (depreciation) 17,780,051 2,482,228 ------------------------------------------------------------- Total $23,194,407 $ (2,030,142) ============================================================== -------------------------------------------------------------------------------------------------------------------------------
130 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Pioneer International Value VCT Portfolio 2005 -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 34,238 Long-Term capital gain -- ------------ $ 34,238 Return of Capital -- ------------ Total distributions $ 34,238 ------------ Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 120,607 Undistributed long-term gain/(Capital Loss carryforward) (9,866,967) Unrealized appreciation (depreciation) 5,516,565 ------------ Total $ (4,229,795) ------------ Pioneer Small Company VCT Portfolio 2005 -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ -- Long-Term capital gain 1,376,083 ------------- $ 1,376,083 Return of Capital -- ------------- Total distributions $ 1,376,083 ------------- Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 918 Capital loss carryforward from merger -- Undistributed long-term gain/(Capital loss carryforward) 124,956 Unrealized appreciation (depreciation) 933,120 ------------- Total $ 1,058,994 ------------- Pioneer Growth Shares VCT Portfolio 2005 -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 271,910 Long-Term capital gain -- ------------- $ 271,910 Return of Capital -- ------------- Total distributions $ 271,910 ------------- Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 49,058 Undistributed long-term gain/(Capital loss carryforward) (36,182,632) Post-October loss deferred/REIT Dividend Payable -- Unrealized appreciation (depreciation) 450,947 ------------- Total $(35,682,627) ============== Pioneer Pioneer Pioneer International Small Cap Small Cap Value Value Value VCT Portfolio VCT Portfolio VCT Portfolio 2004 2005 2004 ----------------- ----------------- ----------------- Distributions paid from: Ordinary Income $122,463 $ -- $ -- Long-Term capital gain -- 1,091,297 -- ---------------------------------------------- $122,463 $ 1,091,297 $ -- Return of Capital -- -- -- ---------------------------------------------- Total distributions $122,463 $ 1,091,297 $ -- ---------------------------------------------- Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 646,863 Undistributed long-term gain/(Capital Loss carryforward) 2,238,710 Unrealized appreciation (depreciation) 6,006,705 ---------------------------------------------- Total $ 8,892,278 ---------------------------------------------- Pioneer Pioneer Pioneer Small Mid Cap Mid Cap Company Value Value VCT Portfolio VCT Portfolio VCT Portfolio 2004 2005 2004 --------------------------------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ -- $ 6,510,571 $3,095,474 Long-Term capital gain -- 48,550,380 4,288,046 ---------------------------------------------- $ -- $ 55,060,951 $7,383,520 Return of Capital -- -- -- ---------------------------------------------- Total distributions $ -- $ 55,060,951 $7,383,520 ---------------------------------------------- Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 30,629,491 Capital loss carryforward from merger (3,859,922) Undistributed long-term gain/(Capital loss carryforward) 68,794,908 Unrealized appreciation (depreciation) 44,709,925 ---------------------------------------------- Total $140,274,402 ============================================== Pioneer Pioneer Pioneer Growth Real Estate Real Estate Shares Shares Shares VCT Portfolio VCT Portfolio VCT Portfolio 2004 2005 2004 --------------------------------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ -- $ 1,584,389 $2,449,917 Long-Term capital gain -- 4,986,253 470,299 ---------------------------------------------- $ -- $ 6,570,462 $2,920,216 Return of Capital -- -- -- ---------------------------------------------- Total distributions $ -- $ 6,570,462 $2,920,216 ---------------------------------------------- Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ -- Undistributed long-term gain/(Capital loss carryforward) 5,283,368 Post-October loss deferred/REIT Dividend Payable 211,528 Unrealized appreciation (depreciation) 37,514,365 ---------------------------------------------- Total $ 43,009,261 ===============================================
131 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Pioneer Fund VCT Portfolio 2005 -------------------- Distributions paid from: Ordinary Income $ 6,814,575 Long-Term capital gain -- ----------- $ 6,814,575 Return of Capital -- ----------- Total distributions $ 6,814,575 ----------- Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 27,272 Undistributed long-term gain/Capital loss carryforward (39,968,844) Post-October loss deferred -- Unrealized appreciation (depreciation) 103,238,111 ----------- Total $63,296,539 =========== Pioneer Balanced VCT Portfolio 2005 -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 797,097 Long-Term capital gain -- ----------- $ 797,097 Return of Capital -- ----------- Total distributions $ 797,097 ----------- Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ -- Undistributed long-term gain/Capital loss carryforward (3,999,891) Post-October loss deferred -- Unrealized appreciation (depreciation) 4,290,194 ----------- Total $ 290,303 ============ Pioneer Strategic Income VCT Portfolio 2005 ------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 3,166,871 Long-Term capital gain/(Capital loss carryforward) 773,329 ----------- $ 3,940,200 Return of Capital -- ----------- Total distributions $ 3,940,200 ----------- Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 573,117 Undistributed long-term gain/Capital loss carryforward 148,610 Post-October loss deferred (40,713) Unrealized appreciation (depreciation) 808,684 ----------- Total $ 1,489,698 =========== Pioneer Pioneer Pioneer Equity Equity Fund Income Income VCT Portfolio VCT Portfolio VCT Portfolio 2004 2005 2004 -------------------------------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $2,755,256 $ 7,559,616 $5,405,318 Long-Term capital gain -- -- -- -------------------------------------------------- $2,755,256 $ 7,559,616 $5,405,318 Return of Capital -- -- -- -------------------------------------------------- Total distributions $2,755,256 $ 7,559,616 $5,405,318 -------------------------------------------------- Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 203,918 Undistributed long-term gain/Capital loss carryforward 6,168,262 Post-October loss deferred -- Unrealized appreciation (depreciation) 57,618,364 -------------------------------------------------- Total $63,990,544 ================================================== Pioneer Pioneer Pioneer Balanced High Yield High Yield VCT Portfolio VCT Portfolio VCT Portfolio 2004 2005 2004 ------------------------------------------------------------------------------------------------------------ Distributions paid from: Ordinary Income $ 944,560 $ 6,600,658 $5,479,212 Long-Term capital gain -- 3,164,700 400,340 -------------------------------------------------- $ 944,560 $ 9,765,358 $5,879,552 Return of Capital -- -- -- -------------------------------------------------- Total distributions $ 944,560 $ 9,765,358 $5,879,552 -------------------------------------------------- Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 798,588 Undistributed long-term gain/Capital loss carryforward 803,653 Post-October loss deferred -- Unrealized appreciation (depreciation) (212,035) -------------------------------------------------- Total $ 1,390,206 ================================================== Pioneer Pioneer Pioneer Strategic Income America Income America Income VCT Portfolio VCT Portfolio VCT Portfolio 2004 2005 2004 ------------------------------------------------------------------------------------------------------------ Distributions paid from: Ordinary Income $2,196,847 $ 2,171,301 $2,504,285 Long-Term capital gain/(Capital loss carryforward) 212,787 -- -- -------------------------------------------------- $2,409,634 $ 2,171,301 $2,504,285 Return of Capital -- -- -- -------------------------------------------------- Total distributions $2,409,634 $ 2,171,301 $2,504,285 -------------------------------------------------- Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 5,442 Undistributed long-term gain/Capital loss carryforward (1,230,915) Post-October loss deferred (109,707) Unrealized appreciation (depreciation) (384,607) -------------------------------------------------- Total $(1,719,787) ==================================================
132 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------
Pioneer Pioneer Money Market Money Market VCT Portfolio VCT Portfolio 2005 2004 --------------- -------------- Distributions paid from: Ordinary Income $944,260 $203,312 Long-Term capital gain/(Capital loss carryforward) -- -- --------------------------- $944,260 $203,312 Return of Capital -- -- --------------------------- Total distributions $944,260 $203,312 --------------------------- Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 333 Undistributed long-term gain/Capital loss carryforward (2,974) Post-October loss deferred -- Unrealized appreciation (depreciation) 126 --------------------------- Total $(2,515) ============================
For the fiscal year ending December 31, 2005, Emerging Markets Portfolio, Europe Portfolio and International Value Portfolio have elected to pass through foreign tax credits of $181,164, $46,274 and $58,710, respectively. 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, the recognition of unrealized gains or losses on certain futures contracts and the tax treatment of premium amortization. F. Portfolio Shares The Portfolios record sales and repurchases of their 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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. Distribution fees for Class II shares are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. 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 (excluding transfer agent and distribution fees) and realized and unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of share based on their respective percentage of the adjusted net assets at the beginning of the day. High Yield, Strategic Income, America Income and Money Market Portfolios declare as daily dividends substantially all of their respective net investment income. All dividends are paid on a monthly basis. Short-term capital gain distributions, if any, may be declared with the daily dividends. Dividends and distributions to shareowners are recorded on the ex-dividend date. Distributions paid by a 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. G. Securities Lending The Portfolios lend securities in their portfolios to certain broker-dealers or other institutional investors, with the Portfolios' 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 Portfolios also continue to receive payments in lieu of interest or dividends on the securities loaned. Gain or loss on the fair value of the loaned securities that may occur during the term of the loan will be for the account of the Portfolios. The loans are secured by collateral of at least 102%, at all times, of the fair value of the securities loaned. The amount of the collateral will be adjusted daily to reflect any price fluctuation in the value of the loaned securities. The Portfolios have the right under the lending agreements to recover the securities on loan from the borrower on demand. The Portfolios invest cash collateral in the Securities Lending Investment Fund, which is sponsored by Brown Brothers Harriman & Co., the Portfolios' custodian. 133 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- H. Repurchase Agreements With respect to repurchase agreements entered into by the Portfolios, the value of the underlying securities (collateral), including accrued interest received from counterparties, is required to be at least equal to or in excess of the value of the repurchase agreements at the time of purchase. The collateral for all repurchase agreements is held in safekeeping in the customer-only account of the Trust's custodian, or subcustodians. 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, a wholly owned indirect subsidiary of UniCredito Italiano, manages the Portfolios. Management fees are calculated daily at the following annual rates: --------------------------------------------------------------------
---------------------------------------------------------------- Management Fee as a Percentage of each Portfolio's Average Portfolio Daily Net Assets ---------------------------------------------------------------- Emerging Markets Portfolio 1.15% Europe Portfolio 1.00% International Value Portfolio 1.00% Small Cap Value Portfolio 0.75% Small Company Portfolio 0.75% Mid Cap Value Portfolio 0.65% Growth Shares Portfolio 0.70% Real Estate Shares Portfolio 0.80% Fund Portfolio 0.65% Equity Income Portfolio 0.65% Balanced Portfolio 0.65% High Yield Portfolio 0.65% Strategic Income Portfolio 0.65% America Income Portfolio 0.55% Money Market Portfolio 0.50% ----------------------------------------------------------------
PIM has agreed not to impose a portion of its management fees and to assume other operating expenses for certain Portfolios through May 1, 2006 to the extent necessary to limit expenses of Class I shares (Class II shares in the case of High Yield and Value Portfolios) to the following percentages of the Portfolios' average daily net assets attributable to Class I shares:
---------------------------------------------------------------- Expense Limitation as a Percentage of each Portfolio's Average Portfolio Daily Net Assets ---------------------------------------------------------------- Emerging Markets Portfolio 1.75% Europe Portfolio 1.50% Small Cap Value Portfolio 1.25% Small Company Portfolio 1.25% Mid Cap Value Portfolio 0.88% Fund Portfolio 0.80% Strategic Income Portfolio 1.25% Money Market Portfolio 0.90% ----------------------------------------------------------------
134 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The portion of the Portfolios' expenses attributable to Class II (or Class I for shares in the case of High Yield Portfolio) will be reduced only to the extent such expenses are reduced for Class I shares (or Class II shares). In addition, under the management and administration agreements, certain other services and costs, including accounting, regulatory reporting and insurance premiums, are paid by the Portfolios. At December 31, 2005, the following amounts were payable to PIM related to management fees, administrative fees and certain other services and are included in due to affiliates:
-------------------------------------------------------------------------------- Portfolio Amount -------------------------------------------------------------------------------- Emerging Markets Portfolio $ 3,295 Europe Portfolio 182 International Value Portfolio 1,493 Small Cap Value Portfolio 3,108 Small Company Portfolio 3,662 Mid Cap Value Portfolio 17,327 Growth Shares Portfolio 1,326 Real Estate Shares Portfolio 4,397 Fund Portfolio 17,748 Equity Income Portfolio 12,822 Balanced Portfolio 1,515 High Yield Portfolio 3,878 Strategic Income Portfolio 2,164 America Income Portfolio 1,424 Money Market Portfolio 911 --------------------------------------------------------------------------------
3. Transfer Agent PIMSS, a wholly owned indirect subsidiary of UniCredito Italiano, provides substantially all transfer agent and shareowner services to the Trust at negotiated rates. The following amounts of transfer agent fees payable to PIMSS are included in due to affiliates at December 31, 2005:
-------------------------------------------------------------------------------- Portfolio Amount -------------------------------------------------------------------------------- Emerging Markets Portfolio $ 3,946 Europe Portfolio 3,699 International Value Portfolio 4,907 Small Cap Value Portfolio 268 Small Company Portfolio 3,943 Mid Cap Value Portfolio 3,949 Growth Shares Portfolio 3,702 Real Estate Shares Portfolio 3,945 Fund Portfolio 2,207 Equity Income Portfolio 3,946 Balanced Portfolio 3,947 High Yield Portfolio 3,943 Strategic Income Portfolio 3,947 America Income Portfolio 3,947 Money Market Portfolio 3,699 --------------------------------------------------------------------------------
135 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- 4. Distribution Plans The Portfolios have adopted plans of distribution for Class II shares in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the plans, each Portfolio pays PFD a distribution fee of 0.25% of the average daily net assets attributable to Class II shares to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with each Portfolio's Class II shares. The following amounts of distribution fees payable to PFD are included in due to affiliates at December 31, 2005:
-------------------------------------------------------------------------------- Portfolio Amount -------------------------------------------------------------------------------- Emerging Markets Portfolio $ 605 Europe Portfolio 139 International Value Portfolio 79 Small Cap Value Portfolio 4,728 Small Company Portfolio 2,161 Mid Cap Value Portfolio 1,210 Growth Shares Portfolio 98 Real Estate Shares Portfolio 932 Fund Portfolio 1,622 Equity Income Portfolio 1,748 Balanced Portfolio 174 High Yield Portfolio 627 Strategic Income Portfolio 545 America Income Portfolio 291 --------------------------------------------------------------------------------
5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, the Portfolios' aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:
---------------------------------------------------------------------------------------------------------- Gross Gross Net Appreciation/ Portfolio Tax Cost Appreciation Depreciation (Depreciation) ---------------------------------------------------------------------------------------------------------- Emerging Markets Portfolio $ 40,224,578 $ 18,138,652 $ (309,710) $ 17,828,942 Europe Portfolio $ 15,853,018 $ 2,607,249 $ (124,865) $ 2,482,384 International Value Portfolio $ 21,825,518 $ 5,651,803 $ (134,744) $ 5,517,059 Small Cap Value Portfolio $ 39,423,889 $ 7,724,253 $ (1,717,548) $ 6,006,705 Small Company Portfolio $ 13,022,623 $ 1,568,897 $ (635,777) $ 933,120 Mid Cap Value Portfolio $329,788,522 $ 52,846,924 $ (8,136,999) $ 44,709,925 Growth Shares Portfolio $ 34,530,118 $ 2,601,774 $ (2,150,827) $ 450,947 Real Estate Shares Portfolio $ 78,330,181 $ 37,800,321 $ (285,956) $ 37,514,365 Fund Portfolio $396,587,906 $120,731,703 $ (17,493,590) $103,238,113 Equity Income Portfolio $304,664,277 $ 64,450,055 $ (6,831,691) $ 57,618,364 Balanced Portfolio $ 37,388,029 $ 5,387,035 $ (1,096,841) $ 4,290,194 High Yield Portfolio $109,737,368 $ 3,143,440 $ (3,355,475) $ (212,035) Strategic Income Portfolio $ 57,162,749 $ 1,658,270 $ (845,419) $ 812,851 America Income Portfolio $ 46,740,913 $ 179,576 $ (564,183) $ (384,607) Money Market Portfolio $ 34,678,375 $ -- $ -- $ -- ----------------------------------------------------------------------------------------------------------
136 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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, 2005, were as follows:
Portfolio Purchases Sales -------------------------------------------------------------------------------- Emerging Markets Portfolio $34,572,618 $ 32,120,040 Europe Portfolio 16,879,436 17,364,001 International Value Portfolio 27,644,939 31,089,404 Small Cap Value Portfolio 20,116,602 11,968,562 Small Company Portfolio 8,231,411 9,545,681 Mid Cap Value Portfolio* 552,734,571 1,022,270,325 Growth Shares Portfolio 29,038,767 35,777,062 Real Estate Shares Portfolio 11,218,671 19,586,688 Fund Portfolio* 121,305,838 262,447,758 Equity Income Portfolio 140,157,173 69,194,499 Balanced Portfolio 8,312,687 12,418,655 High Yield Portfolio 40,480,811 55,124,286 Strategic Income Portfolio 19,322,786 17,662,141 America Income Portfolio -- -- Money Market Portfolio -- -- --------------------------------------------------------------------------------
The cost of purchases and the proceeds from sales of U.S. Government obligations for the year ended December 31, 2005, were as follows:
-------------------------------------------------------------------------------- Portfolio Purchases Sales -------------------------------------------------------------------------------- Balanced Portfolio $ 2,731,418 $ 2,851,574 Strategic Income Portfolio 19,830,091 17,662,141 America Income Portfolio 13,301,114 10,355,001 --------------------------------------------------------------------------------
* For the year ended September 23, 2005, the Mid Cap Value Portfolio and Fund Portfolio had redemptions in kind which resulted in redemptions out of the Portfolios totaling $488,210,933 and $75,731,419, respectively. 137 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the fiscal years ended December 31, 2005 and 2004:
----------------------------------------------------------------------------------------------- '05 Shares '05 Amount '04 Shares '04 Amount ----------------------------------------------------------------------------------------------- Emerging Markets Portfolio CLASS I: Shares sold 57,112 $ 1,329,128 72,945 $ 1,305,983 Reinvestment of distributions 2,300 49,529 3,952 63,595 Shares repurchased (82,002) (1,885,112) (138,809) (2,377,707) -------------------------------------------------------- Net decrease (22,590) $ (506,455) (61,912) $ (1,008,129) ======================================================== CLASS II: Shares sold 530,098 $ 11,881,187 468,119 $ 8,281,285 Reinvestment of distributions 7,549 161,235 12,278 196,317 Shares repurchased (449,363) (10,100,911) (524,708) (9,081,943) -------------------------------------------------------- Net increase (decrease) 88,284 $ 1,941,511 (44,311) $ (604,341) ======================================================== Europe Portfolio CLASS I: Shares sold 21,878 $ 233,953 43,531 $ 395,370 Reinvestment of distributions 5,591 58,420 7,232 65,952 Shares repurchased (155,613) (1,693,646) (190,688) (1,758,638) -------------------------------------------------------- Net decrease (128,144) $ (1,401,273) (139,925) $ (1,297,316) ======================================================== CLASS II: Shares sold 268,948 $ 2,856,394 374,441 $ 3,494,736 Reinvestment of distributions 4,369 44,828 4,343 38,910 Shares repurchased (174,429) (1,850,566) (151,264) (1,416,699) -------------------------------------------------------- Net increase 98,888 $ 1,050,656 227,520 $ 2,116,947 ======================================================== International Value Portfolio: CLASS I: Shares sold 48,222 $ 576,930 125,954 $ 1,319,269 Reinvestment of distributions 2,721 31,154 10,994 113,572 Shares repurchased (430,261) (5,229,863) (449,994) (4,643,483) -------------------------------------------------------- Net decrease (379,318) $ (4,621,779) (313,046) $ (3,210,642) ======================================================== CLASS II: Shares sold 218,007 $ 2,667,524 294,244 $ 3,061,211 Reinvestment of distributions 270 3,084 862 8,888 Shares repurchased (147,285) (1,837,822) (53,626) (546,137) -------------------------------------------------------- Net increase 70,992 $ 832,786 241,480 $ 2,523,962 ======================================================== Small Cap Value Portfolio CLASS I: Shares sold 571,103 $ 8,553,972 510,952 $ 6,774,823 Reinvestment of distributions 40,427 589,019 -- -- Shares repurchased (539,585) (8,145,222) (277,189) (3,672,701) -------------------------------------------------------- Net increase 71,945 $ 997,769 233,763 $ 3,102,122 ======================================================== CLASS II: Shares sold 712,018 $ 10,705,770 566,136 $ 7,527,234 Reinvestment of distributions 34,350 497,391 -- -- Shares repurchased (121,596) (1,821,434) (61,897) (820,452) -------------------------------------------------------- Net increase 624,772 $ 9,381,727 504,239 $ 6,706,782 ======================================================== -----------------------------------------------------------------------------------------------
138 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
'05 Shares '05 Amount '04 Shares '04 Amount --------------- ------------------ --------------- --------------- Small Company Portfolio CLASS I: Shares sold 28,888 $ 341,646 56,890 $ 670,369 Reinvestment of distributions 28,887 323,819 -- -- Shares repurchased (72,370) (872,188) (103,931) (1,215,329) --------------------------------------------------------------- Net decrease (14,595) $ (206,723) (47,041) $ (544,960) =============================================================== CLASS II: Shares sold 122,621 $ 1,477,051 320,212 $ 3,780,396 Reinvestment of distributions 93,902 1,039,486 -- -- Shares repurchased (169,970) (1,995,023) (160,864) (1,919,719) --------------------------------------------------------------- Net increase 46,553 $ 521,514 159,348 $ 1,860,677 =============================================================== Mid Cap Value Portfolio CLASS I: Shares sold 2,037,703 $ 50,295,966 3,133,632 $ 68,612,090 Class I shares issued in reorganization -- -- 2,087,866 49,670,328 Reinvestment of distributions 821,233 19,882,052 117,982 2,575,556 Shares repurchased (2,727,151) (66,908,971) (1,365,569) (29,591,496) Redemptions in kind (868,079) (21,000,610) -- -- --------------------------------------------------------------- Net increase (decrease) (736,294) $ (17,731,563) 3,973,911 $ 91,266,478 =============================================================== CLASS II: Shares sold 3,599,252 $ 87,784,480 12,236,512 $ 263,179,728 Reinvestment of distributions 1,468,235 35,178,899 221,974 4,807,964 Shares repurchased (3,965,242) (96,694,602) (881,455) (19,626,013) Redemptions in kind (19,499,464) (467,210,323) -- -- --------------------------------------------------------------- Net increase (decrease) (18,397,219) $ (440,941,546) 11,577,031 $ 248,361,679 =============================================================== Growth Shares Portfolio CLASS I: Shares sold 34,054 $ 438,600 66,360 $ 806,587 Reinvestment of distributions 17,362 221,887 -- -- Shares repurchased (512,773) (6,658,363) (515,053) (6,176,527) --------------------------------------------------------------- Net decrease (461,357) $ (5,997,876) (448,693) $ (5,369,940) =============================================================== CLASS II: Shares sold 137,249 $ 1,753,754 406,516 $ 4,832,089 Reinvestment of distributions 3,965 50,023 -- -- Shares repurchased (205,695) (2,678,779) (56,565) (664,405) --------------------------------------------------------------- Net increase (decrease) (64,481) $ (875,002) 349,951 $ 4,167,684 =============================================================== Real Estate Shares Portfolio CLASS I: Shares sold 57,099 $ 1,401,143 151,466 $ 3,192,487 Reinvestment of distributions 91,076 2,234,316 56,986 1,200,592 Shares repurchased (420,029) (10,198,782) (425,846) (8,497,885) --------------------------------------------------------------- Net decrease (271,854) $ (6,563,323) (217,394) $ (4,104,806) =============================================================== CLASS II: Shares sold 558,332 $ 13,449,440 820,863 $ 16,835,509 Reinvestment of distributions 176,725 4,336,326 81,377 1,719,624 Shares repurchased (699,655) (17,192,679) (505,041) (10,015,990) --------------------------------------------------------------- Net increase 35,402 $ 593,087 397,199 $ 8,539,143 =============================================================== -------------------------------------------------------------------------------------------------------------
139 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------- '05 Shares '05 Amount '04 Shares '04 Amount ------------------------------------------------------------------------------------------------------------- Fund Portfolio CLASS I: Shares sold 580,758 $ 11,975,172 451,723 $ 8,690,214 Class I shares issued in reorganization -- -- 14,822,109 298,220,832 Reinvestment of distributions 257,653 5,374,312 87,609 1,685,576 Shares repurchased (5,148,933) (106,238,103) (1,561,121) (29,970,569) --------------------------------------------------------------- Net increase (decrease) (4,310,522) $ (88,888,619) 13,800,320 $ 278,626,053 =============================================================== CLASS II: Shares sold 1,500,748 $ 30,883,995 2,721,468 $ 51,382,671 Class II shares issued in reorganization 2,567,061 53,856,933 -- -- Reinvestment of distributions 69,257 1,440,013 55,486 1,069,680 Shares repurchased (1,597,303) (32,937,344) (952,397) (18,149,175) Redemptions in kind (3,626,019) (75,731,419) -- -- --------------------------------------------------------------- Net increase (decrease) (1,086,256) $ (22,487,822) 1,824,557 $ 34,303,176 =============================================================== Equity Income Portfolio CLASS I: Shares sold 2,853,636 $ 59,389,539 1,757,096 $ 33,474,454 Reinvestment of distributions 242,794 5,101,573 198,654 3,809,791 Shares repurchased (1,317,139) (27,494,268) (1,411,407) (26,451,072) --------------------------------------------------------------- Net increase 1,779,291 $ 36,996,844 544,343 $ 10,833,173 =============================================================== CLASS II: Shares sold 1,763,038 $ 36,834,942 1,571,139 $ 29,821,487 Reinvestment of distributions 116,340 2,458,044 82,473 1,595,526 Shares repurchased (444,619) (9,373,382) (442,520) (8,321,500) --------------------------------------------------------------- Net increase 1,434,759 $ 29,919,604 1,211,092 $ 23,095,513 =============================================================== Balanced Portfolio CLASS I: Shares sold 30,803 $ 441,468 78,321 $ 1,113,192 Reinvestment of distributions 40,641 588,607 55,609 789,468 Shares repurchased (522,797) (7,567,111) (586,843) (8,291,593) --------------------------------------------------------------- Net decrease (451,353) $ (6,537,036) (452,913) $ (6,388,933) =============================================================== CLASS II: Shares sold 272,986 $ 3,924,192 557,386 $ 7,865,698 Reinvestment of distributions 14,431 208,614 10,920 155,081 Shares repurchased (151,515) (2,206,918) (83,119) (1,169,938) --------------------------------------------------------------- Net increase 135,902 $ 1,925,888 485,187 $ 6,850,841 =============================================================== High Yield Portfolio CLASS I: Shares sold 1,902,148 $ 21,181,455 2,699,382 $ 30,852,667 Reinvestment of distributions 514,993 5,666,754 346,267 3,947,046 Shares repurchased (2,659,638) (29,739,088) (2,787,689) (31,727,505) --------------------------------------------------------------- Net increase (decrease) (242,497) $ (2,890,879) 257,960 $ 3,072,208 =============================================================== CLASS II: Shares sold 2,014,754 $ 22,331,327 3,916,481 $ 44,766,847 Reinvestment of distributions 368,486 4,054,505 166,648 1,899,530 Shares repurchased (2,495,978) (27,951,532) (1,171,662) (12,979,950) --------------------------------------------------------------- Net increase (decrease) (112,738) $ (1,565,700) 2,911,467 $ 33,686,427 =============================================================== -------------------------------------------------------------------------------------------------------------
140 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------- '05 Shares '05 Amount '04 Shares '04 Amount ------------------------------------------------------------------------------------------------------------- Strategic Income Portfolio CLASS I: Shares sold 299,475 $ 3,285,765 453,590 $ 4,955,002 Reinvestment of distributions 136,735 1,498,145 134,927 1,462,624 Shares repurchased (364,351) (3,995,330) (494,192) (5,414,640) --------------------------------------------------------------- Net increase 71,859 $ 788,580 94,325 $ 1,002,986 =============================================================== CLASS II: Shares sold 1,483,721 $ 16,378,126 1,907,997 $ 20,809,730 Reinvestment of distributions 219,709 2,404,152 83,281 904,794 Shares repurchased (204,670) (2,225,385) (101,494) (1,108,839) --------------------------------------------------------------- Net increase 1,498,760 $ 16,556,893 1,889,784 $ 20,605,685 =============================================================== America Income Portfolio CLASS I: Shares sold 116,997 $ 1,169,565 245,204 $ 2,472,061 Reinvestment of distributions 138,561 1,381,733 206,467 2,102,795 Shares repurchased (836,177) (8,331,104) (1,551,998) (15,847,044) --------------------------------------------------------------- Net decrease (580,619) $ (5,779,806) (1,100,327) $ (11,272,188) =============================================================== CLASS II: Shares sold 1,061,522 $ 10,609,970 1,247,751 $ 12,688,404 Reinvestment of distributions 79,492 792,446 39,513 401,463 Shares repurchased (336,194) (3,330,818) (179,116) (1,822,936) --------------------------------------------------------------- Net increase 804,820 $ 8,071,598 1,108,148 $ 11,266,931 =============================================================== Money Market Portfolio CLASS I: Shares sold 19,584,349 $ 19,583,940 18,483,037 $ 18,483,037 Class I shares issued in reorganization -- -- 21,976,837 21,976,837 Reinvestment of distributions 942,853 942,853 203,307 203,307 Shares repurchased (30,205,433) (30,205,433) (32,505,228) (32,505,228) --------------------------------------------------------------- Net increase (decrease) (9,678,231) $ (9,678,640) 8,157,953 $ 8,157,953 ===============================================================
8. Forward Foreign Currency Contracts During the year ended December 31, 2005, 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, 2005, the Portfolios' open portfolio hedges were as follows:
----------------------------------------------------------------------------------------------------------------------------- Contracts to In Exchange Settlement Net Portfolio Deliver For Date Value Unrealized Gain (Loss) ----------------------------------------------------------------------------------------------------------------------------- Strategic Income Portfolio AUD (1,206,000) $ (881,586) 3/23/06 $ (883,432) $ (1,846) Strategic Income Portfolio CAD (330,000) (283,505) 3/1/06 (284,225) (720) Strategic Income Portfolio EUR (334,000) (396,021) 3/2/06 (396,654) (633) Strategic Income Portfolio JPY (22,000,000) (190,451) 3/2/06 (187,792) 2,659 Strategic Income Portfolio JPY (35,000,000) (297,865) 1/27/06 (297,535) 330 Strategic Income Portfolio JPY 166,000,000 1,402,027 3/2/06 1,417,640 15,613 Strategic Income Portfolio JPY 35,000,000 299,217 1/27/06 297,640 (1,577) -----------------------------------------------------------------------------------------------------------------------------
141 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- 9. Merger Information On December 8, 2004, beneficial owners of Safeco RST Core Equity Portfolio, Safeco RST Money Market Portfolio and Safeco RST Multi-Cap Core Portfolio, three of the six portfolios that comprised Safeco Resource Series Trust, approved a proposed Agreement and Plan of Reorganization that provided for the mergers listed below. These tax-free reorganizations were accomplished on December 10, 2004 ("Closing Date"), by exchanging all of the Safeco's net assets for Class I shares as indicated below, based on Class I shares' ending net asset value on the Closing Date. The following charts show the details of the reorganizations as of that Closing Date:
Pioneer Fund VCT Portfolio --------------------------------------------------------------------------------------------------- Pioneer Fund Safeco RST Core Pioneer Fund VCT Portfolio Equity Portfolio VCT Portfolio (Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization) --------------------------------------------------------------------------------------------------- Net Assets $281,591,969 $298,220,832 $879,147,352 Shares Outstanding 13,990,134 12,804,673 28,812,243 Class I Shares Issued 14,822,109 ---------------------------------------------------------------------------------------------------
Pioneer Money Market VCT Portfolio --------------------------------------------------------------------------------------------------- Pioneer Money Pioneer Money Market VCT Safeco RST Money Market VCT Portfolio Market Portfolio Portfolio (Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization) --------------------------------------------------------------------------------------------------- Net Assets $23,493,640 $21,976,837 $67,613,266 Shares Outstanding 23,500,655 21,976,837 45,477,492 Class I Shares Issued 21,976,837 ---------------------------------------------------------------------------------------------------
Pioneer Mid Cap Value VCT Portfolio --------------------------------------------------------------------------------------------------- Pioneer Mid Cap Pioneer Mid Cap Value VCT Safeco RST Multi- Value VCT Portfolio Cap Core Portfolio Portfolio (Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization) --------------------------------------------------------------------------------------------------- Net Assets $757,206,652 $49,670,328 $858,922,877 Shares Outstanding 32,072,498 2,399,533 34,160,364 Class I Shares Issued 2,087,866 ---------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------- Unrealized Realized Appreciation on Gain/(Loss) Closing Date on Closing Date --------------------------------------------------------------------------------------------------- Safeco RST Core Equity Portfolio $68,714,366 $20,662,968 Safeco RST Money Market Portfolio -- -- Safeco RST Multi-Cap Core Portfolio 5,550,191 7,992,587 -------------------------------------------------------------------------------
142 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- In addition, on November 4, 2005, beneficial owners of AmSouth VIF Select Equity Portfolio approved a proposed Agreement and Plan of Reorganization that provided for the merger listed below. This tax-free reorganization was accomplished on November 4, 2005, by exchanging all of the AmSouth Fund's net assets for Class II shares as indicated below, based on Class II share's ending net asset value on the Closing Date. The following charts show the details of the reorganizations as of that closing date ("Closing Date"):
----------------------------------------------------------------------------------------------------- Pioneer Fund AmSouth VIF Pioneer Fund VCT Portfolio Select Equity VCT Portfolio (Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization) ----------------------------------------------------------------------------------------------------- Net Assets $444,635,312 $53,856,933 $498,492,245 Shares Outstanding 21,144,152 4,928,631 23,711,213 Class II Shares Issued 2,567,061 -----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------- Unrealized Realized Appreciation on (Loss) Closing Date on Closing Date ----------------------------------------------------------------------------------------------------- AmSouth VIF Select Equity $4,928,126 $ (49,233) -----------------------------------------------------------------------------------------------------
Additional Information (unaudited) The qualifying percentage of certain Portfolios' ordinary income dividends for the purposes of the corporate dividends received deduction and the percentage of those ordinary dividends that are subject to a maximum tax rate of 15% as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were as follows:
----------------------------------------------------------------------------------------------------- Dividend Qualified Received Dividend Deduction Income ----------------------------------------------------------------------------------------------------- Emerging Markets Portfolio 0.00% 100.00% Europe Portfolio 0.00% 100.00% International Value Portfolio 0.00% 100.00% Mid Cap Value Portfolio 100.00% 88.84% Growth Shares Portfolio 100.00% 100.00% Fund Portfolio 100.00% 100.00% Equity Income Portfolio 100.00% 100.00% Balanced Portfolio 37.72% 40.51%
143 Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees and Shareowners of Pioneer Variable Contracts Trust: We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Pioneer Emerging Markets VCT Portfolio, Pioneer Europe VCT Portfolio, Pioneer International Value VCT Portfolio, Pioneer Small Cap Value VCT Portfolio, Pioneer Small Company VCT Portfolio, Pioneer Mid Cap Value VCT Portfolio, Pioneer Growth Shares VCT Portfolio, Pioneer Real Estate Shares VCT Portfolio, Pioneer Fund VCT Portfolio, Pioneer Equity Income VCT Portfolio, Pioneer Balanced VCT Portfolio, Pioneer High Yield VCT Portfolio, Pioneer Strategic Income VCT Portfolio, Pioneer America Income VCT Portfolio and Pioneer Money Market VCT Portfolio (fifteen of the portfolios constituting the Pioneer Variable Contracts Trust collectively, the 'Trust', and individually, the 'Portfolios'), as of December 31, 2005, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four 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 the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 the fifteen Portfolios of the Pioneer Variable Contracts Trust referred to above at December 31, 2005, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and their financial highlights for each of the four years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 144 PIONEER VARIABLE CONTRACTS TRUST Pioneer Emerging Markets VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three and five year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objective and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 145 PIONEER VARIABLE CONTRACTS TRUST Pioneer Emerging Markets VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and the results of an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the first quintile of the peer group for the 12 months ended June 30, 2005, the first quintile for the three years ended June 30, 2005, and the third quintile for the five years ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees concluded that the performance of the Fund supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the third quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio (before and after giving effect to the expense limitation) for the 12 months ended June 30, 2005 and expense ratios for the comparable period of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio (after giving effect to the expense limitation) was in the fifth quintile of this peer group for the most recent fiscal year. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. The Trustees concluded that, given current and anticipated asset levels, break points in management fee are not necessary at this time. The Trustees will continue to evaluate annually the appropriateness of break points. 146 PIONEER VARIABLE CONTRACTS TRUST Pioneer Emerging Markets VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 147 PIONEER VARIABLE CONTRACTS TRUST Pioneer Europe VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three and five year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of brake points in the management fee, reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objective and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 148 PIONEER VARIABLE CONTRACTS TRUST Pioneer Europe VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and the results of an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the second quintile of the peer group for the 12 months ended June 30, 2005, the third quintile for the three years ended June 30, 2005, and the fifth quintile for the five years ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees concluded that the performance of the Fund supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the second quintile (after fee waivers) relative to the management fees paid by the other funds in that peer group for the comparable period and in the fifth quintile without giving effect to fee waivers. The Investment Adviser agreed to reduce the management fee to 0.85% of average daily net assets, which would place the Fund in the third quintile of the peer group, and to add a break point in the management fee. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio (before and after giving effect to the expense limitation) for the 12 months ended June 30, 2005 and expense ratios for the comparable period of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio (after giving effect to the expense limitation) was in the fifth quintile of this peer group for the most recent fiscal year. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. Because of break points in the management fees, the Trustees concluded 149 PIONEER VARIABLE CONTRACTS TRUST Pioneer Europe VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- that any perceived or potential economies of scale would be shared at future asset levels, in a reasonable manner as the Fund grows in size, between Fund's shareholders and the Investment Adviser. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 150 PIONEER VARIABLE CONTRACTS TRUST Pioneer International Value VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three, five and ten year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of break points in the management fee, reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objective and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 151 PIONEER VARIABLE CONTRACTS TRUST Pioneer International Value VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and the results of an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the third quintile of the peer group for the 12 months ended June 30, 2005, the fourth quintile for the three years ended June 30, 2005, the fifth quintile for the five years ended June 30, 2005 and the fifth quintile for the ten year period ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees concluded that the performance of the Fund supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the fifth quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Investment Adviser agreed to reduce the management fee to 0.85%, which would be in the third quintile of the peer group, and to add a break point to the fee schedule. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio for the 12 months ended June 30, 2005 and expense ratios for the comparable period of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio was in the fifth quintile of this peer group for the most recent fiscal year. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. Because of break points in the management fees, the Trustees concluded 152 PIONEER VARIABLE CONTRACTS TRUST Pioneer International Value VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- that any perceived or potential economies of scale would be shared at future asset levels, in a reasonable manner as the Fund grows in size, between Fund's shareholders and the Investment Adviser. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 153 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one and three year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 154 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the second quintile of the peer group for the 12 months ended June 30, 2005 and the second quintile for the three years ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees concluded that the performance of the Fund supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the second quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio (after giving effect to the expense limitation) for the 12 months ended June 30, 2005 was in the fifth quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. The Trustees concluded that, given current and anticipated asset levels, a break point in the management fee was not necessary at this time. As assets increase, the Trustees will continue to evaluate annually the appropriateness of break points. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, 155 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Company VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 156 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Company VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one and three year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 157 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Company VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the fifth quintile of the peer group for the 12 months ended June 30, 2005 and the fifth quintile for the three year period ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be fifth quintile.) C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the first quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio (before and after giving effect to the expense limitation) for the 12 months ended June 30, 2005 was in the fifth quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there is potential for realization of any further economies of scale. The Trustees concluded that, given current and anticipated asset levels, break points in the management fees were not necessary at this time. As assets increase, the Trustees would continue to evaluate annually the appropriateness of break points. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and 158 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Company VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 159 PIONEER VARIABLE CONTRACTS TRUST Pioneer Mid Cap Value VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three, five and ten year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 160 PIONEER VARIABLE CONTRACTS TRUST Pioneer Mid Cap Value VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the first quintile of the peer group for the 12 months ended June 30, 2005, the second quintile of the peer group for the three years ended June 30, 2005, the first quintile for the five years ended June 30, 2005 and the first quintile for the ten year period ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees concluded that the consistent out performance of the Fund supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the second quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the first quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. The Trustees concluded that the Fund's overall expense ratio was lower than that of comparable funds. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. In light of the fact that the management fee would remain under the median 161 PIONEER VARIABLE CONTRACTS TRUST Pioneer Mid Cap Value VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- for the peer group at reasonably anticipated asset levels, the Trustees concluded that break points in the management fee were not necessary at this time. The Trustees will continue to evaluate annually the appropriateness of break points. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 162 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Shares VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") voting separately annually approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect of the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareowners. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three and five year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for each of the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes matters considered by the Trustees in connection with their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to shareowners of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareowner services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 163 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Shares VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the fourth quintile of the peer group for the 12 months ended June 30, 2005, the fourth quintile of the peer group for the three years ended June 30, 2005, and the fifth quintile for the five years ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareowners. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareowners of the Fund, including administrative and shareowner services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareowners of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the third quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the fourth quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. The Trustees concluded that the Fund's overall expense ratio was reasonable compared to that of comparable funds. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. The Trustees concluded that, given current and anticipated assets levels, a break point in the management fee was not necessary at this time. As the assets increase, the Trustees will continue to evaluate annually the appropriateness of break points. 164 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Shares VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareowner services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect of the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 165 PIONEER VARIABLE CONTRACTS TRUST Pioneer Real Estate Shares VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") voting separately annually approve the Fund's management contract (the "Management Contract") between the Fund and Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"). The Investment Adviser has retained AEW Investment Advisers, LLC. (the "Sub-adviser") to act as sub-adviser to the Fund pursuant to a sub-advisory agreement between the Investment Adviser and the Sub-adviser (the "Sub-advisory Agreement"). The Trustees have determined that the terms of the Management Contract and the Sub-advisory Agreement are fair and reasonable and that renewal of these contracts will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of the Investment Adviser, or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract and Sub-advisory Agreement, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract and Sub-advisory Agreement, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect of the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates, (ix) the disclosures included in the Fund's prospectuses and reports to shareowners and (x) the investment and compliance staff and operations of the Subadviser. Specifically, in connection with the Independent Trustees' review of the Management Contract and the Sub-advisory Agreement, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's and Sub-adviser's services and the reasonableness of the fee under the Management Contract and the Sub-advisory Agreement. Among other items, this information included data or analyses of (1) investment performance for one, three, five and ten year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser and the Sub-adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser and the Sub-adviser, (6) the Investment Adviser's and Sub-adviser's financial results and condition, including, in the case of the Investment Adviser, its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for each of the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund, the break points in the Fund's management fee and of a peer group of funds selected by the Independent Trustees for this purpose and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. 166 PIONEER VARIABLE CONTRACTS TRUST Pioneer Real Estate Shares VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- ------------------------------------------------------------------------------- The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to shareowners of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareowner services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the first quintile of the peer group for the 12 months ended June 30, 2005, the first quintile of the peer group for the three years ended June 30, 2005, the first quintile for the five years ended June 30, 2005 and the first quintile for the ten year period ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareowners. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees also considered the activities of the Investment Adviser in monitoring the investment and compliance operations of the Sub-adviser. The Trustees also considered the yield (gross of expenses of the Class I shares of the Fund relative to the yield (at June 30, 2005) of the Wilshire Real Estate Securities Index. The Trustees concluded that the performance of the Fund supported the continuation of the Management Contract and the Sub-advisory Agreement. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations. Among other things, the Trustees considered the number, education and experience of the Sub-adviser's investment staff. The Trustees concluded that the Investment Adviser and the Sub-adviser have the quality and depth of personnel and the well-developed methods essential to performing their duties under the Management Contract and the Sub-advisory Agreement. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareowners of the Fund, including administrative and shareowner services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareowners of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the third quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also evaluated the fee under the Sub-advisory Agreement and the portion of the fee under the Management Contract retained by the Investment Adviser and determined that they were consistent with other sub-advised funds. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the third quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. The Trustees concluded that the Fund's overall expense ratio was reasonable compared to that of comparable funds. 167 PIONEER VARIABLE CONTRACTS TRUST Pioneer Real Estate Shares VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. The Trustees concluded that, given current and anticipated assets levels, a break point in the management fee was not necessary at this time. As the assets increase, the Trustees will continue to evaluate annually the appropriateness of break points. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareowner services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect of the Pioneer Funds (including the Fund), and benefits to the Sub-adviser from the use of "soft" commission dollars to pay for research and brokerage services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's and Sub-adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser and the Sub-adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund and the Sub-advisory Agreement are fair and reasonable and voted to approve the continuation of the Management Contract and the Sub-advisory Agreement for another year. 168 PIONEER VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three and five year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 169 PIONEER VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the third quintile of the peer group for the 12 months ended June 30, 2005, the fourth quintile of the peer group for the three years ended June 30, 2005, and the fourth quintile for the five years ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees also considered the yield (gross of expenses) on the Class I shares of the Fund relative to the yield (at June 30, 2005) of the Standard & Poor's 500 Stock Index. The Trustees concluded that the performance of the Fund supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the third quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the first quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. The Trustees concluded that the Fund's overall expense ratio was lower than that of comparable funds. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for real- 170 PIONEER VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- ization of any further economies of scale. The Trustees concluded that, given current or anticipated asset levels, break points in the management fees were not necessary at this time. As the assets increase, the Trustees will continue to evaluate annually the appropriateness of break points. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 171 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Income VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three, five and ten year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return and yield, as well as 172 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Income VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- the Fund's performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the second quintile of the peer group for the 12 months ended June 30, 2005, the third quintile of the peer group for the three years ended June 30, 2005, the third quintile for the five years ended June 30, 2005 and in the second quintile for the ten year period ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees also considered the yield (gross of expenses) to Fund Class I shareholders relative to the yield (as of June 30, 2005) of the Russell 1000 Value Index. The Trustees concluded that the performance of the Fund supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities and fixed income groups. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the second quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the second quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. The Trustees concluded that the Fund's overall expense ratio was lower than that of most of the comparable funds in the peer group. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential 173 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Income VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- for realization of any further economies of scale. The Trustees concluded that, given current and anticipated asset levels, break points in the management fee are not necessary at this time. The Trustees will continue to evaluate annually the appropriateness of break points. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 174 PIONEER VARIABLE CONTRACTS TRUST Pioneer Balanced VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and two indices, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three, five and ten year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes matters considered by the Trustees in connection with their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 175 PIONEER VARIABLE CONTRACTS TRUST Pioneer Balanced VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and two relevant indices, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the fifth quintile of the peer group for the 12 months ended June 30, 2005, the fourth quintile of the peer group for the three years ended June 30, 2005, the fourth quintile for the five years ended June 30, 2005 and the third quintile for the ten year period ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees also considered the yield (gross of expenses) of the Fund's Class I shares relative to the yield (as of June 30, 2005) of the Lehman Aggregate Bond Index and the S&P 500 Index. The fixed income portion of the portfolio performed well but the equity portion had underperformed its benchmark index. The Trustees concluded, in light of Pioneer's commitment to address the underperformance of the equity component, that the performance of the Fund supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's fixed income and equities groups. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the third quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the fourth quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. The Trustees concluded that the Fund's overall expense ratio was reasonable compared to that of peer funds. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. 176 PIONEER VARIABLE CONTRACTS TRUST Pioneer Balanced VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. The Trustees concluded that, given current and anticipated asset levels, break points in the management fee are not necessary at this time. The Trustees will continue to evaluate annually the appropriateness of break points. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research and brokerage services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 177 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three and five year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 178 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio (the "Fund")-- 2005 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the third quintile of the peer group for the 12 months ended June 30, 2005, the second quintile for the three years ended June 30, 2005 and the second quintile for the five years ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees also compared the yield (gross of expenses) on the Fund's Class I shares relative to the yield (as of June 30, 2005) on the Merrill Lynch High Yield Master II Index. The Trustees concluded that the performance of the Fund, particularly the Fund's longer-term performance, supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's fixed income group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the third quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the third quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. The Trustees concluded that the Fund's overall expense ratio was reasonable compared to that of comparable funds. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for 179 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio (the "Fund")-- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- realization of any further economies of scale. The Trustees concluded that, given current and anticipated asset levels, break points in the management fee are not necessary at this time. The Trustees will continue to evaluate annually the appropriateness of break points. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund). The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 180 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three and five year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 181 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and two relevant indices, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the second quintile of the peer group for the 12 months ended June 30, 2005, the second quintile for the three years ended June 30, 2005, and the second quintile for the five years ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees also considered that the yield (gross of expenses) of the Fund's Class 1 shares relative to the yield (at June 30, 2005) of the Lehman Universal Bond Index. The Trustees concluded that the performance of the Fund supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 at the median relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the fifth quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential 182 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- for realization of any further economies of scale. The Trustees concluded that, given current and anticipated asset levels, break points in the management fee are not necessary at this time. The Trustees will continue to evaluate annually the appropriateness of break points. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund). The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 183 PIONEER VARIABLE CONTRACTS TRUST Pioneer America Income VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three, five and ten year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return and yield, as well as 184 PIONEER VARIABLE CONTRACTS TRUST Pioneer America Income VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- the Fund's performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the fourth quintile of the peer group for the 12 months ended June 30, 2005, the fifth quintile for the three years ended June 30, 2005, the second quintile for the five years ended June 30, 2005 and the fourth quintile for the ten year period ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees also considered the yield (gross of expenses) of the Fund's Class I shares compared to the yield (as of June 30, 2005) of the Lehman Brothers Government Bond Index. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's fixed income group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the fourth quintile relative to the management fees paid by the other funds in that peer group for the comparable period. However, the Investment Manager agreed to reduce the management fee to 0.50% of average daily net assets, which would place the Fund in the third quintile of the peer group and to add a break point to the fee schedule. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the fifth quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. Because of break points in the management fees, the Trustees concluded 185 PIONEER VARIABLE CONTRACTS TRUST Pioneer America Income VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) ------------------------------------------------------------------------------- that any perceived or potential economies of scale would be shared at future asset levels, in a reasonable manner as the Fund grows in size, between Fund's shareholders and the Investment Adviser. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund). The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 186 PIONEER VARIABLE CONTRACTS TRUST Pioneer Money Market VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three, five and ten year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of break points in the management fee, reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return and yield, as well as 187 PIONEER VARIABLE CONTRACTS TRUST Pioneer Money Market VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- the Fund's performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the fifth quintile of the peer group for the 12 months ended June 30, 2005, the fifth quintile for the three years ended June 30, 2005, the fourth quintile for the five years ended June 30, 2005 and the fifth quintile for the ten year period ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees also considered the yield (gross of expenses) on the Fund's Class I shares relative to the yield (at June 30, 2005) on 30 day U.S. Treasury securities. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's fixed income group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the fifth quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Investment Adviser agree to reduce the management fee to 0.40% of average daily net assets, which would place the fee in the third quintile of the peer group, and to add a break point to the fee schedule. The Trustees also evaluated the fee relative to the median fee of the peer group and determined that is was only modestly higher than the median. In light of the range of fees included in the peer group, the Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the fifth quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for 188 PIONEER VARIABLE CONTRACTS TRUST Pioneer Money Market VCT Portfolio (the "Fund") -- 2005 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- realization of any further economies of scale. Because of break points in the management fees, the Trustees concluded that any perceived or potential economies of scale would be shared at future asset levels, in a reasonable manner as the Fund grows in size, between Fund's shareholders and the Investment Adviser. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund). The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 189 Pioneer Variable Contracts Trust --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS ----------------------------------------------------------------------------------------------------------------------------------- Investment Adviser Trustees and Officers Pioneer Investment Management, Inc. The Trust's Board of Trustees provides broad supervision over the affairs of the Trust. The Custodian officers of the Trust are responsible for the Brown Brothers Harriman & Co. Trust's operations. The Trust's Trustees and officers are listed below, together with their Independent Registered Public Accounting Firm principal occupations during the past five years. Ernst & Young LLP Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Principal Underwriter 1940 are referred to as Interested Trustees. Pioneer Funds Distributor, Inc. Trustees who are not interested persons of the Trust are referred to as Independent Trustees. Each of the Legal Counsel Trustees may serve as a trustee of each of the 91 Wilmer Cutler Pickering Hale and Dorr LLP U.S. registered investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") Shareowner Services and Transfer serves as investment adviser (the "Trust"). The Pioneer Investment Management Shareholder Services, Inc. address for all Interested Trustees and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. The Trust's statement of additional information provides more detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee and until successor Pioneer Global Asset Management Directors of ICI President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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.
190 Pioneer Variable Contracts Trust ------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice Director of The 3050 K. Street NW, until a successor President and Chief Enterprise Social Washington, DC 20007 trustee is elected Financial Officer, Investment Company or earlier I-trax, Inc. (privately-held retirement or (publicly traded affordable housing removal. health care services finance company); company) Director of New York (2001-present); Mortgage Trust Managing Partner, (publicly traded Federal City Capital mortgage REIT) Advisors (boutique merchant bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ----------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. Serves President, Bush Director of Brady 3509 Woodbine Street, until successor International Corporation Chevy Chase, MD 20815 trustee is elected (international (industrial or earlier financial advisory identification and retirement or firm). specialty coated removal. material products manufacturer), Mortgage Guaranty Insurance Corporation, and Briggs & Stratton, Inc. (engine manufacturer) ----------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The None 1001 Sherbrooke Street until successor Winthrop Group, Inc. West, Montreal, Quebec, trustee is elected (counsulting firm); Canada H3A 1G5 or earlier Desautels, Faculty retirement or of Management, removal. McGill University. ----------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Director of New One Boston Place, until successor Executive Officer, America High Income 28th Floor, trustee is elected Newbury, Piret & Fund, Inc. Boston, MA 02108 or earlier Company, Inc. (closed-end retirement or (investment banking investment company) removal. firm). ----------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John None One North Adgers Wharf, 2000. Serves until Winthrop & Co., Inc. Charleston, SC 29401 successor trustee is (private investment elected or earlier firm). retirement or removal. -----------------------------------------------------------------------------------------------------------------------------------
191 Pioneer Variable Contracts Trust -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Trustee of certain President at the discretion of Executive Officer, Pioneer funds the Board. PIM-USA since May 2003 (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since September, Secretary of None 2003. Serves at the PIM-USA; Senior Vice discretion of the President - Legal of Board. Pioneer; and Secretary/Clerk of most of PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Kelley (41) Assistant Since September, Assistant Vice None Secretary 2003. Serves at the President and Senior discretion of the Counsel of Pioneer Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer None Secretary 2003. Serves at the Cutler Pickering discretion of the Hale and Dorr LLP; Board. Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - None 2000. Serves at the Fund Accounting, discretion of the Administration and Board. Custody Services of Pioneer; and Treasurer of all of the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of None Treasurer 2004. Serves at the Pioneer since 2004; discretion of the Treasurer and Senior Board. Vice President, CDC IXIS Asset Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
192 Pioneer Variable Contracts Trust -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, Assistant Vice None Treasurer 2000. Serves at the President - Fund discretion of the Accounting, Board. Administration and Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting None Treasurer Serves at the Manager - Fund discretion of the Accounting, Board. Administration and Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002. ----------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Sullivan (32) Assistant Since September, Fund Administration None Treasurer 2003. Serves at the Manager - Fund discretion of the Accounting, Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance None Officer Serves at the Officer of Pioneer discretion of the (Director of Board Compliance and Senior Counsel from November 2000 to September 2004); and Chief Compliance Officer of all of the Pioneer Funds. -----------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 193 [LOGO] PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18646-00-0206 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Bond VCT Portfolio -- Class I Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Table of Contents -------------------------------------------------------------------------------- Pioneer Bond VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 5 Financial Statements 10 Notes to Financial Statements 14 Report of Independent Registered Public Accounting Firm 18 Factors Considered by the Independent Trustees in Approving the Management Contract 19 Trustees, Officers and Service Providers 22
Before investing, consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Please read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment in securities) (THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.) U.S. Government Securities 63.4% U.S. Corporate Bonds 31.5% Asset Backed Securities 2.7% Collateralized Mortgage Obligations 1.3% Temporary Cash Investment 1.1%
Quality Distribution (As a percentage of total investment in securities) (THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.) Commercial Paper 0.1% Treasury/Agency 65.1% AA 0.7% A 4.3% BBB 17.9% BB 9.9% B & Lower 2.0%
Five Largest Holdings (As a percentage of long-term holdings) 1. Government National Mortgage Association, 5.5%, 10/15/33 4.36% -------------------------------------------------------------------------- 2. U.S. Treasury Notes, 5.5%, 8/15/28 4.08 -------------------------------------------------------------------------- 3. Federal National Mortgage Association, 4.816%, 12/1/12 4.01 -------------------------------------------------------------------------- 4. Federal National Mortgage Association, 5.0%, 12/1/17 3.86 -------------------------------------------------------------------------- 5. Federal National Mortgage Association, 5.0%, 3/1/33 3.64 --------------------------------------------------------------------------
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 10.79 $ 11.61
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 1.1199 $ - $ -
-------------------------------------------------------------------------------- Performance of a $10,000 Investment The following chart shows the change in value of an investment made in Pioneer Bond VCT Portfolio at net asset value, compared to that of the Lehman Brothers Aggregate Bond Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. (THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL)
Lehman Bros. Pioneer Bond Aggregate Bond Index VCT Portfolio 12/95 10000 10000 10363 10054 12/97 11364 10899 12351 11870 12/99 12249 11397 13673 12740 12/01 14828 13667 16348 14732 12/03 17019 15215 17758 15757 12/05 18189 16170
The Lehman Brothers Aggregate Bond Index is a measure of the U.S. bond market. A market value-weighted measure of treasure and agency issues, corporate bond issues and mortgage-backed 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- 10 Years 4.92% 5 Years 4.88% 1 Year 2.62%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable products report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Please refer to variable product's semiannual report for performance that reflects the deduction of the variable products fees and charges. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers, performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value - $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Bond VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005
Share Class I ------------------------------------------------------------------------- Beginning Account Value on 7/1/05 $1,000.00 Ending Account Value on 12/31/05 $ 998.73 Expenses Paid During Period* $ 3.12
* Expenses are equal to the Portfolio's annualized expense ratio of 0.62% for Class I shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Bond VCT Portfolio Based on a hypothetical 5% per year return before expenses, reflecting the period from July 1, 2005 through December 31, 2005
Share Class I ------------------------------------------------------------------------- Beginning Account Value on 7/1/05 $1,000.00 Ending Account Value on 12/31/05 $1,022.08 Expenses Paid During Period* $ 3.16
* Expenses are equal to the Portfolio's annualized expense ratio of 0.62% for Class I shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- Fixed income investments produced generally positive, if moderate, returns during 2005. Rising interest rates for bonds of most maturities caused some price erosion, although not enough to erase the positive benefits of income produced by bonds. Returns across most sectors of the domestic bond market were remarkably similar for the year. In the following interview, Kenneth J. Taubes discusses the factors that influenced the Bond Portfolio's performance during the 12 months. Mr. Taubes, Director of Pioneer's Fixed Income Group, oversees the team responsible for the daily management of the Portfolio. Q: How did the Portfolio perform during the 12 months ended December 31, 2005? A: The Portfolio performed modestly above its benchmark. Bond Portfolio Class I Shares had a total return of 2.62% at net asset value for the year. During the same 12 months, the benchmark Lehman Aggregate Bond Index returned 2.43%. On December 31, 2005, the SEC standardized 30-day yield for Class I shares was 4.98%. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q: How would you describe the overall investment environment during the year? A: Against a backdrop of persistent economic growth, the Federal Reserve Board continued to tighten monetary policy. The central bank raised the key fed funds rate eight different times during the period as the rate rose from 2.25% to 4.25% by the end of 2005. While the rate hikes were widely expected, they nevertheless had an impact on the financial markets. Yields of securities of most securities rose and prices declined during the period. This particularly affected short to intermediate treasury securities. The principal exception was the 30-year Treasury bond, where the yields actually declined. Over the year, the difference between the yields of shorter- and longer-term securities grew smaller - the yield curve flattened. At year's end, the yield curve even had inverted in some places. That phenomenon, when interest rates of shorter maturity securities become higher than some longer maturity securities, is a reversal of the usual relationships and has been associated with a relatively restrictive Federal Reserve monetary policy. Because of the flattening of the yield curve, performance of fixed income portfolios was heavily influenced by the distribution of maturities in the portfolio. Intermediate term bonds, in the middle of the yield curve, tended to perform relatively poorly. Corporate bonds delivered modestly positive results, with both investment grade and high yield producing similar results on a total return basis. The primary difference was that high-yield bonds tended to lose more principal, although the higher income of those lower-rated securities made up the difference on a total-return basis. Mortgages generally outperformed corporate bonds as well as Treasuries, as they offered relatively good yield with less principal loss than other sectors. Q: What led the Portfolio to outperform its benchmark? A: Our investment holdings had a higher average yield than the Lehman index, which helped relative results. In addition, we were well positioned on the yield curve, with a greater emphasis on higher-yielding, longer-maturity bonds that outperformed intermediates. We also emphasized mortgage-backed securities, which was one of the better performing parts of the market. Approximately 51.6% of the Portfolio assets were invested in mortgages at the end of the year. Treasury and agencies, including an increased investment in Treasury Inflation Protected Securities (TIPS) accounted for 14.9% of assets. Within our corporate holdings, we de-emphasized the automotive sector, which helped performance during a year which saw the high profile credit rating downgrades of both General Motors and Ford to below-investment grade, or high yield. We did have a small exposure to securities issued by Ford that detracted from results. In addition, our position in bonds of auto components company Delphi, which filed for bankruptcy during the year, held back performance. Among corporate investments that performed well during 2005 were bonds issued by Ohio Casualty, a property and casualty insurer, and Pemex, the state-controlled oil company based in Mexico. At the end of 2005, average credit quality of our portfolio was AA-, slightly higher than the average of A+ one year earlier. Effective duration, a measure of sensitivity to changes in interest rates - was 4.84 years. Q: What is your investment outlook? A: We anticipate that the pace of economic growth may slow in 2006, but the economic expansion should persist. The Federal Reserve Board may continue to raise short-term rates in the early part of the year, but we do not anticipate that monetary policy will become so restrictive as to push the economy into recession. At a time when spreads - or the differences between yields - are narrow between yields of fixed income securities of different credit quality, we expect to continue to upgrade overall credit quality. For one thing, increased corporate merger-and-acquisition activity poses a potential threat to holders of investment grade, corporate bonds, as many merger deals benefit shareholders more than bondholders. We anticipate maintaining an emphasis on mortgage-backed securities over corporate bonds, which offer only slightly less yield than investment grade corporate, but without the risk of merger-and-acquisition activity. Within our Treasury holdings, we expect to continue to focus on TIPS (Treasury Inflation-Protected Securities). The easing of global monetary policies over the past several years has potentially provided an environment for inflation to pick-up. 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. A Word About Risk: When interest rates rise, the prices of fixed income securities in the Portfolio will generally fall. Conversely, when interest rates fall, the prices of fixed income securities in the Portfolio will generally rise. Investments in the Portfolio are subject to possible loss due to the financial failure of underlying securities and their inability to meet their debt obligations. Prepayment risk is the chance that mortgage-backed bonds will be paid off early if falling interest rates prompt homeowners to refinance their mortgages. Forced to reinvest the unanticipated proceeds at lower interest rates, the Portfolio would experience a decline in income and lose the opportunity for additional price appreciation associated with falling interest rates. Investments in high yield or lower-rated securities are subject to greater-than-average risk. The securities issued by U.S. Government sponsored entities (i.e., FNMA, Freddie Mac) are neither guaranteed nor issued by the U.S. Government. The Portfolio may invest in mortgage-backed securities, which during times of fluctuating interest rates may increase or decrease more than other fixed-income securities. Mortgage-Backed securities are also subject to pre-payments. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers, performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
S&P/Moody's Principal Ratings Amount (unaudited) Value ASSET BACKED SECURITIES - 2.7% Diversified Financials - 1.5% Diversified Financial Services - 0.3% $ 95,597 BB-/Ba2 Caithness Coso Fund Corp., 6.263%, 6/15/14 (144A) $ 97,551 ----------- Specialized Finance - 1.2% 420,000 AAA/Aaa MBNA Credit Card Master Note, Floating Rate Note, 12/15/08 (a) $ 420,198 ----------- Total Diversified Financials $ 517,749 ----------- Utilities - 1.2% Electric Utilities - 1.2% 131,477 BB-/Ba2 FPL Energy National Wind, 6.125%, 3/25/19 (144A) $ 128,646 204,685 BB+/Ba2 FPL Energy Wind Funding, 6.876%, 6/27/17 (144A) 204,429 59,799 B+/B1 Tenaska Alabama, Floating Rate Note, 6/30/21 (144A) (a) 60,159 ----------- $ 393,234 ----------- Total Utilities $ 393,234 ----------- TOTAL ASSET BACKED SECURITIES (Cost $918,200) $ 910,983 ----------- COLLATERALIZED MORTGAGE OBLIGATIONS - 1.3% Diversified Financials - 1.3% Diversified Financial Services - 1.3% 450,000 BB/NR Tower 2004-2A F, 6.376%, 12/15/14 $ 448,754 ----------- Total Diversified Financials $ 448,754 ----------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $450,000) $ 448,754 ----------- CORPORATE BONDS - 31.7% Energy - 3.8% Integrated Oil & Gas - 1.0% 215,000 BBB/Baa2 Petro-Canada, 4.0%, 7/15/13 $ 199,018 140,000 BBB+/Baa1 USX Corp., 6.85%, 3/1/08 145,468 ----------- $ 344,486 ----------- Oil & Gas Equipment & Services - 0.4% 125,000 B+/Ba3 Holly Energy Partners LP, 6.25%, 3/1/15 $ 121,094 ----------- Oil & Gas Exploration & Production - 1.3% 370,000 BBB-/Baa1 Pemex Project Funding Master, 9.125%, 10/13/10 $ 425,870 ----------- Oil & Gas Refining & Marketing - 0.2% 50,000 BBB/Baa2 Boardwalk Pipelines LLC, 5.5%, 2/1/17 $ 49,589 ----------- Oil & Gas Storage & Transportation - 0.9% 295,000 BBB+/Baa1 Kinder Morgan Energy Partners, 6.75%, 3/15/11 $ 314,200 ----------- Total Energy $ 1,255,239 ----------- Materials - 2.8% Aluminum - 0.8% 285,000 B/B1 Novelis, Inc., 7.25%, 2/15/15 $ 265,763 ----------- Commodity Chemicals - 0.8% 80,000 B+/B1 Invista, 9.25%, 5/1/12 (144A) $ 85,400 200,000 BB+/Ba2 Nova Chemicals, Ltd., 6.5%, 1/15/12 193,750 ----------- $ 279,150 ----------- Fertilizers & Agricultural Chemicals - 0.6% 220,000 BBB+/Baa2 Potash Corp. Saskatchewan, 4.875%, 3/1/13 $ 214,528 -----------
The accompanying notes are an integral part of these financial statements. 5 Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
S&P/Moody's Principal Rating Amount (unaudited) Value Paper Products - 0.6% $ 225,000 BB-/B1 Abitibi-Consolidated, Inc., 6.0%, 6/20/13 $ 190,688 ----------- Total Materials $ 950,129 ----------- Capital Goods - 1.2% Aerospace & Defense - 0.6% 190,000 A/A3 Boeing Co., 5.125%, 2/15/13 $ 191,579 ----------- Electrical Component & Equipment - 0.2% 60,000 NR/Ba1 Orcal Geothermal, 6.21%, 12/30/20 (144A) $ 60,167 ----------- Trading Companies & Distributors - 0.4% 145,000 BB+/Ba1 Noble Group, Ltd., 6.625%, 3/17/15 (144A) $ 133,529 ----------- Total Capital Goods $ 385,275 ----------- Automobiles & Components - 1.1% Automobile Manufacturers - 1.1% 435,000 BBB-/Baa1 Ford Motor Co., 7.25%, 10/1/08 (b) $ 352,350 ----------- Total Automobiles & Components $ 352,350 ----------- Media - 1.0% Broadcasting & Cable TV - 1.0% 335,000 BBB/Baa3 Comcast Corp., 5.3%, 1/15/14 $ 328,651 ----------- Total Media $ 328,651 ----------- Food, Beverage & Tobacco - 2.6% Brewers - 0.9% 280,000 BBB+/Baa1 Miller Brewing Co., 5.5%, 8/15/13 (144A) $ 285,406 ----------- Packaged Foods & Meats - 0.9% 280,000 A+/A1 Unilever Capital Corp., 7.125%, 11/1/10 $ 304,877 ----------- Soft Drinks - 0.8% 280,000 A/A3 Bottling Group LLC, 5.0%, 11/15/13 $ 280,049 ----------- Total Food, Beverage & Tobacco $ 870,332 ----------- Health Care Equipment & Services - 2.1% Health Care Distributors - 1.1% 360,000 BBB/Baa3 Cardinal Health, Inc., 6.0%, 1/15/06 $ 360,087 ----------- Health Care Facilities - 1.0% 350,000 BB+/Ba2 HCA, Inc., 6.3%, 10/1/12 $ 351,748 ----------- Total Health Care Equipment & Services $ 711,835 ----------- Banks - 0.6% Diversified Banks - 0.6% 225,000 A+/Aa3 US Bancorp, 3.125%, 3/15/08 $ 217,280 ----------- Total Banks $ 217,280 ----------- Diversified Financials - 3.8% Consumer Finance - 1.2% 415,000 A/A2 SLM Corp., Floating Rate Note, 7/25/14 (a) $ 390,212 ----------- Diversified Financial Services - 2.6% 500,000 BBB-/Baa3 Bombardier Capital, Inc., 7.09%, 3/30/07 $ 500,625 400,000 BBB-/Baa3 Glencore Funding LLC, 6.0%, 4/15/14 (144A) 376,217 ----------- $ 876,842 ----------- Total Diversified Financials $ 1,267,054 -----------
6 The accompanying notes are an integral part of these financial statements. Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
S&P/Moody's Principal Ratings Amount (unaudited) Value Insurance - 4.2% Life & Health Insurance - 1.4% $ 250,000 A-/A3 Lincoln National Corp., 5.25%, 6/15/07 $ 250,908 225,000 B-/B2 Presidential Life Corp., 7.875%, 2/15/09 222,750 ----------- $ 473,658 ----------- Multi-Line Insurance - 0.4% 130,000 BB/Ba1 Hanover Insurance Group, 7.625%, 10/15/25 $ 133,319 ----------- Property & Casualty Insurance - 1.6% 250,000 BBB-/NR Kingsway America, Inc., 7.5%, 2/1/14 $ 257,590 250,000 BB/Baa3 Ohio Casualty Corp., 7.3%, 6/15/14 268,705 ----------- $ 526,295 ----------- Reinsurance - 0.8% 255,000 BBB/Baa2 Platinum Underwriters Holding, 7.5%, 6/1/17 $ 259,864 ----------- Total Insurance $ 1,393,136 ----------- Real Estate - 3.3% Real Estate Investment Trusts - 3.3% 350,000 BBB-/Baa3 Health Care, Inc., 6.0%, 11/15/13 $ 350,213 350,000 BBB/Baa2 Hospitality Properties Trust, 5.125%, 2/15/15 334,895 225,000 BB-/Ba2 Host Marriott LP, 6.375%, 3/15/15 224,438 50,000 B+/B1 Trustreet Properties, Inc., 7.5%, 4/1/15 50,000 130,000 BB+/Ba2 Ventas Realty Capital Corp., 7.125%, 6/1/15 (144A) 136,500 ----------- $ 1,096,046 ----------- Total Real Estate $ 1,096,046 ----------- Technology Hardware & Equipment - 1.1% Communications Equipment - 1.1% 350,000 BB+/Ba2 Corning, Inc., 5.9%, 3/15/14 $ 353,359 ----------- Total Technology Hardware & Equipment $ 353,359 ----------- Semiconductors - 0.5% Semiconductors - 0.5% 155,000 BBB-/Baa3 Chartered Semiconductor, 6.375%, 8/3/15 $ 154,103 ----------- Total Semiconductors $ 154,103 ----------- Telecommunication Services - 0.0% Integrated Telecommunication Services - 0.0% 10,000 BBB+/Baa2 Telecom Italia Capital, 4.875%, 10/1/10 $ 9,804 ----------- Total Telecommunication Services $ 9,804 ----------- Utilities - 3.6% Electric Utilities - 2.4% 111,507 BBB-/Baa3 Crocket Cogeneration, 5.869%, 3/30/25 (144A) $ 110,420 85,000 BBB+/Baa3 Entergy Gulf States, 5.7%, 6/1/15 83,187 260,000 BBB-/Baa3 Kiowa Power Partners LLC, 5.737%, 3/30/21 (144A) 260,764 305,000 BBB/Baa1 PSE & G Power, 6.95%, 6/1/12 330,534 ----------- $ 784,905 ----------- Multi-Utilities - 1.2% 270,000 BBB-/Baa3 Avista Corp., 7.75%, 1/1/07 $ 276,656 140,000 BBB+/Baa1 Dominion Resources, 6.25%, 6/30/12 146,469 ----------- $ 423,125 ----------- Total Utilities $ 1,208,030 ----------- TOTAL CORPORATE BONDS (Cost $10,681,358) $10,552,623 -----------
The accompanying notes are an integral part of these financial statements. 7 Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Principal Amount Value U.S. GOVERNMENT & AGENCY OBLIGATIONS - 63.6% $ 955,000 Federal Home Loan Bank, 6.0%, 4/15/32 $ 981,231 1,081,263 Federal Home Loan Mortgage Corp., 4.5%, 5/1/35 1,017,288 549,187 Federal Home Loan Mortgage Corp., 4.5%, 10/1/35 516,694 251,266 Federal Home Loan Mortgage Corp., 5.5%, 9/1/33 249,575 99,892 Federal Home Loan Mortgage Corp., 6.0%, 1/1/34 100,899 26,211 Federal Home Loan Mortgage Corp., 8.0%, 4/1/08 26,865 1,343,118 Federal National Mortgage Association, 4.816%, 12/1/12 1,325,817 1,288,638 Federal National Mortgage Association, 5.0%, 12/1/17 1,276,907 1,239,946 Federal National Mortgage Association, 5.0%, 3/1/33 1,205,750 632,294 Federal National Mortgage Association, 5.0%, 5/1/34 613,890 730,000 Federal National Mortgage Association, 5.24%, 8/7/18 727,400 841,040 Federal National Mortgage Association, 5.5%, 9/1/17 846,853 1,053,780 Federal National Mortgage Association, 5.5%, 2/1/18 1,061,985 498,465 Federal National Mortgage Association, 5.5%, 7/ (3 498,563 74,641 Federal National Mortgage Association, 6.0%, 6/1/15 76,279 75,396 Federal National Mortgage Association, 6.0%, 1/1/29 77,030 115,108 Federal National Mortgage Association, 6.0%, 9/1/29 116,528 64,592 Federal National Mortgage Association, 7.0%, 3/1/12 67,025 54,549 Federal National Mortgage Association, 8.0%, 2/1/29 58,241 15,362 Federal National Mortgage Association, 8.0%, 2/1/30 16,411 7,578 Federal National Mortgage Association, 8.0%, 4/1/30 8,095 23,340 Federal National Mortgage Association, 8.0%, 7/1/30 24,932 47,051 Federal National Mortgage Association, 8.0%, 10/1/30 50,260 18,416 Federal National Mortgage Association, 8.0%, 1/1/31 19,672 245,136 Federal National Mortgage Association, 8.0%, 3/1/31 261,873 15,079 Federal National Mortgage Association, 8.0%, 5/1/31 16,107 24,995 Federal National Mortgage Association, 9.5%, 2/1/21 27,588 719,212 Government National Mortgage Association, 4.5%, 12/15/18 705,703 366,412 Government National Mortgage Association, 4.5%, 8/15/33 351,652 136,547 Government National Mortgage Association, 4.5%, 12/15/34 131,023 215,823 Government National Mortgage Association, 5.0%, 7/15/19 215,321 355,255 Government National Mortgage Association, 5.5%, 8/15/33 358,047 1,430,791 Government National Mortgage Association, 5.5%, 10/15/33 1,442,036 380,649 Government National Mortgage Association, 5.5%, 12/15/34 383,264 60,529 Government National Mortgage Association, 6.0%, 8/15/13 62,149 11,112 Government National Mortgage Association, 6.0%, 4/15/14 11,414 383,717 Government National Mortgage Association, 6.0%, 8/15/34 392,960 753,730 Government National Mortgage Association, 6.0%, 9/15/34 771,885 48,099 Government National Mortgage Association, 7.0%, 4/15/28 50,549 14,439 Government National Mortgage Association, 7.75%, 11/15/29 15,350 932,608 Government National Mortgage Association II, 5.5%, 11/20/34 936,685 685,000 U.S. Treasury Bonds, 7.125%, 2/15/23 886,112 184,316 U.S. Treasury Inflation Protected Security, 1.875%, 7/15/15 181,264 336,510 U.S. Treasury Inflation Protected Security, 3.375%, 1/15/12 361,840 446,308 U.S. Treasury Inflation Protected Security, 3.5%, 1/15/11 476,992 420,000 U.S. Treasury Notes, 5.25%, 2/15/29 458,309 1,200,000 U.S. Treasury Notes, 5.5%, 8/15/28 1,349,297 525,000 U.S. Treasury Strip, 0.0%, 11/15/13 370,457 ----------- $21,182,067 ----------- TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $21,239,906) $21,182,067 -----------
8 The accompanying notes are an integral part of these financial statements. Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value TEMPORARY CASH INVESTMENTS - 1.1% Security Lending Collateral - 1.1% 353,122 Securities Lending Investment Fund, 4.24% $ 353,122 ----------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $353,122) $ 353,122 ----------- TOTAL INVESTMENT IN SECURITIES - 100.4% (Cost $33,642,586) $33,447,549 ----------- OTHER ASSETS AND LIABILITIES - (0.4)% $ (115,937) ----------- TOTAL NET ASSETS - 100.0% $33,331,612 ===========
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, 2005, the value of these securities amounted to $2,608,708 or 7.8% of total net assets. NR Not rated by either S&P or Moody's (a) 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. (b) At December 31, 2005, the following security was out on loan:
Principal Amount Security Value $ 413,250 Ford Motor Co., 7.25%, 10/1/08 $334,733 -------- Total $334,733 ========
The accompanying notes are an integral part of these financial statements. 9 Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Year Year Year Year Ended Ended Ended Ended Ended Class I 12/31/05 12/31/04 (a) 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 11.61 $ 11.24 $ 11.39 $ 11.12 $ 10.92 ------- ------- ------- ------- ------- Net increase (decrease) from investment operations: Net investment income $ 0.59 $ 0.44 $ 0.46 $ 0.52 $ 0.59 Net realized and unrealized gain (loss) on investments (0.29) (0.04) (0.09) 0.35 0.20 ------- ------- ------- ------- ------- Net increase from investment operations $ 0.30 $ 0.40 $ 0.37 $ 0.87 $ 0.79 Distributions to shareowners: Net investment income (1.12) (0.03) (0.52) (0.60) (0.59) ------- ------- ------- ------- ------- Net increase (decrease) in net asset value $ (0.82) $ 0.37 $ (0.15) $ 0.27 $ 0.20 ------- ------- ------- ------- ------- Net asset value, end of period $ 10.79 $ 11.61 $ 11.24 $ 11.39 $ 11.12 ======= ======= ======= ======= ======= Total return* 2.62% 3.56% 3.28% 7.79% 7.28% Ratio of net expenses to average net assets 0.62% 0.89% 0.86% 0.84% 0.82% Ratio of net investment income to average net assets 4.48% 3.61% 3.79% 4.87% 5.56% Portfolio turnover rate 31% 57% 56% 87% 133% Net assets, end of period (in thousands) $33,332 $45,793 $51,565 $51,201 $44,847 Ratios with no waiver of management fees by PIM and no reduction for fees paid indirectly: Net expenses 0.83% 0.89% 0.86% 0.84% 0.82% Net investment income 4.27% 3.61% 3.79% 4.87% 5.56% Ratios with waiver of management fees by PIM and reduction for fees paid indirectly: Net expenses 0.62% 0.89% 0.86% 0.84% 0.82% Net investment income 4.48% 3.61% 3.79% 4.87% 5.56%
(a) Effective August 2, 2004, PIM became the sub-advisor of the Fund and subsequently became the advisor on December 10, 2004. * 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. NOTE: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. 10 The accompanying notes are an integral part of these financial statements. Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $334,733) (cost $33,642,586) $33,447,549 Cash 28,735 Receivables -- Dividends, interest and foreign taxes withheld 343,158 Due from Pioneer Investment Management, Inc. 1,610 ----------- Total assets $33,821,052 ----------- LIABILITIES: Payables -- Fund shares repurchased $ 89,153 Dividends 60 Upon return of securities loaned 353,122 Due to affiliates 138 Accrued expenses 46,967 ----------- Total liabilities $ 489,440 ----------- NET ASSETS: Paid-in capital $34,351,741 Distributions in excess of net investment income (55,248) Accumulated net realized loss on investments (769,844) Net unrealized loss on: Investments (195,037) ----------- Total net assets $33,331,612 ----------- NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $33,331,612 Shares outstanding 3,089,962 ----------- Net asset value per share $ 10.79
The accompanying notes are an integral part of these financial statements. 11 Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
Year Ended 12/31/05 INVESTMENT INCOME: Dividends $ 941 Interest 1,935,314 Income on securities loaned, net 5,557 ---------- Total investment income $1,941,812 ---------- EXPENSES: Management fees $ 190,599 Transfer agent fees and expenses 1,501 Administrative reimbursements 19,540 Custodian fees 13,017 Professional fees 66,585 Printing expense 14,441 Fees and expenses of nonaffiliated trustees 4,451 Miscellaneous 5,024 ---------- Total expenses $ 315,158 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (79,776) ---------- Net expenses $ 235,382 ---------- Net investment income $1,706,430 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain from: Investments $ 166,785 ---------- Change in net unrealized loss from: Investments $ (885,532) ---------- Net loss on investments $ (718,747) =========== Net increase in net assets resulting from operations $ 987,683 ===========
12 The accompanying notes are an inte gral part of these financial statements. Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/05 12/31/04 FROM OPERATIONS: Net investment income $ 1,706,430 $ 1,751,711 Net realized gain on investments 166,785 270,731 Change in net unrealized loss on investments (885,532) (328,382) ------------ ------------ Net increase in net assets resulting from operations $ 987,683 $ 1,694,060 ------------ ------------ DISTRIBUTIONS TO SHAREOWNERS Net investment income: Class I $ (3,723,847) $ (118,093) ------------ ------------ Total distributions to shareholders $ (3,723,847) $ (118,093) ------------ ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 440,667 $ 8,055,931 Reinvestment of distributions 3,722,866 118,093 Cost of shares repurchased (13,889,129) (15,521,812) ------------ ------------ Net decrease in net assets resulting from Fund share transactions $ (9,725,596) $ (7,347,788) ------------ ------------ Net decrease in net assets $(12,461,760) $ (5,771,821) NET ASSETS: Beginning of year 45,793,372 51,565,193 ------------ ------------ End of year $ 33,331,612 $ 45,793,372 ============ ============ Undistributed (distribution in excess of) net investment income, end of year $ (55,248) $ 1,759,777 ============ ============
The accompanying notes are an integral part of these financial statements. 13 Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Bond VCT Portfolio (The Portfolio) (formerly Safeco RST Bond Portfolio) is a portfolio of 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 twenty nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts, or by qualified pension and retirement plans. Bond Portfolio seeks current income from an investment grade portfolio with due regard to preservation of capital and prudent investment risk. Secondarily, the Portfolio seeks a relatively stable level of dividends. The Portfolio, organized on December 10, 2004, is the successor to the Safeco RST Bond Portfolio. Safeco RST Bond Portfolio, one of six series of portfolios that comprised Safeco Resource Series Trust, transferred all of the net assets of Trust shares in exchange for the Portfolio's Class I shares in a one-to-one exchange ratio, on December 10, 2004, pursuant to an agreement and plan of reorganization (the "reorganization" which was approved by the shareholders of Safeco RST Bond Portfolio on December 8, 2004). The Portfolio had no assets or liabilities prior to the reorganization. Accordingly, the reorganization, which was a tax-free exchange, had no effect on the Portfolio's operations. The financial statements and financial highlights of all other Portfolios are presented in separate books. The Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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 Portfolio, 14 Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- in the preparation of its financial statements which are consistent 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 (NYSE) is open, as of the close of regular trading on the NYSE. In computing the net asset values, securities are valued at the last sale price on the principal exchange where they are traded. 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. 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. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Information regarding the Portfolio's principal investment risks is contained in the Portfolio's prospectus. Please refer to those documents when considering the Portfolio's risks. B. Taxes It is the Portfolio'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 amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal income tax rules. Therefore, the source of the 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. The Portfolio elected to defer $52,974 in capital losses recognized between November 1, 2005 and December 31, 2005 to its fiscal year ended December 31, 2006. Capital loss carryforwards are available to offset future realized capital gains. At December 31, 2005, Bond VCT Portfolio had a net capital loss carryforward of $716,870, of which the following amounts will expire between 2008 and 2010, if not utilized: $136,015 in 2008 and $580,855 in 2010. At December 31, 2005, 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.
-------------------------------------------------------------------------------- Undistributed Accumulated Net Investment Net Realized Paid-In Portfolio Income (Loss) Gain (Loss) Capital -------------------------------------------------------------------------------- Bond Portfolio $202,392 $ (202,392) $-- --------------------------------------------------------------------------------
15 Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- The following chart shows the distributions paid during the years ended December 31, 2005 and 2004 on a tax basis and the components of distributable earnings (accumulated losses) as of December 31, 2005.
-------------------------------------------------------------------------------------------------- 2005 2004 -------------------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 3,723,847 $ 118,093 Long-Term capital gain -- -- ----------- --------- $ 3,723,847 $ 118,093 Return of Capital -- -- ----------- --------- Total distributions $ 3,723,847 $ 118,093 =========== ========= Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 86,609 Undistributed long-term gain/(capital loss carryforward) (716,870) Post-October loss deferred (52,974) Unrealized appreciation (depreciation) (336,894) ----------- Total $(1,020,129) ----------- --------------------------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax treatment of premium and amortization. C. Portfolio Shares The Portfolio records sales and repurchases of its 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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. 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 payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for the 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 sponsored by Brown Brothers Harriman & Co., the Trust's custodian. 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, a wholly owned indirect subsidiary of UniCredito Italiano manages the portfolio. Management fees are calculated at the annual rate of 0.50% of the Portfolio's average daily net assets. Prior to the reorganization, the Portfolio was advised by Safeco Asset Management, which received an annual fee equal to 0.74% of its average daily net assets. Through December 10, 2006, PIM has agreed not to impose all or a portion of its management fee and to assume other operating expenses of the Portfolio to the extent necessary to limit Class I expenses to 0.62% of the average daily net assets attributable to Class I shares. 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, 2005, $12 was payable to PIM related to management fees, administrative reimbursements and certain other services, and is included in due to affiliates. 16 Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- 3. Transfer Agent Since the reorganization 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 $126 in transfer agent fees payable to PIMSS at December 31, 2005. Prior to the reorganization Safeco services corporation was the transfer and shareholder servicing agent. 4. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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) ----------------------------------------------------------------------------------------------------------------- Bond Portfolio $33,784,443 $242,563 $ (579,457) $ (336,894) -----------------------------------------------------------------------------------------------------------------
5. 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, 2005, were $4,428,478 and $6,636,813, respectively. The cost of purchases and the proceeds from sales of investments in U.S. Government obligations for the year ended December 31, 2005, were $7,342,882 and $15,973,723, respectively. 6. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares for the years ended December 31, 2005 and December 31, 2004 were as follows:
----------------------------------------------------------------------------------------------------------------- Bond Portfolio '05 Shares '05 Amount '04 Shares '04 Amount ----------------------------------------------------------------------------------------------------------------- Safeco Trust Shares Shares sold -- -- 698,811 $ 7,960,250 Reinvestment of distributions -- -- -- -- Shares repurchased -- -- (1,359,793) (15,521,812) Shares transferred in reorganization -- -- (3,993,012) (46,518,595) CLASS I: Shares sold 38,950 $ 440,667 8,248 $ 95,681 Reinvestment of distributions 334,515 3,722,866 10,191 118,316 Shares repurchased (1,227,950) (13,889,129) -- -- Shares issued in reorganization -- -- 3,993,2 46,518,372 ---------------------------------------------------------------- Net decrease (854,485) $ (9,725,596) (642,543) $ (7,347,788) ================================================================ -----------------------------------------------------------------------------------------------------------------
17 Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the Shareowners of Pioneer Bond VCT Portfolio: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Bond VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five 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. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian. 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 Bond VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/Ernst + Young LLP Boston, Massachusetts February 10, 2006 18 Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareholders. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three-, five- and ten-year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's performance 19 Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- compared to both the performance of a peer group and two relevant indices, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the fourth quintile of the peer group for the 12 months ended June 30, 2005, the fourth quintile of the peer group for the three years ended June 30, 2005, the second quintile for the five years ended June 30, 2005 and the third quintile for the ten year period ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees also considered the yield (gross of expenses) of the Class I shares of the Fund relative to the yield (as of June 30, 2005) of the Lehman Aggregate Bond Index. The Trustees concluded that the performance of the Fund supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's fixed income group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was below the median relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the fifth quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. The Trustees concluded that, given current and anticipated asset levels, break points in 20 Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- the management fee are not necessary at this time. The Trustees will continue to evaluate annually the appropriateness of break points. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund). The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 21 Pioneer Bond VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. -----------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Bond VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance or earlier services company) (2001-present); company); Director of New York retirement or Managing Partner, Federal City Mortgage Trust (publicly traded removal. Capital Advisors (boutique merchant mortgage REIT) bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ---------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products or earlier manufacturer), Mortgage Guaranty retirement or Insurance Corporation, and Briggs removal. & Stratton, Inc. (engine manufacturer) ---------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------
23 Pioneer Bond VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
24 Pioneer Bond VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, None Treasurer 2000. Serves at the Assistant Vice President - Fund discretion of the Accounting, Administration and Board. Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds. --------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. --------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. --------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 25 [LOGO]PIONEER Investments (R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18656-00-0206 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Opportunities VCT Portfolio -- Class I Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Table of Contents -------------------------------------------------------------------------------- Pioneer Growth Opportunities VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 5 Financial Statements 9 Notes to Financial Statements 13 Report of Independent Registered Public Accounting Firm 17 Factors Considered by the Independent Trustees in Approving the Management Contract 18 Trustees, Officers and Service Providers 21
Before investing, consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Please read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 80.3% Temporary Cash Investment 16.1% Exchange Traded Fund 3.4% Warrants 0.2%
Sector Distribution (As a percentage of equity holdings) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Information Technology 25.7% Health Care 21.4% Consumer Discretionary 14.7% Industrials 12.0% Financials 10.7% Energy 8.1% Materials 4.1% Consumer Staples 2.6% Utilities 0.7%
Five Largest Holdings (As a percentage of equity holdings) 1. Newfield Exploration Co. 1.85% 2. Monster Worldwide, Inc. 1.70 3. Micros Systems, Inc. 1.64 4. Pride International, Inc. 1.58 5. Central Garden & Pet Co. 1.57
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 25.37 $ 23.78
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income 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 Opportunities VCT Portfolio at net asset value, compared to that of the Russell 2000 Growth Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Russell Pioneer 2000 Growth Growth Opportunities Index VCT Portfolio Dec-95 10000 10000 11126 13206 Dec-97 12567 19090 12721 19439 Dec-99 18203 20534 14120 19268 Dec-01 12817 22956 8938 14309 Dec-03 13277 20453 15177 25019 Dec-05 15807 26692
The Russell 2000 Growth Index is an unmanaged measure of the performance of U.S. small-cap growth stocks. 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- 10 Year 10.32% 5 Year 6.74% 1 Year 6.69%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value / $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Growth Opportunities VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005
Share Class I --------------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,074.10 Expenses Paid During Period* $ 4.13
* Expenses are equal to the Portfolio's annualized expense ratio of 0.79% for Class I shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Growth Opportunities VCT Portfolio Based on a hypothetical 5% per year return before expenses, reflecting the period from July 1, 2005 through December 31, 2005.
Share Class I --------------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,021.22 Expenses Paid During Period* $ 4.02
* Expenses are equal to the Portfolio's annualized expense ratio of 0.79% for Class I shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- In the following interview, Michael Rega, a member of the Pioneer Growth Opportunities VCT Portfolio management team, discusses the factors that influenced performance for the 12-month period ended December 31, 2005. Q: How did the Portfolio perform during the period? A: The Portfolio produced a total return of 6.69% at net asset value during the 12-month period ended December 31, 2005, compared to a return of 4.15% for its benchmark, the Russell 2000 Growth Index. In an environment characterized by widely divergent sector performance, the Portfolio was well-served by our disciplined and largely sector-neutral approach. We strive to keep the Portfolio's sector weightings within three to four percentage points of the sector weightings in the Russell 2000 Growth benchmark, which means that the majority of the Portfolio's performance will be the result of our rigorous individual stock selection process. This was the case in 2005, and we are pleased to report that our process worked well: the Portfolio's holdings outperformed the corresponding holdings in the benchmark index in seven of the ten major market sectors. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q: What elements of the Portfolio's positioning helped performance? A: Several of the Portfolio's top performers provide an illustration of our investment process at work. To review, we use a quantitative screen to identify stocks that are potential buy candidates, then employ the research of Pioneer's small-cap stock analysts to confirm whether these stocks are indeed attractive on a fundamental basis. We feel that this methodology provides a broad, multifaceted view of the stocks we consider for addition to the Portfolio. This approach supported our investment in Station Casinos, which delivered a gain of over 20% in 2005. Station is a casino operator in Las Vegas that caters to the local market rather than vacationers. As such, it is more sensitive to the city's rapid population growth than it is to broader trends in travel or the city's position in the increasingly competitive market for gambling dollars. In health care, performance was helped by the Portfolio's holdings in Cubist Pharmaceuticals, which benefited from faster-than-expected sales for Cubicin, a drug that has proven very effective in fighting staph infections; and American Healthways, which strives to keep health plans' costs down by helping patients to manage their diseases better. We also added value in the technology sector through a position in SanDisk, whose stock gained over 100% as demand for its flash memory chips - used in cell phones and Apple's iPod - soared. And in the materials industry, the Portfolio was helped by its holding in Florida Rock Industries, a provider of building materials in the Southeast that benefited not only from Florida's rapidly growing population, but also from the need for post-hurricane rebuilding. Q: What were some detractors from performance? A: The Puerto Rican banks Doral Financial and W. Holding, declined sharply in the first quarter when Doral restated its earnings results, causing W. Holding to fall in sympathy. We quickly sold out of the position in Doral, but we maintained a position in W. Holding on the belief that the company, which we see as the most well managed of the Puerto Rican banks, is attractively valued following its poor performance of the past year. Our decisions regarding the specialty retailer Aeropostale also detracted from Portfolio performance. Although the stock performed well after our initial purchase, it ultimately faltered due to its failure to deliver a compelling product mix. Nu Skin Enterprises was another notable detractor. We believed the company, which makes health and beauty products, would be helped by its push into the rapidly-growing Chinese market. Its profit growth came in below expectations, however, and we elected to remove it from the portfolio. Q: Do you have any closing thoughts for investors? A: The strength of the U.S. consumer, the effect of higher production costs on corporations' profit margins, and the likely direction of Fed policy are all factors that we will be watching closely in the year ahead. In what we see as being a potentially risky environment, we will continue to look for growth, but we will also be very conscious of valuations in order to help manage downside risk. Believing that the Portfolio's outperformance of the past year, while modest, helps validate the effectiveness of our invesment approach, we remain committed to our bottom-up, research-based discipline. 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. A Word About Risk: Investments in small companies may offer the potential for higher returns, but are also subject to greater short-term price fluctuations than larger, more established companies. Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. The Portfolio may invest a substantial amount of its assets in issuers located in a limited number of countries and therefore is more susceptible to adverse developments affecting those countries. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 94.7% Energy - 8.0% Oil & Gas Drilling - 2.8% 532,100 Grey Wolf, Inc.*(a) $ 4,113,133 165,200 Pride International, Inc.* 5,079,900 ------------ $ 9,193,033 ------------ Oil & Gas Equipment & Services - 0.6% 99,300 Superior Energy Services, Inc.* $ 2,090,265 ------------ Oil & Gas Exploration & Production - 4.6% 109,700 Forest Oil Corp.* $ 4,999,029 118,400 Newfield Exploration Co.* 5,928,288 83,400 Stone Energy Corp.* 3,797,202 ------------ $ 14,724,519 ------------ Total Energy $ 26,007,817 ------------ Materials - 4.1% Aluminum - 0.8% 103,900 Century Aluminum Co.* $ 2,723,219 ------------ Construction Materials - 1.7% 69,050 Florida Rock Industries, Inc. $ 3,387,593 40,000 Texas Industries, Inc. 1,993,600 ------------ $ 5,381,193 ------------ Fertilizers & Agricultural Chemicals - 1.2% 82,400 The Scotts Miracle-Gro Co. $ 3,727,776 ------------ Specialty Chemicals - 0.4% 273,200 Omnova Solutions, Inc.* $ 1,311,360 ------------ Total Materials $ 13,143,548 ------------ Capital Goods - 6.2% Aerospace & Defense - 1.9% 94,300 DRS Technologies, Inc. $ 4,848,906 66,300 Hexcel Corp.* 1,196,715 ------------ $ 6,045,621 ------------ Construction, Farm Machinery & Heavy Trucks - 2.1% 39,900 Terex Corp.* $ 2,370,060 160,100 Wabtec Corp. 4,306,690 ------------ $ 6,676,750 ------------ Electrical Component & Equipment - 0.9% 508,400 Power-One, Inc.* $ 3,060,568 ------------ Industrial Conglomerates - 0.5% 137,300 Tredegar Corp. $ 1,769,797 ------------ Industrial Machinery - 0.8% 77,200 Pentair, Inc. $ 2,664,944 ------------ Total Capital Goods $ 20,217,680 ------------ Commercial Services & Supplies - 2.3% Commercial Printing - 0.6% 56,637 R.R. Donnelly & Sons Co. $ 1,937,552 ------------
Shares Value Human Resource & Employment Services - 1.7% 133,600 Monster Worldwide, Inc.* $ 5,453,552 ------------ Total Commercial Services & Supplies $ 7,391,104 ------------ Transportation - 3.4% Airlines - 0.5% 45,300 Alaska Air Group, Inc.* $ 1,618,116 ------------ Trucking - 2.9% 176,500 Heartland Express, Inc. $ 3,581,185 103,100 Laidlaw International, Inc. 2,395,013 122,950 Old Dominion Freight Line, Inc.* 3,317,191 ------------ $ 9,293,389 ------------ Total Transportation $ 10,911,505 ------------ Consumer Durables & Apparel - 2.8% Footwear - 2.8% 316,000 Skechers U.S.A.* $ 4,841,120 192,100 Wolverine World Wide, Inc. 4,314,566 ------------ $ 9,155,686 ------------ Total Consumer Durables & Apparel $ 9,155,686 ------------ Consumer Services - 6.9% Casinos & Gaming - 3.0% 170,500 Scientific Games Corp.* $ 4,651,240 73,300 Station Casinos, Inc. 4,969,740 ------------ $ 9,620,980 ------------ Restaurants - 2.8% 81,200 Papa John's International, Inc.*(a) $ 4,815,972 140,400 Rare Hospitality International, Inc.* 4,266,756 ------------ $ 9,082,728 ------------ Specialized Consumer Services - 1.1% 128,300 Jackson Hewitt Tax Service, Inc. $ 3,555,193 ------------ Total Consumer Services $ 22,258,901 ------------ Media - 2.4% Advertising - 1.1% 93,900 Arbitron, Inc. $ 3,566,322 ------------ Publishing - 1.3% 181,500 Interactive Data Corp. $ 4,121,865 ------------ Total Media $ 7,688,187 ------------ Retailing - 2.5% Apparel Retail - 2.5% 56,900 Guess?, Inc.* $ 2,025,640 127,050 Stage Stores, Inc. 3,783,549 131,100 Stein Mart, Inc. 2,379,465 ------------ $ 8,188,654 ------------ Total Retailing $ 8,188,654 ------------
The accompanying notes are an integral part of these financial statements. 5 Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value Food & Drug Retailing - 1.0% Food Retail - 1.0% 129,400 Casey's General Stores, Inc. $ 3,209,120 ------------ Total Food & Drug Retailing $ 3,209,120 ------------ Household & Personal Products - 1.6% Household Products - 1.6% 109,300 Central Garden & Pet Co.* $ 5,021,242 ------------ Total Household & Personal Products $ 5,021,242 ------------ Health Care Equipment & Services - 13.1% Health Care Equipment - 3.7% 101,600 Cytyc Corp.* $ 2,868,168 116,200 Palomar Medical Technologies*(a) 4,071,648 132,000 Steris Corp. 3,302,640 85,900 Symmetry Medical, Inc.* 1,665,601 ------------ $ 11,908,057 ------------ Health Care Facilities - 0.5% 70,300 Kindred Healthcare, Inc.* $ 1,810,928 ------------ Health Care Services - 6.1% 103,400 American Healthways, Inc.* $ 4,678,850 55,000 Cerner Corp.*(a) 5,000,050 145,700 Merge Technologies, Inc.*(a) 3,648,328 201,500 Per-Se Technologies, Inc.*(a) 4,707,040 101,300 The Trizetto Group, Inc.* 1,721,087 ------------ $ 19,755,355 ------------ Health Care Supplies - 2.8% 78,500 Haemonetics Corp.* $ 3,835,510 73,700 Merit Medical Systems, Inc.* 894,718 129,710 PolyMedica Corp. 4,341,394 ------------ $ 9,071,622 ------------ Total Health Care Equipment & Services $ 42,545,962 ------------ Pharmaceuticals & Biotechnology - 7.8% Biotechnology - 4.8% 225,500 Cubist Pharmaceuticals, Inc.* $ 4,791,875 129,300 CV Therapeutics, Inc.*(a) 3,197,589 254,300 Serologicals Corp.*(a) 5,019,882 93,000 Vertex Pharmaceuticals, Inc.* 2,573,310 ------------ $ 15,582,656 ------------ Pharmaceuticals - 3.0% 328,700 Connetics Corp.*(a) $ 4,749,715 66,500 Medicis Pharmaceutical Corp. (a) 2,131,325 161,400 Salix Pharmaceuticals, Ltd.* 2,837,412 ------------ $ 9,718,452 ------------ Total Pharmaceuticals & Biotechnology $ 25,301,108 ------------
Shares Value Banks - 2.5% Regional Banks - 1.0% 189,091 Fulton Financial Corp. (a) $ 3,328,002 ------------ Thrifts & Mortgage Finance - 1.5% 126,300 Franklin Bank Corp.* $ 2,272,137 296,252 W Holding Co., Inc. (a) 2,438,154 ------------ $ 4,710,291 ------------ Total Banks $ 8,038,293 ------------ Diversified Financials - 1.8% Asset Management & Custody Banks - 0.9% 135,000 Waddell & Reed Financial, Inc.* $ 2,830,950 ------------ Consumer Finance - 0.9% 114,400 Asta Funding, Inc. (a) $ 3,127,696 ------------ Total Diversified Financials $ 5,958,646 ------------ Insurance - 0.3% Life & Health Insurance - 0.3% 74,000 American Equity Investment Life Holding* $ 965,700 ------------ Total Insurance $ 965,700 ------------ Real Estate - 2.0% Real Estate Management & Development - 0.5% 123,000 Deerfield Triarc Capital Corp. $ 1,685,100 ------------ Real Estate Investment Trusts - 1.5% 38,900 Alexandria Real Estate Equities, Inc. $ 3,131,450 146,600 Annaly Mortgage Management, Inc. (a) 1,603,804 ------------ $ 4,735,254 ------------ Total Real Estate $ 6,420,354 ------------ Software & Services - 10.7% Application Software - 3.6% 41,300 Bottomline Technologies, Inc.* $ 455,126 33,900 Net 1 UEPS Technologies, Inc.* 978,015 583,600 Parametric Technology Co.* 3,559,960 412,600 Plato Learning, Inc.* 3,276,044 229,600 Sonic Solutions* 3,469,256 ------------ $ 11,738,401 ------------ Data Processing & Outsourced Services - 0.3% 66,900 The BISYS Group, Inc.* $ 937,269 ------------ Internet Software & Services - 2.3% 238,300 HouseValues, Inc.*(a) $ 3,105,049 65,700 Websense, Inc.* 4,312,548 ------------ $ 7,417,597 ------------ IT Consulting & Other Services - 2.4% 30,300 CACI International, Inc.* $ 1,738,614 542,900 Ciber, Inc.* 3,583,140 175,100 Perot Systems Corp.* 2,475,914 ------------ $ 7,797,668 ------------
6 The accompanying notes are an integral part of these financial statements. Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Systems Software - 2.1% 85,700 Macrovision Corp.* $ 1,433,761 108,700 Micros Systems, Inc.* 5,252,384 ------------ $ 6,686,145 ------------ Total Software & Services $ 34,577,080 ------------ Technology Hardware & Equipment - 11.1% Communications Equipment - 4.5% 391,400 Arris Group, Inc.* $ 3,706,558 132,200 CommScope, Inc.* 2,661,186 203,100 Foundry Networks, Inc.* 2,804,811 137,300 NETGEAR, Inc.* 2,643,025 184,000 Packeteer, Inc.* 1,429,680 163,700 Symmetricom, Inc.* 1,386,539 ------------ $ 14,631,799 ------------ Computer Hardware - 2.3% 86,200 Avid Technology, Inc.* $ 4,720,312 54,100 Intergraph Corp.* 2,694,721 ------------ $ 7,415,033 ------------ Electronic Equipment & Instruments - 3.1% 403,000 Aeroflex, Inc.* $ 4,332,250 86,900 Paxar Corp.* 1,705,847 145,200 Tektronix, Inc. 4,096,091 ------------ $ 10,134,188 ------------ Technology Distributors - 1.2% 204,700 Agilysys, Inc. $ 3,729,634 ------------ Total Technology Hardware & Equipment $ 35,910,654 ------------ Semiconductors - 3.6% Semiconductor Equipment - 2.4% 331,300 Axcelis Technologies, Inc.* $ 1,580,301 242,700 Entegris, Inc.* 2,286,234 135,400 MKS Instruments, Inc.* 2,422,306 94,300 Photronics, Inc.* 1,420,158 ------------ $ 7,708,999 ------------ Semiconductors - 1.2% 74,700 DSP Group, Inc.* $ 1,871,982 120,800 Semtech Corp.* 2,205,808 ------------ $ 4,077,790 ------------ Total Semiconductors $ 11,786,789 ------------ Utilities - 0.6% Independent Power Producer & Energy Traders - 0.6% 58,900 Black Hills Corp. $ 2,038,529 ------------ Total Utilities $ 2,038,529 ------------ TOTAL COMMON STOCKS (Cost $248,386,331) $306,736,559 ------------
Shares Value WARRANTS - 0.3% Commercial Services & Supplies - 0.0% Diversified Commercial Services - 0.0% 37,165 NCO Group Warrants, Exp. 9/28/06* $ -- ------------ Total Commercial Services & Supplies $ -- ------------ Health Care Equipment & Services - 0.0% Health Care Facilities - 0.0% 140,000 Lifepoint, Warrants Exp. 4/1/07* $ -- ------------ 84,000 Lifepoint, Warrants Exp. 7/21/07* $ -- ------------ Health Care Supplies - 0.0% 92,800 SpectRx, Inc., Warrants Exp. 6/4/06* $ -- ------------ Total Health Care Equipment & Services $ -- ------------ Pharmaceuticals & Biotechnology - 0.3% Biotechnology - 0.0% 250,000 Photomedex, Warrants Exp. 6/13/07* $ -- ------------ Pharmaceuticals - 0.3% 105,000 Nastech, Warrants Exp. 3/22/06* $ 880,163 ------------ Total Pharmaceuticals & Biotechnology $ 880,163 ------------ TOTAL WARRANTS (Cost $21,608) $ 880,163 ------------ EXCHANGE TRADED FUNDS - 4.0% 66,800 Russell 2000 Growth Exchange Traded Fund (a) $ 4,651,284 56,100 Russell 2000 Value Exchange Traded Fund (a) 3,703,161 40,100 S&P Small Cap 600/BARRA Growth Exchange Traded Fund (a) 4,662,427 ------------ $ 13,016,872 ------------ TOTAL EXCHANGE TRADED FUNDS (Cost $9,826,366) $ 13,016,872 ------------ TEMPORARY CASH INVESTMENT - 19.0% Security Lending Collateral - 19.0% 61,463,181 Securities Lending Investment Fund, 4.24% $ 61,463,181 ------------ TOTAL TEMPORARY CASH INVESTMENT (Cost $61,463,181) $ 61,463,181 ------------ TOTAL INVESTMENT IN SECURITIES - 118.0% (Cost $319,697,486) $382,096,775 ------------ OTHER ASSETS AND LIABILITIES - (18.0)% $(58,151,580) ------------ TOTAL NET ASSETS - 100.0% $323,945,195 ============
The accompanying notes are an integral part of these financial statements. 7 Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- * Non-income producing security. (a) At December 31, 2005, the following securities were out on loan:
Shares Security Value 34,860 Annaly Mortgage Management, Inc. $ 381,368 108,680 Asta Funding, Inc. 2,971,311 52,250 Cerner Corp.* 4,750,048 250,600 Connetics Corp.* 3,621,170 78,945 CV Therapeutics, Inc.* 1,952,310 185,926 Fulton Financial Corp. 3,272,298 505,495 Grey Wolf, Inc.* 3,907,476 226,385 HouseValues, Inc.* 2,949,797 63,175 Medicis Pharmaceutical Corp. 2,024,759 138,415 Merge Technologies, Inc.* 3,465,912 110,390 Palomar Medical Technologies* 3,868,066 75,000 Papa John's International, Inc.* 4,448,250 191,425 Per-Se Technologies, Inc.* 4,471,688 Russell 2000 Value Exchange 53,124 Traded Fund 3,506,715 Russell 2000 Growth Exchange 27,890 Traded Fund 1,941,981 240,590 Serologicals Corp.* 4,749,247 S&P Small Cap 600/BARRA Growth 38,070 Exchange Traded Fund 4,426,399 281,439 W Holding Co., Inc. 2,316,243 ----------- Total $59,025,038 ===========
8 The accompanying notes are an integral part of these financial statements. Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Year Year Year Year Ended Ended Ended Ended Ended Class I 12/31/05 12/31/04 (b) 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 23.78 $ 19.44 $ 13.60 $ 21.89 $ 18.81 ------- ------- ------- -------- ------- Increase (decrease) from investment operations: Net investment loss $ (0.01) $ (0.01) $ (0.02) $ (0.10) $ (0.10) Net realized and unrealized gain (loss) on investments 1.60 4.35 5.86 (8.12)(a) 3.67 ------- ------- ------- -------- ------- Net increase (decrease) from investment operations $ 1.59 $ 4.34 $ 5.84 $ (8.22) $ 3.57 ------- ------- ------- -------- ------- Distributions to shareowners: Net realized gain -- -- -- (0.07) (0.49) ------- ------- ------- -------- ------- Net increase (decrease) in net asset value $ 1.59 $ 4.34 $ 5.84 $ (8.29) $ 3.08 ------- ------- ------- -------- ------- Net asset value, end of period $ 25.37 $ 23.78 $ 19.44 $ 13.60 $ 21.89 ======= ======= ======= ======== ======= Total return* 6.69% 22.33% 42.94% (37.67)% 19.14% Ratio of net expenses to average net assets 0.79% 0.81% 0.80% 0.79% 0.78% Ratio of net investment loss to average net assets (0.02)% (0.06)% (0.16)% (0.58)% (0.53)% Portfolio turnover rate 75% 19% 54% 38% 47% Net assets, end of period (in thousands) $323,945 $383,468 $337,573 $245,954 $428,013 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.80% 0.81% 0.80% 0.79% 0.78% Net investment loss (0.03)% (0.06)% (0.16)% (0.58)% (0.53)% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.79% 0.81% 0.80% 0.79% 0.78% Net investment loss (0.02)% (0.06)% (0.16)% (0.58)% (0.53)%
* Assumes initial investment at net asset value at the beginning of each period, reinvestment of all distributions, the complete redemption of the investment at net asset value at the end of each period. (a) Includes $0.01 related to investment reimbursement by advisor. (Safeco Asset Management) (b) Effective August 2, 2004, PIM became the sub-advisor of the Fund and subsequently became the advisor on December 10, 2004. NOTE: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. The accompanying notes are an integral part of these financial statements. 9 Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $59,025,038) (cost $319,697,486) $ 382,096,775 Cash 4,449,949 Receivables -- Fund shares sold 18,083 Dividends, interest and foreign taxes withheld 182,052 Other 129 ------------- Total assets $ 386,746,988 ------------- LIABILITIES: Payables -- Fund shares repurchased $ 1,285,509 Upon return of securities loaned 61,463,181 Due to affiliates 13,174 Accrued expenses 39,929 ------------- Total liabilities $ 62,801,793 ------------- NET ASSETS: Paid-in capital $ 276,291,420 Accumulated net realized loss on investments (14,745,514) Net unrealized gain on: Investments 62,399,289 ------------- Total net assets $ 323,945,195 ------------- NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 323,945,195 Shares outstanding 12,767,152 ------------- Net asset value per share $ 25.37
10 The accompanying notes are an integral part of these financial statements. Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
Year Ended 12/31/05 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $16,591) $ 2,043,652 Interest 439,182 Income on securities loaned, net 131,496 ------------- Total investment income $ 2,614,330 ------------- EXPENSES: Management fees $ 2,517,802 Transfer agent fees and expenses 1,501 Administrative reimbursements 72,042 Custodian fees 36,436 Professional fees 41,034 Printing expense 22,700 Fees and expenses of nonaffiliated trustees 6,610 Miscellaneous 3,790 ------------- Total expenses $ 2,701,915 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (18,971) ------------- Net expenses $ 2,682,944 ------------- Net investment loss $ (68,614) ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain from: Investments $ 74,701,451 ------------- Change in net unrealized gain or loss from: Investments $ (54,760,663) ------------- Net gain on investments $ 19,940,788 ============= Net increase in net assets resulting from operations $ 19,872,174 =============
The accompanying notes are an integral part of these financial statements. 11 Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/05 12/31/04 FROM OPERATIONS: Net investment loss $ (68,614) $ (191,294) Net realized gain on investments 74,701,451 579,315 Change in net unrealized gain or loss on investments (54,760,663) 71,554,233 ------------- ------------- Net increase in net assets resulting from operations $ 19,872,174 $ 71,942,254 ------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 9,685,009 $ 48,727,340 Cost of shares repurchased (89,080,383) (74,774,095) ------------- ------------- Net decrease in net assets resulting from Fund share transactions $ (79,395,374) $ (26,046,755) ------------- ------------- Net increase (decrease) in net assets $ (59,523,200) $ 45,895,499 NET ASSETS: Beginning of year 383,468,395 337,572,896 ------------- ------------- End of year $ 323,945,195 $ 383,468,395 ============= ============= Undistributed Net Investment Income, end of year $ -- $ -- ------------- -------------
12 The accompanying notes are an integral part of these financial statements. Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Growth Opportunities VCT Portfolio (the Portfolio) is a Portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts, or by qualified pension and retirement plans. The Portfolio is the successor to the Safeco RST Growth Opportunities Portfolio. Safeco RST Growth Opportunities Portfolio, one of six portfolios that comprised Safeco Resource Series Trust, transferred all of the net assets to the portfolio in exchange for the Portfolio's Class I shares in a one-to-one exchange ratio, on December 10, 2004, pursuant to an agreement and plan of reorganization (the "reorganization" which was approved by the shareholders of Safeco RST Growth Opportunities Portfolio on December 8, 2004). The Portfolio had no assets or liabilities prior to the reorganization. Accordingly, the reorganization, which was a tax-free exchange, had no effect on the Portfolio's operations. The Growth Opportunities VCT Portfolio seeks capital appreciation. The financial statements and financial highlights of all other Portfolios are presented in separate books. The Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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 Portfolio 13 Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- in the preparation of its financial statements, which are consistent 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 (NYSE) is open, as of the close of regular trading on the NYSE. 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. The Portfolio also may use the fair value of a security, including a non-U.S. security, when the closing market price on the primary exchange where the security is traded no longer accurately reflects the value of the security as of the close of the NYSE. At December 31, 2005, there were no fair valued securities. 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. 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. Investments in small companies may offer the potential for higher returns, but are also subject to greater short-term price fluctuations than larger, more established companies. Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. The Portfolio may invest a substantial amount of its assets in issuers located in a limited number of countries and therefore is more susceptible to adverse developments affecting those countries. Information regarding the Portfolio's principal investment risks is contained in the Portfolio's prospectus. Please refer to those documents when considering the Portfolio's risks. B. Taxes It is the Portfolio'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 amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal income tax rules. Therefore, the source of the 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, 2005, Growth Opportunities Portfolio had a net capital loss carryforward of $14,745,514, of which the following amounts will expire between 2011 and 2012, if not utilized: $14,496,308 in 2011 and $249,206 in 2012. At December 31, 2005, 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.
------------------------------------------------------------------------------------------ Undistributed Accumulated Net Investment Net Realized Portfolio Income (Loss) Gain (Loss) Paid-In Capital ------------------------------------------------------------------------------------------ Growth Opportunities Portfolio $68,614 $-- $ (68,614) ------------------------------------------------------------------------------------------
14 Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2005. There were no distributions paid during the fiscal years ended December 31, 2005 and 2004.
---------------------------------------------------------------------------------- Pioneer Growth Opportunities VCT Portfolio 2005 ---------------------------------------------------------------------------------- Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ -- Undistributed long-term gain/(capital loss carryforward) (14,745,514) Unrealized appreciation (depreciation) 62,399,289 ----------- Total $47,653,775 =========== ----------------------------------------------------------------------------------
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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. 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 the account of the Portfolio. 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 Portfolio has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Portfolio invests cash collateral in the Securities Lending Investment Fund which is sponsored by Brown Brothers Harriman & Co., the Trust's custodian. 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, a wholly owned indirect subsidiary of UniCredito Italiano, manages the portfolio. Management fees are calculated at the annual rate of 0.74% of the Portfolio's average daily net assets. Prior to the reorganization, the Portfolio was advised by Safeco Asset Management, which received an annual fee equal to 0.74% of its average daily net assets. Through December 10, 2006, PIM has agreed not to impose all or a portion of its management fee and to assume other operating expenses of the Portfolio to the extent necessary to limit Class I expenses to 0.79% of the average daily net assets attributable to Class I shares. 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, 2005, $13,048 was payable to PIM related to management fees, administrative reimbursements and certain other services, and is included in due to affiliates. 3. Transfer Agent Since the reorganization, 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 15 Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- negotiated rates. Included in due to affiliates is $126 in transfer agent fees payable to PIMSS at December 31, 2005. Prior to the reorganization Safeco Services Corporation was the Transfer and Shareholder Servicing agent. 4. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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) ----------------------------------------------------------------------------------------------------------- Growth Opportunities Portfolio $319,697,486 $77,481,033 $ (15,081,744) $62,399,289 ============ =========== ============== =========== -----------------------------------------------------------------------------------------------------------
5. 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, 2005, were $247,751,362 and $285,304,163, respectively. 6. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the fiscal years ended December 31, 2005 and December 31, 2004:
---------------------------------------------------------------------------------------------------------------- Growth Opportunities Portfolio '05 Shares '05 Amount '04 Shares '04 Amount ---------------------------------------------------------------------------------------------------------------- Safeco Trust Shares: Shares sold -- Safeco -- -- 2,250,905 $ 46,344,246 Shares repurchased-Safeco -- -- (3,399,953) (70,300,296) Shares transferred in reorganization -- -- (16,214,763) (374,885,314) Class I: Shares Sold 406,285 $ 9,685,009 101,479 $ 2,383,096 Shares repurchased (3,765,592) (89,080,383) (189,783) (4,473,799) Shares issued in reorganization -- -- 16,214,763 374,885,312 ------------------------------------------------------------------- Net decrease (3,359,307) $ (79,395,374) (1,237,352) $ (26,046,755) =================================================================== ----------------------------------------------------------------------------------------------------------------
16 Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the Shareowners of Pioneer Growth Opportunities VCT Portfolio: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Growth Opportunities VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five 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. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian. 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 Opportunities VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 17 Pioneer Growth Opportunities VCT Portfolio(the "Fund") PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") voting separately annually; approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect of the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareowners. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three, five and ten year periods and life of the Fund periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to shareowners of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareowner services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. 18 Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the third quintile of the peer group for the 12 months ended June 30, 2005, the third quintile of the peer group for the three years ended June 30, 2005, the third quintile for the five years ended June 30, 2005 an second quintile for the ten year ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareowners. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees concluded that the performance of the Fund supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareowners of the Fund, including administrative and shareowner services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareowners of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the second quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the second quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. The Trustees concluded that the Fund's overall expense ratio was reasonable compared to that of comparable funds. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. 19 Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. The Trustees concluded that, given current and anticipated assets levels, a break point in the management fee was not necessary at this time. As the assets increase, the Trustees will continue to evaluate annually the appropriateness of break points. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareowner services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect of the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 20 Pioneer Growth Opportunities VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. -----------------------------------------------------------------------------------------------------------------------------------
21 Pioneer Growth Opportunities VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance or earlier services company) (2001-present); company); Director of New York retirement or Managing Partner, Federal City Mortgage Trust (publicly traded removal. Capital Advisors (boutique merchant mortgage REIT) bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ---------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products or earlier manufacturer), Mortgage Guaranty retirement or Insurance Corporation, and Briggs removal. & Stratton, Inc. (engine manufacturer) ---------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Growth Opportunities VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
23 Pioneer Growth Opportunities VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, None Treasurer 2000. Serves at the Assistant Vice President - Fund discretion of the Accounting, Administration and Board. Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds. --------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. --------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. --------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 24 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 25 [LOGO]PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18682-00-0206 [Logo] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value II VCT Portfolio - Class I Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
T a b l e o f C o n t e n t s -------------------------------------------------------------------------------- Pioneer Small Cap Value II VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 5 Financial Statements 8 Notes to Financial Statements 12 Report of Independent Registered Public Accounting Firm 16 Factors Considered by the Independent Trustees in Approving the Management Contract 17 Trustees, Officers and Service Providers 20
Before investing, consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Please read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Portfolio Diversification (As a percentage of total investment portfolio) U.S. Common Stocks 89.1% Temporary Cash Investment 7.5% Depository Receipts for International Stocks 1.9% International Common Stocks 1.5%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution (As a percentage of equity holdings) Financials 36.0% Information Technology 17.1% Consumer Discretionary 16.3% Industrials 14.8% Energy 6.2% Materials 3.4% Consumer Staples 2.8% Utilities 1.4% Health Care 1.0% Telecommunication Services 1.0%
Five Largest Holdings (As a percentage of equity holdings) 1. Astec Industries, Inc. 2.53% 2. Lone Star Technologies, Inc. 2.46 3. Ameristar Casinos, Inc. 2.41 4. Central Pacific Financial Corp. 2.40 5. Landstar System, Inc. 2.39
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 23.33 $ 20.44
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.1300 $ - $ 0.0178
-------------------------------------------------------------------------------- Performance of a $10,000 Investment The following chart shows the change in value of an investment made in Pioneer Small Cap Value II 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. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Small Cap Value II VCT Portfolio Russell 2000 Value Index Apr-97 10000 10000 12840 13020 10278 12180 Dec-99 11861 11999 11147 14737 Dec-1 13504 16804 12888 14884 Dec-3 18402 21735 22507 26570 Dec-5 25870 27821
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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- Life-of-Class 11.59% (4/30/97) 5 Years 18.34% 1 Year 14.94%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value [divided by] $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Small Cap Value II VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class I -------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,104.13 Expenses Paid During Period* $ 5.14
* Expenses are equal to the Portfolio's annualized expense ratio of 0.97% for Class I shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Small Cap Value II VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2005 through December 31, 2005.
Share Class I --------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,020.32 Expenses Paid During Period* $ 4.94
* Expenses are equal to the Portfolio's annualized expense ratio of 0.97% for Class I shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- David Adams, portfolio manager, and Jack McPherson, assistant portfolio manager, have managed Pioneer Small Cap Value II VCT Portfolio since Pioneer became the investment manager of the former SAFECO Funds. Q. How did the Portfolio perform over this period? A. For the twelve months ended December 31, 2005, Pioneer's Small Cap Value II VCT Portfolio returned 14.94% at net asset value. The results far outdistanced the 4.71% return on the Russell 2000 Value Index, the Portfolio's benchmark, for the same period. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. Please describe the investment environment for small-cap value stocks during the first half of 2005. A. Uncertainty about the possible impacts of high energy prices, rising interest rates and the strengthening U.S. dollar kept equity markets confined to a narrow range. Large companies led the market for a short time, but solid earnings growth soon drew market participants to smaller-cap issues. The Portfolio's results support our basic view that, interest rates and energy costs aside, an expanding economy creates opportunities for well-managed small companies to increase profits substantially. Q. What stocks or sectors contributed to performance? A. The boom in homebuilding fed strong results at Building Materials Holding, which provides materials and construction services to contractors. We took some profits in this position when valuations surpassed our targets. The hot building market also boosted Beazer Homes, whose designs target new buyers and other demographic segments in some of the country's busiest housing markets. In the industrial sector, an upturn in orders for new aircraft benefited Precision Castparts, a low-cost provider of castings to the commercial aerospace market. Increased spending on infrastructure boosted demand for Astec Industries' road-building equipment, adding to revenues and earnings. And United Defense Systems was acquired by BAE Systems, Europe's largest defense contractor. Lone Star Technologies moved higher as rising energy prices stimulated drilling activity, and bolstered demand for its welded pipes and casings. World Fuel, which serves airline clients through airport-based jet refueling facilities around the world, also saw earnings rise. Q. What were some of the period's disappointments? A. Sluggish trends among orthopedic and prosthetic care centers caused shares of Hanger Orthopedic Group to decline. Amerigroup, a managed health care company, also disappointed. Cash America, which makes high-risk, high-interest payday loans, was the period's worst performer. The Texas legislature's failure to enact legislation that would have provided greater operating flexibility was the key factor. In technology, Plantronics, makers of headsets for telecommunications devices, declined after a long upward run. Sensient Technologies, suppliers of flavors and fragrances for food and beverages, as well as inks and chemicals for computer peripherals, experienced a sub-par year. We eliminated Impac Mortgage, a real estate investment trust, when weakness in the housing market pressured shares. Q. What is your outlook for the economy and how have you positioned the Portfolio? A. We think that good stocks bought at prices that appear reasonable should do well in the moderate-growth environment that we foresee. Compelling ideas continue to emerge in the technology arena, where we have increased the Portfolio's exposure. We are also adding some financial stocks, while scaling back others. On the other hand, we are not finding good value among consumer-discretionary issues, a sector that could feel pressure if households reduce spending in the face of big energy bills and rising interest rates. Persistent demand and high prices make us comfortable with our current large exposure to energy stocks; we would view any sharp decline in this sector as an opportunity. Finally, we will continue to employ our proven discipline in an effort to ferret out superior opportunities, and take profits as valuations approach our targets. 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. A Word About Risk: Investments in small companies may offer the potential for higher returns, but are also subject to greater short-term price fluctuations than larger, more established companies. The Portfolio invests in REIT securities, the value of which can fall for a variety of reasons, such as declines in rental income, fluctuating interest rates, poor property management, environmental liabilities, uninsured damage, increased competition, or changes in real estate tax laws. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 99.2% Energy - 6.1% Integrated Oil & Gas - 0.6% 11,900 CNX Gas Corp. (144A)* $ 246,925 ----------- Oil & Gas Drilling - 0.4% 8,500 Bronco Drilling Co., Inc.* $ 195,585 ----------- Oil & Gas Equipment & Services - 4.2% 57,900 Key Energy Services, Inc.* $ 779,913 21,050 Lone Star Technologies, Inc.* 1,087,443 ----------- $ 1,867,356 ----------- Oil & Gas Exploration & Production - 0.9% 2,800 Forest Oil Corp.* $ 127,596 19,000 Riata Energy, Inc. (144A)* 289,750 ----------- $ 417,346 ----------- Total Energy $ 2,727,212 ----------- Materials - 3.4% Construction Materials - 1.5% 13,112 Florida Rock Industries, Inc. $ 643,275 ----------- Specialty Chemicals - 1.2% 30,950 Sensient Technologies Corp. $ 554,005 ----------- Steel - 0.7% 10,125 Schnitzer Steel Industries, Inc. $ 309,724 ----------- Total Materials $ 1,507,004 ----------- Capital Goods - 7.4% Aerospace & Defense - 2.3% 7,337 NCI, Inc.* $ 100,737 18,225 Precision Castparts Corp. 944,237 ----------- $ 1,044,974 ----------- Construction & Engineering - 2.1% 24,600 URS Corp.* $ 925,206 ----------- Construction, Farm Machinery & Heavy Trucks - 2.5% 34,250 Astec Industries, Inc.* $ 1,118,605 ----------- Electrical Component & Equipment - 0.5% 15,200 C&D Technologies, Inc. $ 115,824 18,500 Power-One, Inc.* 111,370 ----------- $ 227,194 ----------- Total Capital Goods $ 3,315,979 ----------- Commercial Services & Supplies - 0.2% Human Resource & Employment Services - 0.2% 5,000 Korn/Ferry International* $ 93,450 ----------- Total Commercial Services & Supplies $ 93,450 ----------- Transportation - 7.0% Air Freight & Couriers - 2.3% 40,075 Pacer International, Inc. $ 1,044,354 -----------
Shares Value Marine - 0.9% 7,100 Eagle Bulk Shipping, Inc. $ 113,032 4,800 Genco Shipping & Trading, Ltd. 83,712 19,200 Quintana Maritime, Ltd. 195,456 ----------- $ 392,200 ----------- Trucking - 3.8% 14,675 Arkansas Best Corp. (a) $ 641,004 25,325 Landstar System, Inc. 1,057,066 ----------- $ 1,698,070 ----------- Total Transportation $ 3,134,624 ----------- Automobiles & Components - 0.3% Tires & Rubber - 0.3% 9,000 Cooper Tire & Rubber* $ 137,880 ----------- Total Automobiles & Components $ 137,880 ----------- Consumer Durables & Apparel - 4.9% Home Furnishings - 0.4% 7,925 Furniture Brands International, Inc. $ 176,965 ----------- Homebuilding - 3.8% 12,850 Beazer Homes USA, Inc. (a) $ 935,994 56,050 Champion Enterprises, Inc.* 763,401 ----------- $ 1,699,395 ----------- Housewares & Specialties - 0.7% 9,500 Jarden Corp.*(a) $ 286,425 ----------- Total Consumer Durables & Apparel $ 2,162,785 ----------- Consumer Services - 4.7% Casinos & Gaming - 2.4% 47,000 Ameristar Casinos, Inc. $ 1,066,900 ----------- Restaurants - 1.0% 13,125 Jack In The Box, Inc.* $ 458,456 ----------- Specialized Consumer Services - 1.3% 15,275 Regis Corp. $ 589,157 ----------- Total Consumer Services $ 2,114,513 ----------- Retailing - 6.3% Apparel Retail - 2.1% 39,625 Foot Locker, Inc. $ 934,754 ----------- Catalog Retail - 2.3% 51,950 Insight Enterprises, Inc.* $ 1,018,740 ----------- Distributors - 1.9% 12,425 Building Materials Holding Corp. (a) $ 847,509 ----------- Total Retailing $ 2,801,003 ----------- Food, Beverage & Tobacco - 1.1% Tobacco - 1.1% 11,650 Universal Corp. $ 505,144 ----------- Total Food, Beverage & Tobacco $ 505,144 -----------
The accompanying notes are an integral part of these financial statements. 5 Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value Household & Personal Products - 1.7% Personal Products - 1.7% 4,800 Herbalife, Ltd.* $ 156,096 33,000 Nu Skin Enterprises, Inc. 580,140 ----------- $ 736,236 ----------- Total Household & Personal Products $ 736,236 ----------- Health Care Equipment & Services - 1.0% Health Care Facilities - 0.4% 29,175 Hanger Orthopedic Group, Inc.* $ 166,589 ----------- Health Care Supplies - 0.4% 15,300 Merit Medical Systems, Inc.* $ 185,741 ----------- Managed Health Care - 0.2% 5,500 AMERIGROUP Corp.* $ 107,030 ----------- Total Health Care Equipment & Services $ 459,360 ----------- Banks - 8.5% Regional Banks - 5.9% 29,550 Central Pacific Financial Corp. $ 1,061,436 21,400 Greater Bay Bancorp 548,268 38,945 Hanmi Financial Corp. 695,558 6,968 Provident Bankshares Corp. 235,309 3,300 Southwest Bancorp, Inc.* 66,000 ----------- $ 2,606,571 ----------- Thrifts & Mortgage Finance - 2.6% 16,575 BankUnited Financial Corp. (a) $ 440,398 23,885 PFF Bancorp, Inc. 728,970 ----------- $ 1,169,368 ----------- Total Banks $ 3,775,939 ----------- Diversified Financials - 9.1% Asset Management & Custody Banks - 2.0% 49,638 Apollo Investment Corp. $ 890,009 ----------- Consumer Finance - 5.2% 39,725 AmeriCredit Corp.* $ 1,018,152 44,100 Cash America International, Inc. 1,022,679 8,500 The First Marblehead Corp. (a) 279,310 ----------- $ 2,320,141 ----------- Investment Banking & Brokerage - 1.9% 40,975 SWS Group, Inc. $ 858,017 ----------- Total Diversified Financials $ 4,068,167 ----------- Insurance - 11.3% Life & Health Insurance - 2.2% 7,200 American Equity Investment Life Holding* $ 93,960 18,000 Stancorp Financial Group, Inc. 899,100 ----------- $ 993,060 -----------
Shares Value Multi-Line Insurance - 1.3% 58,200 Quanta Capital Holdings (144A)* $ 296,820 11,000 Quanta Capital Holdings* 280,500 ----------- $ 577,320 ----------- Property & Casualty Insurance - 5.8% 5,000 Assured Guaranty, Ltd. $ 126,950 12,200 First American Corp. 552,660 35,000 Ohio Casualty Corp. 991,200 18,000 RLI Corp. 897,660 ----------- $ 2,568,470 ----------- Reinsurance - 2.0% 12,000 IPC Holdings, Ltd. $ 328,560 13,100 Max Re Capital, Ltd. 340,207 6,900 Platinum Underwriter Holdings, Ltd. 214,383 ----------- $ 883,150 ----------- Total Insurance $ 5,022,000 ----------- Real Estate - 6.9% Real Estate Management & Development - 1.1% 34,700 Deerfield Triarc Capital Corp. $ 475,390 ----------- Real Estate Investment Trusts - 5.8% 12,275 Alexandria Real Estate Equities, Inc. $ 988,138 11,875 Camden Property Trust 687,800 25,125 First Potomac Realty Trust 668,325 35,400 Hanover Capital Mortgage Holdings, Inc. (a) 236,472 ----------- $ 2,580,735 ----------- Total Real Estate $ 3,056,125 ----------- Software & Services - 2.7% Application Software - 2.5% 56,700 Aspen Technology, Inc.* $ 445,095 17,490 Bottomline Technologies, Inc.* 192,740 12,500 Sonic Solutions* 188,874 38,000 TIBCO Software, Inc.* 283,860 ----------- $ 1,110,569 ----------- Systems Software - 0.2% 15,500 Borland Software Corp.* $ 101,215 ----------- Total Software & Services $ 1,211,784 ----------- Technology Hardware & Equipment - 13.3% Communications Equipment - 4.1% 15,425 Black Box Corp. $ 730,837 13,000 Dycom Industries, Inc.* 286,000 12,800 Plantronics, Inc. 362,240 51,300 Symmetricom, Inc.* 434,511 ----------- $ 1,813,588 ----------- Computer Hardware - 1.8% 14,700 Avid Technology, Inc.* $ 804,972 -----------
6 The accompanying notes are an integral part of these financial statements. Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Computer Storage & Peripherals - 2.5% 27,125 Hypercom Corp.* $ 173,329 20,175 Imation Corp. 929,462 ----------- $ 1,102,791 ----------- Electronic Equipment & Instruments - 0.6% 6,400 Landauer, Inc. $ 294,976 ----------- Electronic Manufacturing Services - 2.4% 24,925 Benchmark Electronics, Inc.* $ 838,228 11,400 Mercury Computer Systems, Inc.* 235,182 ----------- $ 1,073,410 ----------- Technology Distributors - 1.9% 21,625 Anixter International, Inc.* $ 845,970 ----------- Total Technology Hardware & Equipment $ 5,935,707 ----------- Semiconductors - 0.9% Semiconductors - 0.9% 91,725 Lattice Semiconductor Corp.* $ 396,251 ----------- Total Semiconductors $ 396,251 ----------- Telecommunication Services - 1.0% Integrated Telecommunication Services - 1.0% 44,700 Alaska Communications Systems Group, Inc. $ 454,152 ----------- Total Telecommunication Services $ 454,152 ----------- Utilities - 1.4% Electric Utilities - 1.4% 21,075 IDACORP, Inc. $ 617,498 ----------- Total Utilities $ 617,498 ----------- TOTAL COMMON STOCKS (Cost $29,066,139) $44,232,813 -----------
Shares Value TEMPORARY CASH INVESTMENTS - 8.1% Security Lending Collateral - 8.1% 3,604,067 Securities Lending Investment Fund, 4.24% $ 3,604,067 ----------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $3,604,067) $ 3,604,067 ----------- TOTAL INVESTMENT IN SECURITIES - 107.3% (Cost $32,670,206) $47,836,880 ----------- OTHER ASSETS AND LIABILITIES - (7.3)% $(3,233,255) ----------- TOTAL NET ASSETS - 100.0% $44,603,625 ===========
* 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, 2005, the value of these securities amounted to $833,495 or 1.9% of total net assets. (a) At December 31, 2005, the following securities were out on loan:
Shares Security Value 13,941 Arkansas Best Corp. $ 608,943 16,031 BankUnited Financial Corp. 425,944 12,700 Beazer Homes USA, Inc. 925,068 11,804 Building Materials Holding Corp. 804,088 12,160 The First Marblehead Corp. 399,578 5,200 Hanover Capital Mortgage Holdings, Inc. 34,736 9,025 Jarden Corp.* 272,104 ---------- Total $3,470,461 ==========
The accompanying notes are an integral part of these financial statements. 7 Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Class I 12/31/05 12/31/04(a) 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 20.44 $ 17.00 $ 12.16 $ 12.81 $ 10.68 ------- ------- ------- ------- ------- Increase (decrease) from investment operations: Net investment income $ 0.20 $ 0.10 $ 0.09 $ 0.07 $ 0.13 Net realized and unrealized gain (loss) on investments 2.84 3.68 5.10 ( 0.65) 2.13 ------- ------- ------- ------- ------- Net increase (decrease) from investment operations $ 3.04 $ 3.78 $ 5.19 $ (0.58) $ 2.26 Distributions to shareholders: Net investment income ( 0.13) -- ( 0.09) ( 0.07) ( 0.13) Net realized gain ( 0.02) ( 0.34) ( 0.26) -- -- ------- ------- ------- ------- ------- Net increase (decrease) in net asset value $ 2.89 $ 3.44 $ 4.84 $ (0.65) $ 2.13 ------- ------- ------- ------- ------- Net asset value, end of period $ 23.33 $ 20.44 $ 17.00 $ 12.16 $ 12.81 ======= ======= ======= ======= ======= Total return* 14.94% 21.33% 42.78% ( 4.56)% 21.15%+ Ratio of net expenses to average net assets 0.97% 1.01% 1.05% 1.03% 0.96% Ratio of net investment income to average net assets 0.65% 0.57% 0.71% 0.54% 1.26% Portfolio turnover rate 19% 27% 50% 56% 97% Net assets, end of period (in thousands) $44,604 $57,463 $40,405 $24,663 $21,598
(a) Effective August 2, 2004, PIM became the sub-advisor of the Fund and subsequently became the advisor on December 10, 2004. * 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. + The total return would have been lower had certain expenses not been reduced during the periods shown. NOTE: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. 8 The accompanying notes are an integral part of these financial statements. Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $3,470,461) (cost $ 47,836,880 $32,670,206) Cash 518,951 Receivables -- Investment securities sold 132,825 Fund shares sold 97,396 Dividends, interest and foreign taxes withheld 93,773 Other 14 ------------ Total assets $ 48,679,839 ------------ LIABILITIES: Payables -- Investment securities purchased $ 247,116 Fund shares repurchased 183,986 Upon return of securities loaned 3,604,067 Due to affiliates 3,527 Accrued expenses 37,518 ------------ Total liabilities $ 4,076,214 ------------ NET ASSETS: Paid-in capital $ 19,638,536 Undistributed net investment income 308,394 Accumulated net realized gain on investments 9,490,021 Net unrealized gain on: Investments 15,166,674 ------------ Total net assets $ 44,603,625 ------------ NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 44,603,625 Shares outstanding 1,911,974 ------------ Net asset value per share $ 23.33
The accompanying notes are an integral part of these financial statements. 9 Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
Year Ended 12/31/05 INVESTMENT INCOME: Dividends $ 724,396 Interest 10,766 Income on securities loaned, net 6,391 ------------ Total investment income $ 741,553 ------------ EXPENSES: Management fees $ 342,746 Transfer agent fees and expenses 1,501 Administrative reimbursements 18,512 Custodian fees 17,676 Professional fees 43,300 Printing expense 16,189 Fees and expenses of nonaffiliated trustees 3,756 Miscellaneous 1,175 ------------ Total expenses $ 444,855 ------------ Net investment income $ 296,698 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain from: Investments $ 9,585,443 ------------ Change in net unrealized gain from: Investments $ (4,376,717) ------------ Net gain on investments $ 5,208,726 ============ Net increase in net assets resulting from operations $ 5,505,424 ============
10 The accompanying notes are an integral part of these financial statements. Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Year Ended Year Ended 12/31/05 12/31/04 FROM OPERATIONS: Net investment income $ 296,698 $ 271,055 Net realized gain on investments 9,585,443 1,150,972 Change in net unrealized gain or loss on investments (4,376,717) 8,540,937 ------------- ------------- Net increase in net assets resulting from operations $ 5,505,424 $ 9,962,964 ------------- ------------- DISTRIBUTIONS TO SHAREOWNERS Net investment income: Class I $ (258,431) $ -- Net realized gain Class I (35,385) (928,706) ------------- ------------- Total distributions to shareholders $ (293,816) $ (928,706) ------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 9,074,678 $ 19,072,784 Reinvestment of distributions 293,741 928,706 Cost of shares repurchased (27,439,578) (11,977,166) ------------- ------------- Net increase (decrease) in net assets resulting from Fund share transactions $ (18,071,159) $ 8,024,324 ------------- ------------- Net increase (decrease) in net assets $ (12,859,551) $ 17,058,582 NET ASSETS: Beginning of year 57,463,176 40,404,594 ------------- ------------- End of year $ 44,603,625 $ 57,463,176 ============= ============= Undistributed net investment income, end of year $ 308,394 $ 271,007 ============= =============
The accompanying notes are an integral part of these financial statements. 11 Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Small Cap Value II VCT Portfolio (the Portfolio) (formerly Safeco Small-Cap Value Portfolio) is a Portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts, or by qualified pension and retirement plans. The Portfolio, organized on December 10, 2004, is the successor to the Safeco RST Small Cap Value Portfolio. Safeco RST Small Cap Value Portfolio, one of six portfolios that comprised Safeco Resource Series Trust, transferred all of its net assets to the Portfolio in exchange for the Portfolio's Class I shares in a one-to-one exchange ratio, on December 10, 2004, pursuant to an agreement and plan of reorganization (the "reorganization" which was approved by the shareholders of Safeco RST Small Cap Value Portfolio on December 8, 2004). The Portfolio had no assets or liabilities prior to the reorganization. Accordingly, the reorganization, which was a tax-free exchange, had no effect on the Portfolio's operations. The Small Cap Value II VCT Portfolio seeks capital appreciation. The Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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 Portfolio, in the preparation of its financial statements, which are consistent with those generally accepted in the investment company industry: 12 Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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 (NYSE) is open, as of the close of regular trading on the NYSE. 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. The Portfolio also may use the fair value of a security, including a non-U.S. security, when the closing market price on the primary exchange where the security is traded no longer accurately reflects the value of the security as of the close of the NYSE. At December 31, 2005, there were no securities fair valued. 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. 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, such as those held by the Portfolio may be subject to greater short-term price fluctuations than securities of larger companies. Information regarding the Portfolio's principal investment risks is contained in the Portfolio's prospectus. Please refer to those documents when considering the Portfolio's risks. B. Taxes It is the Portfolio'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 amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal income tax rules. Therefore, the source of the 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, 2005, 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.
------------------------------------------------------------------------------------------ Undistributed Accumulated Net Investment Net Realized Portfolio Income (Loss) Gain (Loss) Paid-In Capital ------------------------------------------------------------------------------------------ Small Cap Value II Portfolio $(880) $880 $- ------------------------------------------------------------------------------------------
13 Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- The following chart shows the distributions paid during the years ended December 31, 2005 and 2004 on a tax basis and the components of distributable earnings as of December 31, 2005.
-------------------------------------------------------------------------------- 2005 2004 -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 258,431 $ 213,236 Long-Term capital gain 35,385 715,470 ----------- --------- $ 293,816 $ 928,706 Return of Capital -- -- ----------- --------- Total distributions $ 293,816 $ 928,706 =========== ========= Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 346,060 Undistributed long-term gain 9,496,069 Unrealized appreciation 15,122,960 ----------- Total $24,965,089 =========== --------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales and return of capital dividends on REITs. C. Portfolio Shares The Portfolio records sales and repurchases of its 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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. 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 payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for the account of the Portfolio. 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 Portfolio has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Portfolio invests cash collateral in the Securities Lending Investment Fund which is sponsored by Brown Brothers Harriman & Co., the Trust's custodian. 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, a wholly owned indirect subsidiary of UniCredito Italiano manages the portfolio. Management fees are calculated at the annual rate of 0.75% of the Portfolio's average daily net assets. Prior to the reorganization, the Portfolio was advised by Safeco Asset Management, which received an annual fee equal to 0.85% of its average daily net assets. Through December 10, 2006, PIM has agreed not to impose all or a portion of its management fee and to assume other operating expenses of the Portfolio to the extent necessary to limit Class I expenses to 1.01% of the average daily net assets attributable to Class I shares. 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, 2005, $3,401 was payable to PIM related to management fees, administrative reimbursements and certain other services, and is included in due to affiliates. 14 Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 3. Transfer Agent Since the reorganization, 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 $126 in transfer agent fees payable to PIMSS at December 31, 2005. Prior to the reorganization Safeco Services Corporation was the transfer and shareholder services agency. 4. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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 Cap Value II Portfolio $32,713,920 $15,967,090 $ (844,130) $15,122,960 =========== =========== =========== =========== --------------------------------------------------------------------------------------------------------
5. 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, 2005, were $8,721,464 and $25,207,624, respectively. 6. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the year ended December 31, 2005 and the year ended December 31, 2004: --------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------- Small Cap Value II Portfolio '05 Shares '05 Amount '04 Shares '04 Amount ----------------------------------------------------------------------------------------------------------------------- Safeco Trust Shares: Shares sold -- Safeco -- $ -- 1,011,658 $ 18,295,281 Reinvestment of Distributions -- -- 47,480 928,706 Shares repurchased -- Safeco -- -- (637,527) (11,437,564) Shares transferred in reorganization -- -- (2,800,798) (55,427,794) Class I: Shares Sold 415,681 9,074,678 38,614 777,503 Reinvestment of distributions 14,008 293,741 -- -- Shares repurchased (1,328,465) (27,439,578) (26,593) (539,602) Shares issued in reorganization -- -- 2,800,798 55,427,794 -------------------------------------------------------------------------- Net increase (decrease) (898,776) $ (18,071,159) 433,632 $ 8,024,324 ========================================================================== -----------------------------------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION (unaudited) The qualifying percentage of certain Portfolios' ordinary income dividends for the purposes of the corporate dividends received deduction and the percentage of those ordinary dividends that are subject to a maximum tax rate of 15% as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were as follows:
-------------------------------------------------------------------------------- Dividend Qualified Received Dividend Deduction Income -------------------------------------------------------------------------------- Small Cap Value II Portfolio 100.00% 100.00% --------------------------------------------------------------------------------
15 Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the Shareowners of Pioneer Small Cap Value II VCT Portfolio: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Small Cap Value II VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust, (the "Trust"), as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five 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. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 II VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and financial highlights for each of the five years in the period then ended, in conformity with U.S. gen erally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 16 Pioneer Small Cap Value II VCT Portfolio (the "Fund") PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for the one, three and five year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 17 Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the first quintile of the peer group for the 12 months ended June 30, 2005, the first quintile for the three years ended June 30, 2005, and the first quintile for the five years ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees concluded that the performance of the Fund supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the third quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the fourth quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. The Trustees concluded that the Fund's overall expense ratio was reasonable compared to that of comparably sized funds. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. The Trustees concluded that, given current and anticipated asset levels, a break point in the management fee was not necessary at this time. As assets increase, the Trustees will continue to evaluate annually the appropriateness of break points. 18 Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 19 Pioneer Small Cap Value II VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. -----------------------------------------------------------------------------------------------------------------------------------
20 Pioneer Small Cap Value II VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance or earlier services company) (2001-present); company); Director of New York retirement or Managing Partner, Federal City Mortgage Trust (publicly traded removal. Capital Advisors (boutique merchant mortgage REIT) bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ---------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products or earlier manufacturer), Mortgage Guaranty retirement or Insurance Corporation, and Briggs removal. & Stratton, Inc. (engine manufacturer) ---------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------
21 Pioneer Small Cap Value II VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Small Cap Value II VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, None Treasurer 2000. Serves at the Assistant Vice President - Fund discretion of the Accounting, Administration and Board. Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds. --------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. --------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. --------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 23 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 24 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 25 [Logo] PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18657-00-0206 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Money Market VCT Portfolio -- Class I Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST ================================================================================ ================================================================================ Table of Contents --------------------------------------------------------------------------------
Pioneer Money Market VCT Portfolio Comparing Ongoing Portfolio Expenses 2 Portfolio and Performance Update 3 Schedule of Investments 4 Financial Statements 6 Notes to Financial Statements 10 Factors Considered by the Independent Trustees in Approving the Management Contract 15 Trustees, Officers and Service Providers 18
Before investing, consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST ================================================================================ COMPARING ONGOING PORTFOLIO EXPENSES ================================================================================ As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value [divided by] $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Money Market VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005
Share Class I -------------------------------------------------------------------------------- Beginning Account Value on 7/1/05 $1,000.00 Ending Account Value on 12/31/05 $1,014.96 Expenses Paid During Period* $ 3.71
* Expenses are equal to the Portfolio's annualized expense ratio of 0.73% for Class I shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Money Market VCT Portfolio Based on a hypothetical 5% per year return before expenses, reflecting the period from July 1, 2005 through December 31, 2005
Share Class I -------------------------------------------------------------------------------- Beginning Account Value on 7/1/05 $1,000.00 Ending Account Value on 12/31/05 $1,021.53 Expenses Paid During Period* $ 3.72
* Expenses are equal to the Portfolio's annualized expense ratio of 0.73% for Class I shares multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 2 Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST ================================================================================ PORTFOLIO AND PERFORMANCE UPDATE 12/31/05 ================================================================================ As the U.S. economy grew persistently throughout 2005, the U.S. Federal Reserve continued to act aggressively to prevent any acceleration of inflationary pressures by raising short-term rates. The Fed hiked the influential Fed Funds rate eight different times during the year, each time by one-quarter of one percent (25 basis points), to end the year at 4.25%. As a consequence, yields of shorter-term securities, including money market instruments, also rose. Pioneer Money Market VCT Portfolio currently invests exclusively in high-quality money market instruments issued by the U.S. government and domestic corporations and banks. All issues have the highest ratings from the two nationally recognized ratings organizations: A1 by Standard & Poor's Investors Services and P1 by Moody's Investor Services. (Ratings apply to underlying securities, not Portfolio shares.) In the following discussion, Andrew D. Feltus reviews the investment environment and the strategies that affected Pioneer Money Market VCT Portfolio over the 12 months ended December 31, 2005. Mr. Feltus is a member of Pioneer's Fixed Income Group, which is responsible for the daily management of the Portfolio. Q. How did the Portfolio perform during 2005? A. For the 12 months ended December 31, 2005, Class I shares of Pioneer Money Market VCT Portfolio had a total return of 2.47% at net asset value. On December 31, 2005, the Portfolio's seven-day effective yield for Class A shares was 3.43%. Net asset value of Portfolio shares remained stable at $1.00 throughout the year. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. What were the principal factors that influenced Portfolio performance? A. Despite intermittent worries about its health, the U.S. economy grew briskly throughout the year. In response to the steady growth, the Federal Reserve continued its policy of tightening monetary policy by hiking rates eight different times in 2005. The Fed Funds rate ended the year at 4.25%, or 325 basis points higher than the 1.00% level when the Fed started its rate hike cycle in June 2004. Rising energy and commodity prices and the weakening of the U.S. dollar in relation to major foreign currencies all were factors that encouraged the Fed to raise rates and head off any significant increase in general inflationary pressures. As the year ended, the Fed began to hint that it might be nearing the end of its rate increases, although at least one further hike was anticipated in 2006. The higher rates constituted good news to money market fund investors, as yields at the end of the year were significantly higher than they were 12 months and 18 months earlier. In light of the steady increases in short-term rates, we reduced the Portfolio's average maturity and duration so that we could take advantage of opportunities to invest at higher rates as they became available. The average maturity of the Portfolio's investments at the end of 2005 was just 54.5 days. We maintained our policy of investing in only very high-quality securities and we had no credit problems during the year. Q. What is your investment outlook? A. As we enter 2006, the Federal Reserve appears to be closer to the end of its cycle of interest rate hikes than the beginning. We certainly don't expect that the Fed will be as aggressive in the next year as it has been for the past 18 months. As we get further into 2006 and it is evident that the Federal Reserve is acting more cautiously, we will expect to increase the Portfolio's overall duration somewhat with an eye toward adding more yield to the portfolio. We expect to continue to invest in only very high-quality securities. Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 1.00 $ 1.00 Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.025 $ - $ -
A Word About Risk: Although the Portfolio seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Portfolio. Portfolio shares are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. ----------------------------- Average Annual Total Returns (As of December 31, 2005)
============================= Net Asset Value ============================= 10 Years 3.20% 5 Years 1.65% 1 Year 2.47%
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. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. 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. 3 Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST ================================================================================ SCHEDULE OF INVESTMENTS 12/31/05 ================================================================================
Principal Amount Value COLLATERALIZED MORTGAGE OBLIGATIONS - 3.0% Banks - 3.0% Thrifts & Mortgage Finance - 3.0% $ 981,854 Federal Home Loan Mortgage Corp. Multifamily VRD Certificate, 4.13%, 1/15/42 $ 981,854 ----------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $981,854) $ 981,854 ----------- CORPORATE BONDS - 54.3% Capital Goods - 3.9% Industrial Conglomerates - 3.9% 500,000 General Electric Capital Corp., Floating Rate Note, 10/17/06 $ 500,000 800,000 GE Capital Corp., Floating Rate Note, 1/9/07 800,000 ----------- Total Capital Goods $ 1,300,000 ----------- Commercial Services & Supplies - 4.5% Office Services & Supplies - 4.5% 1,500,000 Pitney Bowes, Inc., 5.875%, 5/1/06 $ 1,509,960 ----------- Total Commercial Services & Supplies $ 1,509,960 ----------- Automobiles & Components - 4.5% Automobile Manufacturers - 4.5% 1,500,000 Toyota Motor Credit, Floating Rate Note, 6/23/06 $ 1,500,143 ----------- Total Automobiles & Components $ 1,500,143 ----------- Food & Drug Retailing - 2.3% Hypermarkets & Supercenters - 2.3% 750,000 Wal-Mart Stores, Floating Rate Note, 3/16/06 $ 749,846 ----------- Total Food & Drug Retailing $ 749,846 ----------- Pharmaceuticals & Biotechnology - 4.5% Pharmaceuticals - 4.5% 1,000,000 Abbott Laboratories, 5.625%, 7/1/06 $ 1,006,960 500,000 Pfizer Inc., 5.625%, 2/1/06 500,985 ----------- $ 1,507,945 ----------- Total Pharmaceuticals & Biotechnology $ 1,507,945 ----------- Principal Amount Value Banks - 7.6% Diversified Banks - 7.6% $ 1,000,000 Bank of America Corp., 7.125%, 5/1/06 $ 1,010,866 1,000,000 Wells Fargo & Co., Floating Rate Note, 3/3/06 1,000,199 500,000 Wells Fargo & Co., Floating Rate Note, 6/12/06 500,217 ----------- $ 2,511,282 ----------- Total Banks $ 2,511,282 ----------- Diversified Financials - 27.0% Consumer Finance - 6.8% 1,000,000 SLM Corp., Floating Rate Note, 3/15/06 $ 1,000,437 500,000 SLM Corp., Floating Rate Note, 4/25/06 500,312 250,000 National Rural Utilities, 6.0%, 5/15/06 252,037 500,000 National Rural Utilities, Floating Rate Note, 2/17/06 499,992 ----------- $ 2,252,778 ----------- Investment Banking & Brokerage - 20.2% 1,000,000 Merrill Lynch, Floating Rate Note, 1/11/07 $ 1,000,158 1,000,000 Merrill Lynch & Co., Floating Rate Note, 3/17/06 1,000,167 1,500,000 Lehman Brothers Holdings, 6.25%, 5/15/06 1,513,708 1,500,000 Credit Suisse First Boston, Floating Rate Note, 6/19/06 1,502,080 1,700,000 Morgan Stanley Dean Witter, Floating Rate Note, 3/27/06 1,701,259 ----------- Total Diversified Financials $ 6,717,372 ----------- TOTAL CORPORATE BONDS (Cost $18,049,326) $18,049,326 -----------
4 The accompanying notes are an integral part of these financial statements. Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST ================================================================================ ================================================================================
Principal Amount Value TEMPORARY CASH INVESTMENTS - 47.1% Commercial Paper - 38.7% $ 1,000,000 Coca Cola Co., 4.25%, 2/27/06 $ 993,271 1,500,000 Deutsche Bank Financial LLC, 4.31%, 1/30/06 1,494,792 1,500,000 Federal Home Loan Bank, 4.05%, 1/27/06 1,495,612 3,307,000 Federal Home Loan Mortgage Corp., 4.162%, 1/31/06 3,295,519 1,000,000 Federal Home Loan Mortgage Corp., 4.165%, 1/3/06 999,768 1,500,000 Federal Home Loan Mortgage Corp., 4.17%, 2/7/06 1,494,231 1,000,000 Federal Home Loan, Zero Coupon, 1/13/06 998,607 1,500,000 Minnesota Mining & Manufacturing, 4.15%, 2/2/06 1,494,467 585,000 Paccar Financial Corp., 4.32%, 2/28/06 580,928 ----------- $12,847,195 ----------- Principal Amount Value Repurchase Agreement - 8.4% $ 2,800,000 UBS Warburg, Inc., 3.25% dated 12/30/05, repurchase price of $2,800,000 plus accrued interest on 1/3/06, collateralized by $2,919,000, U.S. Treasury Bill, 6/29/06 $ 2,800,000 ----------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $15,647,195) $15,647,195 ----------- TOTAL INVESTMENTS IN SECURITIES - 104.4% (Cost $34,678,375) $34,678,375 ----------- OTHER ASSETS AND LIABILITIES - (4.4%) $(1,462,280) ----------- TOTAL NET ASSETS - 100.0% $33,216,095 -----------
The accompanying notes are an integral part of these financial statements. 5 Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST ================================================================================ FINANCIAL HIGHLIGHTS ================================================================================
Year Ended Year Ended Year Ended Year Ended Year Ended Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 1.00 $ 1.000 $ 1.000 $ 1.00 $ 1.00 ------- ------- ------- ------- ------- Increase (decrease) from investment operations: Net investment income $ 0.025 $ 0.007 $ 0.006 $ 0.01 $ 0.03 Net realized and unrealized gain (loss) on investments -- -- -- -- -- ------- ------- ------- ------- ------- Net increase (decrease) from investment operations $ 0.025 $ 0.007 $ 0.006 $ 0.01 $ 0.03 Distributions to shareowners: Net investment income (0.025) (0.007) (0.006) (0.01) (0.03) ------- ------- ------- ------- ------- Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======= ======= ======= ======= ======= Total return* 2.47% 0.65% 0.56% 1.19% 3.39% Ratio of net expenses to average net assets 0.73% 0.74% 0.72% 0.78% 0.78% Ratio of net investment income to average net assets 2.40% 0.66% 0.58% 1.11% 3.16% Net assets, end of period (in thousands) $33,216 $42,896 $34,736 $59,521 $49,545 Ratios with waiver of fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.73% 0.74% 0.72% 0.78% 0.78% Net investment income 2.40% 0.66% 0.58% 1.11% 3.16%
* 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. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. 6 The accompanying notes are an integral part of these financial statements. Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST ================================================================================ STATEMENT OF ASSETS AND LIABILITIES 12/31/05 ================================================================================
ASSETS: Investment in securities, at value (Cost $34,678,375) $34,678,375 Cash 640,143 Receivables -- Dividends, interest and foreign taxes withheld 114,691 Other 615 ----------- Total assets $35,433,824 ----------- LIABILITIES: Payables -- Investment securities purchased $ 2,074,707 Fund shares purchased 95,618 Dividends 2,863 Due to affiliates 4,610 Accrued expenses 39,931 ----------- Total liabilities $ 2,217,729 ----------- NET ASSETS: Paid-in capital $33,218,610 Undistributed net investment income 333 Accumulated net realized loss (2,974) Net unrealized gain on investments 126 ----------- Total net assets $33,216,095 ----------- NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $33,216,095 Shares outstanding 33,222,976 ----------- Net asset value per share $ 1.00
The accompanying notes are an integral part of these financial statements. 7 Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST ================================================================================ STATEMENT OF OPERATIONS ================================================================================
Year Ended 12/31/05 INVESTMENT INCOME: Interest $1,229,389 ---------- Total investment income $1,229,389 ---------- EXPENSES: Management fees $ 196,195 Transfer agent fees and expenses 6,091 Administrative reimbursements 18,512 Custodian fees 22,067 Professional fees 32,754 Printing expense 3,576 Fees and expenses of nonaffiliated trustees 3,879 Miscellaneous 3,723 ---------- Total expenses $ 286,797 ---------- Net expenses $ 286,797 ---------- Net investment income $ 942,592 ---------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain from investments $ 85 ---------- Change in net unrealized gain from investments $ 126 ---------- Net gain on investments, futures contracts and foreign currency transactions $ 211 ========== Net increase in net assets resulting from operations $ 942,803 ==========
8 The accompanying notes are an integral part of these financial statements. Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS ================================================================================
Year Year Ended Ended 12/31/05 12/31/04 FROM OPERATIONS: Net investment income $ 942,592 $ 205,313 Net realized gain on investments 85 -- Change in net unrealized gain on investments, futures contracts and foreign currency transactions 126 -- ------------- ------------- Net increase in net assets resulting from operations $ 942,803 $ 205,313 ------------- ------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (944,260) $ (203,312) ------------- ------------- Total distributions to shareowners $ (944,260) $ (203,312) ------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 19,583,940 $ 18,483,037 Class I shares issued in reorganization -- 21,976,837 Reinvestment of distributions 942,853 203,307 Cost of shares repurchased (30,205,433) (32,505,228) ------------- ------------- Net increase (decrease) in net assets resulting from Fund share transactions $ (9,678,640) $ 8,157,953 ------------- ------------- Net increase (decrease) in net assets $ (9,680,097) $ 8,159,954 ------------- ------------- NET ASSETS: Beginning of year $ 42,896,192 $ 34,736,238 ------------- ------------- End of year $ 33,216,095 $ 42,896,192 ============= ============= Undistributed net investment income, end of year $ 333 $ 2,001 ============= =============
The accompanying notes are an integral part of these financial statements. 9 Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST ================================================================================ NOTES TO FINANCIAL STATEMENTS 12/31/05 ================================================================================ 1. Organization and Significant Accounting Policies The Pioneer Money Market VCT Portfolio (The Portfolio) is a Portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty-nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) The Money Market Portfolio seeks current income consistent with preserving capital and providing liquidity. The Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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. Information concerning the Portfolio's principal investment risks is contained in the Portfolio's prospectus(es). Please refer to those documents when considering the Portfolio's risks. Although the Portfolio seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Portfolio. Portfolio shares are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. The following is a summary of significant accounting policies consistently followed by the Portfolio, which are in conformity with those generally accepted in the investment company industry: A. Security Valuation Security transactions are recorded as of trade date. Securities are valued at amortized cost, which approximates fair market value. Investments purchased at a discount or premium are valued by amortizing the difference between the original purchase price and maturity value of the issue over the period to maturity. Interest income, including interest in income bearing cash accounts is recorded on the accrual basis. 10 Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST ================================================================================ ================================================================================ B. Taxes It is the Portfolio'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 amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal 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, 2005, Money Market Portfolio had a net capital loss carryforward of $2,974, of which the following amounts will expire between 2010 and 2012 if not utilized: $2,728 in 2010 and $246 in 2012. The following chart shows the distributions paid during the years ended December 31, 2005 and December 31, 2004 and the components of distributable earnings (accumulated losses) as of December 31, 2005 and on a tax basis.
------------------------------------------------------------------------------------ 2005 2004 ------------------------------------------------------------------------------------ Distributions paid from: Ordinary Income $944,260 $203,312 Long-Term capital gain -- -- -------- -------- $944,260 $203,312 Return of Capital -- -------- -------- Total distributions $944,260 $203,312 ======== ======== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 333 Undistributed long-term gain/(capital loss carryforward) (2,974) Unrealized appreciation (depreciation) 126 -------- Total $(2,515) ======== ------------------------------------------------------------------------------------
C. Portfolio Shares The Portfolio records sales and repurchases of its 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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. 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. 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 the account of the Portfolio. The loans are secured by collateral of 11 Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST ================================================================================ NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) ================================================================================ 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 Portfolio has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Portfolio invests cash collateral in the Securities Lending Investment Fund which is sponsored by Brown Brothers Harriman & Co., the Portfolio's custodian. 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 annual rate of 0.50% 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, 2005, $923 was payable to PIM related to management fees, administrative fees and certain other services, and is included in due to affiliates. 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 $3,687 in transfer agent fees payable to PIMSS at December 31, 2005. 4. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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) ---------------------------------------------------------------------------------------------- Money Market Portfolio $34,678,375 $-- $-- $-- =========== === === === ----------------------------------------------------------------------------------------------
5. 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, 2005, were $782,017,431 and $790,633,602, respectively. 6. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
----------------------------------------------------------------------------------------------------------- Money Market Portfolio '05 Shares '05 Amount '04 Shares '04 Amount ----------------------------------------------------------------------------------------------------------- CLASS I: Shares sold 19,584,349 $ 19,583,940 18,483,037 $ 18,483,037 Class I shares issued in reorganization -- -- 21,976,837 21,976,837 Reinvestment of distributions 942,853 942,853 203,307 203,307 Shares repurchased (30,205,433) (30,205,433) 32,505,228 32,505,228 ----------------------------------------------------------- Net increase (9,678,231) $ (9,680,097) 8,157,953 $ 8,157,953 =========================================================== -----------------------------------------------------------------------------------------------------------
12 Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST ================================================================================ ================================================================================ 7. Merger Information On December 8, 2004, beneficial owners of Safeco RST Money Market Portfolio ("Money Market"), one of the six portfolios that comprised Safeco Resource Series Trust, approved a proposed Agreement and Plan of Reorganization that provided for the mergers listed below. These tax-free reorganizations were accomplished on December 10, 2004 ("Closing Date") , by exchanging all of the Safeco's net assets for Class I shares as indicated below, based on Class I shares' ending net asset value on the Closing Date. The following charts show the details of the reorganizations as of that Closing Date:
--------------------------------------------------------------------------------------------------------------- Pioneer Money Pioneer Money Market VCT Safeco RST Money Market VCT Portfolio Market Portfolio Portfolio Pioneer Money Market VCT Portfolio (Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization) --------------------------------------------------------------------------------------------------------------- Net Assets $23,493,640 $21,976,837 $67,613,266 Shares Outstanding 23,500,655 21,976,837 45,477,492 Class I Shares Issued 21,976,837 ---------------------------------------------------------------------------------------------------------------
13 Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST ================================================================================ REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ================================================================================ To the Board of Trustees of Pioneer Variable Contracts Trust and the Shareowners of Pioneer Money Market VCT Portfolio: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Money Market VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four 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 year ended December 31, 2001 was 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Money Market VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and financial highlights for each of the four years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 14 Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST ================================================================================ FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT ================================================================================ The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three, five and ten year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of break points in the management fee, reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return and yield, as well as 15 Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST ================================================================================ FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) ================================================================================ the Fund's performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the fifth quintile of the peer group for the 12 months ended June 30, 2005, the fifth quintile for the three years ended June 30, 2005, the fourth quintile for the five years ended June 30, 2005 and the fifth quintile for the ten year period ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees also considered the yield (gross of expenses) on the Fund's Class I shares relative to the yield (at June 30, 2005) on 30 day U.S. Treasury securities. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's fixed income group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the fifth quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Investment Adviser agree to reduce the management fee to 0.40% of average daily net assets, which would place the fee in the third quintile of the peer group, and to add a break point to the fee schedule. The Trustees also evaluated the fee relative to the median fee of the peer group and determined that is was only modestly higher than the median. In light of the range of fees included in the peer group, the Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the fifth quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for 16 Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST ================================================================================ ================================================================================ realization of any further economies of scale. Because of break points in the management fees, the Trustees concluded that any perceived or potential economies of scale would be shared at future asset levels, in a reasonable manner as the Fund grows in size, between Fund's shareholders and the Investment Adviser. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund). The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 17 Pioneer Money Market VCT Portfolio ================================================================================ TRUSTEES, OFFICERS AND SERVICE PROVIDERS ================================================================================
Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ==================================================================================================================================== INTERESTED TRUSTEES ==================================================================================================================================== POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. -----------------------------------------------------------------------------------------------------------------------------------
18 Pioneer Money Market VCT Portfolio ================================================================================ TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) ================================================================================ INDEPENDENT TRUSTEES ================================================================================
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance or earlier services company) (2001-present); company); Director of New York retirement or Managing Partner, Federal City Mortgage Trust (publicly traded removal. Capital Advisors (boutique merchant mortgage REIT) bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ---------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products or earlier manufacturer), Mortgage Guaranty retirement or Insurance Corporation, and Briggs removal. & Stratton, Inc. (engine manufacturer) ---------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------
19 Pioneer Money Market VCT Portfolio ================================================================================ TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) ================================================================================ TRUST OFFICERS ================================================================================
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
20 Pioneer Money Market VCT Portfolio ================================================================================ TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) ================================================================================ TRUST OFFICERS ================================================================================
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, None Treasurer 2000. Serves at the Assistant Vice President - Fund discretion of the Accounting, Administration and Board. Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds. --------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. --------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. --------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 21 [LOGO] PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18654-00-0206 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer America Income VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- Table of Contents -------------------------------------------------------------------------------- Pioneer America Income VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 6 Financial Statements 11 Notes to Financial Statements 15 Report of Independent Registered Public Accounting Firm 19 Factors Considered by the Independent Trustees in Approving the Management Contract 20
Before investing consider the fund's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Government Securities 93.4% U.S. Government Agency Obligations 6.1% U.S. Corporate Bonds 0.5%
Maturity Distribution (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
0-1 year 2.5% 1-3 year 38.7% 3-4 year 27.8% 4-6 year 16.2% 6-8 year 6.8% 8+ years 8.0%
Five Largest Holdings (As a percentage of long-term holdings) 1. U.S. Treasury Notes, 6.5%, 2/15/10 10.01% 2. U.S. Treasury Inflation Protected Securities, 3.375%, 1/15/12 7.81 3. U.S. Treasury Bonds, 6.25%, 8/15/23 5.54 4. U.S. Treasury Notes, 6.375%, 8/15/27 2.47 5. U.S. Treasury Notes, 4.25%, 11/15/14 1.85
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $9.85 $10.12
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $0.4455 $ - $ -
-------------------------------------------------------------------------------- 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. [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Pioneer Lehman Lehman America Brothers Brothers Income Government Fixed Rate VCT Portfolio Bond Index Mortgage Index 12/95 10000 10000 10000 11343 10406 10535 12/97 13138 11210 11535 13086 12161 12338 12/99 13383 12220 12567 14078 13500 13969 12/01 13725 14636 15118 12286 16047 16440 12/03 14595 16414 16944 15264 16797 17741 12/05 16234 17080 18205
The Lehman Brothers Government Bond Index measures the performance of the U.S. government bond market. The Lehman Brothers Fixed-Rate Mortgage Index measures the performance of the government and mortgage securities markets. 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- 10 Years 4.96% 5 Years 4.92% 1 Year 1.76%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value [divided by] $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer America Income VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------------------------------------- Beginning Account Value on 7/1/05 $1,000.00 Ending Account Value on 12/31/05 $ 998.63 Expenses Paid During Period* $ 5.44
* Expenses are equal to the Portfolio's annualized expense ratio of 1.08% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer America Income VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------------------------------------- Beginning Account Value on 7/1/05 $1,000.00 Ending Account Value on 12/31/05 $1,019.76 Expenses Paid During Period* $ 5.50
* Expenses are equal to the Portfolio's annualized expense ratio of 1.08% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- In a year marked by hurricanes, high energy prices, concerns about accelerating inflation and rising short-term interest rates, shareholders in Pioneer America Income Trust VCT Portfolio earned a positive return on their investment. In the interview below, Richard Schlanger, the day-to-day Portfolio Manager, discusses the factors that affected the fixed-income market and the Trust over the past 12 months. Q. How did the Trust perform during the period? A. For the 12-month period ended December 31, 2005, Class II shares of Pioneer America Income Trust VCT Portfolio produced a total return of 1.76% at net asset value. The Trust underperformed its benchmark, the Lehman Brothers Government Bond Index, which returned 2.65% for the same period. It also fell short of the 2.61% return provided by the Lehman Brothers Fixed-Rate Mortgage-Backed Index. At the end of the period, the 30-day SEC yield for Class II shares was 3.42%. The Trust had 229 issues and the average quality of the portfolio was AAA. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. What was the investment environment like during the period? A. Economic growth was relatively strong, and productivity remained high. In this environment, the Federal Reserve continued to reverse its accommodative monetary policy and raised interest rates eight times during the year, each time by a quarter point. At the end of 2005, the federal funds target rate was 4.25%, up from 2.25% in January 2005. (The federal funds rate is the rate banks charge for overnight loans. Since June 2004, the Fed has hiked interest rates 13 times, taking the federal funds rate from a 40-year low of 1.00% to the current 4.25%.) The net effect of the Fed's actions was a flattening of the yield curve, where short-term yields and longer-term yields were approximately the same. On December 30, 2005, the yield curve inverted slightly, with longer-term yields falling below short-term yields. (The yield curve shows the relationship between bond yields and maturity lengths.) During the year, government bonds benefited from an influx of money from both foreign and domestic investors. While long-term yields on U.S. Treasuries were relatively low, they were among the highest of the developed countries and attractive to overseas investors. The performance of government bonds was also enhanced by a flight to quality. At a time when long-term yields declined and the debt of General Motors and Ford was downgraded by credit rating agencies, domestic investors saw little advantage to taking on risk. As a result, they moved into the relative safety of government securities. Q. What strategies did you use in managing the Trust? A. As interest rates rose, we extended duration, or sensitivity to interest-rate changes, by reducing exposure to mortgage securities and adding to positions in Treasury issues and in Treasury Inflation Protected Securities (TIPS). TIPS are securities whose principal is tied to the consumer price index, a monthly indicator that measures the price inflation of a representative basket of goods and services. When inflation accelerates, the principal on TIPS increases in value. The interest-rate payment on TIPS is calculated on the inflated principal. While inflation was not a problem in 2005, we are concerned about the potential for it to pick up. Oil prices are over $60 a barrel, the price of gold is at a 25-year high and the unemployment rate fell below 5%. These factors and others could lead to an upturn in inflation. At the end of the period, 54.8% of the portfolio was in mortgage pass-through securities issued by the Government National Mortgage Association (Ginnie Mae), 44.4% was in Treasury issues, TIPS and agency securities issued by the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Association (Freddie Mac), the Federal Home Loan Bank, and the Federal Farm Credit Bank. About .80% of the portfolio was in cash. A Word About Risk: When interest rates rise, the prices of fixed-income securities in the Portfolio will generally fall. Conversely, when interest rates fall the prices of fixed-income securities in the Portfolio will generally rise. Prepayment risk is the chance that mortgage-backed bonds will be paid off early if falling interest rates prompt homeowners to refinance their mortgages. Forced to reinvest the unanticipated proceeds at lower interest rates, the Portfolio would experience a decline in income and lose the opportunity for additional price appreciation associated with falling interest rates. The Portfolio may invest in mortgage-backed securities, which during times of fluctuating interest rates may increase or decrease more than other fixed--income securities. Mortgage-backed securities are also subject to pre-payments. Government guarantees apply to the underlying securities only and not to the prices and yields of the portfolio. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Q. What detracted from performance? A. Our positioning on the yield curve held back return. Throughout the 12 months, we maintained a bulleted strategy, which means we invested in bonds across the maturity spectrum, with the biggest concentration in the intermediate-term range of two-years to ten-years. While our short-term and long-term bonds did well, our intermediate-term bonds detracted from performance. In hindsight, it would have been more advantageous to have had a barbelled configuration, overweighting the short and long ends of the yield curve and holding relatively few intermediate-term bonds. Q. What contributed to performance? A. Mortgages issued by Ginnie Mae outperformed those issued by Fannie Mae and Freddie Mac, two agencies that had been in the headlines because of accounting problems. During the second half of 2005, yields on 10-year Treasuries traded in a relatively narrow range of roughly 3.90% to a high of roughly 4.68%. As 10-year Treasuries declined in price and rose in yield, we extended duration. This aided results because 10-year Treasuries closed the year at 4.40%, down from their highs. A longer duration usually benefits a portfolio when yields decline. The performance of TIPS also helped boost the Trust's return. Q. What is your outlook? A. In general we are positive in looking ahead. While we believe the inverted yield curve may be indicating some moderating in economic growth, we do not think it is signaling recession. When the Fed began raising interest rates, the federal funds rate was extremely low at 1.00%. We think that the current 4.25% level is not restrictive, especially with an inflation rate of roughly 2.0% to 2.5%. While we think the consumer may cut back on spending, it is likely that business will pick up the slack. An increase in capital spending on the part of corporations may be enough to keep the economy growing at a respectable rate. The Fed may be in the late stages of its rate-raising cycle. Should the Fed ease rates somewhat, we believe intermediate-term securities will outperform longer-term securities. We are well-positioned should this occur. As we move into 2006, we believe the Trust should continue to provide diversification for investors who want to avoid the risk associated with the more volatile areas of the fixed-income market and with equities. 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. 5 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Principal Amount Value COLLATERALIZED MORTGAGE OBLIGATIONS - 1.5% Government - 1.5% $ 234,973 Federal Home Loan Bank, 4.75%, 10/25/10 $ 232,917 131,942 Federal Home Loan Bank, 5.0%, 1/15/16 131,763 350,000 Federal Home Loan Bank, 5.5%, 7/15/28 351,532 ----------- $ 716,212 ----------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $728,765) $ 716,212 ----------- CORPORATE BONDS - 0.5% Diversified Financials - 0.5% Specialized Finance - 0.5% 250,000 Private Export Funding, 3.375%, 2/15/09 $ 240,665 ----------- TOTAL CORPORATE BONDS (Cost $250,000) $ 240,665 ----------- U.S. GOVERNMENT AGENCY OBLIGATIONS - 96.4% Government - 96.4% 250,000 Federal Farm Credit Bank, 3.25%, 6/15/07 $ 244,792 250,000 Federal Farm Credit Bank, 4.45%, 6/1/15 242,934 400,000 Federal Farm Credit Bank, 4.9%, 3/17/14 389,932 100,000 Federal Farm Credit Bank, 5.3%, 9/28/15 97,837 100,000 Federal Farm Credit Bank, 5.88%, 9/8/08 102,891 200,000 Federal Farm Credit Bank, 6.38%, 11/27/06 202,832 250,000 Federal Home Loan Bank, 4.0%, 2/12/10 242,558 250,000 Federal Home Loan Bank, 4.25%, 10/10/08 247,258 250,000 Federal Home Loan Bank, 4.25%, 2/16/10 244,759 300,000 Federal Home Loan Bank, 4.43%, 4/7/08 297,907 200,000 Federal Home Loan Bank, 4.5%, 11/15/12 196,873 500,000 Federal Home Loan Bank, 4.75%, 12/10/10 499,375 300,000 Federal Home Loan Bank, 5.89%, 6/30/08 308,372 250,000 Federal Home Loan Mortgage Corp., 4.9%, 11/3/08 249,142 300,000 Federal Home Loan Mortgage Corp., 5.25%, 11/15/12 296,132 237,523 Federal Home Loan Mortgage Corp., 5.5%, 9/1/34 235,576 226,089 Federal Home Loan Mortgage Corp., 5.5%, 12/1/34 224,235 70,482 Federal Home Loan Mortgage Corp., 6.0%, 10/1/32 71,308 497,629 Federal Home Loan Mortgage Corp., 6.0%, 11/1/32 503,460 163,395 Federal Home Loan Mortgage Corp., 6.0%, 12/1/32 165,309 189,250 Federal Home Loan Mortgage Corp., 6.0%, 2/1/33 191,468 844,359 Federal Home Loan Mortgage Corp., 6.0%, 3/1/33 853,785 564,481 Federal Home Loan Mortgage Corp., 6.0%, 5/1/34 570,171 73,375 Federal Home Loan Mortgage Corp., 6.5%, 3/1/11 75,361 219,713 Federal Home Loan Mortgage Corp., 6.5%, 7/1/16 225,803 53,923 Federal Home Loan Mortgage Corp., 6.5%, 1/1/29 55,487 30,729 Federal Home Loan Mortgage Corp., 6.5%, 3/1/29 31,609 31,871 Federal Home Loan Mortgage Corp., 6.5%, 4/1/31 32,727 85,317 Federal Home Loan Mortgage Corp., 6.5%, 10/1/31 87,610 39,714 Federal Home Loan Mortgage Corp., 6.5%, 2/1/32 40,782 204,842 Federal Home Loan Mortgage Corp., 6.5%, 4/1/32 210,296 69,307 Federal Home Loan Mortgage Corp., 6.5%, 7/1/32 71,153 2,681 Federal Home Loan Mortgage Corp., 7.0%, 4/1/30 2,793 18,919 Federal Home Loan Mortgage Corp., 7.0%, 2/1/31 19,709
6 The accompanying notes are an integral part of these financial statements. Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal Amount Value U.S. Government Agency Obligations (Cont.) $ 2,780 Federal Home Loan Mortgage Corp., 7.0%, 7/1/31 $ 2,902 5,125 Federal Home Loan Mortgage Corp., 7.0%, 9/1/31 5,340 31,051 Federal Home Loan Mortgage Corp., 7.0%, 3/1/32 32,525 34,899 Federal Home Loan Mortgage Corp., 7.0%, 4/1/32 36,357 34,317 Federal Home Loan Mortgage Corp., 7.5%, 8/1/31 36,016 235,081 Federal National Mortgage Association, 4.5%, 4/1/19 229,102 75,567 Federal National Mortgage Association, 5.0%, 3/1/09 75,269 217,203 Federal National Mortgage Association, 5.0%, 7/1/19 214,993 283,420 Federal National Mortgage Association, 5.5%, 3/1/18 285,379 326,526 Federal National Mortgage Association, 5.5%, 4/1/18 329,079 352,107 Federal National Mortgage Association, 5.5%, 4/1/19 354,540 219,244 Federal National Mortgage Association, 5.5%, 6/1/23 219,287 320,507 Federal National Mortgage Association, 5.5%, 11/1/23 320,571 215,169 Federal National Mortgage Association, 5.5%, 3/1/24 214,884 379,347 Federal National Mortgage Association, 5.5%, 11/1/33 376,565 186,183 Federal National Mortgage Association, 5.5%, 12/1/34 184,538 66,283 Federal National Mortgage Association, 5.5%, 2/1/33 65,631 165,088 Federal National Mortgage Association, 5.5%, 6/1/33 166,811 307,203 Federal National Mortgage Association, 5.5%, 9/1/33 304,950 235,831 Federal National Mortgage Association, 5.5%, 3/1/34 233,747 182,523 Federal National Mortgage Association, 6.0%, 12/1/11 186,443 30,487 Federal National Mortgage Association, 6.0%, 12/1/31 30,847 41,953 Federal National Mortgage Association, 6.0%, 10/1/32 42,424 390,300 Federal National Mortgage Association, 6.0%, 11/1/32 394,676 499,985 Federal National Mortgage Association, 6.0%, 3/1/33 505,590 111,476 Federal National Mortgage Association, 6.0%, 4/1/33 112,725 107,155 Federal National Mortgage Association, 6.0%, 6/1/33 108,274 145,580 Federal National Mortgage Association, 6.0%, 7/1/34 146,956 138,438 Federal National Mortgage Association, 6.0%, 9/1/34 139,747 39,463 Federal National Mortgage Association, 6.5%, 7/1/21 40,789 92,346 Federal National Mortgage Association, 6.5%, 11/1/28 95,127 51,776 Federal National Mortgage Association, 6.5%, 1/1/29 53,320 63,288 Federal National Mortgage Association, 6.5%, 10/1/31 65,055 74,995 Federal National Mortgage Association, 6.5%, 1/1/32 77,089 30,948 Federal National Mortgage Association, 6.5%, 2/1/32 31,812 174,246 Federal National Mortgage Association, 6.5%, 3/1/32 179,030 81,977 Federal National Mortgage Association, 6.5%, 4/1/32 84,250 71,095 Federal National Mortgage Association, 6.5%, 7/1/32 73,066 262,423 Federal National Mortgage Association, 6.5%, 8/1/32 269,714 33,191 Federal National Mortgage Association, 6.5%, 9/1/32 34,111 329,070 Federal National Mortgage Association, 6.5%, 7/1/34 337,596 43,002 Federal National Mortgage Association, 7.0%, 9/1/18 45,083 26,838 Federal National Mortgage Association, 7.0%, 8/1/19 28,117 7,636 Federal National Mortgage Association, 7.0%, 1/1/29 7,976 135,136 Federal National Mortgage Association, 7.0%, 9/1/30 141,145 3,932 Federal National Mortgage Association, 7.0%, 5/1/31 4,104 19,370 Federal National Mortgage Association, 7.0%, 7/1/31 20,220 24,441 Federal National Mortgage Association, 7.0%, 1/1/32 25,514
The accompanying notes are an integral part of these financial statements. 7 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Principal Amount Value U.S. Government Agency Obligations (Cont.) $ 16,146 Federal National Mortgage Association, 7.5%, 2/1/31 $ 16,922 54,317 Federal National Mortgage Association, 9.0%, 4/1/33 57,343 250,000 Federal National Mortgage Association, Floating Rate Note, 3/1/19 249,147 290,126 Government National Mortgage Association, 4.5%, 4/15/20 284,404 366,395 Government National Mortgage Association, 4.5%, 8/15/33 351,635 648,903 Government National Mortgage Association, 4.5%, 6/15/34 622,653 281,464 Government National Mortgage Association, 5.0%, 7/15/17 281,790 206,292 Government National Mortgage Association, 5.0%, 11/20/19 205,149 165,799 Government National Mortgage Association, 5.0%, 1/20/20 164,843 187,019 Government National Mortgage Association, 5.0%, 2/15/20 186,545 99,188 Government National Mortgage Association, 5.0%, 10/15/20 98,936 184,271 Government National Mortgage Association, 5.0%, 9/15/33 182,114 582,552 Government National Mortgage Association, 5.0%, 4/15/35 575,271 267,300 Government National Mortgage Association, 5.5%, 6/15/17 271,264 157,273 Government National Mortgage Association, 5.5%, 2/15/19 159,588 359,968 Government National Mortgage Association, 5.5%, 7/15/19 362,567 140,654 Government National Mortgage Association, 5.5%, 4/15/31 141,816 182,728 Government National Mortgage Association, 5.5%, 3/15/33 184,164 265,079 Government National Mortgage Association, 5.5%, 4/15/33 267,163 228,017 Government National Mortgage Association, 5.5%, 7/15/33 229,809 189,676 Government National Mortgage Association, 5.5%, 10/15/34 190,979 241,432 Government National Mortgage Association, 5.5%, 1/15/35 238,414 123,014 Government National Mortgage Association, 6.0%, 6/20/16 125,969 106,954 Government National Mortgage Association, 6.0%, 5/15/17 109,860 193,626 Government National Mortgage Association, 6.0%, 2/15/18 198,891 148,694 Government National Mortgage Association, 6.0%, 8/15/19 152,734 362,736 Government National Mortgage Association, 6.0%, 7/15/23 372,463 163,451 Government National Mortgage Association, 6.0%, 4/15/28 167,659 120,095 Government National Mortgage Association, 6.0%, 9/15/32 123,115 339,163 Government National Mortgage Association, 6.0%, 10/15/32 347,692 354,993 Government National Mortgage Association, 6.0%, 11/15/32 364,232 242,488 Government National Mortgage Association, 6.0%, 12/15/32 249,079 326,712 Government National Mortgage Association, 6.0%, 1/15/33 334,908 495,657 Government National Mortgage Association, 6.0%, 2/15/33 508,088 277,532 Government National Mortgage Association, 6.0%, 9/15/33 284,493 242,842 Government National Mortgage Association, 6.0%, 12/15/33 248,932 591,471 Government National Mortgage Association, 6.0%, 3/15/34 605,717 321,202 Government National Mortgage Association, 6.0%, 8/15/34 329,061 114,201 Government National Mortgage Association, 6.0%, 9/15/34 116,952 618,817 Government National Mortgage Association, 6.0%, 10/15/34 633,723 143,279 Government National Mortgage Association, 6.5%, 4/15/17 148,001 17,662 Government National Mortgage Association, 6.5%, 6/15/17 18,245 14,671 Government National Mortgage Association, 6.5%, 3/15/26 15,363 86,878 Government National Mortgage Association, 6.5%, 6/15/28 90,971 25,540 Government National Mortgage Association, 6.5%, 2/15/29 26,726 342,050 Government National Mortgage Association, 6.5%, 5/15/29 358,025 8,930 Government National Mortgage Association, 6.5%, 6/15/29 9,344 49,287 Government National Mortgage Association, 6.5%, 5/15/31 51,515 277,925 Government National Mortgage Association, 6.5%, 6/15/31 290,488 85,739 Government National Mortgage Association, 6.5%, 7/15/31 89,614
8 The accompanying notes are an integral part of these financial statements. Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal Amount Value U.S. Government Agency Obligations (Cont.) $ 69,261 Government National Mortgage Association, 6.5%, 9/15/31 $ 72,391 89,672 Government National Mortgage Association, 6.5%, 10/15/31 93,725 76,797 Government National Mortgage Association, 6.5%, 12/15/31 80,268 9,021 Government National Mortgage Association, 6.5%, 2/15/32 9,470 59,601 Government National Mortgage Association, 6.5%, 4/15/32 62,278 85,797 Government National Mortgage Association, 6.5%, 6/15/32 89,651 71,688 Government National Mortgage Association, 6.5%, 7/15/32 74,909 115,999 Government National Mortgage Association, 6.5%, 1/15/34 121,093 12,942 Government National Mortgage Association, 7.0%, 1/15/26 13,624 44,620 Government National Mortgage Association, 7.0%, 7/15/26 46,972 15,448 Government National Mortgage Association, 7.0%, 9/15/27 16,247 48,023 Government National Mortgage Association, 7.0%, 2/15/28 50,470 12,363 Government National Mortgage Association, 7.0%, 3/15/28 12,993 21,109 Government National Mortgage Association, 7.0%, 4/15/28 22,184 40,072 Government National Mortgage Association, 7.0%, 11/15/28 42,113 26,140 Government National Mortgage Association, 7.0%, 1/15/29 27,458 32,388 Government National Mortgage Association, 7.0%, 6/15/29 34,021 40,413 Government National Mortgage Association, 7.0%, 7/15/29 42,450 4,843 Government National Mortgage Association, 7.0%, 12/15/30 5,086 18,075 Government National Mortgage Association, 7.0%, 2/15/31 18,977 20,396 Government National Mortgage Association, 7.0%, 5/15/31 21,414 23,765 Government National Mortgage Association, 7.0%, 8/15/31 24,951 113,475 Government National Mortgage Association, 7.0%, 5/15/32 119,129 7,643 Government National Mortgage Association, 7.5%, 10/15/22 8,096 1,801 Government National Mortgage Association, 7.5%, 6/15/23 1,906 1,637 Government National Mortgage Association, 7.5%, 8/15/23 1,733 1,770 Government National Mortgage Association, 7.5%, 8/15/29 1,862 25,609 Government National Mortgage Association, 7.5%, 10/15/29 26,947 38,568 Government National Mortgage Association, 7.5%, 11/15/29 40,584 13,184 Government National Mortgage Association, 7.5%, 1/15/31 13,864 16,348 Government National Mortgage Association, 7.5%, 1/15/32 17,191 106,654 Government National Mortgage Association I, 6.0%, 2/15/29 109,357 37,615 Government National Mortgage Association I, 7.0%, 11/15/30 39,499 39,205 Government National Mortgage Association I, 7.0%, 12/15/30 41,168 317,317 Government National Mortgage Association II, 5.0%, 12/20/18 315,706 361,777 Government National Mortgage Association II, 5.5%, 7/20/19 365,989 169,565 Government National Mortgage Association II, 5.5%, 11/20/34 170,306 354,192 Government National Mortgage Association II, 5.5%, 2/20/34 355,741 51,694 Government National Mortgage Association II, 6.0%, 12/20/18 52,939 143,776 Government National Mortgage Association II, 6.0%, 7/20/19 147,192 193,253 Government National Mortgage Association II, 6.0%, 11/20/33 197,678 29,079 Government National Mortgage Association II, 6.5%, 8/20/28 30,242 38,585 Government National Mortgage Association II, 6.5%, 12/20/28 40,125 28,221 Government National Mortgage Association II, 6.5%, 9/20/31 29,294 38,488 Government National Mortgage Association II, 7.0%, 5/20/26 40,252 74,140 Government National Mortgage Association II, 7.0%, 2/20/29 77,369 14,114 Government National Mortgage Association II, 7.0%, 1/20/31 14,721 6,449 Government National Mortgage Association II, 7.5%, 8/20/27 6,762 2,322 Government National Mortgage Association II, 8.0%, 8/20/25 2,477
The accompanying notes are an integral part of these financial statements. 9 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Principal Amount Value U.S. Government Agency Obligations (Cont.) $ 12,000 Tennessee Valley Authority, Variable Rate Note, 6/1/28 $ 288,000 850,000 U.S. Treasury Bonds, 4.0%, 2/15/14 826,957 2,150,000 U.S. Treasury Bonds, 6.25%, 8/15/23 2,567,403 400,000 U.S. Treasury Bonds, 7.25%, 5/15/16 491,156 3,365,100 U.S. Treasury Inflation Protected Security, 3.375%, 1/15/12 3,618,401 228,876 U.S. Treasury Inflation Protected Security, 3.5%, 1/15/11 244,611 500,000 U.S. Treasury Notes, 4.0%, 11/15/12 489,239 870,000 U.S. Treasury Notes, 4.25%, 11/15/14 859,872 300,000 U.S. Treasury Notes, 4.25%, 8/15/15 296,121 475,000 U.S. Treasury Notes, 4.75%, 5/15/14 486,560 925,000 U.S. Treasury Notes, 6.375%, 8/15/27 1,145,880 4,300,000 U.S. Treasury Notes, 6.5%, 2/15/10 4,638,457 ----------- $45,399,429 ----------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $45,430,211) $45,399,429 ----------- TOTAL INVESTMENT IN SECURITIES - 98.4% (Cost $46,408,976) $46,356,306 ----------- OTHER ASSETS AND LIABILITIES - 1.6% $ 761,864 ----------- TOTAL NET ASSETS - 100.0% $47,118,170 ===========
10 The accompanying notes are an integral part of these financial statements. Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
5/1/03(a) Year Ended Year Ended to 12/31/05 12/31/04 12/31/03 Class II Net asset value, beginning of period $10.12 $ 10.37 $10.57 ------ ------- ------ Increase from investment operations: Net investment income $ 0.39 $ 0.41 $ 0.21 Net realized and unrealized loss on investments (0.21) (0.11) (0.15) ------ ------- ------ Net increase from investment operations $ 0.18 $ 0.30 $ 0.06 Distributions to shareowners: Net investment income (0.45) (0.55) (0.26) ------ ------- ------ Net decrease in net asset value $(0.27) $ (0.25) $(0.20) ------ ------- ------ Net asset value, end of period $ 9.85 $ 10.12 $10.37 ====== ======= ====== Total return* 1.76% 3.04% 2.60%(b) Ratio of net expenses to average net assets 1.08% 1.06% 1.01%** Ratio of net investment income to average net assets 3.57% 3.29% 2.42%** Portfolio turnover rate 23% 37% 34%** Net assets, end of period (in thousands) $21,351 $13,791 $2,637 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.08% 1.06% 1.01%** Net investment income 3.57% 3.29% 2.42%**
* 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. (a) The Portfolio began offering Class II shares to the public on May 1, 2003. (b) Not annualized. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. The accompanying notes are an integral part of these financial statements.11 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (Cost $46,408,976) $46,356,306 ----------- Cash 359,270 Receivables -- Fund shares sold 63,211 Dividends, interest and foreign taxes withheld 431,824 Other 43 ----------- Total assets $47,210,654 ----------- LIABILITIES: Payables -- Fund shares repurchased $ 7,943 Due to affiliates 5,662 Accrued expenses 78,879 ----------- Total liabilities $ 92,484 ----------- NET ASSETS: Paid-in capital $48,837,957 Distributions in excess of net investment income (322,520) Accumulated net realized loss (1,344,597) Net unrealized loss on investments (52,670) ----------- Total net assets $47,118,170 ----------- NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $25,766,723 Shares outstanding 2,619,336 ----------- Net asset value per share $ 9.84 Class II: (No par value, unlimited number of shares authorized) Net assets $21,351,447 Shares outstanding 2,167,193 ----------- Net asset value per share $ 9.85
12 The accompanying notes are an integral part of these financial statements. Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
Year Ended 12/31/05 INVESTMENT INCOME: Interest $2,250,256 ---------- Total investment income $2,250,256 ---------- EXPENSES: Management fees $ 258,627 Transfer agent fees and expenses 7,715 Distribution fees (Class II) 44,260 Administrative reimbursements 18,512 Custodian fees 22,493 Professional fees 49,758 Printing expense 14,371 Fees and expenses of nonaffiliated trustees 4,444 Miscellaneous 11,265 ---------- Total expenses $ 431,445 ---------- Net expenses $ 431,445 ---------- Net investment income $1,818,811 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized loss from investments $ (8,670) Change in net unrealized loss from investments $ (945,559) ---------- Net loss on investments, futures contracts and foreign currency transactions $ (954,229) =========== Net increase in net assets resulting from operations $ 864,582 ===========
The accompanying notes are an integral part of these financial statements. 13 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/05 12/31/04 FROM OPERATIONS: Net investment income $ 1,818,811 $ 1,625,595 Net realized gain (loss) on investments (8,670) 206,989 Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions (945,559) (352,583) ------------ ------------ Net increase in net assets resulting from operations $ 864,582 $ 1,480,001 ------------ ------------ DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (1,378,835) $ (2,102,796) Class II (792,466) (401,489) ------------ ------------ Total distributions to shareowners $ (2,171,301) $ (2,504,285) ------------ ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 11,779,535 $ 15,160,465 Reinvestment of distributions 2,174,179 2,504,258 Cost of shares repurchased (11,661,922) (17,669,980) ------------ ------------ Net increase (decrease) in net assets resulting from Fund share transactions $ 2,291,792 $ (5,257) ------------ ------------ Net increase (decrease) in net assets $ 985,073 $ (1,029,541) ------------ ------------ NET ASSETS: Beginning of year $ 46,133,097 $ 47,162,638 ------------ ------------ End of year $ 47,118,170 $ 46,133,097 ============ ============= Distributions in excess of net investment income, end of year $ (322,520) $ (264,827) ============ =============
14 The accompanying notes are an integral part of these financial statements. Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer America Income VCT Portfolio (The Portfolio) is a Portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty-nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) The Portfolio commenced operations on May 1, 2003. Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts or by qualified pension and retirement plans. The investment objective of America Income Portfolio is to produce 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. The Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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. Information concerning the Portfolio's principal investment risks is contained in the Portfolio's prospectus(es). Please refer to those documents when considering the Portfolio's risks. The Portfolio may invest in mortgage-backed securities, which during times of fluctuating interest rates may increase or decrease more than other fixed-income securities. Mortgage-backed securities are also subject to pre-payments. The following is a summary of significant accounting policies consistently followed by the Portfolio, in the preparation of its financial statements, which are 15 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- consistent 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 (NYSE) is open, as of the close of regular trading on the NYSE. 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 NYSE. The value of such securities used in computing the net asset value of the Portfolio's shares is based on the last sale price on the principal exchange where they traded. The Portfolio also may use the fair value of a security, including a non-U.S. security, when the closing market price on the primary exchange where the security is traded no longer accurately reflects the value of the security as of the close of the exchange. At December 31, 2005, there were no fair valued securities. 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. Taxes It is the Portfolio'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 amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal 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, 2005, America Income Trust Portfolio had a net capital loss carryforward of $1,230,915, of which the following amounts will expire between 2008 and 2013 if not utilized: $382,424 in 2008, $435,523 in 2011, $171,643 in 2012 and $241,325 in 2013. The Portfolio elected to defer $109,707 in capital losses recognized between November 1, 2005 and December 31, 2005 to its fiscal year ending December 31, 2006. At December 31, 2005, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset values of the Portfolio and are designed to present the Portfolio's capital accounts on a tax basis.
--------------------------------------------------------------------------------------------- Undistributed Accumulated Net Investment Net Realized Portfolio Income (Loss) Gain (Loss) Paid-In Capital --------------------------------------------------------------------------------------------- Pioneer America Income VCT Portfolio $294,797 $(294,797) $-- ---------------------------------------------------------------------------------------------
16 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The following chart shows the distributions paid during the years ended December 31, 2005 and December 31, 2004 and the components of distributable earnings (accumulated losses) as of December 31, 2005 on a tax basis.
--------------------------------------------------------------------------------------------- 2005 2004 --------------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 2,171,301 $2,504,285 Long-Term capital gain/capital loss carryforward -- -- ----------- ---------- $ 2,171,301 $2,504,285 Return of Capital -- -- ----------- ---------- Total distributions $ 2,171,301 $2,504,285 =========== ========== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 5,442 Undistributed long-term gain/(capital loss carryforward) (1,230,915) Post-October Loss Deferred (109,707) Unrealized appreciation (depreciation) (384,607) ----------- Total $(1,719,787) =========== ---------------------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales, and the tax treatment of amortization on securities purchased at premium. C. Portfolio Shares The Portfolio records sales and repurchases of its 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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. Distribution fees for Class II shares are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. 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 (excluding transfer agent and distribution fees) 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 the adjusted-net assets at the beginning of the day. The Portfolio declares as daily dividends substantially all of its respective net investment income. All dividends are paid on a monthly basis. Short-term capital gain distributions, if any, may be declared with the daily dividends. 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. 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 payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for the account of the Portfolio. 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 Portfolio has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Portfolio invests cash collateral in the Securities Lending Investment Fund which is sponsored by Brown Brothers Harriman & Co., the Portfolio's custodian. 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 17 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- 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 Portfolio'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, a wholly owned indirect subsidiary of UniCredito Italiano, manages the portfolios. Management fees are calculated daily at the 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, 2005, $1,424 was payable to PIM related to management fees, administrative fees and certain other services, and is included in due to affiliates. 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 $3,946 in transfer agent fees payable to PIMSS at December 31, 2005. 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 to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with the Portfolio's Class II shares. Included in due to affiliates is $291 payable to PFD at December 31, 2005. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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) -------------------------------------------------------------------------------------------------- America Income Portfolio $46,740,913 $179,576 $(564,183) $(384,607) =========== ======== ========== ========= --------------------------------------------------------------------------------------------------
6. Portfolio Transactions The cost of purchases and the proceeds from sales of U.S. Government obligations for the year ended December 31, 2005, were $13,301,114 and $10,355,001, respectively. 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
-------------------------------------------------------------------------------------------------- America Income Portfolio '05 Shares '05 Amount '04 Shares '04 Amount -------------------------------------------------------------------------------------------------- CLASS I: Shares sold 116,997 $ 1,169,565 245,204 $ 2,472,061 Reinvestment of distributions 138,561 1,381,733 206,467 2,102,795 Shares repurchased (836,177) (8,331,104) (1,551,998) (15,847,044) -------- ----------- ---------- ------------ Net decrease (580,619) $(5,779,806) (1,100,327) $(11,272,188) ======== =========== ========== ============ CLASS II: Shares sold 1,061,522 $10,609,970 1,247,751 $ 12,688,404 Reinvestment of distributions 79,492 792,446 39,513 401,463 Shares repurchased (336,194) (3,330,818) (179,116) (1,822,936) --------- ----------- ---------- ------------ Net increase 804,820 $ 8,071,598 1,108,148 $ 11,266,931 ======== =========== ========== ============ --------------------------------------------------------------------------------------------------
18 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the 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 the Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for the periods indicated therein. 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 audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian. 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 America Income VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and financial highlights for the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 19 Pioneer America Income VCT Portfolio (the "Fund") PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three, five and ten year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return and yield, as well as 20 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- the Fund's performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the fourth quintile of the peer group for the 12 months ended June 30, 2005, the fifth quintile for the three years ended June 30, 2005, the second quintile for the five years ended June 30, 2005 and the fourth quintile for the ten year period ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees also considered the yield (gross of expenses) of the Fund's Class I shares compared to the yield (as of June 30, 2005) of the Lehman Brothers Government Bond Index. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's fixed income group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the fourth quintile relative to the management fees paid by the other funds in that peer group for the comparable period. However, the Investment Manager agreed to reduce the management fee to 0.50% of average daily net assets, which would place the Fund in the third quintile of the peer group and to add a break point to the fee schedule. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the fifth quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. Because of break points in the management fees, the Trustees concluded 21 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- that any perceived or potential economies of scale would be shared at future asset levels, in a reasonable manner as the Fund grows in size, between Fund's shareholders and the Investment Adviser. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund). The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 22 Pioneer America Income VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. -----------------------------------------------------------------------------------------------------------------------------------
23 Pioneer America Income VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance or earlier services company) (2001-present); company); Director of New York retirement or Managing Partner, Federal City Mortgage Trust (publicly traded removal. Capital Advisors (boutique merchant mortgage REIT) bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ---------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products or earlier manufacturer), Mortgage Guaranty retirement or Insurance Corporation, and Briggs removal. & Stratton, Inc. (engine manufacturer) ---------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------
24 Pioneer America Income VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
25 Pioneer America Income VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, None Treasurer 2000. Serves at the Assistant Vice President - Fund discretion of the Accounting, Administration and Board. Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds. --------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. --------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. --------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 26 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 27 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 28 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 29 [LOGO] PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18673-00-0206 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer AmPac Growth VCT Portfolio -- Class II Shares (Formerly Pioneer Papp America-Pacif ic Rim VCT Portfolio. Name change effective May 1, 2005.) ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Table of Contents -------------------------------------------------------------------------------- Pioneer AmPac Growth VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 5 Financial Statements 6 Notes to Financial Statements 10 Report of Independent Registered Public Accounting Firm 14 Factors Considered by the Independent Trustees in Approving the Management Contract 15 Trustees, Officers and Service Providers 18
Before investing, consider the product's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Please read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 95.0% Depositary Receipts for International Stocks 5.0%
Sector Distribution (As a percentage of equity holdings) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Information Technology 32.0% Industrials 22.7% Health Care 17.6% Financials 11.6% Consumer Staples 8.6% Consumer Discretionary 5.0% Energy 2.5%
Five Largest Holdings (As a percentage of equity holdings) 1. WPP Group Plc (A.D.R.) 5.00% 2. General Electric Co. 4.87 3. State Street Corp. 4.85 4. Emerson Electric Co. 4.80 5. Microchip Technology 4.80
The Portfolio is actively managed and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 10.22 $ 10.14
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.0395 $ - $ -
-------------------------------------------------------------------------------- Performance of a $10,000 Investment The following chart shows the change in value of an investment made in Pioneer AmPac Growth 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. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Russell 1000 Pioneer AMPac Growth Growth VCT Portfolio 3/04 10000 10000 12/04 10547 10020 12/05 11102 10139
The Russell 1000 Growth Index measures the performance of large-cap U.S. growth stocks. 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- Life-of-Fund 1.44% (3/15/04) 1 Year 1.19%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Please refer to the variable product's semiannual report for performance that reflects the deduction of the variable products fees and charges. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value [divided by] $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer AmPac Growth VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,048.17 Expenses Paid During Period* $ 4.90
* Expenses are equal to the Portfolio's annualized expense ratio of 0.95% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer AmPac Growth VCT Portfolio Based on a hypothetical 5% per year return before expenses, reflecting the period from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,020.42 Expenses Paid During Period* $ 4.84
* Expenses are equal to the Portfolio's annualized expense ratio of 0.95% for Class II, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- During 2005, many growth stocks remained out of favor, and companies that experienced even minor disappointments were punished by the market. Despite the challenging market, many holdings prospered - helped in large part by their unique market niche or superiority of their products, as Rosellen Papp, a member of the Portfolios management team, discusses in the following interview. Q: How did the Portfolio perform during fiscal 2005? A: Class II shares had a total return of 1.19% at net asset value for the 12 months ended December 31, 2005. The Standard & Poor's 500 Index and the Russell 1000 Growth Index posted returns of 4.91% and 5.26%, respectively, for the same period. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The Portfolio's underperformance relative to the indexes centered around five companies in particular that experienced challenges. Estee Lauder encountered much more competition in their fragrance business than anticipated. We were concerned that the problems could be longer term in nature, therefore sold the position. The pharmaceutical giant Pfizer struggled in response to concerns about the sales of its cholesterol-reducing drug Lipitor, which could fall in response to the availability of lower cost alternatives. With Pfizer's earnings potential uncertain, we sold the stock. IBM started the year with a slight revenue and earnings disappointment relative to analysts' expectations. The marketplace punished the stock as some analysts concluded that IBM tried to "hide" the disappointment by changing some accounting policies, including options expensing. Since we believe that this is a temporary disappointment and that the company is inexpensively priced, we have retained the holding. Electrical component manufacturer, Molex, reported disappointing sales and earnings, which caused us to reposition those assets into niche computer software companies that have brighter prospects. We have also been concerned about governance and accounting issues at American International Group. Late in the fiscal year, we reduced the position significantly, selling into strength. After carefully analyzing these disappointments, we find no consistent theme and conclude that the challenges are in no way related to the Portfolio's emphasis on American companies with substantial and growing business interests in the Pacific Rim region. In a challenging year, we have carefully adjusted the Portfolio to avoid any recurrence of these company-specific issues. Q: Could you highlight some of the companies that were added to the Portfolio? A: In the technology sector, we are shifting the emphasis from hardware to software companies. We reinvested the proceeds from the sale of Hewlett-Packard and Molex into Adobe Systems, which has a strong market niche in graphics, photography and digital imaging, and Symantec, which is a leading provider of security solutions for individuals and businesses. We added United Parcel Services (UPS), the delivery and logistics company with trade routes from the United States to Europe and within Europe. We bought the stock on weakness when investors became concerned that higher fuel costs could threaten its profitability. We think UPS will be resilient, as it has the ability to pass on increased fuel costs to its customers with an energy surcharge. In the financial sector - a second area of concentration in the Portfolio, we added UCBH Holdings Inc., which is a commercial bank that caters to the Chinese-American population. The company is a good example of the Portfolio's investment strategy, which is designed to offer shareowners exposure to Asian economies by investing in American companies - eliminating many of the risks associated with investing directly in developing markets. Q: Health care stocks represent the third major area of investment. Have you made any changes within this sector? A: We are very optimistic about the future of this industry, because we expect health care expenditures to rise at a much faster rate than the U.S. economy for the foreseeable future. However, we are concerned that the traditional pharmaceutical companies are currently battling a variety of issues - including intellectual property rights and product liability issues. Consequently, we have shifted our focus from pharmaceuticals toward a mix of medical device companies, market research companies, suppliers to the industry and orthopedic implants, which we think offer a better risk/reward profile. In keeping with this new direction, we added 3M, a diversified company that derives about 20% of its business from medical products. Q: Do you think 2006 will be a positive year for U.S. stocks? A: Barring any external shocks, we think the U.S. stock market - particularly growth stocks that have been out of favor for some time - will generate above-average returns. In 2005, we saw a valuation gap emerge between stock prices and the underlying strength of the companies - creating undervalued companies. Therein lies the growth potential that we hope to capture with the companies in your portfolio. Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. The fund invest s in a limited number of securities and, as a result, the fund's performance may be more volatile than the performance of fund's holding more securities. Investing in the securities of U.S. issuers with substantial foreign activities involves many of the same risks as investing in the securities of foreign issuers. A Word About Risk: Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. The Portfolio may invest a substantial amount of its assets in issuers located in a limited number of countries and therefore is susceptible to adverse economic, political or regulatory developments affecting those countries. Investing in the securities of U.S. issuers with substantial foreign activities involves many of the same risks as investing in the securities of foreign issuers. The Portfolio invests in a limited number of securities and, as a result, the Portfolio's performance may be more volatile than the performance of other portfolios holding more securities. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 103.8% Energy - 2.5% Integrated Oil & Gas - 2.5% 840 Chevron Corp. $ 47,687 ---------- Total Energy $ 47,687 ---------- Capital Goods - 15.0% Electrical Component & Equipment - 5.0% 1,250 Emerson Electric Co. $ 93,375 ---------- Industrial Conglomerates - 10.0% 1,200 3M Co. $ 93,000 2,700 General Electric Co. 94,635 ---------- $ 187,635 ---------- Total Capital Goods $ 281,010 ---------- Transportation - 8.5% Air Freight & Couriers - 8.5% 1,365 Expeditors International of Washington, Inc. $ 92,151 900 United Parcel Service 67,635 ---------- $ 159,786 ---------- Total Transportation $ 159,786 ---------- Media - 5.2% Advertising - 5.2% 1,800 WPP Group Plc $ 97,200 ---------- Total Media $ 97,200 ---------- Food, Beverage & Tobacco - 4.6% Packaged Foods & Meats - 4.6% 1,300 William Wrigley Jr. Co. $ 86,437 ---------- Total Food, Beverage & Tobacco $ 86,437 ---------- Household & Personal Products - 4.3% Household Products - 4.3% 1,470 Colgate-Palmolive Co. $ 80,630 ---------- Total Household & Personal Products $ 80,630 ---------- Health Care Equipment & Services - 12.0% Health Care Equipment - 9.1% 1,550 Medtronic, Inc. $ 89,234 1,800 Stryker Corp. 79,974 ---------- $ 169,208 ---------- Health Care Services - 2.9% 2,200 IMS Health, Inc. $ 54,824 ---------- Total Health Care Equipment & Services $ 224,032 ---------- Pharmaceuticals & Biotechnology - 6.3% Pharmaceuticals - 6.3% 550 Eli Lilly & Co. $ 31,125 1,450 Johnson & Johnson 87,145 ---------- $ 118,270 ---------- Total Pharmaceuticals & Biotechnology $ 118,270 ---------- Banks - 1.0% Regional Banks - 1.0% 1,000 UCBH Holdings, Inc. $ 17,880 ---------- Total Banks $ 17,880 ----------
Shares Value Diversified Financials - 9.7% Asset Management & Custody Banks - 9.7% 1,700 State Street Corp. $ 94,248 1,200 T. Rowe Price Associates, Inc. 86,436 ---------- $ 180,684 ---------- Total Diversified Financials $ 180,684 ---------- Insurance - 1.5% Multi-Line Insurance - 1.5% 400 American International Group, Inc. $ 27,292 ---------- Total Insurance $ 27,292 ---------- Software & Services - 8.1% Application Software - 2.3% 1,200 Adobe Systems, Inc. $ 44,352 ---------- Systems Software - 5.8% 3,000 Microsoft Corp. $ 78,450 1,700 Symantec Corp.* 29,750 ---------- $ 108,200 ---------- Total Software & Services $ 152,552 ---------- Technology Hardware & Equipment - 11.4% Communications Equipment - 3.5% 3,800 Cisco Systems, Inc.* $ 65,056 ---------- Computer Hardware - 3.9% 900 IBM Corp. $ 73,980 ---------- Computer Storage & Peripherals - 2.8% 3,800 EMC Corp.* $ 51,756 ---------- Electronic Equipment & Instruments - 1.2% 729 National Instruments Corp. $ 23,363 ---------- Total Technology Hardware & Equipment $ 214,155 ---------- Semiconductors - 13.7% Semiconductor Equipment - 1.0% 1,000 Applied Materials, Inc. $ 17,940 ---------- Semiconductors - 12.7% 3,200 Intel Corp. $ 79,871 1,800 Linear Technology Corp. 64,926 2,900 Microchip Technology 93,235 ---------- $ 238,032 ---------- Total Semiconductors $ 255,972 ---------- TOTAL COMMON STOCKS (Cost $1,819,277) $1,943,587 ---------- TOTAL INVESTMENT IN SECURITIES - 103.8% (Cost $1,819,277) $1,943,587 ---------- OTHER ASSETS AND LIABILITIES - (3.8)% $ (71,411) ---------- TOTAL NET ASSETS - 100.0% $1,872,176 ==========
* Non-income producing security The accompanying notes are an integral part of these financial statements. 5 Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
3/15/04 (a) Year Ended to Class II 12/31/05 12/31/04 Net asset value, beginning of period $ 10.14 $ 10.00 ------- ------- Increase from investment operations: Net investment income $ 0.03 $ 0.05 Net realized and unrealized gain on investments 0.09 0.09 ------- ------- Net increase from investment operations $ 0.12 $ 0.14 Distributions to shareowners: Net investment income ( 0.04) -- ------- ------- Net increase in net asset value $ 0.08 $ 0.14 ------- -------- Net asset value, end of period $ 10.22 $ 10.14 ======= ======= Total return* 1.19% 1.40 %(b) Ratio of net expenses to average net assets+ 0.95% 0.95%* * Ratio of net investment income to average net assets+ 0.43% 1.40%* * Portfolio turnover rate 16% 7% Net assets, end of period (in thousands) $ 1,872 $ 1,424 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 6.62% 15.01%* * Net investment loss ( 5.24)% (12.68)%** Ratios with waivers of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.95% 0.95%* * Net investment income 0.43% 1.40%* *
(a) The Portfolio commenced operations on March 15, 2004. (b) Not annualized. * Assumes initial investment at net asset value at the beginning of each period, reinvestment of all distributions, 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. NOTE: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. 6 The accompanying notes are an integral part of these financial statements. Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (cost $1,819,277) $1,943,587 Cash 28,980 Receivables -- Dividends, interest and foreign taxes withheld 1,558 Due from Pioneer Investment Management, Inc. 9,387 Other 12 ---------- Total assets $1,983,524 ---------- LIABILITIES: Payables -- Fund shares repurchased $ 49,718 Due to affiliates 410 Accrued expenses 61,220 ---------- Total liabilities $ 111,348 ---------- NET ASSETS: Paid-in capital $1,787,653 Undistributed net investment income 7,530 Accumulated net realized loss on investments (47,317) Net unrealized gain on: Investments 124,310 ---------- Total net assets $1,872,176 ---------- NET ASSET VALUE PER SHARE: Class II: (No par value, unlimited number of shares authorized) Net assets $1,872,176 Shares outstanding 183,145 ---------- Net asset value per share $ 10.22
The accompanying notes are an integral part of these financial statements. 7 Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
Year Ended 12/31/05 INVESTMENT INCOME: Dividends $ 22,579 Interest 1,555 --------- Total investment income $ 24,134 --------- EXPENSES: Management fees $ 13,103 Transfer agent fees and expenses 1,736 Distribution fees 4,368 Administrative reimbursements 18,512 Custodian fees 13,928 Professional fees 49,133 Printing expense 9,245 Fees and expenses of nonaffiliated trustees 3,756 Miscellaneous 1,806 --------- Total expenses $ 115,587 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (98,989) --------- Net expenses $ 16,598 --------- Net investment income $ 7,536 --------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss from: Investments $ (39,329) --------- Change in net unrealized gain from: Investments $ 62,350 --------- Net gain on investments $ 23,021 --------- Net increase in net assets resulting from operations $ 30,557 =========
8 The accompanying notes are an integral part of these financial statements. Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
For the period from 3/15/04 (Commencement Year Ended of Operations) 12/31/05 to 12/31/04 FROM OPERATIONS: Net investment income $ 7,536 $ 6,910 Net realized loss on investments (39,329) (7,988) Change in net unrealized gain on investments 62,350 61,960 ---------- ---------- Net increase in net assets resulting from operations $ 30,557 $ 60,882 ---------- ---------- DISTRIBUTIONS TO SHAREOWNERS Net investment income: Class II $ (7,006) $ -- ---------- ---------- Total distributions to shareowners $ (7,006) $ -- ---------- ---------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 633,120 $1,395,044 Reinvestment of distributions 6,611 -- Cost of shares repurchased (215,562) (31,470) ---------- ---------- Net increase in net assets resulting from Fund share transactions $ 424,169 $1,363,574 ---------- ---------- Net increase in net assets $ 447,720 $1,424,456 NET ASSETS: Beginning of period 1,424,456 -- ---------- ---------- End of period $1,872,176 $1,424,456 ========== ========== Undistributed net investment income, end of period $ 7,530 $ 7,000 ========== ==========
The accompanying notes are an integral part of these financial statements. 9 Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer AmPac Growth VCT Portfolio (the Portfolio), is a Portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty nine 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) Pioneer AmPac Growth VCT Portfolio (formerly America Pacific Rim Portfolio) (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) The AmPac Growth VCT Portfolio commenced operations on March 15, 2004. Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts or by qualified pension and retirement plans. AmPac Growth Portfolio seeks capital appreciation. The financial statements and financial highlights of all other Portfolios are presented in separate books. The Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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 Portfolio, in the preparation of its financial statements which are consistent 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 (NYSE) is open, as of the close of regular trading on the NYSE. 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 10 Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- mean between the last bid and asked prices. The Portfolio also may use the fair value of a security, including a non-U.S. security, when the closing market price on the primary exchange where the security is traded no longer accurately reflects the value of the security as of the close of the NYSE. At December 31, 2005, there were no securities fair valued. 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. 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. Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. The Portfolio may invest a substantial amount of its assets in issuers located in a limited number of countries and therefore is susceptible to adverse economic, political or regulatory developments affecting those countries. Investing in the securities of U.S. issuers with substantial foreign activities involves many of the same risks as investing in the securities of foreign issuers. Information regarding the Portfolio's principal investment risks is contained in the Portfolio's prospectus. Please refer to those documents when considering the Portfolio's risks. B. Taxes It is the Portfolio'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 amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal income tax rules. Therefore, the source of the 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, 2005, AmPac Growth Portfolio had a net capital loss carryforward of $26,565, of which the following amounts will expire between 2012 and 2013, if not utilized: $7,988 in 2012 and $18,577 in 2013. The Portfolio elected to defer $20,752 in capital losses recognized between November 1, 2005 and December 31, 2005 to its fiscal year ended December 31, 2006. The following chart shows the distributions paid during the year ended December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2005. There were no distributions paid during the fiscal year ended December 31, 2004.
-------------------------------------------------------------------------------- 2005 -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 7,006 Long-term capital gain -- ------- $ 7,006 Return of capital -- ------- Total distributions $ 7,006 ------- Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 7,530 Undistributed long-term gain/ (capital loss carryforward) (26,565) Post October Loss Deferred (20,752) Unrealized appreciation (depreciation) 124,310 ------- Total $84,523 ======= --------------------------------------------------------------------------------
C. Portfolio Shares The Portfolio records sales and repurchases of its 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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. Distribution fees are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. D. 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 11 Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- 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, a wholly owned indirect subsidiary of UniCredito Italiano manages the portfolio. Management fees are calculated daily at the annual rate of 0.75% of the Portfolio's average daily net assets up to $1 billion and 0.70% on assets over $1 billion. Through May 1, 2006, PIM has agreed not to impose all or a portion of its management fee and, if necessary, to limit other ordinary operating expenses of the Portfolio to the extent required to reduce Class II expenses to 0.95% of the average daily net assets attributable to Class II shares. 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, 2005, $12 was payable to PIM related to management fees, administrative reimbursements and certain other services, and is included in due to affiliates. 3. Transfer Agent 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 $371 in transfer agent fees payable to PIMSS at December 31, 2005. 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 to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with the Portfolio's Class II shares. Included in due to affiliates is $27 payable to PFD at December 31, 2005. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, the Portfolio's aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
--------------------------------------------------------------------------------------------- Net Gross Gross Appreciation/ Portfolio Tax Cost Appreciation Depreciation (Depreciation) --------------------------------------------------------------------------------------------- AmPac Growth Portfolio $1,819,277 $160,301 $(35,991) $124,310 ---------------------------------------------------------------------------------------------
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, 2005, were $793,973 and $272,148, respectively. 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the fiscal years ended December 31, 2005 and December 31, 2004:
--------------------------------------------------------------------------------------------- AmPac Growth Portfolio '05 Shares '05 Amount '04 Shares '04 Amount --------------------------------------------------------------------------------------------- CLASS II: Shares sold 63,412 $633,120 143,712 $1,395,044 Reinvestment of distributions 669 6,611 -- -- Shares repurchased (21,368) (215,562) (3,280) (31,470) ------- -------- ------- ---------- Net increase 42,713 $424,169 140,432 $1,363,574 ======= ======== ======= ========== ---------------------------------------------------------------------------------------------
12 Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (unaudited) The qualifying percentage of certain Portfolios' ordinary income dividends for the purposes of the corporate dividends received deduction and the percentage of those ordinary dividends that are subject to a maximum tax rate of 15% as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were as follows:
-------------------------------------------------------------------------------- Dividend Qualified Received Dividend Deduction Income -------------------------------------------------------------------------------- AmPac Growth Portfolio 100.00% 100.00% --------------------------------------------------------------------------------
13 Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the Shareowners of Pioneer AmPac Growth Portfolio: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer AmPac Growth VCT Portfolio, one of the Portfolios constituting The Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, 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 periods indicated therein. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian. 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 AmPac Growth VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations for the year then ended, and the changes in its net assets and financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 14 Pioneer AmPac Growth VCT Portfolio (the "Fund") PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") voting separately annually, approve the Fund's management contract (the "Management Contract") between the Fund and Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"). The Investment Adviser has retained L. Roy Papp and Associates, LLC. (the "Sub-adviser") to act as sub-adviser to the Fund pursuant to a sub-advisory agreement between the Investment Adviser and the Sub-adviser (the "Sub-advisory Agreement"). The Trustees have determined that the terms of the Management Contract and the Sub-advisory Agreement are fair and reasonable and that renewal of these contracts will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of the Investment Adviser, or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract and Sub-advisory Agreement, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract and Sub-advisory Agreement, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect of the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates, (ix) the disclosures included in the Fund's prospectuses and reports to shareowners and (x) the investment and compliance staff and operations of the Sub-Adviser. Specifically, in connection with the Independent Trustees' review of the Management Contract and the Sub-advisory Agreement, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's and Sub-adviser's services and the reasonableness of the fee under the Management Contract and the Sub-advisory Agreement. Among other items, this information included data or analyses of (1) investment performance for the one year period of the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund, the break points in the Fund's management fee and of a peer group of funds selected by the Independent Trustees for this purpose and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes matters considered by the Trustees in connection with their renewal of the Fund's Management Contract and Sub-advisory Agreement. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. 15 Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to shareowners of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareowner services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the fifth quintile of the peer group for the 12 months ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareowners. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees also considered the activities of the Investment Adviser in monitoring the investment and compliance operations of the Sub-adviser. The Trustees concluded that the period of investment operations was too short to evaluate the performance of the Fund. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations. Among other things, the Trustees considered the number, education and experience of the Sub-adviser's investment staff. The Trustees concluded that the Investment Adviser and the Sub-adviser have the quality and depth of personnel and the well-developed methods essential to performing their duties under the Management Contract and the Sub-advisory Agreement. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareowners of the Fund, including administrative and shareowner services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareowners of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the first quintile (after fee waivers) relative to the management fees paid by the other funds in that peer group for the comparable period and below the median without giving effect to fee waivers. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also evaluated the fee under the Sub-advisory Agreement and the portion of the fee under the Management Contract retained by the Investment Adviser and determined that they were consistent with other sub-advised funds. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 (after expense limitations) was in the second quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. The Trustees concluded that the Fund's overall expense ratio (after expense limitations) was reasonable compared to that of comparable funds. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in com- 16 Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- parison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. Because of break points in the management fee, the Trustees concluded that any perceived or potential economies of scale would be shared at future asset levels, in a reasonable manner as the Fund grows in size, between the Investment Adviser and the Fund's shareowners. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareowner services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect of the Pioneer Funds (including the Fund), and benefits to the Sub-Adviser from the use of "soft" commission dollars to pay for research. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's and Sub-adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser and the Sub-adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund and the Sub-advisory Agreement are fair and reasonable and voted to approve the continuation of the Management Contract and the Sub-advisory Agreement for another year. 17 Pioneer AmPac Growth VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. The Trust's statement of additional information provides more detailed information regarding the Shareowner Services and Transfer Trust's Trustees and is available upon request, without charge, Pioneer Investment Management Shareholder Services, Inc. by calling 1- 800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. -----------------------------------------------------------------------------------------------------------------------------------
18 Pioneer AmPac Growth VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance or earlier services company) (2001-present); company); Director of New York retirement or Managing Partner, Federal City Mortgage Trust (publicly traded removal. Capital Advisors (boutique merchant mortgage REIT) bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ---------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products or earlier manufacturer), Mortgage Guaranty retirement or Insurance Corporation, and Briggs removal. & Stratton, Inc. (engine manufacturer) ---------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------
19 Pioneer AmPac Growth VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
20 Pioneer AmPac Growth VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, None Treasurer 2000. Serves at the Assistant Vice President - Fund discretion of the Accounting, Administration and Board. Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds. --------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. --------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. --------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 21 [LOGO] PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18676-00-0206 [Logo] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Balanced VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Table of Contents -------------------------------------------------------------------------------- Pioneer Balanced VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 6 Financial Statements 13 Notes to Financial Statements 17 Report of Independent Registered Public Accounting Firm 22 Factors Considered by the Independent Trustees in Approving the Management Contract 23 Trustees, Officers and Service Providers 26
Before investing, consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Portfolio Diversification (As a percentage of total investment portfolio) U.S. Common Stocks 64.0% U.S. Government Agency Obligations 23.8% U.S. Corporate Bonds 9.7% Despositary Receipts for International Stocks 1.5% Asset Backed Securities 0.6% Collateralized Mortgage Obligation 0.4%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution (As a percentage of long-term holdings) Government Obligations 23.9% Financials 13.3% Information Technology 11.6% Health Care 11.3% Consumer Staples 10.3% Consumer Discretionary 8.3% Industrials 7.4% Materials 5.9% Energy 5.5% Telecommunication Services 2.0% Utilities 0.5%
Five Largest Holdings (As a percentage of long-term holdings) 1. Berkshire Hathaway, Inc. (Class B) 3.43% 2. Microsoft Corp. 3.27 3. PepsiCo, Inc. 3.17 4. First Data Corp. 3.16 5. Northrop Grumman Corp. 3.15
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 14.67 $ 14.38
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.2404 $ - $ -
-------------------------------------------------------------------------------- Performance of a $10,000 Investment 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 and the Lehman Brothers Aggregate Bond Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Lehman Aggregate Bond Index S&P 500 Pioneer Balanced VCT Portfolio Dec-95 10000 10000 10000 10363 12295 11343 Dec-97 11364 16395 13138 12351 21084 13086 Dec-99 12249 25518 13383 13673 23196 14078 Dec-01 14828 20441 13725 16348 15925 12286 Dec-03 17019 20490 14595 17758 22718 15264 Dec-05 18189 23833 15833
The Standard & Poor's 500 Stock Index (the S&P 500) is a commonly used measure of the broad U.S. stock market. The Lehman Brothers Aggregate Bond Index is a measure of the U.S. bond 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 any Index. -------------------------------------------------------------------------------- Average Annual Total Returns (As of December 31, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- 10 Years 4.70% 5 Years 2.38% 1 Year 3.73%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value [divided by] $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Balanced VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II ------------------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,019.06 Expenses Paid During Period* $ 6.06
* Expenses are equal to the Portfolio's annualized expense ratio of 1.19% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Balanced VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2005 through December 31, 2005.
Share Class II ------------------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,019.21 Expenses Paid During Period* $ 6.06
* Expenses are equal to the Portfolio's annualized expense ratio of 1.19% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- The nation's economy grew persistently throughout 2005, producing strong earnings growth and healthier corporate balance sheets. The economy proved resilient to the effects of a variety of challenges, from hurricane damage in the Gulf Coast to sharply rising energy and commodity prices. To head off the possibility that inflationary pressures would build up as the economy grew, the U.S. Federal Reserve continued to tighten monetary policy. The Fed raised the Fed Funds rate eight different times during the calendar year. In the following interview, Timothy Mulrenan, who is responsible for the equity portfolio of Pioneer Balanced VCT Portfolio, and Richard Schlanger, who is responsible for the Portfolio's fixed-income investments, discuss the markets and the factors that affected performance. Q. How did the Portfolio perform, and what were the principal factors that affected Portfolio performance? A. Class II shares of Pioneer Balanced VCT Portfolio returned 3.73% at net asset value during the 12 months ended December 31, 2005. In comparison, the Standard & Poor's 500 Index and the Lehman Brothers Aggregate Bond Index returned 4.91% and 2.43%, respectively, over the same period. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Throughout the 12 months, we overweighted equities, with a target allocation of about 64% of Portfolio assets versus a 60% normal allocation. We invested the remaining 36% of assets in fixed income securities. We placed this emphasis on stocks because of the favorable earnings environment and our view that stocks were likely to produce positive returns during the year. At the same time, we were not sure how far the Federal Reserve Board intended to push short-term interest rates, and we believed bonds, in general, were fully valued in the market. The equity market did have a positive year, buoyed by positive earnings - profits of S&P 500 companies grew approximately 13%. Despite rising short-term interest rates and higher commodity prices, long-term interest rates were essentially unchanged over the 12 months. Other factors giving support to stock valuations included many stock buyback programs, initiated by corporations with more cash on their balance sheets, and increasing merger-and-acquisition activity. Despite all these positive factors, stock performance was held back by a number of concerns, including fears that higher short-term interest rates and high energy costs might undermine future corporate profitability. The major development in the fixed-income market was the dramatic flattening of the yield curve - which reflects the difference in yields between short-term and long-term securities. Normally, the yield curve steepens - yield differences become greater - the greater the difference in maturity between short- and long-term securities. However, the yield curve became so flat that it actually partially inverted by the end of the year, a highly unusual phenomenon in which 10-year yields actually became slightly lower than two-year yields. Despite the efforts of the Federal Reserve to raise short-term rates, long-term rates tended to fall or remain stable because of strong demand for U.S. Treasuries by international bond investors. Q. What areas in the equity and fixed income market performed better than others? A. In the equity market, mid-cap stocks did better than either small- or large-cap stocks, continuing a multi-year run for medium-sized companies. The value style of investing slightly outperformed the growth style, but the growth style performed somewhat better in the final two months of the year. We manage the Portfolio in a large-cap growth style. Driven by the dramatic increases in oil and natural gas prices, energy stocks were by far the performance leaders in the equity market. On average, energy stocks rose by 30%. Utilities also performed relatively well, while consumer discretionary stocks - especially in the automotive and media industries - lagged. In the fixed-income market, long-term investments outperformed short- and intermediate-term investments. With a backdrop of rising profits, investment grade and high-yield corporate bonds tended to do well. The notable exception was among a few fallen angels whose financial problems led to credit rating downgrades. Two highly visible examples were General Motors and Ford, both of which were downgraded from investment grade to high yield. Among governments, Treasuries outperformed mortgages, with long-term Treasuries doing especially well. Q. What equity investments had the greatest influence on performance? A. Our overweight position in energy stocks for most of the year and our stock selection within the energy sector helped boost performance. Two standout selections were National Oilwell Varco, a leading provider of oil field equipment, and ENSCO International, a prominent offshore contract driller. National Oilwell Varco's stock price rose substantially, driven by robust earnings, favorable A Word About Risk: When interest rates rise, the prices of fixed income securities in the Portfolio will generally fall. Conversely, when interest rates fall the prices of fixed income securities in the Portfolio will generally rise. Investments in the Portfolio are subject to possible loss due to the financial failure of underlying securities and their inability to meet their debt obligations. Prepayment risk is the chance that mortgage-backed bonds will be paid off early if falling interest rates prompt homeowners to refinance their mortgages. Forced to reinvest the unanticipated proceeds at lower interest rates, the Portfolio would experience a decline in income and lose the opportunity for additional price appreciation associated with falling interest rates. The Portfolio invests in REIT securities, the value of which can fall for a variety of reasons, such as declines in rental income, fluctuating interest rates, poor property management, environmental liabilities, uninsured damage, increased competition, or changes in real estate tax laws. Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. The Portfolio may invest in mortgage-backed securities, which during times of fluctuating interest rates may increase or decrease more than other fixed-income securities. Mortgage-Backed securities are also subject to pre-payments. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- pricing and a growing backlog of orders. We trimmed the position and took profits during the year. ENSCO's stock price appreciated by about 40% as the day rates for its oil rigs surged against a backdrop of growing demand and a tight supply of the drilling platforms. By the end of the year, we had taken some profits, but still hold ENSCO, and moved to a slight underweight position in energy. Our investments in health care also did well. Shares of generic pharmaceutical manufacturer IVAX doubled. The company was helped by both an impressive pipeline of new drugs approaching market and an acquisition offer from a competitor. Amgen, a major biotechnology firm, benefited from strong revenue gains across all its product lines and its own promising pipeline of new products under development, including prospective drugs for treatment of cancer and arthritis. Among the more disappointing positions was our investment in Symantec, a leading software security firm. Its stock price declined after the company in the second half of the year announced earnings that failed to meet expectations. Investors also became concerned about price competition in the software security industry and the possibility of new competition from Microsoft. The U.K.-based telecommunications services giant Vodafone also declined as its profit margins came under pressure because of difficulties in operations in Japan and in Europe. Also detracting from results was our investment in Family Dollar, a low-price retailer. Lower-income consumers, who make up a substantial part of Family Dollar's customer base, were particularly hard hit by rising energy prices. We eliminated our positions in Symantec and in Family Dollar. Q. What fixed-income investments had the greatest influence on performance? A. Our positioning on the yield curve did not help. In a period in which short-term interest rates were rising and longer-term rates were relatively stable, the best positioning would have been a bar-belled approach. That would place greater emphasis both on short-term securities - to take advantage of rising yields - and on long-term securities to take advantage of their high yields and price stability. However, we pursued a bulleted-approach with investments throughout the yield curve - including those in intermediate-term securities which tended to underperform other parts of the market. Also holding back results was our investment in bonds of auto parts manufacturer Delphi, which filed for bankruptcy protection during the year. We had liquidated our position in Delphi prior to their bankruptcy filing. During the year, as yields in many part of the market rose, we extended duration - a measure of sensitivity to interest rate changes. Duration on December 31, 2005, was 4.67 years, compared to 4.13 years six months earlier. Average credit quality remained at AA-, although we did reduce our exposure to high-yield securities. We also cut our mortgage position, while raising our allocation to Treasuries and agencies. Mortgages, however, still represented the largest sector weighting. Q. What is your investment outlook? A. We expect positive performance in the equity market if an environment of rising profits and strengthening balance sheets continues. We believe two key factors should influence the equity markets in 2006: the continued revival of corporate capital spending, which already grew by 20% during 2005 and the emergence of a performance edge by growth stocks, which have underperformed value stocks for several years. As we enter a new year, value stocks have reached price levels on a par with growth stocks, and we believe growth stocks should begin to outperform because of their greater earnings growth potential. Given this view, we have added to our positions in companies that can benefit from increasing capital spending, with investments in industrials, telecommunications equipment and information technology companies. We also have reduced our exposure to consumer discretionary stocks, although we continue to emphasize consumer staples with their more consistent earnings. For the fixed-income market, we anticipate that the Federal Reserve will move cautiously because of concerns about high debt levels of consumers. We believe the Fed may raise short-term rates two or three times more. We think the Fed Funds rate may level off in the range of 4.75% to 5.00%. Historically, the Fed has begun lowering rates four to six months after the end of its rate-hike cycles, and we believe this may occur again late in 2006. If that occurs, we expect the short-end and the intermediate parts of the yield curve to outperform the long-end, and we would position the Portfolio accordingly. Because of the tightening labor supply and high energy costs, we are carefully watching inflation trends and are prepared to become more defensive. We already have established a position in Treasury Inflation Protective Securities (TIPS) to guard against the impact of higher inflation. 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. 5 Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 64.7% Energy - 5.0% Integrated Oil & Gas - 0.5% 3,900 Exxon Mobil Corp. $ 219,063 ------------ Oil & Gas Drilling - 2.0% 19,500 ENSCO International, Inc. $ 864,825 ------------ Oil & Gas Equipment & Services - 2.0% 13,298 National-Oilwell Varco, Inc.* $ 833,785 ------------ Oil & Gas Exploration & Production - 0.4% 2,700 Encana Corp. $ 121,932 1,100 Pioneer Natural Resources Co. 56,397 ------------ $ 178,329 ------------ Total Energy $ 2,096,002 ------------ Materials - 4.5% Gold - 2.1% 16,800 Newmont Mining Corp. $ 897,120 ------------ Industrial Gases - 2.4% 19,000 Praxair, Inc. $ 1,006,240 ------------ Total Materials $ 1,903,360 ------------ Capital Goods - 4.6% Aerospace & Defense - 3.1% 21,800 Northrop Grumman Corp. $ 1,310,398 ------------ Industrial Conglomerates - 1.4% 7,900 3M Co. $ 612,250 ------------ Total Capital Goods $ 1,922,648 ------------ Commercial Services & Supplies - 0.5% Diversified Commercial Services - 0.5% 4,600 Cintas Corp. $ 189,428 ------------ Total Commercial Services & Supplies $ 189,428 ------------ Transportation - 2.0% Air Freight & Couriers - 2.0% 11,200 United Parcel Service $ 841,680 ------------ Total Transportation $ 841,680 ------------ Consumer Durables & Apparel - 1.5% Apparel, Accessories & Luxury Goods - 1.5% 18,100 Liz Claiborne, Inc. $ 648,342 ------------ Total Consumer Durables & Apparel $ 648,342 ------------ Media - 3.4% Broadcasting & Cable TV - 3.4% 18,100 Comcast Corp.* 464,989 29,319 Viacom, Inc. (Class B) 955,799 ------------ $ 1,420,788 ------------ Total Media $ 1,420,788 ------------
Shares Value Retailing - 1.4% Apparel Retail - 1.4% 20,500 Ross Stores, Inc. $ 592,450 ------------ Total Retailing $ 592,450 ------------ Food & Drug Retailing - 3.0% Drug Retail - 2.7% 43,400 CVS Corp. $ 1,146,628 ------------ Hypermarkets & Supercenters - 0.3% 2,500 Wal-Mart Stores, Inc. $ 117,000 ------------ Total Food & Drug Retailing $ 1,263,628 ------------ Food, Beverage & Tobacco - 6.4% Brewers - 0.6% 5,900 Anheuser-Busch Companies, Inc. $ 253,464 ------------ Packaged Foods & Meats - 1.7% 10,700 William Wrigley Jr. Co. $ 711,443 ------------ Soft Drinks - 4.1% 10,000 Coca-Cola Co. $ 403,100 22,300 PepsiCo, Inc. 1,317,484 ------------ $ 1,720,584 ------------ Total Food, Beverage & Tobacco $ 2,685,491 ------------ Household & Personal Products - 0.7% Personal Products - 0.7% 9,300 Estee Lauder Co. $ 311,364 ------------ Total Household & Personal Products $ 311,364 ------------ Health Care Equipment & Services - 2.9% Health Care Distributors - 1.0% 6,400 Cardinal Health, Inc. $ 440,000 ------------ Health Care Equipment - 1.9% 11,100 Biomet, Inc. $ 405,927 6,000 Guidant Corp. 388,500 ------------ $ 794,427 ------------ Total Health Care Equipment & Services $ 1,234,427 ------------ Pharmaceuticals & Biotechnology - 7.5% Biotechnology - 2.2% 11,616 Amgen, Inc.* $ 916,038 ------------ Pharmaceuticals - 5.3% 4,000 Eli Lilly & Co. $ 226,360 22,900 IVAX Corp.* 717,457 20,788 Pfizer, Inc. 484,776 17,800 Wyeth 820,046 ------------ $ 2,248,639 ------------ Total Pharmaceuticals & Biotechnology $ 3,164,677 ------------
6 The accompanying notes are an integral part of these financial statements. Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Banks - 1.3% Diversified Banks - 1.3% 11,900 Bank of America Corp. $ 549,185 ------------ Total Banks $ 549,185 ------------ Diversified Financials - 3.4% Asset Management & Custody Banks - 1.4% 960 Ameriprise Financial, Inc. $ 39,360 17,200 The Bank of New York Co., Inc. 547,820 ------------ $ 587,180 ------------ Consumer Finance - 1.5% 12,300 American Express Co. $ 632,958 ------------ Investment Banking & Brokerage - 0.4% 2,900 Merrill Lynch & Co., Inc. $ 196,417 ------------ Total Diversified Financials $ 1,416,555 ------------ Insurance - 4.4% Property & Casualty Insurance - 4.4% 485 Berkshire Hathaway, Inc. (Class B)* $ 1,423,718 3,700 Progressive Corp. 432,086 ------------ $ 1,855,804 ------------ Total Insurance $ 1,855,804 ------------ Software & Services - 6.3% Data Processing & Outsourced Services - 3.1% 30,500 First Data Corp. $ 1,311,805 ------------
Shares Value Systems Software - 3.2% 52,000 Microsoft Corp. $ 1,359,800 ------------ Total Software & Services $ 2,671,605 ------------ Technology Hardware & Equipment - 3.9% Communications Equipment - 2.3% 12,900 Avaya, Inc.* $ 137,643 21,900 Cisco Systems, Inc.* 374,928 10,900 Qualcomm, Inc. 469,572 ------------ $ 982,143 ------------ Computer Hardware - 1.5% 21,622 Hewlett-Packard Co. $ 619,038 ------------ Electronic Manufacturing Services - 0.0% 900 Molex, Inc. $ 22,131 ------------ Total Technology Hardware & Equipment $ 1,623,312 ------------ Semiconductors - 0.5% 7,800 Intel Corp. $ 194,688 ------------ Total Semiconductors $ 194,688 ------------ Telecommunication Services - 1.5% Wireless Telecommunication Services - 1.5% 28,500 Vodafone Group Plc (A.D.R.) $ 611,894 ------------ Total Telecommunication Services $ 611,894 ------------ TOTAL COMMON STOCKS (Cost $22,776,857) $ 27,197,328 ------------
The accompanying notes are an integral part of these financial statements. 7 Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value ASSET BACKED SECURITIES - 0.6% Diversified Financials - 0.2% Diversified Financial Services - 0.2% 76,659 BBB-/Baa2 PF Export Receivable Master Trust, 6.436%, 6/1/15 (144A) $ 76,541 ----------- Total Diversified Financials $ 76,541 ----------- Utilities - 0.4% Electric Utilities - 0.3% 65,325 BBB-/Baa3 FPL Energy Wind Funding, 6.876%, 6/27/17 (144A) $ 65,243 89,110 BB-/Ba2 FPL Energy America Wind LLC, 6.639%, 6/20/23 (144A) 92,661 ----------- Total Utilities $ 157,904 ----------- TOTAL ASSET BACKED SECURITIES (Cost $235,943) $ 234,445 ----------- COLLATERALIZED MORTGAGE OBLIGATIONS - 0.3% Diversified Financials - 0.3% Diversified Financial Services - 0.3% 100,000 BBB-/Baa3 Tower 2004-1A E, 5.395%, 1/15/34 $ 96,213 50,000 BBB-/Baa3 Tower 2004-2A F, 6.376%, 12/15/14 49,862 ----------- $ 146,075 ----------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $150,000) $ 146,075 ----------- CORPORATE BONDS - 9.6% Energy - 0.4% Integrated Oil & Gas - 0.1% 40,000 A-/A3 Occidental Petroleum, 6.75%, 1/15/12 $ 43,904 ----------- Oil & Gas Exploration & Production - 0.3% 100,000 BBB-/Baa3 Gazprom International SA, 7.201%, 2/1/20 (144A) $ 106,850 ----------- Oil & Gas Refining & Marketing - 0.0% 25,000 BBB/Baa2 Boardwalk Pipelines LLC, 5.5%, 2/1/17 $ 24,795 ----------- Total Energy $ 175,549 ----------- Materials - 1.3% Aluminum - 0.1% 50,000 B/B1 Novelis, Inc., 7.25%, 02/15/15 $ 46,625 ----------- Commodity Chemicals - 0.3% 100,000 BB+/Ba2 Nova Chemicals, Ltd., 6.5%, 1/15/12 $ 96,875 ----------- Diversified Metals & Mining - 0.3% 125,000 BBB-/Baa3 Inco, Ltd., 7.2%, 9/15/32 $ 137,530 ----------- Metal & Glass Containers - 0.1% 40,000 BBB/Baa2 Tenneco Packaging, 8.125%, 6/15/17 $ 45,373 ----------- Paper Products - 0.5% 100,000 BB-/Ba3 Abitibi-Consolidated, Inc., 6.95%, 4/1/08 $ 100,000 100,000 B/B2 MDP Acquisitions, 9.625%, 10/1/12 100,000 ----------- $ 200,000 ----------- Total Materials $ 526,403 -----------
8 The accompanying notes are an integral part of these financial statements. Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Capital Goods - 0.3% Electrical Component & Equipment - 0.1% 25,000 NR/Ba1 Orcal Geothermal, 6.21%, 12/30/20 (144A) $ 25,070 ----------- Industrial Conglomerates - 0.2% 55,000 AAA/Aaa General Electric Capital Corp., 6.125%, 2/22/11 $ 57,863 30,000 AAA/Aaa General Electric Capital Corp., 6.75%, 3/15/32 35,216 ----------- $ 93,079 ----------- Total Capital Goods $ 118,149 ----------- Automobiles & Components - 0.4% Auto Parts & Equipment - 0.1% 40,000 B+/Ba2 Sun Sage BV, 8.25%, 3/26/09 (144A) $ 42,150 ----------- Automobile Manufacturers - 0.3% 200,000 BB/Baa3 General Motors, 7.2%, 1/15/11 (a) $ 140,500 ----------- Total Automobiles & Components $ 182,650 ----------- Media - 1.3% Broadcasting & Cable TV - 0.9% 250,000 BBB+/Baa2 Comcast Cable Corp., 7.125%, 6/15/13 $ 271,735 100,000 BBB-/Baa3 Cox Communications, 7.125%, 10/1/12 107,148 ----------- $ 378,883 ----------- Publishing - 0.4% 170,000 BBB-/Baa3 News America, Inc., 7.3%, 4/30/28 $ 186,518 ----------- Total Media $ 565,401 ----------- Retailing - 0.1% Specialty Stores - 0.1% 50,000 BBB-/Baa3 Tanger Factory Outlet Centers, Inc., 6.15%, 11/15/15 $ 50,509 ----------- Total Retailing $ 50,509 ----------- Health Care Equipment & Services - 0.7% Health Care Facilities - 0.5% 200,000 BB+/Ba2 HCA, Inc., 6.3%, 10/1/12 $ 200,999 ----------- Health Care Supplies - 0.2% 100,000 BBB/Baa3 Bausch & Lomb, 7.125%, 8/1/28 $ 108,211 ----------- Total Health Care Equipment & Services $ 309,210 ----------- Banks - 0.3% Diversified Banks - 0.3% 50,000 NR/Aaa KFW-Kredit Wiederaufbau, 2.75%, 5/8/07 $ 48,879 75,000 AA-/Aa2 National Westminster, 7.375%, 10/1/09 81,424 ----------- $ 130,303 ----------- Total Banks $ 130,303 ----------- Diversified Financials - 0.9% Consumer Finance - 0.2% 100,000 A/A2 SLM Corp., Floating Rate Note, 7/25/14 $ 94,027 ----------- Investment Banking & Brokerage - 0.1% 75,000 B+/B1 E*Trade Financial Corp., 8.0%, 6/15/11 $ 78,000 -----------
The accompanying notes are an integral part of these financial statements. 9 Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Diversified Financial Services - 0.5% 100,000 A-/Baa3 Brascan Corp., 5.75%, 3/1/10 $ 101,554 100,000 BBB-/Baa3 Glencore Funding LLC, 6.0%, 4/15/14 (144A) 94,054 ----------- $ 195,608 ----------- Total Diversified Financials $ 367,635 ----------- Insurance - 1.3% Life & Health Insurance - 0.2% 100,000 BB+/Ba1 Provident Co., Inc., 7.0%, 7/15/18 $ 103,405 ----------- Multi-Line Insurance - 0.1% 50,000 A/Baa1 Loew Corp., 5.25%, 3/15/16 $ 49,414 ----------- Property & Casualty Insurance - 0.6% 85,000 BBB-/NR Kingsway America, Inc., 7.5%, 2/1/14 $ 87,581 150,000 BB/Baa3 Ohio Casualty Corp., 7.3%, 6/15/14 161,223 ----------- $ 248,804 ----------- Reinsurance - 0.3% 100,000 BBB-/Baa3 Odyssey Re Holdings, 7.65%, 11/1/13 $ 104,491 50,000 BBB/Baa3 Platinum Underwriters HD, 7.5%, 6/1/17 50,954 ----------- $ 155,445 ----------- Total Insurance $ 557,068 ----------- Real Estate - 1.0% Real Estate Investment Trusts - 1.0% 100,000 BBB-/Baa3 Colonial Reality LP, 6.15%, 4/15/13 $ 102,584 100,000 BBB-/Baa3 Health Care REIT, Inc., 6.2%, 6/1/16 100,042 107,000 B+/Ba3 Host Marriott LP, 6.375%, 3/15/15 106,733 75,000 B+/B1 Trustreet Properties Inc., 7.5%, 4/1/15 75,000 50,000 BB/Ba3 Ventas Realty Capital Corp., 7.125%, 6/1/15 (144A) 52,500 ----------- $ 436,859 ----------- Total Real Estate $ 436,859 ----------- Technology Hardware & Equipment - 0.6% Computer Hardware - 0.6% 250,000 BBB-/Baa3 NCR Corp., 7.125%, 6/15/09 $ 261,511 ----------- Total Technology Hardware & Equipment $ 261,511 ----------- Semiconductors - 0.2% 85,000 BBB-/Baa3 Chartered Semiconductor, 6.375%, 8/3/15 $ 84,508 ----------- Total Semiconductors $ 84,508 ----------- Telecommunication Services - 0.6% Integrated Telecommunication Services - 0.6% 140,000 BBB+/Baa2 Telecom Italia Capital, 4.875%, 10/1/10 137,254 100,000 BBB+/Baa2 Telecom Italia Capital, 5.25%, 11/15/13 $ 98,127 ----------- $ 235,381 ----------- Total Telecommunication Services $ 235,381 -----------
10 The accompanying notes are an integral part of these financial statements. Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Utilities - 0.1% Electric Utilities - 0.1% 50,000 BBB+/Baa3 Entergy Gulf States, 5.7%, 6/1/15 $ 48,931 ----------- Total Utilities $ 48,931 ----------- TOTAL CORPORATE BONDS (Cost $3,993,144) $ 4,050,067 ----------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 23.6% Government - 23.6% 100,000 Federal Home Loan Bank, 5.27%, 12/28/12 $ 99,880 149,538 Federal Home Loan Mortgage Corp., 4.5%, 12/1/20 145,516 210,875 Federal Home Loan Mortgage Corp., 5.0%, 5/1/34 204,568 107,559 Federal Home Loan Mortgage Corp., 5.5%, 10/1/16 108,320 174,289 Federal Home Loan Mortgage Corp., 5.5%, 12/1/35 172,727 150,000 Federal Home Loan Mortgage Corp., 5.75%, 1/15/12 157,382 945,583 Federal Home Loan Mortgage Corp., 6.0%, 1/1/33 956,663 231,738 Federal Home Loan Mortgage Corp., 6.0%, 11/1/33 234,324 34,234 Federal Home Loan Mortgage Corp., 6.0%, 6/1/34 34,579 21,615 Federal Home Loan Mortgage Corp., 6.5%, 5/1/09 22,128 15,199 Federal Home Loan Mortgage Corp., 6.5%, 11/1/33 15,644 124,701 Federal National Mortgage Association, 5.0%, 6/1/34 121,072 166,264 Federal National Mortgage Association, 5.5%, 2/1/17 167,483 143,830 Federal National Mortgage Association, 5.5%, 9/1/17 144,778 182,707 Federal National Mortgage Association, 5.5%, 11/1/33 181,367 350,765 Federal National Mortgage Association, 5.5%, 1/1/34 347,889 95,092 Federal National Mortgage Association, 5.5%, 3/1/34 94,252 177,101 Federal National Mortgage Association, 5.5%, 4/1/34 175,536 215,192 Federal National Mortgage Association, 5.5%, 9/1/34 213,291 248,203 Federal National Mortgage Association, 5.5%, 10/1/34 246,010 93,092 Federal National Mortgage Association, 5.5%, 12/1/34 92,269 78,534 Federal National Mortgage Association, 6.0%, 1/1/32 79,513 99,621 Federal National Mortgage Association, 6.0%, 12/1/33 100,661 110,000 Federal National Mortgage Association, 6.125%, 3/15/12 117,714 14,682 Federal National Mortgage Association, 6.5%, 8/1/13 15,104 12,747 Federal National Mortgage Association, 6.5%, 8/1/14 13,115 48,954 Federal National Mortgage Association, 6.5%, 12/1/21 50,599 48,249 Federal National Mortgage Association, 6.5%, 4/1/29 50,490 62,271 Federal National Mortgage Association, 6.5%, 7/1/32 64,010 95,315 Federal National Mortgage Association, 6.5%, 7/1/32 97,958 47,497 Federal National Mortgage Association, 6.5%, 9/1/32 49,078 28,657 Federal National Mortgage Association, 6.5%, 10/1/32 29,452 14,258 Federal National Mortgage Association, 6.5%, 10/1/32 14,654 10,000 Federal National Mortgage Association, 7.125%, 6/15/10 10,938 26,858 Federal National Mortgage Association, 9.0%, 4/1/33 28,354 41,439 Government National Mortgage Association, 4.5%, 1/15/35 39,769 98,994 Government National Mortgage Association, 4.5%, 4/15/35 95,004 92,251 Government National Mortgage Association, 5.0%, 4/15/34 91,149 315,457 Government National Mortgage Association, 5.0%, 10/15/34 311,704 52,644 Government National Mortgage Association, 5.5%, 4/15/33 53,058 170,262 Government National Mortgage Association, 5.5%, 6/15/33 171,601 137,610 Government National Mortgage Association, 5.5%, 7/15/33 138,691 199,735 Government National Mortgage Association, 5.5%, 8/15/19 202,683
The accompanying notes are an integral part of these financial statements. 11 Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value U.S. Government and Agency Obligations (Cont.) 150,112 Government National Mortgage Association, 5.5%, 8/15/33 $ 151,292 35,403 Government National Mortgage Association, 5.5%, 9/15/33 35,687 251,537 Government National Mortgage Association, 6.0%, 8/15/32 257,825 80,051 Government National Mortgage Association, 6.0%, 9/15/32 82,064 67,080 Government National Mortgage Association, 6.5%, 5/15/33 70,079 162,673 Government National Mortgage Association, 6.0%, 8/15/34 166,592 293,382 Government National Mortgage Association, 6.0%, 9/15/33 300,740 38,465 Government National Mortgage Association, 6.5%, 10/15/28 40,276 141,677 Government National Mortgage Association II, 5.5%, 2/20/34 142,296 49,940 Government National Mortgage Association II, 6.0%, 10/20/33 51,255 15,976 Government National Mortgage Association II, 7.5%, 9/20/29 16,731 50,000 U.S. Treasury Bonds, 4.0%, 2/15/14 48,645 175,000 U.S. Treasury Bonds, 5.25%, 11/15/28 190,873 100,000 U.S. Treasury Bonds, 6.25%, 8/15/23 119,414 470,000 U.S. Treasury Notes, 4.0%, 11/15/12 459,884 175,000 U.S. Treasury Notes, 4.125%, 5/15/15 171,165 100,000 U.S. Treasury Notes, 4.25%, 8/15/15 98,707 500,000 U.S. Treasury Notes, 4.25%, 11/15/14 494,180 200,000 U.S. Treasury Notes, 4.75%, 5/15/14 204,867 300,000 U.S. Treasury Notes, 4.75%, 11/15/08 302,883 130,000 U.S. Treasury Notes, 5.375%, 2/15/31 146,027 250,000 U.S. Treasury Notes, 5.625%, 5/15/08 256,817 257,486 U.S. Treasury Inflation Protected Security, 3.5%, 1/15/11 275,184 100,000 U.S. Treasury Strip, 0.0%, 11/15/15 64,393 ----------- Total Government $ 9,908,853 ----------- TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost $10,008,942) $ 9,908,853 ----------- Shares TEMPORARY CASH INVESTMENT - 0.3% Security Lending Collateral - 0.3% 141,455 Securities Lending Investment Fund, 4.24% $ 141,455 ----------- TOTAL TEMPORARY CASH INVESTMENT (Cost $141,455) $ 141,455 ----------- TOTAL INVESTMENTS IN SECURITIES - 99.1% (Cost $37,306,341) $41,678,223 ----------- OTHER ASSETS AND LIABILITIES - 0.9% $ 402,093 ----------- TOTAL NET ASSETS - 100.0% $42,080,316 ===========
(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, 2005, the value of these securities amounted to $555,069 or 1.3% of net assets. N/R Not rated by either S&P or Moody's. (a) At December 31, 2005, the following security was out on loan:
Principal Amount Security Market Value $ 190,000 General Motors, 7.2%, 1/15/11 $139,821 -------- Total $139,821 ========
12 The accompanying notes are an integral part of these financial statements. Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
5/1/03 (a) Year Ended Year Ended to Class II 12/31/05 12/31/04 12/31/03 Net asset value, beginning of period $ 14.38 $ 14.02 $ 12.67 ------- ------- ------- Increase from investment operations: Net investment income $ 0.19 $ 0.22 $ 0.14 Net realized and unrealized gain on investments 0.34 0.42 1.40 ------- ------- ------- Net increase from investment operations $ 0.53 $ 0.64 $ 1.54 Distributions to shareholders: Net investment income ( 0.24) ( 0.28) ( 0.19) ------- ------- -------- Net increase in net asset value $ 0.29 $ 0.36 $ 1.35 ------- ------- -------- Net asset value, end of period $ 14.67 $ 14.38 $ 14.02 ======= ======= ======= Total return* 3.73% 4.59% 12.17 %(b) Ratio of net expenses to average net assets+ 1.19% 1.19% 1.11%** Ratio of net investment income to average net assets+ 1.37% 1.81% 1.12%** Portfolio turnover rate 25% 30% 37%** Net assets, end of period (in thousands) $12,660 $10,452 $ 3,390 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.19% 1.19% 1.11%** Net investment income 1.37% 1.81% 1.12%**
(a) The Portfolio began offering Class II shares to the public on May 1, 2003. (b) Not annualized. * 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. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. The accompanying notes are an integral part of these financial statements. 13 Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $139,821) (Cost $ 41,678,223 $37,306,341) Cash 423,014 Receivables -- Investment securities sold 80,932 Fund shares sold 10,632 Dividends, interest and foreign taxes withheld 159,754 ------------ Total assets $ 42,352,555 ------------ LIABILITIES: Payables -- Investment securities purchased $ 43,301 Fund shares repurchased 5,240 Upon return for securities loaned 141,455 Due to affiliates 5,636 Accrued expenses 76,607 ------------ Total liabilities $ 272,239 ------------ NET ASSETS: Paid-in capital $ 41,790,013 Undistributed net investment income (loss) (4,725) Accumulated net realized gain (loss) (4,076,854) Net unrealized gain (loss) on investments 4,371,882 ------------ Total net assets $ 42,080,316 ------------ NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 29,419,900 Shares outstanding 2,000,046 ------------ Net asset value per share $ 14.71 Class II: (No par value, unlimited number of shares authorized) Net assets $ 12,660,416 Shares outstanding 862,830 ------------ Net asset value per share $ 14.67
14 The accompanying notes are an integral part of these financial statements. Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
Year Ended 12/31/05 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $560) $ 319,740 Interest 826,374 Income on securities loaned, net 2,706 ---------- Total investment income $1,148,820 ---------- EXPENSES: Management fees $ 289,737 Transfer agent fees and expenses 7,714 Distribution fees (Class II) 30,536 Administrative reimbursements 18,512 Custodian fees 16,760 Professional fees 49,599 Printing expense 16,402 Fees and expenses of nonaffiliated trustees 4,606 Miscellaneous 10,779 ---------- Total expenses $ 444,645 ---------- Net expenses $ 444,645 ---------- Net investment income $ 704,175 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain from investments $1,339,268 Change in net unrealized gain or loss from investments $ (318,959) ---------- Net gain on investments, futures contracts and foreign currency transactions $1,020,309 ========== Net increase in net assets resulting from operations $1,724,484 ==========
The accompanying notes are an integral part of these financial statements. 15 Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/05 12/31/04 FROM OPERATIONS: Net investment income $ 704,175 $ 857,444 Net realized gain on investments 1,339,268 1,099,149 Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions (318,959) 127,896 ------------ ------------ Net increase in net assets resulting from operations $ 1,724,484 $ 2,084,489 ------------ ------------ DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (588,607) $ (789,468) Class II (208,623) (155,092) ------------ ------------ Total distributions to shareowners $ (797,230) $ (944,560) ------------ ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 4,365,660 $ 8,978,890 Reinvestment of distributions 797,221 944,549 Cost of shares repurchased (9,774,029) (9,461,531) ------------ ------------ Net increase (decrease) in net assets resulting from Fund share transactions $ (4,611,148) $ 461,908 ------------ ------------ Net increase (decrease) in net assets $ (3,683,894) $ 1,601,837 ------------ ------------ NET ASSETS: Beginning of year $ 45,764,210 $ 44,162,373 ------------ ------------ End of year $ 42,080,316 $ 45,764,210 ============ ============ Undistributed (distributions in excess of) net investment income, end of year $ (4,725) $ 14,409 ============ ============
16 The accompanying notes are an integral part of these financial statements. Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Balanced VCT Portfolio is a Portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty-nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) The Portfolio commenced operations on May 1, 2003. Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts or 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. The Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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. Information concerning the Portfolio's principal investment risks is contained in the Portfolio's prospectus(es). Please refer to those documents when considering the Portfolio's risks. Investments in the Portfolio are subject to possible loss due to the financial failure of underlying securities and their inability to meet their debt obligations. The Portfolio may invest in mortgage-backed securities, which during times of fluctuating interest rates may increase or decrease more than other fixed-income securities. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. 17 Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- The following is a summary of significant accounting policies consistently followed by the Portfolio, 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 (NYSE) is open, as of the close of regular trading on the NYSE. 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 NYSE. The value of such securities used in computing the net asset value of the Portfolio's shares is based on the last sale price on the principal exchange where they traded. The Portfolio also may use the fair value of a security, including a non-U.S. security, when the closing market price on the primary exchange where the security is traded no longer accurately reflects the value of the security as of the close of the NYSE. At December 31, 2005, there were no fair valued securities. 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. 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 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, 2005, the portfolio had no open futures contracts. C. Taxes It is the Portfolio'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 amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal 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, 2005, Balanced Portfolio had a net capital loss carryforward of $3,999,891, of which the following amounts will expire between 2010 and 2011, if not utilized: $1,409,746 in 2010 and $2,590,145 in 2011. At December 31, 2005, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset values of the Portfolio and are designed to present the Portfolio's capital accounts on a tax basis. 18 Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Undistributed Accumulated Net Investment Net Realized Paid-In Portfolio Income (Loss) Gain (Loss) Capital -------------------------------------------------------------------------------- Pioneer Balanced VCT Portfolio $73,921 $(73,808) $(113)
The following chart shows the distributions paid during the years ended December 31, 2005 and December 31, 2004 and the components of distributable earnings (accumulated losses) as of December 31, 2005 on a tax basis.
------------------------------------------------------------------------------------------- 2005 2004 ------------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 797,097 $944,560 Long-Term capital gain -- -- ---------- -------- $ 797,097 $944,560 Return of Capital -- -- ---------- -------- Total distributions $ 797,097 $944,560 ========== ======== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ -- Undistributed long-term gain/(capital loss carryforward) (3,999,891) Unrealized appreciation (depreciation) 4,290,194 ---------- Total $ (290,303) ==========
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 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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. Distribution fees for Class II shares are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. 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 (excluding transfer agent and distribution fees) 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 the adjusted-net assets at the beginning of the day. The Portfolio declares as daily dividends substantially all of its respective net investment income. All dividends are paid on a monthly basis. Short-term capital gain distributions, if any, may be declared with the daily dividends. 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. 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 payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for the account of the Portfolio. 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 Portfolio has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Portfolio invests cash collateral in the Securities Lending Investment Fund which is 19 Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- sponsored by Brown Brothers Harriman & Co., the Portfolio'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, a wholly owned indirect subsidiary of UniCredito Italiano, manages the portfolios. Management fees are calculated daily at the 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, 2005, $1,515 was payable to PIM related to management fees, administrative fees and certain other services, and is included in due to affiliates. 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 $3,947 in transfer agent fees payable to PIMSS at December 31, 2005. 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 to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with the Portfolio's Class II shares. Included in due to affiliates is $174 payable to PFD at December 31, 2005. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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) ----------------------------------------------------------------------------------------------- Balanced Portfolio $37,388,029 $5,387,035 $ (1,096,841) $4,290,194 =========== ========== ============ ==========
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, 2005, were $8,312,687 and $12,418,655, respectively. The cost of purchase and the proceeds from sales in U.S. Government obligations were $2,731,418 and $2,851,574, respectively. 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
----------------------------------------------------------------------------------------------- Balanced Portfolio '05 Shares '05 Amount '04 Shares '04 Amount ----------------------------------------------------------------------------------------------- CLASS I: Shares sold 30,803 $ 441,468 78,321 $ 1,113,192 Reinvestment of distributions 40,641 588,607 55,609 789,468 Shares repurchased (522,797) (7,567,111) (586,843) (8,291,593) -------- ------------ -------- ------------ Net decrease (451,353) $ (6,537,036) (452,913) $ (6,388,933) ======== ============ ======== ============ CLASS II: Shares sold 272,986 $ 3,924,192 557,386 $ 7,865,698 Reinvestment of distributions 14,431 208,614 10,920 155,081 Shares repurchased (151,515) (2,206,918) (83,119) (1,169,938) -------- ------------ -------- ------------ Net increase 135,902 $ 1,925,888 485,187 $ 6,850,841 ======== ============ ======== ============ -----------------------------------------------------------------------------------------------
20 Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (unaudited) The qualifying percentage of certain Portfolios' ordinary income dividends for the purposes of the corporate dividends received deduction and the percentage of those ordinary dividends that are subject to a maximum tax rate of 15% as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were as follows:
-------------------------------------------------------------------------------- Dividend Qualified Received Dividend Deduction Income -------------------------------------------------------------------------------- Balanced Portfolio 37.72% 40.51% --------------------------------------------------------------------------------
21 Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the Shareowners of Pioneer Balanced VCT Portfolio: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Balanced VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for the periods indicated therein. 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 audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and financial highlights for the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 22 Pioneer Balanced VCT Portfolio (the "Fund") PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and two indices, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three, five and ten year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes matters considered by the Trustees in connection with their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 23 Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and two relevant indices, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the fifth quintile of the peer group for the 12 months ended June 30, 2005, the fourth quintile of the peer group for the three years ended June 30, 2005, the fourth quintile for the five years ended June 30, 2005 and the third quintile for the ten year period ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees also considered the yield (gross of expenses) of the Fund's Class I shares relative to the yield (as of June 30, 2005) of the Lehman Aggregate Bond Index and the S&P 500 Index. The fixed income portion of the portfolio performed well but the equity portion had underperformed its benchmark index. The Trustees concluded, in light of Pioneer's commitment to address the underperformance of the equity component, that the performance of the Fund supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's fixed income and equities groups. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the fourth quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the fourth quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. The Trustees concluded that the Fund's overall expense ratio was reasonable compared to that of peer funds. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. 24 Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. The Trustees concluded that, given current and anticipated asset levels, break points in the management fee are not necessary at this time. The Trustees will continue to evaluate annually the appropriateness of break points. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 25 Pioneer Balanced VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. -----------------------------------------------------------------------------------------------------------------------------------
26 Pioneer Balanced VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance or earlier services company) (2001-present); company); Director of New York retirement or Managing Partner, Federal City Mortgage Trust (publicly traded removal. Capital Advisors (boutique merchant mortgage REIT) bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ---------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products or earlier manufacturer), Mortgage Guaranty retirement or Insurance Corporation, and Briggs removal. & Stratton, Inc. (engine manufacturer) ---------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------
27 Pioneer Balanced VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
28 Pioneer Balanced VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, None Treasurer 2000. Serves at the Assistant Vice President - Fund discretion of the Accounting, Administration and Board. Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds. --------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. --------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. --------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 29 [LOGO]PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18672-00-0206 [LOGO] PIONEER Investments (R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Core Bond VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- Table of Contents -------------------------------------------------------------------------------- Pioneer Core Bond VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 6 Financial Statements 8 Notes to Financial Statements 12 Report of Independent Registered Public Accounting Firm 16 Factors Considered by the Independent Trustees in Approving the Management Contract 17 Trustees, Officers and Service Providers 20
Before investing, consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Please read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment in securities) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] U.S. Government Securities 90.8% U.S. Corporate Bonds 9.2%
Quality Distribution (As a percentage of total investment in securities) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Treasury/Agency 90.6% BBB 6.1% BB 2.0% B & Lower 1.1% Commercial Paper 0.2%
Five Largest Holdings (As a percentage of long-term holdings) 1. Government National Mortgage Association, 5.0%, 10/15/35 27.09% 2. Government National Mortgage Association, 4.5%, 3/15/20 26.84 3. U.S. Treasury Notes, 3.625%, 6/30/07 19.00 4. U.S. Treasury Bonds, 5.25%, 11/15/28 6.62 5. U.S. Treasury Inflation Protected Security, 3.0%, 7/15/12 5.92
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 7/15/05 Net Asset Value per Share $ 9.88 $ 10.00
Net Distributions per Share Investment Short-Term Long-Term (7/15/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.1608 $ - $ -
-------------------------------------------------------------------------------- Performance of a $10,000 Investment The following chart shows the change in value of an investment made in Pioneer Core Bond VCT Portfolio at net asset value, compared to that of the Lehman Brothers Aggregate Bond Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Core Lehman Bros. Bond VCT Aggregate Portfolio Bond Index Jul-05 10000 10000 Dec-05 10103 10083
The Lehman Brothers Aggregate Bond Index is a market value-weighted measure of treasury and agency issues, corporate bond issues and mortgage-backed 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, 2005)
Net Asset Value Life-of-Class (7/15/05) 0.42%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Please refer to variable product's semiannual report for performance that reflects the deduction of the variable products fees and charges. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers, performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value [divided by] $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Core Bond VCT Portfolio Based on actual returns from July 15, 2005 through December 31, 2005
Share Class II ------------------------------------------------------------ Beginning Account Value on 7/15/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,004.20 Expenses Paid During Period* $ 3.94
* Expenses are equal to the Portfolio's annualized expense ratio of 0.85% for Class II shares, multiplied by the average account value over the period, multiplied by 169/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Core Bond VCT Portfolio Based on a hypothetical 5% per year return before expenses, reflecting the period from July 15, 2005 through December 31, 2005
Share Class II ------------------------------------------------------------ Beginning Account Value on 7/15/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,019.22 Expenses Paid During Period* $ 3.97
* Expenses are equal to the Portfolio's annualized expense ratio of 0.85% for Class II shares, multiplied by the average account value over the period, multiplied by 169/365 (to reflect the one-half year period). 3 Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- Rising interest rates undermined the performance of most fixed income investments during the second half of 2005, a period in which some major benchmarks of bond market performance produced negative results. Interest rates rose among securities of virtually all maturities during the period, causing prices to slip. In this challenging environment, mortgages tended to perform well. In the following interview, Kenneth J. Taubes discusses the factors that influenced Pioneer Core Bond VCT Portfolio's performance from its inception on July 15, 2005, through December 31, 2005. Mr. Taubes, Director of Pioneer's Fixed Income Group, oversees the team responsible for the daily management of the Portfolio. Q: How did the Portfolio perform since its inception? A: Pioneer Core Bond VCT Portfolio (Class II Shares) had a total return of 0.42% at net asset value since it began investment operations on July 15, 2005, through the end of 2005. The Portfolio's benchmark, the Lehman Brothers Aggregate Bond Index returned 0.83% over the period from July 31, 2005 through December 31, 2005. The process of constructing the initial portfolio, and its associated costs, detracted from the Portfolio's performance versus its benchmark during the period. On December 31, 2005, the SEC standardized 30-day yield for Class II shares of the Portfolio was 3.38%. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q: What were the principal factors affecting Portfolio performance? A: Against a backdrop of persistent economic growth, the Federal Reserve Board continued to tighten monetary policy. The central bank raised the key fed funds rate eight different times during the period as the rate rose from 2.25% to 4.25% by the end of 2005. While the rate hikes were widely expected, they nevertheless had an impact on the financial markets. Yields of securities of most securities rose and prices declined during the period. This particularly affected short to intermediate treasury securities. The principal exception was the 30-year Treasury bond, where the yields actually declined. Over the year, the difference between the yields of shorter- and longer-term securities grew smaller -- the yield curve flattened. At year's end, the yield curve even had inverted in some places. That phenomenon, when interest rates of shorter maturity securities become higher than some longer maturity securities, is a reversal of the usual relationships and has been associated with a relatively restrictive federal monetary policy. Because of the flattening of the yield curve, performance of fixed income portfolios was heavily influenced by the distribution of maturities in the portfolio. Intermediate term bonds, in the middle of the yield curve, tended to perform relatively poorly. Among higher-quality domestic investments, mortgages generally outperformed Treasuries, as well as highly-rated corporate bonds. In a challenging period for fixed- income markets, mortgages offered relatively good yield with less principal loss than other sectors. Corporate bonds delivered modestly positive results, with high-yield bonds performing slightly better as the higher income of these lower-rated securities made up for price differences on a total-return basis. A Word About Risk: When interest rates rise, the prices of fixed income securities in the Portfolio will generally fall. Conversely, when interest rates fall, the prices of fixed income securities in the Portfolio will generally rise. Investments in the Portfolio are subject to possible loss due to the financial failure of underlying securities and their inability to meet their debt obligations. Prepayment risk is the chance that mortgage-backed bonds will be paid off early if falling interest rates prompt homeowners to refinance their mortgages. Forced to reinvest the unanticipated proceeds at lower interest rates, the Portfolio would experience a decline in income and lose the opportunity for additional price appreciation associated with falling interest rates. Investments in high yield or lower-rated securities are subject to greater-than-average risk. The securities issued by U.S. Government sponsored entities (i.e., FNMA, Freddie Mac) are neither guaranteed nor issued by the U.S. Government. The Portfolio may invest in mortgage-backed securities, which during times of fluctuating interest rates may increase or decrease more than other fixed-income securities. Mortgage-Backed securities are also subject to pre-payments. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers, performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Q: What were your principal strategies during the period and how did they affect performance? A: Our emphasis on higher-quality securities and our overweight position in government agency mortgage-backed securities helped performance during a challenging period in the fixed-income market. At the end of the period, 53 % of Portfolio assets were invested in mortgage securities. In addition, we were well positioned on the yield curve, with a greater emphasis on higher-yielding, longer-maturity bonds that outperformed intermediates. We also emphasized Treasuries, with a relatively strong position in Treasury Inflation Protected Securities (TIPS), and this also supported results. On December 31, 2005, 37% of Portfolio assets were invested in Treasuries, including TIPS. Conversely, as we recognized that the yield advantages of corporate bonds were declining, we maintained a relatively small exposure to the corporate sector. Corporate securities accounted for just 9.10% of Portfolio assets at the end of 2005, including 6.10% in investment-grade corporates. Average credit quality for the Portfolio stood at AA+ at December 31, 2005. The Portfolio's effective duration -- a measure of sensitivity to changes in interest rates -- was 4.85 years on December 31, 2005, while average maturity was 7.23 years. Our goal for the Portfolio is to provide current income consistent with capital preservation and prudent risk. The Portfolio focuses on investment-grade, fixed income securities in pursuit of the goal. Q: What is your investment outlook? A: We anticipate that the pace of economic growth may slow in 2006, but the economy should continue to expand. The Federal Reserve Board may continue to raise short-term rates in the early part of the year, but we do not anticipate that monetary policy will become so restrictive as to push the economy into recession. At a time when spreads -- or the differences between yields -- are tight between yields of fixed-income securities of different credit quality, we expect to continue to focus on higher-quality securities. We anticipate maintaining an emphasis on mortgage-backed securities over corporate bonds. Increased corporate merger-and-acquisition activity poses a potential threat to holders of investment-grade corporate bonds, as many merger deals benefit shareholders more than bondholders. 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. 5 Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings (unaudited) Value CORPORATE BONDS - 9.1% Capital Goods - 0.5% Electrical Component & Equipment - 0.5% $ 5,000 NR/Ba1 Orcal Geothermal, 6.21%, 12/30/20 $ 5,014 -------- Total Capital Goods $ 5,014 -------- Media - 1.0% Broadcasting & Cable TV - 1.0% 10,000 BBB+/Baa2 Comcast Corp., 5.85%, 11/15/15 $ 10,129 -------- Total Media $ 10,129 -------- Retailing - 0.5% Specialty Stores - 0.5% 5,000 BBB-/Baa3 Tanger Factory Outlet Centers, Inc., 6.15%, 11/15/15 $ 5,051 -------- Total Retailing $ 5,051 -------- Insurance - 3.1% Life & Health Insurance - 0.5% 5,000 B-/B2 Presidential Life Corp., 7.875%, 2/15/09 $ 4,950 -------- Multi-Line Insurance - 0.5% 5,000 BB/Ba1 Hanover Insurance Group, 7.625%, 10/15/25 $ 5,128 -------- Property & Casualty Insurance - 1.1% 10,000 BB+/Baa3 Ohio Casualty Corp., 7.3%, 6/15/14 $ 10,748 -------- Reinsurance - 1.0% 10,000 BBB/Baa2 Platinum Underwriters Financial, 7.5%, 6/1/17 $ 10,191 -------- Total Insurance $ 31,017 -------- Real Estate - 3.0% Real Estate Investment Trusts - 3.0% 10,000 BBB-/Baa3 Health Care, Inc., 6.0%, 11/15/13 $ 10,006 5,000 BBB/Baa2 Hospitality Properties Trust, 5.125%, 2/15/15 4,784 10,000 BB-/Ba2 Host Marriott LP, 6.375%, 3/15/15 9,975 5,000 B+/B1 Trustreet Properties, Inc., 7.5%, 4/1/15 (144A) 5,000 -------- $ 29,765 -------- Total Real Estate $ 29,765 -------- Semiconductors - 1.0% Semiconductors - 1.0% 10,000 BBB-/Baa3 Chartered Semiconductor, 6.375%, 8/3/15 $ 9,942 -------- Total Semiconductors $ 9,942 -------- TOTAL CORPORATE BONDS (Cost $91,318) $ 90,918 --------
6 The accompanying notes are an integral part of these financial statements. Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal Amount Value U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 90.3% $ 270,663 Government National Mortgage Association, 4.5%, 3/15/20 $265,324 271,209 Government National Mortgage Association, 5.0%, 8/15/35 267,819 60,000 U.S. Treasury Bonds, 5.25%, 11/15/28 65,442 55,388 U.S. Treasury Inflation Protected Security, 3.0%, 7/15/12 58,564 190,000 U.S. Treasury Notes, 3.625%, 6/30/07 187,833 10,000 U.S. Treasury Notes, 4.875%, 2/15/12 10,267 60,000 U.S. Treasury Strip, Zero Coupon, 11/15/13 42,338 -------- $897,587 -------- TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost $908,555) $897,587 -------- TOTAL INVESTMENT IN SECURITIES - 99.4% (Cost $999,873) $988,505 -------- OTHER ASSETS AND LIABILITIES - 0.6% $ 5,851 -------- TOTAL NET ASSETS - 100.0% $994,356 ========
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, 2005, the value of these securities amounted to $5,000 or 0.5% of total net assets. N/R Not rated by either S&P or Moody's. The accompanying notes are an integral part of these financial statements. 7 Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
7/15/05(a) to Class II 12/31/05 Net asset value, beginning of period $ 10.00 ------- Increase (decrease) from investment operations: Net investment income $ 0.16 Net realized and unrealized loss on investments (0.12) ------- Net increase in net assets from investment operations $ 0.04 ------- Distributions to shareowners: Net investment income (0.16) ------- Net decrease in net asset value $ (0.12) ------- Net asset value, end of period $ 9.88 ======= Total return* 0.42%(b) Ratio of net expenses to average net assets 0.85%** Ratio of net investment income to average net assets 3.57%** Portfolio turnover rate 7%(b) Net assets, end of period (in thousands) $ 994 Ratios with no waiver of management fees and assumption of expenses by PIM Net expenses 10.10%** Net investment loss (5.68)%**
(a) The Portfolio commenced operations on July 15, 2005. (b) Not annualized. * 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. NOTE: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. 8 The accompanying notes are an integral part of these financial statements. Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (cost $999,873) $ 988,505 Cash 1,812 Receivables -- Dividends, interest and foreign taxes withheld 8,142 Due from Pioneer Investment Management, Inc. 41,299 ---------- Total assets $1,039,758 ---------- LIABILITIES: Payables -- Dividends $ 4,111 Due to affiliates 11,372 Accrued expenses 29,919 ---------- Total liabilities $ 45,402 ---------- NET ASSETS: Paid-in capital $1,006,297 Undistributed net investment income 365 Accumulated net realized loss on investments (938) Net unrealized loss on: Investments (11,368) ---------- Total net assets $ 994,356 ---------- NET ASSET VALUE PER SHARE: Class II: (No par value, unlimited number of shares authorized) Net assets $ 994,356 Shares outstanding 100,647 ---------- Net asset value per share $ 9.88
The accompanying notes are an integral part of these financial statements. 9 Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
For the period from 7/15/05 (Commencement of Operations) to 12/31/05 INVESTMENT INCOME: Interest $ 20,292 --------- Total investment income $ 20,292 --------- EXPENSES: Management fees $ 2,243 Transfer agent fees and expenses 733 Distribution fees 1,121 Administrative reimbursements 8,575 Custodian fees 7,436 Professional fees 16,488 Printing expense 6,929 Fees and expenses of nonaffiliated trustees 2,268 Miscellaneous 586 --------- Total expenses $ 46,379 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (42,474) --------- Net expenses $ 3,905 --------- Net investment income $ 16,387 --------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss from: Investments $ (915) --------- Change in net unrealized loss from: Investments $ (11,368) --------- Net loss on investments $ (12,283) --------- Net increase in net assets resulting from operations $ 4,104 =========
10 The accompanying notes are an integral part of these financial statements. Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
For the period from 7/15/05 (Commencement of Operations) to 12/31/05 FROM OPERATIONS: Net investment income $ 16,387 Net realized loss on investments (915) Change in net unrealized loss on investments (11,368) ---------- Net increase in net assets resulting from operations $ 4,104 ---------- DISTRIBUTIONS TO SHAREOWNERS Net investment income: Class II $ (16,140) ---------- Total distributions to shareholders $ (16,140) ---------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $1,006,348 Reinvestment of distributions 63 Cost of shares repurchased (19) ---------- Net increase in net assets resulting from Fund share transactions $1,006,392 ---------- Net increase in net assets $ 994,356 NET ASSETS: Beginning of period -- ---------- End of period $ 994,356 ========== Undistributed net investment income, end of period $ 365 ==========
The accompanying notes are an integral part of these financial statements. 11 Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Core Bond VCT Portfolio (The Portfolio) is a Portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) The Portfolio commenced operations on July 15, 2005. Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts or by qualified pension and retirement plans. Core Bond Portfolio seeks to provide current income from an investment grade portfolio with due regard to preservation of capital and prudent investment risk. The financial statements and financial highlights of all other Portfolios are presented in separate books. The Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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 Portfolio, in the preparation of its financial statements, which are consistent 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 (NYSE) is open, as of the close of regular trading on the NYSE. In computing the net asset values, securities are valued at the last sale price on the principal exchange where they are traded. Temporary cash investments are valued at amortized cost. 12 Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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. 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. At times, the Portfolio's Investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Information regarding the Portfolio's principal investment risks is contained in the Portfolio's prospectus. Please refer to those documents when considering the Portfolio's risks. B. Taxes It is the Portfolio'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 amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal income tax rules. Therefore, the source of the 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. The Portfolio elected to defer $945 in capital losses recognized between November 1, 2005 and December 31, 2005 to its fiscal year ended December 31, 2006. At December 31, 2005, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset values of the Portfolio and are designed to present the Portfolio's capital accounts on a tax basis.
-------------------------------------------------------------------------------------------- Undistributed Net Investment Income Accumulated Net Portfolio (Loss) Realized Gain (Loss) Paid-In Capital -------------------------------------------------------------------------------------------- Core Bond Portfolio $118 $ (23) $ (95) --------------------------------------------------------------------------------------------
The following chart shows the distributions paid during the period ended December 31, 2005 on a tax basis and the components of distributable earnings (accumulated losses) as of December 31, 2005.
-------------------------------------------------------------------------------------------- 2005 -------------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 16,140 Long-Term capital gain/capital loss carryforward -- --------- $ 16,140 Return of Capital -- --------- Total distributions $ 16,140 ========= Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 562 Undistributed long-term gain/(capital loss carryforward) -- Post-October Loss Deferred (945) Unrealized appreciation (depreciation) (11,558) --------- Total $ (11,941) ========= --------------------------------------------------------------------------------------------
13 Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax treatment of amortization on securities purchased at premium. C. Portfolio Shares The Portfolio records sales and repurchases of its 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), $638,021 in commissions on the sale of Trust shares for the period ended December 31, 2005. 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 payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for the 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 Portfolio has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Portfolio invests cash collateral in the Securities Lending Investment Fund which is sponsored by Brown Brothers Harriman & Co., the Trust's custodian. 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, a wholly owned indirect subsidiary of UniCredito Italiano, manages the portfolios. Management fees are calculated daily at the annual rate of 0.50% of the Portfolio's average daily net assets. Through May 1, 2007, PIM has agreed not to impose all or a portion of its management fee and to assume other operating expenses of the Portfolio to the extent necessary to limit Class II expenses to 0.85% of the average daily net assets attributable to Class II shares. 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, 2005, $10,587 was payable to PIM related to management fees, administrative reimbursements and certain other services, and is included in due to affiliates. 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 $608 in transfer agent fees payable to PIMSS at December 31, 2005. 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 to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with the Portfolio's Class II shares. Included in due to affiliates is $177 payable to PFD at December 31, 2005. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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) -------------------------------------------------------------------------------------------- Core Bond Portfolio $1,000,063 $623 $ (12,181) $ (11,558) ========== ==== ========= ========= --------------------------------------------------------------------------------------------
14 Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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, 2005, were $147,975 and $55,650, respectively. The cost of purchases and the proceeds from sales of investments in U.S. Government obligations for the period ended December 31, 2005, were $915,629 and $8,128, respectively. 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the period ended December 31, 2005:
-------------------------------------------------------------------------------- Core Bond Portfolio '05 Shares '05 Amount -------------------------------------------------------------------------------- CLASS II: Shares sold 100,642 $1,006,348 Reinvestment of distributions 7 63 Shares repurchased (2) (19) ------------------------------- Net increase 100,647 $1,006,392 =============================== --------------------------------------------------------------------------------
15 Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the Shareowners of Pioneer Core Bond VCT Portfolio: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Core Bond VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, and the related statements of operations and changes in net assets, and the financial highlights for the period from July 15, 2005 (commencement of operations) to December 31, 2005. 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 the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian. 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 Core Bond VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations, changes in its net assets, and the financial highlights for the period from July 15, 2005 (commencement of operations) to December 31, 2005 in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 16 Pioneer Core Bond VCT Portfolio (the "Fund") PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and two indices, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for the life of the Fund period for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's initial investment performance based upon total return, as well as the Fund's 17 Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and two relevant indices, in each case selected by the Independent Trustees for this purpose. The Trustees concluded that the period since commencement of investment operations was too short to evaluate the Investment Adviser's performance. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's fixed income group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee from commencement of operations through June 30, 2005 was in the second quintile relative to the management fees paid by the other funds in that peer group for the comparable period. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio from commencement of operations through June 30, 2005 was in the second quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. The Trustees concluded that the Fund's overall expense ratio was reasonable compared to that of peer funds. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. The Trustees concluded that, given current and anticipated asset levels, break point in the management fee are not necessary at this time. The Trustees will continue to evaluate annually the appropriateness of break points. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, 18 Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under tionship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 19 Pioneer Core Bond VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS -------------------------------------------------------------------------------- Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com.
----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. -----------------------------------------------------------------------------------------------------------------------------------
20 Pioneer Core Bond VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance or earlier services company) (2001-present); company); Director of New York retirement or Managing Partner, Federal City Mortgage Trust (publicly traded removal. Capital Advisors (boutique merchant mortgage REIT) bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ---------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products or earlier manufacturer), Mortgage Guaranty retirement or Insurance Corporation, and Briggs removal. & Stratton, Inc. (engine manufacturer) ---------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------
21 Pioneer Core Bond VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TRUST OFFICERS --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Core Bond VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TRUST OFFICERS --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, Assistant Vice President - Fund None Treasurer 2000. Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds. --------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. --------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. --------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 23 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 24 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 25 [LOGO]PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18684-00-0206 [Logo] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Cullen Value VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Table of Contents -------------------------------------------------------------------------------- Pioneer Cullen Value VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 6 Financial Statements 8 Notes to Financial Statements 12 Report of Independent Registered Public Accounting Firm 16 Factors Considered by the Independent Trustees in Approving the Management Contract 17 Trustees, Officers and Service Providers 20
Before investing, consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Please read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Portfolio Diversification (As a percentage of total investment portfolio) U.S. Common Stocks 73.4% Depositary Receipts for International Stocks 23.5% International Common Stocks 3.1%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution (As a percentage of equity holdings) Financials 32.2% Industrials 13.7% Consumer Staples 13.2% Information Technology 12.2% Health Care 8.5% Materials 8.3% Energy 6.0% Consumer Discretionary 5.9%
Five Largest Holdings (As a percentage of equity holdings) 1. Chubb Corp. 3.57% 2. GlaxoSmithKline 3.54 3. Anglo American Plc 3.39 4. Cemex SA (A.D.R.) 3.37 5. Wachovia Corp. 3.36
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 3/18/05 Net Asset Value per Share $ 10.99 $ 10.00
Net Distributions per Share Investment Short-Term Long-Term (3/18/05 - 12/31/05) Income Capital Gains Capital Gains $ - $ - $ -
-------------------------------------------------------------------------------- Performance of a $10,000 Investment The following chart shows the change in value of an investment made in Pioneer Cullen Value VCT Portfolio at net asset value, compared to that of the Standard & Poor's (S&P) 500 Index and the Russell 1000 Value Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
S&P 500 Pioneer Cullen Value VCT Portfolio Russell 1000 Value Index Mar-5 10000 10000 10000 Dec-5 10721 11056 10696
The Standard & Poor's 500 Stock Index (the S&P 500) is a commonly used measure of the broad U.S. stock market. The Russell 1000 Value Index measures the performance of large-cap U.S. value stocks. Index returns assume reinvestment of dividends and, unlike Portfolio returns, do not reflect any fees, expenses or sales charges. You cannot invest directly in the Index. -------------------------------------------------------------------------------- Cumulative Total Returns (As of December 31, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- Life-of-Class 9.90% (3/18/05)
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value [divided by] $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Cullen Value VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,091.36 Expenses Paid During Period* $ 5.24
* Expenses are equal to the Portfolio's annualized expense ratio of 1.00% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Cullen Value VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,020.05 Expenses Paid During Period* $ 5.06
* Expenses are equal to the Portfolio's annualized expense ratio of 1.00% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- Since Pioneer Cullen Value VCT Portfolio's inception on March 18, 2005 there has been consistent growth both in the economy and in corporate profitability, despite interim scares about the impact of hurricane damage in the Gulf region, sharply rising energy prices and higher short-term interest rates. Stock market indices generally rose during the period, with some selected sectors and stocks performing particularly well. In the following interview, James P. Cullen, President of Cullen Capital Management and the leader of the management team for the Fund, discusses the factors that influenced the performance of Pioneer Cullen Value VCT Portfolio during the period from March 18, 2005 through December 31, 2005. Q: How did the Portfolio perform? A: The Portfolio substantially outperformed market benchmarks. For the period from inception through December 31, 2005, Pioneer Cullen Value VCT Portfolio returned 9.90% at net asset value. During the same time periods, the Standard & Poor's 500 Index returned 7.21%, while the Russell 1000 Value Index returned 6.96%. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q: What were the principal factors that affected performance? A: Stock selection was the principal driver of performance. We also were helped by an underweight position in the energy sector and our decision in October to initiate positions in traditional growth stocks whose stock valuations had fallen far enough to meet our criteria as value investors. Our strategy is to focus on the longer term and to stick to our discipline, which focuses on companies with lower-than-average prices and high dividend yields and strong balance sheets. Our investment universe encompasses those companies whose stock valuations - as measured by price/earnings ratios - are in the lowest 20% of the market. Many of these companies are mispriced and we try to find these mispriced companies through intense analysis. As part of our strategy, we like to take advantage of companies that can benefit from longer-term secular themes, such as the globalization of the world economies. We have a concentrated portfolio of approximately 37 different companies, and Fund turnover tends to be relatively low. Stocks in general went through a sharp correction in October 2005 following the devastation of New Orleans and the Gulf Coast from Hurricanes Katrina and Rita and the sharp increases in energy prices that quickly followed. We took advantage of this unusual occurrence to invest in several traditional growth companies whose prices had fallen to levels that made them eligible for consideration for our portfolio. They included Home Depot, Hewlett-Packard, Nokia and Motorola. The stock prices of these traditional growth companies subsequently began recovering in the final two months of 2005 and had a significant impact on the Portfolio's strong performance. Also helping performance was our decision before the period began to move from an overweight to an underweight position in energy stocks. Investors began taking profits from their energy holdings in the final half of the year after strong performance by the energy sector earlier. Q: What were some of the individual stocks that had the greatest positive impact on results? A: The growth stocks mentioned earlier turned out to be strong performers. Hewlett-Packard, a leader in the technology hardware industry, rose sharply as investors reacted enthusiastically to the appointment of a new chief executive and the expectation that the company would move in a new direction. Home Depot's valuation rose as a result of the company's restructuring, which included a greater focus on business with construction contractors. Nokia and Motorola both were positioned to benefit from the globalization of communications, the expansion of wireless telecommunications services into emerging markets and the introduction of a new generation of wireless phones. Several of the Portfolio's other better-performing investments were companies that exemplified the globalization theme. They included Anglo American of the United Kingdom, a leading gold and copper mining company with operations in South America, A Word About Risk: Investments in mid-sized companies may offer the potential for higher returns, but are also subject to greater short-term price fluctuations than larger, more established companies. The Portfolio invests in a limited number of securities and, as a result, the Portfolio's performance may be more volatile than the performance of other portfolios holding more securities. Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Africa and Asia. Its stock, which had been trading at inexpensive levels, appreciated as the prices of gold and copper rose. Cemex, the Mexican-based basic materials company with significant operations throughout the world, including the United States, also turned in strong stock performance. Our strategy in the financial industry also supported results, as we emphasized companies with global franchises, such as J.P Morgan Chase and Merrill Lynch, as well as domestic companies that eventually could be acquisition candidates in a consolidating industry. Those included Regions Financial, an undervalued regional bank headquartered in Montgomery, Alabama. Although we usually concentrate on large-cap companies, we do have some investments in mid-caps. Two mid-cap companies that performed well during the six months were Arrow Electronics, which has developed a global business in electrical components, and BorgWarner, a manufacturer of advanced automotive equipment, including drive trains. Q: What were some of the disappointments? A: Two of our remaining energy positions, Anadarko and Petrobras, suffered small price declines, but still outperformed the energy sector during the period. Anadarko, an exploration and production company, has good long-term potential and could be an acquisition candidate. We did not hold Petrobras at the end of the period. Our health care holdings also held back results. We have sold our position in Pfizer for tax reasons, but we continue to see value in the sector since it has fallen out of favor. Constellation Energy, a utility company that we owned early in the period, also detracted from results before we liquidated our position. Q: What is your investment outlook? A: We expect to continue to pursue our globalization theme in 2006, and we see some interesting opportunities. We are particularly interested in investments in companies that are globalizing their businesses, whether they are domestic or international. Three years after the world economy emerged from recession, companies are finding ways to cut costs, become more productive and still be more competitive in the global marketplace. This includes financial companies such as J.P. Morgan Chase and Merrill Lynch. We also have added a number of positions in foreign companies that are becoming leading consumer staples competitors in the global marketplace. They include: Unilever, a personal care products company based in the Netherlands; Nestle, the Swiss-based food products company; and Diageo, a London-based company marketing alcoholic beverages worldwide under a number of different brand names. Our focus continues to be on finding value in companies that we believe are well positioned to produce gains within a three- to five-year time frame. 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. 5 Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 90.7% Energy - 5.4% Coal & Consumable Fuels - 0.4% 300 Cameco Corp. $ 19,017 ---------- Integrated Oil & Gas - 1.9% 1,500 ConocoPhillips $ 87,270 ---------- Oil & Gas Exploration & Production - 3.1% 750 Anadarko Petroleum Corp. $ 71,063 1,100 Devon Energy Corp. 68,794 ---------- $ 139,857 ---------- Total Energy $ 246,144 ---------- Materials - 7.6% Construction Materials - 3.1% 2,330 Cemex SA (A.D.R.) $ 138,239 ---------- Diversified Metals & Mining - 3.1% 4,000 Anglo American Plc $ 139,120 ---------- Forest Products - 1.4% 950 Weyerhaeuser Co. $ 63,023 ---------- Total Materials $ 340,382 ---------- Capital Goods - 3.9% Aerospace & Defense - 1.2% 1,340 Raytheon Co. $ 53,801 ---------- Industrial Conglomerates - 2.7% 3,520 General Electric Co. $ 123,376 ---------- Total Capital Goods $ 177,177 ---------- Transportation - 8.5% Railroads - 8.5% 1,610 Canadian National Railway Co. $ 128,784 3,000 Canadian Pacific Railway, Ltd. 125,850 2,900 Norfolk Southern Corp. 130,007 ---------- $ 384,641 ---------- Total Transportation $ 384,641 ---------- Automobiles & Components - 2.7% Auto Parts & Equipment - 2.7% 2,040 Borg-Warner Automotive, Inc. $ 123,685 ---------- Total Automobiles & Components $ 123,685 ---------- Retailing - 2.6% Home Improvement Retail - 2.6% 2,960 Home Depot, Inc. $ 119,821 ---------- Total Retailing $ 119,821 ---------- Food, Beverage & Tobacco - 12.0% Agricultural Products - 2.0% 3,570 Archer Daniels Midland Co. $ 88,036 ---------- Distillers & Vintners - 2.7% 2,130 Diageo Plc (A.D.R.) $ 124,179 ----------
Shares Value Packaged Foods & Meats - 7.3% 1,660 General Mills, Inc. $ 81,871 1,810 Nestle SA (A.D.R.) 135,337 1,650 Unilever NV 113,273 ---------- $ 330,481 ---------- Total Food, Beverage & Tobacco $ 542,696 ---------- Pharmaceuticals & Biotechnology - 7.7% Pharmaceuticals - 7.7% 2,880 GlaxoSmithKline $ 145,382 3,550 Pfizer, Inc. 82,786 2,650 Wyeth 122,086 ---------- $ 350,254 ---------- Total Pharmaceuticals & Biotechnology $ 350,254 ---------- Banks - 9.5% Diversified Banks - 6.9% 2,800 Bank of America Corp. $ 129,220 1,500 ICICI Bank, Ltd. (A.D.R.) 43,200 2,610 Wachovia Corp. 137,964 ---------- $ 310,384 ---------- Regional Banks - 2.6% 3,450 Regions Financial Corp. $ 117,852 ---------- Total Banks $ 428,236 ---------- Diversified Financials - 11.1% Diversified Capital Markets - 2.8% 1,320 UBS AG $ 125,598 ---------- Investment Banking & Brokerage - 2.8% 1,850 Merrill Lynch & Co., Inc. $ 125,301 ---------- Diversified Financial Services - 5.5% 2,450 Citigroup, Inc. $ 118,898 3,300 J.P. Morgan Chase & Co. 130,977 ---------- $ 249,875 ---------- Total Diversified Financials $ 500,774 ---------- Insurance - 8.6% Life & Health Insurance - 2.7% 2,500 MetLife, Inc. $ 122,500 ---------- Multi-Line Insurance - 2.7% 1,400 Hartford Financial Services Group, Inc. $ 120,246 ---------- Property & Casualty Insurance - 3.2% 1,500 Chubb Corp. $ 146,475 ---------- Total Insurance $ 389,221 ---------- Technology Hardware & Equipment - 11.1% Communications Equipment - 5.6% 5,140 Motorola, Inc. $ 116,112 7,390 Nokia Corp. (A.D.R.) 135,237 ---------- $ 251,349 ----------
6 The accompanying notes are an integral part of these financial statements. Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Computer Hardware - 2.8% 4,350 Hewlett-Packard Co. $ 124,541 ---------- Technology Distributors - 2.7% 3,850 Arrow Electronics, Inc.* $ 123,316 ---------- Total Technology Hardware & Equipment $ 499,206 ---------- TOTAL COMMON STOCKS (Cost $3,842,020) $4,102,237 ---------- TOTAL INVESTMENT IN SECURITIES - 90.7% (Cost $3,842,020) $4,102,237 ---------- OTHER ASSETS AND LIABILITIES - 9.3% $ 420,856 ---------- TOTAL NET ASSETS - 100.0% $4,523,093 ==========
* Non-income producing security (A.D.R.) American Depositary Receipt The accompanying notes are an integral part of these financial statements. 7 Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
3/18/05 (a) to Class II 12/31/05 Net asset value, beginning of period $ 10.00 ------- Increase from investment operations: Net investment income $ 0.04 Net realized and unrealized gain on investments 0.95 ------- Net increase from investment operations $ 0.99 ------- Net increase in net asset value $ 0.99 ------- Net asset value, end of period $ 10.99 ======= Total return* 9.90 %(b) Ratio of net expenses to average net assets 1.00%* * Ratio of net investment income to average net assets 1.13%* * Portfolio turnover rate 34%(b) Net assets, end of period (in thousands) $ 4,523 Ratios assuming no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 5.71%* * Net investment loss (3.58)%**
(a) Class II shares were first publicly offered on March 18, 2005. * 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. (b) Not Annualized. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. 8 The accompanying notes are an integral part of these financial statements. Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (cost $3,842,020) $4,102,237 Cash 383,940 Receivables -- Fund shares sold 115,879 Dividends, interest and foreign taxes withheld 3,633 Due from Pioneer Investment Management, Inc. 6,967 Other 23 ---------- Total assets $4,612,679 ---------- LIABILITIES: Payables -- Investment securities purchased $ 50,852 Fund shares repurchased 874 Due to affiliates 147 Accrued expenses 37,713 ---------- Total liabilities $ 89,586 ---------- NET ASSETS: Paid-in capital $4,287,040 Undistributed net investment income 17,513 Accumulated undistributed net realized loss (41,677) Net unrealized gain on investments 260,217 ---------- Total net assets $4,523,093 ---------- NET ASSET VALUE PER SHARE: Class II: No par value (unlimited number of shares authorized) Net assets $4,523,093 Shares outstanding 411,511 ---------- Net asset value per share $ 10.99
The accompanying notes are an integral part of these financial statements. 9 Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
3/18/05 (Commencement of Operations) to 12/31/05 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $275) $ 26,869 Interest 5,567 --------- Total investment income $ 32,436 --------- EXPENSES: Management fees $ 10,633 Transfer agent fees 1,250 Distribution fees (Class II) 3,798 Administrative reimbursements 13,887 Custodian fees 13,545 Professional fees 27,368 Printing 13,250 Fees and expenses of nonaffiliated trustees 2,346 Miscellaneous 1,000 --------- Total expenses $ 87,077 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (71,870) --------- Net expenses $ 15,207 --------- Net investment income $ 17,229 --------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss from: Investments $ (41,677) --------- Change in net unrealized gain or (loss) from: Investments $ 260,217 --------- Net gain on investments $ 218,540 --------- Net increase in net assets resulting from operations $ 235,769 =========
10 The accompanying notes are an integral part of these financial statements. Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
3/18/05 (Commencement of Operations) to 12/31/05 FROM OPERATIONS: Net investment income $ 17,229 Net realized loss on investments (41,677) Change in net unrealized gain or loss on investments 260,217 ---------- Net increase in net assets resulting from operations $ 235,769 ---------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $4,361,712 Cost of shares repurchased (74,388) ---------- Net increase in net assets resulting from fund share transactions $4,287,324 ---------- Net increase in net assets $4,523,093 NET ASSETS: Beginning of period -- ---------- End of period $4,523,093 ========== Undistributed net investment income, end of period $ 17,513 ==========
The accompanying notes are an integral part of these financial statements. 11 Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Cullen Value VCT Portfolio (the Portfolio) is a Portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty nine separate diversified portfolios, sixteen 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) The Cullen Value Portfolio commenced operations on March 18, 2005. Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts or by qualified pension and retirement plans. The Cullen Value VCT Portfolio seeks capital appreciation and, secondarily, it seeks income. The financial statements and financial highlights of all other Portfolios are presented in separate books. The Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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. Information concerning the Portfolio's principal investment risks is contained in the Portfolio's prospectus(es). Please refer to those documents when considering the Portfolio's risks. Investing in mid-sized companies may offer the potential for higher returns, but are also subject to greater short-term price fluctuations than larger, more established companies. The following is a summary of significant accounting policies consistently followed by the Trust, in the preparation of its financial statements which are consistent with those generally accepted in the investment company industry: 12 Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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 (NYSE) is open, as of the close of regular trading on the NYSE. 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. The Portfolio also may use the fair value of a security, including a non-U.S. security, when the closing market price on the primary exchange where the security is traded no longer accurately reflects the value of the security as of the close of the NYSE. At December 31, 2005, there were no fair valued securities. 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. 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. Taxes It is the Portfolio'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 amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with income tax rules. Therefore, the source of the 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, 2005, Cullen Value Portfolio had a net capital loss carryforward of $38,265, which will expire in 2013, if not utilized. The Portfolio elected to defer $3,412 in capital losses recognized between November 1, 2005 and December 31, 2005 to its fiscal year ended December 31, 2006. At December 31, 2005, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset values of the Portfolio and are designed to present the Portfolio's capital accounts on a tax basis.
--------------------------------------------------------------------------------------- Undistributed Accumulated Net Investment Net Realized Paid-In Portfolio Income (Loss) Gain (Loss) Capital --------------------------------------------------------------------------------------- Pioneer Cullen Value VCT Portfolio 284 -- (284) ---------------------------------------------------------------------------------------
The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2005. There were no distributions paid during the year ended December 31, 2005.
--------------------------------------------------------------------------------------- 2005 --------------------------------------------------------------------------------------- Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 17,513 Undistributed long-term gain/ (capital loss carryforward) (38,265) Post-October loss deferred (3,412) Unrealized appreciation (depreciation) 260,217 -------- Total $236,053 ======== ---------------------------------------------------------------------------------------
C. Portfolio Shares The Portfolio records sales and repurchases of its 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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. Distribution fees are calculated based on the average daily net asset values attributable to Class I and Class II shares of the Portfolio, respectively. 13 Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- 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 payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for the 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 Portfolio has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Portfolio invests cash collateral in the Securities Lending Investment Fund which is sponsored by Brown Brothers Harriman & Co., the Trust's custodian. 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, a wholly owned indirect subsidiary of UniCredito Italiano manages the portfolio. Management fees are calculated daily at the 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, 2005, $12 was payable to PIM related to management fees, administrative fees and certain other services, and is included in due to affiliates. Through May 1, 2006, 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 1.00% of the average daily net assets attributable to class II shares. 3. Transfer Agent 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, 2005. 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 to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with the Portfolio's Class II shares. Included in due to affiliates is $10 payable to PFD at December 31, 2005. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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) --------------------------------------------------------------------------------------------------- Cullen Value Portfolio $3,842,020 $271,369 $ (11,152) $260,217 ========== ======== ========= ======== ---------------------------------------------------------------------------------------------------
14 Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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, 2005, were $4,530,321 and $646,624, respectively. 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the year ended December 31, 2005:
------------------------------------------------------------------- Fund Portfolio '05 Shares '05 Amount ------------------------------------------------------------------- CLASS II: Shares sold 418,641 $4,361,712 Reinvestment of distributions -- -- Shares repurchased (7,130) (74,388) ------------------------------ Net increase 411,511 $4,287,324 ============================== -------------------------------------------------------------------
15 Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the Shareowners of Pioneer Cullen Value VCT Portfolio: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Cullen Value VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, and the related statements of operations, changes in net assets, and the financial highlights for the period from March 18, 2005 (commencement of operations) to December 31, 2005. 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 audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Cullen Value VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations, changes in its net assets, and the financial highlights for the period from March 18, 2005 (commencement of operations) to December 31, 2005, in conformity with U.S. generally accepted accounting principles. /s/Ernst & Young LLP Boston, Massachusetts February 10, 2006 16 Pioneer Cullen Value VCT Portfolio (the "Fund") PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract") between the Fund and Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"). The Investment Adviser has retained Cullen Asset Management, LLC (the "Sub-adviser") to act as sub-adviser to the Fund pursuant to a sub-advisory agreement between the Investment Adviser and the Sub-adviser (the "Sub-advisory Agreement"). The Trustees have determined that the terms of the Management Contract and the Sub-advisory Agreement are fair and reasonable and that renewal of these contracts will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of the Investment Adviser, or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract and Sub-advisory Agreement, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract and Sub-advisory Agreement, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect of the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates, (ix) the disclosures included in the Fund's prospectuses and reports to shareowners and (x) the investment and compliance staff and operations of the Subadviser. Specifically, in connection with the Independent Trustees' review of the Management Contract and the Sub-advisory Agreement, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's and Sub-adviser's services and the reasonableness of the fee under the Management Contract and the Sub-advisory Agreement. Among other items, this information included data or analyses of (1) investment performance for the life of the fund period ended June 30, 2005 for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser and the Sub-adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser and the Sub-adviser, (6) the Investment Adviser's and the Sub-adviser's financial results and condition, including, in the case of the Investment Adviser, its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for each of the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. 17 Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to shareowners of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareowner services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Trustees also considered the activities of the Investment Adviser in monitoring the investment and compliance operations of the Sub-adviser. The Trustees concluded that the period from commencement of investment operations was too short to evaluate the Investment Adviser's and Sub-adviser's performance. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations. Among other things, the Trustees considered the number, education and experience of the Sub-adviser's investment staff. The Trustees concluded that the Investment Adviser and the Sub-adviser have the quality and depth of personnel and the well-developed methods essential to performing their duties under the Management Contract and the Sub-advisory Agreement. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareowners of the Fund, including administrative and shareowner services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareowners of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee was in the first quintile (after fee waivers) relative to the management fees paid by the other funds in that peer group for the life of the Fund period ended June 30, 2005 and below the median without giving effect to fee waivers. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareowners. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also evaluated the fee under the Sub-advisory Agreement and the portion of the fee under the Management Contract retained by the Investment Adviser and determined that they were consistent with other sub-advised funds. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Trustees concluded that, in light of the small amount of the Fund's net assets, a comparison of expense ratios was not meaningful at this time. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. 18 Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. The Trustees concluded that, given current and anticipated asset levels, break points in the management fee are not necessary at this time. The Trustees will continue to evaluate annually the appropriateness of break points. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareowner services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect of the Pioneer Funds (including the Fund), and benefits to the Subadviser from the use of "soft" commission dollars to pay for research services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's and Sub-adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser and the Sub-adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund and the Sub-advisory Agreement are fair and reasonable and voted to approve the continuation of the Management Contract and the Sub-advisory Agreement for another year. 19 Pioneer Cullen Value VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. -----------------------------------------------------------------------------------------------------------------------------------
20 Pioneer Cullen Value VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance or earlier services company) (2001-present); company); Director of New York retirement or Managing Partner, Federal City Mortgage Trust (publicly traded removal. Capital Advisors (boutique merchant mortgage REIT) bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ---------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products or earlier manufacturer), Mortgage Guaranty retirement or Insurance Corporation, and Briggs removal. & Stratton, Inc. (engine manufacturer) ---------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------
21 Pioneer Cullen Value VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Cullen Value VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, None Treasurer 2000. Serves at the Assistant Vice President - Fund discretion of the Accounting, Administration and Board. Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds. --------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. --------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. --------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 23 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 24 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 25 [Logo] PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18678-00-0206 [LOGO]PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Emerging Markets VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Table of Contents -------------------------------------------------------------------------------- Pioneer Emerging Markets VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 5 Financial Statements 9 Notes to Financial Statements 13 Report of Independent Registered Public Accounting Firm 18 Factors Considered by the Independent Trustees in Approving the Management Contract 19 Trustees, Officers and Service Providers 22
Before investing consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) International Common Stocks 64.0% Depositary Receipts for International Stocks 22.9% Temporary Cash Investment 5.7% U.S. Common Stocks 4.9% International Preferred Stocks 2.5%
Geographical Distribution (As a percentage of equity holdings) South Korea 22.1% Brazil 17.8% South Africa 10.0% Taiwan 9.6% Russia 6.4% People's Republic of China 4.9% India 4.7% Turkey 4.6% Thailand 3.7% Israel 3.1% Mexico 2.8% Indonesia 1.7% Malaysia 1.3% Poland 1.2% Hong Kong 1.0% Philippines 1.0% Other (individually less than 1%) 4.1%
Five Largest Holdings (As a percentage of equity holdings) 1. Petrobras Brasileiro (A.D.R.) 3.96% 2. Companhia Vale do Rio Doce (A.D.R.) 2.21 3. Hyundai Motor Co., Ltd. 2.17 4. Samsung Electronics 2.04 5. Anglo American Platinum Corp. 1.88
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 27.84 $ 20.33
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.1038 $ - $ -
-------------------------------------------------------------------------------- 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 Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges.
Pioneer Emerging MSCI Emerging Markets VCT Portfolio Markets Index 10/98 10000 10000 10486 10675 12/99 18695 17764 12317 12326 12/01 11410 12034 11247 11312 12/03 17745 17678 21070 22265 12/05 28993 29956
The Morgan Stanley Capital International (MSCI) Emerging Markets Index measures the performance of emerging market stocks. 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- Life-of-Class 16.01% (10/30/98) 5 Years 18.67% 1 Year 37.60%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value [divided by] $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Emerging Markets VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II ------------------------------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,306.99 Expenses Paid During Period* $ 11.46
* Expenses are equal to the Portfolio's annualized expense ratio of 1.97% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Emerging Markets VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2005 through December 31, 2005.
Share Class II ------------------------------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,015.27 Expenses Paid During Period* $ 10.01
* Expenses are equal to the Portfolio's annualized expense ratio of 1.97% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- In the following interview, Christopher Smart, Pioneer Emerging Market VCT Portfolio's Portfolio Manager, discusses the factors that influenced performance during the 12 months ended December 31, 2005. Q. Emerging markets equities performed very well during the reporting period. What factors underpinned this powerful upward move? A. The rally in emerging markets stocks during the past twelve months follows four years of outperformance for the asset class relative to the developed markets. In our view, three key factors have contributed to this outcome. First, economic growth in emerging markets has been much stronger than that of the developed markets. This has been the result of both rising value of commodities exports, as well as increasing domestic consumption by an emerging middle class. Second, valuations have been well below those of the developed market stocks, and remain so even after several years of outperformance. Third, the risk of investing in the emerging markets is much lower than it was even as recently as the late 1990s. Both corporations and countries have paid down their debts and rebuilt their balance sheets, putting the asset class on a much healthier footing to withstand external shocks. Taken together, those factors have led to significant outperformance for emerging markets stocks: for the five-year period ended December 31, the average annual return of the MSCI Emerging Markets Index was 19.44%, well ahead of the 4.55% annual return of the MSCI EAFE Index. Q. How did the Portfolio perform? A. For the 12 months ended December 31, 2005, the Portfolio's Class II shares had a total return of 37.60% at net asset value. We are pleased to report that the Portfolio outpaced the 34.54% return of the Morgan Stanley Capital International (MSCI) Emerging Markets Index during the period. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. What factors helped and hurt the Portfolio's performance? A. The most significant contributions came from the Portfolio's positions in South Korea, Brazil and South Africa. In South Korea, our stocks produced an aggregate return well ahead of the benchmark. Our positions in shipbuilding stocks such as Samsung Heavy Industries and Hyundai Heavy Industries delivered particularly strong returns, as the rising demand for new ships led to improved pricing power and a three-year order backlog for companies in the sector. Korean stocks positioned to benefit from the recovery in the domestic economy, such as Kookmin Bank and Hyundai Motor, also did well. Like South Korea, Brazil has benefited from the release of pent-up consumer demand. With inflation low and interest rates beginning to decline, the demand for credit has expanded. The result has been improving bottom lines for the nation's banks, including the portfolio's holding in Banco Itau. Another strong performer was our position in Net Servicos, a cable television provider that is expanding into high speed internet and telephone services in Brazil's major cities. The South African economy also has been improving, due in part to the government's substantial outlays for infrastructure projects such as roads and ports. A key beneficiary of this trend was Aveng, a construction company that also has holdings in steel and cement. Another top contributor was Anglo Platinum, which benefited as the price of platinum surged to nearly US $1000 per ounce. There were very few significant detractors during the past year. The Fund's underweight in Russian oil stocks was a slight negative for relative performance. Our belief was that Russian energy companies would earn less money than their global peers due to the government's taxation policies, but investors largely ignored this issue. An underweight in Mexico also had a small negative impact on relative performance. Q. What is your broad view regarding emerging markets equities? A. Despite nearly five years of outperformance by emerging markets stocks, we believe that the elements underpinning the recent gains remain in place: economic growth remains strong, valuations are attractive and debt levels remain low. As a higher-risk asset class, emerging markets naturally will be more vulnerable in the event of rapidly rising global interest rates or heightened risk aversion among investors. However, we believe that the combination of stronger balance sheets and better economic management will help guard against the dangers of global economic turbulence. 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. A Word About Risk: Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value PREFERRED STOCKS - 3.3% Materials - 0.6% Steel - 0.6% 239,300 Caemi Mineracao E Metalurgia SA $ 348,977 ----------- Total Materials $ 348,977 ----------- Capital Goods - 0.1% Industrial Conglomerates - 0.1% 3,445 LG Corp. $ 72,264 ----------- Total Capital Goods $ 72,264 ----------- Media - 0.8% Broadcasting & Cable TV - 0.8% 963,400 Net Servicos de Comunicacao SA* $ 440,849 ----------- Total Media $ 440,849 ----------- Banks - 1.1% Diversified Banks - 1.1% 23,930 Banco Itau Holding Financeira $ 576,170 ----------- Total Banks $ 576,170 ----------- Telecommunication Services - 0.7% Integrated Telecommunication Services - 0.7% 22,801 Tele Norte Leste Participacoes (A.D.R.) $ 408,594 ----------- Total Telecommunication Services $ 408,594 ----------- TOTAL PREFERRED STOCKS (Cost $1,198,560) $ 1,846,854 ----------- COMMON STOCKS - 95.8% Energy - 15.5% Coal & Consumable Fuels - 0.4% 313,200 Yanzhou Coal Mining $ 200,234 ----------- Integrated Oil & Gas - 11.7% 485,600 China Petroleum & Chemicals $ 241,987 13,800 Gazprom (A.D.R.)* 1,002,266 16,000 Lukoil Holding (A.D.R.) 948,800 3,400 Mol Magyar Olaj 318,093 33,700 Petrobras Brasileiro (A.D.R.) 2,169,269 540,000 PetroChina Co., Ltd. 442,593 48,500 PTT Public Co., Ltd. 267,179 9,000 Repsol SA (A.D.R.) 264,690 14,500 Surgutneftegaz (A.D.R.)(a) 794,033 ----------- $ 6,448,910 ----------- Oil & Gas Equipment & Services - 0.7% 3,500 TelecomAsia Corp. $ 400,750 ----------- Oil & Gas Exploration & Production - 0.7% 584,000 Cnooc, Ltd. $ 396,487 ----------- Oil & Gas Refining & Marketing - 1.7% 19,800 Polski Koncern Naftowy Orlen SA $ 382,426 14,300 Reliance Industries, Ltd. (144A) 562,133 ----------- $ 944,559 -----------
Shares Value Oil & Gas Storage & Transportation - 0.3% 11,718 Ultrapar Participacoes SA $ 162,868 ----------- Total Energy $ 8,553,808 ----------- Materials - 11.8% Construction Materials - 2.6% 7,450 Asia Cement Co., Ltd. $ 294,603 3,530 Hanil Cement Co., Ltd. 254,162 954,000 Indocement Tunggal Prakarsa Tbk* 343,542 721,100 Lafarge Malayan Cement Berhad 117,139 66,100 Siam City Cement Co., Ltd. 425,961 ----------- $ 1,435,407 ----------- Diversified Metals & Mining - 1.2% 899,000 Aneka Tambang Tbk $ 325,928 6,000 Freeport-McMoRan Copper & Gold, Inc. (Class B) 322,800 ----------- $ 648,728 ----------- Fertilizers & Agricultural Chemicals - 0.4% 44,000 Makhteshim-Agan Industries, Ltd. $ 253,067 ----------- Gold - 2.7% 14,500 Anglogold Ashanti, Ltd. (A.D.R.)(a) $ 715,285 36,100 IAMGOLD Corp. 282,302 1,070,000 Zijin Mining Group Co., Ltd. 471,789 ----------- $ 1,469,376 ----------- Precious Metals & Minerals - 2.7% 14,200 Anglo American Platinum Corp. $ 1,029,162 15,900 Compania de Minas Buenaventura SA 449,970 ----------- $ 1,479,132 ----------- Steel - 2.2% 33,300 Companhia Vale do Rio Doce (A.D.R.) $ 1,207,125 ----------- Total Materials $ 6,492,835 ----------- Capital Goods - 11.9% Aerospace & Defense - 0.4% 9,100 Elbit Systems, Ltd. $ 221,793 ----------- Building Products - 0.5% 73,900 Trakya Cam Sanayii AS $ 287,390 ----------- Construction & Engineering - 4.8% 134,200 Aveng, Ltd. $ 380,422 1,003,020 Continental Engineering Corp. 396,090 4,369 Daelim Industrial Co. 309,809 99,017 Empressa ICA Sociedad Controladora SA de CV* 242,425 8,300 GS Engineering & Construction Corp. 435,538 15,440 Kyeryong Construction Industrial Co., Ltd. 460,057 10,900 Larsen & Toubro, Ltd. 447,161 ----------- $ 2,671,502 -----------
The accompanying notes are an integral part of these financial statements. 5 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value Construction, Farm Machinery & Heavy Trucks - 3.3% 21,400 Daewoo Heavy Industries & Machinery, Ltd. $ 580,403 8,030 Hyundai Heavy Industries 610,950 36,500 Samsung Heavy Industries Co., Ltd. 636,792 ----------- $ 1,828,145 ----------- Heavy Electrical Equipment - 0.8% 13,600 Bharat Heavy Electricals (Demat Shares) $ 419,729 ----------- Industrial Conglomerates - 0.8% 45,075 KOC Holding AS $ 211,827 6,825 LG Corp. 211,832 ----------- $ 423,659 ----------- Industrial Machinery - 1.3% 27,900 Doosan Heavy Industries & Construction Co. $ 498,650 389,000 Yungtay Engineering Co., Ltd. 249,252 ----------- $ 747,902 ----------- Total Capital Goods $ 6,600,120 ----------- Transportation - 1.9% Airlines - 0.8% 15,100 Gol-Linhas Aereas Inteligentes SA $ 428,919 ----------- Marine - 1.1% 466,000 China Shipping Development Co., Ltd. $ 341,704 103,200 Malaysia International Shipping Bhd. 270,379 ----------- $ 612,083 ----------- Total Transportation $ 1,041,002 ----------- Automobiles & Components - 2.8% Automobile Manufacturers - 2.8% 12,400 Hyundai Motor Co., Ltd. $ 1,188,614 47,700 Ssangyong Motor Co.* 382,259 ----------- $ 1,570,873 ----------- Total Automobiles & Components $ 1,570,873 ----------- Consumer Durables & Apparel - 1.5% Homebuilding - 0.8% 34,320 Cyrela Brazil Realty SA $ 469,675 ----------- Household Appliances - 0.7% 53,240 Arcelik AS $ 370,748 ----------- Total Consumer Durables & Apparel $ 840,423 ----------- Consumer Services - 0.8% Hotels, Resorts & Cruise Lines - 0.8% 21,300 Indian Hotels Co., Ltd.* $ 469,193 ----------- Total Consumer Services $ 469,193 -----------
Shares Value Media - 2.5% Broadcasting & Cable TV - 1.4% 459,000 BEC World Public Co., Ltd. $ 151,042 4,947 Grupo Televisa SA (A.D.R.) 398,234 47,000 Television Broadcasts, Ltd. 250,384 ----------- $ 799,660 ----------- Publishing - 1.0% 144,116 Hurriyet Gazetecilik ve Matbaacilik AS $ 565,869 ----------- Total Media $ 1,365,529 ----------- Retailing - 3.2% Apparel Retail - 0.8% 121,200 Truworths International, Ltd. $ 460,420 ----------- Department Stores - 1.0% 6,300 Hyundai Department Store Co., Ltd. $ 530,896 ----------- General Merchandise Stores - 0.7% 11,900 Lojas Renner SA* $ 381,637 ----------- Homefurnishing Retail - 0.7% 38,200 Ellerine Holdings, Ltd. $ 374,772 ----------- Total Retailing $ 1,747,725 ----------- Food & Drug Retailing - 2.8% Food Retail - 0.7% 199,000 President Chain Store Corp. $ 417,371 ----------- Hypermarkets & Supercenters - 2.1% 13,100 Brasil Distr Pao Acu (A.D.R.)(a) $ 430,990 34,200 Massmart Holdings, Ltd. 279,752 1,000 Shinsegae Co., Ltd. 437,014 ----------- $ 1,147,756 ----------- Total Food & Drug Retailing $ 1,565,127 ----------- Food, Beverage & Tobacco - 3.6% Brewers - 0.5% 8,850 Efes Breweries International (144A) (G.D.R.)* $ 250,013 ----------- Packaged Foods & Meats - 1.5% 5,480 CJ Corp. $ 564,792 12,300 Tiger Brands, Ltd. 283,163 ----------- $ 847,955 ----------- Soft Drinks - 1.6% 12,200 Fomento Economico Mexicano SA de CV $ 884,622 ----------- Total Food, Beverage & Tobacco $ 1,982,590 -----------
6 The accompanying notes are an integral part of these financial statements. Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Household & Personal Products - 1.0% Personal Products - 1.0% 6,150 Natura Cosmeticos SA $ 270,849 9,100 Oriflame Cosmetics SA 262,183 ----------- $ 533,032 ----------- Total Household & Personal Products $ 533,032 ----------- Pharmaceuticals & Biotechnology - 0.6% Pharmaceuticals - 0.6% 9,500 PT Tempo Scan Pacific $ 5,438 7,700 Teva Pharmaceutical Industries, Ltd. ( A.D.R.)(a) 331,177 ----------- $ 336,615 ----------- Total Pharmaceuticals & Biotechnology $ 336,615 ----------- Banks - 11.8% Diversified Banks - 11.8% 22,932 Banco Bradesco SA(a) $ 668,468 25,000 Banco do Brasil SA 451,182 88,300 Bangkok Bank, Ltd. 247,719 133,900 Bank Hapoalim, Ltd. 619,981 18,563 Bank of Baroda 99,485 206,500 Bumiputra-Commerce Holdings Bhd. 311,370 149,906 FirstRand, Ltd. 443,418 155,300 Kasikornbank (Class F) 284,096 1,900 Kookmin Bank 142,582 12,000 Kookmin Bank (A.D.R.)(a) 896,520 966,400 Krung Thai Bank Public Co., Ltd. 259,120 221,500 Metropolitan Bank & Trust Co. 133,623 769,500 PT Bank Central Asia Tbk 265,489 28,249 Standard Bank Group, Ltd. 338,484 13,600 State Bank of India 274,114 47,825 Turkiye Is Bankasi (Isbank) 413,959 10,562 Uniao de Bancos Brasileiros SA 671,426 ----------- (Unibanco) (G.D.R.) (144A) $ 6,521,036 ----------- Total Banks $ 6,521,036 ----------- Diversified Financials - 3.4% Investment Banking & Brokerage - 1.1% 10,400 Samsung Securities Co., Ltd. $ 632,279 ----------- Multi-Sector Holding - 0.7% 18,600 Remgro, Ltd. $ 358,968 ----------- Diversified Financial Services - 1.6% 418,000 Fubon Group $ 359,023 11,110 Hana Financial Holdings* 509,461 ----------- $ 868,484 ----------- Total Diversified Financials $ 1,859,731 -----------
Shares Value Insurance - 4.7% Life & Health Insurance - 2.6% 20,500 Cathay Financial Holding Co., Ltd. (144A) (G.D.R.) $ 377,200 334,000 China Life Insurance Co., Ltd.* 294,804 145,000 Ping An Insurance Company of China, Ltd. 268,038 194,490 Sanlam, Ltd. 467,239 ----------- $ 1,407,281 ----------- Property & Casualty Insurance - 2.1% 85,567 Aksigorta AS $ 653,018 4,100 Samsung Fire & Marine Insurance 517,299 ----------- $ 1,170,317 ----------- Total Insurance $ 2,577,598 ----------- Real Estate - 0.3% Real Estate Management & Development - 0.3% 1,095,400 SM Prime Holdings $ 163,077 ----------- Total Real Estate $ 163,077 ----------- Software & Services - 0.6% IT Consulting & Other Services - 0.6% 4,732 Infosys Technologies, Ltd. $ 315,555 ----------- Total Software & Services $ 315,555 ----------- Technology Hardware & Equipment - 3.7% Computer Hardware - 1.2% 134,240 ACER Sertek, Inc. $ 335,294 228,900 Quanta Computer, Inc. 322,726 ----------- $ 658,020 ----------- Computer Storage & Peripherals - 1.2% 90,000 Asustek Computer, Inc. $ 275,861 320,800 LITE-ON IT Corp. 414,291 ----------- $ 690,152 ----------- Electronic Manufacturing Services - 1.3% 127,158 Hon Hai Precision Industry $ 696,819 ----------- Total Technology Hardware & Equipment $ 2,044,991 ----------- Semiconductors - 3.4% 1,730 Samsung Electronics $ 1,118,098 239,704 Taiwan Semiconductor Manufacturing Co. 453,839 31,499 Taiwan Semiconductor Manufacturing Co. (A.D.R.) 312,155 ----------- $ 1,884,092 ----------- Total Semiconductors $ 1,884,092 -----------
The accompanying notes are an integral part of these financial statements. 7 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value Telecommunication Services - 5.9% Integrated Telecommunication Services - 1.6% 8,900 Brasil Telecom Participacoes SA $ 332,415 7,700 Philippine Long Distance Telephone Co. 263,891 36,100 Telekomunikacja Polska SA 259,951 ----------- $ 856,257 ----------- Wireless Telecommunication Services - 4.3% 13,200 Korea Telecom Freetel Co. $ 321,226 9,900 Mobile Telesystems (A.D.R.) 346,500 33,400 MTN Group, Ltd. 328,287 29,100 Partner Communications Co., Ltd. 244,706 381,700 Shinawatra Computer Co., Plc 393,098 448,000 Taiwan Mobile Co., Ltd. 390,920 8,900 Vimpel-Communications (A.D.R.)* 393,647 ----------- $ 2,418,384 ----------- Total Telecommunication Services $ 3,274,641 ----------- Utilities - 2.1% Electric Utilities - 0.6% 9,000 Cemig SA (A.D.R.)(a) $ 331,740 ----------- Gas Utilities - 1.5% 593,000 Panva Gas Holdings, Ltd.* $ 315,435 4,100 Samchully Co., Ltd. 488,329 ----------- $ 803,764 ----------- Total Utilities $ 1,135,504 ----------- TOTAL COMMON STOCKS (Cost $35,426,515) $52,875,097 ----------- RIGHTS/WARRANTS - 0.0% Commercial Services & Supplies - 0.0% Diversified Commercial Services - 0.0% 1,580 Bidvest Group, Ltd., Exp 12/8/06* $ 7,506 ----------- Total Commercial Services & Supplies $ 7,506 ----------- TOAL RIGHTS/WARRANTS (Cost $0) $ 7,506 ----------- TEMPORARY CASH INVESTMENTS - 6.0% Security Lending Collateral - 6.0% 3,324,063 Securities Lending Investment Fund, 4.24% $ 3,324,063 ----------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $3,324,063) $ 3,324,063 ----------- TOTAL INVESTMENT IN SECURITIES - 105.1% (Cost $39,949,138)(b) $58,053,520 ----------- OTHER ASSETS AND LIABILITIES - (5.1)% $(2,821,958) ----------- TOTAL NET ASSETS - 100.0% $55,231,562 ===========
(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, 2005, the value of these securities amounted to $1,860,772 or 3.4% of total net assets. (a) At December 31, 2005, the following securities were out on loan:
Shares Security Value 13,690 Anglogold Ashanti, Ltd. (A.D.R.) $ 675,328 21,646 Banco Bradesco SA 630,981 12,445 Brasil Distr Pao Acu (A.D.R.) 409,441 8,470 Cemig SA (A.D.R.) 312,204 2,060 Kookmin Bank (A.D.R.) 153,903 14,440 Surgutneftegaz (A.D.R.) 790,747 Teva Pharmaceutical Industries, 6,569 Ltd. (A.D.R.) 282,533 ---------- Total $3,255,137 ==========
(b) Distributions of investments by country of issue, as a percentage of total equity holdings (excluding temporary cash investments) is as follows: South Korea 22.1% Brazil 17.8 South Africa 10.0 Taiwan 9.6 Russia 6.4 People's Republic of China 4.9 India 4.7 Turkey 4.6 Thailand 3.7 Israel 3.1 Mexico 2.8 Indonesia 1.7 Malaysia 1.3 Poland 1.2 Hong Kong 1.0 Philippines 1.0 Other (individually less than 1%) 4.1 ----- 100.0% =====
8 The accompanying notes are an integral part of thesefinancial statements. Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01 Class II Net asset value, beginning of period $ 20.33 $ 17.26 $ 10.98 $ 11.19 $ 12.08 ------- ------- ------- ------- ------- Increase (decrease) from investment operations: Net investment income $ 0.15 $ 0.16 $ 0.12 $ 0.02 $ 0.09 Net realized and unrealized gain (loss) on investments and foreign currency transactions 7.46 3.04 6.21 (0.17) (0.98) ------- ------- ------- ------- ------- Net increase (decrease) from investment operations $ 7.61 $ 3.20 $ 6.33 $ (0.15) $ (0.89) Distributions to shareholders: Net investment income (0.10) (0.13) (0.05) (0.06) -- ------- ------- ------- ------- ------- Net increase (decrease) in net asset value $ 7.51 $ 3.07 $ 6.28 $ (0.21) $ (0.89) ------- ------- ------- ------- ------- Net asset value, end of period $ 27.84 $ 20.33 $ 17.26 $ 10.98 $ 11.19 ======= ======= ======= ======= ======= Total return* 37.60% 18.73% 57.87% (1.42)% (7.37)% Ratio of net expenses to average net assets+ 1.97% 1.99% 1.99% 1.99% 1.90% Ratio of net investment income to average net assets+ 0.70% 0.88% 1.04% 0.28% 1.05% Portfolio turnover rate 74% 66% 79% 124% 175% Net assets, end of period (in thousands) $44,026 $30,347 $26,537 $ 8,852 $ 7,861 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.99% 2.11% 2.65% 3.11% 4.12% Net investment income (loss) 0.68% 0.76% 0.38% (0.84)% (1.17)% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 1.97% 1.99% 1.99% 1.99% 1.90% Net investment income 0.70% 0.88% 1.04% 0.28% 1.05%
* 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. NOTE: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. 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 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (Cost $39,949,138) (including securities loaned of $ 58,053,520 $3,255,137) Foreign currencies, at value (Cost $246,193) 249,693 Receivables -- Investment securities sold 425,551 Fund shares sold 1,718 Dividends, interest and foreign taxes withheld 115,610 Other 3,608 ------------ Total assets $ 58,849,700 ------------ LIABILITIES: Payables -- Fund shares repurchased $ 107,737 Upon return of securities loaned 3,324,063 Reserve for repatriation taxes 52,359 Due to bank 32,753 Due to affiliates 7,846 Accrued expenses 93,380 ------------ Total liabilities $ 3,618,138 ------------ NET ASSETS: Paid-in capital $ 32,037,155 Undistributed net investment income 24,792 Accumulated net realized gain on investments 5,114,124 Net unrealized gain on: Investments 18,052,022 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 3,469 ------------ Total net assets $ 55,231,562 ------------ NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 11,205,395 Shares outstanding 398,940 ------------ Net asset value per share $ 28.09 Class II: (No par value, unlimited number of shares authorized) Net assets $ 44,026,167 Shares outstanding 1,581,297 ------------ Net asset value per share $ 27.84
10 The accompanying notes are an integral part of these financial statements. Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
Year Ended 12/31/05 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $167,202) $ 1,160,247 Interest 17,442 Income on securities loaned, net 8,599 ----------- Total investment income $ 1,186,288 ----------- EXPENSES: Management fees $ 510,446 Transfer agent fees and expenses 7,715 Distribution fees (Class II) 87,711 Administrative reimbursements 18,512 Custodian fees 135,998 Professional fees 71,787 Printing expense 10,670 Fees and expenses of nonaffiliated trustees 4,569 Miscellaneous 17,186 ----------- Total expenses $ 864,594 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (10,565) ----------- Net expenses $ 854,029 ----------- Net investment income $ 332,259 ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments (net of foreign capital gain taxes of $34,788) $ 7,432,445 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (126,742) ----------- $ 7,305,703 ----------- Change in net unrealized gain or loss from: Investments (the change in reserve for repatriation taxes of $16,869) $ 7,394,630 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (4,278) ----------- $ 7,390,352 ----------- Net gain on investments, futures contracts and foreign currency transactions $14,696,055 =========== Net increase in net assets resulting from operations $15,028,314 ===========
The accompanying notes are an integral part of these financial statements. 11 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Year Ended Year Ended 12/31/05 12/31/04 FROM OPERATIONS: Net investment income $ 332,259 $ 322,489 Net realized gain on investments 7,305,703 5,573,183 Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions 7,390,352 22,693 ------------- ------------- Net increase in net assets resulting from operations $ 15,028,314 $ 5,918,365 ------------- ------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (50,778) $ (65,091) Class II (161,235) (196,317) ------------- ------------- Total distributions to shareowners $ (212,013) $ (261,408) ------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 13,210,315 $ 9,587,268 Reinvestment of distributions 210,764 259,912 Cost of shares repurchased (11,986,023) (11,459,650) ------------- ------------- Net increase (decrease) in net assets resulting from Fund share transactions $ 1,435,056 $ (1,612,470) ------------- ------------- Net increase in net assets $ 16,251,357 $ 4,044,487 ------------- ------------- NET ASSETS: Beginning of year $ 38,980,205 $ 34,935,718 ------------- ------------- End of year $ 55,231,562 $ 38,980,205 ============= ============= Undistributed net investment income, end of year $ 24,792 $ 44,879 ============= =============
12 The accompanying notes are an integral part of these financial statements. Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Emerging Markets Portfolio (the Portfolio) is a Portfolio of the Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts, or 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 Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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 Portfolio, in the preparation of its financial statements which are consistent 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 (NYSE) is open, as of the close of regular trading on the NYSE. 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 13 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- each day at various times prior to the close of the NYSE. 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. The principal exchanges and markets for such securities have closing times prior to the close of the NYSE. However, the value of these securities may be influenced by changes in global markets occurring after the closing times of the local exchanges and markets up to the time the Portfolios determines their net asset values. Consequently, the Board of Trustees of the Trust has determined that the use of daily fair valuations as provided by a pricing service is appropriate for the Portfolios. The Portfolios may also take into consideration other significant events in determining the fair value of these securities. At December 31, 2005 there were no fair valued securities except as follows. All securities that trade in foreign markets whose closing prices are as of times prior to the close of the New York Stock Exchange (NYSE) and that are held by Emerging Markets Portfolio are fair valued using vendor-supplied pricing updates for each security to the time of the close of the NYSE. Thus, the Portfolio's securities valuations may differ from prices reported by the various local exchanges and markets. Temporary cash investments and securities held by the 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, 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. 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. Information regarding the Portfolio's principal investment risks is contained in the Portfolio's prospectus. Please refer to those documents when considering the Portfolio's risks. 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. dollars 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. The Portfolio had no outstanding portfolio or settlement hedges as of December 31, 2005. D. Taxes It is the Portfolio'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, 2005, no such taxes were paid. 14 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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. As of December 31, 2005, the Portfolio had $52,359 in reserves related to taxes on the repatriation of foreign capital gains. The amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal income tax rules. Therefore, the source of the 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, 2005, 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.
--------------------------------------------------------------------------------- Undistributed Net Accumulated Net Investment Realized Paid-In Portfolio Income (Loss) Gain (Loss) Capital --------------------------------------------------------------------------------- Emerging Markets Portfolio $(140,333) $140,333 $-- ========= ======== === ---------------------------------------------------------------------------------
The following chart shows the distributions paid during the years ended December 31, 2005 and 2004 on a tax basis and the components of distributable earnings (accumulated losses) as of December 31, 2005.
--------------------------------------------------------------------------------------- 2005 2004 --------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 212,013 $ 261,408 Long-Term capital gain -- -- ------------ --------- $ 212,013 $ 261,408 Return of Capital -- -- ------------ --------- Total distributions $ 212,013 $ 261,408 ============ ========= Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 220,926 Undistributed long-term gain/(capital loss carryforward) 5,193,430 Unrealized appreciation (depreciation) 17,780,051 ------------ Total $ 23,194,407 ============ ---------------------------------------------------------------------------------------
For the fiscal year ending December 31, 2005, Emerging Markets Portfolio has elected to pass through foreign tax credits of $181,164. The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales and the tax basis adjustments on Passive Foreign Investment Company (PFIC) holdings and the mark to market on forward currency contracts. E. Portfolio Shares The Portfolio records sales and repurchases of its 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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. Distribution fees for Class II shares are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. 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 (excluding transfer agent and distribution fees) and realized and unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of the shares based on 15 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- 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. 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 payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for the 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 sponsored 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, a wholly owned indirect subsidiary of UniCredito Italiano manages the portfolio. Management fees are calculated daily at the annual rate of 1.15% of the Portfolio's average daily net assets. Through May 1, 2006, PIM has agreed not to impose all or a portion of its management fee and, if necessary, to limit other ordinary operating expenses of the Portfolio to the extent required to reduce Class I expenses to 1.75% of the average daily net assets attributable to Class I shares; the portion of the Portfolio's expenses attributable to Class II shares will be reduced only to the extent such expenses are reduced for Class I shares (or Class II shares). 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, 2005, $3,295 was payable to PIM related to management fees, administrative reimbursements and certain other services, and is included in due to affiliates. 3. Transfer Agent 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 $3,946 in transfer agent fees payable to PIMSS at December 31, 2005. 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 to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with the Portfolio's Class II shares. Included in due to affiliates is $605 payable to PFD at December 31, 2005. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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) -------------------------------------------------------------------------------------------------- Emerging Markets Portfolio $40,224,578 $18,138,652 $ (309,710) $17,828,942 =========== =========== ========== =========== --------------------------------------------------------------------------------------------------
16 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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, 2005, were $34,572,618 and $32,120,040, respectively. 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the year ended December 31, 2005 and the year ended December 31, 2004:
------------------------------------------------------------------------------------------ Emerging Markets Portfolio '05 Shares '05 Amount '04 Shares '04 Amount ------------------------------------------------------------------------------------------ CLASS I: Shares sold 57,112 $ 1,329,128 72,945 $ 1,305,983 Reinvestment of distributions 2,300 49,529 3,952 63,595 Shares repurchased (82,002) (1,885,112) (138,809) (2,377,707) ----------------------------------------------------- Net decrease (22,590) $ (506,455) (61,912) $ (1,008,129) ===================================================== CLASS II: Shares sold 530,098 $ 11,881,187 468,119 $ 8,281,285 Reinvestment of distributions 7,549 161,235 12,278 196,317 Shares repurchased (449,363) (10,100,911) (524,708) (9,081,943) ------------------------------------------------------ Net increase (decrease) 88,284 $ 1,941,511 (44,311) $ (604,341) ===================================================== ------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION (unaudited) The qualifying percentage of certain Portfolios' ordinary income dividends for the purposes of the corporate dividends received deduction and the percentage of those ordinary dividends that are subject to a maximum tax rate of 15% as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were as follows:
-------------------------------------------------------------------------------- Dividend Qualified Received Dividend Deduction Income -------------------------------------------------------------------------------- Emerging Markets Portfolio 0.00% 100.00% --------------------------------------------------------------------------------
17 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the Shareholders 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 the Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four 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 the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian. 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 the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the four years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 18 PIONEER VARIABLE CONTRACTS TRUST Pioneer Emerging Markets VCT Portfolio (the "Fund") -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three and five year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objective and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 19 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and the results of an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the first quintile of the peer group for the 12 months ended June 30, 2005, the first quintile for the three years ended June 30, 2005, and the third quintile for the five years ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees concluded that the performance of the Fund supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the third quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio (before and after giving effect to the expense limitation) for the 12 months ended June 30, 2005 and expense ratios for the comparable period of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio (after giving effect to the expense limitation) was in the fifth quintile of this peer group for the most recent fiscal year. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. The Trustees concluded that, given current and anticipated asset levels, break points in management fee are not necessary at this time. The Trustees will continue to evaluate annually the appropriateness of break points. 20 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 21 Pioneer Emerging Markets VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. ------------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Emerging Markets VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance or earlier services company) (2001-present); company); Director of New York retirement or Managing Partner, Federal City Mortgage Trust (publicly traded removal. Capital Advisors (boutique merchant mortgage REIT) bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products or earlier manufacturer), Mortgage Guaranty retirement or Insurance Corporation, and Briggs removal. & Stratton, Inc. (engine manufacturer) ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ------------------------------------------------------------------------------------------------------------------------------------
23 Pioneer Emerging Markets VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TRUST OFFICERS --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ------------------------------------------------------------------------------------------------------------------------------------ David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. ------------------------------------------------------------------------------------------------------------------------------------
24 Pioneer Emerging Markets VCT Portfolio ------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TRUST OFFICERS --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, None Treasurer 2000. Serves at the Assistant Vice President - Fund discretion of the Accounting, Administration and Board. Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds. ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. ------------------------------------------------------------------------------------------------------------------------------------ Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. ------------------------------------------------------------------------------------------------------------------------------------ Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 25 [LOGO]PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18663-00-0206 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Income VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- Table of Contents -------------------------------------------------------------------------------- Pioneer Equity Income VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 6 Financial Statements 9 Notes to Financial Statements 13 Report of Independent Registered Public Accounting Firm 18 Factors Considered by the Independent Trustees in Approving the Management Contract 19 Trustees, Officers and Service Providers 22
Before investing consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] U.S. Common Stocks 96.2% Temporary Cash Investment 3.3% Convertible Preferred Stocks 0.5%
Sector Distribution (As a percentage of equity holdings) [THE FOLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Financials 26.4% Utilities 14.8% Industrials 10.8% Consumer Discretionary 9.1% Health Care 8.7% Telecommunication Services 8.5% Consumer Staples 7.9% Materials 7.2% Energy 5.6% Information Technology 1.0%
Five Largest Holdings (As a percentage of equity holdings) --------------------------------------------------- 1. PACCAR, Inc. 3.67% --------------------------------------------------- 2. Questar Corp. 3.22 --------------------------------------------------- 3. Washington Mutual, Inc. 3.11 --------------------------------------------------- 4. T. Rowe Price Associates, Inc. 2.88 --------------------------------------------------- 5. Merck & Co., Inc. 2.37 ---------------------------------------------------
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 21.37 $ 20.68
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.4421 $ - $ -
-------------------------------------------------------------------------------- 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. [THE FOLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Russell 1000 Pioneer Equity Income Value Index VCT Portfolio 12/95 10000 10000 12164 11490 12/97 16444 15489 19014 18624 12/99 20411 18542 21843 21228 12/01 20622 19711 17421 16547 12/03 22652 20232 26389 23477 12/05 28250 24773
The Russell 1000 Value Index measures the performance of large-cap U.S. value stocks. 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- 10 Years 9.50% 5 Years 3.14% 1 Year 5.52%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value [divided by] $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Equity Income VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005
Share Class II ----------------------------------------------------------- Beginning Account Value On 7/1/05 $1,000.00 Ending Account Value On 12/31/05 $1,035.53 Expenses Paid During Period* $ 4.93
* Expenses are equal to the Portfolio's annualized expense ratio of 0.96% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Equity Income VCT Portfolio Based on a hypothetical 5% per year return before expenses, reflecting the period from July 1, 2005 through December 31, 2005
Share Class II ----------------------------------------------------------- Beginning Account Value On 7/1/05 $1,000.00 Ending Account Value On 12/31/05 $1,020.37 Expenses Paid During Period* $ 4.89
* Expenses are equal to the Portfolio's annualized expense ratio of 0.96% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- In the following discussion, portfolio manager John Carey discusses the performance of Pioneer Equity Income VCT Portfolio, as well as the investment environment over the twelve-month period ended December 31, 2005. Q. Please discuss the performance of the portfolio versus its benchmark, the Russell 1000 Value Index. A. For the year ended December 31, 2005, Class II shares of Pioneer Equity Income VCT Portfolio showed a total return of 5.52% at net asset value. By comparison, the Russell 1000 Value Index, an unmanaged index of the general stock market replicating to an extent the universe of stocks in which value and income-oriented funds often invest, rose 7.05%. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Throughout the year, our overweight in the strongly performing utilities sector helped results, while our underweight in the top-performing energy sector, as well as our de-emphasis of the above-average performing energy equipment-and-services industry within the energy sector, hurt. Late in the year, our underweight in the recovering financials sector was also a negative. On the whole, it was a year of shifting tides, with investors first concerned about higher energy and other commodity prices and the implications for inflation and interest rates, and later expectant of a halt to rate increases as inflationary pressures appeared to ebb. The fourth quarter rally in the financial sector reflected that change of thinking. We would note, however, that the course of economic events is never entirely predictable. Certainly there remain some very different views among economists about the direction of interest rates and everything else. Our focus will remain on finding stocks that we think have good prospects for earnings and dividend growth over the next two to three years regardless of sector. Q. Please discuss changes you made to the portfolio during the year. A. In all, we added some eighteen positions to the portfolio and liquidated sixteen. The effects of the changes, which we made on the basis of the attractiveness to us of individual stocks, were to increase portfolio weightings in consumer staples, health care, financials, and telecommunications services and to decrease weightings in energy, industrials, consumer discretionary, information technology, and utilities. The weighting in materials stayed about the same. Some of the changes in weightings were augmented by stock-market fluctuations. Financials saw the most new entries. We thought that the prices of two of the biggest financial-services companies, Citigroup and Bank of America, represented particularly good value and that the dividend yields were also compelling. Enlarging our exposure to life insurance, we purchased Jefferson Pilot, slated to be merged into Lincoln National. PNC Financial is a successful regional bank with majority ownership of a growing asset-management business. Whitney Holdings, a New Orleans-based bank, traded down after Hurricane Katrina devastated its home city, but we felt that the bank had adequate resources and management experience to prosper as the area recovered. Finally, we invested in two REITs, Archstone-Smith Trust and Kimco Realty. Archstone operates apartments, and Kimco is involved with shopping centers. Our other new purchases covered a variety of sectors. Dow Chemical and Olin (materials) are chemical producers with good prospects for better earnings over the next year or two with improved operating efficiencies. Citizens Communications (telecommunications services) is a high-dividend-yielding telecomm company based in Stamford, Connecticut. Pfizer (health care) and Coca-Cola (consumer staples) were examples of blue-chip names fallen from investor favor and selling at low prices relative to their historical price ranges. Albertson's (consumer staples) is a grocery-store and drugstore company with potential for realizing higher shareholder value through restructuring. PG&E (Pacific Gas and Electric; utilities) is a recovering California utility A Word About Risk: The Portfolio invests in REIT securities, the value of which can fall for a variety of reasons, such as declines in rental income, fluctuating interest rates, poor property management, environmental liabilities, uninsured damage, increased competition, or changes in real estate tax laws. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- with a growing dividend yield. Deere (industrials) is the premier manufacturer of farm equipment, and Genuine Parts (consumer discretionary) occupies the same top spot in the auto-parts distribution business. Hewlett-Packard (information technology) seems to have turned the corner and resumed its growth under new management. Finally, we received Federated Department Stores (consumer discretionary) in exchange for part of our position in May Department Stores (consumer discretionary), which Federated acquired for a combination of stock and cash. Deletions included, in addition to May, a number of stocks that we felt were fully valued. In that category were Motorola, American Electric Power, FPL Group, Constellation Energy, Aqua America, Occidental Petroleum, Boeing, General Dynamics, Simon Property, and Microsoft. Due to a more mixed view on their prospects, we sold Du Pont, General Motors, Diebold, International Business Machines, and the Gap 5.75% convertible debenture. Q. What is your outlook for 2006? A. Our outlook for 2006 is cautious. We think that the moderate expectations for economic growth can be met, and we also look for higher earnings and dividends. The broad consensus estimate of roughly 3.5% real GDP growth looks reasonable to us, and we likewise think that 6-8% earnings growth for the S&P 500 is doable. However, we are starting to see powerful headwinds in the form of higher short-term interest rates, stubbornly high oil and natural gas prices, and a slowing housing market. We also watch international events out of the corner of our eye, and we remember that there are U.S. congressional elections this fall. Finally, as was certainly impressed on us in 2005, the weather and other natural disasters can throw quite a wrench in the works. The result of all those crosscurrents could be a more volatile market than we have seen in a while. We believe that another result might be defensive positioning by investors. Certainly the higher yields on money-market and other short-term debt instruments are already providing tougher competition for stocks. Our emphasis in this environment will be on stocks with good earnings and dividend support. If it is a softer economy that lies ahead, the companies less vulnerable to large earnings declines may prove better bets. Thank you as always for your 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 realized. 5 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value CONVERTIBLE PREFERRED STOCK - 0.5% Automobiles & Components - 0.5% Automobile Manufacturers - 0.5% 60,747 Ford Cap Trust, 6.5%, 1/15/32 $ 1,674,187 ------------ Total Automobiles & Components $ 1,674,187 ------------ Pharmaceuticals & Biotechnology - 0.0% Pharmaceuticals - 0.0 4,255 Schering-Plough Corp., 6.0%, 9/14/07 $ 227,643 ------------ Total Pharmaceuticals & Biotechnology $ 227,643 ------------ TOTAL CONVERTIBLE PREFERRED STOCK (Cost $3,070,923) $ 1,901,830 ------------ COMMON STOCK - 96.9% Energy - 5.5% Integrated Oil & Gas - 5.5% 144,649 Chevron Corp. $ 8,211,724 115,922 ConocoPhillips 6,744,342 84,898 Exxon Mobil Corp. 4,768,721 ------------ $ 19,724,787 ------------ Total Energy $ 19,724,787 ------------ Materials - 7.0% Construction Materials - 0.8% 40,637 Vulcan Materials Co. $ 2,753,157 ------------ Diversified Chemical - 2.1% 73,300 Dow Chemical Co. $ 3,212,006 82,800 Olin Corp. 1,629,504 46,965 PPG Industries, Inc. 2,719,274 ------------ $ 7,560,784 ------------ Diversified Metals & Mining - 0.3% 43,156 Compass Minerals International, Inc. $ 1,059,048 ------------ Industrial Gases - 1.2% 71,152 Air Products & Chemicals, Inc. $ 4,211,487 ------------ Paper Products - 0.6% 79,793 Meadwestvaco Corp. $ 2,236,598 ------------ Specialty Chemicals - 0.7% 105,965 Valspar Corp. $ 2,614,157 ------------ Steel - 1.3% 61,162 Nucor Corp. (a) $ 4,080,729 24,009 Roanoke Electric Steel Corp. 566,612 ------------ $ 4,647,341 ------------ Total Materials $ 25,082,572 ------------ Capital Goods - 9.1% Aerospace & Defense - 1.6% 103,955 United Technologies Corp. $ 5,812,124 ------------
Shares Value Construction & Farm Machinery & Heavy Trucks - 4.3% 38,489 Deere & Co. $ 2,621,486 185,643 PACCAR, Inc. 12,852,065 ------------ $ 15,473,551 ------------ Electrical Component & Equipment - 1.9% 91,501 Emerson Electric Co. $ 6,835,125 ------------ Industrial Machinery - 1.3% 30,350 Gorman-Rupp Co. $ 671,039 117,902 The Timken Co. 3,775,222 ------------ $ 4,446,261 ------------ Total Capital Goods $ 32,567,061 ------------ Transportation - 1.4% Railroads - 1.4% 72,891 Burlington Northern, Inc. $ 5,162,141 ------------ Total Transportation $ 5,162,141 ------------ Automobiles & Components - 2.6% Auto Parts & Equipment - 1.9% 93,560 Johnson Controls, Inc. $ 6,821,460 ------------ Automobile Manufacturers - 0.7% 318,322 Ford Motor Corp. $ 2,457,446 ------------ Total Automobiles & Components $ 9,278,906 ------------ Consumer Durables & Apparel - 0.8% Housewares & Specialties - 0.8% 123,380 Tupperware Brands Corp. $ 2,763,712 ------------ Total Consumer Durables & Apparel $ 2,763,712 ------------ Consumer Services - 1.9% Leisure Facilities - 1.5% 184,827 Cedar Fair, L.P. $ 5,274,963 ------------ Specialized Consumer Services - 0.4% 134,841 Servicemaster Co. $ 1,611,350 ------------ Total Consumer Services $ 6,886,313 ------------ Media - 1.6% Publishing - 1.6% 113,625 McGraw-Hill Co., Inc. $ 5,866,459 ------------ Total Media $ 5,866,459 ------------ Retailing - 1.5% Department Stores - 1.1% 59,221 Federated Department Stores, Inc. $ 3,928,129 ------------ Distributors - 0.4% 36,130 Genuine Parts Co. $ 1,586,830 ------------ Total Retailing $ 5,514,959 ------------
6 The accompanying notes are an integral part of these financial statements. Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Food & Drug Retailing - 0.4% Food Retail - 0.4% 73,200 Albertson's, Inc. $ 1,562,820 ------------ Total Food & Drug Retailing $ 1,562,820 ------------ Food, Beverage & Tobacco - 5.0% Packaged Foods & Meats - 3.6% 188,614 Campbell Soup Co. $ 5,615,039 60,831 General Mills, Inc. 3,000,185 94,243 H.J. Heinz Co., Inc. 3,177,874 59,974 Sara Lee Corp. 1,133,509 ------------ $ 12,926,607 ------------ Soft Drinks - 1.4% 72,855 Coca-Cola Co. $ 2,936,785 36,572 PepsiCo, Inc. 2,160,674 ------------ $ 5,097,459 ------------ Total Food, Beverage & Tobac co $ 18,024,066 ------------ Household & Personal Products - 2.3% Household Products - 2.3% 76,594 Colgate-Palmolive Co. $ 4,201,181 70,315 Clorox Co. 4,000,220 ------------ $ 8,201,401 ------------ Total Household & Personal Products $ 8,201,401 ------------ Health Care Equipment & Services - 0.7% Health Care Equipment - 0.7% 41,439 Becton, Dickinson & Co. $ 2,489,655 ------------ Total Health Care Equipment & Services $ 2,489,655 ------------ Pharmaceuticals & Biotechnology - 7.7% Pharmaceuticals - 7.7% 123,566 Abbott Laboratories $ 4,872,207 227,507 Bristol-Myers Squibb Co. 5,228,111 74,039 Eli Lilly & Co. 4,189,867 73,265 Johnson & Johnson 4,403,227 260,932 Merck & Co., Inc. 8,300,247 36,900 Pfizer, Inc. 860,508 ------------ $ 27,854,167 ------------ Total Pharmaceuticals & Biotechnology $ 27,854,167 ------------ Banks - 13.8% Diversified Banks - 4.7% 35,852 Bank of America Corp. $ 1,654,570 31,452 Comerica, Inc. 1,785,216 110,101 U.S. Bancorp 3,290,919 103,024 Wachovia Corp. 5,445,849 74,937 Wells Fargo & Co. 4,708,292 ------------ $ 16,884,846 ------------
Shares Value Regional Banks - 6.1% 88,467 First Horizon National Corp. $ 3,400,671 123,911 National City Corp. 4,159,692 54,800 PNC Bank Corp. 3,388,284 94,678 SunTrust Banks, Inc. 6,888,771 144,505 Whitney Holding Corp. 3,982,558 ------------ $ 21,819,976 ------------ Thrifts & Mortgage Finance - 3.0% 250,458 Washington Mutual, Inc. $ 10,894,923 ------------ Total Banks $ 49,599,745 ------------ Diversified Financials - 5.7% Asset Management & Custody Banks - 4.5% 152,899 Eaton Vance Corp. $ 4,183,317 34,424 State Street Corp. 1,908,467 139,943 T. Rowe Price Associates, Inc. 10,080,094 ------------ $ 16,171,878 ------------ Investment Banking & Brokerage - 0.7% 55,113 A.G. Edwards, Inc. $ 2,582,595 ------------ Diversified Financial Services - 0.5% 37,890 Citigroup, Inc. $ 1,838,802 ------------ Total Diversified Financials $ 20,593,275 ------------ Insurance - 4.9% Life & Health Insurance - 1.2% 72,900 Jefferson - Pilot Corp. $ 4,150,197 ------------ Property & Casualty Insurance - 3.7% 71,246 Chubb Corp. $ 6,957,172 110,994 Safeco Corp. 6,271,161 ------------ $ 13,228,333 ------------ Total Insurance $ 17,378,530 ------------ Real Estate - 1.3% Real Estate Investment Trusts - 1.3% 56,454 Archstone Communities Trust $ 2,364,858 72,900 Kimco Realty Corp. 2,338,632 ------------ $ 4,703,490 ------------ Total Real Estate $ 4,703,490 ------------ Software & Services - 0.6% Data Processing & Outsourced Services - 0.6% 50,297 Automatic Data Processing, Inc. $ 2,308,129 ------------ Total Software & Services $ 2,308,129 ------------ Technology Hardware & Equipment - 0.3% Computer Hardware - 0.3% 36,500 Hewlett-Packard Co. $ 1,044,995 ------------ Total Technology Hardware & Equipment $ 1,044,995 ------------
The accompanying notes are an integral part of these financial statements. 7 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value Telecommunication Services - 8.4% Integrated Telecommunication Services - 7.2% 305,096 AT&T Corp. $ 7,471,801 251,696 BellSouth Corp. 6,820,962 309,779 Citizens Utilities Co. (Class B) 3,788,597 254,800 Verizon Communications, Inc. 7,674,576 ------------ $ 25,755,936 ------------ Wireless Telecommunication Services - 1.2% 66,304 Alltel Corp. $ 4,183,782 ------------ Total Telecommunication Services $ 29,939,718 ------------ Utilities - 14.4% Electric Utilities - 2.6% 134,311 Great Plains Energy, Inc.(a) $ 3,755,336 157,858 Southern Co. 5,450,837 ------------ $ 9,206,173 ------------ Gas Utilities - 4.5% 19,070 Atmos Energy Corp. $ 498,871 124,038 Equitable Resources, Inc. 4,550,954 148,981 Questar Corp. 11,277,862 ------------ $ 16,327,687 ------------ Multi-Utilities - 7.3% 98,272 Ameren Corp. $ 5,035,457 94,780 Consolidated Edison, Inc. 4,391,157 158,706 KeySpan Energy Corp. 5,664,217 143,415 NSTAR 4,116,011 193,900 PG&E Corp. 7,197,561 ------------ $ 26,404,403 ------------ Total Utilities $ 51,938,263 ------------ TOTAL COMMON STOCK (Cost $291,121,572) $348,485,164 ------------
Principal Amount TEMPORARY CASH INVESTMENTS - 3.3% Repurchase Agreement - 1.8% $6,300,000 UBS Warburg, Inc., 3.25% dated 12/31/05, repurchase price of $6,300,000 plus accrued interest on 1/3/06 collateralized by $6,567,000 U.S. Treasury Bill, 3.25%, 6/29/06 $ 6,300,000 ------------
Shares Value Security Lending Collateral - 1.5% 5,595,647 Securities Lending Collateral Fund, 4.24% $ 5,595,647 ------------ TOTAL TEMPORARY CASH INVESTMENTS (Cost $11,895,647) $ 11,895,647 ------------ TOTAL INVESTMENT IN SECURITIES - 100.7% (Cost $306,088,142) $362,282,641 ------------ OTHER ASSETS AND LIABILITIES - (0.7)% $ (2,575,311) ------------ TOTAL NET ASSETS - 100.0% $359,707,330 ============
(a) At December 31, 2005, the following securities were out on loan:
Shares Security Market Value 58,299 Great Plains Energy, Inc. $ 1,630,040 56,659 Nucor Corp. 3,780,288 ------------ Total $ 5,410,328 ============
8 The accompanying notes are an integral part of these financial statements. Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Year Year Year Year Ended Ended Ended Ended Ended Class II 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 20.68 $ 18.19 $ 15.18 $ 18.49 $ 21.37 -------- -------- -------- -------- -------- Increase (decrease) from investment operations: Net investment income $ 0.45 $ 0.36 $ 0.32 $ 0.31 $ 0.34 Net realized and unrealized gain (loss) on investments 0.68 2.53 3.02 (3.25) (1.84) -------- -------- -------- -------- -------- Net increase (decrease) from investment operations $ 1.13 $ 2.89 $ 3.34 $ (2.94) $ (1.50) Distributions to shareholders: Net investment income (0.44) (0.40) (0.33) (0.37) (0.32) Net realized gain - - - - (1.06) -------- -------- -------- -------- -------- Net increase (decrease) in net asset value $ 0.69 $ 2.49 $ 3.01 $ (3.31) $ (2.88) -------- -------- -------- -------- -------- Net asset value, end of period $ 21.37 $ 20.68 $ 18.19 $ 15.18 $ 18.49 ======== ======== ======== ======== ======== Total return* 5.52% 16.04% 22.27% (16.05)% (7.15)% Ratio of net expenses to average net assets+ 0.96% 0.98% 1.02% 1.07% 1.02% Ratio of net investment income to average net assets+ 2.32% 2.16% 2.29% 2.25% 1.77% Portfolio turnover rate 22% 19% 12% 12% 13% Net assets, end of period (in thousands) $127,459 $ 93,691 $ 60,355 $ 27,084 $ 17,948 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.96% 0.98% 1.02% 1.07% 1.02% Net investment income 2.32% 2.16% 2.29% 2.25% 1.77% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.95% 0.98% 1.02% 1.07% 1.02% Net investment income 2.33% 2.16% 2.29% 2.25% 1.77%
* 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. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. The accompanying notes are an integral part of these financial statements. 9 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $5,410,329) (Cost $306,088,142) $ 362,282,641 Cash 1,343,083 Receivables -- Investment securities sold 270,080 Fund shares sold 718,286 Dividends, interest and foreign taxes withheld 1,205,543 Other 1,190 ------------- Total assets $ 365,820,823 ------------- LIABILITIES: Payables -- Fund shares repurchased $ 390,376 Upon return of securities loaned 5,595,647 Due to affiliates 18,516 Accrued expenses 108,954 ------------- Total liabilities $ 6,113,493 ------------- NET ASSETS: Paid-in capital $ 295,718,431 Undistributed net investment income 1,751,090 Accumulated net realized gain 6,043,310 Net unrealized gain on investments 56,194,499 ------------- Total net assets $ 359,707,330 ------------- NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 232,248,734 Shares outstanding 10,927,244 ------------- Net asset value per share $ 21.25 Class II: (No par value, unlimited number of shares authorized) Net assets $ 127,458,596 Shares outstanding 5,964,294 ------------- Net asset value per share $ 21.37
10 The accompanying notes are an integral part of these financial statements. Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
Year Ended 12/31/05 INVESTMENT INCOME: Dividends $ 10,276,103 Interest 339,380 Income on securities loaned, net 3,025 ------------ Total investment income $ 10,618,508 ------------- EXPENSES: Management fees $ 2,107,678 Transfer agent fees and expenses 7,715 Distribution fees (Class II) 283,178 Administrative reimbursements 62,333 Custodian fees 38,630 Professional fees 37,638 Printing expense 40,238 Fees and expenses of nonaffiliated trustees 4,224 Miscellaneous 8,884 ------------ Total expenses $ 2,590,518 Less fees paid indirectly (35,127) ------------- Net expenses $ 2,555,391 ------------- Net investment income $ 8,063,117 ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain from investments $ 19,415,048 ------------- Change in net unrealized gain from investments $ (9,053,445) ------------- Net gain on investments, futures contracts and foreign currency transactions $ 10,361,603 ============= Net increase in net assets resulting from operations $ 18,424,720 =============
The accompanying notes are an integral part of these financial statements. 11 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/05 12/31/04 FROM OPERATIONS: Net investment income $ 8,063,117 $ 5,474,342 Net realized gain (loss) on investments 19,415,048 2,001,864 Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions (9,053,445) 29,937,321 ------------- ------------- Net increase in net assets resulting from operations $ 18,424,720 $ 37,413,527 ------------- ------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (5,101,572) $ (3,809,792) Class II (2,458,044) (1,595,526) ------------- ------------- Total distributions to shareowners $ (7,559,616) $ (5,405,318) ------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 96,224,481 $ 63,295,941 Reinvestment of distributions 7,559,617 5,405,317 Cost of shares repurchased (36,867,650) (34,772,572) ------------- ------------- Net increase in net assets resulting from Fund share transactions $ 66,916,448 $ 33,928,686 ------------- ------------- Net increase in net assets $ 77,781,552 $ 65,936,895 ------------- ------------- NET ASSETS: Beginning of period $ 281,925,778 $ 215,988,883 ------------- ------------- End of period $ 359,707,330 $ 281,925,778 ============= ============= Undistributed net investment income, end of period $ 1,751,090 $ 1,228,049 ============= =============
12 The accompanying notes are an integral part of these financial statements. Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Equity Income VCT Portfolio is a Portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio)(Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio)(Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio)(Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts or 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 Equity Income Portfolio is to seek capital appreciation. The Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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. Information concerning the Portfolio's principal investment risks is contained in the Portfolio's prospectus(es). Please refer to those documents when considering the Portfolio's risks. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. The following is a summary of significant accounting policies consistently followed by the Portfolio, in the preparation of its financial statements, which are 13 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- consistent 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 (NYSE) is open, as of the close of regular trading on the NYSE. 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 NYSE. The value of such securities used in computing the net asset value of the Portfolio's shares is based on the last sale price on the principal exchange where they traded. The Portfolio also may use the fair value of a security, including a non-U.S. security, when the closing market price on the primary exchange where the security is traded no longer accurately reflects the value of the security as of the close of the NYSE. At December 31, 2005, there were no fair valued securities. 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 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, 2005, the portfolio had no open futures contracts. C. Taxes It is the Portfolio'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 amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal 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, 2005, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset values of the Portfolio and are designed to present the Portfolio's capital accounts on a tax basis.
-------------------------------------------------------------------------------------------------------- Undistributed Net Accumulated Net Investment Income Realized Gain (Loss) (Loss) Paid-In Capital -------------------------------------------------------------------------------------------------------- Pioneer Equity Income VCT Portfolio $19,540 $26,171 $ (45,711) --------------------------------------------------------------------------------------------------------
14 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The following chart shows the distributions paid during the years ended December 31, 2005 and December 31, 2004 and the components of distributable earnings (accumulated losses) as of December 31, 2005 on a tax basis.
--------------------------------------------------------------------------------------------- 2005 2004 --------------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 7,559,616 $ 5,405,318 Long-Term capital gain -- -- ----------- ----------- $ 7,559,616 $ 5,405,318 Return of Capital -- -- ----------- ----------- Total distributions $ 7,559,616 $ 5,405,318 =========== =========== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 203,918 Undistributed long-term gain/(capital loss carryforward) 6,168,262 Post-October loss deferred -- Unrealized appreciation (depreciation) 57,618,364 ----------- Total $63,990,544 =========== ---------------------------------------------------------------------------------------------
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 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), $956,233 in commissions on the sale of Trust shares for the year ended December 31, 2005. Distribution fees for Class II shares are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. 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 (excluding transfer agent and distribution fees) 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 the 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. 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 payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for the account of the Portfolio. 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 Portfolio has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Portfolio invests cash collateral in the Securities Lending Investment Fund which is sponsored by Brown Brothers Harriman & Co., the Portfolio'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 15 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- 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, a wholly owned indirect subsidiary of UniCredito Italiano, manages the portfolios. Management fees are calculated daily at the 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, 2005, $12,822 was payable to PIM related to management fees, administrative fees and certain other services, and is included in due to affiliates. 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 $3,946 in transfer agent fees payable to PIMSS at December 31, 2005. 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 to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with the Portfolio's Class II shares. Included in due to affiliates is $1,748 payable to PFD at December 31, 2005. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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 $304,664,277 $64,450,055 $(6,831,691) $57,618,364 ============ =========== ============ =========== -------------------------------------------------------------------------------------------------------
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, 2005, were $140,157,173 and $69,238,341, respectively. 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
------------------------------------------------------------------------------------------------------- Equity Income Portfolio '05 Shares '05 Amount '04 Shares '04 Amount ------------------------------------------------------------------------------------------------------- CLASS I: Shares sold 2,853,636 $ 59,389,539 1,757,096 $ 33,474,454 Reinvestment of distributions 242,794 5,101,573 198,654 3,809,791 Shares repurchased (1,317,139) (27,494,268) (1,411,407) (26,451,072) ---------------------------------------------------------------------- Net increase (decrease) 1,779,291 $ 36,996,844 544,343 $ 10,833,173 ====================================================================== CLASS II: Shares sold 1,763,038 $ 36,834,942 1,571,139 $ 29,821,487 Reinvestment of distributions 116,340 2,458,044 82,473 1,595,526 Shares repurchased (444,619) (9,373,382) (442,520) (8,231,500) ---------------------------------------------------------------------- Net increase 1,434,759 $ 29,919,604 1,211,092 $ 23,095,513 ====================================================================== -------------------------------------------------------------------------------------------------------
16 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (unaudited) The qualifying percentage of certain Portfolios' ordinary income dividends for the purposes of the corporate dividends received deduction and the percentage of those ordinary dividends that are subject to a maximum tax rate of 15% as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were as follows:
-------------------------------------------------------------------------------- Dividend Qualified Received Dividend Deduction Income -------------------------------------------------------------------------------- Equity Income Portfolio 100.00% 100.00% --------------------------------------------------------------------------------
17 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the 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 the Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four 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 audit. The financial highlights for the year ended December 31, 2001 was 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 the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and financial highlights for each of the four years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/Ernst + Young LLP Boston, Massachusetts February 10, 2006 18 Pioneer Equity Income VCT Portfolio (the "Fund")PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three, five and ten year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return and yield, as well as 19 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- the Fund's performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the second quintile of the peer group for the 12 months ended June 30, 2005, the third quintile of the peer group for the three years ended June 30, 2005, the third quintile for the five years ended June 30, 2005 and in the second quintile for the ten year period ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees also considered the yield (gross of expenses) to Fund Class I shareholders relative to the yield (as of June 30, 2005) of the Russell 1000 Value Index. The Trustees concluded that the performance of the Fund supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities and fixed income groups. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the second quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the second quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. The Trustees concluded that the Fund's overall expense ratio was lower than that of most of the comparable funds in the peer group. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realzation of any further economies of scale. The Trustees concluded that, given current and anticipated asset levels, break 20 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- points in the management fee are not necessary at this time. The Trustees will continue to evaluate annually the appropriateness of break points. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 21 Pioneer Equity Income VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Investment Adviser Trustees and Officers Pioneer Investment Management, Inc. The Trust's Board of Trustees provides broad supervision over the affairs of the Trust. The officers of the Trust are responsible Custodian for the Trust's operations. The Trust's Trustees and officers are Brown Brothers Harriman & Co. listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the Independent Registered Public Accounting Firm Portfolio within the meaning of the Investment Company Act of Ernst & Young LLP 1940 are referred to as Interested Trustees. Trustees who are not interested persons of the Trust are referred to as Independent Principal Underwriter Trustees. Each of the Trustees may serve as a trustee of each of Pioneer Funds Distributor, Inc. the 91 U.S. registered investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") serves as investment Legal Counsel adviser (the "Trust"). The address for all Interested Trustees Wilmer Cutler Pickering Hale and Dorr LLP and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc. The Trust's statement of additional information provides more detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. -----------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Equity Income VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance or earlier services company) (2001-present); company); Director of New York retirement or Managing Partner, Federal City Mortgage Trust (publicly traded removal. Capital Advisors (boutique merchant mortgage REIT) bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ---------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products or earlier manufacturer), Mortgage Guaranty retirement or Insurance Corporation, and Briggs removal. & Stratton, Inc. (engine manufacturer) ---------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------
23 Pioneer Equity Income VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
24 -------------------------------------------------------------------------------- Pioneer Equity Income VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, None Treasurer 2000. Serves at the Assistant Vice President - Fund discretion of the Accounting, Administration and Board. Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds. --------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. --------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. --------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 25 [LOGO] PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18665-00-0206 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Opportunity VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- Table of Contents -------------------------------------------------------------------------------- Pioneer Equity Opportunity VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 6 Financial Statements 8 Notes to Financial Statements 12 Report of Independent Registered Public Accounting Firm 16 Factors Considered by the Independent Trustees in Approving the Management Contract 17 Trustees, Officers and Service Providers 19
Before investing, consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Please read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 91.5% Temporary Cash Investment 3.5% Depositary Receipts for International Stocks 2.9% Convertible Preferred Stocks 2.1%
Sector Distribution (As a percentage of equity holdings) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Materials 26.6% Financials 20.5% Industrials 16.2% Health Care 15.0% Utilities 12.5% Consumer Staples 5.2% Energy 1.7% Consumer Discretionary 1.2% Information Technology 1.1%
Five Largest Holdings (As a percentage of equity holdings) 1. NRG Energy, Inc. 4.28% 2. Equity Office Properties Trust 3.71 3. Hartford Financial Services Group, Inc. 3.71 4. The Scotts Miracle-Gro Co. 3.28 5. Mack-Cali Realty Corp. 3.24
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 3/18/05 Net Asset Value per Share $10.78 $10.00
Net Distributions per Share Investment Short-Term Long-Term (3/18/05 - 12/31/05) Income Capital Gains Capital Gains $ - $ - $ -
-------------------------------------------------------------------------------- Performance of a $10,000 Investment The following chart shows the change in value of an investment made in Pioneer Equity Opportunity VCT Portfolio at net asset value, compared to that of the Russell 2500 Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Equity Opportunity Russell VCT Portfolio 2500 Index Mar-05 10000 10000 Dec-05 10955 11161
The Russell 2500 Index measures the performance of U.S. small- and mid-cap stocks. 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. -------------------------------------------------------------------------------- Cumulative Total Returns (As of December 31, 2005)
Net Asset Value Life-of-Class 7.80% (3/18/05)
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value [divided by] $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Equity Opportunity VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------------------- Beginning Account Value on 7/1/05 $1,000.00 Ending Account Value on 12/31/05 $1,053.76 Expenses Paid During Period* $ 6.47
* Expenses are equal to the Portfolio's annualized expense ratio of 1.25% for Class II shares multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Equity Opportunity VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2005 through December 31, 2005.
Share Class II ---------------------------------------------------------------- Beginning Account Value on 7/1/05 $1,000.00 Ending Account Value on 12/31/05 $1,018.90 Expenses Paid During Period* $ 6.36
* Expenses are equal to the Portfolio's annualized expense ratio of 1.25% for Class II shares multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/30/05 -------------------------------------------------------------------------------- Pioneer Equity Opportunity VCT Portfolio's positioning among mid- and small-cap issues produced positive returns over the Portfolio's first partial year of operation. In the following discussion, portfolio manager Margie Patel reviews the year's highlights and offers her outlook for the year ahead. For the period from the Portfolio's March 18, 2005 inception through December 31, 2005, the Portfolio's Class II shares returned 7.80% at net asset value. This result trailed the benchmark, the Russell 2500 Index, which returned 15.78% over the period. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q: Please describe the investment background and the areas you emphasized. A: With the economy growing faster than its long-term trend rate and inflation contained at manageable levels, conditions favored equity investors. Most sectors recorded positive results, but energy companies were outstanding performers thanks to record prices for oil and gas. Our approach emphasizes sectors that may grow faster than the overall economy; stock selection then focuses on companies that appear attractively priced relative to our assessment of their long-term potential. Industry analysis has led us to areas where, we think, positive fundamentals should produce increasingly favorable operating results. For example, materials, chemicals, and container and packaging firms appear well positioned to benefit from higher capital utilization, while expanding demand should provide some ability to raise prices. Chemical companies in particular would welcome the ability to raise prices to offset rising energy costs. Paper and forest product companies benefited from growing demand and restructuring programs that include the phasing-out of less-efficient plants. Industrials also seem poised to benefit from an increase in capital outlays as companies modernize or expand capacity after years of under-investment. Many businesses can also bolster capital investment using dividends from offshore facilities under the Jobs Creation Act, which offers favorable tax treatment on repatriated profits. The aging U.S. population makes health care another attractive area for the portfolio with holdings ranging from equipment and supplies to biotech and pharmaceuticals. In financials, we hold a geographically diverse list of commercial real estate companies, including office buildings, shopping centers and industrial space. Although the sector is somewhat sensitive to higher interest rates, the growing economy may gradually increase occupancy rates and aid cash flow, and possibly increase the value of underlying properties. In utilities, we are emphasizing areas where regulatory commissions favor growth, and companies whose customers can increase demand in an expanding economy. Economic growth should also improve operating efficiency by bringing idle generating capacity online. Some utilities may also profit from non-regulated activities like transmission and storage facilities. Q: Which holdings had a beneficial impact on performance during this period? A: Lennox International, makers of heating and cooling equipment, benefited from strong housing and industrial demand. Industrial expansion also aided results at Roper Industries, which manufactures controls and fluid-handling equipment, and at Wesco, a distributor of industrial maintenance products. In packaging, Crown Holdings rose, reflecting better financial results from higher capacity utilization, closing of inefficient facilities and a strengthening balance sheet. Strong health-care performers included Mentor, whose shares rose due to expected increased demand for such products as breast and facial implants, and liposuction devices. General Growth Properties, a diversified real estate company, led real estate holdings. We also saw a modest gain in Saul Centers, an established real estate management company. Saul operates small shopping centers and other properties in the demographically attractive Washington D.C/Baltimore corridor. A Word About Risk: Investing in small and mid-sized companies may offer the potential for higher returns, but are also subject to greater short-term price fluctuations than larger, more established companies. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. When interest rates rise, the prices of fixed income securities in the Portfolio will generally fall. Conversely, when interest rates fall, the prices of fixed income securities in the Portfolio will generally rise. Investments in the Portfolio are subject to possible loss due to the financial failure of underlying securities and their inability to meet their debt obligations. Prepayment risk is the chance that mortgage-backed bonds will be paid off early if falling interest rates prompt homeowners to refinance their mortgages. Forced to reinvest the unanticipated proceeds at lower interest rates, the Portfolio would experience a decline in income and lose the opportunity for additional price appreciation associated with falling interest rates. Investments in high yield or lower-rated securities are subject to greater-than-average risk. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Q: Which of your decisions hurt overall performance? A. Our small exposure to energy stocks compared with the benchmark's weighting helps explain why returns lagged the index; valuations among energy shares, viewed in terms of longer-term potential, did not meet our investment criteria. Among individual disappointments, shares of Canadian paper maker Abitibi declined as demand for newsprint continued to shrink. Unsatisfactory operating results hurt the performance of NOVA Chemicals, which felt the pressure of sharply higher natural gas prices. Interpublic, an international advertising firm, has yet to complete its long-pending operational turnaround, causing investors to sell shares amid continued uncertainty. Q: What is your outlook, and how does the Portfolio reflect that outlook? A. Despite a series of interest rate hikes and expensive energy, we think that the current expansion will persist through 2006. Portfolio holdings on average fall between the small- and mid-cap categories, and combine value and growth companies. All were selected for their favorable industry positions and their ability to defend their franchises in a competitive environment. Some of our holdings may engage in acquisitions or themselves be the targets of acquirers. Most importantly, our focus is on the potential long-term value we see in these companies, with less attention paid to short-term earnings trends. 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. 5 Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value CONVERTIBLE PREFERRED STOCKS - 2.5% Materials - 2.5% Steel - 2.5% 150 TXI Capital Trust I, 5.5%, 6/30/28 $ 7,725 -------- Total Materials $ 7,725 -------- TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $7,565) $ 7,725 -------- COMMON STOCKS - 108.9% Energy - 1.9% Oil & Gas Storage & Transportation - 1.9% 65 Kinder Morgan, Inc. $ 5,977 -------- Total Energy $ 5,977 -------- Materials - 27.3% Aluminum - 1.2% 182 Novelis, Inc. $ 3,802 -------- Commodity Chemicals - 2.7% 20 Georgia Gulf Corp.* $ 608 201 Lyondell Petrochemicals Co. 4,788 91 NOVA Chemicals Corp. 3,039 -------- $ 8,435 -------- Construction Materials - 1.9% 119 Texas Industries, Inc. $ 5,931 -------- Diversified Chemical - 3.7% 120 FMC Corp.* $ 6,380 259 Olin Corp. 5,097 -------- $ 11,477 -------- Fertilizers & Agricultural Chemicals - 3.7% 254 The Scotts Miracle-Gro Co. $ 11,491 -------- Gold - 3.3% 452 Placer Dome, Inc. $ 10,364 -------- Metal & Glass Containers - 3.1% 239 Crown Cork & Seal Co., Inc.* $ 4,668 244 Owens-Illinois, Inc.* 5,134 -------- $ 9,802 -------- Paper Products - 1.5% 1,181 Abitibi-Consolidated, Inc. $ 4,783 -------- Specialty Chemicals - 6.2% 200 Arch Chemicals, Inc. $ 5,980 39 Cytec Industries, Inc. 1,858 322 RPM, Inc. 5,593 96 Sigma-Aldrich Corp. 6,076 -------- $ 19,507 -------- Total Materials $ 85,592 -------- Capital Goods - 18.1% Aerospace & Defense - 2.6% 300 EDO Corp. $ 8,118 -------- Building Products - 2.4% 267 Lennox International, Inc. $ 7,529 -------- Shares Value Construction & Farm Machinery & Heavy Trucks - 0.9% 152 Wabash National Corp. $ 2,896 -------- Electrical Component & Equipment - 2.2% 178 Roper Industries, Inc. $ 7,033 -------- Industrial Machinery - 6.7% 187 Donaldson Co., Inc. $ 5,947 30 Gardner Denver, Inc.* 1,479 135 Kaydon Corp. (a) 4,339 109 Kennametal, Inc. 5,563 55 Parker Hannifin Corp. 3,628 -------- $ 20,956 -------- Trading Companies & Distributors - 3.3% 240 Wesco International, Inc.* $ 10,255 -------- Total Capital Goods $ 56,787 -------- Media - 1.3% Advertising - 1.3% 426 The Interpublic Group of Companies, Inc.* $ 4,111 -------- Total Media $ 4,111 -------- Food, Beverage & Tobacco - 2.5% Packaged Foods & Meats - 2.5% 257 McCormick & Co, Inc. $ 7,946 -------- Total Food, Beverage & Tobacco $ 7,946 -------- Household & Personal Products - 3.2% Personal Products - 3.2% 223 Alberto-Culver Co. (Class B) $ 10,202 -------- Total Household & Personal Products $ 10,202 -------- Health Care Equipment & Services - 10.8% Health Care Distributors - 1.2% 136 Owens & Minor, Inc. $ 3,744 -------- Health Care Equipment - 9.6% 125 Bio-Rad Laboratories, Inc.* $ 8,180 101 Fisher Scientific International, Inc.* 6,248 62 Mentor Corp. 2,857 242 Steris Corp. 6,055 231 Thermo Electron Corp.* 6,960 -------- $ 30,300 -------- Total Health Care Equipment & Services $ 34,044 -------- Pharmaceuticals & Biotechnology - 5.9% Biotechnology - 3.3% 364 Protein Design Labs, Inc.* $ 10,345 -------- Pharmaceuticals - 2.6% 350 Bristol-Myers Squibb Co. $ 8,043 -------- Total Pharmaceuticals & Biotechnology $ 18,388 --------
6 The accompanying notes are an integral part of these financial statements. Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Banks - 1.8% Thrifts & Mortgage Finance - 1.8% 267 Sovereign Bancorp, Inc. $ 5,773 -------- Total Banks $ 5,773 -------- Insurance - 4.1% Multi-Line Insurance - 4.1% 151 Hartford Financial Services Group, Inc. $ 12,969 -------- Total Insurance $ 12,969 -------- Real Estate - 16.9% Real Estate Management & Development - 1.1% 92 Forest City Enterprises, Inc. $ 3,490 -------- Real Estate Investment Trusts - 15.8% 428 Equity Office Properties Trust $ 12,981 177 General Growth Pro TLB SC (a) 8,317 115 Liberty Property Trust 4,928 262 Mack-Cali Realty Corp. 11,318 548 MeriStar Hospitality Corp.* 5,151 187 Saul Centers, Inc. 6,751 -------- $ 49,446 -------- Total Real Estate $ 52,936 -------- Semiconductors - 1.2% Semiconductor Equipment - 1.2% 200 FEI Co.* $ 3,834 -------- Total Semiconductors $ 3,834 -------- Utilities - 13.9% Electric Utilities - 0.9% 66 Edison International $ 2,878 -------- Gas Utilities - 8.2% 404 Atmos Energy Corp. $ 10,569 275 National Fuel Gas Co. 8,577 1,167 SEMCO Energy, Inc.* 6,559 -------- $ 25,705 -------- Shares Value Independent Power Producer & Energy Traders - 4.8% 318 NRG Energy, Inc.* $ 14,984 -------- Total Utilities $ 43,567 -------- TOTAL COMMON STOCKS (Cost $324,408) $342,126 -------- TEMPORARY CASH INVESTMENTS - 4.0% Security Lending Collateral - 4.0% 12,584 Securities Lending Investment Fund, 4.24% $ 12,584 -------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $12,584) $ 12,584 -------- TOTAL INVESTMENT IN SECURITIES - 115.4% (Cost $344,557) $362,435 -------- OTHER ASSETS AND LIABILITIES - (15.4)% $(48,386) -------- TOTAL NET ASSETS - 100.0% $314,049 ========
* Non-income producing security (a) At December 31, 2005, the following securities were out on loan:
Shares Security Market Value 168 General Growth Pro TLB SC $ 7,894 128 Kaydon Corp. 4,114 ------- Total $12,008 =======
The accompanying notes are an integral part of these financial statements. 7 Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
3/18/05 (a) to Class II 12/31/05 Net asset value, beginning of period $ 10.00 ------- Increase from investment operations: Net investment income $ 0.07 Net realized and unrealized gain on investments 0.71 ------- Net increase from investment operations $ 0.78 ------- Net increase in net asset value $ 0.78 ------- Net asset value, end of period $ 10.78 ======= Total return* 7.80%(b) Ratio of net expense to average net assets 1.25%** Ratio of net investment income to average net assets 1.05%** Portfolio turnover rate 3%(b) Net assets, end of period (in thousands) $ 314 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 38.61%** Net investment loss (36.32)%**
(a) Class II shares were first publicly offered on March 18, 2005. * Assumes initial investment at net asset value at the beginning of each period, reinvestment of all distributions, the complete redemption of the investment at net asset value at the end of each period. ** Annualized (b) Not annualized. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. 8 The accompanying notes are an integral part of these financial statements. Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $12,008) (cost $362,435 $344,557) Receivables -- Dividends, interest and foreign taxes withheld 332 Due from Pioneer Investment Management, Inc. 9,933 Other 6 -------- Total assets $372,706 -------- LIABILITIES: Payables -- Fund shares repurchased $ 38 Upon return of securities loaned 12,584 Due to bank 1,760 Due to affiliates 263 Accrued expenses 44,012 -------- Total liabilities $ 58,657 -------- NET ASSETS: Paid-in capital $295,892 Undistributed net investment income 2,190 Accumulated net realized loss (1,911) Net unrealized gain on investments 17,878 -------- Total net assets $314,049 -------- NET ASSET VALUE PER SHARE: Class II: No par value (unlimited number of shares authorized) Net assets $314,049 Shares outstanding 29,137 ======== Net asset value per share $ 10.78
The accompanying notes are an integral part of these financial statements. 9 Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
3/18/05 (Commencement of Operations) to 12/31/05 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $22) $ 4,111 Interest 434 Income on securities loaned, net 11 -------- Total investment income $ 4,556 -------- EXPENSES: Management fees $ 1,478 Transfer agent fees 1,375 Distribution fees (Class II) 493 Administrative reimbursements 13,887 Custodian fees 12,085 Professional fees 32,653 Printing 12,262 Fees and expenses of nonaffiliated trustees 2,401 Miscellaneous 125 -------- Total expenses $ 76,759 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (74,283) -------- Net expenses $ 2,476 -------- Net investment income $ 2,080 -------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss from: Investments $ (1,911) -------- Change in net unrealized gain or (loss) from: Investments $ 17,878 -------- Net gain on investments $ 15,967 ======== Net increase in net assets resulting from operations $ 18,047 ========
10 The accompanying notes are an integral part of these financial statements. Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
3/18/05 (Commencement of Operations) to 12/31/05 FROM OPERATIONS: Net investment income $ 2,080 Net realized loss on investments (1,911) Change in net unrealized gain or (loss) on investments 17,878 -------- Net increase in net assets resulting from operations $ 18,047 --------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $339,533 Cost of shares repurchased (43,531) -------- Net increase in net assets resulting from fund share transactions $296,002 -------- Net increase in net assets $314,049 NET ASSETS: Beginning of period -- -------- End of period $314,049 ======== Undistributed net investment income, end of period $ 2,190 ========
The accompanying notes are an integral part of these financial statements. 11 Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Equity Opportunity VCT Portfolio (the Portfolio) is a Portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty nine separate diversified portfolios, sixteen 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) The Equity Opportunity Portfolio commenced operations on March 18, 2005. Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts or by qualified pension and retirement plans. The Equity Opportunity Portfolio seeks long-term capital growth and secondarily, it seeks income. The financial statements and financial highlights of all other Portfolios are presented in separate books. The Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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. Information concerning the Portfolio's principal investment risks is contained in the Portfolio's prospectus(es). Please refer to those documents when considering the Portfolio's risks. Investing in small and mid-sized companies may offer the potential for higher returns, but are also subject to greater short-term price fluctuations than larger, more established companies. The following is a summary of significant accounting policies consistently followed by the Trust, in the preparation of its financial statements which are consistent 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 (NYSE) is open, as of the close of regular trading on the NYSE. 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 12 Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- prices are not generally reported, are valued at the mean between the last bid and asked prices. The Portfolio also may use the fair value of a security, including a non-U.S. security, when the closing market price on the primary exchange where the security is traded no longer accurately reflects the value of the security as of the close of the NYSE. At December 31, 2005, there were no fair valued securities. 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. 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. Taxes It is the Portfolio'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 amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with income tax rules. Therefore, the source of the 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, 2005, Equity Opportunity Portfolio had a net capital loss carryforward of $437, which will expire in 2013, if not utilized. The Portfolio elected to defer $1,474 in capital losses recognized between November 1, 2005 and December 31, 2005 to its fiscal year ended December 31, 2006. At December 31, 2005, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset values of the Portfolio and are designed to present the Portfolio's capital accounts on a tax basis.
--------------------------------------------------------------------------------------------------------------------- Undistributed Net Accumulated Net Portfolio Investment Income (Loss) Realized Gain (Loss) Paid-In Capital --------------------------------------------------------------------------------------------------------------------- Pioneer Equity Opportunity VCT Portfolio 110 -- (110) ---------------------------------------------------------------------------------------------------------------------
The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2005, on a tax basis. There were no distributions paid during the year ended December 31, 2005.
----------------------------------------------------------- 2005 ----------------------------------------------------------- Distributions paid from: Ordinary Income $ -- Long-Term capital gain -- Return of Capital -- ------- Total distributions $ -- ======= Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 2,190 Undistributed long-term gain/(capital loss carryforward) (437) Post-October loss deferred (1,474) Unrealized appreciation (depreciation) 17,878 ------- Total $18,157 ======= -----------------------------------------------------------
C. Portfolio Shares The Portfolio records sales and repurchases of its 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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. Distribution fees are calculated based on the average daily net asset values attributable to Class I and Class II shares of the Portfolio, respectively. 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 payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair 13 Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- 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 Portfolio has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Portfolio invests cash collateral in the Securities Lending Investment Fund which is sponsored by Brown Brothers Harriman & Co., the Trust's custodian. 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, a wholly owned indirect subsidiary of UniCredito Italiano manages the portfolio. Management fees are calculated daily at the 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, 2005, $12 was payable to PIM related to management fees, administrative fees and certain other services, and is included in due to affiliates. Through May 1, 2006, 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 1.25% of the average daily net assets attributable to class II shares. 3. Transfer Agent 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, 2005. 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 to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with the Portfolio's Class II shares. Included in due to affiliates is $1 payable to PFD at December 31, 2005. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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 Opportunity Portfolio $344,557 $30,316 $(12,438) $17,878 ======== ======= ======== ======= ---------------------------------------------------------------------------------------------------
14 Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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, 2005, was $341,740 and $7,856, respectively. 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the period ended December 31, 2005:
------------------------------------------------------------------ Equity Opportunity Portfolio '05 Shares '05 Amount ------------------------------------------------------------------ CLASS II: Shares sold 33,266 $339,533 Reinvestment of distributions -- -- Shares repurchased (4,129) (43,531) ---------------------------- Net increase 29,137 $296,002 ============================ ------------------------------------------------------------------
15 Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the Shareowners of Pioneer Equity Opportunity VCT Portfolio: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Equity Opportunity VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, and the related statement of operations, changes in net assets, and the financial highlights for the period from March 18, 2005 (commencement of operations) to December 31, 2005. 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 audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Opportunity VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations, changes in its net assets, and the financial highlights for the period from March 18, 2005 (commencement of operations) to December 31, 2005 in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 16 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Opportunity VCT Portfolio (the "Fund") -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for the life-of-fund period ended June 30, 2005 for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 17 Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Trustees concluded that the period since commencement of investment operations was too short to evaluate the Investment Adviser's performance. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the period ended June 30, 2005 was in the second quintile relative to the management fees paid by the other funds in that peer group for the comparable period. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareowners. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. Given the small asset size of the Fund, the Trustees concluded that comparison of the Fund's expense ratio to a peer group was not meaningful. F. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. The Trustees concluded, given current and anticipated asset levels, that break points in the management fee are not necessary at this time. The Trustees will continue to evaluate annually the appropriateness of break points. G. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund), and the benefit to the Investment Adviser from the use of "soft" commission dollars to pay for research services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 18 Pioneer Equity Opportunity VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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, Wilmer Cutler Pickering 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. -----------------------------------------------------------------------------------------------------------------------------------
19 Pioneer Equity Opportunity VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company Washington, DC 20007 trustee is elected (publicly traded health care (privately-held affordable or earlier services company) (2001-present); housing finance company); retirement or Managing Partner, Federal City Director of New York Mortgage removal. Capital Advisors (boutique merchant Trust (publicly traded mortgage bank) (2002 to 2004); Executive REIT) Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ---------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material or earlier products manufacturer), retirement or Millennium Chemicals, Inc. removal. (commodity chemicals), Mortgage Guaranty Insurance Corporation, and R.J. Reynolds Tobacco Holdings, Inc. (tobacco) ---------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Professor of Management, Faculty Canada H3A 1G5 or earlier of Management, McGill University. retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------
20 Pioneer Equity Opportunity VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (57) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
21 Pioneer Equity Opportunity VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, None Treasurer 2000. Serves at the Assistant Vice President - Fund discretion of the Accounting, Administration and Board. Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds. --------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. --------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. --------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 22 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 23 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 24 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 25 [LOGO]PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18680-00-0206 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Europe VCT Portfolio -- Class II Shares ANNUAL REPORT DECEMBER 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Table of Contents --------------------------------------------------------------------------------
Pioneer Europe VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 5 Financial Statements 7 Notes to Financial Statements 11 Report of Independent Registered Public Accounting Firm 16 Factors Considered by the Trustees in Approving the Management Contract 17 Trustess, Officers and Service Providers 20
Before investing consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Read it carefully. The Fund files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. PIONEER VARIABLE CONTRACTS TRUST Pioneer Europe VCT Portfolio -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Diversification (As a percentage of total investment portfolio) [The following table was depicted as a pie chart in the printed material.]
International Common Stocks 95.4% International Preferred Stocks 2.6% U.S. Common Stocks 2.0%
Geographical Distribution (As a percentage of equity holdings) [The following table was depicted as a pie chart in the printed material.]
United Kingdom 26.4% France 25.1% Germany 14.5% Switzerland 13.9% Netherlands 6.1% Ireland 5.4% Spain 3.5% Italy 3.1% Panama 2.0%
Five Largest Holdings (As a percentage of equity holdings)
1. Royal Bank of Scotland Group Plc 5.14% 2. BP Amoco Plc 4.94 3. BNP Paribas SA 4.47 4. TNT Post Group N.V. 4.34 5. CS Group 4.23
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 11.20 $ 10.44
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.0511 $ - $ -
-------------------------------------------------------------------------------- Performance of a $10,000 Investment -------------------------------------------------------------------------------- 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. [The following table was depicted as a line chart in the printed material.]
Pioneer Europe MSCI Europe VCT Portfolio Index 10/98 10,000 10,000 10,596 10,998 12/99 13,571 12,783 11,030 11,742 12/01 8,445 9,436 6,835 7,729 12/03 9,085 10,754 10,739 13,054 12/05 11,578 14,351
The Morgan Stanley Capital International (MSCI) Europe Index measures the performance of stocks in European developed markets. 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, 2005) -------------------------------------------------------------------------------- Net Asset Value --------------------------------------------------------------------------------
Life of Fund 2.06% (10/30/98) 5 Years 0.97% 1 Year 7.81%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 PIONEER VARIABLE CONTRACTS TRUST Pioneer Europe VCT Portfolio -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value [divided by] $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Europe VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II ------------------------------------------------------ Beginning Account Value on 7/1/05 $1,000.00 Ending Account Value on 12/31/05 $1,094.74 Expenses Paid During Period* $ 9.24
* Expenses are equal to the Portfolio's annualized expense ratio of 1.75% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Europe VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,016.38 Expenses Paid During Period* $ 8.89
* Expenses are equal to the Portfolio's annualized expense ratio of 1.75% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 PIONEER VARIABLE CONTRACTS TRUST Pioneer Europe VCT Portfolio -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- European stocks posted strong positive returns in 2005, supported by solid company earnings growth and an improving economic backdrop. In the discussion below, Andrew Arbuthnott, who is responsible for the day-to-day management of Pioneer Europe VCT Portfolio, discusses the factors that influenced the Portfolio's performance over the year. Q. How did the Portfolio perform? A. For the 12 months ended December 31, 2005, Class II shares returned 7.81% at net asset value. In comparison, our benchmark, the Morgan Stanley Capital International (MSCI) Europe Index, posted a return of 9.42%. Returns for the Portfolio and the Index reflect the negative impact for U.S. investors with holdings denominated in euros due to the euro's decline over the year versus the dollar. Nevertheless, European equity returns were strong both in absolute terms and relative to U.S. domestic equity indices. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. What factors influenced the Portfolio's relative performance? A. The Portfolio's underperformance relative to the benchmark was largely the result of our exposure to the telecommunications and automobile sectors. We were overweight in the telecommunications sector, which underperformed strongly in 2005. France Telecom was the key detractor as the market worried about the impact of new technologies such as internet telephone calls (VOIP) on its revenue growth potential. In autos, the market reacted negatively to Porsche's decision to purchase a 20% stake in Volkswagen, although in our opinion the investment should not undermine the underlying profitability of Porsche. Disappointing results from Peugeot also held back overall returns while Michelin underperformed amid sluggish sales of truck tires. Q. Which positions were positive contributors to the Portfolio's performance? A. Our overweight position in diversified financials was the leading positive contributor for the Portfolio in 2005. The sector saw strong relative performance driven by generally supportive operating conditions, and our stock selection within the sector outperformed as well. In particular, holdings in Credit Suisse, Deutsche Bank and UBS rose on very solid quarterly results throughout the year. We were also overweight in capital goods, which outperformed the broader market in 2005, but our stock selection was particularly robust within the sector. Siemens outperformed as it continued to restructure under the guidance of its new CEO, moving to concentrate on its more profitable industrial business and away from communication equipment and IT services. ACS (a Spanish construction company) strengthened on good financial results and robust order levels, while Schneider Electric performed well on optimism for increased returns to shareholders. Finally, we were overweight in pharmaceuticals throughout the year. Our positions in AstraZeneca and Roche outperformed, and we continue to view both as attractive on the basis of strong new drug pipelines. Q. Would you discuss the Portfolio's overall approach? A. Mid-way through the year, the Portfolio moved to a more concentrated investment portfolio. As a result, the Portfolio now holds around 30 stocks, comprising our strongest investment ideas. We believe this shift will help maximize the benefits of our bottom-up stock selection process - while at the same time continuing to allow us to construct a diversified, multi-cap portfolio. Despite the Portfolio's higher degree of concentration under its new investment approach, our goal is for its overall level of volatility to remain broadly comparable to that of its benchmark. This is due to our consistent application of a rigorous investment process, through which we aim to achieve a deep understanding of our holdings. The goal is to find those securities with upside potential that we believe have the possibility to also offer limited downside risk. Q. What is your outlook? A. Our outlook is positive for the European equity markets in 2006. Thanks to strong earnings growth, valuations remain attractive versus fixed income investments, and European equities continue to offer solid dividend yields. From a global perspective, the macroeconomic environment remains favourable to the equity markets, with positive growth expected to continue. Following years of successful cost cutting and restructuring, corporate earnings growth is likely to slow in 2006; however, we feel that valuations have taken this into account. Equity markets may also continue to benefit from share buy-backs and merger and acquisition activity. While we are positive on the market, we would be surprised if equity returns in 2006 were as high as those in 2005. In terms of our currency outlook, the euro may gain against the dollar during 2006, if the focus of investors moves back to the large U.S. trade and current account deficits. 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. A Word About Risk: Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. The Portfolio may invest a substantial amount of its assets in issuers located in a limited number of countries and therefore is susceptible to adverse economic, political or regulatory developments affecting those countries. The Portfolio invests in a limited number of securities and, as a result, the Portfolio's performance may be more volatile than the performance of other portfolios holding more securities. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 PIONEER VARIABLE CONTRACTS TRUST Pioneer Europe VCT Portfolio -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value PREFERRED STOCK - 2.5% Automobiles & Components - 2.5% Automobile Manufacturers - 2.5% 658 Porsche AG $ 472,253 ----------- TOTAL PREFERRED STOCK (Cost $411,979) $ 472,253 ----------- COMMON STOCK - 95.7% Energy - 11.3% Integrated Oil & Gas - 11.3% 84,652 BP Amoco Plc $ 906,190 20,168 Eni SpA 562,124 21,728 Repsol SA Regd 637,257 ----------- $ 2,105,571 ----------- Total Energy $ 2,105,571 ----------- Materials - 11.3% Construction Materials - 6.5% 21,189 CRH Plc $ 622,955 6,584 Lafarge Br 591,985 ----------- $ 1,214,940 ----------- Diversified Metals & Mining - 2.3% 9,195 Rio Tinto Plc $ 419,761 ----------- Fertilizers & Agricultural Chemicals - 2.5% 3,784 Syngenta AG* $ 470,580 ----------- Total Materials $ 2,105,281 ----------- Capital Goods - 6.9% Building Products - 3.3% 10,367 Compagnie de Saint Gobain $ 616,276 ----------- Industrial Conglomerates - 3.6% 7,900 Siemens $ 676,639 ----------- Total Capital Goods $ 1,292,915 ----------- Transportation - 4.3% Air Freight & Couriers - 4.3% 25,504 TNT NV $ 796,613 ----------- Total Transportation $ 796,613 ----------- Automobiles & Components - 7.2% Automobile Manufacturers - 2.1% 6,723 PSA Peugeot Citroen $ 386,670 ----------- Tires & Rubber - 5.1% 5,301 Continental AG $ 469,809 8,850 Compagnie Generale des Etablissements Michelin 496,738 ----------- $ 966,547 ----------- Total Automobiles & Components $ 1,353,217 -----------
Shares Value Consumer Durables & Apparel - 4.9% Apparel, Accessories & Luxury Goods - 2.7% 2,680 Adidas-Salomon AG $ 506,979 ----------- Homebuilding - 2.2% 18,968 Persimmon Plc $ 408,382 ----------- Total Consumer Durables & Apparel $ 915,361 ----------- Consumer Services - 2.0% Hotels, Resorts & Cruise Lines - 2.0% 6,812 Carnival Corp. $ 364,238 ----------- Total Consumer Services $ 364,238 ----------- Media - 4.6% Advertising - 2.9% 49,530 WPP Group PLC $ 534,710 ----------- Publishing - 1.7% 16,053 Wolters Kluwer NV* $ 324,399 ----------- Total Media $ 859,109 ----------- Food & Drug Retailing - 3.6% Drug Retail - 1.6% 28,832 Boots Co. Plc $ 300,838 ----------- Hypermarkets & Supercenters - 2.0% 7,774 Carrefour Supermarch* $ 364,098 ----------- Total Food & Drug Retailing $ 664,936 ----------- Pharmaceuticals & Biotechnology - 6.3% Pharmaceuticals - 6.3% 10,691 Astrazeneca Plc $ 520,925 4,402 Roche Holdings AG 660,619 ----------- $ 1,181,544 ----------- Total Pharmaceuticals & Biotechnology $ 1,181,544 ----------- Banks - 19.1% Diversified Banks - 19.1% 17,413 Allied Irish Banks Plc $ 372,627 67,587 Barclays Plc 710,074 10,136 BNP Paribas SA 819,802 31,220 Royal Bank of Scotland Group Plc 942,651 5,931 Societe Generale 729,206 ----------- $ 3,574,360 ----------- Total Banks $ 3,574,360 ----------- Diversified Financials - 10.5% Diversified Capital Markets - 10.5% 15,233 CS Group $ 776,072 5,549 Deutsche Bank AG 537,725 6,793 UBS AG 646,399 ----------- $ 1,960,196 ----------- Total Diversified Financials $ 1,960,196 -----------
The accompanying notes are an integral part of these financial statements. 5 PIONEER VARIABLE CONTRACTS TRUST Pioneer Europe VCT Portfolio -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value Telecommunication Services - 3.7% Integrated Telecommunication Services - 3.2% 24,070 France Telecom SA $ 597,774 ----------- Wireless Telecommunication Services - 0.5% 42,393 Vodafone Group Plc $ 92,034 ----------- Total Telecommunication Services $ 689,808 ----------- TOTAL COMMON STOCK (Cost $15,365,193) $17,863,149 ----------- TOTAL INVESTMENT IN SECURITIES - 98.2% (Cost $15,777,172)(a) $18,335,402 ----------- OTHER ASSETS AND LIABILITIES - 1.8% $ 336,302 ----------- TOTAL NET ASSETS - 100.0% $18,671,704 ===========
* 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 26.4% France 25.1 Germany 14.5 Switzerland 13.9 Netherlands 6.1 Ireland 5.4 Spain 3.5 Italy 3.1 Panama 2.0 ----- 100.0% =====
The accompanying notes are an integral part of these financial statements. 6 PIONEER VARIABLE CONTRACTS TRUST Pioneer Europe VCT Portfolio -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
1/2/01 (a) Year Ended Year Ended Year Ended Year Ended to Class II 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 10.44 $ 8.89 $ 6.71 $ 8.29 $ 11.07 ------- ------- ------ -------- -------- Increase (decrease) from investment operations: Net investment income $ 0.06 $ 0.04 $ 0.03 $ 0.01 $ 0.08 Net realized and unrealized gain (loss) on investments and foreign currency transactions 0.75 1.57 2.17 (1.59) (2.71) ------- ------- ------ -------- -------- Net increase (decrease) from investment operations $ 0.81 $ 1.61 $ 2.20 $ (1.58) $ (2.63) Distributions to shareholders: Net investment income (0.05) (0.06) (0.02) -- (0.15) ------- ------- ------ -------- -------- Net increase (decrease) in net asset value $ 0.76 $ 1.55 $ 2.18 $ (1.58) $ (2.78) ------- ------- ------ -------- -------- Net asset value, end of period $ 11.20 $ 10.44 $ 8.89 $ 6.71 $ 8.29 ======= ======= ====== ======== ======== Total return* 7.81% 18.20% 32.92% (19.06)% (23.44)% Ratio of net expenses to average net assets 1.75% 1.75% 1.79% 1.86% 3.22% Ratio of net investment income (loss) to average net assets 0.66% 0.61% 0.56% 0.25% (2.56)% Portfolio turnover rate 95% 55% 52% 95% 73% Net assets, end of period (in thousands) $ 9,958 $ 8,252 $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 2.01% 2.20% 2.75% 2.66% 4.57% Net investment income (loss) 0.40% 0.17% (0.40)% (0.54)% (3.90)% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 1.75% Net investment income (loss) 0.66%
(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. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. The accompanying notes are an integral part of these financial statements. 7 PIONEER VARIABLE CONTRACTS TRUST Pioneer Europe VCT Portfolio -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 --------------------------------------------------------------------------------
ASSETS: Investment in securities, at value (Cost $15,777,172) $ 18,335,402 Cash 360,949 Receivables -- Fund shares sold 4,979 Dividends, interest and foreign taxes withheld 24,054 ------------ Total assets $ 18,725,384 ------------ LIABILITIES: Payables -- Fund shares repurchased $ 1,370 Due to affiliates 4,020 Accrued expenses 48,290 ------------ Total liabilities $ 53,680 ------------ NET ASSETS: Paid-in capital $ 20,701,846 Undistributed net investment income 106,090 Accumulated net realized loss (4,694,306) Net unrealized gain (loss) on: Investments 2,558,230 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (156) ------------ Total net assets $ 18,671,704 ------------ NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 8,714,040 Shares outstanding 763,219 ------------ Net asset value per share $ 11.42 Class II: (No par value, unlimited number of shares authorized) Net assets $ 9,957,664 Shares outstanding 889,288 ------------ Net asset value per share $ 11.20
The accompanying notes are an integral part of these financial statements. 8 PIONEER VARIABLE CONTRACTS TRUST Pioneer Europe VCT Portfolio -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
Year Ended 12/31/05 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $63,473) $ 436,678 Interest 6,748 ------------ Total investment income $ 443,426 ------------ EXPENSES: Management fees $ 181,631 Transfer agent fees and expenses 2,753 Distribution fees (Class II) 22,956 Administrative reimbursements 18,512 Custodian fees 37,053 Professional fees 42,316 Printing expense 12,988 Fees and expenses of nonaffiliated trustees 4,005 Miscellaneous 20,492 ------------ Total expenses $ 342,706 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (47,561) ------------ Net expenses $ 295,145 ------------ Net investment income $ 148,281 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ 3,151,091 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (42,124) ------------ $ 3,108,967 ------------ Change in net unrealized loss from: Investments $ (1,854,575) Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (2,742) ------------ $ (1,857,317) ------------ Net gain on investments, futures contracts and foreign currency transactions $ 1,251,650 ============ Net increase in net assets resulting from operations $ 1,399,931 ============
The accompanying notes are an integral part of these financial statements. 9 PIONEER VARIABLE CONTRACTS TRUST Pioneer Europe VCT Portfolio -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
Year Year Ended Ended 12/31/05 12/31/04 FROM OPERATIONS: Net investment income $ 148,281 $ 118,530 Net realized gain on investments 3,108,967 1,154,559 Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions (1,857,317) 1,402,807 ------------ ------------ Net increase in net assets resulting from operations $ 1,399,931 $ 2,675,896 ------------ ------------ DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (58,420) $ (65,951) Class II (44,828) (38,910) ------------ ------------ Total distributions to shareowners $ (103,248) $ (104,861) ------------ ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 3,090,347 $ 3,890,105 Reinvestment of distributions 103,248 104,862 Cost of shares repurchased (3,544,212) (3,175,336) ------------ ------------ Net increase (decrease) in net assets resulting from Fund share transactions $ (350,617) $ 819,631 ------------ ------------ Net increase in net assets $ 946,066 $ 3,390,666 ------------ ------------ NET ASSETS: Beginning of year $ 17,725,638 $ 14,334,972 ------------ ------------ End of year $ 18,671,704 $ 17,725,638 ------------ ------------ Undistributed net investment income, end of year $ 106,090 $ 103,181 ============ ============
The accompanying notes are an integral part of these financial statements. 10 PIONEER VARIABLE CONTRACTS TRUST Pioneer Europe VCT Portfolio -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Europe Portfolio (the Portfolio) is a Portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty-nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts or 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 VCT Portfolio is to seek long-term capital growth. The Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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. Information concerning the Portfolio's principal investment risks is contained in the Portfolio's prospectus(es). Please refer to those documents when considering the Portfolio's risks. Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. The following is a summary of significant accounting policies consistently followed by the Portfolio in the preparation of its financial statements, which are consistent with those generally accepted in the investment company industry: 11 PIONEER VARIABLE CONTRACTS TRUST Pioneer Europe VCT Portfolio -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- 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 (NYSE) is open, as of the close of regular trading on the NYSE. 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 NYSE. 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. The principal exchanges and markets for such securities have closing times prior to the close of the NYSE. However, the value of these securities may be influenced by changes in global markets occurring after the closing times of the local exchanges and markets up to the time the Portfolio determines its net asset value. Consequently, the Board of Trustees of the Portfolio has determined that the use of daily fair valuations as provided by a pricing service is appropriate for the Portfolio. The Portfolio may also take into consideration other significant events in determining the fair value of these securities. Thus, the Portfolio's securities valuations may differ from prices reported by the various local exchanges and markets. At December 31, 2005, there were no fair valued securities. All securities that trade in foreign markets whose closing prices are as of times prior to the close of the NYSE and that are held by Europe Portfolio are fair valued using vendor-supplied pricing updates for each security to the time of the close of the NYSE. Temporary cash investments and securities held by the 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, 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. 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. dollars 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. As of December 31, 2005, the Portfolio had no outstanding portfolio or settlement hedges. D. Taxes It is the Portfolio'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, 2005, no such taxes were paid. 12 PIONEER VARIABLE CONTRACTS TRUST Pioneer Europe VCT Portfolio -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal 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, 2005, Europe VCT Portfolio had a capital loss carryforward of $4,600,975 of which the following amounts will expire between 2009 and 2011 if not utilized: $1,921,644 in 2009, $1,896,288 in 2010 and $783,043 in 2011. The Portfolio elected to defer $17,485 in capital losses recognized between November 1, 2005 and December 31, 2005 to its fiscal year ending December 31, 2006. At December 31, 2005, 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.
------------------------------------------------------------------------------------- Undistributed Net Accumulated Net Investment Income Realized Gain (Loss) (Loss) Paid-In Capital ------------------------------------------------------------------------------------- Pioneer Europe VCT Portfolio $(42,124) $42,124 $-- ======== ======= === -------------------------------------------------------------------------------------
The following chart shows the distributions paid during the years ended December 31, 2005 and December 31, 2004 and the components of distributable earnings (accumulated losses) as of December 31, 2005, on a tax basis.
------------------------------------------------------------------------------------ 2005 2004 ------------------------------------------------------------------------------------ Distributions paid from: Ordinary Income $ 103,248 $104,861 Long-Term capital gain -- -- ----------- -------- $ 103,248 $104,861 Return of Capital -- -- ----------- -------- Total distributions $ 103,248 $104,861 =========== ======== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 106,090 Undistributed long-term gain/(capital loss carryforward) (4,600,975) Post-October loss deferred (17,485) Unrealized appreciation (depreciation) 2,482,228 ----------- Total $(2,030,142) =========== ------------------------------------------------------------------------------------
For the fiscal year ending December 31, 2005, Europe Portfolio has elected to pass through foreign tax credits of $46,274. The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales. E. Portfolio Shares The Portfolio records sales and repurchases of its 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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. Distribution fees for Class II shares are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. 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 (excluding transfer agent and distribution fees) and realized and 13 PIONEER VARIABLE CONTRACTS TRUST Pioneer Europe VCT Portfolio -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of shares based on the respective percentage of the adjusted-net assets at the beginning of the day. The Portfolio declares as daily dividends substantially all of its respective net investment income. All dividends are paid on a monthly basis. Short-term capital gain distributions, if any, may be declared with the daily dividends. 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 payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for the account of the Portfolio. 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 Portfolio has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Portfolio invests cash collateral in the Securities Lending Investment Fund which is sponsored by Brown Brothers Harriman & Co., the Portfolio'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, a wholly owned indirect subsidiary of UniCredito Italiano, manages the portfolio. Management fees are calculated daily at the annual rate of 1.00% of the Portfolio's average daily net assets. Through May 1, 2006, PIM has agreed not to impose a portion of its management fees and to limit other operating expenses to the extent required to limit expenses of Class I shares to 1.50% of the average daily net assets attributable to Class I shares; the portion of portfolio expenses attributable to Class II shares will be reduced only to the extent such expenses are reduced for Class I shares. 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, 2005, $182 was payable to PIM related to management fees, administrative fees and certain other services, and is included in due to affiliates. 3. Transfer Agent 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 $3,699 in transfer agent fees payable to PIMSS at December 31, 2005. 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 to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with the Portfolio's Class II shares. Included in due to affiliates is $139 payable to PFD at December 31, 2005. 14 PIONEER VARIABLE CONTRACTS TRUST Pioneer Europe VCT Portfolio -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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 $15,853,018 $2,607,249 $ (124,865) $2,482,384 =========== ========== ========== ========== ----------------------------------------------------------------------------------------
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, 2005, were $16,879,436 and $17,364,001, respectively. 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
------------------------------------------------------------------------------------------ Europe Portfolio '05 Shares '05 Amount '04 Shares '04 Amount ------------------------------------------------------------------------------------------ CLASS I: Shares sold 21,878 $ 233,953 43,531 $ 395,370 Reinvestment of distributions 5,591 58,420 7,232 65,952 Shares repurchased (155,613) (1,693,646) (190,688) (1,758,638) ------------------------------------------------------ Net decrease (128,144) $ (1,401,273) (139,925) $ (1,297,316) ====================================================== CLASS II: Shares sold 268,948 $ 2,856,394 374,441 $ 3,494,736 Reinvestment of distributions 4,369 44,828 4,343 38,910 Shares repurchased (174,429) (1,850,566) (151,264) (1,416,699) ------------------------------------------------------ Net increase 98,888 $ 1,050,656 227,520 $ 2,116,947 ======================================================
ADDITIONAL INFORMATION (unaudited) The qualifying percentage of certain Portfolios' ordinary income dividends for the purposes of the corporate dividends received deduction and the percentage of those ordinary dividends that are subject to a maximum tax rate of 15% as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were as follows:
-------------------------------------------------------------------------------- Dividend Qualified Received Dividend Deduction Income -------------------------------------------------------------------------------- Europe Portfolio 0.00% 100.00% --------------------------------------------------------------------------------
15 PIONEER VARIABLE CONTRACTS TRUST Pioneer Europe VCT Portfolio -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the 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 the Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four 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 audit. The financial highlights for the year ended December 31, 2001 was 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 the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and financial highlights for each of the four years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 16 PIONEER VARIABLE CONTRACTS TRUST Pioneer Europe VCT Portfolio (the "Fund") -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three and five year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of brake points in the management fee, reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objective and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 17 PIONEER VARIABLE CONTRACTS TRUST Pioneer Europe VCT Portfolio -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and the results of an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the second quintile of the peer group for the 12 months ended June 30, 2005, the third quintile for the three years ended June 30, 2005, and the fifth quintile for the five years ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees concluded that the performance of the Fund supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the second quintile (after fee waivers) relative to the management fees paid by the other funds in that peer group for the comparable period and in the fifth quintile without giving effect to fee waivers. The Investment Adviser agreed to reduce the management fee to 0.85% of average daily net assets, which would place the Fund in the third quintile of the peer group, and to add a break point in the management fee. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio (before and after giving effect to the expense limitation) for the 12 months ended June 30, 2005 and expense ratios for the comparable period of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio (after giving effect to the expense limitation) was in the fifth quintile of this peer group for the most recent fiscal year. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. Because of break points in the management fees, the Trustees concluded 18 PIONEER VARIABLE CONTRACTS TRUST Pioneer Europe VCT Portfolio -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- that any perceived or potential economies of scale would be shared at future asset levels, in a reasonable manner as the Fund grows in size, between Fund's shareholders and the Investment Adviser. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 19 Pioneer Europe VCT Portfolio
----------------------------------------------------------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS ----------------------------------------------------------------------------------------------------------------------------------- Investment Adviser Trustees and Officers Pioneer Investment Management, Inc. The Trust's Board of Trustees provides broad supervision over the affairs of the Trust. The officers of the Trust are Custodian responsible for the Trust's operations. The Trust's Trustees Brown Brothers Harriman & Co. and officers are listed below, together with their principal occupations during the past five years. Trustees who are Independent Registered Public Accounting Firm interested persons of the Portfolio within the meaning of Ernst & Young LLP the Investment Company Act of 1940 are referred to as Interested Trustees. Trustees who are not interested persons Principal Underwriter of the Trust are referred to as Independent Trustees. Each Pioneer Funds Distributor, Inc. of the Trustees may serve as a trustee of each of the 91 U.S. registered investment portfolios for which Pioneer Legal Counsel Investment Management, Inc. ("Pioneer") serves as investment Wilmer Cutler Pickering Hale and Dorr LLP adviser (the "Trust"). The address for all Interested Trustees and all officers of the Portfolio is 60 State Shareowner Services and Transfer Street, Boston, Massachusetts 02109. Pioneer Investment Management Shareholder Services, Inc. The Trust's statement of additional information provides more detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Directors Jr. (79)* Board, Trustee until successor trustee Pioneer Global Asset Management of ICI Mutual Insurance and President is elected or earlier S.p.A. ("PGAM"); Non-Executive Company; Director of Harbor retirement or removal. Chairman and a Director of Pioneer Global Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. -----------------------------------------------------------------------------------------------------------------------------------
20 Pioneer Europe VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Senior Vice President and Chief Director of The Enterprise 3050 K. Street NW, Serves until a Financial Officer, I-trax, Inc. Social Investment Company Washington, DC 20007 successor trustee (publicly traded health care (privately-held affordable is elected or services company) (2001-present); housing finance company); earlier retirement Managing Partner, Federal City Director of New York Mortgage or removal. Capital Advisors (boutique merchant Trust (publicly traded bank) (2002 to 2004); Executive mortgage REIT) Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). * Mr. Bock became a Trustee of the Trust on January 1, 2005. ----------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. President, Bush International Director of Brady Corporation 3509 Woodbine Street, Serves until (international financial advisory (industrial identification Chevy Chase, MD 20815 successor trustee firm). and specialty coated material is elected or products manufacturer), earlier retirement Mortgage Guaranty Insurance or removal. Corporation, and Briggs & Stratton, Inc. (engine manufacturer) ----------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Founding Director, The Winthrop None 1001 Sherbrooke Street Serves until Group, Inc. (consulting firm); West, Montreal, Quebec, successor trustee Desautels, Faculty of Management, Canada H3A 1G5 is elected or McGill University. earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. President and Chief Executive Director of New America High One Boston Place, Serves until Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, successor trustee Inc. (investment banking firm). investment company) Boston, MA 02108 is elected or earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. -----------------------------------------------------------------------------------------------------------------------------------
21 -------------------------------------------------------------------------------- Pioneer Europe VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE Osbert M. Hood (53)** Executive Vice Since 2005. President and Chief Executive Trustee of certain President Serves at Officer, PIM-USA since May 2003 Pioneer funds the discretion (Director since January 2001); of Board. 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at President - Legal of Pioneer; and the discretion Secretary/Clerk of most of of the Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Kelley (41) Assistant Since September, Assistant Vice President and Senior None Secretary 2003. Serves at Counsel of Pioneer since July 2002; the discretion Vice President and Senior Counsel of the Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at Hale and Dorr LLP; Assistant the discretion Secretary of all Pioneer Funds of the Board. since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at Administration and Custody Services the discretion of Pioneer; and Treasurer of all of of the Board. the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at 2004; Treasurer and Senior Vice the discretion President, CDC IXIS Asset of the Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Europe VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE Luis I. Presutti (40) Assistant Since November, Assistant Vice President - Fund None Treasurer 2000. Serves at Accounting, Administration and the discretion Custody Services of Pioneer; and of the Board. Assistant Treasurer of all of the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, Fund Accounting Manager - Fund None Treasurer 2002. Serves Accounting, Administration and at the discretion Custody Services of Pioneer; and of the Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. ----------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Sullivan Assistant Since September, Fund Administration Manager - Fund None (32) Treasurer 2003. Serves at Accounting, Administration and the discretion Custody Services since June 2003; of the Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Since October, Chief Compliance Officer of Pioneer None Compliance 2004. Serves (Director of Compliance and Senior Officer at the discretion Counsel from November 2000 to of the Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. -----------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 23 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 24 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 25 [LOGO] PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18666-00-0206 [LOGO]PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- T a b l e o f C o n t e n t s -------------------------------------------------------------------------------- Pioneer Fund VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 6 Financial Statements 10 Notes to Financial Statements 14 Report of Independent Registered Public Accounting Firm 20 Factors Considered by the Independent Trustees in Approving the Management Contract 21 Trustees, Officers and Service Providers 24
Before investing consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) U.S. Common Stocks 94.1% Depositary Receipts for International Stocks 3.6% International Common Stocks 2.3%
Sector Distribution (As a percentage of equity holdings) Fnancials 17.6% Consumer Discretionary 15.3% Information Technology 13.2% Industrials 13.0% Health Care 11.5% Consumer Staples 10.2% Energy 7.0% Materials 7.0% Telecommunication Services 3.7% Utilities 1.5%
Five Largest Holdings (As a percentage of equity holdings) 1. Rio Tinto Plc 2.19% 2. ChevronTexaco Corp. 2.04 3. United Technologies Corp. 2.04 4. Norfolk Southern Corp. 2.00 5. Target Corp. 1.96
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 21.49 $ 20.51
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.2291 $ - $ -
-------------------------------------------------------------------------------- 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.
Pioneer Fund VCT Portfolio S&P 500 10/97 10000 10000 10545 10642 13257 13686 12/99 15312 16564 15561 15057 12/01 13835 13268 11172 10337 12/03 13790 13300 15297 14747 12/05 16204 15470
The Standard & Poor's 500 Stock Index (the S&P 500) is a commonly used measure of the broad U.S. stock market. Index returns 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- Life-of-Class 6.09% (10/31/97) 5 Years 0.81% 1 Year 5.94%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value [divided by] $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Fund VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005
Share Class II ---------------------------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,067.73 Expenses Paid During Period* $ 4.95
* Expenses are equal to the Portfolio's annualized expense ratio of 0.95% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Fund VCT Portfolio Based on a hypothetical 5% per year return before expenses, reflecting the period from July 1, 2005 through December 31, 2005
Share Class II ---------------------------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,020.42 Expenses Paid During Period* $ 4.84
* Expenses are equal to the Portfolio's annualized expense ratio of 0.95% for Class II shares multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- In the following discussion, portfolio manager John Carey discusses the performance of Pioneer Fund VCT Portfolio, as well as the investment environment over the twelve-month period ended December 31, 2005. Q. Please describe the investment environment in 2005, particularly the second half, and the performance of Pioneer Fund VCT Portfolio. A. After a listless first half for the stock market, the second half of 2005 saw gains. For the year 2005 as a whole, the Standard & Poor's 500 Index, an unmanaged index of the general stock market, showed a total return of 4.91%. We were pleased that Class II shares of Pioneer Fund VCT Portfolio did better, with a total return for the year of 5.94% at net asset value. All of the increase took place in the final six months, indeed much of it in the last couple of months, of the year. For those six months ended December 31, Pioneer Fund VCT Portfolio increased by 6.77% at net asset value, versus an increase of 5.76% for the S&P 500. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. As we discussed in our June 30 letter, investors responded to the high prices for oil and natural gas early in the year by piling into everything related to energy, including utilities. We noted, though, that changes were occurring beneath the surface and that other sectors appeared to be emerging as better values. That came to pass particularly in the fourth quarter, when energy and utilities were the two worst performing sectors of the S&P 500, both showing declines versus an index rising overall. Being somewhat underweight in those two sectors was helpful to the Portfolio's performance in the fourth quarter, as was our being overweight in the still strongly performing materials sector. Otherwise our good stock selection in both health care and industrials contributed positively. For the second six months of 2005, our investments in those same three sectors, materials, health care, and industrials, also provided the positive difference in our performance. Especially big contributors among individual stocks over the six months were Rio Tinto and Phelps Dodge in materials, Barr Pharmaceuticals in health care, and Norfolk Southern and Burlington Northern Santa Fe in industrials. Our weakest second half performance was in consumer staples, where our holdings in Hershey and Sysco both declined. Within the energy sector, our de-emphasis of the energy equipment-and-services industry detracted, as that industry had superior returns to those of its sector. With regard again to the investing environment in general in the second half, there were shifts underway as investors diversified their portfolios. High growth situations seemed especially to attract investors, as exemplified by the stunning upward move in the share price of Google, a stock we have not owned, from what we thought were already quite elevated levels in terms of price to earnings and sales. However, the persistently high energy and other commodity prices, as well as projections for increased capital spending in capacity-constrained industries, continued to provide firm support for the so-called "old economy." So it has been something of a bifurcated market and one in which one treads with care. It does seem, though, that an underlying "theme" to investor behavior has been a powerful attraction to potential for above-average earnings growth, whether from high tech or low tech. We take that as our cue to maintain our focus on companies with compelling fundamentals regardless of industry or sector. Q. Did you make changes to the Portfolio in the second half? Please discuss. A. We saw a fair amount of merger-and-acquisition activity in our own portfolio, and we made customary changes based on our views of relative valuations. Taken together, the trades in the second half resulted in the addition of fifteen positions and the deletion of fifteen. Sector by sector, starting with energy, we took profits on Schlumberger, thinking that the price reflected our estimate of earnings potential. In materials, we added Dow Chemical, which has impressed us with its improved operations, and realized gains on Phelps Dodge A Word About Risk: At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- and Newmont Mining. Allegheny Technologies, a stainless-steel producer that has returned to significant profitability in the past year and a half, was a second new entry in materials. In industrials, Masco, manufacturer of plumbing supplies and other home-improvement products, 3M, world leader in adhesives, and Parker Hannifin, major supplier of fluid-control systems and components, were new. Consumer discretionary saw the addition of Yum Brands, former restaurant division of Pepsico and operator of Pizza Hut, Taco Bell, and Kentucky Fried Chicken, among other popular chains. Also new was Federated Department Stores, received in exchange for part of our former holding May Department Stores, which Federated acquired for cash and stock. Disappointment with earnings progress led to our sale of Family Dollar Stores. We added three holdings to health care: C. R. Bard and St. Jude Medical, both leaders in medical devices, and Pfizer, which seemed to us to have declined to a price representing good value. We took profits in Guidant following its receipt of a premium acquisition offer from Johnson & Johnson, and we sold Mylan Laboratories, which no longer appeared to us to have a clear path to growth. Financials saw our addition of Compass Bancshares, based in Birmingham, Alabama, and Golden West Financial, headquartered in Oakland, California. Both banks have the combination of competitive return on assets and return on equity that we seek, as well as reasonable share prices. We took profits in our long-term holding Bank of New York, and we sold Montpelier Re Holdings, judging that weather-related losses had seriously impaired its reinsurance business. Finally, Ameriprise Financial, investment services, came into the portfolio as a spin-out from our holding American Express. Information technology witnessed the acquisition for cash of SunGard Data Systems. VERITAS Software was also acquired, it by another company we also owned, Symantec. Following the acquisition, discouraged by the prospects for the combined venture, we liquidated all of our shares of Symantec, including the new shares we had received for VERITAS. We also exited Diebold and Computer Sciences, long-term disappointments with respect to earnings growth. While selling those technology positions, we added Cisco Systems, dominant supplier of routers and switches for the internet. After years of "correction" in its share price, Cisco at last sold at a price-to-earnings ratio we regarded as justified. Growth prospects, while more moderate than in the past, still exceed those of many other companies. Lastly, in utilities, we sold, at a large percentage gain, our position in Aqua America, which we thought adequately priced, and purchased shares of PG&E (Pacific Gas and Electric), a recovering California utility with a growing dividend yield. Q. What is your outlook for 2006? A. Our outlook for 2006 is cautious. We think that the moderate expectations for economic growth can be met, and we also look for higher earnings and dividends. The broad consensus estimate of roughly 3.5% real GDP growth looks reasonable to us, and we likewise think that 6-8% earnings growth for the S&P 500 is doable. However, we are starting to see powerful headwinds in the form of higher short-term interest rates, stubbornly high oil and natural gas prices, and a slowing housing market. We also watch international events out of the corner of our eye, and we remember that there are U.S. congressional elections this fall. Finally, as was certainly impressed on us in 2005, the weather and other natural disasters can throw quite a wrench in the works. The result of all those crosscurrents could be a more volatile market than we've seen in a while. We believe that another result might be defensive positioning by investors. Certainly the higher yields on money-market and other short-term debt instruments are already providing tougher competition for stocks. Our emphasis in this environment will be on stocks with good earnings and dividend support. If it is a softer economy that lies ahead, the companies less vulnerable to large earnings declines may prove better bets. Thank you as always for your 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 realized. 5 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 100.0% Energy - 7.0% Integrated Oil & Gas - 5.4% 179,531 Chevron Corp. $ 10,191,975 88,025 ConocoPhillips 5,121,295 114,668 Exxon Mobil Corp. 6,440,902 63,625 Occidental Petroleum Corp. 5,082,365 ------------ $ 26,836,537 ------------ Oil & Gas Equipment & Services - 0.3% 42,162 Weatherford International, Inc.* $ 1,526,264 ------------ Oil & Gas Exploration & Production - 1.3% 48,194 Apache Corp. $ 3,302,253 67,515 Pioneer Natural Resources Co. 3,461,494 ------------ $ 6,763,747 ------------ Total Energy $ 35,126,548 ------------ Materials - 7.0% Aluminum - 0.4% 72,726 Alcoa, Inc. $ 2,150,508 ------------ Diversified Chemical - 1.2% 70,100 Dow Chemical Co. $ 3,071,782 44,427 E.I. du Pont de Nemours & Co. 1,888,148 20,057 PPG Industries, Inc. 1,161,300 ------------ $ 6,121,230 ------------ Diversified Metals & Mining - 3.6% 90,507 BHP Billiton, Ltd. (A.D.R.) $ 3,024,744 98,510 Inco, Ltd. 4,292,081 239,324 Rio Tinto Plc 10,930,255 ------------ $ 18,247,080 ------------ Gold - 0.2% 21,960 Newmont Mining Corp. $ 1,172,664 ------------ Industrial Gases - 0.9% 25,334 Air Products & Chemicals, Inc. $ 1,499,519 53,762 Praxair, Inc. 2,847,236 ------------ $ 4,346,755 ------------ Paper Products - 0.3% 50,997 Meadwestvaco Corp. $ 1,429,446 ------------ Specialty Chemicals - 0.3% 37,481 Ecolab, Inc. $ 1,359,436 ------------ Steel - 0.1% 7,255 Allegheny Technologies, Inc. $ 261,760 ------------ Total Materials $ 35,088,879 ------------ Capital Goods - 9.5% Aerospace & Defense - 3.0% 43,011 General Dynamics Corp. $ 4,905,405 181,953 United Technologies Corp. 10,172,992 ------------ $ 15,078,397 ------------
Shares Value Building Products - 0.1% 8,309 Masco Corp. $ 250,849 ------------ Construction & Farm Machinery & Heavy Trucks - 3.7% 99,679 Caterpillar, Inc. $ 5,758,456 94,266 Deere & Co. 6,420,457 91,215 PACCAR, Inc. 6,314,814 ------------ $ 18,493,727 ------------ Electrical Component & Equipment - 1.2% 55,395 Emerson Electric Co. $ 4,138,007 29,606 Rockwell International Corp. 1,751,491 ------------ $ 5,889,498 ------------ Industrial Conglomerates - 1.3% 7,200 3M Co. $ 558,000 169,108 General Electric Co. 5,927,235 ------------ $ 6,485,235 ------------ Industrial Machinery - 0.2% 16,367 Parker Hannifin Corp. $ 1,079,567 ------------ Total Capital Goods $ 47,277,273 ------------ Transportation - 3.6% Airlines - 0.5% 151,393 Southwest Airlines Co. $ 2,487,387 ------------ Railroads - 3.1% 74,802 Burlington Northern, Inc. $ 5,297,478 222,911 Norfolk Southern Corp. 9,993,100 ------------ $ 15,290,578 ------------ Total Transportation $ 17,777,965 ------------ Automobiles & Components - 2.5% Auto Parts & Equipment - 1.5% 101,606 Johnson Controls, Inc. $ 7,408,093 ------------ Automobile Manufacturers - 1.0% 628,984 Ford Motor Corp. $ 4,855,756 ------------ Total Automobiles & Components $ 12,263,849 ------------ Consumer Durables & Apparel - 0.2% Apparel, Accessories & Luxury Goods - 0.2% 23,883 Liz Claiborne, Inc. $ 855,489 ------------ Total Consumer Durables & Apparel $ 855,489 ------------ Consumer Services - 0.1% Restaurants - 0.1% 7,325 Tricon Global Restaurants, Inc. $ 343,396 ------------ Total Consumer Services $ 343,396 ------------ Media - 5.7% Advertising - 0.7% 42,090 Omnicom Group $ 3,583,122 ------------
6 The accompanying notes are an integral part of these financial statements. Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Movies & Entertainment - 0.8% 162,516 The Walt Disney Co. $ 3,895,509 ------------ Publishing - 4.2% 41,058 Elsevier NV $ 573,242 100,160 Gannett Co. 6,066,691 125,263 John Wiley & Sons, Inc. 4,890,268 188,438 McGraw-Hill Co., Inc. 9,729,054 ------------ $ 21,259,255 ------------ Total Media $ 28,737,886 ------------ Retailing - 6.8% Apparel Retail - 0.2% 60,617 Gap Inc. $ 1,069,284 ------------ Computer & Electronics Retail - 0.1% 9,295 GameStop Corp. (Class B)* $ 268,626 ------------ Department Stores - 2.1% 50,178 Federated Department Stores, Inc. $ 3,328,307 193,453 Nordstrom, Inc. 7,235,142 ------------ $ 10,563,449 ------------ General Merchandise Stores - 1.9% 177,813 Target Corp. $ 9,774,381 ------------ Home Improvement Retail - 1.9% 121,451 Home Depot, Inc. $ 4,916,336 70,792 Lowe's Companies, Inc. 4,718,995 ------------ $ 9,635,331 ------------ Specialty Stores - 0.6% 29,018 Barnes & Noble, Inc. $ 1,238,198 69,072 Staples, Inc. 1,568,625 ------------ $ 2,806,823 ------------ Total Retailing $ 34,117,894 ------------ Food & Drug Retailing - 3.3% Drug Retail - 2.1% 75,467 CVS Corp. $ 1,993,838 190,303 Walgreen Co. 8,422,811 ------------ $ 10,416,649 ------------ Food Distributors - 1.0% 161,566 Sysco Corp. $ 5,016,624 ------------ Hypermarkets & Supercenters - 0.2% 19,649 Costco Wholesale Corp. $ 972,036 ------------ Total Food & Drug Retailing $ 16,405,309 ------------
Shares Value Food, Beverage & Tobacco - 5.2% Packaged Foods & Meats - 3.5% 83,259 Campbell Soup Co. $ 2,478,620 97,063 General Mills, Inc. 4,787,147 145,574 H.J. Heinz Co., Inc. 4,908,755 52,617 Hershey Foods Corp. 2,907,089 23,685 Kellogg Co. 1,023,666 73,473 Sara Lee Corp. 1,388,640 ------------ $ 17,493,917 ------------ Soft Drinks - 1.7% 146,681 PepsiCo, Inc. $ 8,665,913 ------------ Total Food, Beverage & Tobacco $ 26,159,830 ------------ Household & Personal Products - 1.7% Household Products - 1.2% 96,982 Colgate-Palmolive Co. $ 5,319,463 14,255 Clorox Co. 810,967 ------------ $ 6,130,430 ------------ Personal Products - 0.5% 67,208 Estee Lauder Co.* $ 2,250,124 ------------ Total Household & Personal Products $ 8,380,554 ------------ Health Care Equipment & Services - 2.6% Health Care Equipment - 2.6% 28,200 C. R. Bard, Inc. $ 1,858,944 71,108 Becton, Dickinson & Co. 4,272,169 63,338 Biomet, Inc. 2,316,271 39,539 Medtronic, Inc. 2,276,260 21,100 St. Jude Medical, Inc.* 1,059,220 30,665 Stryker Corp. 1,362,446 ------------ $ 13,145,310 ------------ Total Health Care Equipment & Services $ 13,145,310 ------------ Pharmaceuticals & Biotechnology - 8.9% Biotechnology - 0.8% 53,778 Amgen, Inc.* $ 4,240,933 ------------ Pharmaceuticals - 8.1% 102,710 Abbott Laboratories $ 4,049,855 53,017 Barr Laboratorie, Inc.* 3,302,429 119,085 Bristol-Myers Squibb Co. 2,736,573 80,039 Eli Lilly & Co. 4,529,407 137,058 Johnson & Johnson 8,237,186 95,767 Merck & Co., Inc. 3,046,348 77,980 Novartis AG (A.D.R.) 4,092,390 103,100 Pfizer, Inc. 2,404,292 36,377 Roche Holdings AG (A.D.R.) 2,731,040 175,915 Schering-Plough Corp. 3,667,828 35,811 Teva Pharmaceutical Industries, Ltd. 1,540,231 ------------ $ 40,337,579 ------------
The accompanying notes are an integral part of these financial statements. 7 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value Total Pharmaceuticals & Biotechnology $ 44,578,512 ------------ Banks - 9.0% Diversified Banks - 4.2% 66,429 Bank of America Corp. $ 3,065,698 235,635 U.S. Bancorp 7,043,130 39,577 Wachovia Corp. 2,092,040 140,973 Wells Fargo & Co. 8,857,334 ------------ $ 21,058,202 ------------ Regional Banks - 3.1% 13,577 Compass Bancshares, Inc. $ 655,633 83,035 First Horizon National Corp. 3,191,865 170,284 National City Corp. 5,716,434 55,102 SunTrust Banks, Inc. 4,009,222 21,817 Zions Bancorporation 1,648,493 ------------ $ 15,221,647 ------------ Thrifts & Mortgage Finance - 1.7% 34,700 Golden West Financial Corp. $ 2,290,200 146,301 Washington Mutual, Inc. 6,364,094 ------------ $ 8,654,294 ------------ Total Banks $ 44,934,143 ------------ Diversified Financials - 6.1% Asset Management & Custody Banks - 3.5% 22,545 Ameriprise Financial, Inc. $ 924,345 43,970 Federated Investors, Inc.* 1,628,649 104,482 State Street Corp. 5,792,482 124,803 T. Rowe Price Associates, Inc. 8,989,560 ------------ $ 17,335,036 ------------ Consumer Finance - 1.2% 112,725 American Express Co. $ 5,800,829 ------------ Investment Banking & Brokerage - 0.8% 58,452 Merrill Lynch & Co., Inc. $ 3,958,954 ------------ Diversified Financial Services - 0.6% 66,850 Citigroup, Inc. $ 3,244,231 ------------ Total Diversified Financials $ 30,339,050 ------------ Insurance - 2.4% Multi-Line Insurance - 0.2% 13,522 Hartford Financial Services Group, Inc. $ 1,161,405 ------------ Property & Casualty Insurance - 2.2% 20,832 ACE, Ltd. $ 1,113,262 40,815 Axis Capital Holdings, Ltd. 1,276,693 68,753 Chubb Corp. 6,713,730 34,082 Safeco Corp. 1,925,633 ------------ $ 11,029,318 ------------ Total Insurance $ 12,190,723 ------------
Shares Value Software & Services - 4.1% Application Software - 0.7% 86,186 Adobe Systems, Inc. $ 3,185,435 ------------ Data Processing & Outsourced Services - 2.2% 181,884 Automatic Data Processing, Inc. $ 8,346,657 25,841 DST Systems, Inc.* 1,548,134 28,113 Fiserv, Inc.* 1,216,450 ------------ $ 11,111,241 ------------ Systems Software - 1.2% 229,175 Microsoft Corp. $ 5,992,926 ------------ Total Software & Services $ 20,289,602 ------------ Technology Hardware & Equipment - 6.2% Communications Equipment - 2.9% 139,000 Cisco Systems, Inc.* $ 2,379,680 313,651 Motorola, Inc. 7,085,375 274,102 Nokia Corp. (A.D.R.) 5,016,067 ------------ $ 14,481,122 ------------ Computer Hardware - 2.2% 106,976 Dell, Inc.* $ 3,208,210 176,511 Hewlett-Packard Co. 5,053,510 703,372 Sun Microsystems, Inc.* 2,947,129 ------------ $ 11,208,849 ------------ Computer Storage & Peripherals - 0.4% 134,374 EMC Corp.* $ 1,830,174 ------------ Office Electronics - 0.7% 57,242 Canon, Inc. (A.D.R.) $ 3,367,547 ------------ Total Technology Hardware & Equipment $ 30,887,692 ------------ Semiconductors - 3.0% Semiconductor Equipment - 0.4% 96,070 Applied Materials, Inc. $ 1,723,495 ------------ Semiconductors - 2.6% 20,845 Freescale Semiconductor, Inc. (Class B)* $ 524,669 236,129 Intel Corp. 5,893,780 211,248 Texas Instruments, Inc. 6,774,723 ------------ $ 13,193,172 ------------ Total Semiconductors $ 14,916,667 ------------ Telecommunication Services - 3.7% Integrated Telecommunication Services - 3.4% 279,088 AT&T Corp. $ 6,834,865 141,901 BellSouth Corp. 3,845,517 74,411 Century Telephone Enterprises, Inc. 2,467,468 129,130 Verizon Communications, Inc. 3,889,396 ------------ $ 17,037,246 ------------
8 The accompanying notes are an integral part of these financial statements. Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Wireless Telecommunication Services - 0.3% 23,216 Alltel Corp. $ 1,464,930 ------------ Total Telecommunication Services $ 18,502,176 ------------ Utilities - 1.5% Electric Utilities - 0.5% 15,000 Exelon Corp. $ 797,100 56,177 Southern Co. 1,939,792 ------------ $ 2,736,892 ------------ Multi-Utilities - 1.0% 34,904 Consolidated Edison, Inc. $ 1,617,100 74,103 KeySpan Energy Corp. 2,644,736 13,700 PG&E Corp. 508,542 ------------ $ 4,770,378 ------------ Total Utilities $ 7,507,270 ------------ TOTAL COMMON STOCKS (Cost $396,395,153) $499,826,017 ------------ TOTAL INVESTMENT IN SECURITIES - 100.0% (Cost $396,395,153) $499,826,017 ------------ OTHER ASSETS AND LIABILITIES - 0.0% $ (196,475) ------------ TOTAL NET ASSETS - 100.0% $499,629,542 ============
(A.D.R.) American Depositary Receipt * Non-income producing security The accompanying notes are an integral part of these financial statements. 9 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Class II 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 20.51 $ 18.66 $ 15.25 $ 19.05 $ 22.65 -------- -------- -------- -------- -------- Increase (decrease) from investment operations: Net investment income $ 0.20 $ 0.18 $ 0.14 $ 0.13 $ 0.14 Net realized and unrealized gain (loss) on investments and foreign currency transactions 1.01 1.85 3.42 (3.78) (2.59) -------- -------- -------- -------- -------- Net increase (decrease) from investment operations $ 1.21 $ 2.03 $ 3.56 $ (3.65) $ (2.45) Distributions to shareowners: Net investment income (0.23) (0.18) ( 0.15) (0.15) (0.13) Net realized gain -- -- -- -- (1.02) --------- --------- -------- -------- -------- Net increase (decrease) in net asset value $ 0.98 $ 1.85 $ 3.41 $ (3.80) $ (3.60) --------- --------- -------- -------- -------- Net asset value, end of period $ 21.49 $ 20.51 $ 18.66 $ 15.25 $ 19.05 ======== ======== ======== ======== ======== Total return* 5.94% 10.93% 23.44% ( 19.25)% (11.09)% Ratio of net expenses to average net assets+ 0.95% 0.96% 1.00% 1.06% 1.04% Ratio of net investment income to average net assets+ 1.01% 1.00% 0.87% 0.84% 0.49% Portfolio turnover rate 23% 17% 11% 11% 7% Net assets, end of period (in thousands) $116,656 $ 133,627 $ 87,488 $ 36,218 $ 12,674 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.95% 0.96% 1.00% 1.06% 1.04% Net investment income 1.01% 1.00% 0.87% 0.84% 0.49%
* 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. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. 10 The accompanying notes are an integral part of these financial statements. Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (Cost $396,395,153) $ 499,826,017 Cash 952,541 Receivables -- Fund shares sold 22,858 Dividends, interest and foreign taxes withheld 958,591 Due from Pioneer Investment Management, Inc. 8,177 Other 12,616 ------------- Total assets $ 501,780,800 ------------- LIABILITIES: Payables -- Fund shares repurchased $ 1,997,352 Due to affiliates 21,577 Accrued expenses 132,329 ------------- Total liabilities $ 2,151,258 ------------- NET ASSETS: Paid-in capital $ 436,333,003 Undistributed net investment income 27,272 Accumulated net realized loss (40,161,597) Net unrealized gain on investments 103,430,864 ------------- Total net assets $ 499,629,542 ------------- NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 382,973,420 Shares outstanding 17,771,437 ------------- Net asset value per share $ 21.55 Class II: (No par value, unlimited number of shares authorized) Net assets $ 116,656,122 Shares outstanding 5,427,712 ------------- Net asset value per share $ 21.49
The accompanying notes are an integral part of these financial statements. 11 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
Year Ended 12/31/05 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $67,202) $ 10,293,023 Interest 132,621 Income on securities loaned, net 22,461 ------------- Total investment income $ 10,448,105 ------------- EXPENSES: Management fees $ 3,461,438 Transfer agent fees and expenses 5,974 Distribution fees (Class II) 305,003 Administrative reimbursements 105,852 Custodian fees 14,300 Professional fees 48,553 Printing expense 77,940 Fees and expenses of nonaffiliated trustees 9,634 Miscellaneous 12,496 ------------- Total expenses $ 4,041,190 ------------- Net expenses $ 4,041,190 ------------- Net investment income $ 6,406,915 ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ 29,925,821 Redemptions in kind 16,752,070 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 1,179 ------------- $ 46,679,070 ------------- Change in net unrealized loss from investments $ (23,029,256) ------------- Net gain on investments, futures contracts and foreign currency transactions $ 23,649,814 ============= Net increase in net assets resulting from operations $ 30,056,729 =============
12 The accompanying notes are an integral part of these financial statements. Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/05 12/31/04 FROM OPERATIONS: Net investment income $ 6,406,915 $ 3,200,048 Net realized gain on investments, redemptions in kind and foreign currency transactions 46,679,070 1,084,379 Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions (23,029,256) 30,978,376 -------------- ------------- Net increase in net assets resulting from operations $ 30,056,729 $ 35,262,803 -------------- ------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (5,374,313) $ (1,685,576) Class II (1,440,262) (1,069,680) -------------- ------------- Total distributions to shareowners $ (6,814,575) $ (2,755,256) -------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 42,859,167 $ 60,072,885 Class I shares issued in reorganization 53,856,933 298,220,832 Reinvestment of distributions 6,814,325 2,755,256 Cost of shares repurchased (139,175,447) (48,119,744) Redemptions in kind (75,731,419) -- -------------- ------------- Net increase (decrease) in net assets resulting from Fund share transactions $ (111,376,441) $ 312,929,229 -------------- ------------- Net increase (decrease) in net assets $ (88,134,287) $ 345,436,776 -------------- ------------- NET ASSETS: Beginning of year $ 587,763,829 $ 242,327,053 -------------- ------------- End of year $ 499,629,542 $ 587,763,829 ============== ============= Undistributed net investment income, end of year $ 27,272 $ 433,753 ============== =============
The accompanying notes are an integral part of these financial statements. 13 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Fund VCT Portfolio (the Portfolio) is a Portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty-nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts or 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 Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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. Information concerning the Portfolio's principal investment risks is contained in the Portfolio's prospectus(es). Please refer to those documents when considering the Portfolio's risks. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. The following is a summary of significant accounting policies consistently followed by the Portfolio, in the preparation of its financial statements, which are consistent 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 (NYSE) 14 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- is open, as of the close of regular trading on the NYSE. 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. The Portfolio also may use the fair value of a security, including a non-U.S. security, when the closing market price on the primary exchange where the security is traded no longer accurately reflects the value of the security as of the close of the NYSE. At December 31, 2005, there were no fair valued securities. 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. 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, 2005, 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. dollars 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. At December 31, 2005, the Portfolio had no open forward contracts. E. Taxes It is the Portfolio'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 amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal 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 15 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- 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, 2005, Fund VCT Portfolio had a capital loss carryforward of $39,968,844, of which the following amounts will expire between 2010 and 2011 if not utilized: $26,951,317 in 2010 and $13,017,527 in 2011. At December 31, 2005, the portfolio made reclassifications as described below. These reclassifications have no impact on the net asset values of the portfolio and are designed to present the portfolio's capital accounts on a tax basis.
----------------------------------------------------------------------------------------- Undistributed Net Accumulated Net Investment Income Realized Gain (Loss) (Loss) Paid-In Capital ----------------------------------------------------------------------------------------- Pioneer Fund VCT Portfolio $1,179 $(16,707,826) $16,706,647 -----------------------------------------------------------------------------------------
The following chart shows the distributions paid during the years ended December 31, 2005 and December 31, 2004 and the components of distributable earnings (accumulated losses) as of December 31, 2005 on a tax basis.
------------------------------------------------------------------------------------------- 2005 2004 ------------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 6,814,575 $2,755,256 Long-Term capital gain -- -- ----------- ---------- $ 6,814,575 $2,755,256 Return of Capital -- -- ----------- ---------- Total distributions $ 6,814,575 $2,755,256 =========== ========== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 27,272 Undistributed long-term gain/(capital loss carryforward) (39,968,844) Post-October loss deferred -- Unrealized appreciation 103,238,111 ----------- Total $63,296,539 =========== -------------------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation is primarily attributable to the tax deferral of losses on wash sales. F. Portfolio Shares The Portfolio records sales and repurchases of its shares as of trade date. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Portfolio and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $638,021 in commissions on the sale of Portfolio shares for the year ended December 31, 2005. Distribution fees for Class II shares are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. 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 (excluding transfer agent and distribution fees) 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 the adjusted net assets at the beginning of the day. Distributions paid by a 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. 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 16 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for the account of the Portfolio. 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 Portfolio has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Portfolio invests cash collateral in the Securities Lending Investment Fund which is sponsored by Brown Brothers Harriman & Co., the Portfolio'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, a wholly owned indirect subsidiary of UniCredito Italiano, manages the portfolio. Management fees are calculated daily at the 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, 2005, $17,748 was payable to PIM related to management fees, administrative fees and certain other services, and is included in due to affiliates. 3. Transfer Agent 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 $2,207 in transfer agent fees payable to PIMSS at December 31, 2005. 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 to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with the Portfolio's Class II shares. Included in due to affiliates is $1,622 payable to PFD at December 31, 2005. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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 $396,587,906 $120,731,703 $(17,493,590) $103,238,113 ============ ============ ============ ============ ------------------------------------------------------------------------------------------
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, 2005, were $121,305,838 and $262,447,758, respectively. For the year ended September 23, 2005 the Portfolio had redemptions in kind which resulted in redemptions out of the Portfolio totaling $75,731,419. 17 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
-------------------------------------------------------------------------------------------------------------- Fund Portfolio '05 Shares '05 Amount '04 Shares '04 Amount -------------------------------------------------------------------------------------------------------------- CLASS I: Shares sold 580,758 $ 11,975,172 451,723 $ 8,690,214 Class I shares issued in reorganization -- -- 14,822,109 298,220,832 Reinvestment of distributions 257,653 5,374,312 87,609 1,685,576 Shares repurchased (5,148,933) (106,238,103) (1,561,121) (29,970,569) -------------------------------------------------------------- Net increase (decrease) (4,310,522) $ (88,888,619) 13,800,320 $ 278,626,053 ============================================================== CLASS II: Shares sold 1,500,748 $ 30,883,995 2,721,468 $ 51,382,671 Class II shares issued in reorganization 2,567,061 53,856,933 -- -- Reinvestment of distribution 69,257 1,440,013 55,486 1,069,680 Shares repurchased (1,597,303) (32,937,344) (952,397) (18,149,175) Redemptions in kind (3,626,019) (75,731,419) -- -- -------------------------------------------------------------- Net increase (1,086,256) $ (22,487,822) 1,824,557 $ 34,303,176 ============================================================== --------------------------------------------------------------------------------------------------------------
8. Merger Information On December 8, 2004, beneficial owners of Safeco RST Core Equity Portfolio, Safeco RST Money Market Portfolio and Safeco RST Multi-Cap Core Portfolio, three of the six portfolios that comprised Safeco Resources Series Trust, approved a proposed Agreement and Plan of Reorganization that provided for the mergers listed. These tax-free reorganizations were accomplished on December 10, 2004 ("Closing Date"), by exchanging all of the Safeco's net assets for Class I shares as indicated below, based on Class I share's ending net asset value on the Closing Date. The following charts show the details of the reorganizations as of that Closing Date:
----------------------------------------------------------------------------------------------- Pioneer Fund VCT Safeco RST Core Pioneer Fund VCT Portfolio (Pre- Equity Portfolio Portfolio Reorganization) (Pre-Reorganization) (Post-Reorganization) ----------------------------------------------------------------------------------------------- Net Assets $281,591,969 $298,220,832 $879,147,352 Shares Outstanding 13,990,134 12,804,673 28,812,243 Class I Shares Issued 14,822,109 -----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------- Unrealized Appreciation Realized Gain/(Loss) on Closing Date on Closing Date ----------------------------------------------------------------------------------------------- Safeco RST Core Equity Portfolio $68,714,366 $20,662,968 =========== =========== -----------------------------------------------------------------------------------------------
18 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- In addition, on November 4, 2005, beneficial owners of AmSouth VIF Select Equity Portfolio approved a proposed Agreement and Plan of Reorganization that provided for the merger listed below. This tax-free reorganization was accomplished on November 4, 2005, by exchanging all of the AmSouth Fund's net assets for Class II shares as indicated below, based on Class II share's ending net asset value on the Closing Date. The following charts show the details of the reorganizations as of that closing date ("Closing Date"): -------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------- Pioneer Fund VCT AmSouth VIF Pioneer Fund VCT Portfolio Select Equity Portfolio (Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization) ---------------------------------------------------------------------------------------------------- Net Assets $444,635,312 $53,856,933 $498,492,245 Shares Outstanding 21,144,152 4,928,631 23,711,213 Class II Shares Issued 2,567,061 ----------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------- Unrealized Appreciation Realized Gain/(Loss) on Closing Date on Closing Date ---------------------------------------------------------------------------------------------------- AmSouth VIF Select Equity $4,928,126 $ (49,233) ========== ========= ----------------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION (unaudited) The qualifying percentage of certain Portfolios' ordinary income dividends for the purposes of the corporate dividends received deduction and the percentage of those ordinary dividends that are subject to a maximum tax rate of 15% as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were as follows:
---------------------------------------------------------------------------------------------------- Dividend Qualified Received Dividend Deduction Income ---------------------------------------------------------------------------------------------------- Fund Portfolio 100.00% 100.00% ----------------------------------------------------------------------------------------------------
19 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the 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 the Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four 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 audit. The financial highlights for the year ended December 31, 2001 was 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 the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and financial highlights for each of the four years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 20 Pioneer Fund VCT Portfolio (the "Fund") PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three and five year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 21 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the third quintile of the peer group for the 12 months ended June 30, 2005, the fourth quintile of the peer group for the three years ended June 30, 2005, and the fourth quintile for the five years ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees also considered the yield (gross of expenses) on the Class I shares of the Fund relative to the yield (at June 30, 2005) of the Standard & Poor's 500 Stock Index. The Trustees concluded that the performance of the Fund supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the third quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the first quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. The Trustees concluded that the Fund's overall expense ratio was lower than that of comparable funds. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. The Trustees concluded that, given current or anticipated asset levels, break 22 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- points in the management fees were not necessary at this time. As the assets increase, the Trustees will continue to evaluate annually the appropriateness of break points. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 23 Pioneer Fund VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. ------------------------------------------------------------------------------------------------------------------------------------
24 Pioneer Fund VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance or earlier services company) (2001-present); company); Director of New York retirement or Managing Partner, Federal City Mortgage Trust (publicly traded removal. Capital Advisors (boutique merchant mortgage REIT) bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products or earlier manufacturer), Mortgage Guaranty retirement or Insurance Corporation, and Briggs removal. & Stratton, Inc. (engine manufacturer) ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ------------------------------------------------------------------------------------------------------------------------------------
25 Pioneer Fund VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TRUST OFFICERS --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ------------------------------------------------------------------------------------------------------------------------------------ David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. ------------------------------------------------------------------------------------------------------------------------------------
26 Pioneer Fund VCT Portfolio ------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TRUST OFFICERS --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, None Treasurer 2000. Serves at the Assistant Vice President - Fund discretion of the Accounting, Administration and Board. Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds. ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. ------------------------------------------------------------------------------------------------------------------------------------ Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. ------------------------------------------------------------------------------------------------------------------------------------ Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 27 -------------------------------------------------------------------------------- This page for your notes. 28 -------------------------------------------------------------------------------- This page for your notes. 29 [LOGO]PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18660-00-0206 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- Table of Contents -------------------------------------------------------------------------------- Pioneer Global High Yield VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 6 Financial Statements 13 Notes to Financial Statements 17 Report of Independent Registered Public Accounting Firm 21 Factors Considered by the Independent Trustees in Approving the Management Contract 22 Trustees, Officers and Service Providers 25
Before investing, consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Please read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As percentage of total investment in securities) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Corporate Bonds 90.0% Asset Backed Securities 3.8% Foreign Government Bonds 3.2% Convertible Corporate Bonds 3.0%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Maturity Distribution (as a percentage of total investment in securities) 0-1 years 14.3% 1-3 years 10.9% 3-4 years 12.3% 4-6 years 48.4% 6-8 years 12.8% 8+ years 1.3%
Five Largest Holdings (As a percentage of long-term holdings) 1. Thule Drilling, 10.0%, 5/10/07 2.18% 2. Nell AF Sarl, 8.375%, 8/15/15 (144A) 1.77 3. Dycom Industries, 8.125%, 10/15/15 (144A) 1.77 4. Tui AG, Floating Rate Note, 12/10/10 (144A) 1.74 5. Polyone Corp., 8.875%, 5/1/12 1.73
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 3/18/05 -------------------------------------------------------------------------------- Net Asset Value per Share $10.02 $10.00 --------------------------------------------------------------------------------
Net Distributions per Share Investment Short-Term Long-Term (3/18/05 - 12/31/05) Income Capital Gains Capital Gains $0.5013 $ - $ -
-------------------------------------------------------------------------------- Performance of a $10,000 Investment The following chart shows the change in value of an investment made in Pioneer Global High Yield VCT Portfolio at net asset value, compared to that of Merrill Lynch (ML) Global High Yield and Emerging Markets Plus Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Global ML Global High High Yield VCT Yield and Emerging Portfolio Markets Plus Index 3/05 10000 10000 12/05 10586 10544
Index comparisons begin on 4/30/00. The ML Global High Yield & Emerging Markets Plus Index tracks the performance of the below- and border-line investment-grade global debt markets denominated in the major developed market currencies. 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. -------------------------------------------------------------------------------- Cumulative Total Returns (As of December 31, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- Life-of-Fund (3/18/05) 5.34%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Please refer to variable product's semiannual report for performance that reflects the deduction of the variable products fees and charges. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value [divided by] $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Global High Yield VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------------------------------------- Beginning Account Value on 7/1/05 $1,000.00 Ending Account Value on 12/31/05 $1,034.06 Expenses Paid During Period* $ 5.13
* Expenses are equal to the Portfolio's annualized expense ratio of 1.00% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Global High Yield VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------------------------------------- Beginning Account Value on 7/1/05 $1,000.00 Ending Account Value on 12/31/05 $1,020.16 Expenses Paid During Period* $ 5.09
* Expenses are equal to the Portfolio's annualized expense ratio of 1.00% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- Strong economic growth and improving corporate profitability helped drive the performance of high-yield corporate bonds in domestic and most foreign markets during the final nine months of 2005. Lower-rated corporate bonds held up well, despite the persistent efforts of the Federal Reserve Board in the United States to limit the threats of inflation by raising short-term interest rates. In the following interview, Andrew D. Feltus, CFA, discusses the investment environment and the factors that influenced the Global High Yield Portfolio's performance since it began investment operations on March 21, 2005. Mr. Feltus is the member of the team managing the Portfolio. Q: How did the Portfolio perform since its inception? A: The Portfolio performed relatively well. Global High Yield Portfolio Class II Shares had a total return of 5.34% at net asset since it began investment operations on March 18, 2005. The return of ML Global High Yield & Emerging Markets Plus Index was 3.62%. The Portfolio produced a healthy income stream. On December 31, 2005, the SEC standardized 30-day yield for Class II shares was 6.53%. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q: What were the principal factors affecting Portfolio performance? A: Economies, both domestically and globally, expanded throughout 2005, helping corporate profits continued to grow. In the face of the mounting evidence of this economic vitality, the U.S. Federal Reserve Board continued to raise short-term interest rates to limit inflationary pressures. At the end of 2005, the key fed funds rate stood at 4.25%, compared to 1.00% in June 2004. The repeated increases put pressure on fixed income markets, especially in the U.S., where rates rose and prices fell for most types of securities. We had the greatest concentration of investments in the domestic high yield bond market, with holdings that accounted for about 60% of Portfolio assets at the end of 2005. The market for these securities had entered a temporary period of decline early in the Portfolio's life in mid-March. The big factor was increasing awareness of the worsening problems in the domestic automobile industry, especially at General Motors and Ford. The credit ratings of both companies eventually were downgraded from investment-grade to high-yield, or below-investment grade. High-yield bonds began recovering in the late spring and a rally continued throughout the summer as the market absorbed the impact of credit downgrades, especially of GM. This summer rally also came to an end and the market entered a decline again in the fall. A major influence on this downturn was the approaching change in federal bankruptcy laws, which caused many companies to accelerate their plans to file for bankruptcy protection. Companies such as automotive components manufacturer Delphi and airlines such as Northwest and Delta filed for protection. Stability returned the market in the final two months of the year, however, and high yield bonds finished the year with positive performance, helped by the yield advantage of these bonds that helped overcome the effects of price losses on a total return basis. The environment for high-yield corporate debt of foreign, developed nations was somewhat different. We typically had about 10% of Portfolio assets invested in this area, with a weighting of 8.3% at year's end. These bonds tended to outperform U.S. high yield bonds on a local currency basis, but the strength of the U.S. dollar during 2005 took away a major part of the performance advantage of foreign high-yield corporates. Emerging market debt was the best-performing area in the global high-yield universe as well as in fixed income markets in general. While most areas in the fixed-income markets produced modestly positive results for 2005, emerging market debt benchmarks had total returns of about 12% for the year. The sector's strong results were a product of healthy global growth, improving financial and political stability in many markets, and rising commodity prices. We generally underweighted emerging market debt, however, because we thought these bonds were becoming less attractive on a relative basis. We did maintain investments, however, in government bonds of some emerging market countries as well as in selected banking, mining and basic materials companies. At the end of 2005, approximately 24.2% of Portfolio assets were invested in emerging markets, an underweighted position. A Word About Risk: Investments in high yield or lower-rated securities are subject to greater-than-average risk. When interest rates rise, the prices of fixed income securities in the Portfolio will generally fall. Conversely, when interest rates fall, the prices of fixed income securities in the Portfolio will generally rise. Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. Investments in the Portfolio are subject to possible loss due to the financial failure of underlying securities and their inability to meet their debt obligations. Prepayment risk is the chance that mortgage-backed bonds will be paid off early if falling interest rates prompt homeowners to refinance their mortgages. Forced to reinvest the unanticipated proceeds at lower interest rates, the Portfolio would experience a decline in income and lose the opportunity for additional price appreciation associated with falling interest rates. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. 4 Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Q: What types of investments had the greatest influence on performance? A: Our emerging market investments tended to do well. Contributing to results were government bonds from Brazil. Securities issued by Braskem, a Brazil-based chemical company, also contributed positively, as did bonds of Vedanta Resources, a mining and metals company with headquarters in the United Kingdom and in India. The general upgrades in credit ratings of banks in Kazakhstan helped the performance of several Portfolio holdings, including Kazakh Banks, ATF Bank, and Turanalem Finance. Among our domestic holdings, several bonds appreciated in value either through credit upgrades or as companies restructured their finances, either by issuing new stock or tendering for outstanding bonds. Eschelon, for example, a U.S. telecommunication services company issued new stock and used the proceeds to reduce its debt. Metro PCS, another wireless telecommunications company, also was a noteworthy contributor to results. Holdings of companies whose credit ratings were upgraded during the period included bonds issued by: J. Ray McDermott, a U.S.-based oil and gas drilling company; Doane Pet Care, a domestic pet food company; and Mayne, an Australian pharmacy chain. Our exposure to the domestic airline industry tended to detract from performance, however, as bonds of companies such as Continental Airlines and American Airlines fell in value. We also had investments in two domestic companies that eventually filed for bankruptcy protection, although we sold our positions in both companies before the end of 2005. We liquidated our position in the bonds of Refco, a trading firm specializing in derivative financial securities, before the company filed for bankruptcy, and eliminated our investments in Delphi after the bankruptcy filing. Q: What is your investment outlook? A: While 2005 was a challenging period to be invested in high-yield bonds, we think lower-rated securities are now more attractively priced. The yield spreads - or differences in yields between high-rated and low-rated bonds - were wider at the end of 2005 than they were in the beginning of the year. At the same time, the prospects appear favorable for continued economic growth throughout the world. We think high yield corporate bonds are positioned to perform better in 2006 than they did in 2005. However we expect to continue to be underweighted in emerging market debt, where we think investors are not adequately compensated for the risks. 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. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 5 Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Principal Amount USD ($) Value CONVERTIBLE CORPORATE BONDS - 2.8% Pharmaceuticals & Biotechnology - 1.5% Pharmaceuticals - 1.5% 65,000 Pharm Resources, 2.875%, 9/30/10 $ 53,625 ---------- Total Pharmaceuticals & Biotechnology $ 53,625 ---------- Software & Services - 1.3% Data Processing & Outsourced Services - 1.3% 50,000 Pegasus Solutions, Inc., 3.875%, 7/15/23 $ 48,625 ---------- Total Software & Services $ 48,625 ---------- TOTAL CONVERTIBLE CORPORATE BONDS (Cost $94,528) $ 102,250 ---------- ASSET BACKED SECURITIES - 3.6% Transportation - 1.4% Airlines - 1.4% 27,435 American Airlines, Inc., 7.377%, 5/23/19 $ 22,496 15,791 American Airlines, Inc., 7.379%, 5/23/16 12,948 17,304 Continental Airlines, Inc., 8.312%, 4/2/11 15,574 ---------- $ 51,018 ---------- Total Transportation $ 51,018 ---------- Retailing - 1.1% Distributors - 1.1% 40,000 NTComex, Inc., 11.75%, 1/15/11 (144A) $ 39,300 ---------- Total Retailing $ 39,300 ---------- Utilities - 1.1% Electric Utilities - 1.1% 19,632 Ormat Funding Corp., 8.25%, 12/30/20 $ 19,829 19,933 Tenaska Alabama, Floating Rate Note, 6/30/21 (144A) (a) 20,053 ---------- $ 39,882 ---------- Total Utilities $ 39,882 ---------- TOTAL ASSET BACKED SECURITIES (Cost $125,424) $ 130,200 ---------- CORPORATE BONDS - 84.0% Energy - 10.5% Coal & Consumable Fuels - 0.8% 27,477 Indocoal Exports Cayman, 7.134%, 7/6/12 (144A) $ 27,408 ---------- Oil & Gas Drilling - 2.0% 500,000 Thule Drilling, 10.0%, 5/10/07 $ 74,073 ---------- Oil & Gas Equipment & Services - 1.9% 20,000 J. Ray McDermott SA, 11.0%, 12/15/13 (144A) $ 23,600 25,000 Semgroup LP, 8.75%, 11/15/15 (144A) 25,563 20,000 Targa Resources, Inc., 8.5%, 11/1/13 (144A) 20,626 ---------- $ 69,789 ----------
6 The accompanying notes are an integral part of these financial statements. Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal Amount USD ($) Value Oil & Gas Exploration & Production - 4.7% 25,000 Baytex Energy, Ltd., 9.625%, 7/15/10 $ 26,250 20,000 Clayton Williams Energy, 7.75%, 8/1/13 19,200 35,000 Compton Petroleum Corp., 7.625%, 12/1/13 (144A) 35,788 15,000 Delta Petroleum Corp., 7.0%, 4/1/15 13,838 15,000 Energy Partners, Ltd., 8.75%, 8/1/10 15,375 20,000 Gazprom International SA, 7.2%, 2/1/20 (144A) 21,370 15,000 Petroquest Energy, Inc., 10.375%, 5/15/12 15,675 25,000 Stone Energy Corp., 6.75%, 12/15/14 23,688 ---------- $ 171,184 ---------- Oil & Gas Storage & Transportation - 1.1% 40,000 Transmontaigne, Inc., 9.125%, 6/1/10 $ 39,300 ---------- Total Energy $ 381,754 ---------- Materials - 21.4% Aluminum - 1.2% 45,000 Asia Aluminum Holdings, 8.0%, 12/23/11 (144A) $ 43,931 ---------- Commodity Chemicals - 1.7% 20,000 Aventine Renewable Energy, Floating Rate Note, 12/15/11 (a) $ 20,700 40,000 Invista, 9.25%, 5/1/12 (144A) 42,700 ---------- $ 63,400 ---------- Construction Materials - 0.6% 20,000 RMCC Acquisition Co., 9.5%, 11/1/12 (144A) $ 20,100 ---------- Diversified Chemical - 6.3% 45,000 Braskem SA, 11.75%, 1/22/14 (144A) $ 55,575 20,000 Huntsman International LLC, 10.125%, 7/1/09 24,492 50,000 LPG International, Inc., 7.25%, 12/20/15 (144A) 49,350 50,000 Nell AF Sarl, 8.375%, 8/15/15 (144A) 60,047 40,000 Nova Chemicals Corp., Floating Rate Note, 11/15/13 (144A) (a) 40,850 ---------- $ 230,314 ---------- Diversified Metals & Mining - 1.1% 40,000 Vedenta Resources Plc, 6.625%, 2/22/10 (144A) $ 38,913 ---------- Forest Products - 2.2% 30,000 Ainsworth Lumber, 6.75%, 3/15/14 $ 25,500 30,000 Mandra Foresty, 12.0%, 5/15/13 (144A) 28,800 25,000 Sino Forest Corp., 9.125%, 8/17/11 (144A) 26,813 ---------- $ 81,113 ---------- Paper Packaging - 2.4% 40,000 Graham Packaging Co., 9.875%, 10/15/14 $ 39,000 50,000 Graphic Packaging Co., 9.5%, 8/15/13 47,750 ---------- $ 86,750 ---------- Specialty Chemicals - 4.4% 50,000 Crystal US Holdings, Inc., Floating Rate Note, 10/1/14 (a) $ 36,500 20,000 OM Group, Inc., 9.25%, 12/15/11 19,550 60,000 Polyone Corp., 8.875%, 5/1/12 58,800 25,000 Resolution Performance Product, 13.5%, 11/15/10 26,563 15,000 Rhodia SA, 9.25%, 6/1/11 18,902 ---------- $ 160,315 ----------
The accompanying notes are an integral part of these financial statements. 7 Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Principal Amount USD ($) Value Steel - 1.5% 20,000 CSN Islands IX Corp., 10.5%, 1/15/15 (144A) $ 22,300 10,000 CSN Islands X Corp., 9.5%, 7/1/49 (144A) 10,350 20,000 International Steel Group, 6.5%, 4/15/14 20,000 ---------- $ 52,650 ---------- Total Materials $ 777,486 ---------- Capital Goods - 8.3% Building Products - 3.9% 50,000 Builders Firstsource, Inc., Floating Rate Note, 2/15/12 (a) $ 50,875 20,000 Caue Finance, Ltd., 8.875%, 8/1/15 (144A) 21,800 25,000 Desarrolladora Homex SA, 7.5%, 9/28/15 (144A) 24,563 45,000 U.S. Concrete, Inc., 8.375%, 4/1/14 44,888 ---------- $ 142,126 ---------- Construction & Engineering - 1.6% 60,000 Dycom Industries, 8.125%, 10/15/15 (144A) $ 60,000 ---------- Construction, Farm Machinery & Heavy Trucks - 1.3% 10,000 American Rock Salt Co., LLC, 9.5%, 3/15/14 $ 10,100 40,000 Navistar International, 6.25%, 3/1/12 35,800 ---------- $ 45,900 ---------- Trading Companies & Distributors - 1.5% 60,000 Noble Group, Ltd., 6.625%, 3/17/15 (144A) $ 55,253 ---------- Total Capital Goods $ 303,279 ---------- Commercial Services & Supplies - 4.2% Diversified Commercial Services - 3.0% 35,000 Cardtronics, Inc., 9.25%, 8/15/13 (144A) $ 34,825 20,000 Cornell Co's, Inc., 10.75%, 7/1/12 20,800 20,000 FTI Consulting, 7.625%, 6/15/13 (144A) 20,600 20,000 Park-Ohio Industries, Inc., 8.375%, 11/15/14 17,500 15,000 United Rentals NA, Inc., 7.75%, 11/15/13 (b) 14,624 ---------- $ 108,349 ---------- Environmental & Facilities Services - 0.8% 13,000 Clean Harbors, Inc., 11.25%, 7/15/12 (144A) $ 14,625 15,000 Hydrochem Industrial Service, 9.25%, 2/15/13 (144A) 14,400 ---------- $ 29,025 ---------- Human Resource & Employment Services - 0.4% 15,000 Knowledge Learning Center, 7.25%, 2/1/15 (144A) $ 14,250 ---------- Total Commercial Services & Supplies $ 151,624 ---------- Transportation - 3.0% Airlines - 0.6% 25,000 Continental Air, Inc., 7.568%, 12/1/06 $ 24,633 ---------- Marine - 1.0% 40,000 Stena AB, 7.0%, 12/1/16 $ 36,600 ---------- Railroads - 0.6% 20,000 TFM SA De CV, 9.375%, 5/1/12 (144A) $ 21,900 ---------- Trucking - 0.7% 25,000 Greenbrier Co., Inc., 8.375%, 5/15/15 $ 25,500 ---------- Total Transportation $ 108,633 ----------
8 The accompanying notes are an integral part of these financial statements. Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal Amount USD ($) Value Automobiles & Components - 4.6% Auto Parts & Equipment - 2.2% 20,000 Accuride Corp. 8.5%, 2/1/15 $ 19,700 20,000 Commercial Vehicle Group, 8.0%, 7/1/13 19,800 20,000 Cooper Standard Auto, 8.375%, 12/15/14 15,350 25,000 Stanadyne Corp., 10.0%, 8/15/14 24,000 ---------- $ 78,850 ---------- Automobile Manufacturers - 1.0% 25,000 Ford Motor Credit Corp., 7.375%, 10/28/09 $ 22,188 20,000 General Motors, 7.25%, 7/3/13 15,737 ---------- $ 37,925 ---------- Tires & Rubber - 1.4% 50,000 Goodyear Tire & Rubber, 9.0%, 7/1/15 (144A) $ 49,374 ---------- Total Automobiles & Components $ 166,149 ---------- Consumer Durables & Apparel - 1.1% Homebuilding - 1.1% 10,000 WCI Communities, Inc., 6.625%, 3/15/15 $ 8,700 15,000 WCI Communities, Inc., 7.875%, 10/1/13 14,138 20,000 William Lyon Homes, 7.625%, 12/15/12 17,650 ---------- $ 40,488 ---------- Total Consumer Durables & Apparel $ 40,488 ---------- Consumer Services - 3.5% Casinos & Gaming - 0.6% 20,000 San Pasqual Casino, 8.0%, 9/15/13 (144A) $ 20,300 ---------- Hotels, Resorts & Cruise Lines - 1.3% 50,000 Trump Entertainment Resorts, 8.5%, 6/1/15 $ 48,750 ---------- Specialized Consumer Services - 1.6% 50,000 Tui AG, Floating Rate Note, 12/10/10 (144A) (a) $ 58,864 ---------- Total Consumer Services $ 127,914 ---------- Media - 4.8% Broadcasting & Cable TV - 3.0% 40,000 Cablemas Sa De Cv, 9.375%, 11/15/15 (144A) $ 41,000 40,000 Cleveland Unlimited, Inc., Floating Rate Note, 12/15/10 (144A) (a) 40,400 25,000 Kabel Deutschland GMBH, 10.625%, 7/1/14 26,312 ---------- $ 107,712 ---------- Movies & Entertainment - 0.9% 35,000 Corp Interamer De Entret, 8.875%, 6/14/15 (144A) $ 34,300 ---------- Publishing - 0.9% 30,000 Sheridan Acquisition Corp., 10.25%, 8/15/11 $ 30,863 ---------- Total Media $ 172,875 ---------- Retailing - 1.0% Computer & Electronics Retail - 1.0% 40,000 GSC Holdings Corp., 8.0%, 10/1/12 (144A) $ 37,700 ---------- Total Retailing $ 37,700 ---------- Food & Drug Retailing - 1.6% Drug Retail - 0.5% 25,000 Duane Reade, Inc., 9.75%, 8/1/11 $ 16,750 ----------
The accompanying notes are an integral part of these financial statements. 9 PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Principal Amount USD ($) Value Food Distributors - 1.1% 40,000 Doane Pet Care Co., 10.625%, 11/15/15 (144A) $ 41,700 ---------- Total Food & Drug Retailing $ 58,450 ---------- Food, Beverage & Tobacco - 0.7% Brewers - 0.7% 25,000 Argentine Beverages, 7.375%, 3/22/12 (144A) $ 25,124 ---------- Total Food, Beverage & Tobacco $ 25,124 ---------- Health Care Equipment & Services - 3.6% Health Care Distributors - 1.3% 50,000 AEP Industries, Inc., 7.875%, 3/15/13 $ 48,885 ---------- Health Care Equipment - 2.3% 50,000 Accellent, Inc., 10.5%, 12/1/13 (144A) $ 51,250 15,000 Hanger Orthopedic Group, 10.375%, 2/15/09 15,000 20,000 Medical Services Co., Floating Rate Note, 10/15/11 (144A) (a) 15,400 ---------- $ 81,650 ---------- Total Health Care Equipment & Services $ 130,535 ---------- Pharmaceuticals & Biotechnology - 1.3% Pharmaceuticals - 1.3% 50,000 Warner Chilcott Corp., 8.75%, 2/1/15 (144A) $ 46,000 ---------- Total Pharmaceuticals & Biotechnology $ 46,000 ---------- Banks - 1.9% Diversified Banks - 1.9% 25,000 ATF Bank JSC, 9.25%, 4/12/12 (144A) $ 26,428 10,000 Russian Stand Bank, 7.5%, 10/7/10 (144A) 9,775 30,000 Turanalem Finance BV, 8.5%, 2/10/15 (144A) 32,231 ---------- $ 68,434 ---------- Total Banks $ 68,434 ---------- Diversified Financials - 3.1% Diversified Financial Services - 3.1% 20,000 Dollar Financial Group, 9.75%, 11/15/11 $ 20,600 25,000 Glencore Funding LLC, 6.0%, 4/15/14 (144A) 23,514 35,000 Harvest Operations Corp., 7.875%, 10/15/11 34,825 35,000 Pipe Acquisition Finance, Floating Rate Note, 12/15/10 (144A) (a) 34,738 ---------- $ 113,677 ---------- Total Diversified Financials $ 113,677 ---------- Insurance - 1.2% Life & Health Insurance - 0.7% 25,000 Presidential Life Corp., 7.875%, 2/15/09 $ 24,750 ---------- Reinsurance - 0.5% 20,000 Platinum Underwriters Holding, 7.5%, 6/1/17 $ 20,382 ---------- Total Insurance $ 45,132 ---------- Real Estate - 1.0% Real Estate Investment Trusts - 1.0% 20,000 Host Marriott LP, 6.375%, 3/15/15 $ 19,950 15,000 Trustreet Properties, Inc., 7.5%, 4/1/15 15,000 ---------- $ 34,950 ---------- Total Real Estate $ 34,950 ----------
10 The accompanying notes are an integral part of these financial statements. Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal Amount USD ($) Value Software & Services - 1.4% Internet Software & Services - 1.4% 50,000 Hanarotelecom, Inc., 7.0%, 2/1/12 (144A) $ 49,256 ---------- Total Software & Services $ 49,256 ---------- Technology Hardware & Equipment - 0.5% Electronic Manufacturing Services - 0.5% 20,000 Sanmina-Sci Corp., 6.75%, 3/1/13 $ 19,025 ---------- Total Technology Hardware & Equipment $ 19,025 ---------- Semiconductors - 0.3% Semiconductors - 0.3% 10,000 Chartered Semiconductor, 6.375%, 8/3/15 $ 9,941 ---------- Total Semiconductors $ 9,941 ---------- Telecommunication Services - 3.5% Integrated Telecommunication Services - 1.5% 23,000 Eschelon Operating Co., 8.375%, 3/15/10 $ 21,275 20,000 Ntelos Holding Corp., Floating Rate Note, 10/15/13 (144A) (a) 19,950 20,000 Zeus Special Sub, Ltd., Floating Rate Note, 2/1/15 (144A) (a) 13,150 ---------- $ 54,375 ---------- Wireless Telecommunication Services - 2.0% 15,000 Cell C Pty, Ltd., 8.625%, 7/1/12 (144A) $ 18,990 30,000 Inmarsat Finance Plc, Floating Rate Note, 11/15/12 (a) 25,012 7,000 Tele Norte Leste Participacoes , 8.0%, 12/18/13 7,420 20,000 UBS (Vimpelcom), 8.0%, 2/11/10 (144A) 20,542 ---------- $ 71,964 ---------- Total Telecommunication Services $ 126,339 ---------- Utilities - 1.5% Electric Utilities - 1.4% 50,000 Verasun Energy Corp., 9.875%, 12/15/12 (144A) $ 50,750 ---------- Multi-Utilities - 0.1% 5,000 Reliant Energy, Inc., 6.75%, 12/15/14 $ 4,363 ---------- Total Utilities $ 55,113 ---------- TOTAL CORPORATE BONDS (Cost $3,044,359) $3,049,878 ---------- FOREIGN GOVERNMENT BONDS - 3.0% 35,000,000 ITL Banco Nac De Desen Econo, 8.0%, 4/28/10 $ 23,743 25,000 COP Republic of Colombia, 8.125%, 5/21/24 27,000 15,000 COP Republic of Columbia, 8.25%, 12/22/14 16,650 40,000,000 COP Republic of Columbia, 11.75%, 3/1/10 19,768 20,000 Republic of Panama, 7.25%, 3/15/15 21,280 ---------- $ 108,441 ---------- TOTAL FOREIGN GOVERNMENT BONDS (Cost $105,034) $ 108,441 ----------
The accompanying notes are an integral part of these financial statements. 11 Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value WARRANTS - 0.0% Materials - 0.0% Forest Products - 0.0% 5 Mandra Forestry-CW13, Exp. 5/15/13* $ -- ---------- Total Materials $ -- ---------- TOTAL WARRANTS (Cost $0) $ -- ---------- TOTAL INVESTMENT IN SECURITIES - 93.4% (Cost $3,369,345) $3,390,769 ---------- OTHER ASSETS AND LIABILITIES - 6.6% $ 240,824 ---------- TOTAL NET ASSETS - 100.0% $3,631,593 ==========
* 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, 2005, the value of these securities amounted to $1,511,191 or 41.6% of total net assets. (a) 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. (b) Distributions of investments by country of issue, as a percentage of total equity holdings (excluding temporary cash investments) is as follows: United States 60.3% Canada 5.7 Mexico 3.7 Bermuda 3.6 Cayman Islands 3.2 Brazil 3.2 United Kingdom 3.0 Luxembourg 2.8 Germany 2.6 Norway 2.2 Columbia 2.0 South Korea 1.5 Sweden 1.1 Netherlands 1.0 Panama 1.3 Other (individually) less than 1% 2.8 ----- 100.0% =====
NOTE: Principal amounts are denominated in U.S. dollars unless otherwise noted. COP Columbian Peso ITL Italian Lira 12 The accompanying notes are an integral part of these financial statements. Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
3/18/05(a) to Class II 12/31/05 Net asset value, beginning of period $10.00 ------ Increase from investment operations: Net investment income $ 0.51 Net realized and unrealized gain on investments and foreign currency transactions 0.01 ------ Net increase from investment operations $ 0.52 Distributions to shareowners: Net investment income (0.50) ------- Net increase in net asset value $ 0.02 ------ Net asset value, end of period $10.02 ====== Total return* 5.34%(b) Ratio of net expenses to average net assets 0.99%** Ratio of net investment income to average net assets 6.72%** Portfolio turnover rate 26%(b) Net assets, end of period (in thousands) $3,632 Ratios with no waiver of management fees and assumption of expenses by PIM: Net expenses 5.65%** Net investment income 2.06%**
(a) The Portfolio commenced operations on March 18, 2005. (b) Not annualized. * 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. NOTE: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. The accompanying notes are an integral part of these financial statements. 13 Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (cost $3,369,345) $3,390,769 Cash 309,100 Receivables -- Investment securities sold 8,166 Fund shares sold 9,278 Dividends, interest and foreign taxes withheld 72,768 ---------- Total assets $3,790,081 ---------- LIABILITIES: Payables -- Fund shares repurchased $ 470 Dividends 3,984 Due to foreign bank 126,706 Due to affiliates 394 Accrued expenses 9,022 Due to Pioneer Investment Management, Inc. 17,912 ---------- Total liabilities $ 158,488 ---------- NET ASSETS: Paid-in capital $3,617,301 Distributions in excess of net investment income (2,312) Accumulated net realized loss on investments (5,538) Net unrealized gain on: Investments 21,424 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 718 ---------- Total net assets $3,631,593 ---------- NET ASSET VALUE PER SHARE: Class II: (No par value, unlimited number of shares authorized) Net assets $3,631,593 Shares outstanding 362,368 ---------- Net asset value per share $ 10.02
14 The accompanying notes are an integral part of these financial statements. Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
For the period from 3/18/05 (Commencement of Operations) to 12/31/05 INVESTMENT INCOME: Interest $111,501 -------- Total investment income $111,501 -------- EXPENSES: Management fees $ 9,296 Transfer agent fees and expenses 1,250 Distribution fees 3,600 Administrative reimbursements 13,887 Custodian fees 12,725 Professional fees 27,359 Printing expense 8,791 Fees and expenses of nonaffiliated trustees 2,369 Miscellaneous 2,363 -------- Total expenses $ 81,640 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (67,282) -------- Net expenses $ 14,358 -------- Net investment income $ 97,143 -------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized loss from: Investments $ (6,424) Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (4,980) -------- $(11,404) -------- Change in net unrealized gain from: Investments $ 21,424 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 718 -------- $ 22,142 -------- Net gain on investments and foreign currency transactions $ 10,738 ======== Net increase in net assets resulting from operations $107,881 ========
The accompanying notes are an integral part of these financial statements. 15 Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
For the period from 3/18/05 (Commencement of Operations) to 12/31/05 FROM OPERATIONS: Net investment income $ 97,143 Net realized loss on investments (11,404) Change in net unrealized gain on investments and foreign currency transactions 22,142 ---------- Net increase in net assets resulting from operations $ 107,881 ---------- DISTRIBUTIONS TO SHAREOWNERS Net investment income: Class II $ (94,049) ---------- Total distributions to shareholders $ (94,049) ---------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $3,610,396 Reinvestment of distributions 58,955 Cost of shares repurchased (51,590) ---------- Net increase in net assets resulting from fund share transactions $3,617,761 ---------- Net increase in net assets $3,631,593 NET ASSETS: Beginning of period -- ---------- End of period $3,631,593 ========== Distributions in excess of net investment income, end of period $ (2,312) ==========
16 The accompanying notes are an integral part of these financial statements. Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Global High Yield VCT Portfolio (the Portfolio) is a Portfolio of the Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) The Global High Yield Portfolio commenced operations on March 18, 2005. Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts, or by qualified pension and retirement plans. The Global High Yield Portfolio seeks to maximize total return through a combination of income and capital appreciation. The financial statements and financial highlights of all other Portfolios are presented in separate books. The Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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 Portfolio, in the preparation of its financial statements which are consistent 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 (NYSE) is open, as of the close of regular trading on the NYSE. In computing the net asset values, securities are valued at the last sale price on the principal exchange where they are traded. 17 Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- Fixed income securities with remaining maturity of more than 60 days 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 there are no other readily available valuation methods are valued at their fair values as determined by, or under the direction of, the Board of Trustees and may include yield equivalents or a pricing matrix. The Portfolio also may use the fair value of a security, including a non-U.S. security, when the closing market price on the primary exchange where the security is traded no longer accurately reflects the value of the security as of the close of the NYSE. At December 31, 2005, there were no fair valued securities. Temporary cash investments are valued at amortized cost. Discounts and premiums on debt securities are accreted or amortized daily, respectively, on a yield-to-maturity basis into interest income with a corresponding increase or decrease in the cost basis of the security. Interest income is recorded on the accrual basis, 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. The Global 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 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 Portfolio. Being non-diversified may magnify the fund's losses from adverse events affecting a particular issuer. Information regarding the Portfolio's principal investment risks is contained in the Portfolio's prospectus. Please refer to those documents when considering the Portfolio's risks. B. Taxes It is the Portfolio'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 amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with income tax rules. Therefore, the source of the 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, 2005, Global High Yield Portfolio had a net capital loss carryforward of $5,538, which will expire in 2013, if not utilized. The Portfolio elected to defer $2,312 in foreign currency losses recognized between November 1, 2005 and December 31, 2005 to its fiscal year ended December 31, 2006. At December 31, 2005, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset values of the Portfolio and are designed to present the Portfolio's capital accounts on a tax basis.
Undistributed Accumulated Net Investment Net Realized Paid-In Portfolio Income (Loss) Gain (Loss) Capital -------------------------------------------------------------------------------- Global High Yield Portfolio $(5,406) $5,866 $(460) --------------------------------------------------------------------------------
18 Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The following chart shows the distributions paid during the period ended December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2005.
-------------------------------------------------------------------------------- 2005 -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $94,049 Long-Term Capital Gain - ------- $94,049 Return of Capital - ------- Total Distributions $94,049 ======= Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ - Undistributed long-term gain/(capital loss carryforward) (5,538) Unrealized appreciation (depreciation) 22,142 Post-October loss deferred (2,312) ------- Total $14,292 ======= --------------------------------------------------------------------------------
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), $638,021 in commissions on the sale of Trust shares for the period ended December 31, 2005. Distribution fees are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. 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 payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for the 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 sponsored by Brown Brothers Harriman & Co., the Trust's custodian. 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, a wholly owned indirect subsidiary of UniCredito Italiano manages the portfolio. Management fees are calculated daily at the annual rate of 0.65% of the Portfolio's average daily net assets up to $500 million and 0.60% on assets over $500 million. Through May 1, 2006, PIM has agreed not to impose all or a portion of its management fee and, if necessary, to limit other ordinary operating expenses of the Portfolio to the extent required to reduce Class II expenses to 1.00% of the average daily net assets attributable to Class II shares. 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, 2005, $12 was payable to PIM related to management fees, administrative reimbursements and certain other services, and is included in due to affiliates. 19 Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- 3. Transfer Agent 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 $375 in transfer agent fees payable to PIMSS at December 31, 2005. 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 to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with the Portfolio's Class II shares. Included in due to affiliates is $7 payable to PFD at December 31, 2005. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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) -------------------------------------------------------------------------------------------------- Global High Yield Portfolio $3,369,345 $62,343 $(40,919) $21,424 ========== ======= ========= ======= --------------------------------------------------------------------------------------------------
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, 2005, were $3,799,639 and $429,597, respectively. 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the period ended December 31, 2005:
-------------------------------------------------------------------------------------------------- Global High Yield Portfolio '05 Shares '05 Amount -------------------------------------------------------------------------------------------------- CLASS II: Shares sold 361,651 $3,610,396 Reinvestment of distributions 5,886 58,955 Shares repurchased (5,169) (51,590) ------- ---------- Net increase 362,368 $3,617,761 ======= ========== --------------------------------------------------------------------------------------------------
20 Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the Shareowners of Pioneer Global High Yield VCT Portfolio: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Global High Yield VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust") as of December 31, 2005, and the related statements of operations, changes in net assets, and the financial highlights for the period from March 21, 2005 (commencement of operations) to December 31, 2005. 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 the standards of the Public Company Accounting Oversight Board (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. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian. 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 Global High Yield VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations, changes in its net assets, and the financial highlights for the period from March 21, 2005 (commencement of operations) to December 31, 2005 in conformity with U.S. generally accepted accounting principles. /S/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 21 PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio (the "Fund") -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for the Life-of-Fund period for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of break points in the management fee for the Fund and a peer group of funds selected by the independent Trustees for this purpose, reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. 22 Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Trustees also considered the yield (gross of expenses) on the Fund's Class I shares relative to the yields (at June 30, 2005) on the Merrill Lynch Global High Yield and EMP index. The Trustees concluded that the period since the commencement of investment operations was too short to evaluate the Investment Adviser's performance. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's fixed income group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee was in the third quintile relative to the management fees paid by the other funds in that peer group for the Life-of-Fund period ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareowners. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the Life-of-Fund period ended June 30, 2005 was in the fourth quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. 23 Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. Because of break points in the management fee, the Trustees concluded that any perceived or potential economies of scale would be shared at future asset levels in a reasonable manner as the Fund grows in size between Fund's shareholders and the Investment Adviser. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund). The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 24 Pioneer Global High Yield VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. -----------------------------------------------------------------------------------------------------------------------------------
25 Pioneer Global High Yield VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company Washington, DC 20007 trustee is elected (publicly traded health care (privately-held affordable or earlier services company) (2001-present); housing finance company); retirement or Managing Partner, Federal City Director of New York Mortgage removal. Capital Advisors (boutique merchant Trust (publicly traded mortgage bank) (2002 to 2004); Executive REIT) Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ---------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material or earlier products manufacturer), Mortgage retirement or Guaranty Insurance Corporation, removal. and Briggs & Stratton, Inc. (engine manufacturer) ---------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------
26 Pioneer Global High Yield VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
27 Pioneer Global High Yield VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, None Treasurer 2000. Serves at the Assistant Vice President - Fund discretion of the Accounting, Administration and Board. Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds. --------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. --------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. --------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 28 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 29 [LOGO] PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18679-00-0206 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Shares VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- Table of Contents -------------------------------------------------------------------------------- Pioneer Growth Shares VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 6 Financial Statements 8 Notes to Financial Statements 12 Report of Independent Registered Public Accounting Firm 16 Factors Considered by the Independent Trustees in Approving the Management Contract 17 Trustees, Officers and Service Providers 20
Before investing consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 94.8% Depositary Receipts for International Stocks 5.2%
Sector Distribution (As a percentage of equity holdings) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Information Technology 29.5% Health Care 23.7% Consumer Discretionary 13.1% Consumer Staples 12.4% Industrials 11.8% Financials 5.7% Energy 1.5% Telecommunication Services 1.2% Materials 1.1%
Five Largest Holdings (As a percentage of equity holdings) 1. Microsoft Corp. 5.96% 2. Cisco Systems, Inc. 4.20 3. Intel Corp. 4.14 4. Dell, Inc. 3.90 5. Amgen, Inc. 3.71
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 -------------------------------------------------------------------------------- Net Asset Value per Share $13.20 $12.87 --------------------------------------------------------------------------------
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $0.0772 $ - $ -
-------------------------------------------------------------------------------- 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. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Russell 1000 Pioneer Growth Index Shares VCT Portfolio 10/97 10000 10000 10542 10222 14622 13521 12/99 19470 14539 15104 13539 12/01 12019 10934 8668 7099 12/03 11247 8855 11955 9419 12/05 12584 9719
The Russell 1000 Growth Index measures the performance of large-cap U.S. growth stocks. 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- Life-of-Class -0.35% (10/31/97) 5 Years -6.41% 1 Year 3.19%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value [divided by] $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Growth Shares VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005
Share Class II -------------------------------------------------------------------------------- Beginning Account Value on 7/1/05 $1,000.00 Ending Account Value on 12/31/05 $1,055.98 Expenses Paid During Period* $ 6.43
* Expenses are equal to the Portfolio's annualized expense ratio of 1.24% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Growth Shares VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------------------------------------- Beginning Account Value on 7/1/05 $1,000.00 Ending Account Value on 12/31/05 $1,018.95 Expenses Paid During Period* $ 6.31
* Expenses are equal to the Portfolio's annualized expense ratio of 1.24% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- The nation's economy and corporate profits both grew steadily throughout 2005, which normally would have provided a favorable backdrop for equity investments. The economy proved resilient in the face of a number of issues, including hurricane damage in the Gulf Coast, sharply rising energy and the continued efforts of the Federal Reserve Board to raise short-term interest rates. The Fed raised the fed funds rate eight different times during the calendar year. These issues weighed on the minds of many investors and stocks on average appreciated only modestly. In the following interview, Christopher M. Galizio and Stephen A. Balter, co-managers of Pioneer Growth Shares VCT Portfolio, discuss the markets and the factors that affected performance. Q. How did the Portfolio perform? A. Pioneer Growth Shares VCT Portfolio (Class II shares) had a total return of 3.19% at net asset value during the 12 months ended December 31, 2005. During the same period, the Russell 1000 Growth Index returned 5.26%. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. What were the principal factors that affected Portfolio performance? A. In 2005, we were well into the economic recovery in the United States, and we positioned the Fund with an emphasis on secular growth companies in sectors such as health care and information technology. For much of the year, we had less emphasis on the more cyclical sectors, such as energy, industrials and basic materials, although we did have a strong position in basic materials early in the year. While the Portfolio achieved positive results, it trailed its benchmark, primarily because of stock selection rather than sector positioning. However, the de-emphasis of energy stocks also detracted from results during a period in which the energy sector was by far the strongest performing part of the market. The major story in the stock market during 2005 was the effect of the dramatic increases in commodity prices, which helped lift valuations in the energy and basic materials sectors, both of which tend to be populated predominately with value stocks. This was a major factor in the performance advantage that value stocks enjoyed over growth stocks for most of the year. We believe, however, that the strong price appreciation of value stocks in recent years has resulted in a situation in which secular growth companies now offer superior relative value in relation to their long-term prospects. Q. What were some of the individual investments that helped performance? A. Our stock selection was good in the consumer area, both in the consumer discretionary and consumer staples sectors. Among our staples holdings, Altria Group was a stand-out performance. Shares of Altria, the parent company of Philip Morris, rose on continued consistent earnings and several court victories that appeared to reduce its exposure to tobacco liability lawsuits. Femsa, the Mexican-based soft drink bottler that also owns the Dos Equis beer brand, was another staples holding that performed very well. Its share price has risen by 70% since our initial investment in 2004. Within our consumer discretionary holdings, stocks that did particularly well included athletic footwear company Reebok and retailers Lowe's and Best Buy. Reebok was acquired by Addidas at a substantial premium to its stock price. Home improvements store Lowe's showed strong earnings growth throughout the year, while electronics retailer Best Buy benefited from a restructuring that placed more emphasis on expert service both before and after the sale. We have taken profits and sold our positions in both Lowe's and Reebok. Our strategy in health care also helped. We avoided the largest pharmaceutical companies, focusing on smaller companies, including some mid-cap firms -- with greater growth prospects. Two of our more successful positions were generic pharmaceutical companies. IVAX, which had a strong new product pipeline, received an attractive acquisition offer from a larger competitor, Teva. Endo Pharmaceuticals, which specializes in pain medications and therapies, obtained the rights to a generic version of Oxycontin and also has developed a new patch to treat chronic pain. In information technology, two investments that supported performance were Qualcomm and Texas Instruments, both of which are positioned to benefit from advances in wireless communications. A new generation of wireless phones is to be based on Qualcomm's latest CDMA technology, for which the company has licensing rights, while Texas Instruments stands to benefit from its increasing focus on producing more specialized -- and more profitable -- semiconductors. A Word About Risk: Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. The Portfolio invests in REIT securities, the value of which can fall for a variety of reasons, such as declines in rental income, fluctuating interest rates, poor property management, environmental liabilities, uninsured damage, increased competition, or changes in real estate tax laws. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Q. What were some of the investments that held back results? A. Avaya, a producer of telecommunications equipment for large enterprises, was a major disappointment, although its stock price did recover somewhat in the second half of the year. It was caught in the gap between the decline of an old technology and the acceptance of a new technology. While sales of its traditional phone systems slowed, revenues from its new system, based on voice-over-Internet technology, were slower than had been anticipated. However, we have retained our position because of the strong belief we have in the potential of the new Avaya system. Two other disappointments in the information technology sector were Symantec and Dell. Symantec, a leader in supplying security and anti-virus software for computer systems, reported disappointing earnings in the face of more intense price competition, including for systems providing security for wide networks. Dell's competitive price advantage over other personal computer manufacturers shrank somewhat during the year, and revenue growth was slower than had been anticipated. We continue to think both Symantec and Dell offer interesting opportunities. We have retained our investment in Symantec and have added to our position in Dell because of its attractive stock price. Among our consumer holdings, one disappointment was Avon Products. Sale of its beauty products in emerging markets, including China, grew more slowly than had been anticipated. However, the stock has been trading at a very low valuation, and we continue to hold the position. Q. What is your investment outlook? A. We think stocks have the potential to produce positive returns, close to long-term averages in 2006, but performance leadership should change in favor of the secular growth stocks that we have emphasized. We expect corporate earnings to continue to grow during the new year, although growth may be at a slower rate than in 2005. We think energy prices finally have begun to stabilize, although at relatively high levels. The impacts of higher energy costs will be felt in the economy, but probably not too dramatically. We already have started to see the effects of higher energy prices on lower-income consumers whose spending budgets have been squeezed. We continue to favor secular growth sectors, including information technology and health care. In information technology, we have positioned the Portfolio to benefit from new technologies, especially in communications technology. Longer-term demographic trends - including the aging of the baby boomer generation - should continue to offer opportunities in health care. The companies that should benefit will include those offering new products and devices and those that can benefit from cost-containment programs, including generic drug manufacturers. 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. 5 Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 100.2% Energy - 1.5% Integrated Oil & Gas - 1.5% 2,600 Occidental Petroleum Corp. $ 207,688 10,000 Repsol SA (A.D.R.) 294,100 ----------- $ 501,788 ----------- Total Energy $ 501,788 ----------- Materials - 1.1% Diversified Chemical - 1.1% 8,700 Dow Chemical Co. $ 381,234 ----------- Total Materials $ 381,234 ----------- Capital Goods - 11.1% Aerospace & Defense - 3.0% 3,400 L-3 Communications Holdings, Inc. $ 252,790 13,500 United Technologies Corp. 754,785 ----------- $ 1,007,575 ----------- Building Products - 1.8% 15,600 American Standard Companies, Inc. $ 623,220 ----------- Construction, Farm Machinery & Heavy Trucks - 1.6% 8,000 Deere & Co. $ 544,880 ----------- Industrial Conglomerates - 3.6% 6,800 3M Co. $ 527,000 24,200 Tyco International, Ltd. 698,412 ----------- $ 1,225,412 ----------- Industrial Machinery - 1.1% 4,300 Illinois Tool Works, Inc. (a) $ 378,357 ----------- Total Capital Goods $ 3,779,444 ----------- Commercial Services & Supplies - 0.7% Diversified Commercial Services - 0.7% 3,500 The Dun & Bradstreet Corp.* $ 234,360 ----------- Total Commercial Services & Supplies $ 234,360 ----------- Consumer Durables & Apparel - 1.7% Apparel, Accessories & Luxury Goods - 0.8% 7,200 Liz Claiborne, Inc. $ 257,904 ----------- Housewares & Specialties - 0.9% 4,000 Fortune Brands, Inc.* $ 312,080 ----------- Total Consumer Durables & Apparel $ 569,984 ----------- Consumer Services - 1.4% Education Services - 0.7% 7,479 Career Education Corp.* $ 252,192 ----------- Hotels, Resorts & Cruise Lines - 0.7% 4,400 Carnival Corp. $ 235,268 ----------- Total Consumer Services $ 487,460 ----------- Shares Value Media - 4.2% Advertising - 0.8% 3,200 Omnicom Group $ 272,416 ----------- Broadcasting & Cable TV - 3.4% 95,700 Liberty Media Corp.* 753,159 12,500 Viacom, Inc. (Class B) 407,500 ----------- $ 1,160,659 ----------- Total Media $ 1,433,075 ----------- Retailing - 5.8% Apparel Retail - 2.7% 4,500 Abercrombie & Fitch Co. $ 293,310 27,200 TJX Companies, Inc. 631,856 ----------- $ 925,166 ----------- Home Improvement Retail - 3.1% 26,000 Home Depot, Inc. $ 1,052,480 ----------- Total Retailing $ 1,977,646 ----------- Food & Drug Retailing - 2.2% Drug Retail - 2.2% 28,800 CVS Corp. $ 760,896 ----------- Total Food & Drug Retailing $ 760,896 ----------- Food, Beverage & Tobacco - 5.1% Soft Drinks - 1.5% 6,900 Fomento Economico Mexicano SA de CV $ 500,319 ----------- Tobacco - 3.6% 16,600 Altria Group, Inc. $ 1,240,352 ----------- Total Food, Beverage & Tobacco $ 1,740,671 ----------- Household & Personal Products - 5.1% Household Products - 3.4% 19,700 Procter & Gamble Co. $ 1,140,236 ----------- Personal Products - 1.7% 20,600 Avon Products, Inc. $ 588,130 ----------- Total Household & Personal Products $ 1,728,366 ----------- Health Care Equipment & Services - 10.4% Health Care Distributors - 2.1% 10,400 Cardinal Health, Inc. $ 715,000 ----------- Health Care Equipment - 6.3% 14,600 Biomet, Inc. $ 533,922 32,800 Boston Scientific Corp.* 803,272 12,330 Guidant Corp. 798,368 ----------- $ 2,135,562 ----------- Health Care Services - 0.8% 11,800 IMS Health, Inc. $ 294,056 -----------
6 The accompanying notes are an integral part of these financial statements. Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Health Care Supplies - 1.2% 7,800 Cooper Companies, Inc. $ 400,140 ----------- Total Health Care Equipment & Services $ 3,544,758 ----------- Pharmaceuticals & Biotechnology - 13.4% Biotechnology - 4.8% 16,058 Amgen, Inc.* $ 1,266,334 6,800 Gilead Sciences, Inc.* 357,884 ----------- $ 1,624,218 ----------- Pharmaceuticals - 8.6% 11,800 Astrazeneca Plc (A.D.R.) $ 573,480 21,700 IVAX Corp.* 679,861 20,000 Johnson & Johnson 1,202,000 15,092 Par Pharmaceutical Co., Inc.*(a) 472,983 ----------- $ 2,928,324 ----------- Total Pharmaceuticals & Biotechnology $ 4,552,542 ----------- Banks - 0.9% Diversified Banks - 0.9% 5,900 Wachovia Corp. $ 311,874 ----------- Total Banks $ 311,874 ----------- Diversified Financials - 2.3% Diversified Financial Services - 2.3% 16,400 Citigroup, Inc. $ 795,892 ----------- Total Diversified Financials $ 795,892 ----------- Insurance - 2.5% Multi-Line Insurance - 2.5% 12,300 American International Group, Inc. $ 839,229 ----------- Total Insurance $ 839,229 ----------- Software & Services - 13.8% IT Consulting & Other Services - 1.0% 12,100 Accenture, Ltd. $ 349,327 ----------- Systems Software - 12.8% 39,100 Macrovision Corp.* $ 654,143 77,800 Microsoft Corp. 2,034,470 72,900 Oracle Corp.* 890,109 43,700 Symantec Corp.* 764,750 ----------- $ 4,343,472 ----------- Total Software & Services $ 4,692,799 ----------- Technology Hardware & Equipment - 11.7% Communications Equipment - 7.8% 48,000 Avaya, Inc.* $ 512,160 83,800 Cisco Systems, Inc.* 1,434,656 16,300 Qualcomm, Inc. 702,204 ----------- $ 2,649,020 ----------- Shares Value Computer Hardware - 3.9% 44,400 Dell, Inc.* $ 1,331,556 ----------- Total Technology Hardware & Equipment $ 3,980,576 ----------- Semiconductors - 4.1% Semiconductors - 4.1% 56,700 Intel Corp. $ 1,415,231 ----------- Total Semiconductors $ 1,415,231 ----------- Telecommunication Services - 1.2% Wireless Telecommunication Services - 1.2% 19,400 Vodafone Group Plc (A.D.R.) $ 416,518 ----------- Total Telecommunication Services $ 416,518 ----------- TOTAL COMMON STOCKS (Cost $33,251,207) $34,144,343 ----------- TEMPORARY CASH INVESTMENT - 2.4% Security Lending Collateral - 2.4% 836,722 Securities Lending Investment Fund, 4.24% $ 836,722 ----------- TOTAL TEMPORARY CASH INVESTMENT (Cost $836,722) $ 836,722 ----------- TOTAL INVESTMENT IN SECURITIES - 102.6% (Cost $34,087,929) $34,981,065 ----------- OTHER ASSETS AND LIABILITIES - (2.6)% $ (899,380) ----------- TOTAL NET ASSETS - 100.0% $34,081,685 ===========
* Non-income producing security. (A.D.R.) American Depositary Receipt. (a) At December 31, 2005, the following securities were out on loan:
Shares Security Value 4,035 Illinois Tool Works, Inc. $355,040 14,337 Par Pharmaceutical Co., Inc.* 449,322 -------- Total $804,362 ========
The accompanying notes are an integral part of these financial statements. 7 Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $12.87 $12.10 $ 9.70 $ 14.94 $ 18.50 ------ ------ ------- ------- ------- Increase (decrease) from investment operations: Net investment income (loss) $(0.02) $ 0.06 $ (0.02) $ (0.13) $ (0.05) Net realized and unrealized gain (loss) on investments 0.43 0.71 2.42 (5.11) (3.51) ------ ------ ------- ------- ------- Net increase (decrease) from investment operations $ 0.41 $ 0.77 $ 2.40 $ (5.24) $ (3.56) Distributions to shareowners: Net investment income (0.08) -- -- -- -- ------ ------- ------- ------- ------- Net increase (decrease) in net asset value $ 0.33 $ 0.77 $ 2.40 $ (5.24) $ (3.56) ------ ------- ------- ------- ------- Net asset value, end of period $13.20 $12.87 $ 12.10 $ 9.70 $ 14.94 ====== ======= ======= ======= ======= Total return* 3.19% 6.36% 24.74% (35.07)% (19.24)% Ratio of net expenses to average net assets+ 1.24% 1.25% 1.44% 1.63% 1.58% Ratio of net investment income (loss) to average net assets+ (0.09)% 0.74% (0.40)% (0.64)% (0.61)% Portfolio turnover rate 79% 206% 58% 86% 111% Net assets, end of period (in thousands) $7,096 $7,749 $ 3,049 $ 263 $ 658 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.24% 1.26% 1.44% 1.63% 1.58% Net investment income (loss) (0.09)% 0.73% (0.40)% (0.64)% (0.61)% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 1.24% 1.25% 1.44% 1.63% 1.58% Net investment income (loss) (0.09)% 0.74% (0.40)% (0.64)% (0.61)%
* 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. NOTE: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. 8 The accompanying notes are an integral part of these financial statements. Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $804,362) (Cost $ 34,981,065 $34,087,929) Receivables -- Dividends, interest and foreign taxes withheld 33,532 Other 472 ------------- Total assets $ 35,015,069 ------------- LIABILITIES: Payables -- Fund shares repurchased $ 15,640 Upon return of securities loaned 836,722 Due to bank 12,857 Due to affiliates 5,126 Accrued expenses 63,039 ------------- Total liabilities $ 933,384 ------------- NET ASSETS: Paid-in capital $ 69,764,312 Undistributed net investment income 49,058 Accumulated net realized loss on investments (36,624,821) Net unrealized gain on investments 893,136 ------------- Total net assets $ 34,081,685 ------------- NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 26,986,164 Shares outstanding 2,015,777 ------------- Net asset value per share $ 13.39 Class II: (No par value, unlimited number of shares authorized) Net assets $ 7,095,521 Shares outstanding 537,490 ------------- Net asset value per share $ 13.20
The accompanying notes are an integral part of these financial statements. 9 Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS 12/31/05 -------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $2,445) $ 414,616 Interest 7,418 Income on securities loaned, net 2,263 ------------ Total investment income $ 424,297 ------------ EXPENSES: Management fees $ 258,486 Transfer agent fees and expenses 7,468 Distribution fees (Class II) 19,680 Administrative reimbursements 18,512 Custodian fees 28,449 Professional fees 32,252 Printing expense 3,007 Fees and expenses of nonaffiliated trustees 3,964 Miscellaneous 4,454 ------------ Total expenses $ 376,272 Less fees paid indirectly (1,220) ------------ Net expenses $ 375,052 ------------ Net investment income $ 49,245 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain from investments $ 3,211,502 ------------ Change in net unrealized gain from investments $ (2,083,627) ------------ Net gain on investments $ 1,127,875 ============ Net increase in net assets resulting from operations $ 1,177,120 ============
10 The accompanying notes are an integral part of these financial statements. Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/05 12/31/04 FROM OPERATIONS: Net investment income $ 49,245 $ 271,723 Net realized gain on investments 3,211,502 1,562,700 Change in net unrealized gain on investments (2,083,627) 618,844 ----------- ----------- Net increase in net assets resulting from operations $ 1,177,120 $ 2,453,267 ----------- ----------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (221,887) $ -- Class II (50,023) -- ----------- ----------- Total distributions to shareowners $ (271,910) $ -- ----------- ----------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 2,192,354 $ 5,638,676 Reinvestment of distributions 271,910 -- Cost of shares repurchased (9,337,142) (6,840,932) ----------- ----------- Net decrease in net assets resulting from Fund share transactions $(6,872,878) $(1,202,256) ----------- ----------- Net increase (decrease) in net assets $(5,967,668) $ 1,251,011 ----------- ----------- NET ASSETS: Beginning of year $40,049,353 $38,798,342 ----------- ----------- End of year $34,081,685 $40,049,353 =========== =========== Undistributed net investment income, end of year $ 49,058 $ 271,723 =========== ===========
The accompanying notes are an integral part of these financial statements. 11 Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Growth Shares VCT Portfolio (the Portfolio) is a Portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts, or by qualified pension and retirement plans. The investment objective of Growth Shares Portfolio is to seek capital appreciation. The financial highlights for the Portfolio's Class II shares are presented in a separate book. The Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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 Portfolio, in the preparation of its financial statements, which are consistent 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 (NYSE) is open, as of the close of regular trading on the NYSE. 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 12 Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- are valued at their fair values as determined by, or under the direction of, the Board of Trustees. The Portfolio also may use the fair value of a security, including a non-U.S. security, when the closing market price on the primary exchange where the security is traded no longer accurately reflects the value of the security as of the close of the exchange. At December 31, 2005, there were no fair valued securities. 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. 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. Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. The Portfolio invests in REIT securities, the value of which can fall for a variety of reasons, such as declines in rental income, fluctuating interest rates, poor property management, environmental liabilities, uninsured damage, increased competition, or changes in real estate tax laws. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Information regarding the Portfolio's principal investment risks is contained in the Portfolio's prospectus. Please refer to those documents when considering the Portfolio's risks. B. Taxes It is the Portfolio'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 amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal income tax rules. Therefore, the source of the 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, 2005, Growth Shares Portfolio had a net capital loss carryforward of $36,182,632, of which the following amounts will expire between 2009 and 2011, if not utilized: $9,618,208 in 2009, $19,245,183 in 2010 and $7,319,241 in 2011. The following chart shows the distributions paid during the year ended December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2005. There were no distributions paid during the fiscal year ended December 31, 2004.
------------------------------------------------------------------------------- 2005 ------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 271,910 Long-Term Capital Gain -- ------------ $ 271,910 Return of Capital -- ------------ Total Distributions $ 271,910 ------------ Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 49,058 Undistributed long-term gain/(capital loss carryforward) (36,182,632) Unrealized appreciation (depreciation) 450,947 ------------ Total $(35,682,627) ============= -------------------------------------------------------------------------------
13 Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- The difference between book-basis and tax-basis unrealized appreciation is primarily attributable to the tax deferral of losses on wash sales. C. Portfolio Shares The Portfolio records sales and repurchases of its 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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. Distribution fees for Class II shares are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. 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 (excluding transfer agent and the distribution fees) 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 the 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. 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 payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for the 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 sponsored by Brown Brothers Harriman & Co., the Trust's custodian. 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, a wholly owned indirect subsidiary of UniCredito Italiano manages the portfolio. Management fees are calculated daily at the 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, 2005, $1,326 was payable to PIM related to management fees, administrative reimbursements and certain other services, and is included in due to affiliates. 3. Transfer Agent 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 $3,702 in transfer agent fees payable to PIMSS at December 31, 2005. 14 Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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 to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with the Portfolio's Class II shares. Included in due to affiliates is $98 payable to PFD at December 31, 2005. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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) -------------------------------------------------------------------------------------------------- Growth Shares Portfolio $34,530,118 $2,601,774 $(2,150,827) $450,947 =========== ========== ============ ========= --------------------------------------------------------------------------------------------------
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, 2005, were $29,038,767 and $35,777,062, respectively. 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2005 and 2004:
-------------------------------------------------------------------------------------------------- Growth Shares Portfolio '05 Shares '05 Amount '04 Shares '04 Amount -------------------------------------------------------------------------------------------------- CLASS I: Shares sold 34,054 438,600 66,360 $ 806,587 Reinvestment of distributions 17,362 221,887 -- -- Shares repurchased (512,773) (6,658,363) (515,053) (6,176,527) -------- ---------- -------- ----------- Net increase (461,357) (5,997,876) (448,693) $(5,369,940) ========= =========== ========= ============ CLASS II: Shares sold 137,249 1,753,754 406,516 $ 4,832,089 Reinvestment of distributions 3,965 50,023 -- -- Shares repurchased (205,695) (2,678,779) (56,565) (664,405) -------- ---------- -------- ----------- Net increase (64,481) (875,002) 349,951 $ 4,167,684 ========= =========== ========= ============ --------------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION (unaudited) The qualifying percentage of certain Portfolios' ordinary income dividends for the purposes of the corporate dividends received deduction and the percentage of those ordinary dividends that are subject to a maximum tax rate of 15% as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were as follows:
-------------------------------------------------------------------------------------------------- Dividend Qualified Received Dividend Deduction Income -------------------------------------------------------------------------------------------------- Growth Shares Portfolio 100.00% 100.00% --------------------------------------------------------------------------------------------------
15 Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the Shareholders 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 the Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four 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 the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian. 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 the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and financial highlights for each of the four years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 16 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Shares VCT Portfolio (the "Fund") -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") voting separately annually approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect of the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareowners. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three and five year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for each of the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes matters considered by the Trustees in connection with their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to shareowners of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareowner services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 17 Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the fourth quintile of the peer group for the 12 months ended June 30, 2005, the fourth quintile of the peer group for the three years ended June 30, 2005, and the fifth quintile for the five years ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareowners. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareowners of the Fund, including administrative and shareowner services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareowners of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the third quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the fourth quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. The Trustees concluded that the Fund's overall expense ratio was reasonable compared to that of comparable funds. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. The Trustees concluded that, given current and anticipated assets levels, a break point in the management fee was not necessary at this time. As the assets increase, the Trustees will continue to evaluate annually the appropriateness of break points. 18 Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareowner services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect of the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 19 Pioneer Growth Shares VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. -----------------------------------------------------------------------------------------------------------------------------------
20 Pioneer Growth Shares VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance or earlier services company) (2001-present); company); Director of New York retirement or Managing Partner, Federal City Mortgage Trust (publicly traded removal. Capital Advisors (boutique merchant mortgage REIT) bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ---------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products or earlier manufacturer), Mortgage Guaranty retirement or Insurance Corporation, and Briggs removal. & Stratton, Inc. (engine manufacturer) ---------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------
21 Pioneer Growth Shares VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Growth Shares VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, None Treasurer 2000. Serves at the Assistant Vice President - Fund discretion of the Accounting, Administration and Board. Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds. --------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. --------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. --------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 23 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 24 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 25 [LOGO] PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18667-00-0206 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- Table of Contents -------------------------------------------------------------------------------- Pioneer High Yield VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 5 Financial Statements 11 Notes to Financial Statements 15 Report of Independent Registered Public Accounting Firm 20 Factors Considered by the Independent Trustees in Approving the Management Contract 21 Trustees, Officers and Service Providers 24
Before investing, consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment in securities) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Corporate Bonds 77.8% Convertible Corporate Bonds 9.5% U.S. Common Stocks 7.1% Convertible Preferred Stocks 3.5% Temporary Cash Investment 2.1%
Maturity Bonds (As a percentage of total investment in securities) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
0-1 years 0.8% 1-3 years 19.3% 3-4 years 19.7% 4-6 years 40.3% 6-8 years 14.2% 8+ years 5.7%
Five Largest Holdings (As a percentage of long-term holdings) 1. Mueller Industries, Inc., 6.0%, 11/1/14 4.83% 2. Novelis, Inc., 7.25%, 2/15/15 3.48 3. Allegheny Energy Supply, 7.8%, 3/15/11 3.25 4. Valeant Pharmaceuticals, 7.0%, 12/15/11 3.02 5. Gardner Denver, Inc., 8.0%, 5/1/13 (144A) 2.94
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 10.88 $ 11.67
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.5850 $ 0.0579 $ 0.3211
-------------------------------------------------------------------------------- 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. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer High ML High Yield ML Convertible Bonds Yield VCT Master II Index (Speculative Quality) Index Portfolio 05/00 10000 10000 10000 10608 9769 8424 12/01 12390 10206 7883 12090 10013 7747 12/03 16022 12831 10535 17266 14226 11867 12/05 17557 14615 11485
Index comparisons begin on 4/30/00. The ML High Yield Master II Index is a commonly accepted measure of the performance of high yield securities. The ML Index of Convertible Bonds (speculative quality) is a commonly accepted measure of the performance of speculative grade convertible bond 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, 2005)
Net Asset Value Life-of-Class 10.05% (5/1/00) 5 Years 10.60% 1 Year 1.70%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value [divided by] $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer High Yield VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,025.51 Expenses Paid During Period* $ 5.18 --------------------------------------------------------------------------------
* Expenses are equal to the Portfolio's annualized expense ratio of 1.02% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer High Yield VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,019.95 Expenses Paid During Period* $ 5.16 --------------------------------------------------------------------------------
* Expenses are equal to the Portfolio's annualized expense ratio of 1.02% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- During the 12 months ended December 31, 2005, high-yield bonds offered modestly positive returns, generated mainly by interest income. In the interview below, Portfolio Manager Margaret Patel describes the factors that drove the high-yield market and explains the Portfolio's underperformance of its benchmark. Q. How did the Portfolio perform? A. During the 12 months ended December 31, 2005, the Portfolio's Class II shares had a total return based on net asset value of 1.70%. By comparison, the Merrill Lynch High Yield Master II Index returned 2.74%. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. What factors drove the performance of the high-yield market during 2005? A. The economy continued to grow, which helped keep the yield spread - or yield advantage offered by high-yield bonds over comparable Treasuries - relatively narrow and below historical averages. Returns for the high-yield market were modestly positive, with the regular coupon payments provided by the securities offset by lower bond prices. Those bond price declines resulted from generally rising interest rates in both the Treasury and high-yield markets. Defaults declined during the period and approached the historical low of less than 2% seen in 1997. A major event in the market occurred in May, when the credit ratings of Ford and General Motors were downgraded to below investment grade. There was some short-term volatility caused by the moves, as investors pondered the effect that the large influx of Ford and GM debt might have on the market. Overall, however, the market absorbed the transfer with no major disruptions. Q. Why did the Portfolio lag the Merrill Lynch High Yield Master II Index? A. While investments in convertible bonds - a cornerstone of our approach for some time - historically have helped the Portfolio's relative performance, they underperformed conventional high-yield issues, particularly from the beginning of 2005 through April. The low volatility experienced by the convertible bonds' underlying stocks worked to compress the premium investors were willing to pay for convertibles. In addition, many convertible bonds offer relatively low coupons and are generally of shorter maturity, two attributes that resulted in negative price performance as the Federal Reserve Board steadily raised short-term interest rates during the period. However, convertible bonds performed better during the second half of the period as stock prices improved and equity market volatility increased. Q. Which investments performed best during the fiscal year? Which disappointed? A. The convertible securities of Roper Industries (1.30% of the Portfolio at the end of the period), which makes industrial controls and fluid handling equipment, enjoyed price appreciation due to improving demand. The biotechnology firm holding, IVAX, benefited from better operating results and its acquisition by Teva Pharmaceuticals scheduled to be close by the end of January 2006. Our convertible bonds held in Vertex Pharmaceuticals (0.72%) increased substantially with the underlying stock price, due to advances in the company's drug pipeline and the achievement of several strategic partnerships. And copper and gold producer Freeport-McMoRan (1.29%) was an outstanding winner, as it benefited from higher metals prices. Disappointments included Epix Medical (0.21%), which manufacturers contrast agents for the treatment of vascular diseases. Epix declined because its products required more clinical testing. Auto parts retailer Pep Boys (1.87%) fell as the company's turnaround took longer than expected. Interpublic Group (1.98%), a large advertising agency, saw the value of its common stock and associated convertible bonds decline due to concerns about management changes and the firm's delay in releasing required compliance information. Finally, Valiant Pharmaceuticals (2.97%) dropped because of an uncertain outlook for its products and the relatively slow pace of the company's new-drug development. Q. What is your outlook? A. We are optimistic about the health of the economy and the corporate high-yield market. If the economy continues to grow faster than the historical long-term average - as the Fed gradually moves interest rates higher - high-yield bonds could continue to produce moderately positive results and coupon income. The major credit rating agencies predict modest increases in defaults going forward, but still well below the historical average of about 4.75%. In addition, we believe the Fund is well positioned - through its holdings in convertible bonds, convertible preferred securities and common stock - to offer shareholders the opportunity for capital appreciation, should stocks participate in the continued economic advance that we expect. 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. A Word About Risk: Investments in high-yield or lower-rated securities are subject to greater-than-average risk. When interest rates rise, the prices of fixed-income securities in the Portfolio will generally fall. Conversely, when interest rates fall the prices of fixed income securities in the Portfolio will generally rise. Investments in the Portfolio are subject to possible loss due to the financial failure of underlying securities and their inability to meet their debt obligations. Prepayment risk is the chance that mortgage-backed bonds will be paid off early if falling interest rates prompt homeowners to refinance their mortgages. Forced to reinvest the unanticipated proceeds at lower interest rates, the Portfolio would experience a decline in income and lose the opportunity for additional price appreciation associated with falling interest rates. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
S&P/Moody's Ratings Shares (unaudited) Value CONVERTIBLE PREFERRED STOCK - 1.7% Materials - 1.3% Diversified Metals & Mining - 1.2% 1,200 B-/B1 Freeport-MC Copp., 5.5%, 12/31/49 $ 1,406,100 ------------ Steel - 0.1% 1,750 B-/NR TXI Capital Trust I, 5.5%, 6/30/28 $ 90,125 ------------ Total Materials $ 1,496,225 ------------ Banks - 0.4% Thrifts & Mortgage Finance - 0.4% 10,000 BB/Ba1 Sovereign Cap Trust IV, 4.375%, 3/1/34 $ 437,500 ------------ Total Banks $ 437,500 ------------ TOTAL CONVERTIBLE PREFERRED STOCK (Cost $1,726,088) $ 1,933,725 ------------ Principal Amount CONVERTIBLE CORPORATE BONDS - 9.4% Materials - 0.9% Commodity Chemicals - 0.3% $ 200,000 B+/B1 Millennium Chemicals, Inc., 4.0%, 11/15/23 $ 374,750 ------------ Gold - 0.6% 800,000 NR/NR Coeur D'Alene Mines Corp., 1.25%, 1/15/24 $ 648,000 ------------ Total Materials $ 1,022,750 ------------ Capital Goods - 1.6% Construction & Engineering - 0.3% 400,000 NR/NR Quanta Services, Inc., 4.0%, 7/1/07 $ 386,000 ------------ Electrical Component & Equipment - 1.3% 2,595,000 NR/B1 Roper Industries, Inc., 1.4813%, 1/15/34 $ 1,420,763 ------------ Total Capital Goods $ 1,806,763 ------------ Consumer Services - 1.3% Specialized Consumer Services - 1.3% 1,500,000 B+/Ba3 SCI Systems, Inc., 3.0%, 3/15/07 $ 1,436,250 ------------ Total Consumer Services $ 1,436,250 ------------ Media - 1.7% Advertising - 1.7% 1,800,000 BB+/Baa3 Interpublic Group Cos., 4.5%, 3/15/23 $ 1,874,250 ------------ Total Media $ 1,874,250 ------------ Retailing - 0.9% Automotive Retail - 0.9% 1,000,000 B+/B3 Sonic Automotive, Inc., 5.25%, 5/7/09 $ 980,000 ------------ Total Retailing $ 980,000 ------------
The accompanying notes are an integral part of these financial statements. 5 Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
S&P/Moody's Principal Ratings Amount (unaudited) Value Health Care Equipment & Services - 0.7% Health Care Equipment - 0.7% $ 375,000 NR/NR Epix Medical, 3.0%, 6/15/24 (144A) $ 225,000 600,000 NR/NR Wilson Greatbatch Tech., 2.25%, 6/15/13 525,000 ------------ $ 750,000 ------------ Total Health Care Equipment & Services $ 750,000 ------------ Pharmaceuticals & Biotechnology - 0.3% Biotechnology - 0.3% 300,000 NR/NR Cubist Pharmaceuticals, 5.5%, 11/1/08 $ 282,375 ------------ Total Pharmaceuticals & Biotechnology $ 282,375 ------------ Software & Services - 0.2% Application Software - 0.2% 200,000 NR/NR Mentor Graphics, 6.875%, 6/15/07 $ 198,750 ------------ Total Software & Services $ 198,750 ------------ Technology Hardware & Equipment - 1.4% Electronic Equipment & Instruments - 1.1% 300,000 B+/NR Flir Systems, Inc., 3.0%, 6/1/23 $ 352,125 1,000,000 NR/NR Veeco Instruments, 4.125%, 12/21/08 938,750 ------------ $ 1,290,875 ------------ Technology Distributors - 0.3% 300,000 NR/R Bell Microproducts, Inc., 3.75%, 3/5/24 $ 285,690 ------------ Total Technology Hardware & Equipment $ 1,576,565 ------------ Semiconductors - 0.4% Semiconductor Equipment - 0.4% 500,000 B-/NR Cymer, Inc., 3.5%, 2/15/09 $ 489,375 ------------ Total Semiconductors $ 489,375 ------------ TOTAL CONVERTIBLE CORPORATE BONDS (Cost $11,038,877) $ 10,417,078 ------------ Shares PREFERRED STOCK - 1.7% Real Estate - 1.7% Real Estate Management & Development - 1.7% 75,000 BB-/Ba3 Forest City Enterprises, 7.375%, 2/1/34 $ 1,899,000 ------------ TOTAL PREFERRED STOCK (Cost $1,917,000) $ 1,899,000 ------------ COMMON STOCK - 7.0% Materials - 1.2% Commodity Chemicals - 0.1% 3,500 Georgia Gulf Corp.* $ 106,470 ------------ Specialty Chemicals - 1.1% 1,700 Arch Chemicals, Inc. $ 50,830 63,100 RPM, Inc. 1,096,047 ------------ $ 1,146,877 ------------ Total Materials $ 1,253,347 ------------
6 The accompanying notes are an integral part of these financial statements. Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
S&P/Moody's Ratings Shares (unaudited) Value Household & Personal Products - 1.0% Personal Products - 1.0% 24,600 Alberto-Culver Co. (Class B) $ 1,125,450 ------------ Total Household & Personal Products $ 1,125,450 ------------ Health Care Equipment & Services - 1.1% Health Care Equipment - 1.1% 18,000 Bio-Rad Laboratories, Inc.* $ 1,177,920 ------------ Total Health Care Equipment & Services $ 1,177,920 ------------ Pharmaceuticals & Biotechnology - 1.9% Biotechnology - 1.0% 11,900 Protein Design Labs, Inc.* $ 338,198 28,400 Vertex Pharmaceuticals, Inc.* 785,828 ------------ $ 1,124,026 ------------ Pharmaceuticals - 0.9% 43,900 Bristol-Myers Squibb Co. $ 1,008,822 ------------ Total Pharmaceuticals & Biotechnology $ 2,132,848 ------------ Real Estate - 0.5% Real Estate Investment Trusts - 0.5% 60,900 MeriStar Hospitality Corp.* $ 572,460 ------------ Total Real Estate $ 572,460 ------------ Utilities - 1.3% Indep Power Producer & Energy Traders - 1.3% 31,100 NRG Energy, Inc.* $ 1,465,432 ------------ Total Utilities $ 1,465,432 ------------ TOTAL COMMON STOCK (Cost $7,185,758) $ 7,727,457 ------------ Principal Amount CORPORATE BONDS - 77.1% Energy - 6.7% Coal & Consumable Fuels - 2.3% $2,500,000 BB-/B1 Massey Energy Co., 6.875%, 12/15/13 (144A) $ 2,521,875 ------------ Oil & Gas Equipment & Services - 0.9% 1,000,000 B+/Ba3 Holly Energy Partners LP, 6.25%, 3/1/15 $ 968,750 ------------ Oil & Gas Refining & Marketing - 3.5% 1,031,000 Frontier Oil Corp., 6.625%, 10/1/11 $ 1,051,620 2,850,000 BB-/B2 Tesoro Petroleum Corp., 6.25%, 11/1/12 (144A) 2,864,250 ------------ $ 3,915,870 ------------ Total Energy $ 7,406,495 ------------
The accompanying notes are an integral part of these financial statements. 7 Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
S&P/Moody's Principal Ratings Amount (unaudited) Value Materials - 22.1% Aluminum - 3.4% $ 4,000,000 B/B1 Novelis, Inc., 7.25%, 2/15/15 $ 3,730,000 ------------ Commodity Chemicals - 6.4% 1,750,000 BB-/Ba3 Arco Chemical Co., 9.8%, 2/1/20 $ 1,964,375 2,500,000 BB+/Ba2 Nova Chemicals Corp., 7.875%, 9/15/25 2,468,750 2,650,000 BB+/Ba2 Nova Chemicals Corp., 7.4%, 4/1/09 2,709,625 ------------ $ 7,142,750 ------------ Construction Materials - 1.4% 1,500,000 BB-/Ba3 Texas Industries, Inc., 7.25%, 7/15/13 (144A) $ 1,556,250 ------------ Diversified Metals & Mining - 0.9% 1,000,000 B+/B1 Freeport-McMoran Copper & Gold, 6.875%, 2/1/09 $ 1,010,000 ------------ Fertilizers & Agricultural Chemicals - 1.1% 1,150,000 B+/Ba2 Scotts Co., 6.625%, 11/15/13 $ 1,164,375 ------------ Metal & Glass Containers - 0.7% 800,000 B/B3 Crown Cork and Seal Co., Inc., 7.375%, 12/15/26 $ 732,000 ------------ Paper Products - 5.5% 200,000 BB-/Ba3 Abitibi-Consolidated, Inc., 6.0%, 6/20/13 $ 169,500 2,250,000 BB-/Ba3 Abitibi-Consolidated, Inc., 8.55%, 8/1/10 (a) 2,278,125 885,000 BB/Ba3 Bowater Canada Finance, 7.95%, 11/15/11 858,450 3,100,000 BB/Ba3 Bowater, Inc., 6.5%, 6/15/13 2,774,500 ------------ $ 6,080,575 ------------ Specialty Chemicals - 2.7% 1,950,000 BB-/B1 Millenium America, Inc., 7.625%, 11/15/26 $ 1,862,250 1,000,000 BB-/B1 Millenium America, Inc., 9.25%, 6/15/08 1,078,750 ------------ $ 2,941,000 ------------ Total Materials $ 24,356,950 ------------ Capital Goods - 13.4% Aerospace & Defense - 4.6% 3,200,000 B/B2 DRS Technologies, Inc., 6.875%, 11/1/13 $ 3,060,000 2,000,000 B+/B1 Esterline Technology, 7.75%, 6/15/13 2,090,000 ------------ $ 5,150,000 ------------ Industrial Machinery - 8.8% 3,000,000 B/B2 Gardner Denver, Inc., 8.0%, 5/1/13 (144A) $ 3,150,000 517,000 B+/B3 JLG Industries, Inc., 8.375%, 6/15/12 545,435 800,000 B+/B1 Manitowoc Co., Inc., 7.125%, 11/1/13 822,000 5,400,000 NR/NR Mueller Industries, Inc., 6.0%, 11/1/14 5,184,000 ------------ $ 9,701,435 ------------ Total Capital Goods $ 14,851,435 ------------ Automobiles & Components - 0.3% Tires & Rubber - 0.3% 300,000 B-/B3 Goodyear Tire & Rubber, 7.857%, 8/15/11 $ 293,250 ------------ Total Automobiles & Components $ 293,250 ------------
8 The accompanying notes are an integral part of these financial statements. Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
S&P/Moody's Principal Ratings Amount (unaudited) Value Consumer Durables & Apparel - 1.0% Homebuilding - 1.0% $ 1,000,000 BB/Ba1 Beazer Homes U.S.A., 6.875%, 7/15/15 $ 958,750 185,000 BB-/Ba3 Meritage Homes Corp., 6.25%, 3/15/15 168,350 ------------ $ 1,127,100 ------------ Total Consumer Durables & Apparel $ 1,127,100 ------------ Media - 2.0% Advertising - 2.0% 2,300,000 BB-/Baa3 Interpublic Group, Inc., 7.25%, 8/15/11 $ 2,162,000 ------------ Total Media $ 2,162,000 ------------ Retailing - 4.1% Automotive Retail - 1.8% 2,290,000 B/B1 Pep Boys-Manny Moe Jack, 7.5%, 12/15/14 $ 2,038,100 ------------ Distributors - 2.3% 2,500,000 B/B2 Wesco Distribution, Inc., 7.5%, 10/15/17 (144A) $ 2,515,625 ------------ Total Retailing $ 4,553,725 ------------ Health Care Equipment & Services - 1.6% Health Care Supplies - 1.6% 1,700,000 CCC+/Caa1 Inverness Medical Innovation, 8.75%, 2/15/12 $ 1,725,500 ------------ Total Health Care Equipment & Services $ 1,725,500 ------------ Pharmaceuticals & Biotechnology - 2.9% Pharmaceuticals - 2.9% 3,300,000 BB-/B1 Valeant Pharmaceuticals, 7.0%, 12/15/11 $ 3,242,250 ------------ Total Pharmaceuticals & Biotechnology $ 3,242,250 ------------ Real Estate - 8.3% Real Estate Management & Development - 2.8% 2,935,000 BB-/Ba3 Forest City Enterprises, 7.625%, 6/1/15 $ 3,111,100 ------------ Real Estate Investment Trusts - 5.5% 1,500,000 B+/B3 BF Saul Real Estate Investment Trust, 7.5%, 3/1/14 $ 1,526,250 2,300,000 B+/B1 Crescent Real Estate, 9.25%, 4/15/09 2,420,750 2,000,000 CCC+/B2 Meristar Hospitality Corp., 9.125%, 1/15/11 2,180,000 ------------ $ 6,127,000 ------------ Total Real Estate $ 9,238,100 ------------ Technology Hardware & Equipment - 5.4% Electronic Equipment & Instruments - 1.7% 1,835,000 B/B2 General Cable Corp., 9.5%, 11/15/10 $ 1,945,100 ------------ Technology Distributors - 3.7% 1,500,000 BB+/Ba1 Anixter International Corp., 5.95%, 3/1/15 $ 1,357,390 2,550,000 BBB-/Baa3 Arrow Electronic, Inc., 6.875%, 6/1/18 2,708,615 ------------ $ 4,066,005 ------------ Total Technology Hardware & Equipment $ 6,011,105 ------------
The accompanying notes are an integral part of these financial statements. 9 Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
S&P/Moody's Principal Ratings Amount (unaudited) Value Utilities - 9.3% Electric Utilities - 6.1% $ 3,200,000 B/Ba3 Allegheny Energy Supply, 7.8%, 3/15/11 $ 3,488,000 1,750,000 B/Ba3 Allegheny Energy Supply, 8.25% 4/15/12 (144A) 1,973,125 1,200,000 B+/B1 CMS Energy Corp., 7.5%, 1/15/09 1,236,000 ------------ $ 6,697,125 ------------ Multi-Utilities - 3.2% 450,000 B+/B1 CMS Energy Corp., 6.875%, 12/15/15 $ 453,938 3,000,000 B+/B1 CMS Energy Corp., 7.75%, 8/1/10 3,146,250 ------------ $ 3,600,188 ------------ Total Utilities $ 10,297,313 ------------ TOTAL CORPORATE BONDS $ 85,265,223 ------------ (Cost $85,580,009) Shares TEMPORARY CASH INVESTMENTS - 2.1% Security Lending Collateral - 2.1% 2,282,850 Securities Lending Investment Fund, 4.24% $ 2,282,850 ------------ TOTAL TEMPORARY CASH INVESTMENTS (Cost $2,282,850) $ 2,282,850 ------------ TOTAL INVESTMENT IN SECURITIES - 99.0% (Cost $109,730,582) $109,525,333 ------------ OTHER ASSETS AND LIABILITIES - 1.0% $ 1,095,615 ------------ TOTAL NET ASSETS - 100.0% $110,620,948 ============
N/R Not rated by either S&P or Moody's * 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, 2005, the value of these securities amounted to $14,806,125 or 13.5% of net assets. (a) At December 31, 2005, the following security was out on loan:
Principal Amount Security Market Value $ 2,137,500 Abitibi-Consolidated, Inc., 8.55%, 8/1/10 $2,164,219 ==========
10 The accompanying notes are an integral part of these financial statements. Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Year Year Year 5/1/01 Ended Ended Ended Ended to Class II 12/30/05 12/31/04 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 11.67 $ 11.46 $ 9.28 $ 10.33 $ 10.51 ------- ------- ------- ------- ------- Increase (decrease) from investment operations: Net investment income $ 0.59 $ 0.58 $ 0.76 $ 0.80 $ 0.60 Net realized and unrealized gain (loss) on investments and foreign currency transactions ( 0.41) 0.27 2.17 ( 1.05) ( 0.07) ------- ------- ------- ------- -------- Net increase (decrease) from investment operations $ 0.18 $ 0.85 $ 2.93 $ (0.25) $ 0.53 Distributions to shareowners: Net investment income ( 0.59) ( 0.59) ( 0.75) ( 0.80) ( 0.60) Net realized gain ( 0.38) ( 0.05) -- -- ( 0.11) ------- ------- ------- ------- -------- Net increase (decrease) in net asset value $ (0.79) $ 0.21 $ 2.18 $ (1.05) $ (0.18) -------- ------- ------- ------- -------- Net asset value, end of period $ 10.88 $ 11.67 $ 11.46 $ 9.28 $ 10.33 ======== ======= ======= ======= ======== Total return* 1.70% 7.76% 32.64% ( 2.42)% 5.39% Ratio of net expenses to average net assets 1.02% 1.03% 1.09% 1.82% 1.39%** Ratio of net investment income to average net assets 5.27% 5.12% 6.33% 8.67% 8.94%** Portfolio turnover rate 37% 42% 48% 42% 36% Net assets, end of period (in thousands) $ 47,169 $51,912 $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 1.02% 1.04% 1.09% 1.82% 1.50%** Net investment income 5.27% 5.12% 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 1.02% 1.04% 1.09% 0.97% 0.85%** Net investment income 5.27% 5.12% 6.33% 0.01% 0.07%**
* 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. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. The accompanying notes are an integral part of these financial statements. 11 Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $2,164,219) (Cost $109,525,333 $109,730,582) Cash 682,465 Receivables -- Fund shares sold 1,304,169 Dividends, interest and foreign taxes withheld 1,544,979 ------------ Total assets $113,056,946 ------------ LIABILITIES: Payables -- Fund shares repurchased $ 68,166 Upon return for securities loaned 2,282,850 Due to affiliates 8,448 Accrued expenses 76,534 ------------ Total liabilities $ 2,435,998 ------------ NET ASSETS: Paid-in capital $109,236,906 Undistributed net investment income 59,865 Accumulated net realized gain 1,529,426 Net unrealized gain on investments (205,249) ------------ Total net assets $110,620,948 ------------ NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 63,451,822 Shares outstanding 5,831,312 ------------ Net asset value per share $ 10.88 Class II: (No par value, unlimited number of shares authorized) Net assets $ 47,169,126 Shares outstanding 4,335,176 ------------ Net asset value per share $ 10.88
12 The accompanying notes are an integral part of these financial statements. Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
Year Ended 12/31/05 INVESTMENT INCOME: Dividends $ 250,030 Interest 6,763,663 Income on securities loaned, net 14,050 ------------ Total investment income $ 7,027,743 ------------ EXPENSES: Management fees $ 725,723 Transfer agent fees and expenses 7,715 Distribution fees (Class II) 117,009 Administrative reimbursements 22,311 Custodian fees 20,659 Professional fees 41,351 Printing expense 33,849 Fees and expenses of nonaffiliated trustees 5,115 Miscellaneous 7,045 ------------ Total expenses $ 980,777 ------------ Net expenses $ 980,777 ------------ Net investment income $ 6,046,966 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from investments $ 1,530,055 ------------ Change in net unrealized gain or loss from investments $ (5,535,598) ------------ Net gain (loss) on investments, futures contracts and foreign currency transactions $ (4,005,543) ============= Net increase in net assets resulting from operations $ 2,041,423 =============
The accompanying notes are an integral part of these financial statements. 13 Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/05 12/31/04 FROM OPERATIONS: Net investment income $ 6,046,966 $ 5,467,810 Net realized gain (loss) on investments 1,530,055 3,746,873 Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions (5,535,598) (1,480,061) ------------- ------------- Net increase in net assets resulting from operations $ 2,041,423 $ 7,734,622 ------------- ------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (3,563,099) $ (3,715,003) Class II (2,466,908) (1,764,209) Net realized gain Class I (2,147,727) (265,040) Class II (1,587,624) (135,300) ------------- ------------- Total distributions to shareowners $ (9,765,358) $ (5,879,552) ------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 43,512,782 $ 75,619,514 Reinvestment of distributions 9,721,259 5,846,576 Cost of shares repurchased (57,690,620) (44,707,455) ------------- ------------- Net increase (decrease) in net assets resulting from Fund share transactions $ (4,456,579) $ 36,758,635 ------------- ------------- Net increase (decrease) in net assets $ (12,180,514) $ 38,613,705 ------------- ------------- NET ASSETS: Beginning of year $ 122,801,462 $ 84,187,757 ------------- ------------- End of year $ 110,620,948 $ 122,801,462 ============= ============= Undistributed net investment income, end of year $ 59,865 $ 42,906 ============= =============
14 The accompanying notes are an integral part of these financial statements. Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer High Yield VCT Portfolio (The Portfolio) is a Portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty-nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts or 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 Portfolio's financial statements have been prepared in conformity with U.S. Generally accepted accounting principles that require the management of the Portfolio 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. Information concerning the Portfolio's principal investment risks is contained in the Portfolio's prospectus(es). Please refer to those documents when considering the Portfolio's risks. Investments in high-yield or lower-rated securities are subject to greater-than-average risk. The following is a summary of significant accounting policies consistently followed by the Portfolio, in the preparation of its financial statements, which are consistent 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 (NYSE) 15 Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- is open, as of the close of regular trading on the NYSE. 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 NYSE. The value of such securities used in computing the net asset value of the Portfolio's shares is based on the last sale price on the principal exchange where they traded. The Portfolio also may use the fair value of a security, including a non-U.S. security, when the closing market price on the primary exchange where the security is traded no longer accurately reflects the value of the security as of the close of the NYSE. At December 31, 2005, there were no fair valued securities. 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. 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 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 Portfolio may have concentrations in certain asset types, which may subject the Portfolio 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. dollars 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. At December 31, 2005 the Portfolio had no open forward contracts. D. Taxes It is the Portfolio's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all 16 Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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, 2005, no such taxes were paid. The amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal 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. The following chart shows the distributions paid during the years ended December 31, 2005 and December 31, 2004 and the components of distributable earnings (accumulated losses) as of December 31, 2005 on a tax basis.
-------------------------------------------------------------------------------------- 2005 2004 -------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $6,600,658 $5,479,212 Long-Term capital gain 3,164,700 400,340 ---------- ---------- $9,765,358 $5,879,552 Return of Capital -- -- ---------- ---------- Total distributions $9,765,358 $5,879,552 ========== ========== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 798,588 Undistributed long-term gain/(capital loss carryforward) 803,653 Unrealized appreciation (depreciation) (212,035) ---------- Total $1,390,206 ========== --------------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales and interest accrual on preferred stock. E. Portfolio Shares The Portfolio records sales and repurchases of its 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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. Distribution fees for Class II are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. 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 (excluding transfer agent and distribution fees) 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 the adjusted net assets at the beginning of the day. The Portfolio declares as daily dividends substantially all of its respective net investment income. All dividends are paid on a monthly basis. Short-term capital gain distributions, if any, may be declared with the daily dividends. Distributions paid by a 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 payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for the account of the Portfolio. The loans are secured by collateral of at least 102%, at all times, of the fair 17 Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- 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 Portfolio has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Portfolio invests cash collateral in the Securities Lending Investment Fund which is sponsored by Brown Brothers Harriman & Co., the Portfolio'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, a wholly owned indirect subsidiary of UniCredito Italiano, manages the portfolio. Management fees are calculated daily at the 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, 2005, $3,878 was payable to PIM related to management fees, administrative fees and certain other services, and is included in due to affiliates. 3. Transfer Agent 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 $3,943 in transfer agent fees payable to PIMSS at December 31, 2005. 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 to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with the Portfolio's Class II shares. Included in due to affiliates is $627 payable to PFD at December 31, 2005. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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) ----------------------------------------------------------------------------------------------- High Yield Portfolio $109,737,368 $3,143,440 $(3,355,475) $(212,035) ============ ========== ============ ========== -----------------------------------------------------------------------------------------------
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, 2005, were $40,480,811 and $55,124,286, respectively. 18 Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
------------------------------------------------------------------------------------------------- High Yield Portfolio '05 Shares '05 Amount '04 Shares '04 Amount ------------------------------------------------------------------------------------------------- CLASS I: Shares sold 1,902,148 $ 21,181,455 2,699,382 $ 30,852,667 Reinvestment of distributions 514,993 5,666,754 346,267 3,947,046 Shares repurchased (2,659,638) (29,739,088) (2,787,689) (31,727,505) ---------- ------------- ---------- ------------- Net increase (decrease) (242,497) $ (2,890,879) 257,960 $ 3,072,208 ========== ============= ========== ============= CLASS II: Shares sold 2,014,754 $ 22,331,327 3,916,481 $ 44,766,847 Reinvestment of distributions 368,486 4,054,505 166,648 1,899,530 Shares repurchased (2,495,978) (27,951,532) (1,171,662) (12,979,950) ---------- ------------- ---------- ------------- Net increase (decrease) (112,738) $ (1,565,700) 2,911,467 $ 33,686,427 ========== ============= ========== ============= -------------------------------------------------------------------------------------------------
19 Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the 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 the Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four 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 audit. The financial highlights for the year ended December 31, 2001 was 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 the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and financial highlights for each of the four years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 20 Pioneer High Yield VCT Portfolio (the "Fund") PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three and five year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 21 Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the third quintile of the peer group for the 12 months ended June 30, 2005, the second quintile for the three years ended June 30, 2005 and the second quintile for the five years ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees also compared the yield (gross of expenses) on the Fund's Class I shares relative to the yield (as of June 30, 2005) on the Merrill Lynch High Yield Master II Index. The Trustees concluded that the performance of the Fund, particularly the Fund's longer-term performance, supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's fixed income group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the third quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the third quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. The Trustees concluded that the Fund's overall expense ratio was reasonable compared to that of comparable funds. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. The Trustees concluded that, given current and anticipated asset levels, 22 Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- break points in the management fee are not necessary at this time. The Trustees will continue to evaluate annually the appropriateness of break points. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund). The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 23 Pioneer High Yield VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. -----------------------------------------------------------------------------------------------------------------------------------
24 Pioneer High Yield VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance or earlier services company) (2001-present); company); Director of New York retirement or Managing Partner, Federal City Mortgage Trust (publicly traded removal. Capital Advisors (boutique merchant mortgage REIT) bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ---------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products or earlier manufacturer), Mortgage Guaranty retirement or Insurance Corporation, and Briggs removal. & Stratton, Inc. (engine manufacturer) ---------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------
25 Pioneer High Yield VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
26 Pioneer High Yield VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, None Treasurer 2000. Serves at the Assistant Vice President - Fund discretion of the Accounting, Administration and Board. Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds. --------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. --------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. --------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 27 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 28 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 29 [Logo] PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18662-00-0206 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer International Value VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Table of Contents -------------------------------------------------------------------------------- Pioneer International Value VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 5 Financial Statements 9 Notes to Financial Statements 13 Report of Independent Registered Public Accounting Firm 18 Factors Considered by the Independent Trustees in Approving the Management Contract 19 Trustees, Officers and Service Providers 22
Before investing consider the fund's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
International Common Stocks 87.3% Depositary Receipts for International Stocks 6.0% U.S. Common Stocks 4.8% Temporary Cash Investment 1.3% International Preferred Stocks 0.6%
Geographical Distribution (As a percentage of equity holdings) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Japan 28.0% United Kingdom 14.8% France 10.8% Switzerland 9.5% Germany 5.8% South Korea 4.7% Brazil 3.3% Spain 3.0% Netherlands 3.0% United States 2.1% Sweden 1.9% Russia 1.8% Australia 1.5% People's Republic of China 1.4% Ireland 1.0% Singapore 1.0% Other (individually less than 1%) 6.4%
Five Largest Holdings (As a percentage of equity holdings) 1. Total SA 2.45% 2. Roche Holdings AG 1.97 3. CS Group 1.86 4. Repsol SA 1.67 5. Sumitomo Mitsui Financial Group, Inc. 1.67
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 13.63 $ 11.84
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.0074 $ - $ -
-------------------------------------------------------------------------------- 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 (ex. U.S.) Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer MSCI AC International Value Wld (ex. U.S.) VCT Portfolio Index 12-95 10000 10000 10799 10668 12-97 11172 10886 10061 12459 12-99 14490 16310 11201 13850 12-01 8520 11150 7368 9514 12-03 9753 13454 11550 16327 12-05 13305 19121
The Morgan Stanley Capital International (MSCI) All Country World (ex. U.S.) Index measures the performance of developed and emerging market stock markets. 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, 2005)
Net Asset Value 10 Years 2.90% 5 Years 3.50% 1 Year 15.19%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value [divided by] $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer International Value VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II ------------------------------------------ -------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,199.77 Expenses Paid During Period* $ 10.20
* Expenses are equal to the Portfolio's annualized expense ratio of 1.84% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer International Value VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2005 through December 31, 2005.
Share Class II ------------------------------------------ -------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,015.93 Expenses Paid During Period* $ 9.35
* Expenses are equal to the Portfolio's annualized expense ratio of 1.84% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- International markets rallied considerably in the second half of Pioneer International Value VCT Portfolio's fiscal year. Investments in emerging markets and Japan were particularly rewarding, contributing strongly to its double-digit returns for the 12-months ended December 31, 2005. In the following interview, lead portfolio manager Christopher Smart discusses the factors that influenced this performance. Q. How did the Portfolio perform for fiscal year? A. For the 12 months ended December 31, 2005, Class II shares posted a return of 15.19% at net asset value. The Portfolio lagged the 16.53% return of the Morgan Stanley Capital International (MSCI) All Country World (ex. U.S.) Index excluding the United States. We attribute the underperformance to a handful of stocks in Europe and Japan. Perhaps the biggest disappointment was Vodafone, a sizable holding in the portfolio, which fell sharply in response to the company's announcement of lower-than-expected profitability over the next several years due to increased competition. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. Emerging markets stocks rose sharply during the Portfolio's fiscal year. What contributed to those dramatic returns? A. In our view, three main factors contributed to the outcome. First, economic growth in emerging markets has been much stronger than that of the developed markets, with countries such as Russia, China and Turkey expanding between 5% and 10% per year. Second, valuations have been much lower than those of the developed market stocks, and they remain so even after several years of outperformance. Third, the risk of investing in emerging markets is much lower than it was even as recently as the late 1990s. Both corporations and countries have paid down their debts and rebuilt their balance sheets, putting the asset class on a much healthier footing to withstand external shocks. Q. Could you mention some of the holdings that capture this growth potential in emerging markets? A. Certainly. With inflation low and interest rates beginning to decline in Brazil, pent-up consumer spending is increasing the demand for credit. The Portfolio's investments in Unibanco, the country's largest retail bank, were very rewarding. In South Korea, the Portfolio's holdings that are positioned to benefit from the recovery in the domestic economy also did well. In recent years, high levels of consumer debt contributed to slower growth and reduced earnings for companies in the financial and retail sectors. With the problem now largely resolved, bank stocks - such as Fund holding Kookmin Bank - have recovered nicely. Q. Why did investments in Japan contribute so favorably to performance? A. Effective stock selection and a resurging stock market contributed to strong returns from Japanese stocks. An improving economy is raising consumer confidence and giving companies an incentive to build new factories and infrastructure. In addition, the recent reelection of Prime Minister Koizumi brought more of his reformist allies into the legislature, which should help expedite his privatization efforts. Two of the Fund's investments - the department store chain Takashimaya and commercial and residential builder Shimizu - made strong gains. Q. How did investments in the more mature markets of Europe fare? A. Investment returns from stocks across Europe were less dramatic than those outside the region, but still contributed positively to performance overall. Economic growth across Europe is modest, but business confidence is strong and valuations are attractive on a stock-by-stock basis. Stat Oil (Norway) and Repsol (Spain) are profiting from higher oil prices, but also represent good value relative to the rest of their competitors. In the pharmaceutical sector, Roche Holdings (Switzerland), which produces the flu vaccine Tamiflu, and AstraZeneca (United Kingdom) appreciated considerably. Q. What holdings detracted from performance? A. Royal Bank of Scotland Group, like many of the portfolio's U.K. bank stocks, underperformed as a result of rising interest rates and slower loan growth. Television broadcaster Mediaset suffered in response to Italy's slowing economy and the shrinking demand for advertising. Finally, computer integration consulting services provider OBIC (Japan) struggled - as did the software services sector in general. Q. What is your outlook for international equities in 2006? A. We remain positive in our outlook for international equity markets. We are watching for inflationary signs that could cause interest rates to rise quickly, but so far we see none. Rising oil prices are a concern, but we think that the declining costs of exports and technology coming from Asia and other developing countries have offset these pressures to a large extent. Given our expectations for a moderate pace of global growth in 2006, we will continue to focus on high-quality markets and stocks that offer attractive valuations and good prospects for appreciation. 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. A Word About Risk: Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. The Portfolio may invest a substantial amount of its assets in issuers located in a limited number of countries and therefore is susceptible to adverse economic, political or regulatory developments affecting those countries. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value PREFERRED STOCK - 0.6% Utilities - 0.6% Multi-Utilities - 0.6% 2,400 RWE AG - Non-Voting $ 154,366 ----------- TOTAL PREFERRED STOCK (Cost $139,965) $ 154,366 ----------- COMMON STOCKS - 99.7% Energy - 9.3% Integrated Oil & Gas - 7.8% 28,910 BP Amoco Plc $ 309,478 2,100 Gazprom (A.D.R.)* 152,519 3,300 Lukoil Holding (A.D.R.) 195,690 3,700 Petrobras Brasileiro (A.D.R.) 238,169 15,400 Repsol SA 451,664 3,400 Statoil SA 78,079 2,630 Total SA 661,524 ----------- $ 2,087,123 ----------- Oil & Gas Equipment & Services - 0.8% 4,900 Saipem S.p.A. $ 80,361 2,160 Technip 130,947 ----------- $ 211,308 ----------- Oil & Gas Exploration & Production - 0.7% 284,000 CNOOC, Ltd. $ 192,812 ----------- Total Energy $ 2,491,243 ----------- Materials - 8.4% Construction Materials - 1.6% 8,800 CRH Plc $ 258,607 2,600 Holcim, Ltd. 176,954 ----------- $ 435,561 ----------- Diversified Chemical - 0.4% 1,400 BASF India, Ltd. $ 107,187 ----------- Diversified Metals & Mining - 3.3% 17,002 Broken Hill Proprietary Co., Ltd. $ 284,341 6,750 Freeport-McMoRan Copper & Gold, Inc. (Class B) 363,150 5,490 Rio Tinto Plc 250,624 ----------- $ 898,115 ----------- Fertilizers & Agricultural Chemicals - 0.7% 1,400 Syngenta AG* $ 174,105 ----------- Specialty Chemicals - 0.8% 4,300 Shin-Etsu Chemical Co., Ltd. $ 227,017 ----------- Steel - 1.5% 7,300 Companhia Vale do Rio Doce (A.D.R.) $ 264,625 13,200 Hitachi Metals, Ltd. 143,482 ----------- $ 408,107 ----------- Total Materials $ 2,250,092 -----------
Shares Value Capital Goods - 12.3% Building Products - 2.2% 23,000 Asahi Glass Co., Ltd. $ 294,160 2,600 Compagnie de Saint Gobain 154,560 3,200 Wienerberger AG 127,349 ----------- $ 576,069 ----------- Construction & Farm Machinery & Heavy Trucks - 3.2% 13,700 Daewoo Heavy Industries & Machinery, Ltd. $ 371,566 3,900 Hyundai Heavy Industries 296,725 12,000 Komatsu, Ltd. 200,750 ----------- $ 869,041 ----------- Heavy Electrical Equipment - 1.3% 50,000 Mitsubishi Electric Corp. $ 357,293 ----------- Industrial Conglomerates - 1.3% 1 KOC Holding AS $ 4 4,190 Siemens 358,876 ----------- $ 358,880 ----------- Industrial Machinery - 2.3% 8,600 Atlas Copco AB $ 191,468 2,600 Fanuc, Ltd. 222,519 16,000 Nabtesco Corp. 208,060 ----------- $ 622,047 ----------- Trading Companies & Distributors - 2.0% 20,800 Mitsui & Co., Ltd. $ 268,837 21,000 Sumitomo Corp. 270,103 ----------- $ 538,940 ----------- Total Capital Goods $ 3,322,270 ----------- Transportation - 2.8% Air Freight & Couriers - 0.5% 4,800 TNT Post Group NV $ 149,927 ----------- Airport Services - 0.9% 22,100 BAA Plc $ 238,752 ----------- Railroads - 1.4% 55 East Japan Railway Co. $ 376,950 ----------- Total Transportation $ 765,629 ----------- Automobiles & Components - 4.8% Auto Parts & Equipment - 1.0% 7,900 Denso Corp. $ 274,760 ----------- Automobile Manufacturers - 2.5% 2,700 Hyundai Motor Co., Ltd. $ 258,811 8,000 Toyota Motor Co. 418,246 ----------- $ 677,057 -----------
The accompanying notes are an integral part of these financial statements. 5 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value Tires & Rubber - 1.3% 3,200 Compagnie Generale des Etablissements Michelin $ 179,612 1,800 Continental AG 159,528 ----------- $ 339,140 ----------- Total Automobiles & Components $ 1,290,957 ----------- Consumer Durables & Apparel - 3.2% Apparel, Accessories & Luxury Goods - 0.6% 650 Adidas-Salomon AG $ 122,961 3,385 Burberry Group Plc 24,787 ----------- $ 147,748 ----------- Consumer Electronics - 2.0% 8,200 Philips Electronics NV $ 254,658 6,900 Sony Corp. 281,540 ----------- $ 536,198 ----------- Footwear - 0.3% 300 Puma AG Rudolf Dassler Sport $ 87,496 ----------- Homebuilding - 0.3% 4,200 Persimmon Plc $ 90,426 ----------- Total Consumer Durables & Apparel $ 861,868 ----------- Consumer Services - 1.2% Casinos & Gaming - 0.4% 3,300 Opap SA* $ 113,554 ----------- Hotels, Resorts & Cruise Lines - 0.8% 4,100 Carnival Corp. $ 219,227 ----------- Total Consumer Services $ 332,781 ----------- Media - 2.0% Advertising - 0.7% 16,600 WPP Group Plc $ 179,208 ----------- Broadcasting & Cable TV - 0.8% 2,700 Grupo Televisa SA (A.D.R.) $ 217,350 ----------- Movies & Entertainment - 0.5% 4,500 Vivendi Universal $ 141,304 ----------- Total Media $ 537,862 ----------- Retailing - 2.2% Apparel Retail - 0.6% 42,300 Truworths International, Ltd. $ 160,691 ----------- Catalog Retail - 0.6% 9,546 GUS Plc $ 169,174 ----------- Department Stores - 1.0% 15,700 Takashimaya Co., Ltd. $ 252,567 ----------- Total Retailing $ 582,432 -----------
Shares Value Food & Drug Retailing - 3.0% Food Retail - 0.9% 39,600 Tesco Plc $ 224,951 ----------- Hypermarkets & Supercenters - 2.1% 12,200 Aeon Co., Ltd. $ 311,771 4,000 Brasil Distr Pao Acu (A.D.R.) 131,600 300 Shinsegae Co., Ltd. 131,104 ----------- $ 574,475 ----------- Total Food & Drug Retailing $ 799,426 ----------- Food, Beverage & Tobacco - 2.1% Packaged Foods & Meats - 2.1% 1,200 Nestle SA $ 358,118 13,000 Toyo Suisan Kaisha, Ltd. 209,437 ----------- $ 567,555 ----------- Total Food. Beverage & Tobacco $ 567,555 ----------- Health Care Equipment & Services - 0.8% Health Care Equipment - 0.8% 1,900 Synthes, Inc. $ 213,215 ----------- Total Health Care Equipment & Services $ 213,215 ----------- Pharmaceuticals & Biotechnology - 7.8% Pharmaceuticals - 7.8% 5,800 Astellas Pharma, Inc. $ 224,865 7,032 AstraZeneca Plc 342,638 12,700 Daiichi Sankyo Co., Ltd.* 244,731 7,890 GlaxoSmithKline Plc 198,661 3,300 Novartis 173,197 3,538 Roche Holdings AG 530,957 1,400 Schering AG 93,727 5,500 Shire Pharmaceuticals Group Plc (A.D.R.) 213,345 1,400 UCB S.A. 65,715 ----------- $ 2,087,836 ----------- Total Pharmaceuticals & Biotechnology $ 2,087,836 -----------
6 The accompanying notes are an integral part of these financial statements. Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Banks - 15.6% Diversified Banks - 15.6% 14,700 Banco Bilbao Vizcaya Argentaria, SA $ 262,198 2,100 Banco Itau SA* 50,442 38,925 Barclays Plc 408,949 4,700 BNP Paribas SA 380,137 4,100 Commonwealth Bank of Australia 128,582 4,745 Credit Agricole SA 149,411 27,800 Development Bank of Singapore, Ltd. 275,764 18,200 HSBC Holding Plc 291,960 2,800 Kookmin Bank (A.D.R.) (b) 209,188 30 Mitsubishi UFJ Financial Group, Inc. 410,927 12,720 Royal Bank of Scotland Group Plc 384,065 3,019 Societe Generale 371,181 42 Sumitomo Mitsui Financial Group, Inc. 449,609 27,240 Turkiye Is Bankasi (Isbank) 235,782 3,100 Uniao de Bancos Brasileiros S.A. (Unibanco) (G.D.R.) (144A) 197,067 ----------- $ 4,205,262 ----------- Total Banks $ 4,205,262 ----------- Diversified Financials - 5.9% Asset Management & Custody Banks - 0.4% 1,300 Julius Baer Holding $ 92,034 ----------- Diversified Capital Markets - 3.4% 9,830 CS Group $ 500,808 1,400 Deutsche Bank AG 135,667 2,850 UBS AG 271,196 ----------- $ 907,671 ----------- Investment Banking & Brokerage - 0.6% 15,000 Daiwa Securities Group, Inc. $ 171,916 ----------- Diversified Financial Services - 1.5% 11,900 ING Groep N.V. $ 412,517 ----------- Total Diversified Financials $ 1,584,138 ----------- Insurance - 4.8% Life & Health Insurance - 0.7% 4,900 China Life Insurance Co. (A.D.R.)*(b) $ 172,872 ----------- Multi-Line Insurance - 3.2% 18,100 Aviva Plc $ 218,548 10,900 AXA 352,059 1,380 Zurich Financial Services* 294,209 ----------- $ 864,816 ----------- Property & Casualty Insurance - 0.9% 19,500 Mitsui Sumitomo Insurance Co. $ 241,125 ----------- Total Insurance $ 1,278,813 -----------
Shares Value Real Estate - 1.3% Real Estate Management & Development - 1.3% 16,900 Mitsui Fudosan Co. $ 345,038 ----------- Total Real Estate $ 345,038 ----------- Software & Services - 1.2% IT Consulting & Other Services - 1.2% 2,000 Nomura Research Institute, Ltd. $ 244,613 1,200 Atos Origin* 78,987 ----------- $ 323,600 ----------- Total Software & Services $ 323,600 ----------- Technology Hardware & Equipment - 3.3% Communications Equipment - 1.1% 91,400 Ericsson LM $ 313,985 ----------- Computer Hardware - 1.1% 48,000 Toshiba Corp. $ 288,960 ----------- Office Electronics - 1.1% 5,000 Canon, Inc. $ 293,802 ----------- Total Technology Hardware & Equipment $ 896,747 ----------- Semiconductors - 0.8% 19,500 Hon Hai Precision Industry (G.D.R.) $ 222,323 ----------- Total Semiconductors $ 222,323 ----------- Telecommunication Services - 4.4% Integrated Telecommunication Services - 2.3% 13,000 France Telecom SA $ 322,853 6,923 Telefonica SA 104,117 5,000 Telekom Austria AG 112,210 10,500 Telekomunikacja Polska SA 75,609 ----------- $ 614,789 ----------- Wireless Telecommunication Services - 2.1% 115 NTT Mobile Communications, Inc. $ 175,974 4,000 Mobile Telesystems (A.D.R.) 140,000 112,411 Vodafone Group Plc 244,040 ----------- $ 560,014 ----------- Total Telecommunication Services $ 1,174,803 ----------- Utilities - 2.5% Electric Utilities - 1.2% 3,333 E.On AG $ 344,756 ----------- Gas Utilities - 0.5% 31,000 Tokyo Gas Co., Ltd. $ 137,729 ----------- Multi-Utilities - 0.7% 20,446 National Grid Plc $ 199,152 ----------- Total Utilities $ 681,637 -----------
The accompanying notes are an integral part of these financial statements. 7 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value TOTAL COMMON STOCKS (Cost $21,297,641) $26,815,527 ----------- TEMPORARY CASH INVESTMENT - 1.4% Security Lending Collateral - 1.4% 372,684 Securities Lending Collateral Fund, 4.24% $ 372,684 ----------- TOTAL TEMPORARY CASH INVESTMENT (Cost $372,684) $ 372,684 ----------- TOTAL INVESTMENT IN SECURITIES - 101.7% (Cost $21,810,290)(a) $27,342,577 ----------- OTHER ASSETS AND LIABILITIES - (1.7)% $ (440,853) ----------- TOTAL NET ASSETS - 100.0% $26,901,724 ===========
* 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, 2005, the value of these securities amounted to $197,067 or 0.7% of net assets. (a) Distributions of investments by country of issue, as percentage of total equity holdings (excluding temporary cash investments) is as follows: Japan 30.6% France 16.3% United Kingdom 15.9% Switzerland 7.9% Germany 5.4% Spain 4.9% Italy 4.2% Netherlands 3.6% South Korea 1.5 Ireland 1.5 Turkey 1.3 Brazil 1.1 Belgium 1.0 Austrialia 1.0 Other (individually less than 1%) 3.8 ----- 100.0% =====
(b) At December 31, 2005, the following securities were out on loan:
Shares Security Market Value 4,580 China Life Insurance Co. (A.D.R.)* $161,582 2,660 Kookmin Bank (A.D.R.) 198,729 -------- Total $360,311 ========
8 The accompanying notes are an integral part of these financial statements. Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
5/1/03 (a) Year Ended Year Ended to Class II 12/31/05 12/31/04 12/31/03 Net asset value, beginning of period $ 11.84 $ 10.04 $ 7.76 ------- ------- ------- Increase from investment operations: Net investment income (loss) $ 0.04 $ (0.02) $ 0.05 Net realized and unrealized gain on investments and foreign currency transactions 1.76 1.86 2.29 ------- ------- ------- Net increase from investment operations $ 1.80 $ 1.84 $ 2.34 Distributions to shareowners: Net income (0.01) (0.04) (0.06) -------- ------- -------- Net increase in net asset value $ 1.79 $ 1.80 $ 2.28 -------- ------- -------- Net asset value, end of period $ 13.63 $ 11.84 $ 10.04 ======= ======= ======= Total return* 15.19% 18.42% 30.31%(b) Ratio of net expenses to average net assets+ 1.84% 2.13% 2.02%* * Ratio of net investment gain (loss) to average net assets+ 0.36% (0.11)% (0.81)%** Portfolio turnover rate 108% 129% 99% Net assets, end of period (in thousands) $ 5,726 $ 4,133 $ 1,081 Ratios assuming no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.84% 2.13% 2.02%* * Net investment income (loss) 0.36% (0.11)% (0.81)%**
(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. (b) Not annualized. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. The accompanying notes are an integral part of these financial statements. 9 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $360,311) (Cost $21,810,290) $ 27,342,577 Receivables -- Fund shares sold 3,044 Dividends, interest and foreign taxes withheld 32,223 Other 869 ------------ Total assets $ 27,378,713 ------------ LIABILITIES: Payables -- Fund shares repurchased $ 7,885 Upon return of securities loaned 372,684 Due to bank 17,439 Due to affiliates 6,479 Accrued expenses 72,502 ------------ Total liabilities $ 476,989 ------------ NET ASSETS: Paid-in capital $ 31,131,519 Undistributed net investment income 120,607 Accumulated net realized loss (9,882,195) Net unrealized gain (loss) on: Investments 5,532,287 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (494) ------------ Total net assets $ 26,901,724 ------------ NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 21,175,902 Shares outstanding 1,544,426 ------------ Net asset value per share $ 13.71 Class II: (No par value, unlimited number of shares authorized) Net assets $ 5,725,822 Shares outstanding 420,103 ------------ Net asset value per share $ 13.63
10 The accompanying notes are an integral part of these financial statements. Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
Year Ended 12/31/05 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $75,067) $ 541,725 Interest 12,408 Income on securities loaned, net 21,147 ---------- Total investment income $ 575,280 ---------- EXPENSES: Management fees $ 258,471 Transfer agent fees and expenses 8,676 Distribution fees (Class II) 12,164 Administrative reimbursements 18,512 Custodian fees 29,895 Professional fees 49,782 Printing expense 12,970 Fees and expenses of nonaffiliated trustees 3,983 Miscellaneous 16,902 ---------- Total expenses $ 411,355 ---------- Net expenses $ 411,355 ---------- Net investment income $ 163,925 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $4,225,791 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (39,160) ---------- $4,186,631 ---------- Change in net unrealized gain or loss from: Investments $ (618,775) Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 841 ---------- $ (617,934) ---------- Net gain on investments, futures contracts and foreign currency transactions $3,568,697 ========== Net increase in net assets resulting from operations $3,732,622 ==========
The accompanying notes are an integral part of these financial statements. 11 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Year Ended Year Ended 12/31/05 12/31/04 FROM OPERATIONS: Net investment income $ $163,925 $ 93,454 Net realized gain on investments 4,186,631 2,810,326 Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions (617,934) 1,310,186 ------------ ------------ Net increase in net assets resulting from operations $ 3,732,622 $ 4,213,966 ------------ ------------ DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (31,154) $ (113,573) Class II (3,084) (8,890) ------------ ------------ Total distributions to shareowners $ (34,238) $ (122,463) ------------ ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 3,244,454 $ 4,380,480 Reinvestment of distributions 34,238 122,460 Cost of shares repurchased (7,067,685) (5,189,620) ------------ ------------ Net decrease in net assets resulting from Fund share transactions $ (3,788,993) $ (686,680) ------------ ------------ Net increase (decrease) in net assets $ (90,609) $ 3,404,823 ------------ ------------ NET ASSETS: Beginning of year $ 26,992,333 $ 23,587,510 ------------ ------------ End of year $ 26,901,724 $ 26,992,333 ============ ============ Undistributed net investment income, end of year $ 120,607 $ 30,080 ============ ============
12 The accompanying notes are an integral part of these financial statements. Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer International Value Portfolio (the Portfolio) is a Portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty-nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) The Portfolio commenced operations on May 1, 2003. Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts or 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 VCT Portfolio is to seek long-term capital growth. The Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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. Information concerning the Portfolio's principal investment risks is contained in the Portfolio's prospectus(es). Please refer to those documents when considering the Portfolio's risks. Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic and political conditions. The following is a summary of significant accounting policies consistently followed by the Portfolio, in the preparation of its financial statements, which are 13 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- consistent 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 (NYSE) is open, as of the close of regular trading on the NYSE. 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 NYSE. 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. The principal exchanges and markets for such securities have closing times prior to the close of the NYSE. However, the value of these securities may be influenced by changes in global markets occurring after the closing times of the local exchanges and markets up to the time the Portfolio determines its net asset value. Consequently, the Board of Trustees of the Portfolio has determined that the use of daily fair valuations as provided by a pricing service is appropriate for the Portfolio. The Portfolio may also take into consideration other significant events in determining the fair value of these securities. Thus, the Portfolio's securities valuations may differ from prices reported by the various local exchanges and markets. At December 31, 2005, there were no fair valued securities. All securities that trade in foreign markets whose closing prices are as of times prior to the close of the NYSE and that are held by International Value Portfolio are fair valued using vendor-supplied pricing updates for each security to the time of the close of the NYSE. Temporary cash investments and securities held by the 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, net of unrecoverable foreign taxes withheld 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. 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. dollars 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. As of December 31, 2005, the Portfolio had no outstanding portfolio or settlement hedges. D. Taxes It is the Portfolio's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all 14 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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, 2005, 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, 2005, the Portfolio had no reserves related to taxes on the repatriation of foreign currencies. The amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal 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, 2005, International Value VCT Portfolio had a capital loss carryforward of $9,866,967 of which the following amounts will expire between 2009 and 2011 if not utilized: $2,426,453 in 2009, $5,309,516 in 2010 and $2,130,998 in 2011. At December 31, 2005, the portfolio made reclassifications as described below. These reclassifications have no impact on the net asset values of the portfolio and are designed to present the portfolio's capital accounts on a tax basis.
-------------------------------------------------------------------------------------------------- Undistributed Net Investment Accumulated Net Paid-In Portfolio Income Realized Gain Capital -------------------------------------------------------------------------------------------------- Pioneer International Value VCT Portfolio $ (39,160) $39,160 $-- ========= ======= === --------------------------------------------------------------------------------------------------
The following chart shows the distributions paid during the years ended December 31, 2005 and December 31, 2004 and the components of distributable earnings (accumulated losses) as of December 31, 2005 on a tax basis.
------------------------------------------------------------------------------------------ 2005 2004 ------------------------------------------------------------------------------------------ Distributions paid from: Ordinary Income $ 34,238 $122,463 Long-Term capital gain -- -- ------------ -------- $ 34,238 $122,463 Return of Capital -- -- ------------ -------- Total distributions $ 34,238 $122,463 ============ ======== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 120,607 Undistributed long-term gain/(capital loss carryforward) (9,866,967) Unrealized appreciation (depreciation) 5,516,565 ------------ Total $ (4,229,795) ============ ------------------------------------------------------------------------------------------
15 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- For the fiscal year ending December 31, 2005, International Value Portfolio has elected to pass through foreign tax credits of $58,710. The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable to the tax deferral of losses on wash sales. E. Portfolio Shares The Portfolio records sales and repurchases of its 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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. Distribution fees for Class II shares are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. 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 (excluding transfer agent and distribution fees) 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 the 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. 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 payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for the account of the Portfolio. 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 Portfolio has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Portfolio invests cash collateral in the Securities Lending Investment Fund which is sponsored by Brown Brothers Harriman & Co., the Portfolio'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, a wholly owned indirect subsidiary of UniCredito Italiano manages the portfolio. Management fees are calculated daily at the 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, 2005, $1,493 was payable to PIM related to management fees, administrative fees and certain other services, and is included in due to affiliates. 3. Transfer Agent 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 $4,907 in transfer agent fees payable to PIMSS at December 31, 2005. 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 to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with the Portfolio's Class II shares. Included in due to affiliates is $79 payable to PFD at December 31, 2005. 16 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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) ------------------------------------------------------------------------------------------------------ International Value Portfolio $21,825,518 $5,651,803 $ (134,744) $5,517,059 =========== ========== ========== ========== ------------------------------------------------------------------------------------------------------
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, 2005, were $27,644,939 and $31,089,404, respectively. 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
------------------------------------------------------------------------------------------- International Value Portfolio '05 Shares '05 Amount '04 Shares '04 Amount ------------------------------------------------------------------------------------------- CLASS I: Shares sold 48,222 $ 576,930 125,954 $ 1,319,269 Reinvestment of distributions 2,721 31,154 10,994 113,572 Shares repurchased (430,261) (5,229,863) (449,994) (4,643,483) -------------------------------------------------------- Net increase (decrease) (379,318) $ (4,621,779) (313,046) $ (3,210,642) ======================================================== CLASS II: Shares sold 218,007 $ 2,667,524 294,244 $ 3,061,211 Reinvestment of distributions 270 3,084 862 8,888 Shares repurchased (147,285) (1,837,822) (53,626) (546,137) -------------------------------------------------------- Net increase (decrease) 70,992 $ 832,786 241,480 $ 2,523,962 ======================================================== -------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION (unaudited) The qualifying percentage of certain Portfolios' ordinary income dividends for the purposes of the corporate dividends received deduction and the percentage of those ordinary dividends that are subject to a maximum tax rate of 15% as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were as follows:
--------------------------------------------------------------- Dividend Qualified Received Dividend Deduction Income --------------------------------------------------------------- International Value Portfolio 0.00% 100.00% ---------------------------------------------------------------
17 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the 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 the Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for the periods indicated therein. 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 audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and financial highlights for the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 18 Pioneer International Value VCT Portfolio (the "Fund") PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three, five and ten year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of break points in the management fee, reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objective and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 19 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and the results of an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the third quintile of the peer group for the 12 months ended June 30, 2005, the fourth quintile for the three years ended June 30, 2005, the fifth quintile for the five years ended June 30, 2005 and the fifth quintile for the ten year period ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees concluded that the performance of the Fund supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the fifth quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Investment Adviser agreed to reduce the management fee to 0.85%, which would be in the third quintile of the peer group, and to add a break point to the fee schedule. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio for the 12 months ended June 30, 2005 and expense ratios for the comparable period of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio was in the fifth quintile of this peer group for the most recent fiscal year. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. Because of break points in the management fees, the Trustees concluded 20 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- that any perceived or potential economies of scale would be shared at future asset levels, in a reasonable manner as the Fund grows in size, between Fund's shareholders and the Investment Adviser. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 21 Pioneer International Value VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. -----------------------------------------------------------------------------------------------------------------------------------
22 Pioneer International Value VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance or earlier services company) (2001-present); company); Director of New York retirement or Managing Partner, Federal City Mortgage Trust (publicly traded removal. Capital Advisors (boutique merchant mortgage REIT) bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ---------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products or earlier manufacturer), Mortgage Guaranty retirement or Insurance Corporation, and Briggs removal. & Stratton, Inc. (engine manufacturer) ---------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------
23 Pioneer International Value VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
24 Pioneer International Value VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, Assistant Vice President - Fund None Treasurer 2000. Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds. --------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. --------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. --------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 25 [LOGO]PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. [LOGO] PIONEER Investments (R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Mid Cap Value VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- T a b l e o f C o n t e n t s -------------------------------------------------------------------------------- Pioneer Mid Cap Value VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 6 Financial Statements 9 Notes to Financial Statements 13 Report of Independent Registered Public Accounting Firm 18 Factors Considered by the Independent Trustees in Approving the Management Contract 19 Trustees, Officers and Service Providers 22
Before investing, consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 97.3% Temporary Cash Investment 1.9% Depositary Receipts for International Stocks 0.8%
Sector Distribution (As a percentage of equity holdings) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Financials 23.7% Consumer Discretionary 13.2% Informational Technology 10.3% Health Care 19.2% Industrials 9.9% Materials 8.8% Consumer Staples 8.1% Utilies 7.8% Energy 6.7% Telecommunication Services 1.3%
Five Largest Holdings (As a percentage of equity holdings) 1. Foot Locker, Inc. 2.16% 2. Symbol Technologies, Inc. 2.14 3. Federated Investors, Inc. 2.06 4. W.W. Grainger, Inc. 2.03 5. Republic Services, Inc. 2.00
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 24.72 $ 24.44
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.0519 $ 0.1221 $ 1.3647
-------------------------------------------------------------------------------- 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. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Russell Pioneer Mid-Cap Mid Cap Value Index Value VCT Portfolio Dec-95 10000 10000 12026 11290 Dec-97 16159 13943 16981 12609 Dec-99 16962 14218 20215 16944 Dec-01 20685 17998 18690 15950 Dec-03 25805 21866 31922 26626 Dec-05 35960 28661
The Russell Midcap Value Index measures the performance of U.S. mid-cap value stocks. 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, 2005)
Net Asset Value 10 Years 11.10% 5 Years 11.08% 1 Year 7.64%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value [divided by] $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Mid Cap Value VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005
Share Class II --------------------------------------------- -------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,033.01 Expenses Paid During Period* $ 4.85
* Expenses are equal to the Portfolio's annualized expense ratio of 0.95% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Mid Cap Value VCT Portfolio Based on a hypothetical 5% per year return before expenses, reflecting the period from July 1, 2005 through December 31, 2005
Share Class II --------------------------------------------- -------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,020.36 Expenses Paid During Period* $ 4.82
* Expenses are equal to the Portfolio's annualized expense ratio of 0.95% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- The equity markets exhibited considerable volatility during 2005. Stock valuations moved up and down without any clear direction for most of the period before finishing strongly in the final two months of the year on evidence that the economic recovery was persisting and that corporate profits were continuing to improve. In the following discussion, Rod Wright, the leader of the team that manages Pioneer Mid Cap Value VCT Portfolio, provides an update on the Portfolio and his investment strategies during 2005. Q. How did the Portfolio perform? A. Class II shares of Pioneer Mid Cap Value VCT Portfolio had a total return of 7.64% at net asset value during the 12 months ended December 31, 2005. During the same period, the Standard & Poor's 500 Index returned 4.91%, while the Russell Midcap Value Index returned 12.65%. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. What were the principal factors that affected Portfolio performance? A. The Portfolio's relative performance improved substantially in the final two months of 2005 as many of the individual stocks that we had favored during the year finally started to produce good results. Our strategy is to manage the Portfolio by emphasizing individual security selection rather than sector weightings based on macro-economic forecasts. We seek to emphasize better-quality companies with reasonable prices that have potential catalysts for improved results and better-than-average long-term business prospects. Our tactical objective is to outperform the overall market, as reflected by the S&P 500, while seeking superior-long-term results. Overall, our stock selection was good in most sectors during 2005, with our holdings in the information technology, industrials, financials and consumer staples sectors performing particularly well. However, our selection in the consumer discretionary sector was far less successful, and we also lagged in the energy, basic materials and health care sectors. Q. What were some of the investments that helped support Portfolio performance? A. During a year in which corporate merger-and-acquisition activity picked up, three holdings that received attractive acquisition proposals were major contributors: IVAX, a generic pharmaceutical company which is in the process of being taken over by Teva, another generic manufacturer, at a premium to its stock valuation; SunGard Data Systems, which provides software and information technology systems to large enterprises, and was acquired by a group of private equity investors; and Scientific-Atlanta, producer of television set-top systems for cable television users, which is being acquired by Cisco Systems. Within the energy sector, investments that helped significantly included: Devon, an exploration and production company; Transocean, a deep-water drilling corporation; and Occidental Petroleum, an integrated refining, marketing and distribution company. Among other stocks that had a positive influence on return were Imation, which produces tapes for communications networks, and Triad Hospitals, which operates hospitals and surgery centers in 15 states; and Xerox, the office equipment company. A Word About Risk: Investments in mid-sized companies may offer the potential for higher returns, but are also subject to greater short-term price fluctuations than larger, more established companies. Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- Q. What were some of the investments that detracted from results? A. Our holdings in the consumer discretionary sector had the greatest detrimental impact on results. The sector in general was affected by both higher energy costs, which squeezed the budgets of some consumers, and by investor concerns that high personal debt loads would lead to a downturn in consumer spending patterns. However, our biggest disappointments also were affected by their own issues. The share price of Interpublic Group, which operates a large group of advertising and marketing agencies, plummeted in the midst of an SEC investigation of its accounting practices and the resignations of the company's chief executive and chief financial officers. Another consumer-related holding that disappointed was Blockbuster. Its movie rental business received a stiff challenge from on-line competitors at the same time that revenues from its core business slowed because of a weak schedule of new films and a change in policy to eliminate late fees. A third disappointment was Foot Locker, the chain of athletic footwear stores. It had disappointing earnings because of intense price competition in the United Kingdom and France. Outside the consumer area, a noteworthy disappointment was Tenet Health Care, a hospital chain whose holdings included several hospitals in Louisiana that were heavily damaged by Hurricane Katrina. Besides reacting to the physical damage to the hospitals and the loss of revenues, investors worried about the impact of investigations into how hospitals treated patients in the days after the onslaught of the hurricane. In addition, the market was disappointed by the chief financial officer's decision to leave for an attractive position at the company where he worked prior to Tenet. Q. What is your investment outlook? A. As we enter the new year, investors continue to be concerned about the two overriding issues that held back stock market returns in 2005: rising short-term interest rates and higher energy prices. However, several factors are positive - including persistent growth in corporate earnings helped by a backdrop of rising Gross Domestic Product (GDP), and low inflation. We are watching for evidence that consumer spending may slacken. Given these issues, we have adopted a conservative approach in investing, judging investment opportunities on a stock-by-stock basis and particularly trying to avoid those companies that are vulnerable to the effects of higher interest rates. We believe the Portfolio is well positioned for the investment environment with positions in quality companies selling at reasonable 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. 5 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05
Shares Value COMMON STOCKS - 97.5% Energy - 6.5% Integrated Oil & Gas - 1.2% 54,709 Occidental Petroleum Corp. $ 4,370,155 ------------ Oil & Gas Drilling - 1.9% 49,417 ENSCO International, Inc. $ 2,191,644 30,185 Nabors Industries, Inc.* 2,286,514 38,054 Transocean Offshore Inc.* 2,651,983 ------------ $ 7,130,141 ------------ Oil & Gas Equipment & Services - 0.6% 62,552 Weatherford International, Inc.* $ 2,264,382 ------------ Oil & Gas Exploration & Production - 2.0% 44,700 Apache Corp. $ 3,062,844 74,583 Devon Energy Corp. 4,664,421 ------------ $ 7,727,265 ------------ Oil & Gas Refining & Marketing - 0.8% 49,004 Tesoro Petroleum Corp. $ 3,016,196 ------------ Total Energy $ 24,508,139 ------------ Materials - 8.5% Aluminum - 0.7% 128,762 Novelis, Inc. $ 2,689,838 ------------ Diversified Chemical - 2.4% 104,959 Ashland, Inc. $ 6,077,126 52,892 PPG Industries, Inc. 3,062,447 ------------ $ 9,139,573 ------------ Diversified Metals & Mining - 0.9% 65,617 Freeport-McMoRan Copper & Gold, Inc. (Class B) $ 3,530,195 ------------ Industrial Gases - 1.9% 121,072 Air Products & Chemicals, Inc. $ 7,166,252 ------------ Metal & Glass Containers - 1.8% 169,126 Ball Corp. $ 6,717,685 ------------ Specialty Chemicals - 0.8% 88,600 International Flavor & Fragrances, Inc. $ 2,968,100 ------------ Total Materials $ 32,211,643 ------------ Capital Goods - 4.7% Building Products - 1.1% 107,688 American Standard Companies, Inc. $ 4,302,136 ------------ Construction & Farm Machinery & Heavy Trucks - 1.6% 90,236 Deere & Co. $ 6,145,974 ------------ Trading Companies & Distributors - 2.0% 104,736 W.W. Grainger, Inc. $ 7,446,730 ------------ Total Capital Goods $ 17,894,840 ------------
Shares Value Commercial Services & Supplies - 4.1% Commercial Printing - 1.1% 117,383 R.R. Donnelly & Sons Company $ 4,015,672 ------------ Diversified Commercial Services - 1.0% 59,311 The Dun & Bradstreet Corp.* $ 3,971,465 ------------ Environmental & Facilities Services - 2.0% 196,163 Republic Services, Inc. $ 7,365,921 ------------ Total Commercial Services & Supplies $ 15,353,058 ------------ Transportation - 0.8% Railroads - 0.8% 39,220 Canadian National Railway Co. $ 3,137,208 ------------ Total Transportation $ 3,137,208 ------------ Consumer Durables & Apparel - 1.6% Apparel, Accessories & Luxury Goods - 0.6% 65,399 Liz Claiborne, Inc. $ 2,342,592 ------------ Photographic Products - 1.0% 153,473 Eastman Kodak Co. $ 3,591,268 ------------ Total Consumer Durables & Apparel $ 5,933,860 ------------ Consumer Services - 2.3% Casinos & Gaming - 1.0% 52,800 Harrah's Entertainment Inc.* $ 3,764,112 ------------ Hotels, Resorts & Cruise Lines - 1.3% 105,169 Royal Caribbean Cruises, Ltd. $ 4,738,915 ------------ Total Consumer Services $ 8,503,027 ------------ Media - 4.3% Advertising - 1.6% 602,480 The Interpublic Group of Companies, Inc.* $ 5,813,932 ------------ Broadcasting & Cable TV - 2.4% 139,602 Clear Channel Communications, Inc. $ 4,390,483 153,915 Entercom Communications Corp.* 4,566,658 ------------ $ 8,957,141 ------------ Movies & Entertainment - 0.3% 17,450 CCE Spinco, Inc.* $ 228,598 55,602 Regal Entertainment Group 1,057,550 ------------ $ 1,286,148 ------------ Total Media $ 16,057,221 ------------ Retailing - 4.8% Apparel Retail - 2.1% 335,943 Foot Locker, Inc. $ 7,924,895 ------------ Department Stores - 1.2% 68,861 Federated Department Stores, Inc. $ 4,567,550 ------------
6 The accompanying notes are an integral part of these financial statements. Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST --------------------------------------------------------------------------------
Shares Value Internet Retail - 1.5% 235,308 Expedia, Inc.* $ 5,637,980 ------------ Total Retailing $ 18,130,425 ------------ Food & Drug Retailing - 4.4% Drug Retail - 0.9% 137,150 CVS Corp. $ 3,623,503 ------------ Food Retail - 1.9% 301,888 Safeway, Inc. $ 7,142,670 ------------ Hypermarkets & Supercenters - 1.6% 203,373 BJ'S Wholesale Club, Inc.* $ 6,011,706 ------------ Total Food & Drug Retailing $ 16,777,879 ------------ Food, Beverage & Tobacco - 3.5% Brewers - 1.4% 78,521 Molson Coors Brewing Co. (Class B) $ 5,260,122 ------------ Packaged Foods & Meats - 0.9% 99,025 H.J. Heinz Co., Inc. $ 3,339,123 ------------ Tobacco - 1.2% 108,700 UST, Inc.* $ 4,438,221 ------------ Total Food, Beverage & Tobacco $ 13,037,466 ------------ Health Care Equipment & Services - 7.7% Health Care Distributors - 0.5% 39,279 McKesson Corp. $ 2,026,404 ------------ Health Care Equipment - 1.4% 223,800 Boston Scientific Corp.* $ 5,480,862 ------------ Health Care Facilities - 1.8% 511,379 Tenet Healthcare Corp.* $ 3,917,163 69,324 Triad Hospitals, Inc.* 2,719,581 ------------ $ 6,636,744 ------------ Health Care Services - 2.6% 99,752 Laboratory Corp. of America Holdings* $ 5,371,645 174,900 IMS Health, Inc. 4,358,508 ------------ $ 9,730,153 ------------ Managed Health Care - 1.4% 46,104 CIGNA Corp. $ 5,149,817 ------------ Total Health Care Equipment & Services $ 29,023,980 ------------ Pharmaceuticals & Biotechnology - 2.2% Pharmaceuticals - 2.2% 254,423 Perrigo Co. $ 3,793,447 118,356 Shire Pharmaceuticals Group Plc (A.D.R.) 4,591,029 ------------ $ 8,384,476 ------------ Total Pharmaceuticals & Biotechnology $ 8,384,476 ------------
Shares Value Banks - 7.5% Regional Banks - 5.0% 55,456 City National Corp. $ 4,017,233 138,015 Key Corp. 4,544,834 79,900 Marshall & Ilsley Corp. 3,438,896 124,594 North Fork Bancorporation, Inc. 3,408,892 45,365 Zions Bancorporation 3,427,779 ------------ $ 18,837,634 ------------ Thrifts & Mortgage Finance - 2.5% 203,001 Hudson City Bancorp, Inc. $ 2,460,372 170,089 The PMI Group, Inc. 6,985,555 ------------ $ 9,445,927 ------------ Total Banks $ 28,283,561 ------------ Diversified Financials - 6.4% Asset Management & Custody Banks - 3.9% 204,104 Federated Investors, Inc.* $ 7,560,012 205,849 Mellon Bank Corp. 7,050,328 ------------ $ 14,610,340 ------------ Investment Banking & Brokerage - 2.5% 72,884 A.G. Edwards, Inc. $ 3,415,344 51,391 Bear Stearns Companies Inc. 5,937,202 ------------ $ 9,352,546 ------------ Total Diversified Financials $ 23,962,886 ------------ Insurance - 9.2% Insurance Brokers - 2.4% 138,300 Marsh & McLennan Co., Inc. $ 4,392,408 122,846 Willis Group Holdings, Ltd. 4,537,931 ------------ $ 8,930,339 ------------ Life & Health Insurance - 1.6% 263,381 UNUM Corp. $ 5,991,918 ------------ Multi-Line Insurance - 2.1% 108,160 Assurant, Inc. $ 4,703,878 92,400 Genworth Financial, Inc. 3,195,192 ------------ $ 7,899,070 ------------ Property & Casualty Insurance - 2.1% 79,183 Safeco Corp. $ 4,473,840 6,598 White Mountains Insurance Group, Ltd. 3,685,313 ------------ $ 8,159,153 ------------ Reinsurance - 1.0% 121,292 Platinum Underwriter Holdings Corp. $ 3,768,542 ------------ Total Insurance $ 34,749,022 ------------ Software & Services - 1.5% Data Processing & Outsourced Services - 1.5% 401,162 The BISYS Group, Inc.* $ 5,620,280 ------------ Total Software & Services $ 5,620,280 ------------
The accompanying notes are an integral part of these financial statements. 7 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value Technology Hardware & Equipment - 8.6% Communications Equipment - 2.0% 79,159 Scientific-Atlanta, Inc. $ 3,409,378 370,949 Tellabs, Inc.* 4,043,344 ------------ $ 7,452,722 ------------ Computer Hardware - 1.4% 154,000 NCR Corp.* $ 5,226,760 ------------ Computer Storage & Peripherals - 1.3% 105,471 Imation Corp. $ 4,859,049 ------------ Electronic Equipment & Instruments - 2.1% 612,970 Symbol Technologies, Inc. $ 7,858,275 ------------ Office Electronics - 1.8% 470,879 Xerox Corp.* $ 6,898,377 ------------ Total Technology Hardware & Equipment $ 32,295,183 ------------ Telecommunication Services - 1.3% Integrated Telecommunication Services - 1.3% 877,113 Cincinnati Bell, Inc.* $ 3,078,667 59,046 Century Telephone Enterprises, Inc. 1,957,965 ------------ $ 5,036,632 ------------ Total Telecommunication Services $ 5,036,632 ------------ Utilities - 7.6% Electric Utilities - 2.3% 98,300 Allegheny Energy, Inc.* $ 3,111,195 121,871 Edison Intl. 5,314,794 3,240 Entergy Corp. 222,426 ------------ $ 8,648,415 ------------ Independent Power Producer & Energy Traders - 2.8% 95,237 Constellation Energy Group $ 5,485,651 103,656 NRG Energy, Inc.* 4,884,271 ------------ $ 10,369,922 ------------ Multi-Utilities - 2.5% 144,474 NSTAR $ 4,146,404 146,361 PG&E Corp. 5,432,920 ------------ $ 9,579,324 ------------ Total Utilities $ 28,597,661 ------------ TOTAL COMMON STOCKS (Cost $321,641,094) $367,498,447 ------------
Principal Amount Value TEMPORARY CASH INVESTMENT - 1.9% Repurchase Agreement - 1.9% $ 7,000,000 UBS Warburg, Inc., 3.25% dated 12/31/05, repurchase price of $7,000,000 plus accrued interest on 1/3/06 collateralized by $7,297,000 U.S. Treasury Bill, 4.2%, 6/29/06 $ 7,000,000 ------------ TOTAL TEMPORARY CASH INVESTMENT (Cost $7,000,000) $ 7,000,000 ------------ TOTAL INVESTMENT IN SECURITIES - 99.4% (Cost $328,641,094) $374,498,447 ------------ OTHER ASSETS AND LIABILITIES - 0.6% $ 2,555,530 ------------ TOTAL NET ASSETS - 100.0% $377,053,977 ============
* Non-income producing security (A.D.R.) American Depositary Receipt 8 The accompanying notes are an integral part of these financial statements. Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Year Year Year Year Ended Ended Ended Ended Ended Class II 12/30/05 12/31/04 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 24.44 $ 20.32 $ 14.86 $ 17.28 $ 17.75 ------- ------- ------- -------- ------- Increase (decrease) from investment operations: Net investment income $ 0.35 $ 0.01 $ 0.06 $ 0.04 $ 0.14 Net realized and unrealized gain (loss) on investments 1.47 4.38 5.44 (1.96) 0.94 ------- ------- ------- -------- ------- Net increase (decrease) from investment operations $ 1.82 $ 4.39 $ 5.50 $ (1.92) $ 1.08 Distributions to shareholders: Net investment income (0.05) (0.06) (0.04) (0.04) (0.08) Net realized gain (1.49) (0.21) - (0.46) (1.47) ------- -------- -------- -------- ------- Net increase (decrease) in net asset value $ 0.28 $ 4.12 $ 5.46 $ (2.42) $ (0.47) ------- -------- -------- -------- -------- Net asset value, end of period $ 24.72 $ 24.44 $ 20.32 $ 14.86 $ 17.28 ======= ======= ======== ======== ======== Total return* 7.64% 21.77% 37.09% (11.38)% 6.22% Ratio of net expenses to average net assets+ 0.95% 0.97% 1.00% 1.07% 1.11% Ratio of net investment income to average net assets+ 0.25% 0.29% 0.60% 0.24% 0.10% Portfolio turnover rate 42% 55% 52% 68% 95% Net assets, end of period (in thousands) $88,217 $536,837 $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 0.95% 0.97% 1.00% 1.07% 1.11% Net investment income 0.25% 0.29% 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 0.95% 0.97% 1.00% 1.07% 1.11% Net investment income 0.25% 0.29% 0.60% 0.24% 0.10%
* 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. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. The accompanying notes are an integral part of these financial statements. 9 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (Cost $328,641,094) $ 374,498,447 Cash 2,963,747 Receivables -- Investment securities sold 542,016 Fund shares sold 175,302 Dividends, interest and foreign taxes withheld 404,805 Other 5,510 ------------- Total assets $ 378,589,827 ------------- LIABILITIES: Payables -- Investment securities purchased $ 807,739 Fund shares repurchased 577,539 Due to affiliates 22,486 Accrued expenses 128,086 ------------- Total liabilities $ 1,535,850 ------------- NET ASSETS: Paid-in capital $ 236,779,575 Undistributed net investment income 2,874,732 Accumulated net realized gain 91,542,317 Net unrealized gain on investments 45,857,353 ------------- Total net assets $ 377,053,977 ------------- NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 288,836,624 Shares outstanding 11,553,502 ------------- Net asset value per share $ 25.00 Class II: (No par value, unlimited number of shares authorized) Net assets $ 88,217,353 Shares outstanding 3,569,045 ------------- Net asset value per share $ 24.72
10 The accompanying notes are an integral part of these financial statements. Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
Year Ended 12/31/05 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $19,183) $ 8,645,128 Interest 431,672 Income on securities loaned, net 88,225 ------------- Total investment income $ 9,165,025 ------------- EXPENSES: Management fees $ 4,812,824 Transfer agent fees and expenses 7,468 Distribution fees (Class II) 1,087,653 Administrative reimbursements 148,904 Custodian fees 54,824 Professional fees 65,495 Printing expense 92,301 Fees and expenses of nonaffiliated trustees 14,074 Miscellaneous 19,212 ------------- Total expenses $ 6,302,755 Less fees paid indirectly (14,320) ------------- Net expenses $ 6,288,435 ------------- Net investment income $ 2,876,590 ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain from: Investments $ 97,033,276 Redemptions in kind 49,200,447 ------------- 146,233,723 ------------- Change in net unrealized loss from investments $ (98,298,212) ------------- Net gain on investments, futures contracts and foreign currency transactions $ 47,935,511 ------------- Net increase in net assets resulting from operations $ 50,812,101 =============
The accompanying notes are an integral part of these financial statements. 11 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/05 12/31/04 FROM OPERATIONS: Net investment income $ 2,876,590 $ 2,164,987 Net realized gain on investments and redemptions in kind 146,233,723 53,898,712 Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions (98,298,212) 70,310,429 -------------- ------------- Net increase in net assets resulting from operations $ 50,812,101 $ 126,374,128 -------------- ------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (980,182) $ (711,725) Class II (1,186,576) (1,067,643) Net realized gain Class I (18,901,870) (1,863,831) Class II (33,992,323) (3,740,321) -------------- ------------- Total distributions to shareowners $ (55,060,951) $ (7,383,520) -------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 138,080,446 $ 331,791,818 Class I shares issued in reorganization -- 49,670,328 Reinvestment of distributions 55,060,951 7,383,520 Cost of shares repurchased (163,603,573) (49,217,509) Redemptions in kind (488,210,933) -------------- ------------- Net increase (decrease) in net assets resulting from Fund share transactions $ (458,673,109) $ 339,628,157 -------------- ------------- Net increase (decrease) in net assets $ (462,921,959) $ 458,618,765 -------------- ------------- NET ASSETS: Beginning of year $ 839,975,936 $ 381,357,171 -------------- ------------- End of year $ 377,053,977 $ 839,975,936 ============== ============= Undistributed net investment income, end of year $ 2,874,732 $ 2,164,900 ============== =============
12 The accompanying notes are an integral part of these financial statements. Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 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), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty-nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts or 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 I shares are presented in a separate book. The Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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. Information concerning the Portfolio's principal investment risks is contained in the Portfolio's prospectus(es). Please refer to those documents when considering the Portfolio's risks. Investing in mid-sized companies may offer the potential for higher returns, but are also subject to greater short-term price fluctuations than larger, more established companies. The following is a summary of significant accounting policies consistently followed by the Portfolio, in the preparation of its financial statements which are consistent 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 (NYSE) 13 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- is open, as of the close of regular trading on the NYSE. 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. The Portfolio also may use the fair value of a security, including a non-U.S. security, when the closing market price on the primary exchange where the security is traded no longer accurately reflects the value of the security as of the close of the NYSE. At December 31, 2005, there were no fair valued securities. 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. 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, 2005, 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. dollars 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 Portfolio'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 amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal 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 14 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- 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, 2005, Mid Cap Value Portfolio had a net capital loss carryforward of $3,859,922, of which the following amounts will expire between 2009 and 2010, if not utilized: $1,330,134 in 2009 and $2,529,788 in 2010. At December 31, 2005, the portfolio made reclassifications as described below. These reclassifications have no impact on the net asset values of the portfolio and are designed to present the portfolio's capital accounts on a tax basis.
--------------------------------------------------------------------------------------------------- Undistributed Accumulated Net Investment Net Realized Income (Loss) Gain (Loss) Paid-In Capital --------------------------------------------------------------------------------------------------- Pioneer Mid Cap Value VCT Portfolio $-- $(47,572,810) $47,572,810 ---------------------------------------------------------------------------------------------------
The following chart shows the distributions paid during the years ended December 31, 2005 and December 31, 2004 and the components of distributable earnings (accumulated losses) as of December 31, 2005 on a tax basis.
--------------------------------------------------------------------------------- 2005 2004 --------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 6,510,571 $3,095,474 Long-Term capital gain 48,550,380 4,288,046 ------------ ---------- $ 55,060,951 $7,383,520 Return of Capital -- -- ------------ ---------- Total distributions $ 55,060,951 $7,383,520 ============ ========== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 30,629,491 Capital loss carryforward from merger (3,859,922) Undistributed long-term gain 68,794,908 Unrealized appreciation (depreciation) 44,709,925 ------------ Total $140,274,402 ============ ---------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation is primarily attributable to the tax deferral of losses on wash sales. F. Portfolio Shares The Portfolio records sales and repurchases of its 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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. Distribution fees for Class II shares are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. 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 (excluding transfer agent and distribution fees) 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 the adjusted net assets at the beginning of the day. Distributions paid by a 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. 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 15 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan will be for the account of the Portfolio. 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 Portfolio has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Portfolio invests cash collateral in the Securities Lending Investment Fund which is sponsored by Brown Brothers Harriman & Co., the Portfolio'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, a wholly owned indirect subsidiary of UniCredito Italiano manages the portfolio. Management fees are calculated daily at the 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, 2005, $17,327 was payable to PIM related to management fees, administrative fees and certain other services, and is included in due to affiliates. 3. Transfer Agent 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 $3,949 in transfer agent fees payable to PIMSS at December 31, 2005. 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 to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with the Portfolio's Class II shares. Included in due to affiliates is $1,210 payable to PFD at December 31, 2005. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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 $329,788,522 $52,846,924 $(8,136,999) $44,709,925 ============ =========== ============ =========== ----------------------------------------------------------------------------------------------------
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, 2005, were $552,734,571 and $1,022,270,325, respectively. For the year ended September 23, 2005, the Portfolio had redemptions in kind which resulted in redemptions out of the Portfolio totaling $488,210,933. 16 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
--------------------------------------------------------------------------------------------------------------- Mid Cap Value Portfolio '05 Shares '05 Amount '04 Shares '04 Amount --------------------------------------------------------------------------------------------------------------- CLASS I: Shares sold 2,037,703 $ 50,295,966 3,133,632 $ 68,612,090 Class I shares issued in reorganization -- -- 2,087,866 49,670,328 Reinvestment of distributions 821,233 19,882,052 117,982 2,575,556 Shares repurchased (2,727,151) (66,908,971) (1,365,569) (29,591,496) Redemptions in kind (868,079) (21,000,610) ---------- -------------- ---------- ------------- Net increase (decrease) (736,294) $ (17,731,563) 3,973,911 $ 91,266,478 ---------- -------------- ---------- ------------- CLASS II: Shares sold 3,599,252 $ 87,784,480 12,236,512 $ 263,179,728 Reinvestment of distributions 1,468,235 35,178,899 221,974 4,807,964 Shares repurchased (3,965,242) (96,694,602) (881,455) (19,626,013) Redemptions in kind (19,499,464) (467,210,323) ----------- -------------- ---------- ------------- Net increase (decrease) (18,397,219) $ (440,941,546) 11,577,031 $ 248,361,679 ----------- -------------- ---------- ------------- ---------------------------------------------------------------------------------------------------------------
8. Merger Information On December 8, 2004, beneficial owners of Safeco RST Core Equity Portfolio, Safeco RST Money Market Portfolio and Safeco RST Multi-Cap Core Portfolio, three of the six portfolios that comprised Safeco Resource Series Trust, approved a proposed Agreement and Plan of Reorganization that provided for the mergers listed below. These tax-free reorganizations were accomplished on December 10, 2004 ("Closing Date"), by exchanging all of the Safeco's net assets for Class I shares as indicated below, based on Class I shares' ending net asset value on the Closing Date. The following charts show the details of the reorganizations as of that Closing Date: Pioneer Mid Cap Value VCT Portfolio --------------------------------------------------------------------
------------------------------------------------------------------------------------------------------ Pioneer Mid Cap Value Safeco RST Multi- Pioneer Mid Cap VCT Portfolio Cap Core Portfolio Value VCT Portfolio (Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization) ------------------------------------------------------------------------------------------------------ Net Assets $757,206,652 $49,670,328 $858,922,877 Shares Outstanding 32,072,498 $ 2,399,533 34,160,364 Class I Shares Issued 2,087,866 ------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------- Unrealized Appreciation Realized Gain (Loss) on Closing Date on Closing Date ----------------------------------------------------------------------------------------------- Safeco RST Multi-Cap Core Portfolio $5,550,191 $7,992,587 -----------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION (unaudited) The qualifying percentage of certain Portfolios' ordinary income dividends for the purposes of the corporate dividends received deduction and the percentage of those ordinary dividends that are subject to a maximum tax rate of 15% as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were as follows:
---------------------------------------------------------------------------- Dividend Received Qualified Dividend Deduction Income ---------------------------------------------------------------------------- Mid Cap Value Portfolio 100.00% 88.84% ----------------------------------------------------------------------------
17 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the 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 the Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four 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 audit. The financial highlights for the year ended December 31, 2001 was 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 the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and financial highlights for each of the four years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 18 Pioneer Mid Cap Value VCT Portfolio(the "Fund") PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three, five and ten year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 19 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the first quintile of the peer group for the 12 months ended June 30, 2005, the second quintile of the peer group for the three years ended June 30, 2005, the first quintile for the five years ended June 30, 2005 and the first quintile for the ten year period ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees concluded that the consistent out performance of the Fund supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the second quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the first quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. The Trustees concluded that the Fund's overall expense ratio was lower than that of comparable funds. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. In light of the fact that the management fee would remain under the 20 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- median for the peer group at reasonably anticipated asset levels, the Trustees concluded that break points in the management fee were not necessary at this time. The Trustees will continue to evaluate annually the appropriateness of break points. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 21 Pioneer Mid Cap Value VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. -----------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Mid Cap Value VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance or earlier services company) (2001-present); company); Director of New York retirement or Managing Partner, Federal City Mortgage Trust (publicly traded removal. Capital Advisors (boutique merchant mortgage REIT) bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ---------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products or earlier manufacturer), Mortgage Guaranty retirement or Insurance Corporation, and Briggs removal. & Stratton, Inc. (engine manufacturer) ---------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------
23 Pioneer Mid Cap Value VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
24 Pioneer Mid Cap Value VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, None Treasurer 2000. Serves at the Assistant Vice President - Fund discretion of the Accounting, Administration and Board. Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds. --------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. --------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. --------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 25 [LOGO]PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18664-00-0206 [Logo] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Table of Contents -------------------------------------------------------------------------------- Pioneer Oak Ridge Large Cap Growth VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 6 Financial Statements 8 Notes to Financial Statements 12 Report of Independent Registered Public Accounting Firm 16 Factor Considered by the Independent Trustees in Approving the Management Contract 17 Trustees, Officers and Service Providers 20
Before investing, consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Please read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Portfolio Diversification (As a percentage of total investment portfolio) U.S. Common Stocks 86.3% Depositary Receipts for International Stocks 8.9% Temporary Cash Investment 4.8%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution (As a percentage of equity holdings) Health Care 28.2% Information Technology 20.5% Industrials 15.0% Financials 12.3% Consumer Discretionary 11.4% Consumer Staples 6.9% Energy 5.7%
Five Largest Holdings (As a percentage of equity holdings) 1. General Electric Co. 3.74% 2. Marvell Technology Group, Ltd. 3.70 3. XTO Energy, Inc. 3.69 4. Genentech, Inc. 3.26 5. Teva Pharmaceutical Industries, Ltd. 3.16
The Portfolio is actively managed and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $11.98 $11.09
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $0.0156 $ - $ -
-------------------------------------------------------------------------------- Performance of a $10,000 Investment The following chart shows the change in value of an investment made in Pioneer Oak Ridge Large Cap Growth 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. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Russell 1000 Growth Index Pioneer Oak Ridge Large Cap Growth VCT Portfolio Mar-04 10000 10000 Dec-04 10547 10851 Dec-05 11102 11739
The Russell 1000 Growth Index measures the performance of large-cap U.S. growth stocks. 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- Life-of-Class 10.66% (3/15/04) 1 Year 8.18%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers fund performance would be lower. Waivers may not be in effect for all funds. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value [divided by] $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Oak Ridge Large Cap Growth VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005
Share Class II -------------------------------------------------- Beginning Account Value on 7/1/05 $1,000.00 Ending Account Value on 12/31/05 $1,091.07 Expenses Paid During Period* $ 5.01
* Expenses are equal to the Portfolio's annualized expense ratio of 0.95% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Oak Ridge Large Cap Growth VCT Portfolio Based on a hypothetical 5% per year return before expenses, reflecting the period from July 1, 2005 through December 31, 2005
Share Class II -------------------------------------------------- Beginning Account Value on 7/1/05 $1,000.00 Ending Account Value on 12/31/05 $1,020.42 Expenses Paid During Period* $ 4.84
* Expenses are equal to the Portfolio's annualized expense ratio of 0.95% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- In the following interview, David Klaskin, Pioneer Oak Ridge Large Cap Growth VCT Portfolio's Lead Manager, discusses the factors that influenced performance during the twelve months ended December 31, 2005. The Portfolio is sub-advised by Oak Ridge Investments. Q: How did the market and the Portfolio perform during the annual reporting period? A: In an investment environment that was characterized by many potential obstacles to market performance -- such as rising interest rates, a spike in energy prices, and September's Gulf Coast hurricanes -- the U.S. market produced solid returns on the strength of steady economic growth and impressive corporate earnings results. Although large-cap growth stocks underperformed relative to the broader market, we continued to find a wealth of compelling investment opportunities within the asset class. With this as a backdrop, we are pleased to report that the Portfolio outperformed its benchmark for the period. Class II shares of the Portfolio produced a total return of 8.18% at net asset value for the annual period, outpacing the 5.26% return of the Russell 1000 Growth Index. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. While past performance is no guarantee of future results, we believe the Portfolio's track record since its inception illustrates the effectiveness of our investment approach. As growth managers, we naturally look for companies with earnings growth that is both accelerating and sustainable. However, the stocks we purchase must also be reasonably valued, since even fast-growing stocks can be unattractive investments if they are purchased at too rich a price. We believe this approach, known as "growth at a reasonable price," is very effective at identifying stocks with the ability to perform well over a three- to five-year time period. Q: Energy stocks performed very well during the past year. How did your positioning in this sector affect performance? A: Energy was the best-performing sector of the market during the past twelve months, as the rising prices of oil and gas boosted profits for companies in the industry. The Portfolio held an overweight position -- a weighting greater than that of the benchmark -- in energy for most of the year, and this was very helpful to performance. In addition, our stock selection in the sector was particularly strong. We avoided the largest energy stocks, whose prices tend to be most closely correlated with the performance of the underlying commodities. Instead, we owned two smaller, faster-growing exploration companies -- XTO Energy and Apache -- both of which outperformed the overall sector by a wide margin. We are maintaining the Portfolio's positions in these stocks based on what we see as the favorable supply and demand picture for the industry as a whole. At the same time, as China's rapid economic expansion continues to fuel rising demand for oil and gas, supply remains constrained due to the lack of refining capacity that has been brought on line in recent years. We remain confident that both companies can continue to execute well in this environment. Q: How did the Portfolio's positioning in health care affect performance? A: We added to performance through our stock selection in the sector. We generally avoided large-cap pharmaceutical stocks -- which underperformed due to concerns about safety issues and looming patent expirations -- and we instead concentrated on areas of health care with stronger growth and better underlying fundamentals. Stocks that performed well included Genentech, a biotechnology stock that soared as sales of its cancer drug Avastin came in well above the market's expectations; Teva Pharmaceuticals, a maker of generic drugs that we believe will benefit as several drugs come off patent in the year ahead; Alcon, which we believe is positioned to take advantage of the aging global population through its full line of eye care solutions; and Caremark Rx, which benefited from the rising demand for its services as a "middleman" between drug companies and health care plans that are looking to cut costs. We remain optimistic on the outlook for the health care sector in general, and for the Portfolio's holdings in particular. However, we slightly reduced exposure to this area based on our belief that the sector -- which historically has been sensitive to political developments -- may be affected by uncertainty related to the autumn 2006 Congressional elections. Q: How did your holdings in technology perform? A: Large-cap technology stocks, as a group, were not particularly strong during the past year, but here too we added value through security selection. We emphasized companies with a strong foothold in their specific markets, rather than those whose products tend to be more commoditized. This approach led us to invest in Marvell Technology Group, which makes the chips used in Apple's popular iPod; and Texas Instruments, whose chips are used primarily in telecommunications and consumer electronics products rather than the slower-growth personal computer area. Both stocks performed well, making up for the flat returns of the Portfolio's holdings in Oracle and Microsoft. A Word About Risk: The Portfolio invests in a limited number of securities and, as a result, the Portfolio's performance may be more volatile than the performance of other portfolios holding more securities. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Q: What elements of your positioning detracted from performance? A: Our stock selection in the consumer sector was mixed. Many of the Portfolio's top-performing stocks of 2004, such as Best Buy, Wal-Mart, and International Game Technology (all of which have been sold from the Portfolio), underperformed during 2005. Additionally, eBay -- which soared in 2004 -- missed estimates for its fourth quarter earnings (released in January), and the stock lost almost a third of its value in five weeks. The stock is no longer held in the portfolio. Fortunately, we made up for the loss in eBay by buying shares in Google, which doubled from our initial purchase price in the $200 range. Q: What is your outlook for the stock market? A: At Oak Ridge Investments, we believe the investment landscape may become more challenging in 2006. The Fed is likely to end its long series of interest rate increases, but the lagged effect of the hikes that have already been enacted could act as a drag on economic growth. The end of the mortgage financing boom also could slow the economy by causing consumers to pare back on their spending. However, we believe large-cap growth stocks, as a group, can withstand a more difficult environment. The asset class as a whole is trading at very reasonable valuation levels, with many stocks sporting price-to-earnings ratios in the mid-teens. At these levels, we believe stocks with better growth characteristics than the overall market will be well-positioned to outperform. With this as a backdrop, we believe our emphasis on growth stocks with reasonable valuations has the potential to enable the Portfolio to continue delivering strong performance relative to the broader market. 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. 5 PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 95.6% Energy - 5.5% Oil & Gas Exploration & Production - 5.5% 7,385 Apache Corp. $ 506,020 20,815 XTO Energy, Inc. 914,611 ----------- $ 1,420,631 ----------- Total Energy $ 1,420,631 ----------- Capital Goods - 11.4% Aerospace & Defense - 2.0% 6,895 L-3 Communications Holdings, Inc. $ 512,643 ----------- Electrical Component & Equipment - 2.1% 9,290 Rockwell International Corp. $ 549,596 ----------- Industrial Conglomerates - 3.6% 26,440 General Electric Co. $ 926,722 ----------- Industrial Machinery - 3.7% 8,430 Danaher Corp. (a) $ 470,225 12,435 Ingersoll-Rand Co. 502,001 ----------- $ 972,226 ----------- Total Capital Goods $ 2,961,187 ----------- Transportation - 2.9% Air Freight & Couriers - 2.9% 7,385 FedEx Corp. $ 763,535 ----------- Total Transportation $ 763,535 ----------- Consumer Durables & Apparel - 2.1% Apparel, Accessories & Luxury Goods - 2.1% 15,965 Coach, Inc.* $ 532,273 ----------- Total Consumer Durables & Apparel $ 532,273 ----------- Consumer Services - 1.9% Hotels, Resorts & Cruise Lines - 1.9% 9,345 Carnival Corp. $ 499,677 ----------- Total Consumer Services $ 499,677 ----------- Retailing - 6.9% General Merchandise Stores - 1.9% 9,085 Target Corp. $ 499,402 ----------- Home Improvement Retail - 2.2% 8,550 Lowe's Companies, Inc. $ 569,943 ----------- Specialty Stores - 2.8% 31,647 Staples, Inc. $ 718,703 ----------- Total Retailing $ 1,788,048 ----------- Food & Drug Retailing - 2.0% Drug Retail - 2.0% 11,560 Walgreen Co. $ 511,646 ----------- Total Food & Drug Retailing $ 511,646 ----------- Food, Beverage & Tobacco - 2.1% Soft Drinks - 2.1% 9,405 PepsiCo, Inc. $ 555,647 ----------- Total Food, Beverage & Tobacco $ 555,647 ----------- Shares Value Household & Personal Products - 2.5% Household Products - 2.5% 11,140 Procter & Gamble Co. $ 644,783 ----------- Total Household & Personal Products $ 644,783 ----------- Health Care Equipment & Services - 16.3% Health Care Equipment - 8.3% 9,190 Medtronic, Inc. $ 529,068 10,725 St. Jude Medical, Inc.* 538,395 12,620 Varian Medical Systems, Inc.* 635,291 6,580 Zimmer Holdings, Inc.* 443,755 ----------- $ 2,146,509 ----------- Health Care Services - 2.9% 14,505 Caremark Rx, Inc.* $ 751,214 ----------- Health Care Supplies - 2.4% 4,720 Alcon, Inc. $ 611,712 ----------- Managed Health Care - 2.7% 11,185 United Healthcare Group, Inc. $ 695,036 ----------- Total Health Care Equipment & Services $ 4,204,471 ----------- Pharmaceuticals & Biotechnology - 10.7% Biotechnology - 5.5% 7,945 Amgen, Inc.* $ 626,543 8,730 Genentech, Inc.* 807,525 ----------- $ 1,434,068 ----------- Pharmaceuticals - 5.2% 9,250 Johnson & Johnson $ 555,925 18,205 Teva Pharmaceutical Industries, Ltd. (a) 782,997 ----------- $ 1,338,922 ----------- Total Pharmaceuticals & Biotechnology $ 2,772,990 ----------- Banks - 2.2% Diversified Banks - 2.2% 19,055 U.S. Bancorp $ 569,554 ----------- Total Banks $ 569,554 ----------- Diversified Financials - 7.5% Asset Management & Custody Banks - 2.2% 626 Ameriprise Financial, Inc. $ 25,666 4,570 Legg Mason, Inc. 546,984 ----------- $ 572,650 ----------- Consumer Finance - 3.8% 9,085 American Express Co. $ 467,514 9,505 SLM Corp. 523,630 ----------- $ 991,144 ----------- Diversified Financial Services - 1.5% 7,805 Citigroup, Inc. $ 378,777 ----------- Total Diversified Financials $ 1,942,571 -----------
6 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Insurance - 2.0% Life & Health Insurance - 2.0% 11,270 Aflac, Inc. $ 523,153 ----------- Total Insurance $ 523,153 ----------- Software & Services - 8.9% Internet Software & Services - 2.5% 1,554 Google, Inc.*(a) $ 644,693 ----------- IT Consulting & Other Services - 2.1% 10,910 Cognizant Tech Solutions Corp.* $ 549,319 ----------- Systems Software - 4.3% 24,250 Microsoft Corp. $ 634,138 38,620 Oracle Corp.* 471,550 ----------- $ 1,105,688 ----------- Total Software & Services $ 2,299,700 ----------- Technology Hardware & Equipment - 5.0% Communications Equipment - 5.0% 19,410 Comverse Technology, Inc.* $ 516,113 17,880 Qualcomm, Inc. 770,270 ----------- $ 1,286,383 ----------- Total Technology Hardware & Equipment $ 1,286,383 ----------- Semiconductors - 5.7% Semiconductors - 5.7% 16,310 Marvell Technology Group, Ltd.* $ 914,828 17,625 Texas Instruments, Inc. 565,234 ----------- $ 1,480,062 ----------- Total Semiconductors $ 1,480,062 ----------- TOTAL COMMON STOCKS (Cost $22,114,524) $24,756,311 ----------- Shares Value TEMPORARY CASH INVESTMENT - 4.8% Security Lending Collateral - 4.8% 1,240,610 Securities Lending Investment Fund - 4.24% $ 1,240,610 ----------- TOTAL TEMPORARY CASH INVESTMENT (Cost $1,240,610) $ 1,240,610 ----------- TOTAL INVESTMENT IN SECURITIES - 100.4% (Cost $23,355,133) (a) $25,996,921 ----------- OTHER ASSETS AND LIABILITIES - (0.4)% $ (88,913) ----------- TOTAL NET ASSETS - 100.0% $25,908,008 ===========
* Non-income producing security (a) At December 31, 2005, the following securities were out on loan:
Shares Security Value 6,369 Danaher Corp. $ 355,263 1,448 Google, Inc. 600,717 5,676 Teva Pharmaceutical Industries, Ltd. 244,125 ---------- Total $1,200,105 ==========
The accompanying notes are an integral part of these financial statements. 7 PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended 3/15/04(a) Class II 12/31/05 to 12/31/04 Net asset value, beginning of period $ 11.09 $10.00 ------- ------ Increase (decrease) from investment operations: Net investment income (loss) $ (0.01) $ 0.03 Net realized and unrealized gain on investments 0.92 1.06 ------- ------ Net increase from investment operations $ 0.91 $ 1.09 Distributions to shareowners: Net investment income (0.02) - ------- ------ Net increase in net asset value $ 0.89 $ 1.09 ------- ------ Net asset value, end of period $ 11.98 $11.09 ======= ====== Total return* 8.18% 10.90%(b) Ratio of net expenses to average net assets 0.95% 0.95%** Ratio of net investment income to average net assets 0.08% 0.79%** Portfolio turnover rate 131% 21% Net assets, end of period (in thousands) $25,908 $4,397 Ratios with no waiver of management fees and assumption of expenses by PIM: Net expenses 1.93% 6.22%** Net investment loss (0.90)% (4.48)%**
(a) The Portfolio commenced operations on March 15, 2004. (b) Not annualized. * Assumes initial investment at net asset value at the beginning of each period, reinvestment of all distributions, the complete redemption of the investment at net asset value at the end of each period. ** Annualized. NOTE: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. 8 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $1,200,105) (cost $23,355,133) $25,996,921 Cash 1,359,219 Receivables -- Fund shares sold 25,050 Dividends, interest and foreign taxes withheld 19,792 Other 4 ----------- Total assets $27,400,986 ----------- LIABILITIES: Payables -- Investment securities purchased $ 198,426 Fund shares repurchased 1,823 Upon return of securities loaned 1,240,610 Due to affiliates 1,121 Accrued expenses 50,998 ----------- Total liabilities $ 1,492,978 ----------- NET ASSETS: Paid-in capital $23,284,922 Undistributed net investment income 7,828 Accumulated net realized gain on investments (26,530) Net unrealized gain on: Investments 2,641,788 ----------- Total net assets $25,908,008 ----------- NET ASSET VALUE PER SHARE: Class II: (No par value, unlimited number of shares authorized) Net assets $25,908,008 Shares outstanding 2,162,284 ----------- Net asset value per share $ 11.98
The accompanying notes are an integral part of these financial statements. 9 PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
Year Ended 12/31/05 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $812) $ 81,564 Interest 21,458 Income on securities loaned, net 151 ---------- Total investment income $ 103,173 ---------- EXPENSES: Management fees $ 75,262 Transfer agent fees and expenses 1,793 Distribution fees 25,087 Administrative reimbursements 18,512 Custodian fees 33,063 Professional fees 25,345 Printing expense 9,320 Fees and expenses of nonaffiliated trustees 3,572 Miscellaneous 1,965 ---------- Total expenses $ 193,919 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (98,609) ---------- Net expenses $ 95,310 ---------- Net investment income $ 7,863 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain from: Investments $ 432,428 ---------- Change in net unrealized gain from: Investments $ 703,415 ---------- Net gain on investments $1,135,843 ---------- Net increase in net assets resulting from operations $1,143,706 ==========
10 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
For the period from 3/15/04 (Commencement Year Ended of Operations) 12/31/05 to 12/31/04 FROM OPERATIONS: Net investment income $ 7,863 $ 10,490 Net realized gain (loss) on investments 432,428 (49,269) Change in net unrealized gain on investments 703,415 347,416 ------------ ---------- Net increase in net assets resulting from operations $ 1,143,706 $ 308,637 ------------ ---------- DISTRIBUTIONS TO SHAREOWNERS Net investment income: Class II $ (10,689) $ -- ------------ ---------- Total distributions to shareholders $ (10,689) $ -- ------------ ---------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 6,123,375 $4,148,102 Shares issued in reorganization 15,272,045 -- Reinvestment of distributions 10,533 -- Cost of shares repurchased (1,027,637) (60,064) ------------ ---------- Net increase in net assets resulting from Fund share transactions $ 20,378,316 $4,088,038 ------------ ---------- Net increase in net assets $ 21,511,333 $4,396,675 NET ASSETS: Beginning of period 4,396,675 -- ------------ ---------- End of period $ 25,908,008 $4,396,675 ============ ========== Undistributed net investment income, end of period $ 7,828 $ 10,654 ============ ==========
The accompanying notes are an integral part of these financial statements. 11 PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Oak Ridge Large Cap Growth VCT Portfolio (the Portfolio) is a Portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts, or by qualified pension and retirement plans. Oak Ridge Large Cap Growth Portfolio seeks capital appreciation. The financial statements and financial highlights of all other Portfolios are presented in separate books. The Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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 Portfolio, in the preparation of its financial statements which are consistent 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 (NYSE) is open, as of the close of regular trading on the NYSE. 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. The Portfolio also may use the fair value of a security, including a non-U.S. security, when the closing market 12 PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- price on the primary exchange where the security is traded no longer accurately reflects the value of the security as of the close of the NYSE. At December 31, 2005, there were no fair valued securities. 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. 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. Information regarding the Portfolio's principal investment risks is contained in the Portfolio's prospectus. Please refer to those documents when considering the Portfolio's risks. B. Taxes It is the Portfolio'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 amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal 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, 2005, Oak Ridge Large Cap Growth Portfolio had a net capital loss carryforward of $376,066, of which the following amounts will expire between 2009 and 2013, if not utilized: $295,876 in 2009, $14,739 in 2010, $10,529 in 2011, $16,924 in 2012 and $37,998 in 2013. The following chart shows the distributions paid during the year ended December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2005. There were no distributions paid during the fiscal year ended December 31, 2004.
------------------------------------------------------------------------------- 2005 ------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 10,689 Long-Term capital gain -- ---------- Total distributions $ 10,689 ========== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 7,828 Undistributed long-term gain/ (capital loss carryforward) 363,286 Capital loss carryforward from AmSouth Capital Growth VIF (376,066) Unrealized appreciation (depreciation) 2,628,038 ---------- Total $2,623,086 ========== -------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation is primarily attributable to the tax deferral of losses on wash sales. C. Portfolio Shares The Portfolio records sales and repurchases of its 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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. Distribution fees for Class II shares are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. 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 payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for the 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 sponsored by Brown Brothers Harriman & Co., the Trust's custodian. 13 PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- 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, a wholly owned indirect subsidiary of UniCredito Italiano manages the portfolio. Management fees are calculated daily at the annual rate of 0.75% of the Portfolio's average daily net assets up to $1 billion and 0.70% on assets over $1 billion. Pioneer, and not the Portfolio, pays a portion of the fee it receives from the Portfolio to Oak Ridge Investments, LLC (Oak Ridge) as compensation for Oak Ridge's subadvisory services to the Portfolio. Prior to the reorganization, Oak Ridge Small Cap Equity Fund was advised by Oak Ridge, which received an annual fee equal to 0.75% of its average daily net assets. On January 7, 2005 Pioneer Investment Management USA Inc. ("PIMUSA") acquired a 49% ownership interest in Oak Ridge from the existing shareholders of Oak Ridge. As part of the acquisition, PIMUSA also obtained the right to purchase from the existing shareholders of Oak Ridge (i) an additional 11% ownership interest in Oak Ridge two years from the date on which the acquisition was consummated, and (ii) the remaining ownership interest twelve years from the date on which the acquisition is consummated. Consequently, the acquisition provides PIMUSA the ability to own 100% of Oak Ridge over time. PIMUSA is the direct parent of PIM. On December 28, 2004, shareholders of the Portfolio approved a new Sub-Advisory Agreement between PIM and Oak Ridge, in anticipation of the acquisition causing the existing agreement to terminate. Through May 1, 2006, PIM has agreed not to impose all or a portion of its management fee and, if necessary, to limit other ordinary operating expenses of the Portfolio to the extent required to reduce Class II expenses to 0.95% of the average daily net assets attributable to Class II shares. 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, 2005, $336 is payable to PIM related to management fees, administrative reimbursements and certain other services, and is included in due to affiliates. 3. Transfer Agent 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 $428 in transfer agent fees payable to PIMSS at December 31, 2005. 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 to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with the Portfolio's Class II shares. Included in due to affiliates is $357 payable to PFD at December 31, 2005. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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) ------------------------------------------------------------------------------------------------------------------ Oak Ridge Large Cap Growth Portfolio $23,368,883 $2,675,465 $(47,427) $2,628,038 =========== ========== ======== ========== ------------------------------------------------------------------------------------------------------------------
14 PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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, 2005, were $16,904,093 and $12,228,549, respectively. 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the fiscal years ended December 31, 2005 and 2004:
----------------------------------------------------------------------------------------------------------- Oak Ridge Large Cap Growth Portfolio '05 Shares '05 Amount '04 Shares '04 Amount ----------------------------------------------------------------------------------------------------------- CLASS II: Shares sold 550,434 $ 6,123,375 402,048 $4,148,102 Shares issued in reorganization 1,303,076 15,272,045 -- -- Reinvestment of distributions 957 10,533 -- -- Shares repurchased (88,477) (1,027,637) (5,754) (60,064) ------------------------------------------------------------ Net increase 1,765,990 $20,378,316 396,294 $4,088,038 ============================================================ -----------------------------------------------------------------------------------------------------------
8. Merger Information On November 4, 2005, beneficial owners of AmSouth VIF Capital Growth Portfolio approved a proposed Agreement and Plan of Reorganization that provided for the merger listed below. This tax-free reorganization was accomplished on November 4, 2005, by exchanging all of the AmSouth's net assets for Class II shares as indicated below, based on Class II share's ending net asset value on the Closing Date. The following charts show the details of the reorganization as of that closing date ("Closing Date"):
------------------------------------------------------------------------------------------------------- Pioneer Oak Ridge Pioneer Oak Ridge Large Cap Growth AmSouth VIF Large Cap Growth VCT Portfolio Capital Growth VCT Portfolio (Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization) ------------------------------------------------------------------------------------------------------- Net Assets $9,574,427 $15,272,045 $24,846,472 Shares Outstanding 816,966 1,726,097 2,120,042 Class II Shares Issued 1,303,076 ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- Unrealized Appreciation Realized Gain/(Loss) on on Closing Date Closing Date ------------------------------------------------------------------------------------------------------- AmSouth VIF Capital Growth $1,590,957 $(409,691) ========== ========= -------------------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION (unaudited) The qualifying percentage of certain Portfolios' ordinary income dividends for the purposes of the corporate dividends received deduction and the percentage of those ordinary dividends that are subject to a maximum tax rate of 15% as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were as follows:
------------------------------------------------------------------------------------------------------- Dividend Qualified Received Dividend Deduction Income ------------------------------------------------------------------------------------------------------- Oak Ridge Large Cap Growth Portfolio 100.00% 100.00% -------------------------------------------------------------------------------------------------------
15 PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and Shareowners of Pioneer Oak Ridge Large Cap Growth VCT Portfolio: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Oak Ridge Large Cap Growth VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust") as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Oak Ridge Large Cap Growth VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets, and financial highlights for each of the periods indicated therein in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 16 PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio (the "Fund") -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") voting separately annually, approve the Fund's management contract (the "Management Contract") between the Fund and Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"). The Investment Adviser has retained Oak Ridge Investment Management, LLC (the "Sub-adviser") to act as sub-adviser to the Fund pursuant to a sub-advisory agreement between the Investment Adviser and the Sub-adviser (the "Sub-advisory Agreement"). The Trustees have determined that the terms of the Management Contract and the Sub-advisory Agreement are fair and reasonable and that renewal of these contracts will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of the Investment Adviser, or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract and Sub-advisory Agreement, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract and Sub-advisory Agreement, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect of the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates, (ix) the disclosures included in the Fund's prospectuses and reports to shareowners and (x) the investment and compliance staff and operations of the Sub-adviser. Specifically, in connection with the Independent Trustees' review of the Management Contract and the Sub-advisory Agreement, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's and Sub-adviser's services and the reasonableness of the fee under the Management Contract and the Sub-advisory Agreement. Among other items, this information included data or analyses of (1) investment performance for the life of the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser and the Sub-adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser and the Sub-adviser, (6) the Investment Adviser's and Sub-Adviser's financial results and condition, including, in the case of the Investment Adviser, its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund; the break points in the Fund's management fee and of a peer group of funds selected by the Independent Trustees for this purpose and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. 17 PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to shareowners of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareowner services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the fourth quintile of the peer group for the twelve months ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareowners. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees also considered the activities of the Investment Adviser in monitoring the investment and compliance operations of the Sub-adviser. The Trustees concluded that the period of investment operations were too short to evaluate performance. C. Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations. Among other things, the Trustees considered the number, education and experience of the Sub-adviser's investment staff. The Trustees concluded that the Investment Adviser and the Sub-adviser have the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract and the Sub-advisory Agreement. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareowners of the Fund, including administrative and shareowner services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and their supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareowners of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the period from inception through June 30, 2005 was in the first quintile (after fee waivers) relative to the management fees paid by the other funds in that peer group for the comparable period and in the third quintile without giving effect to fee waivers. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also evaluated the fee under the Sub-advisory Agreement and the portion of the fee under the Management Contract retained by the Investment Adviser and determined that they were consistent with other sub-advised funds. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the period from inception through June 30, 2005 (after expense limitations) was in second quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. The Trustees concluded that the Fund's overall expense ratio (after expense limitations) was reasonable compared to that of comparable funds. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available 18 PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. Because of break points in the management fee, the Trustees concluded that any perceived or potential economies of scale would be shared at future asset levels, in a reasonable manner as the Fund grows in size, between the Investment Adviser and the Fund's shareowners. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareowner services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect of the Pioneer Funds (including the Fund), and benefits to the Sub-adviser from the use of "soft" commission dollars to pay for research services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's and Sub-adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser and the Sub-adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund and the Sub-advisory Agreement are fair and reasonable and voted to approve the continuation of the Management Contract and the Sub-advisory Agreement for another year. 19 Pioneer Oak Ridge Large Cap Growth VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. -----------------------------------------------------------------------------------------------------------------------------------
20 Pioneer Oak Ridge Large Cap Growth VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance or earlier services company) (2001-present); company); Director of New York retirement or Managing Partner, Federal City Mortgage Trust (publicly traded removal. Capital Advisors (boutique merchant mortgage REIT) bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ---------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products or earlier manufacturer), Mortgage Guaranty retirement or Insurance Corporation, and Briggs removal. & Stratton, Inc. (engine manufacturer) ---------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------
21 Pioneer Oak Ridge Large Cap Growth VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Oak Ridge Large Cap Growth VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, None Treasurer 2000. Serves at the Assistant Vice President - Fund discretion of the Accounting, Administration and Board. Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds. --------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. --------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. --------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 23 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 24 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 25 [Logo] PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18675-00-0206 [LOGO]PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Real Estate Shares VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- T a b l e o f C o n t e n t s -------------------------------------------------------------------------------- Pioneer Real Estate Shares VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 5 Financial Statements 6 Notes to Financial Statements 10 Report of Independent Registered Public Accounting Firm 15 Factors Considered by the Independent Trustees in Approving the Management Contract 16 Trustees, Officers and Service Providers 19
Before investing consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio)
U.S. Common Stocks 84.9% Temporary Cash Investment 15.1%S
Sector Distribution (As a percentage of equity holdings)
Office 19.6% Apartment 18.5% Industrial 14.6% Regional Mall 13.8% Shopping Center 12.7% Hotel 10.2% Self Storage 4.4% Diversified 4.2% Triple-Net Lease 1.2% Manufactured Homes 0.4% Health Care 0.4%
Five Largest Holdings (As a percentage of equity holdings) 1. Simon Property Group, Inc. 7.09% 2. ProLogis Trust 6.04 3. Boston Properties, Inc. 5.51 4. AvalonBay Communities, Inc. 4.99 5. Equity Residential Property Trust 4.26
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 26.09 $ 24.26
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.3290 $ 0.0513 $ 1.2587
-------------------------------------------------------------------------------- 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.
Wilshire Real Estate Pioneer Real Estate Securities Index Shares VCT Portfolio 12/95 10000 10000 13687 13431 12/97 16397 16206 13540 13070 12/99 13108 12386 17137 16194 12/01 18928 17412 19417 17808 12/03 26615 23943 35879 32417 12/05 40924 37233
The Wilshire Real Estate Securities 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, 2005)
Net Asset Value 10 Years 14.05% 5 Years 18.12% 1 Year 14.86%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value - $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Real Estate Shares VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II ------------------------------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,076.58 Expenses Paid During Period* $ 6.18
* Expenses are equal to the Portfolio's annualized expense ratio of 1.18% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Real Estate Shares VCT Portfolio Based on a hypothetical 5% return per year return before expenses, reflecting the period from July 1, 2005 through December 31, 2005.
Share Class II ------------------------------------------------------------------------ Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,019.26 Expenses Paid During Period* $ 6.01
* Expenses are equal to the Portfolio's annualized expense ratio of 1.18% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- Real estate stocks produced strong returns for 2005 - outperforming the broader stock market for the sixth year in a row. While this achievement is gratifying, the real estate market also experienced above-average volatility and variability across the different property types comprising this asset class. As Matthew Troxell of AEW Capital Management, L.P., the Portfolio's Sub-advisor, explains in the following interview, maintaining competitive relative performance in 2006 will depend on astute stock picking. Q. How did Pioneer Real Estate Shares VCT Portfolio perform during fiscal 2005? A. Class II shares posted a total return of 14.86% at net asset value for the 12 months ended December 31, 2005. The performance surpassed the 14.06% return for the Wilshire Real Estate Securities Index. We attribute the outperformance to successful stock selection, particularly the Portfolio's investments in AvalonBay Communities in the apartment sector and Simon DeBartolo Group in the regional mall sector. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. What contributed to the increased volatility in the real estate sector? A. We think the volatility was due in large part to the mixed signals by investors. On one hand, we saw institutions and private investors willing to pay more for real estate investments - suggesting that they perceived the assets to be undervalued. On the other hand, public investors were not big buyers of the assets because they thought they were overvalued and too expensive. Despite the seesaw effect of the two opposing views, many investors believe that the fundamentals of these property types - with the possible exception of the office sector - are improving and the underlying assets are underpriced. Hence the 14% return for the benchmark. Q. Could you comment on the underlying fundamentals of the various property types that the Portfolio is invested in? A. Certainly. The regional mall real estate investment trusts (REITs) were a strong contributor to performance for the fiscal year given their relative outperformance and considerable weighting in the Portfolio. Healthy consumer spending supported strong operating results at the property level. The Portfolio holds mall REITs with high-quality tenants that represent some of the most recognized and financially solid retailers. The fundamentals are rapidly improving in the multi-family sector, which contributed favorably to your Portfolio's results. The impact of these holdings was magnified by the fact that the Portfolio holds a greater weighting in the sector than the benchmark. The apartment sector has remained resilient due to strong economic growth and the resulting improvement in employment. Should interest rates continue to rise, pinching potential homeowners out of buying condominiums, presumably more people would be willing to rent - boosting demand for apartments. Perhaps the most surprising performance came from the lodging sector, which we think experienced the best improvement in fundamentals of any property type during 2005. Hotels saw strong room rate growth and occupancy growth - two measures of profitability. However, despite the improved profitability at the corporate level, the lodging sector as a property type still lagged most sectors of the real estate market as well as the benchmark. We think that the lodging sector represents good investment value because prices do not reflect the rapidly improving fundamentals. We think that investor fears of low non-business demand and rising energy prices are overblown. We believe prospects for the lodging sector are promising in the foreseeable future. We limited the Portfolio's exposure to the office sector during the year because the fundamentals are improving more slowly than other property types. The lag is due to the inability of office REITs to reprice as a result of their longer lease terms, which typically run five to 10 years. While the longer lease terms can provide protection in a declining market, office REITs do not tend to respond as quickly to changing market conditions as other property types with shorter lease terms. Despite our decision to underweight this sector, the holdings in the office sector performed better than the benchmark's investments in the same sector. Q. After a multi-year rally, are you still optimistic about the performance of real estate stocks looking ahead? A. Yes. We remain cautiously upbeat in our outlook. We do not expect real estate stocks to repeat the dramatic returns of recent years, but we would not be surprised to see these investments earn competitive returns relative to the rest of the equity markets given their underlying fundamentals. Astute stock picking will be as important as ever, as we assess the growth prospects and price valuations of the holdings in your portfolio relative to the rest of the real estate market. 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. A Word About Risk: The Portfolio invests in REIT securities, the value of which can fall for a variety of reasons, such as declines in rental income, fluctuating interest rates, poor property management, environmental liabilities, uninsured damage, increased competition, or changes in real estate tax laws. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 98.8% Consumer Services - 5.7% Hotels, Resorts & Cruise Lines - 5.7% 84,300 Hilton Hotels Corp. $ 2,032,473 57,000 Starwood Hotels & Resorts 3,640,020 ------------ $ 5,672,493 ------------ Total Consumer Services $ 5,672,493 ------------ Real Estate - 93.1% Real Estate Management & Development - 3.6% 122,000 Brookfield Properties Corp. $ 3,589,240 ------------ Real Estate Investment Trusts - 89.5% 43,700 AMB Property Corp. (a) $ 2,148,729 31,000 Apartment Investment & Management Co. 1,173,970 95,000 Archstone Communities Trust 3,979,550 9,000 Arden Realty Group, Inc. 403,470 55,000 AvalonBay Communities, Inc. 4,908,750 32,500 BioMed Property Trust, Inc. 793,000 73,000 Boston Properties, Inc. 5,411,490 40,300 Brandywine Realty Trust 1,124,773 45,000 Camden Property Trust 2,606,400 16,000 Carramerica Realty Corp. 554,080 26,500 Corporate Office Properties 941,810 68,900 Developers Diversifies Realty Corp. 3,239,678 35,000 Duke Realty Investments, Inc. 1,169,000 8,000 Equity Lifestyle Properties, Inc. 356,000 46,000 Equity Office Properties Trust 1,395,180 107,000 Equity Residential Property Trust 4,185,840 24,300 Extra Space Storage, Inc.* 374,220 35,000 Federal Realty Investment Trust 2,122,750 15,800 First Potomac Realty Trust 420,280 68,000 General Growth Properties, Inc. (a) 3,195,320 13,500 Healthcare Realty Trust, Inc. 449,145 52,600 Highwoods Properties, Inc. 1,496,470 14,500 Hospitality Properties Trust 581,450 176,800 Host Marriott Corp. (a) 3,350,360 24,500 iStar Financial, Inc. 873,425 12,000 Kilroy Realty Corp. 742,800 67,000 Kimco Realty Corp. (a) 2,149,360 40,900 Kite Realty Group Trust 632,723 84,000 Liberty Property Trust 3,599,400 9,200 The Macerich Co. 617,688 12,500 Mills Corp. 524,250
Shares Value 30,200 Pan Pacific Retail Properties, Inc. $ 2,020,078 45,500 Prentiss Properties Trust 1,850,940 127,000 ProLogis Trust 5,933,440 22,000 PS Business Par, Inc. 1,082,400 44,000 Public Storage, Inc. 2,979,680 39,500 Regency Centers Corp. 2,328,525 17,500 Shurgard Storage Centers, Inc. 992,425 91,000 Simon Property Group, Inc. (a) 6,973,330 27,500 Spirit Finance Corp. 312,125 17,500 Strategic Hotel Capital, Inc. 360,150 67,000 Taubman Centers, Inc. 2,328,250 73,300 Trizec Properties, Inc. 1,680,036 57,000 United Dominion Realty Trust 1,336,080 40,000 Vornado Realty Trust 3,338,800 ------------ $ 89,037,620 ------------ Total Real Estate $ 92,626,860 ------------ TOTAL COMMON STOCKS (Cost $60,502,235) $ 98,299,353 ------------ TEMPORARY CASH INVESTMENT - 17.7% Security Lending Collateral - 17.7% 17,545,193 Securities Lending Investment Fund, 4.24% $ 17,545,193 ------------ TOTAL TEMPORARY CASH INVESTMENT (Cost $17,545,193) $ 17,545,193 ------------ TOTAL INVESTMENT IN SECURITIES - 116.5% (Cost $78,047,428) $115,844,546 ------------ OTHER ASSETS AND LIABILITIES - (16.5)% $(16,375,292) ------------ TOTAL NET ASSETS - 100.0% $ 99,469,254 ============
* Non-income producing security. (a) At December 31, 2005, the following securities were out on loan:
Shares Security Value 40,650 AMB Property Corp. $ 1,998,761 64,400 General Growth Properties, Inc. 3,026,156 167,460 Host Marriott Corp. 3,173,367 64,350 Kimco Realty Corp. 2,064,348 89,100 Simon Property Group, Inc. 6,827,733 ----------- Total $17,090,365 ===========
The accompanying notes are an integral part of these financial statements. 5 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Class II 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 24.26 $ 18.55 $ 14.45 $ 14.75 $ 14.40 ------- ------- ------- ------- ------- Increase from investment operations: Net investment income $ 0.36 $ 0.44 $ 0.68 $ 0.55 $ 0.41 Net realized and unrealized gain (loss) on investments 3.11 6.00 4.18 (0.20) 0.63 ------- ------- ------- ------- ------- Net increase from investment operations $ 3.47 $ 6.44 $ 4.86 $ 0.35 $ 1.04 Distributions to shareholders: Net investment income (0.33) (0.40) (0.56) (0.65) (0.52) Net realized gain (1.31) (0.33) -- -- -- Tax Return of Capital -- -- (0.20) -- (0.17) ------- ------- ------- ------- ------- Net increase (decrease) in net asset value $ 1.83 $ 5.71 $ 4.10 $ (0.30) $ 0.35 ------- ------- ------- -------- ------- Net asset value, end of period $ 26.09 $ 24.26 $ 18.55 $ 1 4.45 $ 14.75 ======= ======= ======= ======== ======= Total return* 14.86% 35.39% 34.45% 2.28% 7.52% Ratio of net expenses to average net assets 1.18% 1.23% 1.28% 1.32% 1.52% Ratio of net investment income to average net assets 1.46% 2.20% 4.26% 4.21% 4.36% Portfolio turnover rate 12% 35% 20% 29% 34% Net assets, end of period (in thousands) $67,383 $61,799 $39,892 $ 31,985 $11,972
* 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. NOTE: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. 6 The accompanying notes are an integral part of these financial statements. Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $17,090,365) (Cost $ 115,844,546 $78,047,428) Cash 992,681 Receivables -- Investment securities sold 282,762 Fund shares sold 42,554 Dividends, interest and foreign taxes withheld 494,270 Other 1,934 ------------- Total assets $ 117,658,747 ------------- LIABILITIES: Payables -- Fund shares repurchased $ 546,900 Upon return for securities loaned 17,545,193 Due to affiliates 9,274 Accrued expenses 88,126 ------------- Total liabilities $ 18,189,493 ------------- NET ASSETS: Paid-in capital $ 56,459,993 Undistributed net investment income 211,528 Accumulated net realized gain on investments 5,000,615 Net unrealized gain on: Investments 37,797,118 ------------- Total net assets $ 99,469,254 ------------- NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 32,086,132 Shares outstanding 1,227,893 ------------- Net asset value per share $ 26.13 Class II: (No par value, unlimited number of shares authorized) Net assets $ 67,383,122 Shares outstanding 2,583,192 ------------- Net asset value per share $ 26.09
The accompanying notes are an integral part of these financial statements. 7 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
Year Ended 12/31/05 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $10,451) $ 2,522,994 Interest 27,159 Income on securities loaned, net 16,232 ----------- Total investment income $ 2,566,385 ----------- EXPENSES: Management fees $ 782,628 Transfer agent fees and expenses 3,000 Distribution fees (Class II) 162,146 Administrative reimbursements 18,700 Custodian fees 22,345 Professional fees 41,419 Printing expense 32,568 Fees and expenses of nonaffiliated trustees 4,858 Miscellaneous 9,767 ----------- Total expenses $ 1,077,431 ----------- Net expenses $ 1,077,431 ----------- Net investment income $ 1,488,954 ----------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain from investments $ 6,859,537 ----------- Change in net unrealized gain from investments $ 5,415,473 ----------- Net gain on investments $12,275,010 =========== Net increase in net assets resulting from operations $13,763,964 ===========
8 The accompanying notes are an integral part of these financial statements. Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/05 12/31/04 FROM OPERATIONS: Net investment income $ 1,488,954 $ 1,806,090 Net realized gain on investments 6,859,537 7,508,438 Change in net unrealized gain on investments 5,415,473 15,633,552 ------------- ------------- Net increase in net assets resulting from operations $ 13,763,964 $ 24,948,080 ------------- ------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (513,835) $ (707,216) Class II (868,561) (916,414) Net realized gain Class I (1,720,481) (493,376) Class II (3,467,765) (803,210) ------------- ------------- Total distributions to shareowners $ (6,570,642) $ (2,920,216) ------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 14,850,583 $ 20,027,996 Reinvestment of distributions 6,570,642 2,920,216 Cost of shares repurchased (27,391,461) (18,513,875) ------------- ------------- Net increase (decrease) in net assets resulting from Fund share transactions $ (5,970,236) $ 4,434,337 ------------- ------------- Net increase in net assets $ 1,223,086 $ 26,462,201 ------------- ------------- NET ASSETS: Beginning of year $ 98,246,168 $ 71,783,967 ------------- ------------- End of year $ 99,469,254 $ 98,246,168 ============= ============= Undistributed net investment income, end of year $ 211,528 $ 286,854 ============= =============
The accompanying notes are an integral part of these financial statements. 9 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Real Estate Shares VCT Portfolio (the Portfolio) is a Portfolio of the Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts, or by qualified pension and retirement plans. The investment objective of Real Estate Shares Portfolio pursues long-term capital growth, with current income as a secondary objective. The financial highlights for the Portfolio's Class I shares are presented in a separate book. The Portfolio financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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 Portfolio, in the preparation of its financial statements which are consistent 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 (NYSE) is open, as of the close of regular trading on the NYSE. 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 10 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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. The Portfolio also may use the fair value of a security, including a non-U.S. security, when the closing market price on the primary exchange where the security is traded no longer accurately reflects the value of the security as of the close of the NYSE. At December 31, 2005, there were no fair valued securities. 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. 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 invests 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 and return of capital distributions 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. Information regarding the Portfolio's principal investment risks is contained in the Portfolio's prospectus. Please refer to those documents when considering the Portfolio's risks. 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, 2005, Real Estate Shares 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. dollars 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. 11 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- E. Taxes It is the Portfolio'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 amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal income tax rules. Therefore, the source of the 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, 2005, 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.
------------------------------------------------------------------------------------------- Undistributed Net Accumulated Net Investment Income Realized (Loss) Gain (Loss) Paid-In Capital ------------------------------------------------------------------------------------------- Real Estate Shares Portfolio $(181,884) $102,715 $79,169 -------------------------------------------------------------------------------------------
A portion of the dividend income recorded by 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 Portfolio as a reduction of the cost basis of the securities held and those determined to be capital gain are reflected as such on the statement of operations. The following chart shows the distributions paid during the years ended December 31, 2005 and 2004 on a tax basis and the components of distributable earnings (accumulated losses) as of December 31, 2005.
------------------------------------------------------------------------------------- 2005 2004 ------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 1,584,389 $2,449,917 Long-Term capital gain 4,986,253 470,299 ----------- ---------- 6,570,642 2,920,216 Return of Capital -- -- ----------- ---------- Total distributions $ 6,570,642 $2,920,216 =========== ========== Distributable Earnings (Accumulated Losses): Undistributed long-term gain/(capital loss carry forward) $ 5,283,368 REIT Dividend Payable 211,528 Unrealized appreciation (depreciation) 37,514,365 ----------- Total $43,009,261 =========== -------------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation is primarily attributable to the tax deferral of losses on wash sales. 12 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- F. Portfolio Shares The Portfolio records sales and repurchases of its 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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. Distribution fees for Class II Shares are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. 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 (excluding transfer agent and distribution fees) 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 the adjusted net assets at the beginning of the day. Distributions paid by a 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. 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 payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for the 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 sponsored 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, a wholly owned indirect subsidiary of UniCredito Italiano manages the portfolio. Management fees are calculated daily at the annual rate of 0.80% 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, 2005, $4,397 was payable to PIM related to management fees, administrative reimbursements and certain other services, and is included in due to affiliates. 3. Transfer Agent 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 $3,945 in transfer agent fees payable to PIMSS at December 31, 2005. 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 to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with the Portfolio's Class II shares. Included in due to affiliates is $932 payable to PFD at December 31, 2005. 13 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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) ---------------------------------------------------------------------------------------------------- Real Estate Shares Portfolio $78,330,181 $37,800,321 $ (285,956) $37,514,365 =========== =========== ========== =========== ----------------------------------------------------------------------------------------------------
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, 2005, were $11,218,671 and $19,586,688, respectively. 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the year ended December 31, 2005 and the fiscal year ended December 31, 2004. --------------------------------------------------------------------
-------------------------------------------------------------------------------------------- Real Estate Shares Portfolio '05 Shares '05 Amount '04 Shares '04 Amount -------------------------------------------------------------------------------------------- CLASS I: Shares sold 57,099 $ 1,401,143 151,466 $ 3,192,487 Reinvestment of distributions 91,076 2,234,316 56,986 1,200,592 Shares repurchased (420,029) (10,198,782) (425,846) (8,497,885) -------------------------------------------------------- Net increase (271,854) $ (6,563,323) (217,394) $ (4,104,806) ======================================================== CLASS II: Shares sold 558,332 $ 13,449,440 820,863 $ 16,835,509 Reinvestment of distributions 176,725 4,336,326 81,377 1,719,624 Shares repurchased (699,655) (17,192,679) (505,041) (10,015,990) -------------------------------------------------------- Net increase 35,402 $ 593,087 397,199 $ 8,539,143 ======================================================== --------------------------------------------------------------------------------------------
14 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the 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 the Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four 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 the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian. 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 the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and financial highlights for each of the four years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 15 PIONEER VARIABLE CONTRACTS TRUST Pioneer Real Estate Shares VCT Portfolio (the "Fund") -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") voting separately annually approve the Fund's management contract (the "Management Contract") between the Fund and Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"). The Investment Adviser has retained AEW Investment Advisers, LLC. (the "Sub-adviser") to act as sub-adviser to the Fund pursuant to a sub-advisory agreement between the Investment Adviser and the Sub-adviser (the "Sub-advisory Agreement"). The Trustees have determined that the terms of the Management Contract and the Sub-advisory Agreement are fair and reasonable and that renewal of these contracts will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of the Investment Adviser, or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract and Sub-advisory Agreement, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract and Sub-advisory Agreement, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect of the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates, (ix) the disclosures included in the Fund's prospectuses and reports to shareowners and (x) the investment and compliance staff and operations of the Subadviser. Specifically, in connection with the Independent Trustees' review of the Management Contract and the Sub-advisory Agreement, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's and Sub-adviser's services and the reasonableness of the fee under the Management Contract and the Sub-advisory Agreement. Among other items, this information included data or analyses of (1) investment performance for one, three, five and ten year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser and the Sub-adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser and the Sub-adviser, (6) the Investment Adviser's and Sub-adviser's financial results and condition, including, in the case of the Investment Adviser, its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for each of the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund, the break points in the Fund's management fee and of a peer group of funds selected by the Independent Trustees for this purpose and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. 16 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to shareowners of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareowner services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the first quintile of the peer group for the 12 months ended June 30, 2005, the first quintile of the peer group for the three years ended June 30, 2005, the first quintile for the five years ended June 30, 2005 and the first quintile for the ten year period ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareowners. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees also considered the activities of the Investment Adviser in monitoring the investment and compliance operations of the Sub-adviser. The Trustees also considered the yield (gross of expenses of the Class I shares of the Fund relative to the yield (at June 30, 2005) of the Wilshire Real Estate Securities Index. The Trustees concluded that the performance of the Fund supported the continuation of the Management Contract and the Sub-advisory Agreement. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations. Among other things, the Trustees considered the number, education and experience of the Sub-adviser's investment staff. The Trustees concluded that the Investment Adviser and the Sub-adviser have the quality and depth of personnel and the well-developed methods essential to performing their duties under the Management Contract and the Sub-advisory Agreement. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareowners of the Fund, including administrative and shareowner services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareowners of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the third quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also evaluated the fee under the Sub-advisory Agreement and the portion of the fee under the Management Contract retained by the Investment Adviser and determined that they were consistent with other sub-advised funds. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the third quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. The Trustees concluded that the Fund's overall expense ratio was reasonable compared to that of comparable funds. 17 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. The Trustees concluded that, given current and anticipated assets levels, a break point in the management fee was not necessary at this time. As the assets increase, the Trustees will continue to evaluate annually the appropriateness of break points. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareowner services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect of the Pioneer Funds (including the Fund), and benefits to the Sub-adviser from the use of "soft" commission dollars to pay for research and brokerage services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's and Sub-adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser and the Sub-adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund and the Sub-advisory Agreement are fair and reasonable and voted to approve the continuation of the Management Contract and the Sub-advisory Agreement for another year. 18 Pioneer Real Estate Shares VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. ------------------------------------------------------------------------------------------------------------------------------------
19 Pioneer Real Estate Shares VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance or earlier services company) (2001-present); company); Director of New York retirement or Managing Partner, Federal City Mortgage Trust (publicly traded removal. Capital Advisors (boutique merchant mortgage REIT) bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products or earlier manufacturer), Mortgage Guaranty retirement or Insurance Corporation, and Briggs removal. & Stratton, Inc. (engine manufacturer) ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ------------------------------------------------------------------------------------------------------------------------------------
20 Pioneer Real Estate Shares VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TRUST OFFICERS --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ------------------------------------------------------------------------------------------------------------------------------------ David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. ------------------------------------------------------------------------------------------------------------------------------------
21 Pioneer Real Estate Shares VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TRUST OFFICERS --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, Assistant Vice President - Fund None Treasurer 2000. Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds. ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. ------------------------------------------------------------------------------------------------------------------------------------ Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. ------------------------------------------------------------------------------------------------------------------------------------ Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 22 -------------------------------------------------------------------------------- This page for your notes. 23 -------------------------------------------------------------------------------- This page for your notes. 24 -------------------------------------------------------------------------------- This page for your notes. 25 [LOGO]PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18653-00-0206 [LOGO] PIONEER Investments (R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Small and Mid Cap Growth VCT Portfolio -- Class II Shares (Formerly Pioneer Papp Small and Mid Cap Growth VCT Portfolio. Name change effective May 1, 2005.) ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- Table of Contents -------------------------------------------------------------------------------- Pioneer Small and Mid Cap Growth VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 6 Financial Statements 8 Notes to Financial Statements 12 Report of Independent Registered Public Accounting Firm 16 Factors Considered by the Independent Trustees in Approving the Management Contract 17 Trustees, Officers and Service Providers 20
Before investing, consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Please read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 89.9% Temporary Cash Investment 7.3% Depositary Receipts for International Stocks 2.8%
Sector Distribution (As a percentage of equity holdings) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Health Care 28.3% Information Technology 26.5% Consumer Discretionary 14.8% Industrials 11.7% Financials 10.1% Consumer Staples 6.0% Materials 2.6%
Five Largest Holdings (As a percentage of equity holdings) 1. Express Scripts, Inc. 3.66% 2. Techne Corp. 3.43 3. Alberto-Culver Co. (Class B) 3.10 4. Federated Investors, Inc. 3.07 5. WPP Group Plc 3.06
The Portfolio is actively managed and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 11.37 $ 10.87
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income 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 and Mid Cap Growth VCT Portfolio at net asset value, compared to that of the Russell 2500 Growth Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Russell Pioneer 2500 Growth Small and Mid Cap Growth VCT Portfolio* 3/04 10000 10000 12/04 10861 10752 12/05 11749 11246
The Russell 2500 Growth Index measures the performance of U.S. small- and mid-cap growth stocks. 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, 2005)
---------------------------- Net Asset Value ---------------------------- Life-of-Class 7.41% (3/15/04) 1 Year 4.60%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers fund performance would be lower. Waivers may not be in effect for all funds. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value [divided by] $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Small and Mid Cap Growth VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005
Share Class II ------------------------------------------ -------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,070.62 Expenses Paid During Period* $ 5.22
* Expenses are equal to the Portfolio's annualized expense ratio of 1.00% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Small and Mid Cap Growth VCT Portfolio Based on a hypothetical 5% per year return before expenses, reflecting the period from July 1, 2005 through December 31, 2005
Share Class II ------------------------------------------ -------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,020.16 Expenses Paid During Period* $ 5.09
* Expenses are equal to the Portfolio's annualized expense ratio of 1.00% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- While the U.S. economy and corporate profits registered strong gains during 2005, stock market indexes produced below-average returns for the year. Investors worried about oil prices, the impact of the Federal Reserve Board's 13 successive interest-rate hikes over 18 months, and the possibility that federal tax cuts on capital gains and stock dividends might not be made permanent. Given these concerns, stock valuations failed to keep pace with increasing corporate earnings and the gross domestic product (GDP). In the following interview, members of the management team of L. Roy Papp & Associates - L. Roy Papp and Rosellen Papp - who are responsible for the Fund's management, discuss the factors that influenced the performance of Pioneer Small and Mid Cap Growth VCT Portfolio during the 12 months ended December 31, 2005. Q: How did the Portfolio perform? A: For the 12 months ended December 31, 2005, Pioneer Small and Mid Cap Growth VCT Portfolio returned 4.60% at net asset value. During the same 12 months, the Russell Midcap Growth Index returned 12.10%. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q: What were the principal factors that affected performance? A: Our consistent discipline favoring industry-leading stable growth companies with superior long-term earnings prospects led us to de-emphasize the more volatile energy sector, where stock performance is closely tied to commodity prices. However, the extraordinary stock price gains by mid-cap energy companies - such as oil services companies and exploration and production companies - drove the mid-cap stock index performance during the year. As a result, the Portfolio's performance lagged that of market benchmarks. Overall, the economy showed persistent, resilient strength during 2005 and corporate earnings continued to produce impressive gains. The Gross Domestic Product (GDP) grew briskly throughout the year, and most corporations were able to report double-digit earnings gains. Despite this positive economic backdrop, stocks outside the energy sector produced modest results. Investors worried about higher energy prices, the tightening of monetary policy by the Federal Reserve and on-going political controversies and policy stalemates in Washington. As a result, the performance of non-energy stocks failed to keep pace with underlying economic fundamentals for the second consecutive year and we saw the market end 2005 with a gap between corporate profitability and stock valuations. We kept to our investment philosophy, emphasizing stable growth companies with superior long-term prospects. We also continued to pursue investment themes we have developed. As examples, we sought opportunities created by demographic changes - most notably the aging of the baby-boomer generation - in sectors such as health care and financial services, and we invested in companies we thought would benefit from the expanding global economy in sectors such as information technology and industrials. We did not make any significant sector changes during the year, although we did increase our exposure to industrial companies because of our view that one of the emerging themes in 2006 was likely to be increasing capital expenditures by corporations. Within information technology, we added companies such as software companies Adobe Systems and Micros Systems, as well as Trimble Navigation, producer of a sophisticated global positioning system. At the same time, we reduced our exposure in the technology hardware area. Q: What were some of the individual investments that contributed to performance? A: In financial services, we focused on companies whose profitability was not too sensitive to the risks of rising interest rates. Two holdings that performed particularly well were T. Rowe Price and Federated Investors, investment management and mutual fund companies that are well positioned to benefit from the growing need of the baby boom generation for retirement products and services. Both companies performed exceptionally well during the year, even as other financial companies were affected by rising short-term interest rates that potentially could shrink the profit margins of traditional lending activities. A Word About Risk: Investing in small and mid-sized companies may offer the potential for higher returns, but are also subject to greater short-term price fluctuations than larger, more established companies. The Portfolio invests in a limited number of securities and, as a result, the Portfolio's performance may be more volatile than the performance of other portfolios holding more securities. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Among our health-care investments, several selections performed well. Although we normally de-emphasize the biotechnology industry because of the volatility of company earnings, we found two interesting opportunities in corporations that supply the biotechnology industry and have more consistent earnings history. Both Techne, which produces proteins used by biotechnology companies, and Molecular Devices, which produces equipment used by biotech companies, performed very well. In addition, pharmacy benefit managers Medco Health Solutions and Express Scripts benefited as managers successfully gained more control over pharmacy expenses. Our investment in Expeditors International of Washington was a successful way to play the globalization of world trade theme. The company handles logistical planning, and directly benefited from the rise in trade between China and the United States. Its stock declined during the first part of the year on concerns about its vulnerability to higher energy prices, but the company's valuation recovered strongly in the second six months. In the information technology sector, contributors included Adobe Systems and Microchip Technology. Q: What types of investments held back results? A: Our underweight in energy stocks held back results during a year in which commodity prices rose to record-high levels. Individual holdings that detracted from results tended to come from a variety of sectors. In financial services, Investors Financial was hurt by concerns over the flattening of the yield curve - which occurs when the yield gap between short-term and long-term fixed income securities narrows. That can squeeze the profits in traditional lending businesses. However, we have retained our confidence in Investors Financial for the longer-term. A substantial part of its business is in operations that provide record-keeping and financial, custodial and accounting services to retirement plans, and we think it should benefit from the increasing demand for retirement services. It also is a leader in issuing exchange traded funds, which are becoming increasingly popular as investment products. Several of our holdings were adversely affected by rising energy prices, including the Family Dollar Stores retail chain and Cintas, which provides laundry and uniform services to businesses. We have retained our holding in Cintas because we continue to be impressed by the longer-term fundamentals of its business, but we have sold our position in Family Dollar. Other companies that we sold during the year included adult education company Apollo Group, because we were concerned about its future growth potential, and Saga Radio, whose advertising revenues from its chain of radio stations were affected by the increasing popularity of advertising on the Internet. Q: What is your investment outlook? A: We believe that the stock market is inexpensive after two successive years in which overall stock price performance has failed to keep pace with growth in the economy and in corporate profitability. As we enter 2006, we believe that the American economy appears strong, as evidenced by the overwhelming consensus of 56 economists recently surveyed by the Wall Street Journal. The average forecast for growth in GDP during 2006 was between 3% and 3.5%. In our view, there is a significant valuation gap between company earnings and company stock valuations, and we think there is potential for favorable stock performance during the coming year. 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. 5 Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 99.6% Materials - 2.7% Specialty Chemicals - 2.7% 1,950 Sigma-Aldrich Corp. $ 123,416 ---------- Total Materials $ 123,416 ---------- Capital Goods - 2.9% Building Products - 2.9% 3,600 Simpson Manufacturing Co., Inc. $ 130,860 ---------- Total Capital Goods $ 130,860 ---------- Commercial Services & Supplies - 5.9% Diversified Commercial Services - 5.9% 3,150 ChoicePoint, Inc.* $ 140,207 3,198 Cintas Corp. 131,694 ---------- $ 271,901 ---------- Total Commercial Services & Supplies $ 271,901 ---------- Transportation - 2.9% Air Freight & Couriers - 2.9% 2,000 Expeditors International of Washington, Inc. $ 135,020 ---------- Total Transportation $ 135,020 ---------- Consumer Durables & Apparel - 2.0% Leisure Products - 2.0% 1,800 Polaris Industries, Inc. (a) $ 90,360 ---------- Total Consumer Durables & Apparel $ 90,360 ---------- Consumer Services - 3.7% Education Services - 1.5% 3,500 DeVry, Inc.*(a) $ 70,000 ---------- Restaurants - 2.2% 2,600 Brinker International, Inc. $ 100,516 ---------- Total Consumer Services $ 170,516 ---------- Media - 6.0% Advertising - 6.0% 5,200 Harte-Hanks, Inc. $ 137,228 2,600 WPP Group Plc (A.D.R.) 140,400 ---------- $ 277,628 ---------- Total Media $ 277,628 ---------- Retailing - 3.0% Automotive Retail - 3.0% 4,300 O'Reilly Automotive, Inc.* $ 137,643 ---------- Total Retailing $ 137,643 ---------- Household & Personal Products - 5.9% Household Products - 2.8% 2,300 Clorox Co. $ 130,847 ---------- Personal Products - 3.1% 3,100 Alberto-Culver Co. (Class B) $ 141,824 ---------- Total Household & Personal Products $ 272,671 ----------
Shares Value Health Care Equipment & Services - 24.7% Health Care Distributors - 1.7% 2,300 Patterson Companies* $ 76,820 ---------- Health Care Equipment - 12.4% 1,850 C. R. Bard, Inc. $ 121,952 4,800 Molecular Devices Corp.* 138,864 3,200 ResMed, Inc.* 122,592 2,600 Stryker Corp. 115,518 1,900 Waters Corp.* 71,820 ---------- $ 570,746 ---------- Health Care Services - 7.7% 2,000 Express Scripts, Inc.* $ 167,600 3,990 IMS Health, Inc. 99,431 1,600 Medco Health Solutions, Inc.* 89,280 ---------- $ 356,311 ---------- Health Care Supplies - 2.9% 2,500 Dentsply International, Inc. $ 134,225 ---------- Total Health Care Equipment & Services $1,138,102 ---------- Pharmaceuticals & Biotechnology - 3.4% Biotechnology - 3.4% 2,800 Techne Corp.* $ 157,220 ---------- Total Pharmaceuticals & Biotechnology $ 157,220 ---------- Banks - 2.6% Regional Banks - 2.6% 6,700 UCBH Holdings, Inc. (a) $ 119,796 ---------- Total Banks $ 119,796 ---------- Diversified Financials - 7.5% Asset Management & Custody Banks - 7.5% 3,800 Federated Investors, Inc.* $ 140,752 1,800 Investors Financial Services Corp. (a) 66,294 1,900 T. Rowe Price Associates, Inc. 136,857 ---------- $ 343,903 ---------- Total Diversified Financials $ 343,903 ---------- Software & Services - 9.9% Application Software - 1.8% 2,200 Adobe Systems, Inc. $ 81,312 ---------- Data Processing & Outsourced Services - 5.2% 1,900 DST Systems, Inc.* $ 113,829 2,900 Fiserv, Inc.* 125,483 ---------- $ 239,312 ---------- Systems Software - 2.9% 2,800 Micros Systems, Inc.* $ 135,296 ---------- Total Software & Services $ 455,920 ----------
6 The accompanying notes are an integral part of these financial statements. Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Technology Hardware & Equipment - 7.2% Communications Equipment - 1.8% 2,900 Plantronics, Inc. $ 82,070 ---------- Electronic Equipment & Instruments - 3.6% 2,350 Mettler-Toledo International, Inc.* $ 129,720 1,100 National Instruments Corp. 35,255 ---------- $ 164,975 ---------- Electronic Manufacturing Services - 1.8% 2,300 Molex, Inc. $ 56,557 700 Trimble Navigation, Ltd.* 24,959 ---------- $ 81,516 ---------- Total Technology Hardware & Equipment $ 328,561 ---------- Semiconductors - 9.3% Semiconductor Equipment - 3.6% 2,200 KLA-Tencor Corp. $ 108,525 2,300 Novellus Systems, Inc.* 55,476 ---------- $ 164,001 ---------- Semiconductors - 5.7% 3,500 Linear Technology Corp. $ 126,245 4,300 Microchip Technology 138,245 ---------- $ 264,490 ---------- Total Semiconductors $ 428,491 ---------- TOTAL COMMON STOCKS (Cost $4,157,638) $4,582,008 ----------
Shares Value TEMPORARY CASH INVESTMENTS - 7.8% Security Lending Collateral - 7.8% 360,836 Securities Lending Investment Fund, 4.24% $ 360,836 ---------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $360,836) $ 360,836 ---------- TOTAL INVESTMENT IN SECURITIES - 107.4% (Cost $4,518,474) $4,942,844 ---------- OTHER ASSETS AND LIABILITIES - (7.4)% $ (340,477) ---------- TOTAL NET ASSETS - 100.0% $4,602,367 ==========
* Non-income producing security. (A.D.R.) American Depositary Receipt. (a) At December 31, 2005, the following securities were out on loan:
Shares Security Value 387 Apollo Group, Inc.+ $ 23,398 3,325 DeVry, Inc.* 66,500 1,710 Investors Financial Services Corp. 62,979 1,710 Polaris Industries, Inc. 1,760 5,985 UCBH Holdings, Inc. 107,012 -------- Total $261,649 ========
+ Indicates pending sale as of 12/31/05 The accompanying notes are an integral part of these financial statements. 7 Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year 3/15/04(a) Ended to Class II 12/31/05 12/31/04 Net asset value, beginning of period $ 10.87 $ 10.00 ------- ------- Increase from investment operations: Net investment loss $ (0.03) $ (0.02) Net realized and unrealized gain on investments 0.53 0.89 ------- -------- Net increase from investment operations $ 0.50 $ 0.87 ------- -------- Net increase in net asset value $ 0.50 $ 0.87 ------- -------- Net asset value, end of period $ 11.37 $ 10.87 ======= ======= Total return* 4.60% 8.70%(b) Ratio of net expenses to average net assets+ 1.00% 1.00%** Ratio of net investment loss to average net assets+ (0.36)% (0.51)%** Portfolio turnover rate 13% 44% Net assets, end of period (in thousands) $ 4,602 $ 2,579 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 3.25% 7.50%** Net investment loss (2.61)% (7.01)%** Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 1.00% 1.00%** Net investment loss (0.36)% (0.51)%**
(a) The Portfolio commenced operations on March 15, 2004. (b) Not annualized. * 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. NOTE: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. 8 The accompanying notes are an integral part of these financial statements. Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $261,649) (cost $4,518,474) $4,942,844 Cash 129,820 Receivables -- Investment securities sold 42,433 Dividends, interest and foreign taxes withheld 1,376 Due from Pioneer Investment Management, Inc. 6,246 ---------- Total assets $5,122,719 ---------- LIABILITIES: Payables -- Investment securities purchased $ 79,619 Fund shares repurchased 33,739 Upon return of securities loaned 360,836 Due to affiliates 211 Accrued expenses 45,947 ---------- Total liabilities $ 520,352 ---------- NET ASSETS: Paid-in capital $4,287,367 Accumulated net realized loss on investments (109,370) Net unrealized gain on: Investments 424,370 ---------- Total net assets $4,602,367 ---------- NET ASSET VALUE PER SHARE: Class II: (No par value, unlimited number of shares authorized) Net assets $4,602,367 Shares outstanding 404,647 ---------- Net asset value per share $ 11.37
The accompanying notes are an integral part of these financial statements. 9 Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
Year Ended 12/31/05 INVESTMENT INCOME: Dividends $ 20,662 Interest 3,276 Income on securities loaned, net 53 --------- Total investment income $ 23,991 --------- EXPENSES: Management fees $ 28,195 Transfer agent fees and expenses 1,500 Distribution fees 9,399 Administrative reimbursements 18,512 Custodian fees 15,462 Professional fees 31,853 Printing expense 11,235 Fees and expenses of nonaffiliated trustees 3,785 Miscellaneous 2,137 --------- Total expenses $ 122,078 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (84,500) --------- Net expenses $ 37,578 --------- Net investment loss $ (13,587) --------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss from: Investments $ (56,634) --------- Change in net unrealized gain from: Investments $ 279,248 --------- Net gain on investments $ 222,614 --------- Net increase in net assets resulting from operations $ 209,027 =========
10 The accompanying notes are an integral part of these financial statements. Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
For the period from 3/15/04 Year (Commencement Ended of operations) 12/31/05 to 12/31/04 FROM OPERATIONS: Net investment loss $ (13,587) $ (5,372) Net realized loss on investments (56,634) (52,736) Change in net unrealized gain on investments 279,248 145,122 ---------- ---------- Net increase in net assets resulting from operations $ 209,027 $ 87,014 ---------- ---------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $2,273,067 $3,211,433 Cost of shares repurchased (458,251) (719,923) ---------- ---------- Net increase in net assets resulting from Fund share transactions $1,814,816 $2,491,510 ---------- ---------- Net increase in net assets $2,023,843 $2,578,524 NET ASSETS: Beginning of period 2,578,524 -- ---------- ---------- End of period $4,602,367 $2,578,524 ========== ==========
The accompanying notes are an integral part of these financial statements. 11 Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Small and Mid Cap Growth VCT Portfolio (the Portfolio) is a Portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) The Small and Mid Cap Growth VCT Portfolio commenced operations on March 15, 2004. Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts, or by qualified pension and retirement plans. Small and Mid Cap Growth Portfolio seeks long term capital growth. The financial statements and financial highlights of all other Portfolios are presented in separate books. The Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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 Portfolio, in the preparation of its financial statements which are consistent 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 (NYSE) is open, as of the close of regular trading on the NYSE. 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 12 Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- prices are not generally reported, are valued at the mean between the last bid and asked prices. The Portfolio also may use the fair value of a security, including a non-U.S. security, when the closing market price on the primary exchange where the security is traded no longer accurately reflects the value of the security as of the close of the NYSE. At December 31, 2005, there were no securities fair valued. 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. 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. Investing in small and mid-sized companies may offer the potential for higher returns, but are also subject to greater short-term price fluctuations than larger, more established companies. Information regarding the Portfolio's principal investment risks is contained in the Portfolio's prospectus. Please refer to those documents when considering the Portfolio's risks. B. Taxes It is the Portfolio'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 amounts and characterizations of distributions to shareowners for financial reporting purposes are 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, 2005, Small and Mid Cap Growth Portfolio had a net capital loss carryforward of $65,546, of which the following amounts will expire between 2012 and 2013, if not utilized: $25,641 in 2012 and $39,905 in 2013. The Portfolio elected to defer $25,174 in capital losses recognized between November 1, 2005 and December 31, 2005 to its fiscal year ended December 31, 2006. At December 31, 2005, 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.
----------------------------------------------------------------------------------------------------------------- Undistributed Net Accumulated Net Portfolio Investment Income (Loss) Realized Gain (Loss) Paid-In Capital ----------------------------------------------------------------------------------------------------------------- Small and Mid Cap Growth Portfolio $13,587 $-- $ (13,587) -----------------------------------------------------------------------------------------------------------------
13 Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2005. There were no distributions paid during the fiscal years ended December 31, 2005 and 2004.
-------------------------------------------------------------------------------- 2005 -------------------------------------------------------------------------------- Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ -- Undistributed long-term gain/(capital loss carryforward) (65,546) Post-October loss deferred (25,174) Unrealized appreciation (depreciation) 405,720 -------- Total $315,000 ======== --------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation is attributable to the tax deferral of losses on wash sales. C. Portfolio Shares The Portfolio records sales and repurchases of its 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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. Distribution fees are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. 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 payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for the 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 sponsored by Brown Brothers Harriman & Co., the Trust's custodian. 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, a wholly owned indirect subsidiary of UniCredito Italiano manages the portfolio. Management fees are calculated daily at the annual rate of 0.75% of the Portfolio's average daily net assets up to $1 billion and 0.70% on assets over $1 billion. Through May 1, 2006, PIM has agreed not to impose all or a portion of its management fee and, if necessary, to limit other ordinary operating expenses of the Portfolio to the extent required to reduce Class II expenses to 1.00% of the average daily net assets attributable to Class II shares. 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, 2005, $12 was payable to PIM related to management fees, administrative reimbursements and certain other services, and is included in due to affiliates. 3. Transfer Agent 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 $135 in transfer agent fees payable to PIMSS at December 31, 2005. 14 Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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 to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with the Portfolio's Class II shares. Included in due to affiliates is $64 payable to PFD at December 31, 2005. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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 and Mid Cap Growth Portfolio $4,537,124 $537,270 $ (131,550) $405,720 ========== ======== ========== ======== ---------------------------------------------------------------------------------------------------------
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, 2005, were $2,310,469 and $485,977, respectively. 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the fiscal year ended December 31, 2005 and the period ended December 31, 2004:
--------------------------------------------------------------------------------------------------------- Small & Mid Cap Growth Portfolio '05 Shares '05 Amount '04 Shares '04 Amount --------------------------------------------------------------------------------------------------------- CLASS II: Shares sold 209,164 $2,273,067 308,301 $3,211,433 Shares repurchased (41,774) (458,251) (71,044) (719,923) ----------------------------------------------------------------- Net increase 167,390 $1,814,816 237,257 $2,491,510 ================================================================= ---------------------------------------------------------------------------------------------------------
15 Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and Shareowners of Pioneer Small & Mid Cap Growth VCT Portfolio: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Small & Mid Cap Growth VCT Portfolio (formerly Pioneer Papp Small & Mid Cap VCT Portfolio), one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, and the related statement of operations for the year then ended and the statements of changes in net assets and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 & Mid Cap Growth VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets, and financial highlights for each of the periods indicated therein in conformity with U.S. generally accepted accounting principles. /S/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 16 Pioneer Small and Mid Cap Growth VCT Portfolio (the "Fund") PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") voting separately annually, approve the Fund's management contract (the "Management Contract") between the Fund and Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"). The Investment Adviser has retained L. Roy Papp and Associates, LLC. (the "Sub-adviser") to act as sub-adviser to the Fund pursuant to a sub-advisory agreement between the Investment Adviser and the Sub-adviser (the "Sub-advisory Agreement"). The Trustees have determined that the terms of the Management Contract and the Sub-advisory Agreement are fair and reasonable and that renewal of these contracts will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of the Investment Adviser, or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract and Sub-advisory Agreement, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract and Sub-advisory Agreement, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect of the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates, (ix) the disclosures included in the Fund's prospectuses and reports to shareowners and (x) the investment and compliance staff and operations of the Sub-adviser. Specifically, in connection with the Independent Trustees' review of the Management Contract and the Sub-advisory Agreement, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's and Sub-adviser's services and the reasonableness of the fee under the Management Contract and the Sub-advisory Agreement. Among other items, this information included data or analyses of (1) investment performance for the twelve months ended June 30, 2005 for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund; the break points in the Fund's management fee and of a peer group of funds selected by the Independent Trustees for this purpose and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes matters considered by the Trustees in connection with their renewal of the Fund's Management Contract and Sub-advisory Agreement. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. 17 Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to shareowners of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareowner services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the fifth quintile of the peer group for the twelve months ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareowners. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees also considered the activities of the Investment Adviser in monitoring the investment and compliance operations of the Sub-adviser. The Trustees concluded that the period of investment operations was too short to evaluate performance. C. Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations. Among other things, the Trustees considered the number, education and experience of the Sub-adviser's investment staff. The Trustees concluded that the Investment Adviser and the Sub-adviser have the quality and depth of personnel and the well-developed methods essential to performing their duties under the Management Contract and the Sub-advisory Agreement. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareowners of the Fund, including administrative and shareowner services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareowners of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the first quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also evaluated the fee under the Sub-advisory Agreement and the portion of the fee under the Management Contract retained by the Investment Adviser and determined that they were consistent with other sub-advised funds. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 (after expense limitations) was in the second quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. The Trustees concluded that the Fund's overall expense ratio (after expense limitations) was reasonable compared to that of comparable funds. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from 18 Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. Because of break points in the management fee, the Trustees concluded that any perceived or potential economies of scale would be shared at future asset levels, in a reasonable manner as the Fund grows in size, between the Investment Adviser and the Fund's shareowners. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareowner services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect of the Pioneer Funds (including the Fund), and benefits to the Sub-adviser from the use of "soft" commission dollars to pay for research. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's and Sub-adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser and the Sub-adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund and the Sub-advisory Agreement are fair and reasonable and voted to approve the continuation of the Management Contract and the Sub-advisory Agreement for another year. 19 Pioneer Small and Mid Cap Growth VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. -----------------------------------------------------------------------------------------------------------------------------------
20 Pioneer Small and Mid Cap Growth VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance or earlier services company) (2001-present); company); Director of New York retirement or Managing Partner, Federal City Mortgage Trust (publicly traded removal. Capital Advisors (boutique merchant mortgage REIT) bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ---------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products or earlier manufacturer), Mortgage Guaranty retirement or Insurance Corporation, and Briggs removal. & Stratton, Inc. (engine manufacturer) ---------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------
21 Pioneer Small and Mid Cap Growth VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Small and Mid Cap Growth VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, None Treasurer 2000. Serves at the Assistant Vice President - Fund discretion of the Accounting, Administration and Board. Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds. --------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. --------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. --------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 23 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 24 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 25 [LOGO]PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18674-00-0206 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- Table of Contents -------------------------------------------------------------------------------- Pioneer Small Cap Value VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 5 Financial Statements 9 Notes to Financial Statements 13 Report of Independent Registered Public Accounting Firm 18 Factors Considered by the Independent Trustees in Approving the Management Contract 19 Trustees, Officers and Service Providers 22
Before investing, consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 77.6% Temporary Cash Investment 15.5% International Common Stocks 2.5% Depositary Receipts for International Stocks 2.5% Exchange Traded Fund 1.9%
Sector Distribution (As a percentage of equity holdings) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Financials 28.7% Industrials 18.6% Information Technology 16.3% Energy 13.9% Health Care 6.6% Comsumer Discretionary 6.3% Consumer Staples 3.3% Materials 3.3% Utilities 2.0% Telecommunication Services 1.0%
Five Largest Holdings (As a percentage of equity holdings) 1. Southwestern Energy Co. 2.47% 2. Avid Technology, Inc. 1.90 3. Insight Enterprises, Inc. 1.81 4. Sterling Bancshares, Inc. 1.61 5. On Assignment, Inc. 1.45
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 16.07 $ 14.95
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ - $ - $ 0.4861
-------------------------------------------------------------------------------- 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. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Small Cap Value VCT Russell 2000 Portfolio Value Index Nov-01 10000 10000 10572 10612 8980 9400 Dec-03 12132 13726 14545 16780 Dec-05 16159 17570
The Russell 2000 Value Index measures the performance of U.S. small-cap value stocks. 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, 2005)
Net Asset Value Life-of-Class 13.01% (11/8/01) 1 Year 11.10%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value [divided by] $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Small Cap Value VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II ------------------------------------------ -------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,093.93 Expenses Paid During Period* $ 7.34
* Expenses are equal to the Portfolio's annualized expense ratio of 1.39% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Small Cap Value VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2005 through December 31, 2005.
Share Class II ------------------------------------------ -------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,018.20 Expenses Paid During Period* $ 7.07
* Expenses are equal to the Portfolio's annualized expense ratio of 1.39% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- Continued adherence to established disciplines enabled Pioneer Small Cap Value VCT Portfolio to outperform its benchmark index over this period. In the following discussion, portfolio manager David Adams and assistant portfolio manager John McPherson review the economic background and describe some of the decisions that aided fund performance. Q. How did the Portfolio perform over this period? A. For the twelve months ended December 31, 2005, Class II shares of the Portfolio returned 11.10% at net asset value. The results comfortably outdistanced the 4.71% return on the Russell 2000 Value Index, the benchmark over the same period. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. Please describe the investment background over the past year and how it affected small-cap stocks. A. It was a year in which small-caps outpaced large, value and growth were essentially in line, and stocks of better-quality companies trumped lower-quality issues. Rising energy prices and shifting views on the economy, the dollar, and interest rates kept equity markets in a narrow range. Solid earnings growth gave smaller-company stocks renewed impetus after large caps briefly outperformed early in the year. The Portfolio's positive results validated our longstanding investment thesis that, despite higher interest rates and record energy prices, the healthy economy would enable well-managed small companies to boost operating results. Q. Which of your investment decisions had the most favorable impact on results? A. Our bottom-up stock selection process led us to overweight energy stocks for some time. The resulting overweight stance compared with the benchmark was an important contributor to the period's strong results, as prices for oil and natural gas reached record levels. We were also overweight and outperformed the benchmark in health care. Successful stock selection allowed the Portfolio to better the index's results among financial issues despite our underweight position. Results were also favorable in the information technology sector, where the Portfolio's exposure was about equal to the benchmark's. Southwestern Energy, an independent oil and gas producer operating in Arkansas and Oklahoma, was one of the period's top performers, thanks to continued strong financial performance and the possibility that a new gas field may yield significant reserves. We have been taking profits in this long-term holding, bearing out our patient approach. In energy services, TODCO, which operates drilling rigs in the Gulf of Mexico, benefited when competitors sought better conditions elsewhere. That shrank the number of available rigs just prior to a surge in demand for natural gas that allowed TODCO to hike its billing rates. Similarly, the demand for Gulfmark Offshore's supply boats rose as worldwide energy demand stimulated North Sea drilling activity. In health care, shares of Kendle International rose due to healthy demand for laboratory services tied to the search for new drug compounds. We took partial profits in shares of NASDAQ Stock Market, the Portfolio's biggest financial sector gainer over the period. NASDAQ has successfully leveraged its core trading business by offering a series of new products and services to its customers as the investment business continues to become more electronically based. Apollo Investment, which provides financing for mid-sized businesses, recorded a gain thanks to its solid underwriting capabilities, management and network of funding sources. And our patience was rewarded when municipal bond insurer Assured Guaranty saw its credit rating strengthen, providing better entree to business opportunities. In technology, SPSS, makers of analytical software for researchers, enjoyed an uptick in results thanks to better planning and new initiatives. Video specialist Avid Technology continued to ride the move from film-based, analog editing to digital formats in TV newsrooms and elsewhere. Avid is also poised to benefit as high-definition broadcasts become the television norm. Q. Which of your choices held back results? A. AMERIGROUP, a Medicaid HMO and for some time a successful holding revisited earlier financial results, citing unexpectedly high costs for patient care. Specialty insurer Quanta Capital Holdings, a recent entrant to the business, suffered a terrible sequence of hurricane losses over the past two years. New management and revised business practices encouraged us to add to this holding when prices fell. Montreal-based Domtar suffered from the slowing demand that has plagued the paper industry. Strength in the Canadian dollar also reduced the exchange value of U.S. assets. Retailer Hancock Fabrics is trying to reinvigorate sales at its home decor and sewing outlets after a series of problems, including the lack of up-to-date inventory systems and damaged relationships with store managers. Shares fell further when the company eliminated its dividend. A new infrastructure and merchandising approach encourage us to maintain this small position. Q. What is your outlook for the economy and how have you positioned the Portfolio? A. We think that good stocks bought at prices that appear reasonable should do well in the moderate-growth environment that we foresee. Compelling ideas continue to emerge in the technology arena, where we have increased the Portfolio's exposure. We are also adding some financial stocks while scaling back others. On the other hand, we are not finding good value among consumer-discretionary issues, a sector that could feel pressure if households reduce spending in the face of big energy bills and rising interest rates. Persistent demand and high prices make us comfortable with our current large exposure to energy stocks; we would view any sharp decline in this sector as an opportunity. Finally, we will continue to employ our proven discipline in an effort to ferret out superior opportunities, and take profits as valuations approach our targets. 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. A Word About Risk: Investments in small companies may offer the potential for higher returns, but are also subject to greater short-term price fluctuations than larger, more established companies. The Portfolio invests in REIT securities, the value of which can fall for a variety of reasons, such as declines in rental income, fluctuating interest rates, poor property management, environmental liabilities, uninsured damage, increased competition, or changes in real estate tax laws. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 88.8% Energy - 12.6% Coal & Consumable Fuels - 1.5% 8,100 Alpha Natural Resources, Inc.* $ 155,601 12,164 Massey Energy Co.(a) 460,651 ----------- $ 616,252 ----------- Integrated Oil & Gas - 0.5% 10,700 CNX Gas Corp. (144A)* $ 222,025 ----------- Oil & Gas Drilling - 2.4% 7,500 Bronco Drilling Co., Inc.* $ 172,575 11,775 Todco 448,157 7,019 Unit Corp.* 386,256 ----------- $ 1,006,988 ----------- Oil & Gas Equipment & Services - 2.7% 15,325 Gulfmark Offshore, Inc.* $ 453,927 32,661 Key Energy Services, Inc.* 439,944 6,440 Maverick Tube Corp.*(a) 256,698 ----------- $ 1,150,569 ----------- Oil & Gas Exploration & Production - 5.3% 5,075 Forest Oil Corp.* $ 231,268 7,200 Penn Virginia Corp. 413,280 17,500 Riata Energy, Inc. (144A)* 266,875 16,900 Rosetta Resources, Inc. (144A)* 304,200 26,346 Southwestern Energy Co.* 946,875 2,145 Swift Energy Co.* 96,675 ----------- $ 2,259,173 ----------- Oil & Gas Storage & Transportation - 0.2% 3,050 Arlington Tankers, Ltd. $ 66,338 ----------- Total Energy $ 5,321,345 ----------- Materials - 3.0% Gold - 1.3% 34,450 Cambior, Inc.* $ 96,460 8,950 Glamis Gold, Ltd.* 245,946 29,700 IAMGOLD Corp. 232,254 ----------- $ 574,660 ----------- Paper Products - 0.4% 27,793 Domtar, Inc. $ 160,644 ----------- Specialty Chemicals - 0.3% 9,281 Chemtura Corp. $ 117,869 ----------- Steel - 1.0% 4,350 Carpenter Technology $ 306,545 9,571 NN, Inc. 101,453 ----------- $ 407,998 ----------- Total Materials $ 1,261,171 -----------
Shares Value Capital Goods - 8.1% Aerospace & Defense - 0.2% 6,633 NCI, Inc.* $ 91,071 ----------- Construction & Engineering - 0.9% 19,900 Insituform Technologies, Inc.* $ 385,463 ----------- Construction, Farm Machinery & Heavy Trucks - 3.6% 13,400 Commercial Vehicle Group, Inc.* $ 251,652 12,720 Federal Signal Corp. 190,927 8,670 Joy Global, Inc. 346,800 2,344 Nacco Industries, Inc. 274,600 17,725 Wabtec Corp. 476,803 ----------- $ 1,540,782 ----------- Electrical Component & Equipment - 1.9% 13,700 C&D Technologies, Inc. $ 104,394 56,468 Graftech International, Ltd.*(a) 351,231 56,979 Power-One, Inc.* 343,014 ----------- $ 798,639 ----------- Industrial Machinery - 1.0% 10,775 Flowserve Corp.* $ 426,259 ----------- Trading Companies & Distributors - 0.5% 5,879 Applied Industrial Technologies, Inc. $ 198,064 ----------- Total Capital Goods $ 3,440,278 ----------- Commercial Services & Supplies - 4.5% Diversified Commercial Services - 2.0% 25,385 Cornell Companies, Inc.* $ 350,821 4,700 Corrections Corporation of America* 211,359 35 Profit Recovery Group International* 21 7,823 School Specialty, Inc.* 285,070 ----------- $ 847,271 ----------- Human Resource & Employment Services - 2.5% 9,345 Korn/Ferry International* $ 174,658 51,175 On Assignment, Inc.* 558,319 11,700 Watson Wyatt Worldwide, Inc. 326,430 ----------- $ 1,059,407 ----------- Total Commercial Services & Supplies $ 1,906,678 ----------- Transportation - 4.2% Air Freight & Couriers - 0.8% 5,175 Forward Air Corp. $ 189,664 5,500 Pacer International, Inc. 143,330 ----------- $ 332,994 -----------
The accompanying notes are an integral part of these financial statements. 5 Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value Marine - 1.4% 5,800 Dryships, Inc.(a) $ 70,875 6,400 Eagle Bulk Shipping, Inc. 101,888 11,050 Excel Maritime Carriers, Ltd.* 126,523 5,450 Genco Shipping & Trading, Ltd. 95,048 18,900 Quintana Maritime, Ltd. 192,402 ----------- $ 586,736 ----------- Railroads - 1.0% 11,918 Genesee & Wyoming, Inc.* $ 446,925 ----------- Trucking - 1.0% 4,793 Dollar Thrifty Automotive Group* $ 172,882 10,750 Universal Truckload Services, Inc.* 247,250 ----------- $ 420,132 ----------- Total Transportation $ 1,786,787 ----------- Automobiles & Components - 0.4% Tires & Rubber - 0.4% 10,900 Cooper Tire & Rubber* $ 166,988 ----------- Total Automobiles & Components $ 166,988 ----------- Consumer Durables & Apparel - 0.6% Housewares & Specialties - 0.6% 8,505 Jarden Corp.*(a) $ 256,426 ----------- Total Consumer Durables & Apparel $ 256,426 ----------- Consumer Services - 0.8% Casinos & Gaming - 0.4% 12,375 Alliance Gaming Corp.*(a) $ 161,123 ----------- Restaurants - 0.4% 11,719 O'Charley's, Inc.* $ 181,762 ----------- Total Consumer Services $ 342,885 ----------- Retailing - 3.9% Apparel Retail - 0.4% 6,280 Stage Stores, Inc. $ 187,018 ----------- Catalog Retail - 1.7% 35,425 Insight Enterprises, Inc.* $ 694,684 ----------- Computer & Electronics Retail - 0.3% 21,650 Tweeter Home Entertainment Group, Inc.* $ 123,838 ----------- General Merchandise Stores - 0.6% 15,525 Fred's, Inc.(a) $ 252,592 ----------- Specialty Stores - 0.9% 28,582 Hancock Fabrics, Inc.(a) $ 116,329 41,355 Rent-Way, Inc.* 264,258 ----------- $ 380,587 ----------- Total Retailing $ 1,638,719 -----------
Shares Value Food, Beverage & Tobacco - 1.2% Agricultural Products - 0.6% 11,258 Fresh Del Monte Produce, Inc. (a) $ 256,345 ----------- Packaged Foods & Meats - 0.6% 18,175 B & G Foods, Inc. $ 263,901 ----------- Total Food, Beverage & Tobacco $ 520,246 ----------- Household & Personal Products - 1.8% Personal Products - 1.8% 4,400 Herbalife, Ltd.* $ 143,088 5,875 NBTY, Inc.* 95,469 29,629 Nu Skin Enterprises, Inc. 520,876 ----------- $ 759,433 ----------- Total Household & Personal Products $ 759,433 ----------- Health Care Equipment & Services - 5.8% Health Care Equipment - 1.0% 9,100 Analogic Corp. $ 435,435 ----------- Health Care Facilities - 0.3% 3,358 Triad Hospitals, Inc.* $ 131,734 ----------- Health Care Services - 3.4% 7,106 Chemed Corp. $ 353,026 24,225 Cross Country Healthcares, Inc.* 430,721 3,527 Pediatrix Medical Group, Inc.* 312,386 12,350 Providence Service Corp.* 355,557 ----------- $ 1,451,690 ----------- Health Care Supplies - 0.4% 13,700 Merit Medical Systems, Inc.* $ 166,318 ----------- Managed Health Care - 0.7% 14,420 AMERIGROUP Corp.* $ 280,613 ----------- Total Health Care Equipment & Services $ 2,465,790 ----------- Pharmaceuticals & Biotechnology - 0.2% Biotechnology - 0.2% 2,455 Kendle International, Inc.* $ 63,192 ----------- Total Pharmaceuticals & Biotechnology $ 63,192 ----------- Banks - 6.7% Regional Banks - 4.9% 7,875 Alliance Bankshares Corp.* $ 126,079 33,550 Cardinal Financial Corp. 369,050 4,700 City National Corp. 340,468 5,650 Signature Bank* 158,596 3,100 Southwest Bancorp, Inc.* 62,000 40,100 Sterling Bancshares, Inc. 619,144 17,225 Texas Capital Bancshares, Inc.* 386,012 ----------- $ 2,061,349 -----------
6 The accompanying notes are an integral part of these financial statements. Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Thrifts & Mortgage Finance - 1.8% 16,505 BankAtlantic Bancorp, Inc. $ 231,070 5,150 BankUnited Financial Corp.(a) 136,833 11,550 First Niagara Financial Group, Inc. 167,129 13,550 Provident Financial Services, Inc. 250,811 ----------- $ 785,843 ----------- Total Banks $ 2,847,192 ----------- Diversified Financials - 7.3% Asset Management & Custody Banks - 1.2% 28,385 Apollo Investment Corp. $ 508,943 ----------- Consumer Finance - 2.5% 8,575 Advanta Corp. $ 258,365 9,203 Advanta Corp. (Class B) 298,545 10,025 Cash America International, Inc. 232,480 7,900 The First Marblehead Corp.(a) 259,594 ----------- $ 1,048,984 ----------- Investment Banking & Brokerage - 2.4% 7,550 A.G. Edwards, Inc. $ 353,793 12,600 OptionsXpress Holdings, Inc.(a) 309,330 9,175 Piper Jaffray Co's.* 370,670 ----------- $ 1,033,793 ----------- Specialized Finance - 1.2% 7,143 Financial Federal Corp. $ 317,506 5,075 Nasdaq Stock Market, Inc.* 178,539 ----------- $ 496,045 ----------- Total Diversified Financials $ 3,087,765 ----------- Insurance - 6.4% Life & Health Insurance - 0.2% 6,600 American Equity Investment Life Holding* $ 86,130 ----------- Multi-Line Insurance - 1.4% 66,775 Quanta Capital Holdings (144A)* $ 340,553 10,200 Quanta Capital Holdings* 260,100 ----------- $ 600,653 ----------- Property & Casualty Insurance - 1.9% 21,575 Assured Guaranty, Ltd. $ 547,789 4,525 National Interstate Corp. 86,292 3,075 Selective Insurance Group, Inc. 163,283 ----------- $ 797,364 ----------- Reinsurance - 2.9% 18,126 IPC Holdings, Ltd. $ 496,290 11,700 Max Re Capital, Ltd. 303,846 8,500 Odyssey Re Holdings Corp.(a) 213,180 6,125 Platinum Underwriter Holdings, Ltd. 190,304 ----------- $ 1,203,620 ----------- Total Insurance $ 2,687,767 -----------
Shares Value Real Estate - 3.6% Real Estate Management & Development - 1.0% 32,300 Deerfield Triarc Capital Corp. $ 442,510 ----------- Real Estate Investment Trusts - 2.6% 15,913 BioMed Property Trust, Inc. $ 388,277 13,000 Capital Trust, Inc. 380,640 26,350 Feldman Mall Properties, Inc. 316,464 ----------- $ 1,085,381 ----------- Total Real Estate $ 1,527,891 ----------- Software & Services - 6.6% Application Software - 3.5% 57,000 Aspen Technology, Inc.* $ 447,450 16,570 Bottomline Technologies, Inc.* 182,601 11,500 Sonic Solutions* 173,765 14,054 SPSS, Inc.* 434,690 34,200 TIBCO Software, Inc.* 255,474 ----------- $ 1,493,980 ----------- Data Processing & Outsourced Services - 0.7% 5,925 Intrado, Inc.* $ 136,394 19,742 Pegusus Systems, Inc.*(a) 177,086 ----------- $ 313,480 ----------- IT Consulting & Other Services - 0.4% 12,275 Gartner Group, Inc.* $ 158,348 ----------- Systems Software - 2.0% 56,450 Borland Software Corp.* $ 368,619 12,725 Internet Security Systems, Inc.* 266,589 8,575 Sybase, Inc.* 187,450 ----------- $ 822,658 ----------- Total Software & Services $ 2,788,466 ----------- Technology Hardware & Equipment - 7.5% Communications Equipment - 2.8% 10,425 Black Box Corp. $ 493,937 13,250 Dycom Industries, Inc.* 291,500 1 Powerwave Technologies, Inc.* 13 46,500 Symmetricom, Inc.* 393,853 ----------- $ 1,179,303 ----------- Computer Hardware - 1.7% 13,300 Avid Technology, Inc.* $ 728,308 ----------- Computer Storage & Peripherals - 0.4% 6,160 Electronics for Imaging, Inc.* $ 163,918 ----------- Electronic Equipment & Instruments - 2.1% 17,600 Electro Scientific Industrials* $ 425,040 16,900 Planar Systems, Inc.*(a) 141,453 18,175 Technitrol, Inc. 310,793 ----------- $ 877,286 -----------
The accompanying notes are an integral part of these financial statements. 7 Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value Electronic Manufacturing Services - 0.5% 10,300 Mercury Computer Systems, Inc.* $ 212,489 ----------- Total Technology Hardware & Equipment $ 3,161,304 ----------- Semiconductors - 0.8% Semiconductor Equipment - 0.4% 11,000 Brooks Automation, Inc.* $ 137,830 ----------- Semiconductors - 0.4% 41,350 Lattice Semiconductor Corp.* $ 178,632 ----------- Total Semiconductors $ 316,462 ----------- Telecommunication Services - 1.0% Integrated Telecommunication Services - 1.0% 40,200 Alaska Communications Systems Group, Inc. $ 408,432 ----------- Total Telecommunication Services $ 408,432 ----------- Utilities - 1.8% Gas Utilities - 1.8% 7,975 AGL Resources, Inc. $ 277,607 5,750 Energen Corp. 208,840 8,005 People's Energy Corp. 280,735 ----------- $ 767,182 ----------- Total Utilities $ 767,182 ----------- TOTAL COMMON STOCKS (Cost $31,436,831) $37,522,399 ----------- EXCHANGE TRADED FUNDS - 2.1% 4,500 Russell 2000 Exchange Traded Fund (a) $ 300,105 4,500 Russell 2000 Growth Exchange Traded Fund (a) 313,335 3,875 Russell 2000 Value Exchange Traded Fund (a) 255,789 ----------- $ 869,229 ----------- TOTAL EXCHANGE TRADED FUNDS (Cost $792,156) $ 869,229 -----------
Principal Amount Value TEMPORARY CASH INVESTMENTS - 16.6% Repurchase Agreement - 7.5% $ 3,200,000 UBS Warburg, Inc., 3.25%, dated 12/30/05, repurchase price of $3,200,000 plus accrued interest on 1/3/06 collateralized by $3,336,000 U.S. Treasury Bill, 4.36%, 6/29/06 $ 3,200,000 ----------- Shares Security Lending Collateral - 9.1% 3,838,966 Securities Lending Investment Fund, 4.24% $ 3,838,966 ----------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $7,038,966) $ 7,038,966 ----------- TOTAL INVESTMENT IN SECURITIES - 107.5% (Cost $39,267,953) $45,430,594 ----------- OTHER ASSETS AND LIABILITIES - (7.5)% $(3,176,387) ----------- TOTAL NET ASSETS - 100.0% $42,254,207 ===========
* 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, 2005, the value of these securities amounted to $1,133,653 or 2.7% of total net assets. (a) At December 31, 2005, the following securities were out on loan:
Shares Security Value 11,756 Alliance Gaming Corp.* $ 153,063 129 BankUnited Financial Corp. 3,428 5,460 Dryships, Inc. 66,721 10,720 The First Marblehead Corp. 352,259 14,749 Fred's, Inc. 239,966 8,260 Fresh Del Monte Produce, Inc. 188,080 25,380 Graftech International, Ltd.* 157,864 27,153 Hancock Fabrics, Inc. 110,513 8,080 Jarden Corp.* 243,612 11,556 Massey Energy Co. 437,626 6,118 Maverick Tube Corp.* 243,863 8,075 Odyssey Re Holdings Corp. 202,521 11,878 OptionsXpress Holdings, Inc. 291,605 14,301 Pegusus Systems, Inc.* 128,280 10,830 Planar Systems, Inc.* 90,647 4,225 Russell 2000 Exchange Traded Fund 281,765 Russell 2000 Growth Exchange 4,275 Traded Fund 297,668 Russell 2000 Value Exchange 3,276 Traded Fund 216,249 ---------- Total $3,705,730 ==========
8 The accompanying notes are an integral part of these financial statements. Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Year 5/1/03(a) Ended Ended to Class II 12/31/05 12/31/04 12/31/03 Net asset value, beginning of period $ 14.95 $ 12.47 $ 9.11 ------- ------- ------- Increase (decrease) from investment operations: Net investment income (loss) $ 0.02 $ (0.03) $ (0.00) Net realized and unrealized gain on investments and foreign currency transactions 1.59 2.51 3.37 ------- ------- -------- Net increase from investment operations $ 1.61 $ 2.48 $ 3.36 Distributions to shareowners: Net realized gain (0.49) -- -- ------- ------- -------- Net increase in net asset value $ 1.12 $ 2.48 $ 3.36 ------- ------- -------- Net asset value, end of period $ 16.07 $ 14.95 $ 12.47 ======= ======= ======= Total return* 11.10% 19.89% 36.88%(b) Ratio of net expenses to average net assets+ 1.39% 1.54% 1.58%* * Ratio of net investment income (loss) to average net assets+ 0.16% (0.41)% (0.15)%** Portfolio turnover rate 38% 36% 74% Net assets, end of period (in thousands) $21,700 $10,845 $ 2,760 Ratios with no waiver of management fees and assumption of expenses by PIM and no reductionfor fees paid indirectly: Net expenses 1.39% 1.59% 2.65%* * Net investment income (loss) 0.16% (0.46)% (1.22)%** Ratios with waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.39% 1.54% 1.58%* * Net investment income (loss) 0.16% (0.41)% (0.15)%**
(a) Class II shares were first publicly offered on May 1, 2003. (b) Not annualized. * 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 the net asset value at the end of each period. ** Annualized. + Ratios with no reduction for fees paid indirectly. NOTE: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. The accompanying notes are an integral part of these financial statements. 9 Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $3,705,730) (Cost $45,430,594 $39,267,953) Cash 854,630 Receivables -- Investment securities sold 105,024 Fund shares sold 40,895 Dividends, interest and foreign taxes withheld 66,521 Other 324 ----------- Total assets $46,497,988 ----------- LIABILITIES: Payables -- Investment securities purchased $ 207,694 Fund shares repurchased 100,575 Upon return of securities loaned 3,838,966 Variation Margin 3,800 Due to affiliates 8,104 Accrued expenses 84,642 ----------- Total liabilities $ 4,243,781 ----------- NET ASSETS: Paid-in capital $33,361,929 Undistributed net investment income 94,683 Accumulated net realized gain on investments 2,652,682 Net unrealized gain (loss) on: Investments 6,162,641 Futures contracts (17,728) ----------- Total net assets $42,254,207 ----------- NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $20,554,697 Shares outstanding 1,269,643 ----------- Net asset value per share $ 16.19 Class II: (No par value, unlimited number of shares authorized) Net assets $21,699,510 Shares outstanding 1,350,250 ----------- Net asset value per share $ 16.07
10 The accompanying notes are an integral part of these financial statements. Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
Year Ended 12/31/05 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $884) $ 418,320 Interest 102,972 Income on securities loaned, net 11,006 ---------- Total investment income $ 532,298 ---------- EXPENSES: Management fees $ 262,583 Transfer agent fees and expenses 3,000 Distribution fees (Class II) 39,927 Administrative reimbursements 18,512 Custodian fees 33,950 Professional fees 45,919 Printing expense 28,855 Fees and expenses of nonaffiliated trustees 4,025 Miscellaneous 3,277 ---------- Total expenses $ 440,048 ---------- Net investment income $ 92,250 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS: Net realized gain from: Investments $2,937,296 Futures contracts 87,722 ---------- $3,025,018 ---------- Change in net unrealized gain or loss from: Investments $1,061,614 Futures contracts (50,893) ---------- $1,010,721 ---------- Net gain on investments and futures contracts $4,035,739 ========== Net increase in net assets resulting from operations $4,127,989 ==========
The accompanying notes are an integral part of these financial statements. 11 Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/05 12/31/04 FROM OPERATIONS: Net investment income (loss) $ 92,250 $ (55,495) Net realized gain on investments 3,025,018 1,744,190 Change in net unrealized gain or loss on investments and futures contracts 1,010,721 2,532,121 ------------ ------------ Net increase in net assets resulting from operations $ 4,127,989 $ 4,220,816 ------------ ------------ DISTRIBUTIONS TO SHAREOWNERS: Net realized gain Class I $ (593,880) $ -- Class II (497,417) -- ------------ ------------ Total distributions to shareowners $ (1,091,297) $ -- ------------ ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 20,346,152 $ 14,302,057 Cost of shares repurchased (9,966,656) (4,493,153) ------------ ------------ Net increase in net assets resulting from Fund share transactions $ 10,379,496 $ 9,808,904 ------------ ------------ Net increase in net assets $ 13,416,188 $ 14,029,720 ------------ ------------ NET ASSETS: Beginning of year $ 28,838,019 $ 14,808,299 ------------ ------------ End of year $ 42,254,207 $ 28,838,019 ------------ ------------ Undistributed net investment income, end of year $ 94,683 $ 260 ------------ ------------
12 The accompanying notes are an integral part of these financial statements. Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Small Cap Value VCT Portfolio (the Portfolio) is a Portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond 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 Cap Value Portfolio is to seek capital appreciation. The financial highlights for the Portfolio's Class I shares are presented in a separate book. The Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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 Portfolio, in the preparation of its financial statements, which are consistent 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 (NYSE) is open, as of the close of regular trading on the NYSE. 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. 13 Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- 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. The Portfolio also may use the fair value of a security, including a non-U.S. security, when the closing market price on the primary exchange where the security is traded no longer accurately reflects the value of the security as of the close of the NYSE. At December 31, 2005, there were no securities fair valued. 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. 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 withheld on capital gains at the applicable country rates. Small capitalization stocks, while offering the potential for higher returns, such as those held by the portfolio may be subject to greater short-term price fluctuations than securities of larger companies. Information regarding the Portfolio's principal investment risks is contained in the Portfolio's prospectus. Please refer to those documents when considering the Portfolio's risks. 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, 2005, Small Cap Value Portfolio had the following open contracts:
-------------------------------------------------------------------------------------------------------------- Number of Contracts Settlement Market Unrealized Future Contracts Type Long/(Short) Month Value Gain/(Loss) -------------------------------------------------------------------------------------------------------------- Small Cap Value Portfolio Russell 2000 4 March 2006 $1,356,600 $(17,728) --------------------------------------------------------------------------------------------------------------
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. dollars 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. 14 Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- E. Taxes It is the Portfolio'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 amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal income tax rules. Therefore, the source of the 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, 2005, 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.
-------------------------------------------------------------------------------------------------- Undistributed Net Investment Income Accumulated Net Portfolio (Loss) Realized Gain (Loss) Paid-In Capital -------------------------------------------------------------------------------------------------- Small Cap Value Portfolio $2,173 $5,404 $ (7,577) --------------------------------------------------------------------------------------------------
The following chart shows the distributions paid during the year ended December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2005. There were no distributions paid during the fiscal year ended December 31, 2004.
---------------------------------------------------------------------------- 2005 ---------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ -- Long-Term Capital Gain 1,091,297 ---------- $1,091,297 Return of Capital -- ---------- Total Distributions $1,091,297 ---------- Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 646,863 Undistributed long-term gain/(Capital loss carryforward) 2,238,710 Unrealized appreciation (depreciation) 6,006,705 ---------- Total $8,892,278 ========== ----------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation is primarily attributable to the tax deferral of losses on wash sales. F. Portfolio Shares The Portfolio records sales and repurchases of its 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), 638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. Distribution fees are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. 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 (excluding transfer agent and distribution fees) 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 the adjusted net assets at the beginning of the day. Distributions paid by a 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. 15 Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- 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 payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for the 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 sponsored 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, a wholly owned indirect subsidiary of UniCredito Italiano, manages the portfolios. Management fees are calculated daily at the annual rate of 0.75% of the Portfolio's average daily net assets. Through May 1, 2006, PIM has agreed not to impose all or a portion of its management fee and, if necessary, to limit other ordinary operating expenses of the Portfolio to the extent required to reduce Class I expenses to 1.25% of the average daily net assets attributable to Class I shares. 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, 2005, $3,108 was payable to PIM related to management fees, administrative reimbursements and certain other services, and is included in due to affiliates. 3. Transfer Agent 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 $268 in transfer agent fees payable to PIMSS at December 31, 2005. 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 to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with the Portfolio's Class II shares. Included in due to affiliates is $4,728 payable to PFD at December 31, 2005. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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 Cap Value Portfolio $39,423,889 $7,724,253 $ (1,717,548) $6,006,705 =========== ========== ============ ========== ------------------------------------------------------------------------------------------------------
16 Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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, 2005, were $20,116,602 and $11,968,562, respectively. 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the fiscal year ended December 31, 2005 and the fiscal year ended December 31, 2004.
-------------------------------------------------------------------------------------------------- Small Cap Value Portfolio '05 Shares '05 Amount '04 Shares '04 Amount -------------------------------------------------------------------------------------------------- CLASS I: Shares sold 571,103 $ 8,553,972 510,952 $ 6,774,823 Reinvestment of distributions 40,427 589,019 -- -- Shares repurchased (539,585) (8,145,222) (277,189) (3,672,701) ------------------------------------------------------------ Net increase 71,945 $ 997,769 233,763 $ 3,102,122 ============================================================ CLASS II: Shares sold 712,018 $ 10,705,770 566,136 $ 7,527,234 Reinvestment of distributions 34,350 497,391 -- -- Shares repurchased (121,596) (1,821,434) (61,897) (820,452) ------------------------------------------------------------ Net increase 624,772 $ 9,381,727 504,239 $ 6,706,782 ============================================================ --------------------------------------------------------------------------------------------------
17 Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the Shareholders 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 the Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 18 Pioneer Small Cap Value VCT Portfolio (the "Fund") PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one and three year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 19 Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the second quintile of the peer group for the 12 months ended June 30, 2005 and the second quintile for the three years ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees concluded that the performance of the Fund supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the second quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio (after giving effect to the expense limitation) for the 12 months ended June 30, 2005 was in the fifth quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. The Trustees concluded that, given current and anticipated asset levels, a break point in the management fee was not necessary at this time. As assets increase, the Trustees will continue to evaluate annually the appropriateness of break points. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, 20 Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 21 Pioneer Small Cap Value VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. -----------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Small Cap Value VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance or earlier services company) (2001-present); company); Director of New York retirement or Managing Partner, Federal City Mortgage Trust (publicly traded removal. Capital Advisors (boutique merchant mortgage REIT) bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ---------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products or earlier manufacturer), Mortgage Guaranty retirement or Insurance Corporation, and Briggs removal. & Stratton, Inc. (engine manufacturer) ---------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------
23 Pioneer Small Cap Value VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
24 Pioneer Small Cap Value VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, None Treasurer 2000. Serves at the Assistant Vice President - Fund discretion of the Accounting, Administration and Board. Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds. --------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. --------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. --------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 26 [LOGO]PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18669-00-0206 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Company VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Table of Contents -------------------------------------------------------------------------------- Pioneer Small Company VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 5 Financial Statements 9 Notes to Financial Statements 13 Report of Independent Registered Public Accounting Firm 18 Factors Considered by the Independent Trustees in Approving the Management Contract 19 Trustees, Officers and Service Providers 22
Before investing, consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 85.0% Temporary Cash Investment 10.0% Depositary Receipts for Internationl Stocks 2.6% International Common Stocks 1.6% Exchange Traded Fund 0.8%
Sector Distribution (As a percentage of equity holdings) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Industrials 19.5% Financials 18.9% Health Care 15.4% Information Technology 14.3% Consumer Discretionary 10.4% Energy 9.2% Materials 5.6% Consumer Staples 3.0% Utilities 2.9% Telecommunication Services 0.8%
Five Largest Holdings (As a percentage of equity holdings) 1. Swift Transportation Co., Inc. 1.47% 2. Cerner Corp. 1.45 3. Stage Stores, Inc. 1.39 4. Skechers U.S.A. 1.32 5. Cubist Pharmaceuticals, Inc. 1.26
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 11.71 $ 12.85
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ - $ - $ 1.2777
-------------------------------------------------------------------------------- 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. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Russell 2000 Small Company Index VCT Portfolio 01/01 10000 10000 10479 9741 8683 7746 12/03 10865 11406 12301 13497 12/05 12504 14112
Index comparison begins 1/31/01. The Russell 2000 Index measures U.S. small-cap stocks. 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- Life-of-Class 5.55% (1/19/01) 1 Year 1.65%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value - $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Small Company VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 984.79 Expenses Paid During Period* $ 7.35
* Expenses are equal to the Portfolio's annualized expense ratio of 1.47% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Small Company VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,017.80 Expenses Paid During Period* $ 7.48
* Expenses are equal to the Portfolio's annualized expense ratio of 1.47% for Class II shares, respectively, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- Co-managers Diego Franzin and Michael Rega describe conditions in the small-company universe for 2005, and the stocks that affected the Portfolio's performance. Q. How did Pioneer Small Company VCT Portfolio perform over this period? A. For the twelve months ended December 31, 2005, Class II shares of the Portfolio returned 1.65% at net asset value. The result trailed the Portfolio's benchmark, the Russell 2000 Index, which returned 4.55% over the same period. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. Please describe the background for small-company stocks over this period. A. Whether - or when - escalating energy prices and higher interest rates might cause consumers to retrench was a major investor preoccupation in 2005. A fall-off in consumer spending, which represents the bulk of U.S. economic activity, could signal trouble for the ongoing economic expansion. In fact, a slide in energy prices following post-hurricane peaks boosted consumer confidence and spending levels stayed healthy. Through the year, value and growth stocks vied for small-cap leadership, with value holding an edge at year's end. Q. Which stocks or sectors affected Portfolio performance? A. Energy was the year's top sector. High prices for oil and gas stimulated drilling activity, boosting earnings for NSS Services, which manufactures seamless piping used in oil wells. Forest Oil, a North American oil and gas exploration company, also rose. In health care, strength in Cubist Pharmaceuticals reflected rising sales of Cubicin, a drug whose effectiveness is making it the treatment of choice for hospital-based staph infections. Sales of Cerner's software, which lets medical professionals view x-rays and lab results on their computers, also grew. Hospitals are increasingly adopting systems that provide current patient data at the point of care. We took losses in generic drug maker Able Laboratories when failure to follow standardized lab procedures led to inventory recalls and cessation of manufacturing. We are still holding Seralogicals despite slowing sales of its culture media and other laboratory products at a time of payroll expansion. Among consumer discretionary issues, Guess?, makers of jeans and other casual wear for children, teens and adults, benefited from skilled management and successful execution of its business plan. But teen retailer Aeropostale stumbled. Poor product choices led to markdowns that ate into profit margins, and a new store concept failed to gain traction. We also took losses in Rewards Network when discount dining programs saw shrinking membership and investors lost confidence. Elsewhere, we took profits in Administaff, whose human resources services found growing acceptance among smaller companies lacking staff to deal with regulatory requirements. Boston Communications Group, one of our holdings in the telecommunications services sector, provides a product that allows consumers to purchase pre-paid wireless service. The company learned in May that the technology used to provide the service was in violation of a patent held by a competitor. This news led to a decline in the company's stock price. We sold the stock after the announcement, and in hindsight this was the right move as the stock price continued to fall further. Connectics, a specialty pharmaceutical company declined after receiving a Non-Approvable letter from the FDA for one of its products in development. We think the market over-reacted to this news, and we believe that the company's past history of developing well received products, as well as their aggressive sales force provide what we see as a solid foundation for growth. Q. What is your outlook for the months ahead? A. We think high energy prices will persist and that the Federal Reserve Board will hike rates a bit more. With little clear consensus on the economy's direction, however, stock selections may be more important than sector weightings in the period ahead. Our goal is to maintain a well-diversified portfolio that limits exposure to any one security, basing our selections on a combination of quantitative and fundamental analysis. Using that process, we believe prospects for many health care companies are better than current valuations might imply. In the volatile technology sector, we favor companies whose products can bolster business efficiency. An eventual end to rate hikes could revitalize housing stocks for a time, but we cut exposure to that sector in 2005 and remain wary of it for now. 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. A Word About Risk: Investments in small companies may offer the potential for higher returns, but are also subject to greater short-term price fluctuations than larger, more established companies. The Portfolio invests in REIT securities, the value of which can fall for a variety of reasons, such as declines in rental income, fluctuating interest rates, poor property management, environmental liabilities, uninsured damage, increased competition, or changes in real estate tax laws. Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value COMMON STOCK - 96.5% Energy - 8.8% Oil & Gas Equipment & Services - 4.9% 4,400 Gulfmark Offshore, Inc.* $ 130,328 2,900 Lone Star Technologies, Inc.* 149,814 3,500 Maverick Tube Corp.*(a) 139,510 3,200 NS Group, Inc.* 133,792 3,100 Offshore Logistics, Inc.* 90,520 ----------- $ 643,964 ----------- Oil & Gas Exploration & Production - 3.4% 2,425 Forest Oil Corp.* $ 110,507 2,900 Swift Energy Co.* 130,703 2,100 Stone Energy Corp.* 95,613 2,000 Houston Exploration Co.* 105,600 ----------- $ 442,423 ----------- Oil & Gas Storage & Transporation - 0.5% 1,300 Overseas Shipholding Group, Inc. $ 65,507 ----------- Total Energy $ 1,151,894 ----------- Materials - 5.4% Aluminum - 0.9% 4,500 Century Aluminum Co.* $ 117,945 ----------- Construction Materials - 1.0% 2,950 Mega Bloks, Inc. (144A)* $ 70,068 1,200 Texas Industries, Inc. 59,808 ----------- $ 129,876 ----------- Diversified Chemical - 0.8% 2,100 FMC Corp.* $ 111,657 ----------- Diversified Metals & Mining - 0.6% 4,900 Brush Engineered Materials, Inc.* $ 77,910 ----------- Specialty Chemicals - 1.2% 2,800 H.B. Fuller Co. $ 89,796 9,700 PolyOne Corp.* 62,371 ----------- $ 152,167 ----------- Steel - 0.9% 1,600 Carpenter Technology $ 112,752 ----------- Total Materials $ 702,307 ----------- Capital Goods - 10.8% Aerospace & Defense - 1.5% 5,600 Hexcel Corp.* $ 101,080 7,300 Orbital Sciences Corp.* 93,732 ----------- $ 194,812 -----------
Shares Value Construction & Farm Machinery & Heavy Trucks - 5.5% 4,500 AGCO Corp.* $ 74,565 6,700 Commercial Vehicle Group, Inc.* 125,826 5,100 Federal Signal Corp. 76,551 800 Nacco Industries, Inc. 93,720 2,000 Terex Corp.* 118,800 2,400 The Toro Co. 105,048 4,400 Wabtec Corp. 118,360 ----------- $ 712,870 ----------- Electrical Component & Equipment - 1.1% 23,700 Power-One, Inc.* $ 142,674 ----------- Industrial Machinery - 2.7% 3,200 Albany International Corp. $ 115,712 3,100 Flowserve Corp.* 122,636 2,175 Kennametal, Inc. 111,012 ----------- $ 349,360 ----------- Total Capital Goods $ 1,399,716 ----------- Commercial Services & Supplies - 3.9% Commercial Printing - 1.4% 1,800 Consolidated Graphics, Inc.* $ 85,212 2,575 John H. Harland Co. 96,820 ----------- $ 182,032 ----------- Diversified Commercial Services - 0.8% 2,301 The Brinks Co. $ 110,241 ----------- Human Resource & Employment Services - 1.7% 3,200 Administaff, Inc.(a) $ 134,560 4,400 Korn/Ferry International* 82,236 ----------- $ 216,796 ----------- Total Commercial Services & Supplies $ 509,069 ----------- Transportation - 4.2% Air Freight & Couriers - 0.4% 2,100 Pacer International, Inc. $ 54,726 ----------- Railroads - 1.6% 3,400 Genesee & Wyoming, Inc.* $ 127,500 6,900 RailAmerica, Inc.* 75,831 ----------- $ 203,331 ----------- Trucking - 2.2% 2,300 Arkansas Best Corp.(a) $ 100,464 9,100 Swift Transportation Co., Inc.* 184,730 ----------- $ 285,194 ----------- Total Transportation $ 543,251 -----------
The accompanying notes are an integral part of these financial statements. 5 Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value Automobiles & Components - 0.8% Auto Parts & Equipment - 0.8% 5,400 Aftermarket Technology Corp.* $ 104,976 ----------- Total Automobiles & Components $ 104,976 ----------- Consumer Durables & Apparel - 3.5% Footwear - 2.2% 10,800 Skechers U.S.A.* $ 165,456 5,450 Wolverine World Wide, Inc. 122,407 ----------- $ 287,863 ----------- Housewares & Specialties - 1.2% 3,000 American Greetings Corp.(a) $ 65,910 3,375 Yankee Candle Co. 86,400 ----------- $ 152,310 ----------- Leisure Products - 0.1% 625 Mega Blocks* $ 14,845 ----------- Total Consumer Durables & Apparel $ 455,018 ----------- Consumer Services - 2.2% Casinos & Gaming - 0.8% 3,900 Scientific Games Corp.* $ 106,392 ----------- Restaurants - 1.4% 5,000 O'Charley's, Inc.* $ 77,550 3,400 Rare Hospitality International, Inc.* 103,326 ----------- $ 180,876 ----------- Total Consumer Services $ 287,268 ----------- Media - 0.9% Advertising - 0.9% 1,800 R.H. Donnelley Corp.* $ 110,916 ----------- Total Media $ 110,916 ----------- Retailing - 2.7% Apparel Retail - 2.7% 7,100 Charming Shoppes, Inc.* $ 93,720 2,300 Guess?, Inc.* 81,880 5,850 Stage Stores, Inc. 174,213 ----------- $ 349,813 ----------- Total Retailing $ 349,813 ----------- Food, Beverage & Tobacco - 1.4% Packaged Foods & Meats - 1.4% 2,400 Lancaster Colony Corp. $ 88,920 2,139 The J.M. Smucker Co. 94,116 ----------- $ 183,036 ----------- Total Food, Beverage & Tobacco $ 183,036 ----------- Household & Personal Products - 1.5% Household Products - 0.8% 2,300 Central Garden & Pet Co.* $ 105,662 -----------
Shares Value Personal Products - 0.7% 5,050 Nu Skin Enterprises, Inc. $ 88,779 ----------- Total Household & Personal Products $ 194,441 ----------- Health Care Equipment & Services - 11.1% Health Care Equipment - 0.8% 4,300 Steris Corp. $ 107,586 ----------- Health Care Facilities - 3.0% 2,500 Kindred Healthcare, Inc.* $ 64,400 2,500 Lifepoint Hospitals, Inc.* 93,750 3,804 Sunrise Senior Living, Inc.*(a) 128,233 2,100 Universal Health Services, Inc. (Class B) 98,154 ----------- $ 384,537 ----------- Health Care Services - 4.9% 2,000 Cerner Corp.*(a) $ 181,820 1,200 Chemed Corp. 59,616 9,000 eResearch Technology, Inc.*(a) 135,900 3,900 Lifeline Systems, Inc.* 142,584 1,325 Pediatrix Medical Group, Inc.* 117,355 ----------- $ 637,275 ----------- Health Care Supplies - 1.3% 1,975 Haemonetics Corp.* $ 96,499 5,800 Merit Medical Systems, Inc.* 70,412 ----------- $ 166,911 ----------- Managed Health Care - 1.1% 3,500 Amerigroup Corp.* $ 68,110 1,356 Coventry Health Care, Inc* 77,238 ----------- $ 145,348 ----------- Total Health Care Equipment & Services $ 1,441,657 ----------- Pharmaceuticals & Biotechnology - 3.8% Biotechnology - 3.2% 7,425 Cubist Pharmaceuticals, Inc.* $ 157,781 7,300 InterMune, Inc.*(a) 122,640 7,100 Serologicals Corp.*(a) 140,154 ----------- $ 420,575 ----------- Pharmaceuticals - 0.6% 5,100 Connetics Corp.* $ 73,695 ----------- Total Pharmaceuticals & Biotechnology $ 494,270 ----------- Banks - 7.1% Regional Banks - 2.4% 4,700 Community Bank System, Inc. $ 105,985 3,200 Provident Bankshares Corp. 108,064 4,400 Susquehanna Bancshares, Inc. 104,192 ----------- $ 318,241 -----------
6 The accompanying notes are an integral part of these financial statements. Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Shares Value Thrifts & Mortgage Finance - 4.7% 4,300 BankAtlantic Bancorp, Inc. $ 60,200 3,100 BankUnited Financial Corp.(a) 82,367 5,000 Commercial Capital Bankcorp, Inc. 85,600 4,500 Charter Municipal Mortgage Acceptance Co. 95,310 6,800 First Niagara Financial Group, Inc. 98,396 4,800 Provident Financial Services, Inc. 88,848 2,125 Webster Financial Corp. 99,663 ----------- $ 610,384 ----------- Total Banks $ 928,625 ----------- Diversified Financials - 1.8% Asset Management & Custody Banks - 0.8% 6,078 Apollo Investment Corp. $ 108,979 ----------- Consumer Finance - 1.0% 4,078 Advanta Corp. (Class B) $ 132,290 ----------- Total Diversified Financials $ 241,269 ----------- Insurance - 3.9% Life & Health Insurance - 0.3% 3,000 American Equity Investment Life Holding* $ 39,150 ----------- Property & Casualty Insurance - 1.9% 5,600 Assured Guaranty, Ltd. $ 142,184 2,900 Infinity Property & Casualty Corp. 107,909 ----------- $ 250,093 ----------- Reinsurance - 1.7% 4,800 IPC Holdings, Ltd. $ 131,424 3,400 Max Re Capital, Ltd. 88,298 ----------- $ 219,722 ----------- Total Insurance $ 508,965 ----------- Real Estate - 5.4% Real Estate Management & Development - 0.8% 7,000 Deerfield Triarc Capital Corp. $ 95,900 ----------- Real Estate Investment Trusts - 4.6% 8,500 Anworth Mortgage Asset Corp. $ 62,050 4,577 BioMed Property Trust, Inc. 111,679 2,550 Capital Trust, Inc. 74,664 2,800 Heritage Property Investment Trust(a) 93,520 10,000 MFA Mortgage Investments, Inc. 57,000 2,800 Newcastle Investment Corp. 69,580 1,600 Redwood Trust, Inc.(a) 66,016 5,900 Saxon Capital, Inc. 66,847 ----------- $ 601,356 ----------- Total Real Estate $ 697,256 -----------
Shares Value Software & Services - 7.3% Application Software - 4.0% 16,600 Parametric Technology Co.* $ 101,260 8,500 Sonic Solutions* 128,435 5,000 SPSS, Inc.* 154,650 10,400 TIBCO Software, Inc.* 77,688 2,300 Net 1 UEPS Technologies, Inc.* 66,355 ----------- $ 528,388 ----------- Data Processing & Outsourced Services - 0.6% 5,700 The BISYS Group, Inc.* $ 79,857 ----------- Internet Software & Services - 1.1% 7,000 Earthlink, Inc.*(a) $ 77,770 12,300 Skillsoft PLC* 67,650 ----------- $ 145,420 ----------- IT Consulting & Other Services - 1.0% 9,900 Gartner Group, Inc.* $ 127,710 ----------- Systems Software - 0.6% 3,500 Internet Security Systems, Inc* $ 73,325 ----------- Total Software & Services $ 954,700 ----------- Technology Hardware & Equipment - 4.7% Communications Equipment - 2.8% 6,300 AudioCodes, Ltd.* $ 69,930 2,800 Black Box Corp. 132,664 4,800 CommScope, Inc.* 96,624 7,700 Packeteer, Inc.* 59,829 ----------- $ 359,047 ----------- Electronic Equipment & Instruments - 1.3% 7,575 Aeroflex, Inc.* $ 81,431 5,400 Technitrol, Inc. 92,340 ----------- $ 173,771 ----------- Technology Distributors - 0.6% 4,400 Agilysys, Inc. $ 80,168 ----------- Total Technology Hardware & Equipment $ 612,986 ----------- Semiconductors - 1.8% Semiconductor Equipment - 0.5% 2,500 ADE Corp.* $ 60,150 ----------- Semiconductors - 1.3% 22,000 Lattice Semiconductor Corp.* $ 95,040 500 PortalPlayer, Inc.* 14,160 3,300 Semtech Corp.* 60,258 ----------- $ 169,458 ----------- Total Semiconductors $ 229,608 -----------
The accompanying notes are an integral part of these financial statements. 7 Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value Telecommunication Services - 0.7% Integrated Telecommunication Services - 0.7% 9,400 Alaska Communications Systems Group, Inc. $ 95,504 ----------- Total Telecommunication Services $ 95,504 ----------- Utilities - 2.8% Electric Utilities - 0.7% 3,100 IDACORP, Inc. $ 90,830 ----------- Gas Utilities - 1.3% 4,600 Atmos Energy Corp. $ 120,336 1,500 People's Energy Corp. 52,605 ----------- $ 172,941 ----------- Multi-Utilities - 0.8% 2,100 CH Energy Group, Inc. $ 96,389 ----------- Total Utilities $ 360,160 ----------- TOTAL COMMON STOCKS (Cost $11,616,160) $12,556,705 ----------- TEMPORARY CASH INVESTMENT - 10.7% Security Lending Collateral - 10.7% 1,399,038 Securities Lending Investment Fund, 4.24% $ 1,399,038 ----------- TOTAL TEMPORARY CASH INVESTMENT (Cost $1,399,038) $ 1,399,038 ----------- TOTAL INVESTMENT IN SECURITIES - 107.2% (Cost $13,015,198) $13,955,743 ----------- OTHER ASSETS AND LIABILITIES - (7.2)% $ (939,304) ----------- TOTAL NET ASSETS - 100.0% $13,016,439 ===========
* 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, 2005, the value of these securities amounted to $70,068 or 0.5% of net assets. (a) At December 31, 2005, the following securities were out on loan:
Shares Security Market Value 3,040 Administaff, Inc. $ 127,832 2,850 American Greetings Corp. 62,615 2,185 Arkansas Best Corp. 95,441 2,945 BankUnited Financial Corp. 78,249 1,900 Cerner Corp.* 172,729 6,650 Earthlink, Inc.* 73,882 8,550 eResearch Technology, Inc.* 129,105 2,660 Heritage Property Investment Trust 88,844 6,935 InterMune, Inc.* 116,508 3,325 Maverick Tube Corp.* 132,535 1,520 Redwood Trust, Inc. 62,715 4,370 Serologicals Corp.* 86,264 3,614 Sunrise Senior Living, Inc.* 121,828 ---------- Total $1,348,547 ==========
8 The accompanying notes are an integral part of these financial statements. Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended 8/1/01 to Class II 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01 Net asset value, beginning of period $ 12.85 $ 11.35 $ 9.07 $ 10.95 $ 11.18 ------- ------- ------- -------- ------- Increase (decrease) from investment operations: Net investment income (loss) $ -- $ (0.05) $ (0.01) $ (0.01) $ -- Net realized and unrealized gain (loss) on investments and foreign currency transactions 0.14 1.55 2.29 (1.87) (0.23) ------- ------- ------- -------- -------- Net increase (decrease) from investment operations $ 0.14 $ 1.50 $ 2.28 $ (1.88) $ (0.23) ------- ------- ------- -------- -------- Distributions to shareowners: Net income -- -- -- -- -- Net realized gain (1.28) -- -- -- -- ------- ------- ------- -------- -------- Net increase (decrease) in net asset value $ (1.14) $ 1.50 $ 2.28 $ (1.88) $ (0.23) ------- ------- ------- -------- -------- Net asset value, end of period $ 11.71 $ 12.85 $ 11.35 $ 9.07 $ 10.95 ======= ======= ======= ======== ======== Total return* 1.65% 13.22% 25.14% (17.14)% (2.06)% Ratio of net expenses to average net assets+ 1.47% 1.48% 1.52% 1.58% 1.68%** Ratio of net investment income (loss) to average net assets+ (0.05)% (0.44)% (0.23)% (0.18)% 0.01%** Portfolio turnover rate 65% 114% 38% 53% 72% Net assets, end of period (in thousands) $ 9,732 $10,086 $ 7,095 $ 3,419 $ 938 Ratios assuming no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.83% 1.76% 2.67% 2.98% 6.71%** Net investment income (loss) (0.41)% (0.72)% (1.38)% (1.58)% 5.02%**
* 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. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. The accompanying notes are an integral part of these financial statements. 9 Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $1,348,547) (Cost $ 13,995,743 $13,015,198) Cash 545,788 Receivables -- Investment securities sold 9,459 Fund shares sold 1,621 Dividends, interest and foreign taxes withheld 21,524 ------------ Total assets $ 14,534,135 ------------ LIABILITIES: Payables -- Fund shares repurchased $ 41,334 Upon return of securities loaned 1,399,038 Due to affiliates 9,766 Accrued expenses 67,558 ------------ Total liabilities $ 1,517,696 ------------ NET ASSETS: Paid-in capital $ 11,957,445 Undistributed net investment income 1,307 Accumulated net realized gain 117,142 Net unrealized gain on: investments 940,545 ------------ Total net assets $ 13,016,439 ------------ NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 3,284,702 Shares outstanding 277,175 ------------ Net asset value per share $ 11.85 Class II: (No par value, unlimited number of shares authorized) Net assets $ 9,731,737 Shares outstanding 831,281 ------------ Net asset value per share $ 11.71
10 The accompanying notes are an integral part of these financial statements. Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
Year Ended 12/31/05 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $74) $ 163,632 Interest 15,206 Income on securities loaned, net 8,882 --------- Total investment income $ 187,720 --------- EXPENSES: Management fees $ 99,091 Transfer agent fees and expenses 7,715 Distribution fees (Class II) 24,684 Administrative reimbursements 18,512 Custodian fees 26,871 Professional fees 33,845 Printing expense 17,234 Fees and expenses of nonaffiliated trustees 3,901 Miscellaneous 2,955 --------- Total expenses $ 234,808 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (47,244) Less fees paid indirectly (139) --------- Net expenses $ 187,425 --------- Net investment income $ 295 --------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain from investments $ 167,549 --------- Change in net unrealized gain or loss from investments $ 39,771 --------- Net gain on investments, futures contracts and foreign currency transactions $ 207,320 ========= Net increase in net assets resulting from operations $ 207,615 =========
The accompanying notes are an integral part of these financial statements. 11 Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/05 12/31/04 FROM OPERATIONS: Net investment income (loss) $ 295 $ (46,684) Net realized gain on investments 167,549 2,015,360 Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions 39,771 (384,806) ------------ ------------ Net increase in net assets resulting from operations $ 207,615 $ 1,583,870 ------------ ------------ DISTRIBUTIONS TO SHAREOWNERS: Net realized gain Class I $ (336,596) $ -- Class II (1,039,487) -- ------------ ------------ Total distributions to shareowners $ (1,376,083) $ -- ------------ ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 1,818,697 $ 4,450,765 Reinvestment of distributions 1,363,305 -- Cost of shares repurchased (2,867,211) (3,135,048) ------------ ------------ Net increase in net assets resulting from Fund share transactions $ 314,791 $ 1,315,717 ------------ ------------ Net increase in net assets $ (853,677) $ 2,899,587 ------------ ------------ NET ASSETS: Beginning of year $ 13,870,116 $ 10,970,529 ------------ ------------ End of year $ 13,016,439 $ 13,870,116 ============ ============ Undistributed net investment income, end of year $ 1,307 $ -- ============ ============
12 The accompanying notes are an integral part of these financial statements. Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Small Company VCT Portfolio (the Portfolio) is a Portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty-nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) The investment objective of Small Company Portfolio is to seek capital appreciation. Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts or by qualified pension and retirement plans. The financial highlights for the Portfolio's Class I shares are presented in a separate book. The Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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. Information concerning the Portfolio's principal investment risks is contained in the Portfolio's prospectus(es). Please refer to those documents when considering the Portfolio's risks. Investing in small companies may offer the potential for higher returns, but are also subject to greater short-term price fluctuations than larger, more established companies. The following is a summary of significant accounting policies consistently followed by the Portfolio, in the preparation of its financial statements which are consistent 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 13 Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- daily, on each day the New York Stock Exchange (NYSE) is open, as of the close of regular trading on the NYSE. 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. The Portfolio also may use the fair value of a security, including a non-U.S. security, when the closing market price on the primary exchange where the security is traded no longer accurately reflects the value of the security as of the close of the NYSE. At December 31, 2005, there were no fair valued securities. 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. 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 withheld on capital gains at the applicable country rates. Small capitalization stocks, while offering the potential for higher returns, such as those in the portfolio 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 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, 2005, Small Company 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. dollars 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 Portfolio'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. 14 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Company VCT Portfolio -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal 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, 2005, 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.
----------------------------------------------------------------------------------------------------- Undistributed Net Investment Income Accumulated Net Paid-In (Loss) Realized Gain (Loss) Capital ----------------------------------------------------------------------------------------------------- Pioneer Small Company VCT Portfolio $1,012 $11,033 $(12,045) -----------------------------------------------------------------------------------------------------
The following chart shows the distributions paid during the fiscal years ended December 31, 2005 and 2004 and the components of distributable earnings (accumulated losses) as of December 31, 2005, on a tax basis.
-------------------------------------------------------------------------------- 2005 2004 -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ -- $ -- Long-term capital gain 1,376,083 -- ---------- ---------- $1,376,083 $ -- Return of Capital -- -- ---------- ---------- Total distributions $1,376,083 $ -- ========== ========== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 918 Undistributed long-term gain/(capital loss carryforward) 124,956 Unrealized appreciation (depreciation) 933,120 ---------- Total $1,058,994 ========== --------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation is primarily attributable to the tax deferral of losses on wash sales. F. Portfolio Shares The Portfolio records sales and repurchases of its 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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. Distribution fees for Class II Shares are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. 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 (excluding transfer agent and distribution fees) 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 the 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. 15 Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- 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 payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for the account of the Portfolio. 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 Portfolio has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Portfolio invests cash collateral in the Securities Lending Investment Fund which is sponsored by Brown Brothers Harriman & Co., the Portfolio'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, a wholly owned indirect subsidiary of UniCredito Italiano, manages the portfolio. Management fees are calculated daily at the annual rate of 0.75% of the Portfolio's average daily net assets. Through May 1, 2006, PIM has agreed not to impose a portion of its management fees and to limit other operating expenses to the extent required to limit expenses of Class I shares to 1.25% of the average daily net assets attributable to Class I shares; the portion of portfolio expenses attributable to Class II shares will be reduced only to the extent such expenses are reduced for Class I shares. 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, 2005, $3,662 was payable to PIM related to management fees, administrative fees and certain other services, and is included in due to affiliates. 3. Transfer Agent 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 $3,942 in transfer agent fees payable to PIMSS at December 31, 2005. 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 to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with the Portfolio's Class II shares. Included in due to affiliates is $2,162 payable to PFD at December 31, 2005. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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 $13,022,623 $1,568,897 $ (635,777) $933,120 =========== ========== =========== ======== ----------------------------------------------------------------------------------------------
16 Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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, 2005, were $8,231,411 and $9,545,681, respectively. 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: -------------------------------------------------------------------------------
------------------------------------------------------------------------------------------ Small Company Portfolio '05 Shares '05 Amount '04 Shares '04 Amount ------------------------------------------------------------------------------------------ CLASS I: Shares sold 28,888 $ 341,646 56,890 $ 670,369 Reinvestment of distributions 28,887 323,819 -- -- Shares repurchased (72,370) (872,188) (103,931) (1,215,329) ----------------------------------------------------- Net increase (14,595) $ (206,723) (47,041) $ (544,960) ===================================================== CLASS II: Shares sold 122,621 $ 1,477,051 320,212 $ 3,780,396 Reinvestment of distributions 93,902 1,039,486 -- -- Shares repurchased (169,970) (1,995,023) (160,864) (1,919,719) ------------------------------------------------------ Net increase 46,553 $ 521,514 159,348 $ 1,860,677 ===================================================== ------------------------------------------------------------------------------------------
17 Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the 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 the Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four 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 audit. The financial highlights for the year ended December 31, 2001 was 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 the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and financial highlights for each of the four years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 18 Pioneer Small Company VCT Portfolio (the "Fund") PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one and three year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 19 Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and an index, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the fifth quintile of the peer group for the 12 months ended June 30, 2005 and the fifth quintile for the three year period ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be fifth quintile.) C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 was in the first quintile relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio (before and after giving effect to the expense limitation) for the 12 months ended June 30, 2005 was in the fifth quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there is potential for realization of any further economies of scale. The Trustees concluded that, given current and anticipated asset levels, break points in the management fees were not necessary at this time. As assets increase, the Trustees would continue to evaluate annually the appropriateness of break points. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and 20 Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 21 Pioneer Small Company VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. -----------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Small Company VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance or earlier services company) (2001-present); company); Director of New York retirement or Managing Partner, Federal City Mortgage Trust (publicly traded removal. Capital Advisors (boutique merchant mortgage REIT) bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ---------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products or earlier manufacturer), Mortgage Guaranty retirement or Insurance Corporation, and Briggs removal. & Stratton, Inc. (engine manufacturer) ---------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------
23 Pioneer Small Company VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
24 Pioneer Small Company VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, None Treasurer 2000. Serves at the Assistant Vice President - Fund discretion of the Accounting, Administration and Board. Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds. --------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. --------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. --------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 25 [LOGO] PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18668-00-0206 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Table of Contents ----------------------------------------------------------------------- Pioneer Strategic Income VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 5 Financial Statements 17 Notes to Financial Statements 21 Report of Independent Registered Public Accounting Firm 26 Factors Considered by the Independent Trustees in Approving the Management Contract 27 Trustees, Officers and Service Providers 30
Before investing consider the fund's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Corporate Bonds 45.0% U.S. Government Securities 41.3% Foreign Government Bonds 7.9% Asset Backed Securities 2.9% Municipal Bonds 1.0% Temporary Cash Investment 0.9% Collateralized Mortgage Obligations 0.7% Convertible Corporate Bonds 0.3%
Maturity Distribution (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
0-1 year 7.6% 1-3 years 15.3% 3-4 years 15.8% 4-6 years 39.9% 6-8 years 14.3% 8+ years 7.1%
Five Largest Holdings (As a percentage of long-term holdings) 1. U.S. Treasury Inflation Protected Security, 3.5%, 1/15/11 6.54% 2. U.S. Treasury Bonds, 5.25%, 11/15/28 2.54 3. U.S. Treasury Strip, 0.0%, 11/15/13 2.21 4. U.S. Treasury Inflation Protected Security, 3.0%, 7/15/12 1.53 5. Federal Home Loan Mortgage Corp., 4.5%, 4/1/20 1.44
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $10.76 $11.26 Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $0.6128 $0.0045 $0.1523
-------------------------------------------------------------------------------- Performance of a $10,000 Investment 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. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Strategic Lehman Brothers Income VCT Portfolio U.S. Universal Index 7/99 $10,000 $10,000 $10,060 $10,136 $10,488 $11,234 12/01 $11,184 $12,144 $12,352 $13,338 12/03 $15,073 $14,117 $16,574 $14,817 12/05 $16,986 $15,219
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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- Life-of-Class 8.59% (7/29/99) 5 Years 10.12% 1 Year 2.49%
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charges. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value [divided by] $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Strategic Income VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II ---------------------------------------------------------------- Beginning Account Value on 7/1/05 $1,000.00 Ending Account Value on 12/31/05 $1,009.36 Expenses Paid During Period* $ 5.77
* Expenses are equal to the Portfolio's annualized expense ratio of 1.14% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Strategic Income VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2005 through December 31, 2005.
Share Class II ---------------------------------------------------------------- Beginning Account Value on 7/1/05 $1,000.00 Ending Account Value on 12/31/05 $1,019.46 Expenses Paid During Period* $ 5.80
* Expenses are equal to the Portfolio's annualized expense ratio of 1.14% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- Most sectors in the fixed income market produced positive, if modest, results during 2005. The most noteworthy exception to this overall trend was in emerging market debt, which outperformed other parts of the global bond markets as the worldwide recovery persisted. Within the U.S., rising interest rates for bonds of most maturities caused some price erosion, although not enough to erase the positive benefits of income produced by bonds. In the following interview, Kenneth J. Taubes discusses the factors that influenced the Strategic Income Portfolio's performance during the 12 months. Mr. Taubes, Director of Pioneer's Fixed Income Group, oversees the team responsible for the daily management of the Portfolio. Q: How did the Portfolio perform during the 12 months ended December 31, 2005? A: The Portfolio performed relatively well. Strategic Income Portfolio Class II Shares had a total return of 2.49% at net asset value for the year. During the same 12 months, the benchmark Lehman U.S. Universal Bond Index returned 2.61%. The Portfolio also continued to deliver a competitive stream of income. On December 31, 2005, the SEC standardized 30-day yield for Class II shares was 4.69%. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q: How would you describe the overall investment environment during the year? A: Against a backdrop of persistent economic growth, the Federal Reserve Board continued to tighten monetary policy in the United States. The central bank raised the key fed funds rate eight different times during the period as the rate rose from 2.25% to 4.25% by the end of 2005. While the rate hikes were widely expected, they nevertheless had an impact on the financial markets. Yields on securities of most maturities rose, and prices declined. That affected, for example, two-year, five-year and 10-year Treasuries. The principal exception was the 30-year Treasury bond, where the yields actually declined. Over the year, the difference between the yields of shorter- and longer-term securities grew smaller, which means the yield curve flattened. At year's end, the yield curve had inverted in some places. This phenomenon, when interest rates of shorter maturity securities become higher than some longer maturity securities, is a reversal of the usual relationships. Because of the flattening yield curve, performance of fixed income portfolios was heavily influenced by the distribution of maturities in the portfolio. Intermediate term bonds - those in the middle of the yield curve - tended to perform relatively poorly. Corporate bonds delivered modestly positive results, with both investment grade and high yield producing similar results on a total return basis. The primary difference was that high yield bonds tended to lose more principal, although the higher income of those lower-rated securities made up the difference on a total return basis. Mortgages generally outperformed corporate bonds as well as Treasuries, as they offered relatively good yield with less principal loss than other sectors. High yield corporate bonds from developed nations, in local currencies, outperformed U.S. high yield debt, but returns were eroded by the strength of the dollar. Helped by a yield advantage of U.S. short-term securities over comparable maturity debt from other countries, the U.S. dollar appreciated more than 10% against major foreign currencies during 2005. Emerging market securities were by far the best-performing part of the fixed income market. Benchmarks for emerging market debt were about 12% for the year, as the continuing global economic recovery raised commodity prices, including oil and other basic materials, supporting the economies of many developing nations. 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. A Word About Risk: When interest rates rise, the prices of fixed-income securities in the Portfolio will generally fall. Conversely, when interest rates fall the prices of fixed-income securities in the Portfolio will generally rise. Investments in the Portfolio are subject to possible loss due to the financial failure of underlying securities and their inability to meet their debt obligations. Prepayment risk is the chance that mortgage-backed bonds will be paid off early if falling interest rates prompt homeowners to refinance their mortgages. Forced to reinvest the unanticipated proceeds at lower interest rates, the Portfolio would experience a decline in income and lose the opportunity for additional price appreciation associated with falling interest rates. The securities issued by U.S. Government sponsored entities (i.e., FNMA, Freddie Mac) are neither guaranteed nor issued by the U.S. Government. The Portfolio may invest in mortgage-backed securities, which during times of fluctuating interest rates may increase or decrease more than other fixed-income securities. Mortgage-Backed securities are also subject to pre-payments. Investments in high yield or lower-rated securities are subject to greater-than-average risk. Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. 4 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Q: What types of investments most influenced Portfolio performance? A: We continued to maintain a well-diversified portfolio and our investments in emerging market debt had a substantial positive impact on results. We typically had about 12% of Portfolio assets invested in developing nation securities. They were a primary contributor to results. We also had a healthy allocation to investment-grade corporate and government bonds denominated in major foreign currencies. They accounted for about 11% of Portfolio assets at year-end. While those securities outperformed comparable U.S. debt in their local currencies, the effect of the strengthening of the U.S. dollar held back the final results to the Portfolio. However, we did hedge part of our foreign currency exposure, partially easing the effects of the dollar's appreciation on Portfolio performance. Within the U.S., we tended to focus on securities with a yield advantage. In investing in government debt, we favored mortgages over Treasuries, and that helped performance. On December 31, 2005, approximately 22.3% of Portfolio assets were invested in mortgage-backed securities, 18.2% invested in Treasuries, with a growing allocation to Treasury Inflation-Protected Securities (TIPS) that tended to perform well. In addition, we were well positioned on the yield curve, with a greater emphasis on higher-yielding, longer-maturity bonds that outperformed intermediates. Although we upgraded overall credit quality during the year and reduced our investment in domestic high-yield corporate bonds, we still maintained a healthy allocation to this sector, which comprised about 25.5% of Portfolio assets on December 31, 2005, compared to 29.3% one year earlier. Overall, average credit quality stood at A- at the end of 2005. Effective duration - a measure of sensitivity to changes in interest rates - was 4.72 years on December 31, 2005, while the average maturity of Portfolio holdings was 6.75 years. Individual contributors to performance included bonds issued by: UnumProvident, a major disability insurer that underwent a successful restructuring; J. Ray McDermott, an oil and gas drilling company; and VALE Overseas, the Brazilian company which is the world's largest iron mine operator and which announced a tender offer for part of its high-yield debt. While we underweighted bonds of the poor-performing automotive industry within our domestic portfolio, we did own bonds issued by Delphi, the major auto components company that filed for bankruptcy protection. We have sold that position. However, we have retained a position in another disappointing investment, bonds of Northwest Airlines, which also filed for bankruptcy during 2005. Q: What is your investment outlook? A: We expect to continue to upgrade the overall credit quality of our Portfolio while keeping it well-diversified to take advantage of opportunities throughout the world. Overall, economic growth may continue, but values of debt securities could be less attractive than last year. The continued dynamic expansion of the economy in China should drive the growth of emerging markets throughout the globe as well as in Asia, which could also be affected by recovery in Japan. This could be felt most in countries rich in commodities such as iron, copper, nickel and oil. However, emerging market bonds do not offer compelling values, as their prices already reflect an optimistic outlook. Interest rates offered by foreign, high-yield corporate bonds also are not as attractive as they were earlier in light of their strong performance in local currencies over the year. However, we think the U.S. dollar may begin to weaken again against foreign currencies, which could improve the returns available to U.S.-based investors in foreign corporate and government bonds. Within the U.S., we expect that the pace of economic growth may slow in 2006, but the economy should continue to expand. The Federal Reserve Board may continue to raise short-term rates in the early part of the year, but we do not anticipate that monetary policy will become so restrictive as to push the economy into recession. At a time when spreads - or the differences between yields - are tight between yields of fixed income securities of different credit quality, we expect to continue to upgrade overall credit quality. We anticipate maintaining an emphasis on mortgage-backed securities over corporate bonds. Within our Treasury holdings, we expect to continue to focus on TIPS. Increased corporate merger-and-acquisition activity poses a potential threat to holders of investment grade, corporate bonds, as many merger deals benefit shareholders more than bondholders. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 5 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value CONVERTIBLE CORPORATE BONDS - 0.3% Semiconductors - 0.3% Semiconductor Equipment - 0.3% 170,000 NR/NR Brooks Automation, Inc., 4.75%, 6/1/08 $ 163,413 ----------- Total Semiconductors $ 163,413 ----------- TOTAL CONVERTIBLE CORPORATE BONDS (Cost $155,654) $ 163,413 ----------- ASSET BACKED SECURITIES - 2.7% Diversified Financials - 1.0% Consumer Finance - 0.0% DKK 27,955 AA+/Aa1 Realkredit Danmark, 7.0%, 10/1/32 $ 4,766 ----------- Diversified Financial Services - 1.0% 277,230 BB-/Ba2 Caithness Coso Fund Corp., 6.263%, 6/15/14 (144A) $ 282,897 195,478 BBB-/Baa2 PF Export Receivable Master Trust, 6.436%, 6/1/15 (144A) 195,177 151,798 BBB/Baa2 Power Receivables Finance, 6.29%, 1/1/12 (144A) 154,309 ----------- $ 632,383 ----------- Total Diversified Financials $ 637,149 ----------- Utilities - 1.7% Electric Utilities - 1.7% 174,150 BBB-/Baa3 Empresa Electric, 8.625%, 4/30/13 (144A) $ 195,128 339,690 BB-/Ba2 FPL Energy Wind Funding, 6.876%, 6/27/17 (144A) 339,265 392,644 NR/NR Ormat Funding Corp., 8.25%, 12/30/20 396,571 84,715 B+/B1 Tenaska Alabama, Floating Rate Note, 6/30/21 (144A) (b) 85,226 ----------- $ 1,016,190 ----------- Total Utilities $ 1,016,190 ----------- TOTAL ASSET BACKED SECURITIES (Cost $1,640,571) $ 1,653,339 ----------- COLLATERALIZED MORTGAGE OBLIGATIONS - 0.7% Diversified Financials - 0.7% Diversified Financial Services - 0.7% 160,000 BBB-/Baa3 Tower 2004-1A E, 5.395%, 1/15/34 $ 153,941 265,000 NR/Ba2 Tower 2004-2A F, 6.376%, 12/15/14 264,266 ----------- $ 418,207 ----------- Total Diversified Financials $ 418,207 ----------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $425,000) $ 418,207 ----------- CORPORATE BONDS - 43.0% Energy - 5.1% Coal & Consumable Fuels - 0.5% 283,924 BBB-/NR Indocoal Exports Cayman, 7.134%, 7/6/12 (144A) $ 283,214 ----------- Oil & Gas Equipment & Services - 1.2% 350,000 CCC+/Caa1 J. Ray McDermott SA, 11.0%, 12/15/13 (144A) $ 413,000 170,000 B-/B2 Targa Resources, Inc., 8.5%, 11/1/13 (144A) 175,321 150,000 B+/B1 Semgroup LP, 8.75%, 11/15/15 (144A) 153,375 ----------- $ 741,696 -----------
6 The accompanying notes are an integral part of these financial statements. Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Oil & Gas Exploration & Production - 3.1% 70,000 B+/B1 Atlas Pipeline Partners, 8.125%, 12/15/15 (144A) $ 70,613 210,000 B-/B3 Baytex Energy, Ltd., 9.625%, 7/15/10 220,500 200,000 B-/B3 Clayton Williams Energy, 7.75%, 8/1/13 192,000 145,000 B/B2 Compton Petroleum Corp., 7.625%, 12/1/13 (144A) 148,263 75,000 B-/B3 Delta Petroleum Corp., 7.0%, 4/1/15 69,187 500,000 BBB-/Baa3 Gazprom International SA, 7.201%, 2/1/20 (144A) 534,250 ITL 275,000,000 BBB-/Baa2 Petroleos Mexicanos, 7.375%, 8/13/07 178,603 300,000 CCC+/Caa1 Petroquest Energy, Inc., 10.375%, 5/15/12 313,500 200,000 B+/B2 Stone Energy Corp., 6.75%, 12/15/14 189,500 ----------- $ 1,916,416 ----------- Oil & Gas Storage & Transporation - 0.3% 176,000 B/B3 Transmontaigne, Inc., 9.125%, 6/1/10 $ 172,920 ----------- Total Energy $ 3,114,246 ----------- Materials - 8.2% Aluminum - 0.8% 370,000 BB/Ba3 Asia Aluminum Holdings, 8.0%, 12/23/11 (144A) $ 361,213 140,000 B/B1 Novelis, Inc., 7.25%, 2/15/15 130,550 ----------- $ 491,763 ----------- Commodity Chemicals - 1.0% 110,000 BB-/B1 Arco Chemical Co., 9.8%, 2/1/20 $ 123,475 125,000 CCC+/B3 Aventine Renewable Energy, Floating Rate Note, 12/15/11 (b) 129,375 300,000 B+/B1 Invista, 9.25%, 5/1/12 (144A) 320,250 ----------- $ 573,100 ----------- Diversified Chemical - 0.7% 100,000 BB-/Ba3 Braskem International, Ltd., 9.375%, 6/1/15 (144A) $ 110,000 150,000 BB+/NR LPG International, Inc., 7.25%, 12/20/15 (144A) 148,050 EURO 145,000 B-/B2 Nell AF Sarl, 8.375%, 8/15/15 (144A) 174,138 ----------- $ 432,188 ----------- Diversified Metals & Mining - 1.5% 200,000 B+/B1 Freeport-McMoran Copper & Gold, 6.875%, 2/1/09 $ 202,000 400,000 NR/Ba1 Vale Overseas, Ltd., 8.25%, 1/17/34 460,500 280,000 BB+/Ba2 Vedenta Resources Plc, 6.625%, 2/22/10 (144A) 272,393 ----------- $ 934,893 ----------- Forest Products - 1.2% 505,000 B+/B1 Ainsworth Lumber, 6.75%, 3/15/14 $ 433,038 290,000 BB-/Ba2 Sino Forest Corp., 9.125%, 8/17/11 (144A) 311,025 ----------- $ 744,063 ----------- Metal & Glass Containers - 0.2% 130,000 BB-/B1 Greif Brothers Corp., 8.875%, 8/1/12 $ 138,450 ----------- Paper Packaging - 0.3% 160,000 CCC+/Caa2 Graham Packaging Co., 9.875%, 10/15/14 $ 156,000 -----------
The accompanying notes are an integral part of these financial statements. 7 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Paper Products - 0.5% 100,000 BB-/Ba3 Abitibi-Consolidated, Inc., 6.0%, 6/20/13 $ 84,750 200,000 BB-/Ba3 Bowater, Inc., 6.5%, 6/15/13 179,000 55,000 B/Caa1 Mercer International, Inc., 9.25%, 2/15/13 46,338 ----------- $ 310,088 ----------- Specialty Chemicals - 1.5% 130,000 BBB-/Baa3 Basell Finance Co., 8.1%, 3/15/27 (144A) $ 118,950 350,000 B-/Caa2 Crystal US Holdings, Inc., Floating Rate Note, 10/1/14 (b) 255,500 300,000 BB/Ba1 Ferro Corp., 7.125%, 4/1/28 305,171 25,000 BB/Ba1 Ferro Corp., 7.625%, 5/1/13 25,527 EURO 140,000 CCC+/B3 Rhodia SA, 8.0%, 6/1/10 173,931 EURO 45,000 CCC+/Caa1 Rhodia SA, 9.25%, 6/1/11 56,705 ----------- $ 935,784 ----------- Steel - 0.4% 105,000 BB/Ba2 International Steel Group, 6.5%, 4/15/14 $ 105,000 135,000 BBB/Ba1 Ispat Inland ULC, Floating Rate Note, 4/1/10 (b) 140,400 ----------- $ 245,400 ----------- Total Materials $ 4,961,729 ----------- Capital Goods - 3.7% Building Products - 2.1% 355,000 B-/B3 Builders Firstsource, Inc., Floating Rate Note, 2/15/12 (b) $ 361,213 180,000 BB-/B1 Caue Finance, Ltd., 8.875%, 8/1/15 (144A) 196,200 250,000 BB-/Ba3 Desarrolladora Homex SA, 7.5%, 9/28/15 (144A) 245,625 195,000 B+/B2 Resolution Perform Production, 8.0%, 12/15/09 198,900 275,000 B-/B3 U.S. Concrete, Inc., 8.375%, 4/1/14 274,313 ----------- $ 1,276,251 ----------- Construction & Engineering - 0.3% 160,000 B+/Ba2 Dycom Industries, 8.125%, 10/15/15 (144A) $ 160,000 ----------- Construction, Farm Machinery & Heavy Trucks - 0.3% 70,000 B-/B3 American Rock Salt Co., 9.5%, 3/15/14 $ 70,700 115,000 BB-/Ba3 Navistar International, 6.25%, 3/1/12 102,924 ----------- $ 173,624 ----------- Industrial Machinery - 0.3% 150,000 B/B2 Gardner Denver, Inc., 8.0%, 5/1/13 (144A) $ 157,500 53,000 B/B3 JLG Industries, Inc., 8.375%, 6/15/12 55,915 ----------- $ 213,415 ----------- Trading Companies & Distributors - 0.7% 475,000 BB+/Ba1 Noble Group, Ltd., 6.625%, 3/17/15 (144A) $ 437,421 ----------- Total Capital Goods $ 2,260,711 ----------- Commercial Services & Supplies - 1.8% Diversified Commercial Services - 1.2% 205,000 B+/Ba2 FTI Consulting, 7.625%, 6/15/13 (144A) $ 211,150 290,000 CCC+/Caa1 Park-Ohio Industries, Inc., 8.375%, 11/15/14 253,750 275,000 B+/B2 United Rentals NA, Inc., 7.75%, 11/15/13 268,125 ----------- $ 733,025 -----------
8 The accompanying notes are an integral part of these financial statements. Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Environmental & Facilities Services - 0.6% 130,000 B/B3 Clean Harbors, Inc., 11.25%, 7/15/12 (144A) $ 146,250 240,000 B-/Caa1 Hydrochem Industrial Service, 9.25%, 2/15/13 (144A) 230,400 ----------- $ 376,650 ----------- Total Commercial Services & Supplies $ 1,109,675 ----------- Transportation - 3.6% Air Freight & Couriers - 0.2% 130,000 BB-/B1 Petroleum Helicopters, 9.375%, 5/1/09 $ 136,988 ----------- Airlines - 0.4% 85,000 CCC/Caa2 AMR Corp., 9.8%, 10/1/21 $ 63,538 150,000 B/B3 Continental Air, Inc., 7.568%, 12/1/06 147,797 ----------- $ 211,335 ----------- Airport Services - 0.1% 55,000 B-/Caa1 K&F Acquisition, Inc., 7.75%, 11/15/14 $ 55,688 ----------- Marine - 1.9% NOK 3,530,000 NR/NR Kvaerner ASA, 0.0%, 10/30/11 $ 531,993 325,000 B/B2 Ship Finance International, Ltd., 8.5%, 12/15/13 303,875 315,000 BB-/Ba3 Stena AB, 7.0%, 12/1/16 288,225 40,000 B-/B3 Trailer Bridge, Inc., 9.25%, 11/15/11 41,150 ----------- $ 1,165,243 ----------- Railroads - 0.5% 210,000 CCC+/B3 Atlantic Express Transport, 12.0%, 4/15/08 $ 182,700 130,000 B+/B2 TFM SA De CV, 9.375%, 5/1/12 (144A) 142,350 ----------- $ 325,050 ----------- Trucking - 0.5% 320,000 B+/B1 Greenbrier Co., Inc., 8.375%, 5/15/15 $ 326,400 ----------- Total Transportation $ 2,220,704 ----------- Automobiles & Components - 0.9% Auto Parts & Equipment - 0.4% 130,000 B+/Ba3 Commercial Vehicle Group, 8.0%, 7/1/13 $ 128,700 125,000 B+/Ba2 Sun Sage BV, 8.25%, 3/26/09 (144A) 131,718 ----------- $ 260,418 ----------- Tires & Rubber - 0.5% 280,000 B-/B3 Goodyear Tire & Rubber, 9.0%, 7/1/15 (144A) $ 276,500 ----------- Total Automobiles & Components $ 536,918 ----------- Consumer Durables & Apparel - 1.1% Footwear - 0.3% 153,000 BB-/B1 Brown Shoe Co., Inc., 8.75%, 5/1/12 $ 159,885 ----------- Homebuilding - 0.8% 148,000 BB-/Ba3 Meritage Homes Corp., 6.25%, 3/15/15 $ 134,680 250,000 B+/Ba3 WCI Communities, Inc., 6.625%, 3/15/15 217,500 150,000 B+/Ba3 WCI Communities, Inc., 7.875%, 10/1/13 141,375 ----------- $ 493,555 ----------- Total Consumer Durables & Apparel $ 653,440 -----------
The accompanying notes are an integral part of these financial statements. 9 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Consumer Services - 0.2% Hotels, Resorts & Cruise Lines - 0.2% 100,000 B-/Caa1 Trump Entertainment Resorts, 8.5%, 6/1/15 $ 97,500 ----------- Total Consumer Services $ 97,500 ----------- Media - 1.5% Broadcasting & Cable TV - 0.6% 145,000 B-/B3 Innova S De R.L., 9.375%, 9/19/13 $ 160,950 200,000 B-/B2 Kabel Deutschland GMBH, 10.625%, 7/1/14 210,500 ----------- $ 371,450 ----------- Movies & Entertainment - 0.6% 335,000 B+/Ba2 Corp Interamer De Entret, 8.875%, 6/14/15 (144A) $ 328,300 ----------- Publishing - 0.3% 200,000 B/B1 Sheridan Acquisition Corp., 10.25%, 8/15/11 $ 205,750 ----------- Total Media $ 905,500 ----------- Retailing - 0.9% Automotive Retail - 0.1% 35,000 B/B3 Pep Boys-Manny Moe Jack, 7.5%, 12/15/14 $ 31,150 ----------- Computer & Electronics Retail - 0.1% 95,000 B+/Ba3 GSC Holdings Corp., 8.0%, 10/1/12 (144A) $ 89,538 ----------- Distributors - 0.5% EURO 215,000 B-/B2 Central Eur Distribution Corp., 8.0%, 7/25/12 (144A) $ 275,374 ----------- Specialty Stores - 0.2% 145,000 B/B3 Asbury Automotive Group, 8.0%, 3/15/14 $ 138,475 ----------- Total Retailing $ 534,537 ----------- Food & Drug Retailing - 0.3% Drug Retail - 0.3% 145,000 CCC+/Caa1 Duane Reade, Inc., 9.75%, 8/1/11 (a) $ 97,150 110,000 B-/B2 Duane Reade, Inc., Floating Rate Note, 12/15/10 (b) 102,300 ----------- $ 199,450 ----------- Total Food & Drug Retailing $ 199,450 ----------- Food, Beverage & Tobacco - 0.9% Brewers - 0.7% 202,000 B-/B3 Argentine Beverages, 7.375%, 3/22/12 (144A) $ 203,010 220,000 BBB-/Baa3 Cia Brasileira de Bebida, 8.75%, 9/15/13 257,125 ----------- $ 460,135 ----------- Soft Drinks - 0.2% 80,000 BBB-/Baa3 Cia Brasileira de Bebida, 10.5%, 12/15/11 $ 98,400 ----------- Total Food, Beverage & Tobacco $ 558,535 ----------- Health Care Equipment & Services - 0.8% Health Care Distributors - 0.1% 60,000 BB+/Ba2 Omnicare, Inc., 6.125%, 6/1/13 $ 58,950 ----------- Health Care Equipment - 0.2% 165,000 B-/B3 Medical Services Co., Floating Rate Note, 10/15/11 (144A) (b) $ 127,050 -----------
10 The accompanying notes are an integral part of these financial statements. Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Health Care Services - 0.3% 175,000 CCC+/Caa1 Rural/Metro Corp., 9.875%, 3/15/15 (144A) $ 178,500 ----------- Health Care Supplies - 0.2% 125,000 CCC+/Caa1 Inverness Medical Innovation, 8.75%, 2/15/12 $ 126,874 ----------- Total Health Care Equipment & Services $ 491,374 ----------- Pharmaceuticals & Biotechnology - 0.3% Pharmaceuticals - 0.3% 180,000 CCC+/Caa1 Warner Chilcott Corp., 8.75%, 2/1/15 (144A) $ 165,600 ----------- Total Pharmaceuticals & Biotechnology $ 165,600 ----------- Banks - 1.2% Diversified Banks - 1.2% 185,000 B/Ba1 ATF Bank JSC, 9.25%, 4/12/12 (144A) $ 195,564 170,000 BB/Baa2 Kazkommerts International BV, 8.0%, 11/3/15 180,200 150,000 B+/Ba2 Russian Stand Bank, 7.5%, 10/7/10 (144A) 146,625 15,000 BBB+/A1 Skandinaviska Enskilda Bank, 8.125%, 9/6/49 (144A) 15,333 175,000 NR/Baa2 Turanalem Finance BV, 8.5%, 2/10/15 (144A) 188,020 ----------- $ 725,742 ----------- Total Banks $ 725,742 ----------- Diversified Financials - 2.7% Consumer Finance - 1.0% 340,000 BB+/Baa2 Ford Motor Credit Co., 5.7%, 1/15/10 (a) $ 289,021 35,000 BB+/Baa2 Ford Motor Credit Co., 5.8%, 1/12/09 30,537 320,000 A/A2 SLM Corp., Floating Rate Note, 7/25/14 (b) 300,886 ----------- $ 620,444 ----------- Investment Banking & Brokerage - 0.6% 325,000 B+/B1 E*Trade Financial Corp., 8.0%, 6/15/11 $ 338,000 ----------- Diversified Financial Services - 1.1% 210,000 B/B3 Dollar Financial Group, 9.75%, 11/15/11 $ 216,300 325,000 BBB-/Baa3 Glencore Funding LLC, 6.0%, 4/15/14 (144A) 305,676 170,000 B-/B3 Harvest Operations Corp., 7.875%, 10/15/11 169,150 ----------- $ 691,126 ----------- Total Diversified Financials $ 1,649,570 ----------- Insurance - 3.6% Life & Health Insurance - 1.0% 390,000 B-/B2 Presidential Life Corp., 7.875%, 2/15/09 $ 386,100 200,000 BB+/Ba1 Provident Companies., Inc., 7.0%, 7/15/18 206,811 ----------- $ 592,911 ----------- Multi-Line Insurance - 0.5% 325,000 BB/Ba1 Hanover Insurance Group, 7.625%, 10/15/25 $ 333,297 ----------- Property & Casualty Insurance - 1.1% 285,000 BBB-/NR Kingsway America, Inc., 7.5%, 2/1/14 $ 293,652 350,000 BB/Baa3 Ohio Casualty Corp., 7.3%, 6/15/14 376,187 ----------- $ 669,839 -----------
The accompanying notes are an integral part of these financial statements. 11 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Reinsurance - 1.0% 200,000 BBB-/Baa3 Odyssey Re Holdings, 7.65%, 11/1/13 $ 208,981 365,000 BBB/Baa2 Platinum Underwriters Financial, 7.5%, 6/1/17 371,963 ----------- $ 580,944 ----------- Total Insurance $ 2,176,991 ----------- Real Estate - 2.1% Real Estate Management & Development - 0.2% 125,000 BB-/Ba3 Forest City Enterprises, 7.625%, 6/1/15 $ 132,500 ----------- Real Estate Investment Trusts - 1.9% 120,000 B+/B3 BF Saul Real Estate Investment Trust, 7.5%, 3/1/14 $ 122,100 95,000 B+/B1 Crescent Real Estate, 9.25%, 4/15/09 99,987 374,000 B+/Ba3 Host Marriott LP, 6.375%, 3/15/15 373,065 340,000 B+/B1 Trustreet Properties, Inc., 7.5%, 4/1/15 340,000 180,000 BB/Ba3 Ventas Realty Capital Corp., 7.125%, 6/1/15 (144A) 189,000 ----------- $ 1,124,152 ----------- Total Real Estate $ 1,256,652 ----------- Software & Services - 0.4% Internet Software & Services - 0.4% 250,000 BB/Ba2 Hanarotelecom, Inc., 7.0%, 2/1/12 (144A) $ 246,282 ----------- Total Software & Services $ 246,282 ----------- Technology Hardware & Equipment - 0.7% Communications Equipment - 0.1% 50,000 BB+/Ba2 Corning, Inc., 5.9%, 3/15/14 $ 50,480 ----------- Electronic Manufacturing Services - 0.2% 125,000 B/B1 Sanmina-Sci Corp., 6.75%, 3/1/13 (a) $ 118,906 ----------- Technology Distributors - 0.4% 256,000 BB+/Ba1 Anixter International Corp., 5.95%, 3/1/15 $ 231,661 ----------- Total Technology Hardware & Equipment $ 401,047 ----------- Semiconductors - 0.3% Semiconductors - 0.3% 175,000 BBB-/Baa3 Chartered Semiconductor, 6.375%, 8/3/15 $ 173,987 ----------- Total Semiconductors $ 173,987 ----------- Telecommunication Services - 1.3% Integrated Telecommunication Services - 0.3% 315,000 B/B3 Zeus Special Sub, Ltd., Floating Rate Note, 2/1/15 (144A) (b) $ 207,113 ----------- Wireless Telecommunication Services - 1.0% 115,000 BB-/Ba3 Mobile Telesystems Finance, 8.375%, 10/14/10 (144A) $ 120,014 CAD 240,000 BB/Ba3 Rogers Cantel, Inc., 10.5%, 6/1/06 211,638 CAD 200,000 BB/Ba3 Rogers Wireless, Inc., 7.625%, 12/15/11 184,031 63,000 NR/Baa3 Tele Norte Leste Participacoes , 8.0%, 12/18/13 66,780 ----------- $ 582,463 ----------- Total Telecommunication Services $ 789,576 -----------
12 The accompanying notes are an integral part of these financial statements. Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Utilities - 1.4% Electric Utilities - 1.3% 331,771 NR/NR Juniper Generation, 6.79%, 12/31/14 (144A) $ 323,225 250,000 BBB-/Baa3 Kiowa Power Partners LLC, 5.737%, 3/30/21 (144A) 250,735 190,000 BB-/Ba3 MSW Energy Holdings, 7.375%, 9/1/10 195,225 ----------- $ 769,185 ----------- Multi-Utilities - 0.1% 120,000 B+/B1 Reliant Energy, Inc., 6.75%, 12/15/14 $ 104,700 ----------- Total Utilities $ 873,885 ----------- TOTAL CORPORATE BONDS (Cost $25,608,281) $26,103,651 ----------- U.S. GOVERNMENT & AGENCY OBLIGATIONS - 39.5% 848,109 Federal Home Loan Mortgage Corp., 4.5%, 4/1/20 $ 825,301 485,131 Federal Home Loan Mortgage Corp., 4.5%, 7/1/20 472,084 287,205 Federal Home Loan Mortgage Corp., 4.5%, 4/1/35 270,212 42,819 Federal Home Loan Mortgage Corp., 5.0%, 5/1/34 41,539 148,818 Federal Home Loan Mortgage Corp., 5.0%, 6/1/35 144,074 53,779 Federal Home Loan Mortgage Corp., 5.5%, 10/1/16 54,160 822,876 Federal Home Loan Mortgage Corp., 5.5%, 11/1/34 816,533 357,027 Federal Home Loan Mortgage Corp., 5.5%, 1/1/35 354,100 265,061 Federal Home Loan Mortgage Corp., 6.0%, 6/1/17 270,577 14,901 Federal Home Loan Mortgage Corp., 6.0%, 1/1/33 15,075 10,769 Federal Home Loan Mortgage Corp., 6.0%, 2/1/33 10,896 265,910 Federal Home Loan Mortgage Corp., 6.0% 11/1/33 268,879 224,757 Federal Home Loan Mortgage Corp., 6.0%, 1/1/34 227,022 241,850 Federal Home Loan Mortgage Corp., 6.0%, 4/1/35 244,294 248,106 Federal Home Loan Mortgage Corp., 6.0%, 6/1/35 250,613 304,298 Federal National Mortgage Association, 4.5%, 5/1/20 296,114 195,471 Federal National Mortgage Association, 4.5%, 9/1/20 190,214 154,126 Federal National Mortgage Association, 4.5%, 3/1/35 145,151 183,714 Federal National Mortgage Association, 5.0%, 2/1/20 181,759 205,883 Federal National Mortgage Association, 5.0%, 10/1/20 203,692 43,118 Federal National Mortgage Association, 5.5%, 3/1/18 43,404 86,632 Federal National Mortgage Association, 5.5%, 12/1/18 87,207 98,590 Federal National Mortgage Association, 5.5%, 4/1/19 99,271 187,500 Federal National Mortgage Association, 5.5%, 5/1/34 185,843 91,701 Federal National Mortgage Association, 6.0%, 7/1/17 93,738 4,573 Federal National Mortgage Association, 6.0%, 12/1/31 4,627 10,140 Federal National Mortgage Association, 6.0%, 2/1/32 10,260 6,330 Federal National Mortgage Association, 6.0% 11/1/32 6,401 324,814 Federal National Mortgage Association, 6.0%, 11/1/33 328,206 219,147 Federal National Mortgage Association, 6.0%, 12/1/33 221,435 117,794 Federal National Mortgage Association, 6.0%, 1/1/34 118,907 800,000 Federal National Mortgage Association, 6.375%, 8/15/07 592,998 1,449 Federal National Mortgage Association, 6.5%, 7/1/31 1,491 4,872 Federal National Mortgage Association, 6.5%, 10/1/31 5,008 9,385 Federal National Mortgage Association, 6.5%, 2/1/32 9,648 1,011 Federal National Mortgage Association, 7.0%, 9/1/29 1,056 224,302 Government National Mortgage Association, 4.5%, 9/15/33 215,266 175,062 Government National Mortgage Association, 4.5%, 5/15/34 167,980
The accompanying notes are an integral part of these financial statements. 13 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Principal Amount USD ($) Value U.S. Government & Agency Obligations (Cont.) 676,875 Government National Mortgage Association, 4.5%, 4/15/35 $ 649,589 222,697 Government National Mortgage Association, 5.0%, 12/15/34 220,037 479,134 Government National Mortgage Association, 5.0%, 4/15/35 473,145 391,182 Government National Mortgage Association, 5.5%, 10/15/19 396,957 224,837 Government National Mortgage Association, 5.5%, 1/15/34 226,382 427,099 Government National Mortgage Association, 5.5%, 4/15/34 430,033 146,159 Government National Mortgage Association, 5.5%, 4/20/34 146,798 54,870 Government National Mortgage Association, 5.5%, 7/15/34 55,247 421,840 Government National Mortgage Association, 5.5%, 10/15/34 424,739 397,578 Government National Mortgage Association, 5.5%, 6/15/35 400,312 465,258 Government National Mortgage Association, 6.0%, 8/15/16 477,883 25,835 Government National Mortgage Association, 6.0%, 5/15/17 26,537 228,059 Government National Mortgage Association, 6.0%, 6/15/17 234,255 262,225 Government National Mortgage Association, 6.0%, 2/15/18 269,356 169,092 Government National Mortgage Association, 6.0%, 8/15/19 173,687 30,408 Government National Mortgage Association, 6.0%, 2/15/33 31,171 108,048 Government National Mortgage Association, 6.0%, 3/15/33 110,758 52,775 Government National Mortgage Association, 6.0%, 6/15/33 54,099 113,469 Government National Mortgage Association, 6.0%, 7/15/33 116,315 194,584 Government National Mortgage Association, 6.0%, 9/15/33 199,465 71,144 Government National Mortgage Association, 6.0%, 10/15/33 72,928 244,010 Government National Mortgage Association, 6.0%, 8/15/34 249,888 30,862 Government National Mortgage Association, 6.5%, 3/15/29 32,295 7,128 Government National Mortgage Association, 6.5%, 1/15/30 7,453 2,080 Government National Mortgage Association, 6.5%, 6/15/31 2,174 21,864 Government National Mortgage Association, 6.5%, 2/15/32 22,846 24,442 Government National Mortgage Association, 6.5%, 3/15/32 25,540 30,214 Government National Mortgage Association, 6.5%, 11/15/32 31,578 25,396 Government National Mortgage Association, 6.5%, 1/15/33 26,531 41,189 Government National Mortgage Association, 6.5%, 5/15/33 43,031 77,333 Government National Mortgage Association, 6.5%, 1/15/34 80,729 821 Government National Mortgage Association, 7.0%, 3/15/31 862 9,147 Government National Mortgage Association, 7.5%, 5/15/23 9,631 2,787 Government National Mortgage Association, I, 7.0%, 3/15/31 2,926 138,615 Government National Mortgage Association II, 5.5%, 3/20/34 139,221 267,730 Government National Mortgage Association II, 6.0%, 11/20/33 273,861 1,340,000 U.S. Treasury Bonds, 5.25%, 11/15/28 1,461,542 125,000 U.S. Treasury Bonds, 6.25%, 8/15/23 149,268 580,000 U.S. Treasury Bonds, 7.25%, 5/15/16 712,177 830,813 U.S. Treasury Inflation Protected Security, 3.0%, 7/15/12 878,455 431,855 U.S. Treasury Inflation Protected Security, 3.375%, 1/15/12 464,361 3,518,969 U.S. Treasury Inflation Protected Security, 3.5%, 1/15/11 3,760,898 700,000 U.S. Treasury Notes, 4.0%, 2/15/15 678,672 275,000 U.S. Treasury Notes, 4.25%, 11/15/14 271,799 265,000 U.S. Treasury Notes, 4.875%, 2/15/12 272,070 255,000 U.S. Treasury Notes, 5.25%, 2/15/29 278,259
14 The accompanying notes are an integral part of these financial statements. Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value U.S. Government & Agency Obligations (Cont.) 150,000 U.S. Treasury Notes, 5.375%, 2/15/31 $ 168,492 1,800,000 U.S. Treasury Strip, 0.0%, 11/15/13 1,270,139 ----------- $23,979,426 ----------- TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $24,113,594) $23,979,426 ----------- FOREIGN GOVERNMENT BONDS - 7.6% ITL 195,000,000 B+/B1 Banco Nac De Desen Econo, 8.0%, 4/28/10 $ 132,283 CAD 399,000 AAA/Aaa Government of Canada, 4.25%, 9/1/09 347,158 CAD 315,000 AAA/Aaa Government of Canada, 5.25%, 6/1/12 291,029 EURO 343,000 AAA/Aaa Government of France, 3.0%, 7/25/09 484,375 SEK 3,445,000 TSY/Aaa Government of Sweden, 5.25%, 3/15/11 476,353 SEK 2,955,000 TSY/Aaa Government of Sweden, 5.5%, 10/8/12 421,978 SEK 2,150,000 TSY/Aaa Government of Sweden, 8.0%, 8/15/07 293,367 NOK 1,500,000 AAA/Aaa Norwegian Government, 5.5%, 5/15/09 237,245 NOK 1,320,000 TSY/Aaa Norwegian Government 6.0%, 5/16/11 218,945 NOK 3,410,000 TSY/Aaa Norwegian Government, 6.75%, 1/15/07 525,093 AUD 532,000 AA/Aa2 Ontario Province, 5.5%, 4/23/13 386,160 AUD 207,000 NR/Aaa Queensland Treasury, 6.0%, 8/14/13 158,025 444,768 BB+/Ba2 Republic of Columbia, 9.75%, 4/9/11 500,364 DEM 180,000 BBB-/Baa3 United Mexican States, 8.25%, 2/24/09 124,571 ----------- $ 4,596,946 ----------- TOTAL FOREIGN GOVERNMENT BONDS (Cost $4,223,559) $ 4,596,946 ----------- MUNICIPAL BONDS - 0.9% Muni Airport - 0.4% 50,000 B/Caa2 New Jersey Economic Development Authority, 6.25%, 9/15/29 $ 46,501 175,000 B/Caa2 New Jersey Economic Development Authority Special Facility Revenue, 7.0%, 11/15/30 170,168 100,000 NR/NR Wayne Charter County SPL, 6.75%, 12/1/15 52,384 ----------- $ 269,053 ----------- Muni Tobacco - 0.5% 90,000 BBB/Baa3 Golden State Tobacco Securitization, 6.75%, 6/1/39 $ 101,140 105,000 BBB/Baa3 Tobacco Settlement Authority Washington, 6.625%, 6/1/32 113,304 60,000 BBB/Baa3 Tobacco Settlement Financing Corp., 7.0%, 6/1/41 68,396 ----------- $ 282,840 ----------- TOTAL MUNICIPAL BONDS (Cost $483,225) $ 551,893 -----------
The accompanying notes are an integral part of these financial statements. 15 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
Shares Value RIGHTS/WARRANTS - 0.0% Transportation - 0.0% Railroads - 0.0% 210 Atlantic Express Transportation, Exp. 4/15/08* $ -- ----------- Total Transportation $ -- ----------- TOTAL RIGHTS/WARRANTS (Cost $0) $ -- ----------- TEMPORARY CASH INVESTMENTS - 0.8% Security Lending Collateral - 0.8% 508,725 Securities Lending Investment Fund, 4.24% $ 508,725 ----------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $508,725) $ 508,725 ----------- TOTAL INVESTMENT IN SECURITIES - 95.5% (Cost $57,158,609) $57,975,600 ----------- OTHER ASSETS AND LIABILITIES - 4.5% $ 2,731,811 ----------- TOTAL NET ASSETS - 100.0% $60,707,411 ===========
* Non-income producing. 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, 2005, the value of these securities amounted to $11,574,898 or 19.1% of total net assets. TSY Treasury Security NR Not rated by either S&P or Moody's. (a) At December 31, 2005, the following securities were out on loan:
Principal Amount Security Value $137,750 Duane Reade, Inc., 9.75%, 8/1/11 $ 92,293 323,000 Ford Motor Credit Co., 5.7%, 1/15/10 274,570 118,750 Sanmina-Sci Corp., 6.75%, 3/1/13 112,961 -------- Total $479,824 ========
(b) 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. NOTE: Principal amounts are denominated in U.S. dollars unless otherwise noted. DEM Deutsche Marks EURO Euro SEK Swedish Krona NOK Norwegian Kroner ITL Italian Lira CAD Canadian Dollar AUD Australian Dollar DKK Danish Kroner 16 The accompanying notes are an integral part of these financial statements. Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
5/1/03 (a) Year Ended Year Ended to Class II 12/32/05 12/31/04 12/31/03 Net asset value, beginning of period $ 11.26 $ 11.01 $10.41 ------- ------- ------ Increase (decrease) from investment operations: Net investment income $ 0.55 $ 0.55 $ 0.41 Net realized and unrealized gain (loss) on investments and foreign currency transactions (0.28) 0.49 0.62 ------- ------- ------ Net increase from investment operations $ 0.27 $ 1.04 $ 1.03 Distributions to shareholders: Net investment income (0.61) (0.63) (0.43) Net realized gain (0.16) (0.16) -- ------- ------- ------ Net increase (decrease) in net asset value $ (0.50) $ 0.25 $ 0.60 -------- ------- ------ Net asset value, end of period $ 10.76 $ 11.26 $11.01 ======= ======= ====== Total return* 2.49% 9.95% 10.90%(b) Ratio of net expenses to average net assets+ 1.14% 1.29% 1.49%** Ratio of net investment income to average net assets+ 5.30% 5.49% 5.08%** Portfolio turnover rate 46% 53% 68% Net assets, end of period (in thousands) $40,045 $25,027 $3,663 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.14% 1.29% 1.49%** Net investment income 5.30% 5.49% 5.08%**
(a) Class II shares were first publicly offered on May 1, 2003. (b) Not annualized. * Assumes initial investment at net asset value at the beginning of each period, reinvestment of all distributions and the completeredemption of the investment at net asset value at the end of each period. ** Annualized. + Ratios with no reduction for fees paid indirectly. NOTE: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. The accompanying notes are an integral part of these financial statements. 17 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $479,824) (Cost $57,158,609) $ 57,975,600 Cash 2,421,786 Foreign currencies, at value (Cost $9,491) 9,479 Receivables -- Investment securities sold 82,733 Fund shares sold 50,370 Dividends, interest and foreign taxes withheld 852,240 Forward foreign currency portfolio hedge contracts, open -- net 13,826 ------------ Total assets $ 61,406,034 ------------ LIABILITIES: Payables -- Investment securities purchased $ 55,611 Fund shares repurchased 58,139 Upon return for securities loaned 508,725 Due to affiliates 6,656 Accrued expenses 69,492 ------------ Total liabilities $ 698,623 ------------ NET ASSETS: Paid-in capital $ 59,217,713 Undistributed net investment income 397,503 Accumulated net realized gain on investments 265,546 Net unrealized gain on: Investments 816,991 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 9,658 ------------ Total net assets $ 60,707,411 ------------ NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 20,662,447 Shares outstanding 1,920,286 ------------ Net asset value per share $ 10.76 Class II: (No par value, unlimited number of shares authorized) Net assets $ 40,044,964 Shares outstanding 3,721,336 ------------ Net asset value per share $ 10.76
18 The accompanying notes are an integral part of these financial statements. Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
Year Ended 12/31/05 INVESTMENT INCOME: Dividends $ 3,555,083 Interest 7,305 ------------ Total investment income $ 3,562,388 ------------ EXPENSES: Management fees $ 359,166 Transfer agent fees and expenses 7,715 Distribution fees (Class II) 85,494 Administrative reimbursements 18,512 Custodian fees 22,421 Professional fees 50,166 Printing expense 15,635 Fees and expenses of nonaffiliated trustees 4,888 Miscellaneous 13,040 ------------ Total expenses $ 577,037 ------------ Net expenses $ 577,037 ------------ Net investment income $ 2,985,351 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain from: Investments $ 482,520 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 28,986 ------------ $ 511,506 ------------ Change in net unrealized gain or loss from: Investments $ (2,112,657) Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 77,046 ------------ $ (2,035,611) ------------ Net loss on investments, futures contracts and foreign currency transactions $ (1,524,105) ============ Net increase in net assets resulting from operations $ 1,461,246 ============
The accompanying notes are an integral part of these financial statements. 19 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Year Ended Year Ended 12/31/05 12/31/04 FROM OPERATIONS: Net investment income $ 2,985,351 $ 1,817,102 Net realized gain on investments 511,506 1,081,207 Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions (2,035,611) 767,697 ------------ ------------ Net increase in net assets resulting from operations $ 1,461,246 $ 3,666,006 ------------ ------------ DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (1,227,712) $ (1,210,066) Class II (1,916,310) (733,628) Net realized gain Class I (308,227) (294,736) Class II (487,951) (171,204) ------------ ------------ Total distributions to shareowners $ (3,940,200) $ (2,409,634) ------------ ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 19,663,891 $ 25,764,732 Reinvestment of distributions 3,902,297 2,367,418 Cost of shares repurchased (6,220,715) (6,523,479) ------------ ------------ Net increase in net assets resulting from Fund share transactions $ 17,345,473 $ 21,608,671 ------------ ------------ Net increase in net assets $ 14,866,519 $ 22,865,043 ------------ ------------ NET ASSETS: Beginning of year $ 45,840,892 $ 22,975,849 ------------ ------------ End of year $ 60,707,411 $ 45,840,892 ============ ============ Undistributed net investment income, end of year $ 397,503 $ 311,542 ============ ============
20 The accompanying notes are an integral part of these financial statements. Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 1. Organization and Significant Accounting Policies The Pioneer Strategic Income VCT Portfolio (The Portfolio) is a portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty nine 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond 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 Strategic Income Portfolio is to produce a high level of current income. The financial highlights for the Portfolio's Class I shares are presented in a separate book. The Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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 Portfolio in the preparation of its financial statements, which are consistent 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 (NYSE) is open, as of the close of regular trading on the NYSE. 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 21 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- 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 NYSE. The value of such securities used in computing the net asset value of the Portfolio's shares is based on the last sale price on the principal exchange where they traded. The Portfolio also may use the fair value of a security, including a non-U.S. security, when the closing market price on the primary exchange where the security is traded no longer accurately reflects the value of the security as of the close of the exchange. At December 31, 2005, there were no fair valued securities. 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. Discounts and premiums on fixed income securities are accreted and amortized, respectively, on a yield-to-maturity basis and are included in interest income. Dividend and interest income from foreign securities are reported net of unrecoverable foreign taxes withheld at the applicable country rates. 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. When interest rates rise, the prices of fixed income securities in the Portfolio will generally fall. Conversely, when interest rates fall, the prices of fixed income securities in the Portfolio will generally rise. Investments in the Portfolio are subject to possible loss due to the financial failure of underlying securities and their inability to meet their debt obligations. Prepayment risk is the chance that mortgage-backed bonds will be paid off early if falling interest rates prompt homeowners to refinance their mortgages. Information regarding the Portfolio's principal investment risks is contained in the Portfolio's prospectus. Please refer to those documents when considering the Portfolio's risks. 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. dollars 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 Portfolio'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, 2004, no such taxes were paid. 22 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal income tax rules. Therefore, the source of the 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. The Portfolio elected to defer $40,713 in capital losses recognized between November 1, 2005 and December 31, 2005 to its fiscal year ending December 31, 2006. At December 31, 2005, 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.
-------------------------------------------------------------------------------------------- Undistributed Net Accumulated Net Investment Income Realized Portfolio (Loss) Gain (Loss) Paid-In Capital -------------------------------------------------------------------------------------------- Strategic Income Portfolio $244,632 $(244,632) $-- --------------------------------------------------------------------------------------------
The following chart shows the distributions paid during the years ended December 31, 2005 and 2004 on a tax basis and the components of distributable earnings (accumulated losses) as of December 31, 2005.
-------------------------------------------------------------------------------------------- 2005 2004 -------------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $3,166,871 $2,196,847 Long-Term capital gain 773,329 212,787 ---------- ---------- $3,940,200 $2,409,634 Return of Capital -- -- ---------- ---------- Total distributions $3,940,200 $2,409,634 ========== ========== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 573,117 Undistributed long-term gain/(capital loss carryforward) 148,610 Post-October Loss Deferral (40,713) Unrealized appreciation (depreciation) 808,684 ---------- Total $1,489,698 ========== --------------------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable to the tax deferral of losses on wash sales, the mark to market of foreign currency contracts and accrued interest on defaulted bonds. E. Portfolio Shares The Portfolio records sales and repurchases of its 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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. Distribution fees for Class II shares are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. 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 (excluding transfer agent and distribution fees) 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 the adjusted net assets at the beginning of the day. The Portfolio declares as daily dividends substantially all of its respective net investment income. All dividends are paid on a monthly basis. Short-term capital gain distributions, if any, may be declared with the daily dividends. Distributions paid by the Portfolio with respect to each class of shares 23 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- 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 payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for the 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 sponsored 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, a wholly owned indirect subsidiary of UniCredito Italiano manages the portfolio. Management fees are calculated daily at the annual rate of 0.65% of the Portfolio's average daily net assets. Through May 1, 2006, PIM has agreed not to impose all or a portion of its management fee and, if necessary, to limit other ordinary operating expenses of the Portfolio to the extent required to reduce Class I expenses to 1.25% of the average daily net assets attributable to Class I shares; the portion of the Portfolio's expenses attributable to Class II shares will be reduced only to the extent such expenses are reduced for Class I shares (or Class II shares). 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, 2005, $2,164 was payable to PIM related to management fees, administrative reimbursements and certain other services, and is included in due to affiliates. 3. Transfer Agent (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 $3,947 in transfer agent fees payable to PIMSS at December 31, 2005. 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 to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with the Portfolio's Class II shares. Included in due to affiliates is $545 payable to PFD at December 31, 2005. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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) --------------------------------------------------------------------------------------------------- Strategic Income Portfolio $57,162,749 $1,658,270 $(845,419) $812,851 ----------- ---------- --------- -------- ---------------------------------------------------------------------------------------------------
24 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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, 2005, were $19,322,786 and $17,662,141, respectively. The cost of purchases and the proceeds from sales of U.S. Government obligations were $ 19,830,091 and $ 6,662,830, respectively. 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares for the years ended December 31, 2005 and December 31, 2004 were as follows:
--------------------------------------------------------------------------------------------------- Strategic Income Portfolio '05 Shares '05 Amount '04 Shares '04 Amount --------------------------------------------------------------------------------------------------- CLASS I: Shares sold 299,475 $ 3,285,765 453,590 $ 4,955,590 Reinvestment of distributions 136,735 1,498,145 134,927 1,462,624 Shares repurchased (364,351) (3,995,330) (494,192) (5,414,640) ---------------------------------------------------------------- Net increase 71,859 $ 788,580 94,325 $ 1,003,574 ================================================================ CLASS II: Shares sold 1,483,721 $16,378,126 1,907,997 $20,809,730 Reinvestment of distributions 219,709 2,404,152 83,281 904,794 Shares repurchased (204,670) (2,225,385) (101,494) (1,108,839) ---------------------------------------------------------------- Net increase 1,498,760 $16,556,893 1,889,784 $20,605,685 ================================================================ ---------------------------------------------------------------------------------------------------
8. Forward Foreign Currency Contracts During the year ended December 31, 2005, 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. Outstanding forward portfolio hedge contracts were as follows:
-------------------------------------------------------------------------------------------------------------- Net Contracts to In Exchange Settlement Unrealized Portfolio Deliver For Date Value Gain (Loss) -------------------------------------------------------------------------------------------------------------- Strategic Income Portfolio AUD (1,206,000) $ (881,586) 3/23/06 $ (883,432) $(1,846) Strategic Income Portfolio CAD (330,000) (283,505) 3/1/06 (284,225) (720) Strategic Income Portfolio EUR (334,000) (396,021) 3/2/06 (396,654) (633) Strategic Income Portfolio JPY (22,000,000) (190,451) 3/2/06 (187,792) 2,659 Strategic Income Portfolio JPY (35,000,000) (297,865) 1/27/06 (297,535) 330 Strategic Income Portfolio JPY 166,000,000 1,402,027 3/2/06 1,417,640 15,613 Strategic Income Portfolio JPY 35,000,000 299,217 1/27/06 297,640 (1,577) --------------------------------------------------------------------------------------------------------------
25 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the Shareholders 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 the Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for the periods indicated therein. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 26 Pioneer Strategic Income VCT Portfolio (the "Fund") PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one, three and five year periods for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's 27 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- performance compared to both the performance of a peer group and two relevant indices, in each case selected by the Independent Trustees for this purpose. The Fund's performance based upon total return was in the second quintile of the peer group for the 12 months ended June 30, 2005, the second quintile for the three years ended June 30, 2005, and the second quintile for the five years ended June 30, 2005. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees also considered that the yield (gross of expenses) of the Fund's Class 1 shares relative to the yield (at June 30, 2005) of the Lehman Universal Bond Index. The Trustees concluded that the performance of the Fund supported the continuation of the Management Contract. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee for the 12 months ended June 30, 2005 at the median relative to the management fees paid by the other funds in that peer group for the comparable period. The Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio and expense ratios of a peer group of funds selected by the Independent Trustees for this purpose. The Fund's expense ratio for the 12 months ended June 30, 2005 was in the fifth quintile of the applicable peer group for the most recent fiscal year of the peer group for the comparable period. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. The Trustees concluded that, given current and anticipated asset lev- 28 Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- els, break points in the management fee are not necessary at this time. The Trustees will continue to evaluate annually the appropriateness of break points. H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund). The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 29 Pioneer Strategic Income VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. ===================================================================================================================================
30 Pioneer Strategic Income VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company Washington, DC 20007 trustee is elected (publicly traded health care (privately-held affordable or earlier services company) (2001-present); housing finance company); retirement or Managing Partner, Federal City Director of New York Mortgage removal. Capital Advisors (boutique merchant Trust (publicly traded mortgage bank) (2002 to 2004); Executive REIT) Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. =================================================================================================================================== Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material or earlier products manufacturer), Mortgage retirement or Guaranty Insurance Corporation, removal. and Briggs & Stratton, Inc. (engine manufacturer) =================================================================================================================================== Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. =================================================================================================================================== Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. =================================================================================================================================== John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ===================================================================================================================================
31 Pioneer Strategic Income VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. =================================================================================================================================== Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). =================================================================================================================================== Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. =================================================================================================================================== David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. =================================================================================================================================== Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. =================================================================================================================================== Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. ===================================================================================================================================
32 Pioneer Strategic Income VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, Assistant Vice President - Fund None Treasurer 2000. Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds. =================================================================================================================================== Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. =================================================================================================================================== Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. =================================================================================================================================== Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ===================================================================================================================================
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 33 [LOGO] PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18677-00-0206 [LOGO]PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- T a b l e o f C o n t e n t s -------------------------------------------------------------------------------- Pioneer Value VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 5 Financial Statements 7 Notes to Financial Statements 11 Report of Independent Registered Public Accounting Firm 16 Factors Considered by the Independent Trustees in Approving the Management Contract 17 Trustees, Officers and Service Providers 20
Before investing, consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Please read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] International Common Stocks 0.4% Depositary Receipts for Internationl Stocks 3.5% U.S. Common Stocks 96.1%
Sector Distribution (As a percentage of equity holdings)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Materials 3.9% Telecommunication Services 5.5% Consumer Staples 5.8% Utilities 6.1% Industrials 7.1% Consumer Discretionary 8.2% Health Care 9.5% Information Technology 9.7% Energy 18.6% Financials 25.6%
Five Largest Holdings (As a percentage of equity holdings) 1. Citigroup, Inc. 4.14% 2. Altria Group, Inc. 3.69 3. Merrill Lynch & Co., Inc. 3.41 4. Bank of America Corp. 3.05 5. ConocoPhillips 2.95
The Portfolio is actively managed, and current holdings may be different. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 12/31/04 Net Asset Value per Share $ 13.92 $ 13.40
Net Distributions per Share Investment Short-Term Long-Term (1/1/05 - 12/31/05) Income Capital Gains Capital Gains $ 0.0119 $ 0.0073 $ 0.0828
-------------------------------------------------------------------------------- Performance of a $10,000 Investment 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. [THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
Pioneer Value Russell 1000 VCT Portfolio Value Index 5/03 10000 10000 12/03 11633 11800 12/04 12959 13747 12/05 13564 14716
The Russell 1000 Value Index measures the performance of the value-oriented stocks in the Russell 1000 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- Life-of-Class 13.56% (5/1/03) 1 Year 4.67
All total returns shown assume reinvestment of distributions at net asset value. Please refer to the variable product's report wrapper for performance that reflects the deduction of the variable product's fees and charge. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all funds. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value - $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Value VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,046.60 Expenses Paid During Period* $ 6.91
* Expenses are equal to the Portfolio's annualized expense ratio of 1.34% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) that are charged at the time of the transaction. Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Value VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,018.45 Expenses Paid During Period* $ 6.82
* Expenses are equal to the Portfolio's annualized expense ratio of 1.34% for Class II shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 3 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 -------------------------------------------------------------------------------- Portfolio Manager J. Rodman Wright describes the economic background and investment strategies that affected results for Pioneer Value VCT Portfolio for the twelve months ended December 31, 2005. Q. What was the investment background and how did the Portfolio perform during this period? A. Market returns were somewhat restrained in 2005 as investors tried to assess the economic impact of record energy prices and higher interest rates. But the economy met those challenges as well as others that arose, such as the devastating hurricane season. Corporate earnings moved ahead smartly, although stronger profits were not always reflected in stock prices. Value stocks continued to outperform growth. For the twelve months ended December 31, 2005, the Portfolio returned 4.67% at net asset value. This result trailed the Portfolio's benchmark, the Russell 1000 Value Index, which returned 7.05% over the same period. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Q. Which sectors or stocks had the greatest impact on results? A. Energy stocks were the period's biggest story and our slightly overweight stance in this strong sector boosted results. Significant contributions came from Occidental Petroleum and ConocoPhillips, as well as exploration company Devon Energy, drilling rig contractor Transocean, and Suncor, which extracts oil from sands in Canada. In health care, we avoided Pfizer during a long downslide, initiating a position late in the year; shares later moved higher following a favorable court ruling. IVAX, a maker of generic drugs, was purchased by Teva Pharmaceuticals. Shares of HCA rose as prices for hospital services firmed and management brought bad debt under control. Late in the year, we took profits in health care products distributor Cardinal Health. Mining company Freeport-McMoRan saw earnings expand thanks to strong global demand that drove up prices of copper and gold. We were underweight compared to the benchmark in utilities, another area that performed well last year. In financials, a rise in the shares of Merrill Lynch reflected successful initiatives by new management. Margins expanded in several areas, including the highly profitable brokerage division, after a period of poor results. Shares of Freddie Mac fell as the company was plagued by uncertainty as it was unable to provide current financial statements, and we eliminated this slumping stock. Fifth Third Bancorp, a bank holding company in the Midwest, declined following disappointing financial results. Tyco, an industrial conglomerate, declined as a result of missing its financial forecasts and lowering expectations. We are retaining Tyco because of its attractive current valuation. In addition, management is cutting debt and buying back stock, and more recently has announced it will break up the company, which we think will allow shareholders to realize the value we see in the company. Shares of farm equipment maker Deere fell slightly, but the Portfolio's sizeable position amplified the impact of the decline. Our commitment to the sluggish media sector, including Viacom, Time Warner and Comcast, also held back returns. Q. What is your current outlook? A. We are guardedly optimistic for the months ahead as several crosscurrents play out. Interest rates and energy prices will continue to dominate investors' thinking, and the likely outcome of mid-term elections will capture more headlines as the year moves on. The possible devaluation of China's currency would hurt the dollar and unsettle financial markets, but work to the benefit of manufacturers by making American goods less expensive for overseas buyers. In the meantime, the economy's brisk expansion may slow somewhat and the Federal Reserve Board could be nearing an end to its long string of interest rates hikes. As things stand, rates are still manageable for consumers and corporations and corporate balance sheets are the healthiest they've been in some time and are holding a lot of cash. The market is not cheap from our value perspective, but we are continuing to search for companies whose favorable potential is not fully reflected in current market 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 realized. A Word About Risk: Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions. At times, the Portfolio's investments may represent industries or industry sectors that are interrelated or have common risks, making it more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 99.3% Energy - 18.6% Integrated Oil & Gas - 10.9% 24,024 Chevron Corp. $ 1,363,842 35,856 ConocoPhillips 2,086,102 33,830 Exxon Mobil Corp. 1,900,231 17,811 Occidental Petroleum Corp. 1,422,743 15,331 Suncor Energy, Inc. 967,846 ----------- $ 7,740,764 ----------- Oil & Gas Drilling - 2.7% 12,570 ENSCO International, Inc. $ 557,480 8,562 Nabors Industries, Inc.* 648,572 9,965 Transocean Offshore, Inc.* 694,461 ----------- $ 1,900,513 ----------- Oil & Gas Equipment & Services - 0.9% 9,770 Halliburton Co. $ 605,349 ----------- Oil & Gas Exploration & Production - 4.1% 8,127 Anadarko Petroleum Corp. $ 770,033 10,980 Apache Corp. 752,350 22,122 Devon Energy Corp. 1,383,510 ----------- $ 2,905,893 ----------- Total Energy $13,152,519 ----------- Materials - 3.8% Diversified Metals & Mining - 1.4% 18,197 Freeport-McMoRan Copper & Gold, Inc. (Class B) $ 978,999 ----------- Forest Products - 1.1% 12,500 Weyerhaeuser Co. $ 829,250 ----------- Industrial Gases - 1.3% 17,314 Praxair, Inc. $ 916,949 ----------- Total Materials $ 2,725,198 ----------- Capital Goods - 7.1% Aerospace & Defense - 1.4% 17,430 United Technologies Corp. $ 974,512 ----------- Construction & Farm Machinery & Heavy Trucks - 2.8% 29,180 Deere & Co. $ 1,987,450 ----------- Industrial Conglomerates - 2.9% 71,723 Tyco International, Ltd. $ 2,069,926 ----------- Total Capital Goods $ 5,031,888 ----------- Media - 7.4% Broadcasting & Cable Television - 5.3% 48,890 Clear Channel Communications, Inc. $ 1,537,591 46,474 Comcast Corp.* 1,206,465 31,687 Viacom, Inc. (Class B) 1,032,996 ----------- $ 3,777,052 -----------
Shares Value Movies & Entertainment - 2.1% 6,111 CCE Spinco, Inc.* $ 80,054 82,563 Time Warner, Inc. 1,439,899 ----------- $ 1,519,953 ----------- Total Media $ 5,297,005 ----------- Retailing - 0.7% Apparel Retail - 0.7% 21,880 Foot Locker, Inc. $ 516,149 ----------- Total Retailing $ 516,149 ----------- Food, Beverage & Tobacco - 5.7% Soft Drinks - 2.1% 15,735 Coca-Cola Co. $ 634,278 14,093 PepsiCo, Inc. 832,614 ----------- $ 1,466,892 ----------- Tobacco - 3.6% 34,840 Altria Group, Inc. $ 2,603,245 ----------- Total Food, Beverage & Tobacco $ 4,070,137 ----------- Health Care Equipment & Services - 3.9% Health Care Equipment - 0.8% 22,560 Boston Scientific Corp.* $ 552,494 ----------- Health Care Facilities - 1.7% 13,007 HCA, Inc. $ 656,854 72,861 Tenet Healthcare Corp.* 558,115 ----------- $ 1,214,969 ----------- Managed Health Care - 1.4% 12,740 Wellpoint Inc.* $ 1,016,525 ----------- Total Health Care Equipment & Services $ 2,783,988 ----------- Pharmaceuticals & Biotechnology - 5.5% Pharmaceuticals - 5.5% 33,160 Bristol-Myers Squibb Co. $ 762,017 72,500 Pfizer, Inc. 1,690,700 44,050 Schering-Plough Corp. 918,443 12,390 Wyeth 570,807 ----------- Total Pharmaceuticals & Biotechnology $ 3,941,967 ----------- Banks - 6.7% Diversified Banks - 4.4% 46,734 Bank of America Corp. $ 2,156,774 18,570 Wachovia Corp. 981,610 ----------- $ 3,138,384 ----------- Thrifts & Mortgage Finance - 2.3% 37,488 Washington Mutual, Inc. $ 1,630,728 ----------- Total Banks $ 4,769,112 ----------- Diversified Financials - 12.8% Asset Management & Custody Banks - 1.5% 33,933 The Bank of New York Co., Inc. $ 1,080,766 -----------
The accompanying notes are an integral part of these financial statements. 5 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value Investment Banking & Brokerage - 7.2% 13,195 Goldman Sachs Group, Inc. $ 1,685,133 8,074 Lehman Brothers Holdings, Inc. 1,034,845 35,600 Merrill Lynch & Co., Inc. 2,411,188 ----------- $ 5,131,166 ----------- Other Diversified Finance Services - 4.1% 60,264 Citigroup, Inc. $ 2,924,612 ----------- Total Diversified Financials $ 9,136,544 ----------- Insurance - 5.8% Life & Health Insurance - 1.3% 41,655 UNUM Corp. $ 947,651 ----------- Multi-Line Insurance - 2.7% 28,578 American International Group, Inc. $ 1,949,877 ----------- Property & Casualty Insurance - 1.8% 23,169 Allstate Corp. $ 1,252,748 ----------- Total Insurance $ 4,150,276 ----------- Software & Services - 6.7% Data Processing & Outsourced Services - 2.7% 43,716 First Data Corp. $ 1,880,225 ----------- IT Consulting & Other Services - 1.3% 31,860 Accenture, Ltd. $ 919,798 ----------- Systems Software - 2.7% 49,900 Microsoft Corp. $ 1,304,885 36,388 Symantec Corp.* 636,790 ----------- $ 1,941,675 ----------- Total Software & Services $ 4,741,698 ----------- Technology Hardware & Equipment - 3.0% Communications Equipment - 2.1% 25,353 Motorola, Inc. $ 572,724 49,148 Nokia Corp. (A.D.R.) 899,408 ----------- $ 1,472,132 ----------- Computer Hardware - 0.9% 22,510 Hewlett-Packard Co. $ 644,461 ----------- Total Technology Hardware & Equipment $ 2,116,593 -----------
Shares Value Telecommunication Services - 5.5% Integrated Telecom Services - 1.5% 38,689 BellSouth Corp. $ 1,048,472 ----------- Wireless Telecommunication Services - 4.0% 9,733 Alltel Corp. $ 614,152 56,654 Sprint Nextel Corp. 1,323,437 130,741 Vodafone Group Plc 283,808 28,815 Vodafone Group Plc (A.D.R.) 618,658 ----------- $ 2,840,055 ----------- Total Telecommunication Services $ 3,888,527 ----------- Utilities - 6.1% Electric Utilities - 3.2% 21,460 Edison International $ 935,871 7,480 Entergy Corp. 513,502 15,500 Exelon Corp. 823,670 ----------- $ 2,273,043 ----------- Independent Power Producer & Energy Traders - 2.4% 7,830 Constellation Energy Group $ 451,008 24,680 TXU Corp. 1,238,689 ----------- $ 1,689,697 ----------- Multi-Utilities - 0.5% 4,470 Dominion Resources, Inc. $ 345,084 ----------- Total Utilities $ 4,307,824 ----------- TOTAL COMMON STOCKS (Cost $64,702,563) $70,629,425 ----------- TOTAL INVESTMENT IN SECURITIES - 99.3% (Cost $64,702,563) $70,629,425 ----------- OTHER ASSETS AND LIABILITIES - 0.7% $ 506,515 ----------- TOTAL NET ASSETS - 100.0% $71,135,940 ===========
(A.D.R.) American Depositary Receipt * Non-income producing security 6 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
5/1/03(a) Year Ended Year Ended to Class II 12/31/05 12/31/04 12/31/03 Net asset value, beginning of period $ 13.40 $ 12.04 $ 10.00 ------- ------- ------- Increase from investment operations: Net investment income $ 0.02 $ 0.02 $ 0.01 Net realized and unrealized gain on investments and foreign currency transactions 0.60 1.36 2.03 ------- ------- ------- Net increase from investment operations $ 0.62 $ 1.38 $ 2.04 Distributions to shareholders: Net investment income (0.01) (0.01) - Net realized gain (0.09) (0.01) - ------- ------- ------- Net increase in net asset value $ 0.52 $ 1.36 $ 2.04 ------- ------- ------- Net asset value, end of period $ 13.92 $ 13.40 $ 12.04 ======= ======= ======= Total return* 4.67% 11.40% 20.40% Ratio of net expenses to average net assets+ 1.34% 1.50% 1.50%** Ratio of net investment income to average net assets+ 0.63% 0.27% 0.27%** Portfolio turnover rate 208% 52% 24% Net assets, end of period (in thousands) $71,136 $10,879 $ 1,695 Ratios assuming no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.43% 3.61% 10.93%** Net investment income (loss) 0.54% (1.85)% (9.16)%** Ratios assuming waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 1.34% 1.50% 1.50%** Net investment income 0.63% 0.27% 0.27%**
+ Ratios with no reduction for fees paid indirectly. (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. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. The accompanying notes are an integral part of these financial statements. 7 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (cost $64,702,563) $70,629,425 Cash 563,009 Receivable for dividends, interest and foreign taxes withheld 116,930 Other 567 ------------ Total assets $71,309,931 ------------ LIABILITIES: Payable for fund shares repurchased $ 95,508 Due to affiliates 5,009 Accrued expenses 73,474 ------------ Total liabilities $ 173,991 ------------ NET ASSETS: Paid-in capital $69,260,461 Undistributed net investment income 144,926 Accumulated undistributed net realized gain (4,196,305) Net unrealized gain (loss) on: Investments 5,926,862 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (4) ------------ Total net assets $71,135,940 ------------ NET ASSET VALUE PER SHARE: Class II: No par value (unlimited number of shares authorized) Net assets $71,135,940 Shares outstanding 5,110,424 ----------- Net asset value per share $ 13.92
8 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS --------------------------------------------------------------------------------
Year Ended 12/31/05 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $2,218) $ 433,685 Interest 12,995 ------------ Total investment income $ 446,680 ------------ EXPENSES: Management fees $ 170,163 Transfer agent fees 1,850 Distribution fees (Class II) 56,721 Administrative reimbursements 18,512 Custodian fees 31,442 Professional fees 31,632 Printing 8,537 Fees and expenses of nonaffiliated trustees 3,889 Miscellaneous 2,320 ------------ Total expenses $ 325,066 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (22,145) ------------ Net expenses $ 302,921 ------------ Net investment income $ 143,759 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain from: Investments $ 3,977,968 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 1,262 ------------ $ 3,979,230 ------------ Change in net unrealized gain or (loss) from: Investments $ (2,014,631) Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (52) ------------ $ (2,014,683) ------------ Net gain on investments and foreign currency transactions $ 1,964,547 ------------ Net increase in net assets resulting from operations $ 2,108,306 ============
The accompanying notes are an integral part of these financial statements. 9 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/05 12/31/04 FROM OPERATIONS: Net investment income $ 143,759 $ 14,601 Net realized gain on investments 3,979,230 56,068 Change in net unrealized gain or (loss) on investments and foreign currency transactions (2,014,683) 807,158 ------------ ----------- Net increase in net assets resulting from operations $ 2,108,306 $ 877,827 ------------ ----------- DISTRIBUTIONS TO SHAREOWNERS Net investment income: Class II $ (12,530) $ (2,607) Net realized gain Class II (94,867) (2,047) ------------ ----------- Total distributions to shareholders $ (107,397) $ (4,654) ------------ ----------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 4,536,146 $ 8,460,112 Shares issued in reorganization 56,877,053 - Reinvestment of distributions 104,862 4,364 Cost of shares repurchased (3,262,015) (154,122) ------------ ----------- Net increase in net assets resulting from fund share transactions $ 58,256,046 $ 8,310,354 ------------ ----------- Net increase in net assets $ 60,256,955 $ 9,183,527 NET ASSETS: Beginning of period 10,878,985 1,695,458 ------------ ----------- End of period $ 71,135,940 $10,878,985 ============ ============ Undistributed net investment income, end of period $ 144,926 $ 12,435 ============ ============
10 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Value VCT Portfolio (the Portfolio), is a Portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of twenty nine separate diversified portfolios, sixteen 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) Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II shares only) Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth Allocation Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only) The Value VCT Portfolio commenced operations on May 1, 2003. Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts or by qualified pension and retirement plans. The Value Portfolio seeks reasonable income and capital growth. The financial statements and financial highlights of all other Portfolios are presented in separate books. The Portfolio's financial statements have been prepared in conformity with U.S. generally accepted accounting principles that require the management of the Portfolio 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. Information concerning the Portfolio's principal investment risk is contained in the Portfolio's prospectus(es). Please refer to those documents when considering the Portfolio's risks. Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic and political conditions. The following is a summary of significant accounting policies consistently followed by the Trust, in the preparation of its financial statements which are consistent with those generally accepted in the investment company industry: 11 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- 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 (NYSE) is open, as of the close of regular trading on the NYSE. 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. The Portfolio also may use the fair value of a security, including a non-U.S. security, when the closing market price on the primary exchange where the security is traded no longer accurately reflects the value of the security as of the close of the NYSE. At December 31, 2005, there were no fair valued securities. 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. 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. dollars 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. At December 31, 2005, there were no open forward foreign currency contracts. D. Taxes It is the Portfolio'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 amounts and characterizations of distributions to shareowners for financial reporting purposes are determined in accordance with federal 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, 2005, Value Portfolio had a net capital loss carryforward of $7,737,092, of which the following amounts will expire in between 2009 and 2010, if not utilized: $5,070,587 in 2009 and $2,666,505 in 2010. 12 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- At December 31, 2005, 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.
-------------------------------------------------------------------------------- Undistributed Accumulated Net Investment Net Realized Paid-In Portfolio Income (Loss) Gain (Loss) Capital -------------------------------------------------------------------------------- Pioneer Value VCT Portfolio (2,395) 2,395 -- --------------------------------------------------------------------------------
The following chart shows the distributions paid during the years ended December 31, 2005 and December 31, 2004 and the components of distributable earnings (accumulated losses) as of December 31, 2005 on a tax basis.
-------------------------------------------------------------------------------- 2005 2004 -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 20,216 $4,654 Long-Term capital gain 87,181 -- Return of Capital -- -- ---------- ------ Total distributions $ 107,397 $4,654 ========== ====== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 144,926 Undistributed long-term gain/ (capital loss carryforward) 3,614,768 Capital loss carryforward from AmSouth merger (7,737,092) Unrealized appreciation (depreciation) 5,852,878 ---------- Total $1,875,480 ========== --------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation is primarily attributable to the tax deferral of losses on wash sales. E. Portfolio Shares The Portfolio records sales and repurchases of its 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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. Distribution fees for Class II shares are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. 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 payments in lieu of interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for the 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 Portfolio has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Portfolio invests cash collateral in the Securities Lending Investment Fund which is sponsored 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, a wholly owned indirect subsidiary of UniCredito Italiano manages the portfolio. Management fees are calculated daily at the 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, 2005, $3,544 was payable to PIM related to management fees, administrative fees and certain other services, and is included in due to affiliates. 13 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) -------------------------------------------------------------------------------- Through May 1, 2006, 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. 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 $484 in transfer agent fees payable to PIMSS at December 31, 2005. 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 to compensate PFD for (1) distribution services and (2) personal and account maintenance services performed and expenses incurred by PFD in connection with the Portfolio's Class II shares. Included in due to affiliates is $981 payable to PFD at December 31, 2005. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2005, 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) --------------------------------------------------------------------------------------- Value Portfolio $64,776,543 $6,521,386 $ (668,504) $5,852,882 =========== ========== =========== =========== ---------------------------------------------------------------------------------------
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, 2005, were $49,924,893 and $45,764,398, respectively. 7. Capital Shares At December 31, 2005, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
-------------------------------------------------------------------------------------------------- Value Portfolio '05 Shares '05 Amount '04 Shares '04 Amount -------------------------------------------------------------------------------------------------- CLASS II: Shares sold 338,599 $ 4,536,146 683,440 $8,460,112 Shares issued in reorganization 4,188,296 56,877,053 Reinvestment of distributions 7,796 104,862 353 4,364 Shares repurchased (236,328) (3,262,015) (12,576) (154,122) --------- ------------ ------- ---------- Net increase 4,298,363 $ 58,256,046 671,217 $8,310,354 ========= ============ ======= ========== --------------------------------------------------------------------------------------------------
14 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 8. Merger Information On November 4, 2005, beneficial owners of AmSouth VIF Value Portfolio approved a proposed Agreement and Plan of Reorganization that provided for the merger listed below. This tax-free reorganization was accomplished on November 4, 2005, by exchanging all of the AmSouth Fund's net assets for Class II shares as indicated below, based on Class II share's ending net asset value on the Closing Date. The following charts show the details of the reorganization as of that closing date ("Closing Date"):
------------------------------------------------------------------------------------------------ Pioneer Pioneer Value VCT AmSouth Value VCT Portfolio VIF Value Portfolio (Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization) ------------------------------------------------------------------------------------------------ Net Assets $14,728,843 $56,877,053 $71,605,896 Shares Outstanding 1,084,731 3,957,885 5,273,027 Class II Shares Issued 4,188,296 ------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------ Unrealized Appreciation Realized (Loss) on Closing Date on Closing Date ------------------------------------------------------------------------------------------------ AmSouth VIF Value $6,995,580 $ (8,135,854) ========== ============= ------------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION (unaudited) The qualifying percentage of certain Portfolios' ordinary income dividends for the purposes of the corporate dividends received deduction and the percentage of those ordinary dividends that are subject to a maximum tax rate of 15% as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were as follows:
------------------------------------------------------------------------------------------------ Dividend Qualified Received Dividend Deduction Income ------------------------------------------------------------------------------------------------ Value Portfolio 100.00% 100.00% ------------------------------------------------------------------------------------------------
15 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the 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 the Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. 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 audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian. 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 Value VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and financial highlights for the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 10, 2006 16 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio (the "Fund") -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") vote separately annually to approve the Fund's management contract (the "Management Contract"). The Trustees have determined that the terms of the Management Contract are fair and reasonable and that renewal of the contract will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) information on the investment performance of the Fund, a peer group of funds and an index, in each case selected by the Independent Trustees for this purpose, (ii) sales and redemption data in respect to the Fund, (iii) the general investment outlook in the markets in which the Fund invests, (iv) arrangements in respect of the distribution of the Fund's shares, (v) the procedures employed to determine the value of each of the Fund's assets, (vi) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (vii) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates and (ix) the disclosures included in the Fund's prospectuses and reports to shareholders. Specifically in connection with the Independent Trustees' review of the Management Contract, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's services and the reasonableness of the fee under the Management Contract. Among other items, this information included data or analyses of (1) investment performance for one year period for the Fund and a peer group selected by the Independent Trustees for this purpose, (2) management fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser, (4) expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser, (6) the Investment Adviser's financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to shareholders of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareholder services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objective and regulatory requirements. The Trustees also reviewed the Fund's investment performance based upon total return, as well as the Fund's performance 17 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- compared to both the performance of a peer group and the results of an index, in each case selected by the Independent Trustees for this purpose. (In all quintile rankings referred to throughout this discussion first quintile is most favorable to the Fund's shareholders. Thus, highest relative performance would be first quintile and lowest relative expenses also would be first quintile.) The Trustees concluded that the period of investment was too short to evaluate performance. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's equities group. Among other things, the Trustees considered the number, education and experience of the Investment Adviser's investment staff and their use of technology and emphasis on analytics in view of the risk profile of securities in which the Fund invests. The Trustees concluded that the Investment Adviser had the quality and depth of personnel and the well-developed methods essential to performing its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareholders of the Fund, including administrative and shareholder services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareholders of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee was in the first quintile (after fee waivers) for the 12 months ended June 30, 2005 relative to the management fees paid by the other funds in that peer group for the comparable period and in the second quintile after giving effect to fee waivers. The Trustees also evaluated the fee relative to the median fee of the peer group. In light of the tight range of fees in the peer group, the Trustees determined that the fee under the Management Contract was reasonable and fair in light of both the overall nature and quality of services provided by the Investment Adviser and the fees charged by the funds in the peer group. The Trustees also considered the Fund's expense ratio (both before and after expense limitation) for the 12 months ended June 30, 2005 and expense ratios for the comparable period of an applicable peer group of funds. The Fund's expense ratio (both before and after expense limitation) was in the fifth quintile of the applicable peer group for the most recent fiscal year of the peer group. The Trustees concluded that the Fund's overall expense ratio, although higher than the peer group, was reasonable compared to that of most of the comparably sized funds. F. Profitability. The Trustees considered the level of the Investment Adviser's profits with respect to the management of the Pioneer Funds, including details with respect to the Fund. This consideration included a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund. The Trustees also considered the financial results realized by the Investment Adviser in connection with the operation of the Fund. They further considered the profits realized by the Investment Adviser and its affiliates from non-fund businesses that may benefit from or be related to the Fund's business. The Trustees considered the Investment Adviser's profit margins in comparison with the limited available industry data. The Trustees concluded that the Investment Adviser's profits from management of the Pioneer Funds, including the financial results derived from the Fund, bear a reasonable relationship to the services rendered and are fair for the management of the Fund. G. Economies of Scale. The Trustees considered the economies of scale with respect to the management of the Fund, whether the Fund had appropriately benefited from any economies of scale, and whether there was potential for realization of any further economies of scale. The Trustees concluded that, given current and anticipated asset levels, a break point in the management fee was not necessary at this time. The Trustees will continue to evaluate annually the appropriateness of break points. 18 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- H. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareholder services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect to the Pioneer Funds (including the Fund), and benefits to the Investment Adviser from the use of "soft" commission dollars to pay for research services. The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. The Trustees, in light of the Investment Adviser's overall performance, considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund is fair and reasonable and voted to approve the continuation of the Management Contract for another year. 19 -------------------------------------------------------------------------------- Pioneer Value VCT Portfolio TRUSTEES, OFFICERS AND SERVICE PROVIDERS --------------------------------------------------------------------------------
Trustees and Officers Investment Adviser The Trust's Board of Trustees provides broad supervision over the Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible for the Trust's operations. The Trust's Trustees and officers are Custodian listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not Ernst & Young LLP interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees may serve as a trustee of each of Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Trust"). The address for all Interested Trustees Legal Counsel and all officers of the Portfolio is 60 State Street, Boston, Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109. Shareowner Services and Transfer The Trust's statement of additional information provides more Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Board, Trustee until successor Pioneer Global Asset Management Directors of ICI and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance or earlier Chairman and a Director of Pioneer Company; Director of retirement or Investment Management USA Inc. Harbor Global removal. ("PIM-USA"); Chairman and a Company, Ltd. 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; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. -----------------------------------------------------------------------------------------------------------------------------------
20 Pioneer Value VCT Portfolio -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social 3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance or earlier services company) (2001-present); company); Director of New York retirement or Managing Partner, Federal City Mortgage Trust (publicly traded removal. Capital Advisors (boutique merchant mortgage REIT) bank) (2002 to 2004); Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ---------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation 3509 Woodbine Street, until successor (international financial advisory (industrial identification and Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products or earlier manufacturer), Mortgage Guaranty retirement or Insurance Corporation, and Briggs removal. & Stratton, Inc. (engine manufacturer) ---------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until successor Group, Inc. (consulting firm); West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management, Canada H3A 1G5 or earlier McGill University. retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end 28th Floor, trustee is elected Inc. (investment banking firm). investment company) Boston, MA 02108 or earlier retirement or removal. ---------------------------------------------------------------------------------------------------------------------------------- John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None One North Adgers Wharf, 2000. Serves until Inc. (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ----------------------------------------------------------------------------------------------------------------------------------
21 -------------------------------------------------------------------------------- Pioneer Value VCT Portfolio TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS ----------------------------------------------------------------------------------------------------------------------------------- POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds Board. (Director since 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None 2003. Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of Board. PIM-USA's subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Assistant Since September, Assistant Vice President and Senior None Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002; discretion of the Vice President and Senior Counsel Board. 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) and Assistant Secretary of all Pioneer Funds since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None Secretary 2003. Serves at the Hale and Dorr LLP; Assistant discretion of the Secretary of all Pioneer Funds Board. since September 2003. ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None 2000. Serves at the Administration and Custody Services discretion of the of Pioneer; and Treasurer of all of Board. the Pioneer Funds. ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice discretion of the President, CDC IXIS Asset Board. Management Services from 2002 to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. -----------------------------------------------------------------------------------------------------------------------------------
22 -------------------------------------------------------------------------------- Pioneer Value VCT Portfolio TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
----------------------------------------------------------------------------------------------------------------------------------- TRUST OFFICERS POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Luis I. Presutti (40) Assistant Since November, None Treasurer 2000. Serves at the Assistant Vice President - Fund discretion of the Accounting, Administration and Board. Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds. --------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and discretion of the Custody Services of Pioneer; and Board. Assistant Treasurer of all of the Pioneer Funds since May 2002. --------------------------------------------------------------------------------------------------------------------------------- Katharine Kim Assistant Since September, Fund Administration Manager - Fund None Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and discretion of the Custody Services since June 2003; Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. --------------------------------------------------------------------------------------------------------------------------------- Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to Board. September 2004); and Chief Compliance Officer of all of the Pioneer Funds. ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 23 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 24 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This page for your notes. 25 [LOGO]PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18670-00-0206 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Asset Allocation Series VCT Portfolios -- Class II Shares ANNUAL REPORT December 31, 2005 PIONEER VARIABLE CONTRACTS TRUST -------------------------------------------------------------------------------- T a b l e o f C o n t e n t s -------------------------------------------------------------------------------- Pioneer Ibbotson Asset Allocation Series VCT Portfolios Moderate Allocation Portfolio - Portfolio and Performance Update 2 Growth Allocation Portfolio - Portfolio and Performance Update 3 Aggressive Allocation Portfolio - Portfolio and Performance Update 4 Comparing Ongoing Portfolio Expenses 5 Market Overview and Strategy 8 Portfolio Reviews 9 Schedule of Investments 10 Financial Statements 13 Notes to Financial Statements 20 Report of Independent Registered Public Accounting Firm 23 Factors Considered by the Independent Trustees in Approving the Management Contract 24 Trustees, Officers and Service Providers 30
Before investing, consider the Portfolio's investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus containing this information. Read it carefully. The Trust files a complete statement of investments with the Securities and Exchange Commission for the first and the third quarters for each fiscal year on Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's web site at http://www.sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330. PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Moderate Allocation VCT Portfolio -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Target Asset Allocations Equity 60% Fixed Income 40%
Large Cap Growth Stocks 15.5% ---------------------------------- Large Cap Value Stocks 15.5 ---------------------------------- Mid/Small Cap Growth Stocks 6.0 ---------------------------------- Mid/Small Cap Value Stocks 6.0 ---------------------------------- International Stocks 12.0 ---------------------------------- Emerging Markets 2.0 ---------------------------------- Real Estate (REITS) 3.0 ---------------------------------- High Yield Bonds 8.0 ---------------------------------- Bonds 11.0 ---------------------------------- Short Term Bonds 15.0 ---------------------------------- Cash Equivalents 6.0 ----------------------------------
Actual Portfolio Holdings (Based on total portfolio) U.S. Stocks Pioneer Real Estate 3.13% ------------------------------------------------------------------------------------------ Pioneer Fund 6.22% Pioneer Growth Opportunities 2.06 ------------------------------------------------------------------------------------------ Pioneer Research 10.34 International Stocks ------------------------------------------------------------------------------------------ Pioneer Oak Ridge Large Pioneer International Equity 12.61% Cap Growth 14.41 ------------------------------------ Pioneer Emerging Markets 1.24 ------------------------------------------------------------------------------------------ Pioneer Value 3.10 Bonds ------------------------------------------------------------------------------------------ Pioneer Cullen Value Fund 3.13 Pioneer High Yield 6.31% ------------------------------------------------------------------------------------------ Pioneer Mid Cap Growth 3.14 Pioneer Bond 10.55 ------------------------------------------------------------------------------------------ Pioneer Mid Cap Value 1.73 Pioneer ST Income 14.71 ------------------------------------------------------------------------------------------ Pioneer Small Cap Value 3.11 Pioneer Government Income 4.21 ------------------------------------------------------------------------------------------
This list excludes temporary cash and derivative instruments. Portfolio holdings will vary for other periods. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 Prices and Distributions
12/31/05 3/18/05 Net Asset Value per Share $ 10.63 $ 10.00
Net Distributions per Share Investment Short-Term Long-Term (3/18/05 - 12/31/05) Income Capital Gains Capital Gains $ - $ - $ -
-------------------------------------------------------------------------------- Performance of a $10,000 Investment The following chart shows the change in value of an investment made in Pioneer Ibbotson Moderate Allocation VCT Portfolio at net asset value, compared to that of the Standard & Poor's 500 Stock Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Ibbotson Moderate Allocation LB Aggregate VCT Portfolio S&P 500 Bond Mar-05 10,000 10,000 10,000 Dec-05 10,721 10,683 10,292
The Lehman Brothers Aggregate Bond Index is a measure of the U.S. bond market. The Standard & Poor's Stock Index (the S&P 500) is a commonly used measure of the broad U.S. stock market. Index returns are calculated monthly, assume reinvestment of dividends and, unlike Fund 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- Life-of-Class 6.30% (3/18/05)
All total returns shown assume reinvestment of distributions at net asset value. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Please refer to variable product's semiannual report for performance that reflects the deduction of the variable products fees and charges. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 2 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Growth Allocation VCT Portfolio -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Target Asset Allocations Equity 75% Fixed Income 25%
Large Cap Growth Stocks 16.5% ---------------------------------------- Large Cap Value Stocks 17.5 ---------------------------------------- Mid/Small Cap Growth Stocks 8.0 ---------------------------------------- Mid/Small Cap Value Stocks 9.0 ---------------------------------------- International Stocks 16.0 ---------------------------------------- Emerging Markets 4.0 ---------------------------------------- Real Estate (REITs) 4.0 ---------------------------------------- High Yield Bonds 5.0 ---------------------------------------- Bonds 9.5 ---------------------------------------- Short Term Bonds 10.5 ---------------------------------------- Cash Equivalents 0.0
Actual Portfolio Holdings (Based on total portfolio) U.S. Stocks Pioneer Real Estate 3.99% ---------------------------------------------------------------------------------------------------- Pioneer Fund 6.97% Pioneer Growth Opportunities 3.98 ---------------------------------------------------------------------------------------------------- Pioneer Research 10.97 International Stocks ---------------------------------------------------------------------------------------------------- Pioneer Oak Ridge Large Pioneer International Equity 15.95% Cap Growth 13.93 -------------------------------------- Pioneer Emerging Markets 3.12 ---------------------------------------------------------------------------------------------------- Pioneer Value 3.99 Bonds ---------------------------------------------------------------------------------------------------- Pioneer Cullen Value Fund 3.98 Pioneer High Yield 3.02% ---------------------------------------------------------------------------------------------------- Pioneer Mid Cap Growth 3.99 Pioneer Bond 9.04 ---------------------------------------------------------------------------------------------------- Pioneer Mid Cap Value 2.05 Pioneer ST Income 10.03 ---------------------------------------------------------------------------------------------------- Pioneer Small Cap Value 2.99 Pioneer Government Income 2.00 ----------------------------------------------------------------------------------------------------
This list excludes temporary cash and derivative instruments. Portfolio holdings will vary for other periods. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 3/18/05 Net Asset Value per Share $ 10.78 $ 10.00
Net Distributions per Share Investment Short-Term Long-Term (3/18/05 - 12/31/05) Income Capital Gains Capital Gains $ - $ - $ -
-------------------------------------------------------------------------------- Performance of a $10,000 Investment The following chart shows the change in value of an investment made in Pioneer Ibbotson Growth Allocation VCT Portfolio at net asset value, compared to that of the Standard & Peer's 500 Stock Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Ibbotson Growth Allocation LB Aggregate VCT Portfolio S&P 500 Bond Mar-05 10,000 10,000 10,000 Dec-05 10,878 10,721 10,292
The Lehman Brothers Aggregate Bond Index is a measure of the U.S. bond market. The Standard & Poor's Stock Index (the S&P 500) is a commonly used measure of the broad U.S. stock market. Index returns are calculated monthly, assume reinvestment of dividends and, unlike Fund 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- Life-of-Class 7.80% (3/18/05)
All total returns shown assume reinvestment of distributions at net asset value. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Please refer to variable product's semiannual report for performance that reflects the deduction of the variable products fees and charges. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 3 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Aggressive Allocation VCT Portfolio -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/05 -------------------------------------------------------------------------------- [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Target Asset Allocations Equity 90% Fixed Income 10%
Large Cap Growth Stocks 19.0% ----------------------------------- Large Cap Value Stocks 19.0 ----------------------------------- Mid/Small Cap Growth Stocks 10.0 ----------------------------------- Mid/Small Cap Value Stocks 11.0 ----------------------------------- International Stocks 21.0 ----------------------------------- Emerging Markets 5.0 ----------------------------------- Real Estate (REITs) 5.0 ----------------------------------- High Yield Bonds 0.0 ----------------------------------- Bonds 10.0 ----------------------------------- Short Term Bonds 0.0 ----------------------------------- Cash Equivalents 0.0 -----------------------------------
Actual Portfolio Holdings (Based on total portfolio) ---------------------------------------------------------------------------------------------------------- U.S. Stocks Pioneer Small Cap Value 3.69% ---------------------------------------------------------------------------------------------------------- Pioneer Fund 6.90% Pioneer Real Estate 4.94 ---------------------------------------------------------------------------------------------------------- Pioneer Research 10.85 Pioneer Growth Opportunities 4.91 ---------------------------------------------------------------------------------------------------------- Pioneer Oak Ridge Large International Stocks Cap Growth 17.71 ------------------------------------- Pioneer International Equity 20.77% ---------------------------------------------------------------------------------------------------------- Pioneer Value 4.13 Pioneer Emerging Markets 4.04 ---------------------------------------------------------------------------------------------------------- Pioneer Cullen Value Fund 4.93 Bonds ---------------------------------------------------------------------------------------------------------- Pioneer Mid Cap Growth 4.94 Pioneer Bond 8.96 ---------------------------------------------------------------------------------------------------------- Pioneer Mid Cap Value 3.23 ---------------------------------------------
This list excludes temporary cash and derivative instruments. Portfolio holdings will vary for other periods. -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/05 -------------------------------------------------------------------------------- Prices and Distributions
12/31/05 3/18/05 Net Asset Value per Share $ 10.98 $ 10.00
Net Distributions per Share Investment Short-Term Long-Term (3/18/05 - 12/31/05) Income Capital Gains Capital Gains $ - $ - $ -
-------------------------------------------------------------------------------- Performance of a $10,000 Investment The following chart shows the change in value of an investment made in Pioneer Ibbotson Aggressive Allocation VCT Portfolio at net asset value, compared to that of the Standard & Poor's 500 Stock Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Ibbotson Aggressive Allocation LB Aggregate VCT Portfolio S&P 500 Bond Mar-05 10,000 10,000 10,000 Dec-05 11,024 10,721 10,292
The Lehman Brothers Aggregate Bond Index is a measure of the U.S. bond market. The Standard & Poor's Stock Index (the S&P 500) is a commonly used measure of the broad U.S. stock market. Index returns are calculated monthly, assume reinvestment of dividends and, unlike Fund 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, 2005)
-------------------------------------------------------------------------------- Net Asset Value -------------------------------------------------------------------------------- Life-of-Class 9.80% (3/18/05)
All total returns shown assume reinvestment of distributions at net asset value. The performance table does not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Please refer to variable product's semiannual report for performance that reflects the deduction of the variable products fees and charges. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 4 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Moderate Allocation VCT Portfolio -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value - $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Ibbotson Moderate Allocation VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,056.66 Expenses Paid During Period* $ 7.98
* Expenses are equal to the Portfolio's annualized expense ratio of 1.54% multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads). Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Ibbotson Moderate Allocation VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,017.44 Expenses Paid During Period* $ 7.83
* Expenses are equal to the Portfolio's annualized expense ratio of 1.54% multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 5 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Growth Allocation VCT Portfolio -------------------------------------------------------------------------------- COMPARING ONGOING PORTFOLIO EXPENSES (continued) -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value - $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Ibbotson Growth Allocation VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,070.51 Expenses Paid During Period* $ 8.25
* Expenses are equal to the Portfolio's annualized expense ratio of 1.58% multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads). Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Ibbotson Growth Allocation VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,017.24 Expenses Paid During Period* $ 8.03
* Expenses are equal to the Portfolio's annualized expense ratio of 1.58% multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 6 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Aggressive Allocation VCT Portfolio -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- As a shareowner in the Portfolio, you incur two types of costs: (1) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Portfolio expenses; and (2) transaction costs, including sales charges (loads) on purchase payments. This example is intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other variable annuities. The example is based on an investment of $1,000 at the beginning of the Portfolio's latest six-month period and held throughout the six months. Using the Tables Actual Expenses The first table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period as follows: 1. Divide your account value by $1,000 Example: an $8,600 account value - $1,000 = 8.6 2. Multiply the result in (1) above by the corresponding share class's number in the third row under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Expenses Paid on a $1,000 Investment in Pioneer Ibbotson Aggressive Allocation VCT Portfolio Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,086.05 Expenses Paid During Period* $ 8.52
* Expenses are equal to the Portfolio's annualized expense ratio of 1.62% multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Hypothetical Example for Comparison Purposes The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other variable annuities. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other variable annuities. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads). Therefore, the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different variable annuities. In addition, if these transaction costs were included, your costs would have been higher. Expenses Paid on a $1,000 Investment in Pioneer Ibbotson Aggressive Allocation VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2005 through December 31, 2005.
Share Class II -------------------------------------------------- Beginning Account Value on 7/1/05 $ 1,000.00 Ending Account Value on 12/31/05 $ 1,017.04 Expenses Paid During Period* $ 8.24
* Expenses are equal to the Portfolio's annualized expense ratio of 1.62% multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 7 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Asset Allocation Series VCT Portfolios -------------------------------------------------------------------------------- MARKET OVERVIEW AND STRATEGY 12/31/05 -------------------------------------------------------------------------------- In the following interview, portfolio manager Peng Chen, Chief Investment Officer for Ibbotson Associates, discusses the market environment and investment strategies that applied to the three portfolios in the Pioneer Ibbotson Allocation VCT Portfolio Series since they began operations on March 18, 2005. Q. Could you characterize the economic backdrop against which the three portfolios began investment operations? A. The U.S. economy grew at a healthy pace in 2005, if somewhat more slowly than in 2004. Inflation has shown signs of picking up, driven primarily by high energy prices, although core inflation (which excludes energy and food) has remained relatively subdued. A major development during the period was the widespread damage that ensued as Hurricanes Katrina and Rita hit the Gulf Coast in late August and September. The short-term economic impact of this year's catastrophic hurricane season is expected to be a modest drag on growth. On the interest-rate front, the Federal Reserve began to raise short-term rates in 2004 and maintained a policy of gradual tightening throughout 2005 to keep economic growth in check. Surprisingly, long-term interest rates have been relatively stable for much of this cycle of Fed tightening, although they did finally begin to show signs of trending upwards in the third quarter of 2005. In this environment, equity markets overall have basically fluctuated within a range, while posting respectable gains in the fourth quarter. The long-term bonds and credit sensitive sectors of the bond market have generally also made meaningful contributions. Q. What were the strategic considerations that you applied to the three portfolios in allocating assets? A. As the three portfolios in the series were launched and initial investor dollars were received, assets were invested in keeping with the respective broad asset allocation and specific mutual fund targets established prior to the launch of the portfolios. In addition, we implemented three strategies across all the portfolios. First, within the U.S. stock portion of the portfolios, we implemented a moderate emphasis on value stocks and a corresponding underweighting of more growth-oriented investments. This was done because we believed that the U.S. economy had entered into a slowing growth cycle that would favor value equities with relatively stable earnings prospects. We also believed that the potential for higher inflation and interest rates favored the value investment style over growth. Our equity valuation and momentum models further supported that assessment. Late in the period, we removed the overweighting of value stocks in favor of a neutral position between the growth and value categories. This reflects our current view that there is no clear direction with respect to leadership within the U.S. equity market that would support an overweighting of either category, especially given the additional uncertainty in the aftermath of Katrina and Rita. With respect to the other equity asset classes, the portfolios' targeted exposure across large-, mid-, and small-cap equities remained neutral throughout the period. We have also maintained neutral target weightings in the non-US equity market alternatives, both developed and emerging. The second strategic emphasis has been within the bond portion of the portfolios, where we implemented an underweighting of the long-term bond vehicle, with the difference allocated to the shorter-term fixed-income alternative. We believe that, given the prospect of higher interest rates, shorter duration fixed income investments are more attractive. While that positioning has not helped our performance over the short term, we continue to believe that long-term rates will exhibit upward trends, and we are maintaining the allocation. Elsewhere within fixed income, we have maintained neutral positions in the high yield bond offering, as well as in the non-U.S. fixed income option. Finally, we are underweighting REITs (Real Estate Investment Trusts) in view of their extended run of outperformance and the prospect of higher market interest rate levels. REITs have provided exceptional returns over most of the past several years and are fully valued in our view, especially given our expectation for continued cooling in the real estate sector. In addition, REITs are traditionally most attractive to investors seeking income return and have benefited from low interest rates. As rates eventually move up, that supporting factor will no longer be in place. Going forward, we will continue to monitor economic indicators and interest rates to evaluate whether we need to adjust the views underlying our strategic allocations. In that vein, U.S. consumer sentiment has recently shown signs of weakening while inflation has strengthened somewhat, in both cases reflecting to a degree higher energy prices. The impact on consumer spending of the slowing housing market, driven in part by the Fed's recent tightening, will also bear close watching. We continue to view the financial markets as lacking in clear direction, making appropriate diversification across asset classes more important than ever as we enter a new calendar year. Please see Portfolio Reviews beginning on page 9 for information on specific weightings and performance for each of the three portfolios in the Pioneer Ibbotson Asset Allocation Series VCT Portfolios. 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. A Word About Risk: The Portfolio's performance depends on the adviser's skill in determining the strategic asset class allocations, the mix of underlying Pioneer funds, as well as the performance of those underlying funds. The underlying funds' performance may be lower than the performance of the asset class that they were selected to represent. Stocks and bonds can decline due to adverse issuer, market, regulatory, or economic developments. International markets may be less liquid and can be more volatile than U.S. markets. These risk factors, including those associated with currency exchange rates, also apply to investments in international markets, all of which make international markets more volatile and less liquid than investments in domestic markets. Some of the underlying portfolios can invest in either high-yield securities or small/emerging growth companies. Investments in these types of securities generally are subject to greater volatility than either higher-grade securities or more-established companies, respectively. Before making an investment in the portfolio, you should consider all the risks associated with it. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 8 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Asset Allocation Series VCT Portfolios -------------------------------------------------------------------------------- PORTFOLIO REVIEWS 12/31/05 -------------------------------------------------------------------------------- Moderate Allocation The Portfolio's total return for the abbreviated fiscal period beginning March 18, 2005 and ending December 31, 2005, was 6.30% for Class II shares. The Fund targeted an asset allocation of 60% equities, 40% fixed income during the period. Within the equity portion of the Portfolio, Pioneer Oak Ridge Large Cap Growth Fund was the largest holding at 13.7% of assets on December 31, 2005. Pioneer International Equity Fund was the next largest equity holding at 12.0% of assets. Within the fixed income portion of the Portfolio, the largest holding at the end of the period was in a shorter duration bond fund, Pioneer Short Term Income Fund, at 13.9%, followed by Pioneer Bond Fund at 10.0% of assets. Growth Allocation The Portfolio's total return for the abbreviated fiscal period beginning March 18, 2005 and ending December 31, 2005, was 7.80% for Class II shares. The Fund targeted an asset allocation of 75% equities, 25% fixed income during the period. Within the equity portion of the fund, Pioneer International Equity Fund was the largest holding at 16.0% of assets on December 31, 2005. The largest domestic equity allocation was to Pioneer Oak Ridge Large Cap Growth Fund 13.9% followed by Pioneer Research Fund 11.0%. Value holdings were weighted slightly above target for much of the period, reflecting management's view that value stocks were more attractive than their growth counterparts. However, at the end of the period the Portfolio was targeting a neutral posture with respect to its growth versus value allocation. Within the fixed income portion of the Portfolio, the largest holding at the end of the period was in a shorter term bond fund, Pioneer Short Term Income Fund, at 10.1% of assets, while a longer duration bond fund, Pioneer Bond Fund represented 9.1% of assets. Aggressive Allocation The Portfolio's total return for the abbreviated fiscal period beginning March 18, 2005 and ending December 31, 2005, was 9.8% for Class II shares. The Fund targeted an asset allocation of 90% equities, 10% fixed income during the period. Within the equity portion of the fund, Pioneer International Equity Fund was the largest holding at 21.1% of assets on December 31, 2005. On the domestic side, Pioneer Oak Ridge Large Cap Growth Fund 18.0% and Pioneer Research Fund 11.0% were the largest holdings. Value holdings were weighted slightly above target for much of the period, reflecting management's view that value stocks were more attractive than their growth counterparts. However, at the end of the period the Portfolio was targeting a neutral posture with respect to its growth versus value allocation. The fixed income portion of the Portfolio was invested in a long-term bond fund, Pioneer Bond Fund, at 9.1% of assets. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. 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. A Word About Risk: The Portfolio's performance depends on the adviser's skill in determining the strategic asset class allocations, the mix of underlying Pioneer funds, as well as the performance of those underlying funds. The underlying funds' performance may be lower than the performance of the asset class that they were selected to represent. Stocks and bonds can decline due to adverse issuer, market, regulatory, or economic developments. International markets may be less liquid and can be more volatile than U.S. markets. These risk factors, including those associated with currency exchange rates, also apply to investments in international markets, all of which make international markets more volatile and less liquid than investments in domestic markets. Some of the underlying portfolios can invest in either high-yield securities or small/emerging growth companies. Investments in these types of securities generally are subject to greater volatility than either higher-grade securities or more-established companies, respectively. Before making an investment in the portfolio, you should consider all the risks associated with it. Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end performance results. Current performance may be lower or higher than the performance data quoted. The performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The returns for the Portfolio do not reflect the deduction of expenses associated with variable products, such as mortality and expense risk charges, separate account charges, and sales charges. These expenses would reduce the overall returns shown. Performance results reflect any applicable expense waivers in effect during the periods shown. Without such waivers performance would be lower. Waivers may not be in effect for all portfolios. Certain fee waivers are contractual through a specified period. Otherwise, fee waivers can be rescinded at any time. See the prospectus and financial statements for more information. 9 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Moderate Allocation VCT Portfolios -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value MUTUAL FUNDS - 95.0% PIONEER FUNDS - 95.0% 220,583 Pioneer Bond Fund Class Y $ 2,009,508 ----------- 34,364 Pioneer Cullen Value Fund Class Y 595,521 ----------- 8,906 Pioneer Emerging Markets Fund Class Y 235,218 ----------- 26,729 Pioneer Fund Class Y 1,184,349 ----------- 84,966 Pioneer Government Income Fund Class Y 802,931 ----------- 12,604 Pioneer Growth Opportunities Fund Class Y 393,114 ----------- 112,070 Pioneer High Yield Fund Class Y 1,202,516 ----------- 104,592 Pioneer International Equity Fund Class Y 2,402,472 ----------- 39,919 Pioneer Mid-Cap Growth Fund Class Y 597,589 ----------- 13,643 Pioneer Mid-Cap Value Fund Class Y 329,350 ----------- 202,958 Pioneer Oak Ridge Large Cap Growth Fund Class Y 2,746,021 ----------- 23,105 Pioneer Real Estate Shares Fund Class Y 597,025 ----------- 199,641 Pioneer Research Fund Class Y 1,970,458 ----------- 287,267 Pioneer Short Term Income Fund Class Y 2,803,724 ----------- 18,331 Pioneer Small Cap Value Fund Class Y 593,386 ----------- 33,640 Pioneer Value Fund Class Y 591,392 ----------- TOTAL INVESTMENTS IN SECURITIES - 95.0% (Cost $18,839,354)(a) $19,054,574 ----------- OTHER ASSETS AND LIABILITIES - 5.0% 1,012,492 ----------- TOTAL NET ASSETS - 100.0% $20,067,066 ===========
(a) At December 31, 2005, the net unrealized gain on investments based on cost for federal tax purposes of $18,903,417 was as follows: Aggregate gross unrealized gain for all investments in which there is an excess of value over tax cost $256,210 Aggregate gross unrealized loss for all investments in which there is an excess of tax cost over value (105,053) -------- Net unrealized gain $151,157 ========
Purchases and sales of securities (excluding temporary cash investments) for the period ended December 31, 2005 aggregated $20,646,249 and $1,740,034, respectively. 10 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Growth Allocation VCT Portfolios -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value MUTUAL FUNDS - 100.4% PIONEER FUNDS - 100.4% 131,915 Pioneer Bond Fund Class Y $ 1,201,743 ----------- 30,567 Pioneer Cullen Value Fund Class Y 529,718 ----------- 15,694 Pioneer Emerging Markets Fund Class Y 414,490 ----------- 20,909 Pioneer Fund Class Y 926,470 ----------- 28,232 Pioneer Government Income Fund Class Y 266,793 ----------- 16,948 Pioneer Growth Opportunities Fund Class Y 528,621 ----------- 37,415 Pioneer High Yield Fund Class Y 401,467 ----------- 92,332 Pioneer International Equity Fund Class Y 2,120,875 ----------- 35,457 Pioneer Mid-Cap Growth Fund Class Y 530,788 ----------- 11,299 Pioneer Mid-Cap Value Fund Class Y 272,765 ----------- 136,940 Pioneer Oak Ridge Large Cap Growth Fund Class Y 1,852,793 ----------- 20,552 Pioneer Real Estate Shares Fund Class Y 531,064 ----------- 147,779 Pioneer Research Fund Class Y 1,458,583 ----------- 136,643 Pioneer Short Term Income Fund Class Y 1,333,639 ----------- 12,296 Pioneer Small Cap Value Fund Class Y 398,018 ----------- 30,170 Pioneer Value Fund Class Y 530,395 ----------- TOTAL INVESTMENTS IN SECURITIES - 100.4% (Cost $13,044,963 )(a) $13,298,222 ----------- OTHER ASSETS AND LIABILITIES - ( 0.4%) (53,609) ----------- TOTAL NET ASSETS - 100.0% $13,244,613 ===========
(a) At December 31, 2005, the net unrealized gain on investments based on cost for federal tax purposes of $13,086,147 was as follows: Aggregate gross unrealized gain for all investments in which there is an excess of value over tax cost $261,233 Aggregate gross unrealized loss for all investments in which there is an excess of tax cost over value (49,158) -------- Net unrealized gain $212,075 ========
Purchases and sales of securities (excluding temporary cash investments) for the period ended December 31, 2005 aggregated $14,124,084 and $1,016,443, respectively. The accompanying notes are an integral part of these financial statements. 11 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Aggressive Allocation VCT Portfolios -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/05 --------------------------------------------------------------------------------
Shares Value MUTUAL FUNDS - 101.6% PIONEER FUNDS - 101.6% 30,742 Pioneer Bond Fund Class Y $ 280,061 ---------- 8,900 Pioneer Cullen Value Fund Class Y 154,232 ---------- 4,786 Pioneer Emerging Markets Fund Class Y 126,410 ---------- 4,868 Pioneer Fund Class Y 215,685 ---------- 4,921 Pioneer Growth Opportunities Fund Class Y 153,490 ---------- 28,266 Pioneer International Equity Fund Class Y 649,281 ---------- 10,315 Pioneer Mid-Cap Growth Fund Class Y 154,423 ---------- 4,183 Pioneer Mid-Cap Value Fund Class Y 100,988 ---------- 40,917 Pioneer Oak Ridge Large Cap Growth Fund Class Y 553,609 ---------- 5,981 Pioneer Real Estate Shares Fund Class Y 154,562 ---------- 34,373 Pioneer Research Fund Class Y 339,259 ---------- 3,568 Pioneer Small Cap Value Fund Class Y 115,489 ---------- 7,342 Pioneer Value Fund Class Y 129,079 ---------- TOTAL INVESTMENTS IN SECURITIES - 101.6% (Cost $3,039,813)(a) $3,126,568 ---------- OTHER ASSETS AND LIABILITIES - (1.6%) (49,319) ---------- TOTAL NET ASSETS - 100.0% $3,077,249 ==========
(a) At December, 31, 2005, the net unrealized gain on investments based on cost for federal tax purposes of $3,051,419 was as follows: Aggregate gross unrealized gain for all investments in which there is an excess of value over tax cost $83,768 Aggregate gross unrealized loss for all investments in which there is an excess of tax cost over value (8,619) ------- Net unrealized gain $75,149 =======
Purchases and sales of securities (excluding temporary cash investments) for the period ended December 31, 2005 aggregated $3,267,797 and $212,088, respectively. 12 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Asset Allocation Series VCT Portfolios -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
For the period 3/18/05(a) to 12/31/05 --------------- Moderate Allocation VCT Portfolio Class II Net asset value, beginning of period $ 10.00 -------- Increase from investment operations: Net investment income (b) $ 0.15 Net realized and unrealized gain on investments 0.48 -------- Net increase from investment operations $ 0.63 -------- Net increase in net asset value $ 0.63 -------- Net asset value, end of period $ 10.63 ======== Total return* 6.30%(c) Ratio of net expenses to average net assets**++ 0.74% Ratio of net investment income to average net assets** 1.73% Portfolio turnover rate 27%(c) Net assets, end of period (in thousands) $ 20,067
(a) Commencement of operations. (b) Calculated using average shares outstanding for the period. (c) Not Annualized. * 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. ++ In the absence of expense reimbursement, expenses on an annualized basis would have been 1.42% of average net assets for Class II shares. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. The accompanying notes are an integral part of these financial statements. 13 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Asset Allocation Series VCT Portfolios -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
For the period 3/18/05(a) to 12/31/05 --------------- Growth Allocation VCT Portfolio Class II Net asset value, beginning of period $ 10.00 -------- Increase from investment operations: Net investment income (b) $ 0.11 Net realized and unrealized gain on investments 0.67 -------- Net increase from investment operations $ 0.78 -------- Net increase in net asset value $ 0.78 -------- Net asset value, end of period $ 10.78 ======== Total return* 7.80%(c) Ratio of net expenses to average net assets**++ 0.74% Ratio of net investment income to average net assets** 1.34% Portfolio turnover rate 20%(c) Net assets, end of period (in thousands) $ 13,245
(a) Commencement of operations. (b) Calculated using average shares outstanding for the period. (c) Not Annualized. * 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. ++ In the absence of expense reimbursement, expenses on an annualized basis would have been 1.74% of average net assets for Class II shares. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. 14 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Asset Allocation Series VCT Portfolios -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
For the period 3/18/05(a) to 12/31/05 --------------- Aggressive Allocation VCT Portfolio Class II Net asset value, beginning of period $ 10.00 -------- Increase from investment operations: Net investment income (b) $ 0.08 Net realized and unrealized gain on investments 0.90 -------- Net increase from investment operations $ 0.98 -------- Net increase in net asset value $ 0.98 -------- Net asset value, end of period $ 10.98 ======== Total return* 9.80%(c) Ratio of net expenses to average net assets**++ 0.74% Ratio of net investment income to average net assets** 0.90% Portfolio turnover rate 17%(c) Net assets, end of period (in thousands) $ 3,077
(a) Commencement of operations. (b) Calculated using average shares outstanding for the period. (c) Not Annualized. * 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. ++ In the absence of expense reimbursement, expenses on an annualized basis would have been 5.94% of average net assets for Class II shares. Note: The above financial highlights do not reflect the deduction of non-fund expenses associated with variable insurance products, such as mortality and expense risk charges, separate account charges, and sales charges. The accompanying notes are an integral part of these financial statements. 15 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Asset Allocation Series VCT Portfolios -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/05 --------------------------------------------------------------------------------
Moderate Growth Aggressive Allocation Allocation Allocation VCT Portfolio VCT Portfolio VCT Portfolio ASSETS: Investments in securities of affiliated issuers, at value (at cost $18,839,354, $13,044,963 and $3,039,813, respectively) $ 19,054,574 $ 13,298,222 $ 3,126,568 Cash 1,072,582 220,797 112,335 Receivable for: Fund shares sold 6,215 7,394 -- ------------ ------------ ----------- Total assets $ 20,133,371 $ 13,526,413 $ 3,238,903 ------------ ------------ ----------- LIABILITIES: Payables for: Securities purchased $ -- $ 221,324 $ 111,873 Fund shares redeemed 4,644 2,417 1,156 Due to affiliates 6,823 4,584 1,331 Accrued expenses and other liabilities 43,764 40,219 39,529 Due to Pioneer Investment Management, Inc. 11,074 13,256 7,765 ------------ ------------ ----------- Total liabilities $ 66,305 $ 281,800 $ 161,654 ------------ ------------ ----------- NET ASSETS: Paid-in capital $ 19,458,299 $ 12,716,032 $ 2,917,337 Undistributed net investment income 134,872 86,495 17,928 Accumulated net realized gain on investments 258,675 188,827 55,229 Net unrealized gain on investments 215,220 253,259 86,755 ------------ ------------ ----------- Total net assets $ 20,067,066 $ 13,244,613 $ 3,077,249 ============ ============ =========== NET ASSET VALUE PER SHARE: (No par value, unlimited number of shares authorized) Net Assets of Class II Shares $ 20,067,066 $ 13,244,613 $ 3,077,249 Class II Shares outstanding 1,887,510 1,228,346 280,299 ------------ ------------ ----------- Net Asset Value -- Class II Shares $ 10.63 $ 10.78 $ 10.98
16 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Asset Allocation Series VCT Portfolios -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS -------------------------------------------------------------------------------- For the Period 3/18/05* to 12/31/05
Moderate Growth Aggressive Allocation Allocation Allocation VCT Portfolio VCT Portfolio VCT Portfolio INVESTMENT INCOME: Dividend income received from securities of affiliated issuers $ 124,821 $ 79,996 $ 15,212 Interest 17,352 5,961 1,412 --------- --------- --------- Total investment income $ 142,173 $ 85,957 $ 16,624 --------- --------- --------- EXPENSES: Management fees $ 7,490 $ 5,380 $ 1,315 Transfer agent fees 1,500 1,500 1,500 Distribution fees 14,403 10,345 2,529 Custodian fees 18,500 15,000 15,000 Professional fees 32,200 32,200 32,200 Printing fees 4,000 4,000 4,000 Fees and expenses of nonaffiliated trustees 2,000 2,000 2,000 Miscellaneous 1,500 1,500 1,500 --------- --------- --------- Total expenses $ 81,593 $ 71,925 $ 60,044 --------- --------- --------- Less expenses reimbursed by Pioneer Investment Management, Inc. (38,959) (41,303) (52,558) --------- --------- --------- Net expenses $ 42,634 $ 30,622 $ 7,486 --------- --------- --------- Net investment income $ 99,539 $ 55,335 $ 9,138 --------- --------- --------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS IN SECURITIES OF AFFILIATED ISSUERS: Net realized loss on investments $ (66,861) $ (62,679) $ (15,895) Realized gain distributions received from investment company shares 360,171 282,077 79,752 Change in net unrealized gain on investments 215,220 253,259 86,755 --------- --------- --------- Net gain on investments $ 508,530 $ 472,657 $ 150,612 --------- --------- --------- Net increase in net assets resulting from operations $ 608,069 $ 527,992 $ 159,750 ========= ========= =========
* Commencement of operations. The accompanying notes are an integral part of these financial statements. 17 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Asset Allocation Series VCT Portfolios -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS -------------------------------------------------------------------------------- For the Period 3/18/05* to 12/31/05
Moderate Growth Aggressive Allocation Allocation Allocation VCT Portfolio VCT Portfolio VCT Portfolio FROM OPERATIONS: Net investment income $ 99,539 $ 55,335 $ 9,138 Net realized gain on investments 293,310 219,398 63,857 Change in net unrealized gain on investments 215,220 253,259 86,755 ----------- ----------- ---------- Net increase in net assets resulting from operations $ 608,069 $ 527,992 $ 159,750 ----------- ----------- ---------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $20,272,067 $13,118,169 $2,893,199 Cost of shares repurchased (913,070) (501,548) (75,700) ----------- ----------- ---------- Net increase in net assets resulting from fund share transactions $19,358,997 $12,616,621 $2,817,499 ----------- ----------- ---------- Net increase in net assets $19,967,066 $13,144,613 $2,977,249 NET ASSETS: Beginning of period (Initial capitalization -- 10,000 shares per fund) $ 100,000 $ 100,000 $ 100,000 ----------- ----------- ---------- End of period (including undistributed net investment income of $134,872, $86,495 and $17,928, respectively) $20,067,066 $13,244,613 $3,077,249 =========== =========== ==========
* Commencement of operations. 18 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Asset Allocation Series VCT Portfolios -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- For the Period 3/18/05* to 12/31/05
Moderate Allocation Growth Allocation Aggressive Allocation VCT Portfolio VCT Portfolio VCT Portfolio ------------------------------ ------------------------------ --------------------------- Shares Amount Shares Amount Shares Amount Class II Shares sold 1,965,325 $20,272,067 1,266,361 $13,118,169 277,535 $2,893,199 Less shares repurchased (87,815) (913,070) (48,015) (501,548) (7,236) (75,700) --------- ----------- --------- ----------- ------- ---------- Net increase 1,877,510 $19,358,997 1,218,346 $12,616,621 270,299 $2,817,499 ========= =========== ========= =========== ======== ==========
* Commencement of operations. The accompanying notes are an integral part of these financial statements. 19 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Asset Allocation Series VCT Portfolios -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Ibbotson Moderate Allocation VCT Portfolio, Pioneer Ibbotson Growth Allocation VCT Portfolio and Pioneer Ibbotson Aggressive Allocation VCT Portfolio (the Portfolios) are Portfolios 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. Each of these Portfolios is a "fund of funds" which means that it seeks to achieve its investment objective by investing in other funds ("underlying funds") rather than direct investment in securities. These Portfolios indirectly pay a portion of the expenses incurred by the underlying funds. Consequently, an investment in these Portfolios entails more direct and indirect expenses than direct investment in the underlying funds. The Trust consists of twenty nine 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) Pioneer Papp America-Pacific Rim VCT Portfolio (Papp America-Pacific Rim Portfolio) (Class II shares only) Pioneer Papp Small and Mid Cap Growth VCT Portfolio (Papp Small and Mid Cap Growth Portfolio) (Class II shares only) Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap Growth Portfolio) (Class II shares only) Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio) (Class I shares only) Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio) (Class I shares only) Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only) Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II shares only) Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio) (Class II shares only) Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (Moderate Portfolio) (Class II shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Growth Portfolio) (Class II shares only) Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Aggressive Portfolio) (Class II shares only) Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II Shares only) Portfolio shares may be purchased only by either insurance companies for the purpose of funding variable annuity and variable life insurance contracts or by qualified pension and retirement plans. The investment objective of the Moderate Portfolio is to seek a balance between long-term capital growth and current income. The Growth Portfolio seeks a balance between long-term capital growth and current income. The Aggressive Portfolio seeks long-term capital growth. The financial statements and financial highlights of all other Portfolios are presented in separate books. The financial statements have been prepared in accordance with United States generally accepted accounting principles that require the management of the Portfolios to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from these estimates. The following is a summary of significant accounting policies consistently followed by the Trust in the preparation of its financial statements, which are in conformity with those generally accepted in the investment company industry. 20 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Asset Allocation Series VCT Portfolios -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- A. Security Valuation Security transactions are recorded as of the trade date. The net asset value is computed once daily, on each day the New York Stock Exchange is open, as of the close of regular trading on the NYSE. In computing the net asset value, holdings of mutual fund shares are valued at net asset value. Dividend income is recorded on the ex-dividend date. Temporary cash investments are valued at amortized cost. Gains and losses on sales of investments are calculated on the identified cost method for both financial reporting and Federal income tax purposes. B. Federal Income Taxes It is the Portfolios' policy to comply with the requirements of the Internal Revenue Service Code applicable to regulated investment companies and to distribute all taxable income and net realized capital gains, if any, to its shareholders. Therefore, no federal income tax provisions are required. The amount and characterization of distributions to shareowners for financial reporting purposes is determined in accordance with federal income tax rules. Therefore, the source of the Portfolios' 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. During the period the Portfolios made no distributions. At December 31, 2005, certain Portfolios made reclassifications as described below. These reclassifications have no impact on the net asset values of the respective Portfolios and are designed to present the Portfolios' capital accounts on a tax basis.
-------------------------------------------------------------------------------- Undistributed Net Investment Accumulated Paid-In Portfolio Income (Loss) Realized Gain/(Loss) Capital -------------------------------------------------------------------------------- Moderate Portfolio $35,333 $ (34,635) $(698) Growth Portfolio $31,160 $ (30,571) $(589) Aggressive Portfolio $ 8,790 $ (8,628) $(162) --------------------------------------------------------------------------------
The following shows the components of distributable earnings on a federal income tax basis at December 31, 2005:
-------------------------------------------------------------------------------- Undistributed Undistributed Net Unrealized Ordinary Long-Term Appreciation Portfolio Income Capital Gains (Depreciation) -------------------------------------------------------------------------------- Moderate Portfolio $134,872 $322,738 $151,157 Growth Portfolio $ 86,495 $230,011 $212,075 Aggressive Portfolio $ 17,928 $ 66,835 $ 75,149 --------------------------------------------------------------------------------
C. Portfolio Shares The Portfolios record sales and repurchases of each of their 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), $638,021 in commissions on the sale of Trust shares for the year ended December 31, 2005. Distribution fees for Class II shares are calculated based on the average daily net asset values attributable to Class II shares of each Portfolio. Dividends and distributions to shareowners are recorded on the ex-dividend date. 2. Management Agreement PIM, a wholly owned indirect subsidiary of UniCredito Italiano, is the Portfolios' investment adviser, and manages the Portfolios. Management fees are calculated daily at the following annual rates on Pioneer managed assets: 21 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Asset Allocation Series VCT Portfolios -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued) --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Management Fee as a Percentage of each Fund's Average Fund Daily Net Assets -------------------------------------------------------------------------------- Moderate Portfolio 0.13% Growth Portfolio 0.13% Aggressive Portfolio 0.13% --------------------------------------------------------------------------------
PIM has entered into a sub-advisory agreement with Ibbotson Associates, LLC. PIM, not the Portfolios, pays a portion of the fee it receives from each Portfolio to Ibbotson Associates as compensation for its services to the Portfolios. In addition, under the management and administration agreements, certain other services and costs, including accounting, regulatory reporting and insurance premiums, will be paid by the Portfolios. At December 31, 2005, the following fees were payable to PIM relating to management fees and certain other services and are included in due to affiliates:
-------------------------------------------------------------------------------- Fund Amount -------------------------------------------------------------------------------- Moderate Portfolio $2,206 Growth Portfolio $1,440 Aggressive Portfolio $ 327 --------------------------------------------------------------------------------
From March 18, 2005 through December 31, 2005, PIM did not impose all or a portion of its management fees and assumed other operating expenses of the Portfolios to the extent necessary to limit expenses to the following annual expense limitations:
-------------------------------------------------------------------------------- Fund Class II -------------------------------------------------------------------------------- Moderate Portfolio .74% Growth Portfolio .74% Aggressive Portfolio .74% --------------------------------------------------------------------------------
3. Transfer Agent PIMSS, a wholly owned indirect subsidiary of UniCredito Italiano, provides substantially all transfer agent and shareowner services to the Portfolios at negotiated rates. Included in due to affiliates are the following amounts of transfer agent fees payable to PIMSS at December 31, 2005:
-------------------------------------------------------------------------------- Fund Amount -------------------------------------------------------------------------------- Moderate Portfolio $375 Growth Portfolio $375 Aggressive Portfolio $375 --------------------------------------------------------------------------------
4. Distribution Plans The Portfolios have adopted a Plan of Distribution with respect to Class II shares (Class II Plan) in accordance with Rule 12b-1 of the Investment Company Act of 1940. Pursuant to the Class II Plan, the Portfolios will pay PFD a service fee of up to 0.25% of the Fund's average daily net assets attributable to Class II shares in reimbursement of its actual expenditures to finance activities primarily intended to result in the sale of Class II shares. At December 31, 2005, the following fees were payable to PFD relating to service fees and are included in due to affiliates:
-------------------------------------------------------------------------------- Fund Amount -------------------------------------------------------------------------------- Moderate Portfolio $4,242 Growth Portfolio $2,769 Aggressive Portfolio $ 629 --------------------------------------------------------------------------------
22 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Asset Allocation Series VCT Portfolios -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and Shareowners of Pioneer Ibbotson Moderate, Growth, and Aggressive Allocation VCT Portfolios: We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Pioneer Ibbotson Moderate Allocation VCT Portfolio, Pioneer Ibbotson Growth Allocation VCT Portfolio and Pioneer Aggressive Allocation VCT Portfolio, (the "Portfolios", three of the portfolios constituting the Pioneer Variable Contracts Trust), as of December 31, 2005, and the related statements of operations, changes in net assets and financial highlights for the period from March 18, 2005 (commencement of operations) to December 31, 2005. These financial statements and financial highlights are the responsibility of the Portfolios' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Portfolios' internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolios' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the Portfolios' custodian and the transfer agent of the underlying funds. 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 the Pioneer Ibbotson Moderate Allocation, Pioneer Ibbotson Growth Allocation and Pioneer Ibbotson Aggressive Allocation VCT Portfolios of Pioneer Variable Contracts Trust at December 31, 2005, the results of their operations, the changes in their net assets and the financial highlights for the period from March 18, 2005 (commencement of operations) to December 31, 2005, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLp Boston, Massachusetts February 10, 2006 23 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Moderate Allocation VCT Portfolio (the "Fund") -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") voting separately initially and annually thereafter approve the Fund's management contract (the "Management Contract") between the Fund and Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"). The Investment Adviser has retained Ibbotson Associates Advisors LLC. (the "Sub-adviser") to act as sub-adviser to the Fund pursuant to a sub-advisory agreement between the Investment Adviser and the Sub-adviser (the "Sub-advisory Agreement"). The Trustees have determined that the terms of the Management Contract and the Sub-advisory Agreement are fair and reasonable and that approval of these contracts will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of the Investment Adviser, or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract and Sub-advisory Agreement, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract and Sub-advisory Agreement, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) arrangements in respect of the distribution of the Fund's shares, (ii) the procedures employed to determine the value of each of the Fund's assets, (iii) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (iv) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (v) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates, (vi) the disclosures included in the Fund's prospectuses and reports to shareowners and (vii) the investment and compliance staff and operations of the Subadviser. Specifically, in connection with the Independent Trustees' review of the Management Contract and the Sub-advisory Agreement, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's and Sub-adviser's services and the reasonableness of the fee under the Management Contract and the Sub-advisory Agreement. Among other items, this information included data or analyses of (1) the investment performance for the period from commencement of operations through June 30, 2005, (2) management and other fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser and the Sub-adviser, (4) estimated expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser and the Sub-adviser, (6) the Investment Adviser's and Sub-adviser's financial results and condition, including, in the case of the Investment Adviser, its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for each of the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. 24 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Moderate Allocation VCT Portfolio -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to shareowners of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareowner services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. Since the Fund had not conducted investment operations for a meaningful period, the Trustees did not evaluate investment performance. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations. Among other things, the Trustees considered the number, education and experience of the Sub-adviser's investment staff. The Trustees concluded that the Investment Adviser and the Sub-adviser have the quality and depth of personnel and the well-developed methods essential to performing their duties under the Management Contract and the Sub-advisory Agreement. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareowners of the Fund, including administrative and shareowner services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareowners of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee is consistent with the management fee for other asset allocation funds. F. Economies of Scale. Since the Fund had not commenced investment operations, the Trustees did not consider the economies of scale with respect to the management of the Fund a relevant factor at this time. G. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareowner services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect of the Pioneer Funds (including the Fund). The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund and the Sub-advisory Agreement are fair and reasonable and voted to approve the continuation of the the Management Contract and the Sub-advisory Agreement. 25 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Growth Allocation VCT Portfolio (the "Fund") -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") voting separately initially and annually thereafter approve the Fund's management contract (the "Management Contract") between the Fund and Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"). The Investment Adviser has retained Ibbotson Associates Advisors LLC. (the "Sub-adviser") to act as sub-adviser to the Fund pursuant to a sub-advisory agreement between the Investment Adviser and the Sub-adviser (the "Sub-advisory Agreement"). The Trustees have determined that the terms of the Management Contract and the Sub-advisory Agreement are fair and reasonable and that approval of these contracts will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of the Investment Adviser, or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract and Sub-advisory Agreement, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract and Sub-advisory Agreement, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) arrangements in respect of the distribution of the Fund's shares, (ii) the procedures employed to determine the value of each of the Fund's assets, (iii) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (iv) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (v) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates, (vi) the disclosures included in the Fund's prospectuses and reports to shareowners and (vii) the investment and compliance staff and operations of the Subadviser. Specifically, in connection with the Independent Trustees' review of the Management Contract and the Sub-advisory Agreement, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's and Sub-adviser's services and the reasonableness of the fee under the Management Contract and the Sub-advisory Agreement. Among other items, this information included data or analyses of (1) the investment performance for the period from commencement of operations through June 30, 2005, (2) management and other fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser and the Sub-adviser, (4) estimated expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser and the Sub-adviser, (6) the Investment Adviser's and Sub-adviser's financial results and condition, including, in the case of the Investment Adviser, its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for each of the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. 26 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Growth Allocation VCT Portfolio -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to shareowners of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareowner services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. Since the Fund had not conducted investment operations for a meaningful period, the Trustees did not evaluate investment performance. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations. Among other things, the Trustees considered the number, education and experience of the Sub-adviser's investment staff. The Trustees concluded that the Investment Adviser and the Sub-adviser have the quality and depth of personnel and the well-developed methods essential to performing their duties under the Management Contract and the Sub-advisory Agreement. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareowners of the Fund, including administrative and shareowner services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareowners of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee is consistent with the management fee for other asset allocation funds. F. Economies of Scale. Since the Fund had not commenced investment operations, the Trustees did not consider the economies of scale with respect to the management of the Fund a relevant factor at this time. G. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareowner services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect of the Pioneer Funds (including the Fund). The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund and the Sub-advisory Agreement are fair and reasonable and voted to approve the continuation of the the Management Contract and the Sub-advisory Agreement. 27 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Aggressive Allocation VCT Portfolio (the "Fund") -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) -------------------------------------------------------------------------------- The Investment Company Act of 1940 requires that both the Board of Trustees and a majority of the Independent Trustees (collectively "the Trustees") voting separately initially and annually thereafter approve the Fund's management contract (the "Management Contract") between the Fund and Pioneer Investment Management, Inc., the Fund's adviser (the "Investment Adviser"). The Investment Adviser has retained Ibbotson Associates Advisors LLC. (the "Sub-adviser") to act as sub-adviser to the Fund pursuant to a sub-advisory agreement between the Investment Adviser and the Sub-adviser (the "Sub-advisory Agreement"). The Trustees have determined that the terms of the Management Contract and the Sub-advisory Agreement are fair and reasonable and that approval of these contracts will enable the Fund to receive quality investment advisory services at a cost deemed reasonable and in the best interests of the Fund and its shareowners. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees and counsel to the Fund. Throughout the year, the Independent Trustees regularly met in executive session separately from the Interested Trustees of the Fund and any officer of the Investment Adviser, or its affiliates. While the Trustees, including the Independent Trustees, act on all major matters relating to the Fund, a significant portion of the activities of the Board of Trustees (including certain of those described herein) is conducted through committees, the members of which are comprised exclusively of Independent Trustees. Such committee meetings are attended by officers of the Fund or the Investment Adviser to the extent requested by the members of the committee. In evaluating the Management Contract and Sub-advisory Agreement, the Trustees conducted a review that was specifically focused upon the renewal of the Management Contract and Sub-advisory Agreement, and relied upon their knowledge, resulting from their meetings throughout the year, of the Investment Adviser, its services and the Fund. Both in meetings specifically dedicated to renewal of the Management Contract and at other meetings during the course of the year, the Trustees, including the Independent Trustees, received materials relating to the Investment Adviser's investment and management services under the Management Contract. These materials included (i) arrangements in respect of the distribution of the Fund's shares, (ii) the procedures employed to determine the value of each of the Fund's assets, (iii) the Investment Adviser's management of the relationships with the Fund's unaffiliated service providers, (iv) the record of compliance with the Fund's investment policies and restrictions and with the Fund's Code of Ethics and the structure and responsibilities of the Investment Adviser's compliance department, (v) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates, (vi) the disclosures included in the Fund's prospectuses and reports to shareowners and (vii) the investment and compliance staff and operations of the Subadviser. Specifically, in connection with the Independent Trustees' review of the Management Contract and the Sub-advisory Agreement, the Independent Trustees requested and the Investment Adviser provided additional information in order to evaluate the quality of the Investment Adviser's and Sub-adviser's services and the reasonableness of the fee under the Management Contract and the Sub-advisory Agreement. Among other items, this information included data or analyses of (1) the investment performance for the period from commencement of operations through June 30, 2005, (2) management and other fees incurred by a peer group of funds selected by the Independent Trustees for this purpose, (3) the advisory fees of comparable portfolios of other clients of the Investment Adviser and the Sub-adviser, (4) estimated expense ratios for the Fund and a peer group of funds selected by the Independent Trustees for this purpose, (5) the overall organization of the Investment Adviser and the Sub-adviser, (6) the Investment Adviser's and Sub-adviser's financial results and condition, including, in the case of the Investment Adviser, its and certain of its affiliates profitability from services performed for the Fund, (7) transfer agency fees and administrative reimbursements paid to the Investment Adviser or affiliates, (8) investment management staffing, and (9) operating expenses paid to third parties. The Trustees also reviewed information regarding the potential for each of the Fund and the Investment Adviser to benefit from further economies of scale in the management of the Fund in light of reasonable growth expectations for the Fund and certain of the Fund's expenses that are not incurred as fees based on a percentage of net assets. The following summarizes factors considered by the Trustees in connection with reviewing the information described above and their renewal of the Fund's Management Contract. The Trustees did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered. 28 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Aggressive Allocation VCT Portfolio -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to shareowners of investing in a Fund that is part of a large number of investment companies offering a variety of investment disciplines and providing for a large variety of Fund and shareowner services. B. Compliance and Investment Performance. The Trustees determined that the Investment Adviser had policies and systems reasonably designed to achieve compliance with the Fund's investment objectives and regulatory requirements. Since the Fund had not conducted investment operations for a meaningful period, the Trustees did not evaluate investment performance. C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the background of members of the team responsible for the daily management of the Fund and the Fund's investment objective and discipline. The Independent Trustees also have had discussions with senior management of the Investment Adviser responsible for investment operations. Among other things, the Trustees considered the number, education and experience of the Sub-adviser's investment staff. The Trustees concluded that the Investment Adviser and the Sub-adviser have the quality and depth of personnel and the well-developed methods essential to performing their duties under the Management Contract and the Sub-advisory Agreement. D. Nature and Quality of Other Services. The Trustees considered the nature, quality, cost and extent of other services provided to shareowners of the Fund, including administrative and shareowner services performed by the Investment Adviser under the Management Contract. The Trustees also considered the reasonableness of the arrangements for reimbursement of the Investment Adviser's out-of-pocket costs and expenses, including overhead, for certain administrative services that the Investment Adviser is not required to provide under the Management Contract. The Trustees also considered the nature and extent of the other services provided by the Investment Adviser's affiliates under other contracts and its supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality, cost and extent of such services are satisfactory and reliable and serve the shareowners of the Fund well. E. Management Fee and Expenses. The Trustees considered the Investment Adviser's fee under the Management Contract relative to the management fees charged by a peer group of funds selected by the Independent Trustees for this purpose using data provided by an independent third party. The Fund's management fee is consistent with the management fee for other asset allocation funds. F. Economies of Scale. Since the Fund had not commenced investment operations, the Trustees did not consider the economies of scale with respect to the management of the Fund a relevant factor at this time. G. Other Benefits to the Investment Adviser. The Trustees also considered the character and amount of fees paid by the Fund, other than under the Management Contract, for services provided by the Investment Adviser and affiliates, including fees for services such as shareowner services. The Trustees also considered the receipt of sales loads and payments under Rule 12b-1 plans in respect of the Pioneer Funds (including the Fund). The Trustees further considered the revenues and profitability of the Investment Adviser's businesses other than the fund business, including the Investment Adviser's institutional investment advisory business. The Trustees considered the intangible benefits that accrue to the Investment Adviser and its affiliates by virtue of its relationship with the Fund and the Pioneer Funds as a group. The Trustees concluded that all these types of benefits accruing to the Investment Adviser were reasonable in the context of the overall relationship between the Investment Adviser and the Fund. Conclusion. Based on their evaluation of all material factors deemed relevant and the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund and the Sub-advisory Agreement are fair and reasonable and voted to approve the continuation of the the Management Contract and the Sub-advisory Agreement. 29
Pioneer Ibbotson Asset Allocation Series VCT Portfolios ------------------------------------------------------------------------------------------------------------------------------------ TRUSTEES, OFFICERS AND SERVICE PROVIDERS ------------------------------------------------------------------------------------------------------------------------------------ Investment Adviser Trustees and Officers Pioneer Investment Management, Inc. The Trust's Board of Trustees provides broad supervision over the affairs of the Trust. The Custodian officers of the Trust are responsible for the Trust's Brown Brothers Harriman & Co. operations. The Trust's Trustees and officers are listed below, together with their principal Independent Registered Public Accounting Firm occupations during the past five years. Trustees who Ernst & Young LLP are interested persons of the Portfolio within the meaning of the Investment Company Act of 1940 are Principal Underwriter referred to as Interested Trustees. Trustees are not Pioneer Funds Distributor, Inc. interested persons of the Trust are referred to as Independent Trustees. Each of the Trustees (except Mr. Legal Counsel Hood) serves as a Trustee of the 91 U.S. registered Wilmer Cutler Pickering Hale and Dorr LLP investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") serves as investment Shareowner Services and Transfer adviser (the "Trust"). Mr. Hood serves as Trustee for Pioneer Investment Management Shareholder Services, Inc. 35 of the 91 Pioneer Funds. The address for all Interested Trustees and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. The Trust's statement of additional information provides more detailed information regarding the Trust's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Trust are available without charge, upon Agent request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Pioneer Chairman and Directors Board, Trustee until successor Global Asset Management S.p.A. ("PGAM"); of ICI Mutual Insurance and President trustee is elected Non-Executive Chairman and a Director of Company; Director of or earlier Pioneer Investment Management USA Inc. Harbor Global Company, retirement ("PIM-USA"); Chairman and a Director of Ltd. or removal. Pioneer; Director of Pioneer Alternative Investment Management Limited (Dublin); President and a Director of Pioneer Alternative Investment Management (Bermuda) Limited and affiliated funds; Director of PIOGLOBAL Real Estate Investment Fund (Russia); Director of Nano-C, Inc. (since 2003); Director of Cole Investment Corporation (since 2004); Director of Fiduciary Counseling Inc.; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel, Wilmer Cutler Pickering 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. ------------------------------------------------------------------------------------------------------------------------------------
30
Pioneer Ibbotson Asset Allocation Series VCT Portfolios ------------------------------------------------------------------------------------------------------------------------------------ TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Financial Director of The Enterprise 3050 K. Street NW, until a successor Officer, I-trax, Inc. (publicly traded Social Investment Company Washington, DC 20007 trustee is elected health care services company) (privately-held affordable or earlier (2001-present); Managing Partner, Federal housing finance company); retirement or City Capital Advisors (boutique merchant Director of New York removal. bank) (2002 to 2004); Executive Vice Mortgage Trust (publicly President and Chief Financial Officer, traded mortgage REIT) Pedestal Inc. (internet-based mortgage trading company) ( 2000-2002). ** Mr. Bock became a Trustee of the Trust on January 1, 2005. ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady 3509 Woodbine Street, until successor (international financial advisory firm). Corporation (industrial Chevy Chase, MD 20815 trustee is elected identification and specialty or earlier coated material products retirement manufacturer), Mortgage or removal. Guaranty Insurance Corporation, and Briggs & Stratton, Inc. (engine manufacturer) ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (58) Trustee Since 2000. Founding Director, The Winthrop Group, None 1001 Sherbrooke Street Serves until Inc. (consulting firm); Desautels, West, Montreal, Quebec, successor trustee Faculty of Management, McGill University. Canada H3A 1G5 is elected or earlier retirement or removal. ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (57) Trustee Since 1995. President and Chief Executive Officer, Director of New America High One Boston Place, Serves until Newbury, Piret & Company, Inc. Income Fund, Inc. 28th Floor, successor trustee (investment banking firm). (closed-end investment Boston, MA 02108 is elected company) or earlier retirement or removal. ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (69) Trustee Since September, President, John Winthrop & Co., Inc. None One North Adgers Wharf, 2000. Serves until (private investment firm). Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. ------------------------------------------------------------------------------------------------------------------------------------
31
Pioneer Ibbotson Asset Allocation Series VCT Portfolios ------------------------------------------------------------------------------------------------------------------------------------ TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) ------------------------------------------------------------------------------------------------------------------------------------ TRUST OFFICERS ------------------------------------------------------------------------------------------------------------------------------------ POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Officer, Trustee of certain Pioneer President at the discretion of PIM-USA since May 2003 (Director since funds Board. 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 to May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 to November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997 to November 1999. ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since September, 2003. Secretary of PIM-USA; Senior Vice None Serves at the President - Legal of Pioneer; and discretion of the Secretary/Clerk of most of PIM-USA's Board. subsidiaries; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003). ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (41) Assistant Since September, 2003. Assistant Vice President and Senior None Secretary Serves at the Counsel of Pioneer since July 2002; Vice discretion of the President and Senior Counsel of BISYS Board. Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001) and Assistant Secretary of all Pioneer Funds since September 2003. ------------------------------------------------------------------------------------------------------------------------------------ David C. Phelan (48) Assistant Since September, 2003. Partner, Wilmer Cutler Pickering Hale and None Secretary Serves at the Dorr LLP; Assistant Secretary of all discretion of the Pioneer Funds since September 2003. Board. ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (60) Treasurer Since November, 2000. Vice President - Fund Accounting, None Serves at the Administration and Custody Services of discretion of the Pioneer; and Treasurer of all of the Board. Pioneer Funds. ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (46) Assistant Since November, 2004. Deputy Treasurer of Pioneer since 2004; None Treasurer Serves at the Treasurer and Senior Vice President, CDC discretion of the IXIS Asset Management Services from 2002 Board. to 2003; Assistant Treasurer and Vice President, MFS Investment Management from 1997 to 2002; and Assistant Treasurer of all of the Pioneer Funds since November 2004. ------------------------------------------------------------------------------------------------------------------------------------
32
Pioneer Ibbotson Asset Allocation Series VCT Portfolios ------------------------------------------------------------------------------------------------------------------------------------ TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) ------------------------------------------------------------------------------------------------------------------------------------ TRUST OFFICERS ------------------------------------------------------------------------------------------------------------------------------------ POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE Luis I. Presutti (40) Assistant Since November, 2000. Assistant Vice President - Fund None Treasurer Serves at the Accounting, Administration and Custody discretion of the Services of Pioneer; and Assistant Board. Treasurer of all of the Pioneer Funds. ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None Treasurer Serves at the Accounting, Administration and Custody discretion of the Services of Pioneer; and Assistant Board. Treasurer of all of the Pioneer Funds since May 2002. ------------------------------------------------------------------------------------------------------------------------------------ Katharine Kim Assistant Since September, 2003. Fund Administration Manager - Fund None Sullivan (32) Treasurer Serves at the Accounting, Administration and Custody discretion of the Services since June 2003; Assistant Vice Board. 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); and Assistant Treasurer of all Pioneer Funds since September 2003. ------------------------------------------------------------------------------------------------------------------------------------ Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None Officer Serves at the (Director of Compliance and Senior discretion of the Counsel from November 2000 to September Board. 2004); and Chief Compliance Officer of all of the Pioneer Funds. ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. PIM, the Trust's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 33 [LOGO] PIONEER Investments(R) Pioneer Variable Contracts Trust Issuer Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96 In New York and Hawaii, issued by First Allmerica Financial Life Insurance Company, Contract Form A3025-96 GRC General Distributor Veravest Investments, Inc. 400 Lincoln Street Worcester, MA 01653 Please consider a Portfolio's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a Portfolio and should be read carefully before you invest or send money. To obtain a prospectus and for other information on any Pioneer Portfolio, contact your adviser, call 1-800-225-6292 or visit our web site at www.pioneerfunds.com. 18685-00-0206 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. See Item 10(2) 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 Trust, including fees associated with routine and non routine filings of its Form N-1A, totaled approximately $775,150 in 2005 and $521,000 in 2004 for the Trust's 29 portfolios and 22 of the 29 portfolios at that time, respectively. (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 There were no other audit related services provided to the Trust during the fiscal years ended December 31, 2005 and 2004. (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 return, totaled $197,200 in 2005 and $139,525 in 2004. (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, 2005 and 2004. (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 recognize 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 recognize 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. Non-Audit Services Beginning with non-audit service contracts entered into on or after May 6, 2003, the effective date of the new SEC pre-approval rules, the Trust's audit committee is required to pre-approve services to affiliates defined by SEC rules to the extent that the services are determined to have a direct impact on the operations or financial reporting of the Trust. For the years ended December 31, 2005 and 2004, there were no services provided to an affiliate that required the Trust's audit committee pre-approval. (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. The aggregate non-audit fees for the Trust and affiliates, as previously defined, totaled $190,400 in 2005 and $139,525 in 2004. (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 Fund's independent auditor, Ernst & Young LLP ("E&Y"), has advised the Audit Committee of the Fund's Board of Trustees that E&Ys Spanish affiliate (E&Y Spain) performed certain non-audit work for Pioneer Global Investments Limited ("PGIL"), an affiliate of the Funds investment adviser. The services involved the receipt and disbursement of monies transferred to E&Y Spain by PGIL in payment of individual payroll and related income tax withholdings due on returns prepared by E&Y Spain for certain PGIL employees located in Spain from February 2001 to October 2005. E&Y became auditors of the Fund in May 2002. These payroll and tax services were discontinued in November 2005. The annual fee received by E&Y Spain for all such services totaled approximately 9,000 Euro per year. E&Y has informed the Audit Committee that based on its internal reviews and the de minimus nature of the services provided and fees received, E&Y does not believe its independence with respect to the Fund has been impaired or that it is disqualified from acting as independent auditors to the Fund. 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. Item 5. Audit Committee of Listed Registrants (a) If the registrant is a listed issuer as defined in Rule 10A-3 under the Exchange Act (17 CFR 240.10A-3), state whether or not the registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act (15 U.S.C. 78c(a)(58)(A)). If the registrant has such a committee, however designated, identify each committee member. If the entire board of directors is acting as the registrants audit committee as specified in Section 3(a)(58)(B) of the Exchange Act (15 U.S.C. 78c(a)(58)(B)), so state. The registrant has a separately-designated standing audit committe eestablished in accordance with Section 3(a)(58)(A) of the Exchange Act (15 U.S.C. 78c(a)(58)(A)). (b) If applicable, provide the disclosure required by Rule 10A-3(d) under the Exchange Act (17 CFR 240.10A-3(d)) regarding an exemption from the listing standards for audit committees. N/A Item 6. Schedule of Investments. File Schedule I Investments in securities of unaffiliated issuers as of the close of the reporting period as set forth in 210.12- 12 of Regulation S-X [17 CFR 210.12-12], unless the schedule is included as part of the report to shareholders filed under Item 1 of this Form. Included in Item 1 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. Portfolio Managers of Closed-End Management Investment Companies. (a) If the registrant is a closed-end management investment company that is filing an annual report on this Form N-CSR,provide the following information: (1) State the name, title, and length of service of the person or persons employed by or associated with the registrant or an investment adviser of the registrant who are primarily responsible for the day-to-day management of the registrants portfolio (Portfolio Manager). Also state each Portfolio Managers business experience during the past 5 years. Not applicable to open-end management investment companies. Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. (a) If the registrant is a closed-end management investment company, in the following tabular format, provide the information specified in paragraph (b) of this Item with respect to any purchase made by or on behalf of the registrant or any affiliated purchaser, as defined in Rule 10b-18(a)(3) under the Exchange Act (17 CFR 240.10b-18(a)(3)), of shares or other units of any class of the registrants equity securities that is registered by the registrant pursuant to Section 12 of the Exchange Act (15 U.S.C. 781). Instruction to paragraph (a). Disclose all purchases covered by this Item, including purchases that do not satisfy the conditions of the safe harbor of Rule 10b-18 under the Exchange Act (17 CFR 240.10b-18), made in the period covered by the report. Provide disclosures covering repurchases made on a monthly basis. For example, if the reporting period began on January 16 and ended on July 15, the chart would show repurchases for the months from January 16 through February 15, February 16 through March 15, March 16 through April 15, April 16 through May 15, May 16 through June 15, and June 16 through July 15. Not applicable to open-end management investment companies. Item 10. Submission of Matters to a Vote of Security Holders. Describe any material changes to the procedures by which shareholders may recommend nominees to the registrants board of directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR 240.14a-101), or this Item. There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrants board of directors since the registrant last provided disclosure in response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14(A) in its definitive proxy statement, or this Item. ITEM 11. 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 principal executive officer and principal financial officer have concluded, that the registrant's disclosure controls and procedures are effective based on their evaluation of these controls and procedures as of a date within 90 days of 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 12. 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. (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 February 28, 2006 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 February 28, 2006 By (Signature and Title)* /s/ Vincent Nave Vincent Nave, Treasurer Date February 28, 2006 * Print the name and title of each signing officer under his or her signature.