-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MUOxfdMJeG+lbwWD8oo+RxI9Faa2t3AzKU98HyhA3UQq2LAd9/pvhYAjDkrGwoGW 9yRpOYydlDWLdLjl1HV3JA== 0000930709-07-000015.txt : 20070226 0000930709-07-000015.hdr.sgml : 20070226 20070226152421 ACCESSION NUMBER: 0000930709-07-000015 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070226 DATE AS OF CHANGE: 20070226 EFFECTIVENESS DATE: 20070226 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER VARIABLE CONTRACTS TRUST /MA/ CENTRAL INDEX KEY: 0000930709 IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-08786 FILM NUMBER: 07649024 BUSINESS ADDRESS: STREET 1: 60 STATE ST STREET 2: 19TH FLOOR CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6177427825 MAIL ADDRESS: STREET 1: 60 STATE ST STREET 2: 19TH FLOOR CITY: BOSTON STATE: MA ZIP: 021091820 FORMER COMPANY: FORMER CONFORMED NAME: VARIABLE INSURANCE CONTRACTS TRUST DATE OF NAME CHANGE: 19940929 0000930709 S000010158 Pioneer America Income VCT Portfolio C000028180 Pioneer America Income VCT Portfolio: Class I C000028181 Pioneer America Income VCT Portfolio: Class II 0000930709 S000010159 Pioneer Fund VCT Portfolio C000028182 Pioneer Fund VCT Portfolio: Class I C000028183 Pioneer Fund VCT Portfolio: Class II 0000930709 S000010160 Pioneer Real Estate Shares VCT Portfolio C000028184 Pioneer Real Estate Shares VCT Portfolio: Class I C000028185 Pioneer Real Estate Shares VCT Portfolio: Class II 0000930709 S000010161 Pioneer Small Cap Value VCT Portfolio C000028186 Pioneer Small Cap Value VCT Portfolio: Class I C000028187 Pioneer Small Cap Value VCT Portfolio: Class II 0000930709 S000010162 Pioneer Small Company VCT Portfolio C000028188 Pioneer Small Company VCT Portfolio: Class I C000028189 Pioneer Small Company VCT Portfolio: Class II 0000930709 S000010163 Pioneer Strategic Income VCT Portfolio C000028190 Pioneer Strategic Income VCT Portfolio: Class I C000028191 Pioneer Strategic Income VCT Portfolio: Class II 0000930709 S000010164 Pioneer Money Market VCT Portfolio C000028192 Pioneer Money Market VCT Portfolio: Class I 0000930709 S000010165 Pioneer Value VCT Portfolio C000028193 Pioneer Value VCT Portfolio: Class II C000030378 Pioneer Value VCT Portfolio: Class I 0000930709 S000010166 Pioneer AmPac Growth VCT Portfolio C000028194 Pioneer AmPac Growth VCT Portfolio: Class II 0000930709 S000010167 Pioneer Small and Mid Cap Growth VCT Portfolio C000028195 Pioneer Small and Mid Cap Growth VCT Portfolio: Class II 0000930709 S000010168 Pioneer Oak Ridge Large Cap Growth VCT Portfolio C000028196 Pioneer Oak Ridge Large Cap Growth VCT Portfolio: Class II 0000930709 S000010169 Pioneer Balanced VCT Portfolio C000028197 Pioneer Balanced VCT Portfolio: Class I C000028198 Pioneer Balanced VCT Portfolio: Class II 0000930709 S000010170 Pioneer Growth Opportunities VCT Portfolio C000028199 Pioneer Growth Opportunities VCT Portfolio: Class II C000030379 Pioneer Growth Opportunities VCT Portfolio: Class I 0000930709 S000010171 Pioneer Small Cap Value II VCT Portfolio C000028200 Pioneer Small Cap Value II VCT Portfolio: Class II C000030380 Pioneer Small Cap Value II VCT Portfolio: Class I 0000930709 S000010172 Pioneer Bond VCT Portfolio C000028201 Pioneer Bond VCT Portfolio: Class II C000030381 Pioneer Bond VCT Portfolio: Class I 0000930709 S000010173 Pioneer Cullen Value VCT Portfolio C000028202 Pioneer Cullen Value VCT Portfolio: Class II 0000930709 S000010174 Pioneer Equity Opportunity VCT Portfolio C000028203 Pioneer Equity Opportunity VCT Portfolio: Class II C000030382 Pioneer Equity Opportunity VCT Portfolio: Class I 0000930709 S000010175 Pioneer Global High Yield VCT Portfolio C000028204 Pioneer Global High Yield VCT Portfolio: Class II 0000930709 S000010176 Pioneer Ibbotson Agressive Allocation VCT Portfolio C000028205 Pioneer Ibbotson Agressive Allocation VCT Portfolio: Class II 0000930709 S000010177 Pioneer Ibbotson Moderate Allocation VCT Portfolio C000028206 Pioneer Ibbotson Moderate Allocation VCT Portfolio: Class II C000043518 Pioneer Ibbotson Moderate Allocation VCT Portfolio: Class I 0000930709 S000010178 Pioneer Ibbotson Growth Allocation VCT Portfolio C000028207 Pioneer Ibbotson Growth Allocation VCT Portfolio: Class II 0000930709 S000010179 Pioneer Core Bond VCT Portfolio C000028208 Pioneer Core Bond VCT Portfolio: Class II 0000930709 S000010180 Pioneer Emerging Markets VCT Portfolio C000028209 Pioneer Emerging Markets VCT Portfolio: Class I C000028210 Pioneer Emerging Markets VCT Portfolio: Class II 0000930709 S000010181 Pioneer Equity Income VCT Portfolio C000028211 Pioneer Equity Income VCT Portfolio: Class I C000028212 Pioneer Equity Income VCT Portfolio: Class II 0000930709 S000010182 Pioneer Europe VCT Portfolio C000028213 Pioneer Europe VCT Portfolio: Class I C000028214 Pioneer Europe VCT Portfolio: Class II 0000930709 S000010183 Pioneer Growth Shares VCT Portfolio C000028215 Pioneer Growth Shares VCT Portfolio: Class I C000028216 Pioneer Growth Shares VCT Portfolio: Class II 0000930709 S000010184 Pioneer High Yield VCT Portfolio C000028217 Pioneer High Yield VCT Portfolio: Class I C000028218 Pioneer High Yield VCT Portfolio: Class II 0000930709 S000010185 Pioneer International Value VCT Portfolio C000028219 Pioneer International Value VCT Portfolio: Class I C000028220 Pioneer International Value VCT Portfolio: Class II 0000930709 S000010186 Pioneer Mid Cap Value VCT Portfolio C000028221 Pioneer Mid Cap Value VCT Portfolio: Class I C000028222 Pioneer Mid Cap Value VCT Portfolio: Class II N-CSR 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, 2006 through December 31, 2006 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 America Income VCT Portfolio -- Class I Shares ANNUAL REPORT December 31, 2006 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 8 Notes to Financial Statements 12 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 America Income VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/06 - -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [The following table was depicted as a pie chart in the printed material.]
U.S. Government Securities 88.5% Collateralized Mortgage Obligations 8.7% Temporary Cash Investment 2.2% U.S. Corporate Bonds 0.6%
Maturity Distribution (As a percentage of total investment portfolio) [The following table was depicted as a pie chart in the printed material.]
0-1 year 2.5% 1-3 years 31.1% 3-4 years 25.5% 4-6 years 19.9% 6-8 years 9.6% 8+ years 11.4%
Five Largest Holdings (As a percentage of long-term holdings) 1. U.S. Treasury Inflation Notes, 3.375%, 1/15/12 7.83% 2. U.S. Treasury Bonds, 6.25%, 8/15/23 5.88 3. Fannie Mae, 4.92%, 7/25/20 3.92 4. Government National Mortgage Association, 5.0%, 11/16/46 3.65 5. U.S. Treasury Notes, 6.5%, 2/15/10 3.53
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $9.71 $9.84
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $0.4537 $ - $ -
- -------------------------------------------------------------------------------- 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 table was depicted as a line chart in the printed material.]
Lehman Brothers Pioneer America Lehman Brothers Fixed-Rate Income VCT Government Mortgage-Backed Portfolio Bond Index Securities Index 12/96 10,000 10,000 10,000 10,844 10,959 10,949 12/98 11,728 12,038 11,711 11,433 11,770 11,928 12/00 12,777 13,328 13,260 13,609 14,292 14,350 12/02 15,014 15,935 15,605 15,286 16,310 16,084 12/04 15,808 16,878 16,840 16,127 17,325 17,280 12/06 16,677 17,927 18,183
The Lehman Brothers Government Bond Index measures the performance of the U.S. government bond market. The Lehman Brothers Fixed-Rate Mortgage-Backed Securities 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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- 10 Years 5.25% 5 Years 4.15% 1 Year 3.41%
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.pioneerinvestments.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 America Income 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 America Income VCT Portfolio Based on actual returns from July 1, 2006 through December 31, 2006.
Share Class I - ---------------------------------------------- -------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,044.86 Expenses Paid During Period* $ 3.40
* Expenses are equal to the Portfolio's annualized expense ratio of 0.66% 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 America Income VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2006 through December 31, 2006.
Share Class I - ---------------------------------------------- -------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,021.88 Expenses Paid During Period* $ 3.36
* Expenses are equal to the Portfolio's annualized expense ratio of 0.66% 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 VARIABLE CONTRACTS TRUST Pioneer America Income VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/06 - -------------------------------------------------------------------------------- During a period of moderating economic growth, Pioneer America Income Trust VCT Portfolio provided shareholders with a solid level of income by investing in securities issued by the U.S. government and its agencies. 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 fiscal year. Q. How did the portfolio perform during the 12-month period ended December 31, 2006? A. Over the 12 months, Class I shares of Pioneer America Income Trust VCT Portfolio produced a total return of 3.41% at net asset value. For the same period, the Trust performed in line with the Lehman Brothers Government Bond Index, which returned 3.48%. It underperformed the Lehman Brothers Fixed-Rate Mortgage-Backed Securities Index, which returned 5.22%. The Trust outpaced the average 2.81% return generated by the 63 funds in the U.S. Government Funds category of Lipper, Inc., an independent monitor of mutual fund performance. At the end of the period, the Trust's 30-day SEC yield was 4.55%. The Trust held 228 issues, and the average credit quality of the portfolio was AAA. Call 1-800-225-6292 or visit www.pioneerinvestments.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. We began the year with relatively strong economic growth and a federal funds rate, the rate banks charge for overnight loans, at 4.25%. We ended the year in an environment of slowing economic growth, declining oil and other commodity prices and a Federal funds rate of 5.25%. While the Federal Reserve took no action on interest rates during the last six months of the year, the central bank continued to warn about the potential for an upturn in inflation, as unemployment declined and the equity markets set new records. When the Federal Reserve was raising interest rates during the first six months of the fiscal period, the yield on the 10-year Treasury rose from 4.39% to 5.24% in the January-through-June period. By year-end, the 10-year Treasury yield had settled back to 4.70%. For most of the period, the yield curve was inverted, with yields on longer-term bonds lower than those on shorter-term bonds. (The yield curve shows the relationship between maturity length and yield.) Q. What were the principal strategies used in managing the Portfolio? A. As higher interest rates boosted mortgage rates early in the year, we trimmed our mortgage position in favor of long-term Treasury securities on the belief that if the Federal Reserve went too far with its interest-rate hikes, longer-term Treasuries would rally and outperform shorter-term securities. We also had a significant position in agency securities and TIPS. (The principal on TIPS, or Treasury Inflation Protected Securities, 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 rises in value. The interest-rate payment on TIPS is calculated on the inflated principal.) During the last six months, we took advantage of the volatility in the market. When interest rates rose in July, we extended duration, or a bond's price sensitivity to interest-rate changes, on the belief that rates would move lower later in the year. We reduced our position in Treasuries and TIPS and used the proceeds to purchase agency debentures and mortgage-backed securities. Normally higher rates would be negative for mortgages; but in this instance, valuations were very attractive. We focused on mortgages issued by the Federal National Mortgage Association (Fannie Mae) and the Government National Mortgage Association (Ginnie Mae) and emphasized those that are collateralized by multifamily apartment buildings. Such mortgages have attractive yields and are less vulnerable to prepayment risk than standard mortgage-pools that are collateralized by single-family homes. When selecting mortgages, we favored seasoned collateral that had seen some price appreciation rather than mortgages on newer vintage products that may not see home price appreciation. At the end of the period, mortgage-backed securities accounted for 57.2% of portfolio net assets; Treasury and agency securities accounted for 42.3% of net assets. The portfolio had a 0.5% cash position. (A note about Ginnie Mae securities: Ginnie Maes are backed by the full faith and credit of the U.S. Government.) 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 1-800-688-9915 or visit www.pioneerinvestments.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 America Income VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Q. What contributed most to performance? A. The Portfolio's agency debentures and overweight in mortgage-backed securities had the biggest positive impact on performance. These securities not only enjoyed strong demand from U.S. investors, they were also favored by overseas central banks with significant amounts of cash to invest. Q. What detracted from performance? A. During a time when commodity prices declined, the real estate market softened, and the Federal Reserve maintained credibility as an inflation fighter, investors showed relatively little concern about the prospects for an upturn in inflation. As a result, TIPS were one of the worst performing sectors of the market; and despite our relative underweight in the sector, they held back results. Because the Portfolio's holdings were diversified among Treasury, agency and mortgage-backed securities, its performance fell short of the Lehman Brothers Fixed-Rate Mortgage-Backed Securities Index, which only emphasizes mortgages. Q. What is your outlook for the next few months? A. As we closed 2006, the rate of economic growth had slowed, but the economy continued to expand. While the fixed-income markets appeared to be anticipating a Federal Reserve rate cut in the near term, we viewed this with skepticism. Unemployment is low, the stock market has set new records, and global liquidity is strong. Unless the housing market stumbles dramatically, we will take the Federal Reserve at its word that inflation remains a greater risk than a significant decline in the housing sector. At this time, the Federal Reserve seems more likely to raise rates than lower them, and we have positioned the Portfolio defensively for this situation. Should the Federal Reserve reduce rates, we would be likely to alter the Trust's positioning. 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 America Income VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Principal Amount Value COLLATERALIZED MORTGAGE OBLIGATIONS - 8.7% Government - 8.7% $ 1,600,000 Fannie Mae, 4.92%, 7/25/20 $ 1,572,499 1,136,197 Fannie Mae, 6.3%, 4/25/19 1,200,969 197,304 Federal Home Loan Bank, 4.75%, 10/25/10 195,949 101,032 Federal Home Loan Bank, 5.0%, 1/15/16 100,265 171,426 Federal Home Loan Mortgage Corp., 4.5%, 4/15/13 170,146 350,000 Freddie Mac, 5.5%, 7/15/28 349,817 ------------- $ 3,589,645 ------------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $3,613,830) $ 3,589,645 ------------- CORPORATE BONDS - 0.6% Diversified Financials - 0.6% Specialized Finance - 0.6% 250,000 Private Export Funding, 3.375%, 2/15/09 $ 241,968 ------------- TOTAL CORPORATE BONDS (Cost $250,000) $ 241,968 ------------- U.S. GOVERNMENT AGENCY OBLIGATIONS - 88.7% Government - 88.7% 184,975 Fannie Mae, 5.5%, 6/1/23 $ 184,089 250,000 Federal Farm Credit Bank, 3.25%, 6/15/07 247,843 250,000 Federal Farm Credit Bank, 3.375%, 3/16/09 241,449 250,000 Federal Farm Credit Bank, 4.45%, 6/1/15 240,807 400,000 Federal Farm Credit Bank, 4.9%, 3/17/14 388,609 250,000 Federal Farm Credit Bank, 5.0%, 10/23/09 250,024 100,000 Federal Farm Credit Bank, 5.3%, 9/28/15 97,887 250,000 Federal Farm Credit Bank, 5.5%, 2/23/09 249,976 100,000 Federal Farm Credit Bank, 5.88%, 9/8/08 101,282 250,000 Federal Home Loan Bank, 4.0%, 2/12/10 243,008 250,000 Federal Home Loan Bank, 4.25%, 10/10/08 246,751 250,000 Federal Home Loan Bank, 4.25%, 2/16/10 244,912 300,000 Federal Home Loan Bank, 4.43%, 4/7/08 297,356 200,000 Federal Home Loan Bank, 4.5%, 11/15/12 195,254 500,000 Federal Home Loan Bank, 4.75%, 12/10/10 496,269 100,000 Federal Home Loan Bank, 5.375%, 5/18/16 102,716 498,119 Federal Home Loan Mortgage Corp., 5.0%, 1/1/36 - 3/1/36 480,705 417,875 Federal Home Loan Mortgage Corp., 5.5%, 9/1/34 - 12/1/34 413,695 1,908,908 Federal Home Loan Mortgage Corp., 6.0%, 10/1/32 - 5/1/34 1,926,391 463,973 Federal Home Loan Mortgage Corp., 6.5%, 1/1/29 - 7/1/32 474,588 273,828 Federal Home Loan Mortgage Corp., 7.0%, 4/1/30 - 10/1/46 279,319 27,694 Federal Home Loan Mortgage Corp., 7.5%, 8/1/31 28,793 203,900 Federal National Mortgage Association, 4.5%, 4/1/19 196,939 645,115 Federal National Mortgage Association, 5.0%, 3/1/09 - 12/1/35 631,415 2,117,797 Federal National Mortgage Association, 5.5%, 3/1/18 - 12/1/34 2,107,411 1,579,294 Federal National Mortgage Association, 6.0%, 12/1/11 - 7/1/36 1,592,789 250,000 Federal National Mortgage Association, 6.07%, 5/12/16 251,640 1,037,072 Federal National Mortgage Association, 6.5%, 7/1/21 - 7/1/34 1,060,599 182,519 Federal National Mortgage Association, 7.0%, 9/1/18 - 1/1/32 188,385 12,182 Federal National Mortgage Association, 7.5%, 2/1/31 12,685
6 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer America Income VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Principal Amount Value U.S. Government Agency Obligations (Cont.) 16,367 Federal National Mortgage Association, 9.0%, 4/1/33 $ 17,246 1,408,554 Government National Mortgage Association, 4.5%, 4/15/20 - 5/20/36 1,335,388 $2,788,473 Government National Mortgage Association, 5.0%, 7/15/17 - 11/16/46 2,729,136 1,353,753 Government National Mortgage Association, 5.5%, 2/15/19 - 10/15/34 1,351,963 2,993,534 Government National Mortgage Association, 6.0%, 6/20/16 - 7/15/36 3,039,411 1,148,050 Government National Mortgage Association, 6.5%, 4/15/17 - 1/15/34 1,179,466 395,792 Government National Mortgage Association, 7.0%, 1/15/26 - 5/15/32 409,090 81,419 Government National Mortgage Association, 7.5%, 10/15/22 - 1/15/31 84,949 1,763 Government National Mortgage Association, 8.0%, 8/20/25 1,861 87,816 Government National Mortgage Association, I, 6.0%, 2/15/29 89,243 253,269 Government National Mortgage Association II, 5.0%, 12/20/18 249,610 859,781 Government National Mortgage Association II, 5.5%, 7/20/19 - 11/20/34 856,258 303,414 Government National Mortgage Association II, 6.0%, 12/20/18 - 11/20/33 307,209 22,386 Government National Mortgage Association II, 6.5%, 8/20/28 22,951 95,361 Government National Mortgage Association II, 7.0%, 5/20/26 - 1/20/31 98,199 12,000 Tennessee Valley Authority, Floating Rate Note, 6/1/28 (a) 283,200 250,000 Tennessee Valley Authority, 4.75%, 8/1/13 246,197 200,000 U.S. Treasury Bonds, 4.0%, 2/15/14 191,445 2,050,000 U.S. Treasury Bonds, 6.25%, 8/15/23 2,359,583 400,000 U.S. Treasury Bonds, 7.25%, 5/15/16 475,484 207,532 U.S. Treasury Inflation Notes, 1.875%, 7/15/15 198,882 249,855 U.S. Treasury Inflation Notes, 2.5%, 7/15/16 251,748 3,012,229 U.S. Treasury Inflation Notes, 3.375%, 1/15/12 3,144,836 870,000 U.S. Treasury Notes, 4.25%, 11/15/14 843,968 100,000 U.S. Treasury Notes, 4.5%, 2/15/16 98,407 200,000 U.S. Treasury Notes, 5.0%, 2/15/11 202,500 1,150,000 U.S. Treasury Notes, 6.375%, 8/15/27 1,368,410 1,350,000 U.S. Treasury Notes, 6.5%, 2/15/10 1,418,186 ------------- $ 36,328,412 ------------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $36,573,575) $ 36,328,412 ------------- TEMPORARY CASH INVESTMENT - 2.2% Repurchase Agreement - 2.2% 900,000 UBS AG, 4.7%, dated 12/29/06, repurchase price of $900,000 plus accrued interest on 1/2/06, collateralized by $931,000 U.S. Treasury Bill, 3.25%, 8/15/08 TOTAL TEMPORARY CASH INVESTMENT (Cost $900,000) $ 900,000 ------------- TOTAL INVESTMENT IN SECURITIES - 100.2% (Cost $41,337,405) $ 41,060,025 ------------- OTHER ASSETS AND LIABILITIES - (0.2)% $ (114,231) ------------- TOTAL NET ASSETS - 100.0% $ 40,945,794 =============
(a) Debt obligation initially issued at one coupon which converts to a higher coupon at a specified date. At December 31, 2006, the rate was 5.49%. The accompanying notes are an integral part of these financial statements. 7 PIONEER VARIABLE CONTRACTS TRUST Pioneer America Income VCT Portfolio - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Year Ended Ended Class I 12/31/06 12/31/05 Net asset value, beginning of period $ 9.84 $ 10.11 ------- ------- Increase (decrease) from investment operations: Net investment income $ 0.38 $ 0.38 Net realized and unrealized gain (loss) on investments (0.06) (0.18) ------- ------- Net increase (decrease) from investment operations $ 0.32 $ 0.20 Distributions to shareowners: Net investment income (0.45) (0.47) ------- ------- Net increase (decrease) in net asset value $ (0.13) $ (0.27) ------- ------- Net asset value, end of period $ 9.71 $ 9.84 ======= ======= Total return* 3.41% 2.02% Ratio of net expenses to average net assets+ 0.66% 0.82% Ratio of net investment income to average net assets+ 4.20% 4.05% Portfolio turnover rate 28% 23% Net assets, end of period (in thousands) $20,797 $25,767 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.66% 0.82% Net investment income 4.20% 4.05% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.66% 0.82% Net investment income 4.20% 4.05% Year Year Year Ended Ended Ended Class I 12/31/04 12/31/03 12/31/02 Net asset value, beginning of period $ 10.35 $ 10.59 $ 10.06 ------- ------- ------- Increase (decrease) from investment operations: Net investment income $ 0.37 $ 0.35 $ 0.46 Net realized and unrealized gain (loss) on investments (0.03) (0.16) 0.56 ------- ------- ------- Net increase (decrease) from investment operations $ 0.34 $ 0.19 $ 1.02 Distributions to shareowners: Net investment income (0.58) (0.43) (0.49) ------- ------- ------- Net increase (decrease) in net asset value $ (0.24) $ (0.24) $ 0.53 ------- ------- ------- Net asset value, end of period $ 10.11 $ 10.35 $ 10.59 ======= ======= ======= Total return* 3.42% 1.81% 10.32% Ratio of net expenses to average net assets+ 0.79% 0.78% 0.81% Ratio of net investment income to average net assets+ 3.74% 3.45% 4.39% Portfolio turnover rate 37% 34% 54% Net assets, end of period (in thousands) $32,342 $44,526 $69,551 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.79% 0.78% 0.81% Net investment income 3.74% 3.45% 4.39% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.79% 0.78% 0.81% Net investment income 3.74% 3.45% 4.39%
* 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 VARIABLE CONTRACTS TRUST Pioneer America Income VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (cost $41,337,405) $ 41,060,025 Cash 106,654 Investment securities sold 2,461,520 Fund shares sold 166 Dividends, interest and foreign taxes withheld 330,330 Other 129 ------------ Total assets $ 43,958,824 ------------ LIABILITIES: Payables -- Investment securities purchased $ 2,956,211 Fund shares repurchased 5,141 Due to affiliates 6,472 Accrued expenses 45,206 ------------ Total liabilities $ 3,013,030 ------------ NET ASSETS: Paid-in capital $ 43,232,112 Distributions in excess of net investment income (220,066) Accumulated net realized loss on investments (1,788,872) Net unrealized loss on investments (277,380) ------------ Total net assets $ 40,945,794 ------------ NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 20,796,531 Shares outstanding 2,142,423 ------------ Net asset value per share $ 9.71 Class II: (No par value, unlimited number of shares authorized) Net assets $ 20,149,263 Shares outstanding 2,072,650 ------------ Net asset value per share $ 9.72
The accompanying notes are an integral part of these financial statements. 9 PIONEER VARIABLE CONTRACTS TRUST Pioneer America Income VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Interest $1,999,399 ---------- Total investment income $1,999,399 ---------- EXPENSES: Management fees $ 207,751 Transfer agent fees and expenses 3,096 Distribution fees (Class II) 46,808 Administrative reimbursements 9,358 Custodian fees 12,591 Professional fees 28,929 Printing expense 954 Fees and expenses of nonaffiliated trustees 6,153 Miscellaneous 5,394 ---------- Total expenses $ 321,034 ---------- Net expenses $ 321,034 ---------- Net investment income $1,678,365 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss from investments $ (121,816) ---------- Change in net unrealized gain or loss from investments $ (224,710) ---------- Net loss on investments $ (346,526) ========== Net increase in net assets resulting from operations $1,331,839 ==========
10 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer America Income VCT Portfolio - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 1,678,365 $ 1,818,811 Net realized loss on investments (121,816) (8,670) Change in net unrealized gain or loss on investments (224,710) (945,559) ------------- ------------- Net increase in net assets resulting from operations $ 1,331,839 $ 864,582 ------------- ------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income: Class I $ (1,069,942) $ (1,378,835) Class II (828,428) (792,466) ------------- ------------- Total distributions to shareowners $ (1,898,370) $ (2,171,301) ------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 5,966,828 $ 11,779,535 Reinvestment of distributions 1,899,760 2,174,179 Cost of shares repurchased (13,472,433) (11,661,922) ------------- ------------- Net increase (decrease) in net assets resulting from Fund share transactions $ (5,605,845) $ 2,291,792 ------------- ------------- Net increase (decrease) in net assets $ (6,172,376) $ 985,073 ------------- ------------- NET ASSETS: Beginning of year $ 47,118,170 $ 46,133,097 ------------- ------------- End of year $ 40,945,794 $ 47,118,170 ============= ============= Distributions in excess of net investment income $ (220,066) $ (322,520) ============= =============
The accompanying notes are an integral part of these financial statements. 11 PIONEER VARIABLE CONTRACTS TRUST Pioneer America Income VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 the Portfolio is to produce a high level of current income as consistent with preservation of capital. 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 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 year. 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 12 PIONEER VARIABLE CONTRACTS TRUST Pioneer America Income VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2006, 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, 2006, the Portfolio had a net capital loss carryforward of $1,703,310, of which the following amounts will expire between 2008 and 2014 if not utilized: $382,424 in 2008, $435,523 in 2011, $171,643 in 2012, $241,325 in 2013 and $472,395 in 2014. The Portfolio elected to defer $81,587 in capital losses recognized between November 1, 2006 and December 31, 2006 to its fiscal year ending December 31, 2007. At December 31, 2006, 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.
- ------------------------------------------------------------------------------- Distributions in Excess of Net Accumulated Investment Net Realized Paid-In Portfolio Income Loss Capital - ------------------------------------------------------------------------------- America Income Portfolio $322,459 $ (322,459) $-- ======== ========== === - -------------------------------------------------------------------------------
13 PIONEER VARIABLE CONTRACTS TRUST Pioneer America Income VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings as of December 31, 2006, on a tax basis.
- -------------------------------------------------------------------------------- 2006 2005 - -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 1,898,370 $2,171,301 ------------ ---------- Total distributions $ 1,898,370 $2,171,301 ============ ========== Distributable Earnings: Undistributed ordinary income $ 12,312 Capital loss carryforward (1,703,310) Post-October Loss Deferred (81,587) Unrealized depreciation (513,733) ------------ Total $ (2,286,318) ============ - --------------------------------------------------------------------------------
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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. 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 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 14 PIONEER VARIABLE CONTRACTS TRUST Pioneer America Income VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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% up to $1 billion and 0.45% on assets over $1 billion. 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, 2006, $1,762 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 $4,293 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $417 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, the Portfolio's aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
- ---------------------------------------------------------------------------------------------- Gross Gross Net Tax Cost Appreciation Depreciation Depreciation -------------- -------------- -------------- ------------- America Income Portfolio $41,573,758 $95,315 $(609,048) $(513,733) =========== ======= ========== ========== - ----------------------------------------------------------------------------------------------
6. Portfolio Transactions The cost of purchases and the proceeds from sales of U.S. Government obligations for the year ended December 31, 2006, were $11,466,385 and $17,152,222, respectively. 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005: - -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------- America Income Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ------------------------------------------------------------------------------------------- CLASS I: Shares sold 110,844 $ 1,068,537 116,997 $ 1,169,565 Reinvestment of distributions 110,800 1,071,338 138,561 1,381,733 Shares repurchased (698,557) (6,764,324) (836,177) (8,331,104) ---------------------------------------------------------- Net decrease (476,913) $ (4,624,449) (580,619) $ (5,779,806) ========================================================== CLASS II: Shares sold 504,972 $ 4,898,291 1,061,522 $ 10,609,970 Reinvestment of distributions 85,535 828,422 79,492 792,446 Shares repurchased (685,050) (6,708,109) (336,194) (3,330,818) ---------------------------------------------------------- Net increase (decrease) (94,543) $ (981,396) 804,820 $ 8,071,598 =========================================================== - -------------------------------------------------------------------------------------------
15 PIONEER VARIABLE CONTRACTS TRUST Pioneer America Income VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 8. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Portfolio's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Portfolio's financial statement disclosures. 16 PIONEER VARIABLE CONTRACTS TRUST Pioneer America Income VCT Portfolio - -------------------------------------------------------------------------------- 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 of Pioneer America Income VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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, 2006, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies for 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 America Income VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2006, 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 9, 2007 17 PIONEER VARIABLE CONTRACTS TRUST Pioneer America Income 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; (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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. 18 PIONEER VARIABLE CONTRACTS TRUST Pioneer America Income VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 absolute investment performance based upon total return and yield, as well as the Fund's performance relative to the performance of both a peer group considered appropriate by the Independent Trustees for this purpose and the Lehman Brothers Government Bond Index. The Fund's performance, based upon total return, was in the third quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, the third quintile for the three years ended June 30, 2006, the third quintile for the five years ended June 30, 2006 and the fourth quintile for the ten year period ended June 30, 2006. (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 yield of the Fund, before deduction of expenses, relative to the yield index. The Trustees, focusing on three-year total returns, concluded that the performance of the Fund was satisfactory. 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 size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee, based on 2006 data, was in the third quintile relative to the management fees paid by the other funds in that peer group. The Trustees also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 to be in the fifth quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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 19 PIONEER VARIABLE CONTRACTS TRUST Pioneer America Income VCT Portfolio - -------------------------------------------------------------------------------- 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 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 20 Pioneer America Income VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS - -------------------------------------------------------------------------------- Investment Adviser Pioneer Investment Management, Inc. Custodian Brown Brothers Harriman & Co. Independent Registered Public Accounting Firm Ernst & Young LLP Principal Underwriter Pioneer Funds Distributor, Inc. Legal Counsel Wilmer Cutler Pickering Hale and Dorr LLP Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc. Trustees and Officers The trust's Board of Trustees provides broad supervision over the portfolio's affairs. The officers of the trust are responsible for the trust's operations. The trust's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the trust within the meaning of the 1940 Act are referred to as Interested Trustees. Trustees who are not interested persons of the trust are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 86 U.S. registered investment portfolios for which Pioneer serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the trust is 60 State Street, Boston, Massachusetts 02109. - -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Board, Trustee until a successor trustee and President is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS John F. Cogan, Jr. (80)* Deputy Chairman and a Director of Pioneer Global Asset Management S.p.A. ("PGAM"); Non-Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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) - ------------------------------------------------------------------------------------------------------------------------------------ NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Director of ICI Mutual Insurance Company *Mr. Cogan is an Interested Trustee because he is an officer or director of the portfolio's investment adviser and certain of its affiliates. - ------------------------------------------------------------------------------------------------------------------------------------
21 Pioneer America Income VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES
POSITIONS HELD LENGTH OF SERVICE NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE David R. Bock (63) Trustee Trustee since 2005. Serves 3050 K. Street NW, until a successor trustee Washington, DC 20007 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Trustee Trustee since 2000. Serves 3509 Woodbine Street, until a successor trustee Chevy Chase, MD 20815 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves 1001 Sherbrooke Street West, until a successor trustee Montreal, Quebec, Canada is elected or earlier H3A 1G5 retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Trustee Trustee since 2006. Serves 89 Robbins Avenue, until a successor trustee Berkeley Heights, NJ is elected or earlier 07922 retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Trustee Trustee since 1995. Serves 200 State Street, 12th until a successor trustee Floor, Boston, MA 02109 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) Trustee Trustee since 2000. Serves One North Adgers Wharf, until a successor trustee Charleston, SC 29401 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ NAME, AGE AND ADDRESS PRINCIPAL OCCUPATION DURING PAST FIVE YEARS David R. Bock (63) Senior Vice President and Chief Financial Officer, I-trax, Inc. (publicly traded 3050 K. Street NW, health care services company) (2001 - present); Managing Partner, Federal Washington, DC 20007 City Capital Advisors (boutique merchant bank) (2002 to 2004); and Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet- based mortgage trading company) (2000 - 2002) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) President, Bush International (international financial advisory firm) 3509 Woodbine Street, Chevy Chase, MD 20815 - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) Founding Director, The Winthrop Group, Inc. (consulting firm); and 1001 Sherbrooke Street West, Desautels Faculty of Management, McGill University Montreal, Quebec, Canada H3A 1G5 - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Private investor (2004 - present); and Senior Executive Vice President, The 89 Robbins Avenue, Bank of New York (financial and securities services) (1986 - 2004) Berkeley Heights, NJ 07922 - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) President and Chief Executive Officer, Newbury, Piret & Company, Inc. 200 State Street, 12th (investment banking firm) Floor, Boston, MA 02109 - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) President, John Winthrop & Co., Inc. (private investment firm) One North Adgers Wharf, Charleston, SC 29401 - ------------------------------------------------------------------------------------------------------------------------------------ NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE David R. Bock (63) Director of The Enterprise Social Investment 3050 K. Street NW, Company (privately-held affordable housing Washington, DC 20007 finance company); and Director of New York Mortgage Trust (publicly traded mortgage REIT) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Director of Brady Corporation (industrial 3509 Woodbine Street, identification and specialty coated material Chevy Chase, MD 20815 products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) None 1001 Sherbrooke Street West, Montreal, Quebec, Canada H3A 1G5 - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Director of Quadriserv Inc. (technology 89 Robbins Avenue, products for securities lending industry) Berkeley Heights, NJ 07922 - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Director of New America High Income Fund, 200 State Street, 12th Inc. (closed-end investment company) Floor, Boston, MA 02109 - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) None One North Adgers Wharf, Charleston, SC 29401 - ------------------------------------------------------------------------------------------------------------------------------------
22 Pioneer America Income VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- TRUST OFFICERS
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Assistant Since 2003. Serves at the Secretary discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey Assistant Since 2006. Serves at the (45) Secretary discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Treasurer Since 2000. Serves at the discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Assistant Since 2004. Serves at the Treasurer discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Since 2000. Serves at the Treasurer discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Assistant Since 2002. Serves at the Treasurer discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS OFFICER Osbert M. Hood (54)+ President and Chief Executive Officer, PIM-USA since May None 2003 (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary of PIM-USA; Senior Vice President - Legal of None Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Vice President and Senior Counsel of Pioneer since July None 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 of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey Partner, Wilmer Cutler Pickering Hale and Dorr LLP; and None (45) Assistant Secretary of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Vice President - Fund Accounting, Administration and None Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Deputy Treasurer of Pioneer since 2004; Treasurer and None Senior 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 - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Vice President - Fund Accounting, None Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Fund Accounting Manager - Fund Accounting, Administration None and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------------------------------
23 Pioneer America Income VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- TRUST OFFICERS
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Katherine Kim Sullivan Assistant Since 2003. Serves at the (33) Treasurer discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Since 2006. Serves at the Compliance discretion of the Board Officer - ------------------------------------------------------------------------------------------------------------------------------------ NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS OFFICER Katherine Kim Sullivan Fund Administration Manager - Fund Accounting, None (33) Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Compliance Officer of Pioneer and all of the None Pioneer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 24 - -------------------------------------------------------------------------------- This page for your notes. 25 - -------------------------------------------------------------------------------- This page for your notes. 26 - -------------------------------------------------------------------------------- This page for your notes. 27 - -------------------------------------------------------------------------------- This page for your notes. 28 - -------------------------------------------------------------------------------- This page for your notes. 29 [LOGO] PIONEER Investments(R) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 20362-00-0207 [LOGO]PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Bond VCT Portfolio -- Class I Shares ANNUAL REPORT December 31, 2006 PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- T a b l e o f C o n t e n t s - -------------------------------------------------------------------------------- Pioneer Bond 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 Trustees, Officers and Service Providers 23
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 12/31/06 - -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment in securities) [THE FOLLOWING DATA IS A REPRESENTATION OF A PIE CHART IN THE PRINTED MATERIAL] U.S. Government Securities 67.4% U.S. Corporate Bonds 24.2% Collateralized Mortgage Obligations 4.5% Asset Backed Securities 3.5% Senior Secured Loans 0.4%
Quality Distribution (As a percentage of total investment in securities) [THE FOLLOWING DATA IS A REPRESENTATION OF A PIE CHART IN THE PRINTED MATERIAL] Treasury/Agency 62.8% Commercial Paper 10.4% AAA 0.4% AA 0.3% A 4.2% BBB 13.1% BB 5.7% B & Lower 3.1%
Five Largest Holdings (As a percentage of long-term holdings) 1. Federal National Mortgage Association, 4.78%, 12/1/12 4.35% 2. Government National Mortgage Association, 5.5%, 10/15/33 4.31 3. Federal National Mortgage Association, 5.0%, 3/1/33 4.13 4. Federal National Mortgage Association, 5.0%, 12/1/17 3.95 5. Federal Home Loan Mortgage Corp., 4.5%, 5/1/35 3.52
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $ 10.72 $ 10.79
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $ 0.5580 $ - $ -
- -------------------------------------------------------------------------------- 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 DATA IS A REPRESENTATION OF A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Bond Lehman Brothers VCT Portfolio Aggregate Bond Index 12/96 $10,000 $10,000 $10,841 $10,965 12/98 $11,806 $11,918 $11,335 $11,820 12/00 $12,672 $13,194 $13,594 $14,308 12/02 $14,653 $15,776 $15,134 $16,423 12/04 $15,666 $17,136 $16,077 $17,552 12/06 $16,830 $18,313
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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- 10 Years 5.34% 5 Years 4.36% 1 Year 4.68%
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.pioneerinvestments.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 [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 Bond VCT Portfolio Based on actual returns from July 1, 2006 through December 31, 2006
Share Class I - ----------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,053.01 Expenses Paid During Period* $ 3.21
* 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, 2006 through December 31, 2006
Share Class I - ----------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 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 12/31/06 - -------------------------------------------------------------------------------- Despite a weak start to the year amid rising interest rates, the domestic bond market delivered generally moderate, positive returns during 2006. Over the first six months, investors were concerned about rising interest rates, increasing oil prices and monetary tightening by the U.S. Federal Reserve. Over the second half of the year, the environment improved as concerns about inflation and high energy prices receded and as the Federal Reserve Board left short-term rates unchanged. In the following interview, Kenneth J. Taubes discusses the factors that influenced the performance of Pioneer Bond VCT Portfolio during the 12 months ended December 31, 2006. 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 2006? A. Pioneer Bond VCT Portfolio Class I shares generated a total return of 4.68%, at net asset value, for the 12 months ended December 31, 2006. During the same 12 months, the Lehman Brothers Aggregate Bond Index rose 4.25%. The average return of the 178 funds in Lipper's corporate debt, A-rated mutual fund category was 4.93%. On December 31, 2006, the 30-day Standardized SEC yield for the Fund's Class I shares was 4.07%. Call 1-800-225-6292 or visit www.pioneerinvestments.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 2006? A. During the first half of the year, the Federal Reserve Board raised the key Fed funds rate four times, putting pressure on Treasuries and other high-grade fixed-income securities. As the Federal Reserve raised the Fed funds rate to 5.25% from the 4.25% starting point at the beginning of the year, longer-maturity yields of high-grade securities also rose, although not by as much, leading to negative returns for many high-grade parts of the market during the first six months. The situation was different in the lower-rated, high-yield market, which performed well as solid growth in the economy largely offset the effects of the rate hikes. The climate changed markedly from mid-May through mid-July, when the capital markets were worried about inflationary pressures. These concerns were exacerbated by rapidly rising oil prices. Riskier asset classes - including stocks and high-yield bonds - slumped during this two-month period. During the year's second half, as the Federal Reserve Board paused in its tightening policy and left short-term interest rates unchanged, a different environment unfolded. Stabilized short-term interest rates and easing oil prices encouraged investors to believe that inflationary pressures were under control and that the economy could sustain its expansion at a moderate rate. In this environment, high-grade bonds improved in performance as yields across many maturities receded over the final six months of the year. In many cases, the yield curve became inverted - a phenomenon which reverses normal relationships, resulting in higher yields among shorter-maturity securities than among some longer-maturity securities. In general, government securities and higher-rated corporate securities delivered improved performance in the second half of the year. For the year, Treasuries, government agencies, mortgage-backed securities and investment-grade corporate bonds produced positive results, with income overcoming some erosion of prices. Mortgage-backed securities tended to produce the best results in the investment-grade universe. High-yield, lower-rated corporate bonds, however, delivered the strongest performance in the domestic market. Q. What were principal strategies during the year, and how did they affect performance? A. Helping results were the Portfolio's exposure to high-yield corporate bonds - the best-performing area of the market - and an effective interest-rate strategy. Although we became somewhat more defensive early in the year and reduced our investments in corporate bonds, we still maintained an overweighting in high-yield bonds, which helped support performance. At the end of the fiscal year, 8.8% of Portfolio assets were invested in high-yield corporate bonds. At the same time, we lowered our exposure to investment-grade corporate debt, as we became concerned that heavy activity in mergers-and-acquisitions and leveraged buyouts would hurt bondholders while helping shareholders. During a period of changing interest-rate trends, our management of duration - which is a measure of a bond's price sensitivity to changes in interest rates - was successful. We maintained a relatively short duration when interest rates were rising in the first half of the year. Beginning in June, we moved to a longer duration, which positioned the Portfolio to benefit when longer-maturity rates began to decline, as they did for the remainder of the year. However, we moved again to a shorter duration near the end of the year to protect 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.pioneerinvestments.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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- against the potential of a rise in rates. On December 31, 2006, the Portfolio's effective duration was 4.08 years. Early in the year, we increased our investments in mortgage-backed securities and we maintained a higher exposure throughout the year, helping support performance. At the end of the fiscal year, on December 31, 2006, 51.6% of Portfolio assets were invested in mortgages and other pass-through securities. During the first half of the year, we also maintained a healthy allocation to Treasury Inflation Protected Securities (TIPS), which contributed to performance as interest rates were rising. We reduced that exposure substantially, beginning in June, which was timely as TIPS began to underperform straight Treasuries and other fixed-rate high-grade securities as yields fell with reduced fears about inflation. Nevertheless, our remaining TIPS holdings did not help in the second half of the year. Q. What were some of the individual holdings that had the greatest influence on Portfolio performance? A. Several corporate bonds helped the Portfolio's performance for the year. Bonds of Platinum Underwriters, a property-and-casualty re-insurance company, appreciated when the company encountered relatively few storm-related damage claims in 2006 after raising premiums following the severe 2005 hurricane season. Ohio Casualty, a property-and-casualty company specializing in auto policies, also performed well. Trustreet Properties, a real estate investment trust, contributed as its bonds were bought back when the company was acquired. The rating of the debt of HCA was lowered from investment-grade to high-yield during the year as part of a leveraged buyout of the company, which operates hospitals throughout the nation. As a result, the Portfolio's holdings of HCA-issued bonds underperformed and detracted from results. Q. What is your investment outlook? A. Given expectations that the economy will continue to expand, we do not expect the Federal Reserve to lower short-term rates in the near future. As a consequence, we are maintaining a shorter-than-benchmark duration policy to protect against the potential that interest rates might rise. In this environment, we have placed the greatest emphasis on mortgage-backed securities. In the corporate sector, we have modestly overweighted high-yield bonds, but have continued to de-emphasize investment-grade corporate debt due to the small risk premium available on those securities and the aforementioned leveraged buyout risk. 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 Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
S&P/Moody's Principal Ratings Amount (unaudited) Value ASSET BACKED SECURITIES - 3.2% Banks - 1.4% Thrifts & Mortgage Finance - 1.4% $ 350,000 AAA/Aaa GMAC Commercial Mortgage Securities, Inc., 4.864%, 12/10/41 $ 339,701 91,032 A-/Baa1 Taganka Car Loan Finance Plc, 6.35%, 11/14/13 (144A) (a) 91,032 ----------- $ 430,733 ----------- Total Banks $ 430,733 ----------- Diversified Financials - 0.6% Diversified Financial Services - 0.6% 88,211 BB-/Ba2 Caithness Coso Fund Corp., 6.263%, 6/15/14 (144A) $ 86,005 75,161 BBB/Baa2 Power Receivables Finance, 6.29%, 1/1/12 (144A) 75,572 ----------- $ 161,577 ----------- Total Diversified Financials $ 161,577 ----------- Utilities - 1.2% Electric Utilities - 1.2% 123,102 BB-/Ba2 FPL Energy National Wind, 6.125%, 3/25/19 (144A) $ 119,221 186,120 BB-/Ba2 FPL Energy Wind Funding, 6.876%, 6/27/17 (144A) 187,749 58,153 BB-/Ba2 Tenaska Alabama, 7.0%, 6/30/21 (144A) 57,755 ----------- $ 364,725 ----------- Total Utilities $ 364,725 ----------- TOTAL ASSET BACKED SECURITIES (Cost $969,254) $ 957,035 ----------- COLLATERALIZED MORTGAGE OBLIGATIONS - 4.0% Banks - 2.1% Thrifts & Mortgage Finance - 2.1% 160,000 AAA/Aaa Banc of America Commercial Mortgage, Inc., 4.877%, 7/10/42 $ 155,509 60,000 NR/Ba1 SBA CMBS Trust, 6.709%, 11/15/36 60,075 40,000 AAA/Aa2 T SRA R 2006-1 B, 5.7467%, 10/15/36 40,487 400,000 AAA/Aaa Wachovia Bank Commercial Mortgage Trust, 4.803%, 10/15/41 386,211 ----------- $ 642,282 ----------- Total Banks $ 642,282 ----------- Diversified Financials - 1.6% Diversified Financial Services - 1.6% 71,880 AAA/Aaa RALI 2005-QA10 A41, 5.7412%, 9/25/35 $ 71,715 450,000 NR/Ba2 Tower 2004-2A F, 6.376%, 12/15/14 435,220 ----------- $ 506,935 ----------- Total Diversified Financials $ 506,935 ----------- Government - 0.3% Government - 0.3% 81,885 AAA/Aaa Freddie Mac, 6.1%, 9/15/18 $ 82,103 ----------- Total Government $ 82,103 ----------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $1,250,171) $ 1,231,320 -----------
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 CORPORATE BONDS - 21.5% Energy - 4.2% Integrated Oil & Gas - 1.1% $ 215,000 BBB/Baa2 Petro-Canada, 4.0%, 7/15/13 $ 195,217 140,000 BBB+/Baa1 USX Corp., 6.85%, 3/1/08 142,133 ----------- $ 337,350 ----------- Oil & Gas Equipment & Services - 0.4% 125,000 B+/B1 Holly Energy Partners LP, 6.25%, 3/1/15 $ 118,750 ----------- Oil & Gas Exploration & Production - 1.5% 370,000 BBB/Baa1 Pemex Project Funding Master, 9.125%, 10/13/10 $ 414,955 59,850 A/Aa3 Ras Laffan Liquid Natural Gas, 3.437%, 9/15/09 (144A) 58,314 ----------- $ 473,269 ----------- Oil & Gas Refining & Marketing - 0.2% 50,000 BBB/Baa2 Boardwalk Pipelines LLC, 5.5%, 2/1/17 $ 48,164 ----------- Oil & Gas Storage & Transportation - 1.0% 295,000 BBB+/Baa1 Kinder Morgan Energy Partners, 6.75%, 3/15/11 $ 306,943 ----------- Total Energy $ 1,284,476 ----------- Materials - 2.9% Aluminum - 0.9% 285,000 B/B2 Novelis, Inc., 7.25%, 2/15/15 $ 275,738 ----------- Commodity Chemicals - 0.7% 80,000 B+/Ba3 Invista, 9.25%, 5/1/12 (144A) $ 85,800 135,000 BB-/Ba3 Nova Chemicals, Ltd., 6.5%, 1/15/12 127,913 ----------- $ 213,713 ----------- Fertilizers & Agricultural Chemicals - 0.7% 220,000 BBB+/Baa1 Potash Corp. Saskatchewan, 4.875%, 3/1/13 $ 212,241 ----------- Paper Products - 0.6% 225,000 B+/B2 Abitibi-Consolidated, Inc., 6.0%, 6/20/13 $ 180,000 ----------- Total Materials $ 881,692 ----------- Capital Goods - 2.0% Aerospace & Defense - 0.6% 190,000 A+/A2 Boeing Co., 5.125%, 2/15/13 $ 188,343 ----------- Electrical Component & Equipment - 0.2% 58,428 NR/Ba1 Orcal Geothermal, 6.21%, 12/30/20 (144A) $ 58,151 ----------- Trading Companies & Distributors - 1.2% 245,000 BBB-/Baa3 Glencore Funding LLC, 6.0%, 4/15/14 (144A) $ 238,833 145,000 BB+/Ba1 Noble Group, Ltd., 6.625%, 3/17/15 (144A) 131,712 ----------- $ 370,545 ----------- Total Capital Goods $ 617,039 ----------- Consumer Services - 0.6% Casinos & Gaming - 0.2% 70,000 B/Ba3 Station Casinos, Inc., 6.625%, 3/15/18 $ 60,025 ----------- Education Services - 0.4% 100,000 AAA/Aaa President & Fellows of Harvard, 6.3%, 10/1/37 $ 106,973 ----------- Total Consumer Services $ 166,998 -----------
The accompanying notes are an integral part of these financial statements. 7 Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
S&P/Moody's Principal Ratings Amount (unaudited) Value Media - 0.4% Broadcasting & Cable TV - 0.4% $ 135,000 BBB+/Baa2 Comcast Corp., 5.3%, 1/15/14 $ 132,227 ----------- Total Media $ 132,227 ----------- Food, Beverage & Tobacco - 2.8% Brewers - 0.9% 280,000 BBB+/Baa1 Miller Brewing Co., 5.5%, 8/15/13 (144A) $ 276,892 ----------- Packaged Foods & Meats - 1.0% 280,000 A+/A1 Unilever Capital Corp., 7.125%, 11/1/10 $ 297,423 ----------- Soft Drinks - 0.9% 280,000 A/A3 Bottling Group LLC, 5.0%, 11/15/13 $ 273,666 ----------- Total Food, Beverage & Tobacco $ 847,981 ----------- Banks - 0.2% Diversified Banks - 0.2% 65,000 BB+/Baa2 TNK-BP Finance SA, 7.5%, 7/18/16 (144A) $ 69,144 ----------- Total Banks $ 69,144 ----------- Diversified Financials - 1.3% Consumer Finance - 1.3% 415,000 A/A2 SLM Corp., 4.0%, 7/25/14 (a) $ 381,244 ----------- Total Diversified Financials $ 381,244 ----------- Insurance - 3.4% Life & Health Insurance - 0.5% 160,000 B-/B2 Presidential Life Corp., 7.875%, 2/15/09 $ 152,800 ----------- Multi-Line Insurance - 0.5% 130,000 BB+/Ba1 Hanover Insurance Group, 7.625%, 10/15/25 $ 139,318 ----------- Property & Casualty Insurance - 1.7% 250,000 BBB-/NR Kingsway America, Inc., 7.5%, 2/1/14 $ 253,516 250,000 BBB-/Baa3 Ohio Casualty Corp., 7.3%, 6/15/14 266,901 ----------- $ 520,417 ----------- Reinsurance - 0.7% 200,000 BBB/NA Platinum Underwriters Holding, 7.5%, 6/1/17 $ 210,915 ----------- Total Insurance $ 1,023,450 ----------- Real Estate - 2.0% Real Estate Investment Trusts - 2.0% 250,000 BBB-/Baa3 Health Care, Inc., 6.0%, 11/15/13 $ 249,478 250,000 BBB/Baa2 Hospitality Properties Trust, 5.125%, 2/15/15 237,510 50,000 B+/B1 Trustreet Properties, Inc., 7.5%, 4/1/15 54,000 70,000 BB+/Ba2 Ventas Realty Capital Corp., 7.125%, 6/1/15 (144A) 73,500 ----------- $ 614,488 ----------- Total Real Estate $ 614,488 ----------- Semiconductors - 0.5% Semiconductors - 0.5% 155,000 BBB-/Baa3 Chartered Semiconductor, 6.375%, 8/3/15 $ 155,466 ----------- Total Semiconductors $ 155,466 -----------
8 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 Telecommunication Services - 0.0% Integrated Telecommunication Services - 0.0% $ 10,000 BBB+/Baa2 Telecom Italia Capital, 4.875%, 10/1/10 $ 9,740 ----------- Total Telecommunication Services $ 9,740 ----------- Utilities - 1.2% Electric Utilities - 1.1% 107,841 BBB-/Baa3 Crocket Cogeneration, 5.869%, 3/30/25 (144A) $ 104,483 85,000 BBB+/Baa3 Entergy Gulf States, 5.7%, 6/1/15 82,987 140,000 BBB-/Baa3 Kiowa Power Partners LLC, 5.737%, 3/30/21 (144A) 135,537 ----------- $ 323,007 ----------- Gas Utilities - 0.1% 55,000 BB/Ba1 Southern Union Co., 7.2%, 11/1/66 $ 54,217 ----------- Total Utilities $ 377,224 ----------- TOTAL CORPORATE BONDS (Cost $6,664,440) $ 6,561,169 ----------- U.S. GOVERNMENT & AGENCY OBLIGATIONS - 59.9% 880,530 Federal Home Loan Bank, 6.0%, 4/15/32 $ 894,721 1,021,755 Federal Home Loan Mortgage Corp., 4.5%, 5/1/35 957,471 521,312 Federal Home Loan Mortgage Corp., 4.5%, 10/1/35 488,513 217,249 Federal Home Loan Mortgage Corp., 5.5%, 9/1/33 215,171 70,149 Federal Home Loan Mortgage Corp., 6.0%, 1/1/34 70,720 10,556 Federal Home Loan Mortgage Corp., 8.0%, 4/1/08 10,649 1,204,767 Federal National Mortgage Association, 4.78%, 12/1/12 1,182,471 2,893,661 Federal National Mortgage Association, 5.0%, 12/1/17 - 5/1/34 2,820,834 730,000 Federal National Mortgage Association, 5.24%, 8/7/18 719,833 2,271,989 Federal National Mortgage Association, 5.5%, 9/1/17 - 4/1/36 2,270,704 339,543 Federal National Mortgage Association, 6.0%, 6/1/15 - 6/1/36 343,369 45,438 Federal National Mortgage Association, 7.0%, 3/1/12 46,782 323,966 Federal National Mortgage Association, 8.0%, 2/1/29 - 5/1/31 342,953 16,721 Federal National Mortgage Association, 9.5%, 2/1/21 18,231 1,120,386 Government National Mortgage Association, 4.5%, 12/15/18 - 12/15/34 1,076,247 183,539 Government National Mortgage Association, 5.0%, 7/15/19 181,352 1,755,098 Government National Mortgage Association, 5.5%, 8/15/33 - 12/15/34 1,748,530 961,449 Government National Mortgage Association, 6.0%, 8/15/13 - 9/15/34 975,594 39,822 Government National Mortgage Association, 7.0%, 4/15/28 41,152 10,826 Government National Mortgage Association, 7.75%, 11/15/29 11,405 792,462 Government National Mortgage Association II, 5.5%, 11/20/34 787,163 685,000 U.S. Treasury Bonds, 7.125%, 2/15/23 852,718 788,622 U.S. Treasury Inflation Notes, 1.875%, 7/15/15 755,752 177,961 U.S. Treasury Inflation Notes, 2.0%, 1/15/16 171,830 187,554 U.S. Treasury Inflation Protected Security, 3.375%, 1/15/12 195,811 104,370 U.S. Treasury Inflation Protected Security, 3.5%, 1/15/11 108,651 300,000 U.S. Treasury Notes, 4.0%, 4/15/10 293,555 150,000 U.S. Treasury Notes, 4.25%, 11/15/14 145,512 325,000 U.S. Treasury Notes, 5.5%, 8/15/28 351,101 325,000 U.S. Treasury Strip, 0.0%, 11/15/13 236,332 ----------- $18,315,127 ----------- TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $18,606,280) $18,315,127 -----------
The accompanying notes are an integral part of these financial statements. 9 PIONEER VARIABLE CONTRACTS TRUST Pioneer Bond VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
S&P/Moody's Principal Ratings Amount (unaudited) Value SENIOR SECURED FLOATING RATE LOAN INTERESTS - 0.3%* $ 100,000 NR/B2 HCA, Inc., Tranche B Term Loan, 8.114%, 11/7/13 $ 101,224 ----------- TOTAL SENIOR SECURED FLOATING RATE LOAN INTERESTS (Cost $100,000) $ 101,224 ----------- TOTAL INVESTMENT IN SECURITIES - 88.9% (Cost $27,590,145) $27,165,875 ----------- OTHER ASSETS AND LIABILITIES - 11.1% $ 3,403,546 ----------- TOTAL NET ASSETS - 100.0% $30,569,421 ===========
(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, 2006, the value of these securities amounted to $1,849,700 or 6.1% 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. * Senior secured floating rate loan interests in which the Portfolio invests generally pay interest at rates that are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates are generally (i) the lending rate offered by one or more major European banks, such as LIBOR (London InterBank Offered Rate), (ii) the prime rate offered by one or more major United States banks, (iii) the certificate of deposit or (iv) other base lending rates used by commercial lenders. The rate shown is the coupon rate at period end. 10 The accompanying notes are an integral part of these financial statements. Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Year Year Year Year Ended Ended Ended Ended Ended Class I 12/31/06 12/31/05 12/31/04 (a) 12/31/03 12/31/02 Net asset value, beginning of period $ 10.79 $ 11.61 $ 11.24 $ 11.39 $ 11.12 -------- -------- -------- -------- -------- Net increase (decrease) from investment operations: Net investment income $ 0.50 $ 0.59 $ 0.44 $ 0.46 $ 0.52 Net realized and unrealized gain (loss) on investments (0.01) (0.29) (0.04) (0.09) 0.35 -------- -------- -------- -------- -------- Net increase from investment operations $ 0.49 $ 0.30 $ 0.40 $ 0.37 $ 0.87 Distributions to shareowners: Net investment income (0.56) (1.12) (0.03) (0.52) (0.60) -------- -------- -------- -------- -------- Net increase (decrease) in net asset value $ (0.07) $ (0.82) $ 0.37 $ (0.15) $ 0.27 -------- -------- -------- -------- -------- Net asset value, end of period $ 10.72 $ 10.79 $ 11.61 $ 11.24 $ 11.39 ======== ======== ======== ======== ======== Total return* 4.68% 2.62% 3.56% 3.28% 7.79% Ratio of net expenses to average net assets+ 0.62% 0.62% 0.89% 0.86% 0.84% Ratio of net investment income to average net assets+ 4.71% 4.48% 3.61% 3.79% 4.87% Portfolio turnover rate 18% 31% 57% 56% 87% Net assets, end of period (in thousands) $ 30,569 $ 33,332 $ 45,793 $ 51,565 $ 51,201 Ratios with no waiver of management fees by PIM and no reduction for fees paid indirectly: Net expenses 0.80% 0.83% 0.89% 0.86% 0.84% Net investment income 4.52% 4.27% 3.61% 3.79% 4.87% Ratios with waiver of management fees by PIM and reduction for fees paid indirectly: Net expenses 0.62% 0.62% 0.89% 0.86% 0.84% Net investment income 4.71% 4.48% 3.61% 3.79% 4.87%
(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. + 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. 11 Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (cost $27,590,145) $27,165,875 Cash 3,141,197 Receivables -- Fund shares sold 17,096 Dividends, interest and foreign taxes withheld 248,333 Other 128,315 ----------- Total assets $30,700,816 ----------- LIABILITIES: Payables -- Fund shares repurchased $ 69,903 Due to Pioneer Investment Management, Inc. 14,230 Due to affiliates 307 Accrued expenses 46,955 ----------- Total liabilities $ 131,395 ----------- NET ASSETS: Paid-in capital $31,853,347 Distributions in excess of net investment income (128,958) Accumulated net realized loss on investments (730,698) Net unrealized loss on investments (424,270) ----------- Total net assets $30,569,421 ----------- NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $30,569,421 Shares outstanding 2,851,614 ----------- Net asset value per share $ 10.72
12 The accompanying notes are an integral part of these financial statements. Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Interest $1,599,939 Income on securities loaned, net 1,243 ---------- Total investment income $1,601,182 ---------- EXPENSES: Management fees $ 150,288 Transfer agent fees and expenses 1,500 Administrative reimbursements 7,281 Custodian fees 14,943 Professional fees 39,127 Printing expense 9,881 Fees and expenses of nonaffiliated trustees 5,740 Miscellaneous 12,850 ---------- Total expenses $ 241,610 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (56,286) ---------- Net expenses $ 185,324 ---------- Net investment income $1,415,858 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain from: Investments $ 118,050 ---------- Change in net unrealized loss from: Investments $ (229,233) ---------- Net loss on investments $ (111,183) ========== Net increase in net assets resulting from operations $1,304,675 ==========
The accompanying notes are an integral part of these financial statements. 13 Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 1,415,858 $ 1,706,430 Net realized gain on investments 118,050 166,785 Change in net unrealized loss on investments (229,233) (885,532) ------------ ------------- Net increase in net assets resulting from operations $ 1,304,675 $ 987,683 ------------ ------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income: Class I $ (1,568,472) $ (3,723,847) ------------ ------------- Total distributions to shareowners $ (1,568,472) $ (3,723,847) ------------ ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 3,988,805 $ 440,667 Reinvestment of distributions 1,568,472 3,722,866 Cost of shares repurchased (8,055,671) (13,889,129) ------------ ------------- Net decrease in net assets resulting from Fund share transactions $ (2,498,394) $ (9,725,596) ------------ ------------- Net decrease in net assets $ (2,762,191) $ (12,461,760) NET ASSETS: Beginning of year 33,331,612 45,793,372 ------------ ------------- End of year $ 30,569,421 $ 33,331,612 ============ ============= Distributions in excess of net investment income, end of year $ (128,958) $ (55,248) ============ =============
14 The accompanying notes are an integral part of these financial statements. Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 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. 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(es). Please refer to those documents when considering the Portfolio's risks. 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. 15 Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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. 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, 2006, Bond VCT Portfolio had a net capital loss carryforward of $730,698, 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, 2006, 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 Investment Income Net Realized Paid-In Portfolio (Loss) Gain (Loss) Capital - -------------------------------------------------------------------------------- Bond Portfolio $78,904 $ (78,904) $ -- ======= ========= ==== - --------------------------------------------------------------------------------
The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis.
- --------------------------------------------------------------------------------------- 2006 2005 - --------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 1,568,472 $ 3,723,847 Long-Term capital gain -- -- --------------------------- $ 1,568,472 $ 3,723,847 Return of Capital -- -- --------------------------- Total distributions $ 1,568,472 $ 3,723,847 =========================== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 13,506 Undistributed long-term gain/(capital loss carryforward) (730,698) Unrealized appreciation (depreciation) (566,734) --------------------------- Total $ (1,283,926) =========================== - ---------------------------------------------------------------------------------------
16 Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The difference between book-basis and tax-basis unrealized appreciation is primarily attributable to the tax treatment of premium 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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. 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 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. 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 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, 2006 $56 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 $251 in transfer agent fees payable to PIMSS at December 31, 2006. 4. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $27,732,609 $174,317 $ (741,051) $ (566,734) =========== ======== =========== =========== - --------------------------------------------------------------------------------
17 Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, were $1,461,053 and $4,818,133, respectively. The cost of purchases and the proceeds from sales of investments in U.S. Government obligations for the year ended December 31, 2006, were $3,748,467 and $6,037,829, respectively. 6. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- ------------------------------------------------------------------------------------- Bond Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ------------------------------------------------------------------------------------- CLASS I: Shares sold 371,643 $ 3,988,805 38,950 $ 440,667 Reinvestment of distributions 147,354 1,568,472 334,515 3,722,866 Shares repurchased (757,345) (8,055,671) (1,227,950) (13,889,129) ----------------------------------------------------- Net decrease (238,348) $(2,498,394) (854,485) $(9,725,596) ===================================================== - -------------------------------------------------------------------------------------
7. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 18 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 of Pioneer Bond VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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, 2006, 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, 2006, 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 9, 2007 19 Pioneer 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"), 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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. 20 Pioneer Bond 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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group considered appropriate by the Independent Trustees for this purpose and the Lehman Brothers Aggregate Bond Index. The Fund's performance, based upon total return, was in the first quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, the third quintile of the peer group for the three years ended June 30, 2006, the fourth quintile for the five years ended June 30, 2006 and the fourth quintile for the ten year period ended June 30, 2006. (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 yield of the Fund, before deduction of expenses, relative to the yield of the index. The Trustees, focusing on three-year total returns, concluded that the performance of the Fund was satisfactory. 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 size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee for the 12 months ended June 30, 2006 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 also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 (after giving effect to the expense limitation) to be in the second quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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 21 Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- break point in management fees was not necessary. 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. 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees and voted to approve the continuation of the Management Contract for another year. 22 Pioneer Bond 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 portfolio's affairs. 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 trust within the meaning of the Ernst & Young LLP 1940 Act are referred to as Interested Trustees. Trustees who are not interested persons of the trust are referred to Principal Underwriter as Independent Trustees. Each of the Trustees serves as a Pioneer Funds Distributor, Inc. trustee of each of the 86 U.S. registered investment portfolios for which Pioneer serves as investment adviser Legal Counsel (the "Pioneer Funds"). The address for all Interested Wilmer Cutler Pickering Hale and Dorr LLP Trustees and all officers of the trust is 60 State Street, Boston, Massachusetts 02109. Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc.
- -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Board, Trustee until a successor trustee and President is elected or earlier retirement or removal. - ---------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Deputy Chairman and a Director of Pioneer Director of ICI Mutual Insurance Company Global Asset Management S.p.A. ("PGAM"); Non-Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - ------------------------------------------------------------------------------------------------------------------
23 Pioneer Bond VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE David R. Bock (63) Trustee Trustee since 2005. Serves 3050 K. Street NW, until a successor trustee Washington, DC 20007 is elected or earlier retirement or removal. - ---------------------------------------------------------------------------- Mary K. Bush (58) Trustee Trustee since 2000. Serves 3509 Woodbine Street, until a successor trustee Chevy Chase, MD 20815 is elected or earlier retirement or removal. - ---------------------------------------------------------------------------- Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves 1001 Sherbrooke Street West, until a successor trustee Montreal, Quebec, Canada is elected or earlier H3A 1G5 retirement or removal. - ---------------------------------------------------------------------------- Thomas J. Perna (56) Trustee Trustee since 2006. Serves 89 Robbins Avenue, until a successor trustee Berkeley Heights, NJ is elected or earlier 07922 retirement or removal. - ---------------------------------------------------------------------------- Marguerite A. Piret (58) Trustee Trustee since 1995. Serves 200 State Street, 12th until a successor trustee Floor, Boston, MA 02109 is elected or earlier retirement or removal. - ---------------------------------------------------------------------------- John Winthrop (70) Trustee Trustee since 2000. Serves One North Adgers Wharf, until a successor trustee Charleston, SC 29401 is elected or earlier retirement or removal. - ---------------------------------------------------------------------------- NAME, AGE AND ADDRESS PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE David R. Bock (63) Senior Vice President and Chief Financial Director of The Enterprise Social Investment 3050 K. Street NW, Officer, I-trax, Inc. (publicly traded health Company (privately-held affordable housing Washington, DC 20007 care services company) (2001 - present); finance company); and Director of New York Managing Partner, Federal City Capital Mortgage Trust (publicly traded mortgage Advisors (boutique merchant bank) (2002 to REIT) 2004); and Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet- based mortgage trading company) (2000 - 2002) - ---------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (58) President, Bush International (international Director of Brady Corporation (industrial 3509 Woodbine Street, financial advisory firm) identification and specialty coated material Chevy Chase, MD 20815 products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ---------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (59) Founding Director, The Winthrop Group, Inc. None 1001 Sherbrooke Street West, (consulting firm); and Desautels Faculty of Montreal, Quebec, Canada Management, McGill University H3A 1G5 - ---------------------------------------------------------------------------------------------------------------------------- Thomas J. Perna (56) Private investor (2004 - present); and Senior Director of Quadriserv Inc. (technology 89 Robbins Avenue, Executive Vice President, The Bank of New products for securities lending industry) Berkeley Heights, NJ York (financial and securities services) 07922 (1986 - 2004) - ---------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (58) President and Chief Executive Officer, Director of New America High Income Fund, 200 State Street, 12th Newbury, Piret & Company, Inc. (investment Inc. (closed-end investment company) Floor, Boston, MA 02109 banking firm) - ---------------------------------------------------------------------------------------------------------------------------- John Winthrop (70) President, John Winthrop & Co., Inc. (private None One North Adgers Wharf, investment firm) Charleston, SC 29401 - ----------------------------------------------------------------------------------------------------------------------------
24 Pioneer Bond VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President discretion of the Board +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the discretion of the Board - ------------------------------------------------------------------------- Christopher J. Kelley (42) Assistant Since 2003. Serves at the Secretary discretion of the Board - ------------------------------------------------------------------------- Christopher P. Harvey Assistant Since 2006. Serves at the (45) Secretary discretion of the Board - ------------------------------------------------------------------------- Vincent Nave (61) Treasurer Since 2000. Serves at the discretion of the Board - ------------------------------------------------------------------------- Mark E. Bradley (47) Assistant Since 2004. Serves at the Treasurer discretion of the Board - ------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Since 2000. Serves at the Treasurer discretion of the Board - ------------------------------------------------------------------------- Gary Sullivan (48) Assistant Since 2002. Serves at the Treasurer discretion of the Board - ------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS OFFICER Osbert M. Hood (54)+ President and Chief Executive Officer, Trustee of certain Pioneer Funds PIM-USA since May 2003 (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 - -------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary of PIM-USA; Senior Vice President - None Legal of Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - -------------------------------------------------------------------------------------------------------------------- Christopher J. Kelley (42) Vice President and Senior Counsel of Pioneer None 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 of the Pioneer Funds since September 2003 - -------------------------------------------------------------------------------------------------------------------- Christopher P. Harvey (45) Partner, Wilmer Cutler Pickering Hale and None Dorr LLP; and Assistant Secretary of all of the Pioneer Funds since July 2006. - -------------------------------------------------------------------------------------------------------------------- Vincent Nave (61) Vice President - Fund Accounting, None Administration and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - -------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (47) Deputy Treasurer of Pioneer since 2004; None Treasurer and Senior 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 - -------------------------------------------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Vice President - Fund Accounting, None Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - -------------------------------------------------------------------------------------------------------------------- Gary Sullivan (48) Fund Accounting Manager - Fund Accounting, None Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - --------------------------------------------------------------------------------------------------------------------
25 Pioneer Bond VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Katherine Kim Sullivan Assistant Since 2003. Serves at the (33) Treasurer discretion of the Board - ---------------------------------------------------------------------- Terrence J. Cullen (45) Chief Since 2006. Serves at the Compliance discretion of the Board Officer - ---------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS OFFICER Katherine Kim Sullivan Fund Administration Manager - Fund None (33) Accounting, Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - -------------------------------------------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Compliance Officer of Pioneer and None all of the Pioneer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - --------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio'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 Investment(R) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18656-01-0207 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Emerging Markets VCT Portfolio -- Class I Shares ANNUAL REPORT December 31, 2006 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 8 Notes to Financial Statements 12 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 12/31/06 - -------------------------------------------------------------------------------- [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Portfolio Diversification (As a percentage of total investment portfolio) International Common Stocks 61.7% Depositary Receipts for International Stocks 25.3% U.S. Common Stocks 6.8% Temporary Cash Investment 3.7% International Preferred~Stocks 2.5%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Geographical Distribution (As a percentage of equity holdings) Brazil 15.5% South Korea 13.7% South Africa 13.0% Russia 11.3% People's Republic of China 9.3% Taiwan 8.5% Mexico 3.5% India 3.0% Indonesia 2.8% Turkey 2.4% Hong Kong 2.0% Philippines 1.9% United States 1.8% Poland 1.7% Israel 1.5% Argentina 1.1% Sweden 1.0% Peru 1.0% Singapore 1.0% Kazakhstan 1.0% Other (individually less than 1%) 3.0%
Five Largest Holdings (As a percentage of equity holdings) 1. Petrobras Brasileiro (A.D.R.) 4.02% 2. Gazprom (A.D.R.) 1.92 3. Lukoil Holding (A.D.R.) 1.82 4. Companhia Vale do Rio Doce (A.D.R.) 1.70 5. Hyundai Heavy Industries 1.62
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $ 34.26 $ 28.09
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $ 0.1586 $ - $ 2.7694
- -------------------------------------------------------------------------------- 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]
Pioneer Emerging MSCI Emerging Markets VCT Portfolio Markets Index Oct-98 10000 10000 10490 10675 18750 17764 Dec-00 12337 12326 11450 12034 Dec-02 11312 11312 17893 17678 Dec-04 21292 22265 29374 29956 Dec-06 39879 39718
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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- Life-of-Class (10/30/98) 18.45% 5 Years 28.35% 1 Year 35.77%
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 pioneerinvestments.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, 2006 through December 31, 2006.
Share Class I - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,244.00 Expenses Paid During Period* $ 8.54
* Expenses are equal to the Portfolio's annualized expense ratio of 1.51% 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 Emerging Markets VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2006 through December 31, 2006.
Share Class I - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,017.59 Expenses Paid During Period* $ 7.68
* Expenses are equal to the Portfolio's annualized expense ratio of 1.51% 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 Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/06 - -------------------------------------------------------------------------------- In the following interview, Christopher Smart, Pioneer Emerging Market Portfolio's Portfolio Manager, discusses the factors that influenced performance during the 12 months ended December 31, 2006. Q. How did emerging markets equities perform during the reporting period? A. Emerging markets stocks continued to build on the impressive rally that has been in place since the fourth quarter of 2002. An extremely favorable environment of solid global growth, stable interest rates, a strong appetite for risk among investors, and abundant liquidity in the world financial system have provided a firm foundation for performance. Developments within the asset class itself have been equally positive. Fiscal restraint by emerging market governments has resulted in lower debt, falling interest rates, and, in many cases, budget surpluses. On the corporate level, robust profit growth and the spread of shareholder-friendly management practices continue to be important themes. These developments, in turn, have led to increased confidence and rising participation among overseas investors. Q. How did the Portfolio perform? A. For the 12 months ended December 31, 2006, the Portfolio's Class I shares generated a total return of 35.77% at net asset value. The Portfolio outpaced the 32.59% return of the Morgan Stanley Capital International (MSCI) Emerging Markets Index as well as the 32.65% average return of the 33 portfolios in its Lipper peer group, Emerging Markets Funds. Call 1-800-688-9915 or visit www.pioneerinvestments.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 during the annual period? A. We added value through effective stock selection in China, Russia and South Korea. One of the Portfolio's top-performing individual holdings was a small Chinese gold-mining company, Zijin Mining Group. We initially purchased the stock based on our confidence in its growth prospects, and its growth exceeded even our expectations due to the increase in the gold price and the company's discovery of new reserves in the northern part of China. The stock more than doubled during the year. Also aiding the Portfolio's performance in China was China Life Insurance, the country's largest life insurance provider. Russia's market also performed well, with the rising prices of oil and gas providing a boost to energy companies such as Gazprom, a Portfolio holding. There is more to the Russian growth story than energy, however: the domestic economy is performing well, and this is leading to rising consumption. Key beneficiaries of this trend were the Portfolio's holdings in the cellular communications provider Vimpelcom, whose stock gained nearly 70% for the period, and Oriflame Cosmetics, a Swedish company that gains a large portion of its revenue from independent, door-to-door sales in Russia and the former Soviet republics. South Korea's stock market was a laggard relative to the broader asset class during the past year. Still, we generated outperformance in the country via positions in the shipbuilding companies Samsung Heavy Industries and Hyundai Heavy Industries. Both companies benefited from the booming demand for new ships that can transport oil and liquid natural gas. In a time of strong performance both for the Portfolio and for the asset class as a whole, there were few notable detractors. One factor that hurt our performance relative to the benchmark was a below-benchmark weighting in the utilities sector, which performed very well. Relative performance also suffered somewhat because we did not own shares in China Mobile - the mobile phone giant that we believed would be hurt by rising competition - which gained 75% during the period. Finally, an overweight position in Turkey weighed on performance. Q. What is your broad view regarding the emerging markets? A. While there is still risk in the asset class, we believe the long-term outlook remains favorable due to the continued improvements in its fundamental underpinnings. The rapid improvements in government finances, corporate governance practices, and political stability are all keys to the emerging markets' outperformance in recent years, and we expect that these improvements will continue in the years ahead. In short, we believe the inevitable declines that periodically occur in emerging market stocks should not obscure the positive longer-term story that continues to unfold. 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 pioneerinvestments.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 - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Shares Value PREFERRED STOCKS - 2.5% Materials - 0.5% Steel - 0.5% 15,990 Cia Vale Do Rio Doce* $ 405,180 ----------- Total Materials $ 405,180 ----------- Media - 0.9% Broadcasting & Cable TV - 0.9% 53,380 Net Servicos de Comunicacao SA* $ 606,807 ----------- Total Media $ 606,807 ----------- Banks - 1.1% Diversified Banks - 1.1% 21,330 Banco Itau Holding Financeira $ 773,275 ----------- Total Banks $ 773,275 ----------- TOTAL PREFERRED STOCKS (Cost $711,330) $ 1,785,262 ----------- COMMON STOCKS - 96.6% Energy - 18.9% Integrated Oil & Gas - 13.8% 1,021,600 China Petroleum & Chemical $ 946,203 29,300 Gazprom (A.D.R.) 1,348,717 14,700 Lukoil Holding (A.D.R.)* 1,284,780 5,100 MOL Hungarian Oil & Gas Plc 574,580 30,500 Petrobras Brasileiro (A.D.R.) 2,829,180 748,400 PetroChina Co., Ltd. 1,054,293 23,600 Sasol, Ltd. (A.D.R.) 870,840 11,300 Surgutneftegaz (A.D.R.)*(a) 864,988 ----------- $ 9,773,581 ----------- Oil & Gas Equipment & Services - 2.3% 15,200 TelecomAsia Corp. Public Co., Ltd. $ 758,328 24,500 TMK (G.D.R.) (144A)* 853,335 ----------- $ 1,611,663 ----------- Oil & Gas Exploration & Production - 1.0% 766,500 CNOOC, Ltd. $ 725,442 ----------- Oil & Gas Refining & Marketing - 1.8% 36,700 Polski Koncern Naftowy Orlen SA $ 601,250 12,300 Reliance Industries, Ltd. (G.D.R.) (144A)* 707,250 ----------- $ 1,308,500 ----------- Total Energy $13,419,186 ----------- Materials - 12.1% Construction Materials - 1.4% 884,900 PT Indocement Tunggal Prakarsa Tbk $ 565,761 60,800 Siam Cement Co., Ltd. 432,972 ----------- $ 998,733 -----------
Shares Value Diversified Metals & Mining - 3.6% 10,300 Freeport-McMoRan Copper & Gold, Inc. (Class B) $ 574,019 18,700 KGHM Polska Mie SA* 572,240 4,700 Norilsk Nickel 742,229 763,000 PT Aneka Tambang Tbk 678,712 ----------- $ 2,567,200 ----------- Gold - 3.1% 19,300 Anglogold Ashanti (A.D.R.) (a) $ 908,837 65,500 IAMGOLD Corp. 577,055 1,028,300 Zijin Mining Group Co., Ltd. 716,757 ----------- $ 2,202,649 ----------- Precious Metals & Minerals - 2.3% 7,300 Anglo American Platinum Corp., Ltd. $ 889,132 25,800 Compania de Minas Buenaventura SAA 723,948 ----------- $ 1,613,080 ----------- Steel - 1.7% 45,700 Companhia Vale do Rio Doce (A.D.R.) $ 1,199,625 ----------- Total Materials $ 8,581,287 ----------- Capital Goods - 12.4% Aerospace & Defense - 0.7% 16,400 Elbit Systems, Ltd. $ 529,109 ----------- Construction & Engineering - 5.5% 135,600 Aveng, Ltd. $ 649,500 573,000 China Communications Construction Co., Ltd.* 566,499 891,279 Continental Engineering Corp.* 774,747 183,817 Empressa ICA Sociedad Controladora SA de CV* 694,195 7,200 GS Engineering & Construction Corp.* 640,540 13,240 Kyeryong Construction Industrial Co., Ltd.* 556,799 ----------- $ 3,882,280 ----------- Construction, Farm Machinery & Heavy Trucks - 4.2% 27,000 Daewoo Heavy Industries & Machinery, Ltd. $ 846,309 8,430 Hyundai Heavy Industries* 1,138,479 41,200 Samsung Heavy Industries Co., Ltd.* 990,656 ----------- $ 2,975,444 ----------- Industrial Conglomerates - 2.0% 31,000 Barloworld $ 725,214 62,500 Keppel Corp. 715,487 1 KOC Holding AS* 2 ----------- $ 1,440,703 ----------- Total Capital Goods $ 8,827,536 -----------
The accompanying notes are an integral part of these financial statements. 5 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Shares Value Transportation - 2.2% Marine - 1.1% 520,500 China Shipping Development Co., Ltd.* $ 796,703 ----------- Railroads - 1.1% 74,500 All America Latina Logistica $ 773,614 ----------- Total Transportation $ 1,570,317 ----------- Automobiles & Components - 1.1% Automobile Manufacturers - 1.1% 10,600 Hyundai Motor Co., Ltd.* $ 769,789 ----------- Total Automobiles & Components $ 769,789 ----------- Consumer Durables & Apparel - 3.0% Homebuilding - 2.0% 141,500 Corporacion GEO, SA de CV* $ 708,581 73,040 Cyrela Brazil Realty SA 697,558 ----------- $ 1,406,139 ----------- Housewares & Specialties - 1.0% 25,700 Woongjin Coway Co., Ltd.* $ 711,290 ----------- Total Consumer Durables & Apparel $ 2,117,429 ----------- Consumer Services - 1.0% Hotels, Resorts & Cruise Lines - 1.0% 194,000 Indian Hotels Co. Ltd. $ 675,958 ----------- Total Consumer Services $ 675,958 ----------- Media - 2.5% Broadcasting & Cable TV - 0.9% 102,800 Television Broadcasts, Ltd. $ 628,111 ----------- Movies & Entertainment - 1.0% 29,000 CTC Media, Inc.* $ 696,290 ----------- Publishing - 0.6% 182,616 Hurriyet Gazetecilik ve Matbaacilik AS $ 479,640 ----------- Total Media $ 1,804,041 ----------- Retailing - 4.7% Apparel Retail - 1.9% 111,000 Edgars Consolidated Stores, Ltd. $ 617,386 157,500 Truworths International, Ltd. 717,337 ----------- $ 1,334,723 ----------- Department Stores - 1.8% 5,800 Hyundai Department Store Co., Ltd.* $ 521,400 50,000 Lojas Renner SA* 718,970 ----------- $ 1,240,370 ----------- Homefurnishing Retail - 1.0% 67,000 Ellerine Holdings, Ltd. $ 739,686 ----------- Total Retailing $ 3,314,779 -----------
Shares Value Food & Drug Retailing - 1.5% Food Retail - 0.7% 210,000 President Chain Store Corp. $ 507,181 ----------- Hypermarkets & Supercenters - 0.8% 58,700 Massmart Holdings, Ltd. $ 583,432 ----------- Total Food & Drug Retailing $ 1,090,613 ----------- Food, Beverage & Tobacco - 2.3% Packaged Foods & Meats - 0.8% 4,580 CJ Corp.* $ 549,864 ----------- Soft Drinks - 1.5% 9,100 Fomento Economico Mexicano SA de CV $ 1,053,416 ----------- Total Food, Beverage & Tobacco $ 1,603,280 ----------- Household & Personal Products - 1.9% Personal Products - 1.9% 44,650 Natura Cosmeticos SA $ 630,537 17,700 Oriflame Cosmetics SA 728,926 ----------- $ 1,359,463 ----------- Total Household & Personal Products $ 1,359,463 ----------- Banks - 13.2% Diversified Banks - 13.2% 20,332 Banco Bradesco SA (a) $ 820,396 25,200 Banco do Brasil SA 755,410 118,100 Bank Hapoalim, Ltd. 552,975 264,000 Bumiputra-Commerce Holdings Bhd* 578,629 1,361,900 China Construction Bank* 867,492 12,510 Hana Financial Holdings* 656,089 1,404,000 Industrial & Commercial Bank of China* 869,370 30,600 Kazkommertsbank (144A)* 706,860 12,700 Kookmin Bank (A.D.R.)* 1,024,128 13,100 Shinhan Financial Group Co., Ltd.* 671,273 40,549 Standard Bank Group, Ltd. 546,854 143,295 Turkiye Is Bankasi (Isbank) 652,403 7,562 Uniao de Bancos Brasileiros SA (Unibanco) (G.D.R.) (144A) (a) 702,964 ----------- $ 9,404,843 ----------- Total Banks $ 9,404,843 ----------- Diversified Financials - 1.8% Diversified Financial Services - 1.8% 213,406 FirstRand, Ltd. $ 674,441 629,000 Fubon Group 587,622 ----------- $ 1,262,063 ----------- Total Diversified Financials $ 1,262,063 -----------
6 The accompanying notes are an integral part of these financial statements. Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - --------------------------------------------------------------------------------
Shares Value Insurance - 3.2% Life & Health Insurance - 1.6% 27,396 Cathay Financial Holding Co., Ltd., (144A) (G.D.R.)* $ 621,889 202,690 Sanlam, Ltd. 532,146 ----------- $ 1,154,035 ----------- Property & Casualty Insurance - 1.6% 141,734 Aksigorta AS $ 532,756 3,200 Samsung Fire & Marine Insurance* 553,648 ----------- $ 1,086,404 ----------- Total Insurance $ 2,240,439 ----------- Real Estate - 2.1% Real Estate Management & Development - 2.1% 2,225,600 Ayala Land, Inc. $ 692,638 57,000 Sistema Hals (G.D.R.) (144A)* 769,500 ----------- $ 1,462,138 ----------- Total Real Estate $ 1,462,138 ----------- Technology Hardware & Equipment - 2.3% Computer Hardware - 1.0% 393,133 Quanta Computer, Inc. $ 709,699 ----------- Electronic Manufacturing Services - 1.3% 131,229 Hon Hai Precision Industry $ 937,129 ----------- Total Technology Hardware & Equipment $ 1,646,828 ----------- Semiconductors - 1.7% 229,382 Taiwan Semiconductor Manufacturing Co. $ 475,680 67,400 Taiwan Semiconductor Manufacturing Co. (A.D.R.) 736,682 ----------- $ 1,212,362 ----------- Total Semiconductors $ 1,212,362 ----------- Telecommunication Services - 7.7% Integrated Telecommunication Services - 1.0% 618,700 PT Telekomunikasi Indonesia $ 694,821 ----------- Wireless Telecommunication Services - 6.7% 13,100 Mobile Telesystems (A.D.R.) $ 657,489 58,400 MTN Group, Ltd. 704,801 12,800 Philippine Long Distance Telephone Co. 661,232 68,300 Reliance Communications, Ltd.* 727,890 22,400 Sistema JSFC (144A) (G.D.R.)* 716,603 596,000 Taiwan Mobile Co., Ltd. 618,389 9,200 Vimpel-Communications (A.D.R.)* 726,340 ----------- $ 4,812,744 ----------- Total Telecommunication Services $ 5,507,565 -----------
Shares Value Utilities - 1.0% Gas Utilities - 1.0% 1,188,100 Panva Gas Holdings, Ltd.* $ 746,951 ----------- Total Utilities $ 746,951 ----------- TOTAL COMMON STOCKS (Cost $42,873,355) $68,616,867 ----------- TEMPORARY CASH INVESTMENT - 3.8% Security Lending Collateral - 3.8% 2,736,343 Securities Lending Investment Fund, 5.26% $ 2,736,343 ----------- TOTAL TEMPORARY CASH INVESTMENT (Cost $2,736,343) $ 2,736,343 ----------- TOTAL INVESTMENT IN SECURITIES - 102.9% (Cost $46,321,028)(b) $73,138,472 ----------- OTHER ASSETS AND LIABILITIES - (2.9)% $(2,089,658) ----------- TOTAL NET ASSETS - 100.0% $71,048,814 ===========
* 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, 2006, the value of these securities amounted to $5,078,401 or 7.1% of total net assets. (a) At December 31, 2006, the following securities were out on loan:
Shares Security Value 10,029 Anglogold Ashanti (A.D.R.) $ 472,266 17,929 Banco Bradesco SA 723,435 10,363 Surgutneftegaz (A.D.R.)* 793,263 7,387 Uniao de Bancos Brasileiros SA (Unibanco) (G.D.R.) (144A) 686,696 ---------- Total $2,675,660 ==========
(b) Distributions of investments by country of issue, as a percentage of total equity holdings (excluding temporary cash investments) is as follows: Brazil 15.5% South Korea 13.7 South Africa 13.0 Russia 11.3 People's Republic of China 9.3 Taiwan 8.5 Mexico 3.5 India 3.0 Indonesia 2.8 Turkey 2.4 Hong Kong 2.0 Philippines 1.9 United States 1.8 Poland 1.7 Israel 1.5 Argentina 1.1 Sweden 1.0 Peru 1.0 Singapore 1.0 Kazakhstan 1.0 Other (individually less than 1%) 3.0 ----- 100.0% ======
The accompanying notes are an integral part of these financial statements. 7 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Year Ended Ended Class I 12/31/06 12/31/05 Net asset value, beginning of period $ 28.09 $ 20.48 -------- ------- Increase (decrease) from investment operations: Net investment income $ 0.27 $ 0.22 Net realized and unrealized gain (loss) on investments and foreign currency transactions 8.83 7.51 -------- ------- Net increase (decrease) from investment operations $ 9.10 $ 7.73 Distributions to shareowners: Net investment income (0.16) (0.12) Net realized gain (2.77) -- -------- ------- Total Distributions $ (2.93) $ (0.12) -------- -------- Redemption Fee $ 0.00(a) $ -- -------- -------- Net increase (decrease) in net asset value $ 6.17 $ 7.61 --------- -------- Net asset value, end of period $ 34.26 $ 28.09 ========= ======== Total return* 35.77% 37.95% Ratio of net expenses to average net assets+ 1.51% 1.75% Ratio of net investment income to average net assets+ 0.84% 0.94% Portfolio turnover rate 49% 74% Net assets, end of period (in thousands) $ 12,919 $11,205 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.51% 1.77% Net investment income (loss) 0.84% 0.92% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 1.51% 1.75% Net investment income 0.84% 0.94% Year Year Year Ended Ended Ended Class I 12/31/04 12/31/03 12/31/02 Net asset value, beginning of period $17.37 $11.03 $11.23 ------ ------ ------ Increase (decrease) from investment operations: Net investment income $ 0.22 $ 0.20 $ 0.06 Net realized and unrealized gain (loss) on investments and foreign currency transactions 3.04 6.20 (0.19) ------ ------ ------ Net increase (decrease) from investment operations $ 3.26 $ 6.40 $(0.13) Distributions to shareowners: Net investment income (0.15) (0.06) (0.07) Net realized gain -- -- -- ------ ------ ------ Total Distributions $(0.15) $(0.06) $(0.07) ------ ------ ------ Redemption Fee $ -- $ -- $ -- ------ ------ ------ Net increase (decrease) in net asset value $ 3.11 $ 6.34 $(0.20) ------ ------ ------ Net asset value, end of period $20.48 $17.37 $11.03 ====== ====== ====== Total return* 18.93% 58.17% (1.20)% Ratio of net expenses to average net assets+ 1.75% 1.75% 1.75% Ratio of net investment income to average net assets+ 1.12% 1.43% 0.63% Portfolio turnover rate 66% 79% 124% Net assets, end of period (in thousands) $8,633 $8,399 $5,886 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.87% 2.51% 2.88% Net investment income (loss) 1.00% 0.67% (0.50)% 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% Net investment income 1.12% 1.43% 0.63%
(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. 8 The accompanying notes are an integral part of these financial statements. Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $2,675,660) (cost $46,321,028) $ 73,138,472 Cash 650,126 Foreign currencies, at value (cost $906,855) 909,758 Receivables -- Investment securities sold 23,610 Fund shares sold 221,470 Dividends, interest and foreign taxes withheld 145,876 Forward foreign currency settlement contracts, net 539 Other 4,354 ------------ Total assets $ 75,094,205 ------------ LIABILITIES: Payables -- Investment securities purchased $ 803,312 Fund shares repurchased 355,705 Upon return of securities loaned 2,736,343 Reserve for repatriation taxes 46,722 Due to affiliates 12,803 Accrued expenses 90,506 ------------ Total liabilities $ 4,045,391 ------------ NET ASSETS: Paid-in capital $ 34,957,559 Undistributed net investment income 329,117 Accumulated net realized gain on investments 8,990,296 Net unrealized gain on: Investments 26,770,722 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 1,120 ------------ Total net assets $ 71,048,814 ------------ NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 12,918,923 Shares outstanding 377,031 ------------ Net asset value per share $ 34.26 Class II: (No par value, unlimited number of shares authorized) Net assets $ 58,129,891 Shares outstanding 1,713,737 ------------ Net asset value per share $ 33.92
The accompanying notes are an integral part of these financial statements. 9 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $148,416) $ 1,378,567 Interest 24,886 Income on securities loaned, net 9,290 ----------- Total investment income $ 1,412,743 ----------- EXPENSES: Management fees $ 700,827 Transfer agent fees and expenses 3,516 Distribution fees (Class II) 122,261 Administrative reimbursements 13,771 Custodian fees 106,430 Professional fees 39,707 Printing expense 18,546 Fees and expenses of nonaffiliated trustees 7,459 Miscellaneous 22,536 ----------- Total expenses $ 1,035,053 ----------- Net expenses $ 1,035,053 ----------- Net investment income $ 377,690 ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments (net of foreign capital gain taxes of $74,291) $ 9,235,764 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (18,438) ----------- $ 9,217,326 ----------- Change in net unrealized gain or loss from: Investments (including change in reserve for repatriation taxes of $(5,637)) $ 8,718,700 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (2,349) ----------- $ 8,716,351 ----------- Net gain on investments and foreign currency transactions $17,933,677 =========== Net increase in net assets resulting from operations $18,311,367 ===========
10 The accompanying notes are an integral part of these financial statements. Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 377,690 $ 332,259 Net realized gain on investments 9,217,326 7,305,703 Change in net unrealized gain or loss on investments and foreign currency transactions 8,716,351 7,390,352 ------------- ------------- Net increase in net assets resulting from operations $ 18,311,367 $ 15,028,314 ------------- ------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income: Class I $ (59,203) $ (50,778) Class II (161,771) (161,235) Net realized gain Class I (1,033,768) -- Class II (4,159,777) -- ------------- ------------- Total distributions to shareowners $ (5,414,519) $ (212,013) ------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 19,444,665 $ 13,210,315 Reinvestment of distributions 5,414,519 210,764 Cost of shares repurchased (21,947,368) (11,986,023) Redemption fees 8,588 -- ------------- ------------- Net increase in net assets resulting from Fund share transactions $ 2,920,404 $ 1,435,056 ------------- ------------- Net increase in net assets $ 15,817,252 $ 16,251,357 ------------- ------------- NET ASSETS: Beginning of year $ 55,231,562 $ 38,980,205 ------------- ------------- End of year $ 71,048,814 $ 55,231,562 ------------- ------------- Undistributed net investment income, end of year $ 329,117 $ 24,792 ------------- -------------
The accompanying notes are an integral part of these financial statements. 11 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 II shares are presented in a separate book. The investment objective of the Portfolio is to seek long-term capital growth. 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(es). Please refer to those documents when considering the Portfolio's risks. 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 year. 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 12 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 Trust 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. 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. No other securities were fair valued at December 31, 2006. 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, if any, 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. (See Note 8) 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, 2006, 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. As of December 31, 2006, the Portfolio had $46,722 in reserves related to taxes on the repatriation of foreign capital gains. 13 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, 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 - -------------------------------------------------------------------------------------------- Emerging Markets Portfolio $147,609 $(147,609) $--
- -------------------------------------------------------------------------------- The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis. - --------------------------------------------------------------------------------
2006 2005 - -------------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 220,974 $212,013 Long-Term capital gain 5,193,545 -- --------------------------- $ 5,414,519 $212,013 Return of Capital -- -- --------------------------- Total distributions $ 5,414,519 $212,013 =========================== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 761,702 Undistributed long-term gain/(capital loss carryforward) 8,615,087 Unrealized appreciation (depreciation) 26,714,466 ----------- Total $36,091,255 ===========
- -------------------------------------------------------------------------------- For the fiscal year ending December 31, 2006, Emerging Markets Portfolio has elected to pass through foreign tax credits of $217,527. 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 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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. 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 14 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- allocated daily to each class of the shares based on the respective percentage of adjusted net assets at the beginning of the day. Dividends and distributions to shareowners are recorded on the ex-dividend date. Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time, and in the same amount, except that Class I and Class II shares can bear different transfer agent and distribution fees. 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. 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, 2006, $6,893 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 $4,713 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $1,197 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $46,377,865 $26,875,160 $ (114,553) $26,760,607 - --------------------------------------------------------------------------------------------
15 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, were $29,439,740 and $31,784,098, respectively. 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005: - --------------------------------------------------------------------------------
Emerging Markets Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - -------------------------------------------------------------------------------------------- CLASS I: Shares sold 82,866 $ 2,610,759 57,112 $ 1,329,128 Reinvestment of distributions 42,233 1,092,971 2,300 49,529 Redemption fees -- 1,720 -- -- Shares repurchased (147,008) (4,440,124) (82,002) (1,885,112) ----------------------------------------------------------- Net decrease (21,909) $ (734,674) (22,590) $ (506,455) =========================================================== CLASS II: Shares sold 546,340 $ 16,833,906 530,098 $ 11,881,187 Reinvestment of distributions 168,481 4,321,548 7,549 161,235 Redemption fees -- 6,868 -- -- Shares repurchased (582,381) (17,507,244) (449,363) (10,100,911) ----------------------------------------------------------- Net increase 132,440 $ 3,655,078 88,284 $ 1,941,511 ===========================================================
8. Forward Foreign Currency Contracts During the year ended December 31, 2006, the Portfolio had entered into various contracts that obligate the Portfolio to deliver currencies at specified future dates. At the maturity of a contract, the Portfolio must make delivery of the foreign currency. Alternatively, prior to the settlement date of a portfolio hedge, the Portfolio may close out such contracts by entering into an offsetting hedge contract. Outstanding forward currency settlement contracts as of December 31, 2006 were as follows: - --------------------------------------------------------------------------------
Settlement Net Portfolio Gross Receivable Date Gross Payable Receivable/(Payable) - ------------------------------------------------------------------------------------------------------------- Emerging Markets Portfolio (HUF) $67,575 1/3/07 $(67,511) $ 64 Emerging Markets Portfolio (ZAR) $52,502 1/3/07 $(52,027) $475
- -------------------------------------------------------------------------------- 9. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 16 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 Shareowners of Pioneer Emerging Markets VCT Portfolio: We have audited the accompanying statement of assets and liabilities of Pioneer Emerging Markets VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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, 2006, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from the 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 Emerging Markets VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2006, 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 9, 2007 17 Pioneer Emerging Markets 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than 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. 18 PIONEER VARIABLE CONTRACTS TRUST Pioneer Emerging Markets VCT Portfolio - -------------------------------------------------------------------------------- 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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group and an index considered appropriate by the Independent Trustees for this purpose. The Fund's performance, based upon total return, was in the first quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, the second quintile of the peer group for the three years ended June 30, 2006 and the second quintile for the five years ended June 30, 2006. (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, focusing on three-year total returns, concluded that the performance of the Fund was good. 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 size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee for the 12 months ended June 30, 2006 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 also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 to be in the fifth quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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, a break point in management fee was not necessary. The Trustees will continue to evaluate annually the appropriateness of break points. 19 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 20 Pioneer Emerging Markets 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 portfolio's affairs. The officers of the trust are responsible for the trust's operations. The trust's Custodian Trustees and officers are listed below, together with their principal occupations during Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the trust within the meaning of the 1940 Act are referred to as Interested Trustees. Trustees who are not interested Independent Registered Public persons of the trust are referred to as Independent Trustees. Each of the Trustees Accounting Firm serves as a trustee of each of the 86 U.S. registered investment portfolios for which Ernst & Yound LLP Pioneer serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the trust is 60 State Street, Boston, Massachusetts 02109. Principal Underwriter Pioneer Funds Distributor, Inc. Legal Counsel Wilmer Cutler Pickering Hale and Dorr LLP Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES - ------------------------------------------------------------------------------------------------------------------------------------ POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Deputy Chairman and a Director of Director of ICI Mutual Board, Trustee until a successor trustee Pioneer Global Asset Management Insurance Company and President is elected or earlier S.p.A. ("PGAM"); Non-Executive retirement or removal. Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - -------------------------------------------------------------------------------- 21 Pioneer Emerging Markets VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS HELD BY THIS TRUSTEE David R. Bock (63) Trustee Trustee since 2005. Serves Senior Vice President and Director of The 3050 K. Street NW, until a successor trustee Chief Financial Officer, Enterprise Social Washington, DC 20007 is elected or earlier I-trax, Inc. (publicly traded Investment Company retirement or removal. health care services company) (privately-held (2001 - present); Managing affordable housing Partner, Federal City Capital finance company); Advisors (boutique merchant and Director of New bank) (2002 to 2004); and York Mortgage Trust Executive Vice President and (publicly traded Chief Financial Officer, mortgage REIT) Pedestal Inc. (internet- based mortgage trading company) (2000 - 2002) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Trustee Trustee since 2000. Serves President, Bush International Director of Brady 3509 Woodbine Street, until a successor trustee (international financial Corporation Chevy Chase, MD 20815 is elected or earlier advisory firm) (industrial retirement or removal. identification and specialty coated material products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves Founding Director, The None 1001 Sherbrooke Street West, until a successor trustee Winthrop Group, Inc. Montreal, Quebec, Canada is elected or earlier (consulting firm); and H3A 1G5 retirement or removal. Desautels Faculty of Management, McGill University - ------------------------------------------------------------------------------------------------------------------------------------ Private investor (2004 - Director of Thomas J. Perna (56) Trustee Trustee since 2006. Serves present); and Senior Executive Quadriserv Inc. 89 Robbins Avenue, until a successor trustee Vice President, The Bank of (technology Berkeley Heights, NJ is elected or earlier New York (financial and products for 07922 retirement or removal. securities services) (1986 - securities 2004) lending industry) - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Trustee Trustee since 1995. Serves President and Chief Executive Director of New 200 State Street, 12th until a successor trustee Officer, Newbury, Piret & America High Floor, Boston, MA 02109 is elected or earlier Company, Inc. (investment Income Fund, retirement or removal. banking firm) Inc.(closed-end investment company) - ----------------------------------------------------------------------------------------------------------------------------------- John Winthrop (70) Trustee Trustee since 2000. Serves President, John Winthrop & None One North Adgers Wharf, until a successor trustee Co., Inc. (private investment Charleston, SC 29401 is elected or earlier firm) retirement or removal. - -----------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Emerging Markets VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS HELD BY THIS OFFICER Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President and Chief Executive Trustee of certain President discretion of the Board Officer, PIM-USA since May Pioneer Funds 2003 (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the Secretary of PIM-USA; Senior None discretion of the Board Vice President - Legal of Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Assistant Since 2003. Serves at the Vice President and Senior None Secretary discretion of the Board Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001); and Assistant Secretary of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey Assistant Since 2006. Serves at the Partner, Wilmer Cutler None (45) Secretary discretion of the Board Pickering Hale and Dorr LLP; and Assistant Secretary of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Treasurer Since 2000. Serves at the Vice President - Fund None discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Assistant Since 2004. Serves at the Deputy Treasurer of None Treasurer discretion of the Board Pioneer since 2004; Treasurer and Senior 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 - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Since 2000. Serves at the Assistant Vice President None Treasurer discretion of the Board - Fund Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Assistant Since 2002. Serves at the Fund Accounting None Treasurer discretion of the Board Manager - Fund Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------------------------------
23 Pioneer Emerging Markets VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS HELD BY THIS OFFICER Katherine Kim Sullivan Assistant Since 2003. Serves at the Fund Administration None (33) Treasurer discretion of the Board Manager - Fund Accounting, Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Since 2006. Serves at the Chief Compliance None Compliance discretion of the Board Officer of Pioneer Officer and all of the Pioneer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 24 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 25 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 26 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 27 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 28 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 29 Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18658-01-0207 [Logo]PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Income VCT Portfolio -- Class I Shares ANNUAL REPORT December 31, 2006 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 Equity Income VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/06 - -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [The following was represented by a pie chart in the printed material] U.S. Common Stocks 93.8% Temporary Cash Investment 5.7% Convertible Preferred Stocks 0.5%
Sector Distribution (As a percentage of equity holdings) [The following was represented by a pie chart in the printed material] Financials 22.8% Utilities 14.8% Telecommunication Services 10.4% Consumer Staples 9.7% Industrials 9.6% Consumer Discretionary 9.6% Materials 8.0% Health Care 6.3% Energy 6.3% Information Technology 2.5%
Five Largest Holdings (As a percentage of equity holdings) 1. PACCAR, Inc. 3.29% 2. Chevron Corp. 3.05 3. BellSouth Corp. 2.61 4. Washington Mutual, Inc. 2.50 5. Merck & Co., Inc. 2.50
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $ 24.93 $ 21.25
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $ 0.6014 $ - $ 0.3749
- -------------------------------------------------------------------------------- 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 was represented by a mountain chart in the printed material]
Pioneer Russell 1000 Equity Value Income Index 12/96 10000 10000 13523 13518 12/98 16471 15631 16671 16780 12/00 19146 17957 17812 16953 12/02 14994 14321 18384 18622 12/04 21396 21694 2619 23224 12/06 27696 28390
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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- 10 Years 10.72% 5 Years 9.23% 1 Year 22.45%
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.pioneerinvestments.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 Equity Income 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 Equity Income VCT Portfolio Based on actual returns from July 1, 2006 through December 31, 2006.
Share Class I - -------------------------------------------------------------------------------- Beginning Account Value On 7/1/06 $ 1,000.00 Ending Account Value On 12/31/06 $ 1,127.32 Expenses Paid During Period* $ 3.70
* Expenses are equal to the Portfolio's annualized expense ratio of 0.69% 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 Equity Income VCT Portfolio Based on a hypothetical 5% per year return before expenses, reflecting the period from July 1, 2006 through December 31, 2006.
Share Class I - -------------------------------------------------------------------------------- Beginning Account Value On 7/1/06 $ 1,000.00 Ending Account Value On 12/31/06 $ 1,021.73 Expenses Paid During Period* $ 3.52
* Expenses are equal to the Portfolio's annualized expense ratio of 0.69% 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 VARIABLE CONTRACTS TRUST Pioneer Equity Income VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/06 - -------------------------------------------------------------------------------- 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, 2006. Q. Please describe the performance of the Portfolio in 2006. A. It was generally a successful year for Pioneer Equity Income VCT Portfolio. The total return for Class I shares of the Portfolio was 22.45% at net asset value, which compared favorably with the 22.25% total return for the Russell 1000 Value Index, an unmanaged index of the broad, value-oriented portion of the market, and the 18.19% average total return for the 61 portfolios in the Lipper Equity Income variable annuity category. Throughout the year, the Portfolio derived its above-average performance from both sector allocations and stock selection. As always, the dividends paid by Portfolio shareholdings provided a meaningful part of the total return. Looking back on stock-market fluctuations during the year, we note that the Russell 1000 Value Index advanced through the first week of May 2006, then suffered more than two months of ragged, generally declining results, and finally, from the middle of July through year end, more or less, resumed its upward path. Indeed the second half of the year witnessed a rather impressive rally in share prices. The spark igniting the rally seemed to be the indications from the Federal Reserve that it would not raise interest rates any more, at least for the time being. Oil prices also fell, and gasoline prices likewise. Despite a softening housing market, consumers were buoyed by historically low unemployment and rising wages. Corporate earnings stayed very strong, and merger-and-acquisition activity put a "floor" under the prices of numerous stocks. Q. Can you discuss areas in the Portfolio of outperformance and underperformance versus the index? A. Our strongest performance contributions versus the Russell 1000 Value Index came from our stock selections in industrials, energy, health care, and telecommunications services, as well as from our overweight in the last sector. Among our holdings in industrials, Gorman-Rupp, a pump maker, and PACCAR, builder of heavy-duty, Class 8 trucks, did especially well. In energy we benefited from our emphasis on the large, integrated international oil and gas producers and avoidance of the more volatile oil-services stocks. Merck was a terrific stock for us in health care, as the company recovered from the shock of Vioxx litigation. BellSouth was a stand-out in telecomm services after receiving a takeover bid from AT&T. The portfolio also benefited from not owning any shares of three market laggards, American International Group, Sprint Nextel, and General Electric. On the negative side, our underweight in Exxon Mobil hurt, though the shares of that behemoth that we did own certainly did very well for us. Timken, a manufacturer of bearings, traded down on concerns about a slowing economy. Cedar Fair, operator of amusement parks, acquired an additional group of parks from Paramount. Though we think that the longer-term story for the company is enhanced by the acquisition, investors focused on the likely short-term dilution of earnings. Q. What changes did you make to the Portfolio over the course of the year? A. We were fairly busy during the year, adding some 19 positions and eliminating 21. Additions included Alcoa and E. I. du Pont de Nemours, a couple of the old "smokestack America" companies that we think are still reasonably priced and have restructuring potential for improved earnings down the road. Du Pont, probably best known for its synthetic fibers, is a global company with customers across many different industries. Alcoa is a major international producer of aluminum, with important assets in all aspects of aluminum making. Another basic-industry stalwart, Weyerhaeuser is one of the largest forest-products companies. CBS and New York Times are a couple of the beaten-down media names that investors have avoided in this age of the internet but that we think hold value. We expanded a bit further into real estate investment trusts by buying General Growth Properties and Liberty Property Trust. Our utility 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.pioneerinvestments.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 Equity Income VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- holdings grew to include AGL Resources and Duke Energy; and we also added the telecommunications services stocks Embarq and Windstream. In insurance we initiated positions in Hartford Financial and Lincoln National, which acquired our Jefferson Pilot; and bought Regions Financial, a Birmingham, Alabama-based bank. Microchip Technology gave us an opportunity to invest in the growing microcontroller industry. J. M. Smucker is well known for its jams and jellies, but is also a burgeoning producer of health foods, including natural beverages and peanut butter. Also new to the portfolio were Mine Safety Appliances, supplier of respiratory and other safety gear to miners and other industrial workers; Masco, maker of plumbing and other home-improvement and building products; and Idearc, yellow-pages publisher, spun out from our holding Verizon. Stocks besides Jefferson Pilot that we sold as a result of merger offers included Keyspan, Roanoke Electric Steel, and Albertson's. We took significant long-term gains on our sale of T. Rowe Price, which we thought reflected a full valuation. At the other end of the spectrum, we liquidated our shares of Ford common stock after the company indicated issues with its continuing to pay dividends. Our other sales were also a result of our investment analysis and our decision that we had either reached a full valuation on the shares or could more productively invest the money elsewhere. Q. Can you share with us your outlook for 2007? A. We think that the year ahead will be characterized by some of the same cross-currents as we experienced in 2006. One of the debates currently is with respect to the Federal Reserve and when or whether it might reduce interest rates. The Fed has signaled its concern over inflation. At the same time, a slower economy could be helped by lower rates. We do not expect any imminent action by the Fed and do not discount the possibility that the economy will stay strong enough that the Fed does not feel the need to act, at least over the next several months. Another debate has to do with the implications for business of the new Congress in Washington, D. C., where the Democrats now control both the House of Representatives and, if very narrowly, the Senate. We shall be attentive to possible changes in tax and other policy that might alter the environment in which companies do business. Of course neither party is consistently positive or negative for companies across the board, or even in individual industries, but instead each party has its own constituencies and its own agendas. The final and most important piece of the puzzle that is figuring out what 2007 holds in store for us is the rate of corporate earnings growth. Will the pace of earnings slow over the next few quarters, and if so, how will stocks react? An unusual feature about the bull market of the past four years has been the decline in price-to-earnings multiples as earnings have grown faster than share prices have risen. With that in mind, one could argue that the downside risk for the market is lower than it often is at this stage of a bull market, when multiples are usually comparatively high. We cannot, though, predict where the market will go, and would note that low multiples are no guarantee that prices cannot fall. So we intend to keep with our defensive posture, emphasizing companies we think have the potential to do reasonably well even in a softer economy. As always, we shall devote considerable energy to our research process and learn as much as we can about companies before investing in their stocks. Thank you as ever 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 VARIABLE CONTRACTS TRUST Pioneer Equity Income VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Shares Value CONVERTIBLE PREFERRED STOCKS - 0.5% Automobiles & Components - 0.4% Automobile Manufacturers - 0.4% 61,200 Ford Cap Trust, 6.5%, 1/15/32 $ 2,095,488 ------------ Total Automobiles & Components $ 2,095,488 ------------ Pharmaceuticals & Biotechnology - 0.1% Pharmaceuticals - 0.0% 4,255 Schering-Plough Corp., 6.0%, 9/14/07 $ 242,003 ------------ Total Pharmaceuticals & Biotechnology $ 242,003 ------------ TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $2,343,979) $ 2,337,491 ------------ COMMON STOCKS - 97.0% Energy - 6.2% Integrated Oil & Gas - 6.2% 188,649 Chevron Corp. $ 13,871,361 115,922 ConocoPhillips 8,340,588 84,898 Exxon Mobil Corp. 6,505,734 ------------ $ 28,717,683 ------------ Total Energy $ 28,717,683 ------------ Materials - 7.8% Aluminum - 2.0% 312,100 Alcoa, Inc. $ 9,366,121 ------------ Diversified Chemical - 2.2% 209,600 Dow Chemical Co. $ 8,371,424 38,100 E.I. du Pont de Nemours and Co. 1,855,851 ------------ $ 10,227,275 ------------ Diversified Metals & Mining - 0.6% 87,556 Compass Minerals International, Inc. $ 2,763,267 ------------ Forest Products - 1.0% 68,900 Weyerhaeuser Co. $ 4,867,785 ------------ Industrial Gases - 1.1% 71,152 Air Products & Chemicals, Inc. $ 5,000,563 ------------ Specialty Chemicals - 0.9% 146,365 Valspar Corp. $ 4,045,529 ------------ Total Materials $ 36,270,540 ------------ Capital Goods - 8.7% Aerospace & Defense - 1.4% 103,955 United Technologies Corp. $ 6,499,267 ------------ Building Products - 0.5% 78,500 Masco Corp. $ 2,344,795 ------------ Construction & Farm Machinery & Heavy Trucks - 4.0% 38,489 Deere & Co. $ 3,659,149 230,464 PACCAR, Inc. 14,957,114 ------------ $ 18,616,263 ------------
Shares Value Electrical Component & Equipment - 1.7% 183,002 Emerson Electric Co. $ 8,068,558 ------------ Industrial Machinery - 1.1% 37,938 Gorman-Rupp Co. $ 1,402,549 117,902 The Timken Co. 3,440,380 ------------ $ 4,842,929 ------------ Total Capital Goods $ 40,371,812 ------------ Commercial Services & Supplies - 0.7% Office Services & Supplies - 0.7% 94,300 Mine Safety Appliances Co. (a) $ 3,456,095 ------------ Total Commercial Services & Supplies $ 3,456,095 ------------ Automobiles & Components - 1.7% Auto Parts & Equipment - 1.7% 93,560 Johnson Controls, Inc. $ 8,038,675 ------------ Total Automobiles & Components $ 8,038,675 ------------ Consumer Services - 2.0% Leisure Facilities - 1.4% 245,127 Cedar Fair, L.P. $ 6,819,433 ------------ Specialized Consumer Services - 0.6% 201,241 Servicemaster Co. $ 2,638,270 ------------ Total Consumer Services $ 9,457,703 ------------ Media - 3.6% Broadcasting & Cable TV - 0.9% 131,500 CBS Corp. (Class B) $ 4,100,170 ------------ Publishing - 2.7% 12,740 Idearc, Inc.* $ 365,001 113,625 McGraw-Hill Co., Inc. 7,728,773 182,900 New York Times Co. (a) 4,455,444 ------------ $ 12,549,218 ------------ Total Media $ 16,649,388 ------------ Retailing - 1.6% Department Stores - 0.5% 55,242 Federated Department Stores, Inc. $ 2,106,377 ------------ Distributors - 1.1% 111,730 Genuine Parts Co. $ 5,299,354 ------------ Total Retailing $ 7,405,731 ------------ Food, Beverage & Tobacco - 6.8% Packaged Foods & Meats - 6.3% 188,614 Campbell Soup Co. $ 7,335,198 106,131 General Mills, Inc. 6,113,146 187,543 H.J. Heinz Co., Inc. 8,441,310 66,100 Kellogg Co. 3,308,966 81,300 The J.M. Smucker Co. 3,940,611 ------------ $ 29,139,231 ------------
6 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Income VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value Soft Drinks - 0.5% 38,972 PepsiCo, Inc. $ 2,437,699 ------------ Total Food, Beverage & Tobacco $ 31,576,930 ------------ Household & Personal Products - 2.6% Household Products - 2.6% 70,315 Clorox Co. $ 4,510,707 119,394 Colgate-Palmolive Co. 7,789,265 ------------ $ 12,299,972 ------------ Total Household & Personal Products $ 12,299,972 ------------ Pharmaceuticals & Biotechnology - 6.1% Pharmaceuticals - 6.1% 111,066 Abbott Laboratories $ 5,410,025 96,039 Eli Lilly & Co. 5,003,632 260,932 Merck & Co., Inc. 11,376,635 262,100 Pfizer, Inc. 6,788,390 ------------ $ 28,578,682 ------------ Total Pharmaceuticals & Biotechnology $ 28,578,682 ------------ Banks - 11.7% Diversified Banks - 3.6% 153,101 U.S. Bancorp $ 5,540,725 103,024 Wachovia Corp. 5,867,217 149,874 Wells Fargo & Co. 5,329,519 ------------ $ 16,737,461 ------------ Regional Banks - 5.7% 88,467 First Horizon National Corp. $ 3,696,151 123,911 National City Corp. 4,530,186 87,200 Regions Financial Corp. 3,261,280 102,478 SunTrust Banks, Inc. 8,654,267 191,305 Whitney Holding Corp. 6,240,369 ------------ $ 26,382,253 ------------ Thrifts & Mortgage Finance - 2.4% 250,458 Washington Mutual, Inc. $ 11,393,334 ------------ Total Banks $ 54,513,048 ------------ Diversified Financials - 2.7% Asset Management & Custody Banks - 1.5% 152,899 Eaton Vance Corp. $ 5,047,196 34,424 State Street Corp. 2,321,555 ------------ $ 7,368,751 ------------ Investment Banking & Brokerage - 0.7% 55,113 A.G. Edwards, Inc. $ 3,488,102 ------------ Diversified Financial Services - 0.4% 35,852 Bank of America Corp. $ 1,914,138 ------------ Total Diversified Financials $ 12,770,991 ------------ Insurance - 4.6% Life & Health Insurance - 1.3% 91,791 Lincoln National Corp. $ 6,094,922 ------------
Shares Value Multi-Line Insurance - 0.4% 20,900 Hartford Financial Services Group, Inc. $ 1,950,179 ------------ Property & Casualty Insurance - 2.9% 142,492 Chubb Corp. $ 7,539,252 92,994 Safeco Corp. 5,816,775 ------------ $ 13,356,027 ------------ Total Insurance $ 21,401,128 ------------ Real Estate - 3.2% Diversified Real Estate Investment Trusts - 0.8% 73,500 Liberty Property Trust (a) $ 3,611,790 ------------ Residential Real Estate Investment Trusts - 0.7% 56,454 Archstone-Smith Trust $ 3,286,187 ------------ Retail Real Estate Investment Trusts - 1.7% 61,100 General Growth Pro TLB SC $ 3,191,253 109,500 Kimco Realty Corp. 4,922,025 ------------ $ 8,113,278 ------------ Total Real Estate $ 15,011,255 ------------ Software & Services - 0.9% Data Processing & Outsourced Services - 0.9% 89,997 Automatic Data Processing, Inc. $ 4,432,352 ------------ Total Software & Services $ 4,432,352 ------------ Semiconductors - 1.4% 205,400 Microchip Technology $ 6,716,580 ------------ Total Semiconductors $ 6,716,580 ------------ Telecommunication Services - 10.2% Integrated Telecommunication Services - 9.3% 255,296 AT&T Corp. $ 9,126,832 251,696 BellSouth Corp. 11,857,399 364,179 Citizens Utilities Co. (Class B) 5,233,252 43,100 Embarq Corp. 2,265,336 254,800 Verizon Communications, Inc. 9,488,752 381,853 Windstream Corp. 5,429,950 ------------ $ 43,401,521 ------------ Wireless Telecommunication Services - 0.9% 66,304 Alltel Corp. $ 4,010,066 ------------ Total Telecommunication Services $ 47,411,587 ------------ Utilities - 14.4% Electric Utilities - 3.6% 243,400 Duke Energy Corp. $ 8,083,314 127,711 Great Plains Energy, Inc. (a) 4,061,210 133,158 Southern Co. 4,908,204 ------------ $ 17,052,728 ------------ Gas Utilities - 5.7% 120,100 AGL Resources, Inc. $ 4,673,091 129,470 Atmos Energy Corp. 4,131,388 170,238 Equitable Resources, Inc. 7,107,437 126,481 Questar Corp. 10,504,247 ------------ $ 26,416,163 ------------
The accompanying notes are an integral part of these financial statements. 7 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Income VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Shares Value Multi-Utilities - 5.1% 98,272 Ameren Corp. $ 5,280,154 94,780 Consolidated Edison, Inc. 4,556,075 143,415 NSTAR 4,927,739 193,900 PG&E Corp. 9,177,287 ------------- $ 23,941,255 ------------- Total Utilities $ 67,410,146 ------------- TOTAL COMMON STOCKS (Cost $342,169,850) $ 452,490,298 ------------- Principal Amount TEMPORARY CASH INVESTMENTS - 5.9% Repurchase Agreement - 3.2% $14,800,000 UBS AG, 4.7%, dated 12/29/06, repurchase price of $14,800,000 plus accrued interest on 1/2/06, collateralized by $14,873,000 U.S. Treasury Bill, 5.625%, 5/15/08 $ 14,800,000 ------------- Shares Security Lending Collateral - 2.7% 12,775,342 Securities Lending Investment Fund, 5.26% $ 12,775,342 ------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $27,575,342) $ 27,575,342 ------------- TOTAL INVESTMENT IN SECURITIES - 103.4% (Cost $372,089,171) $ 482,403,131 ------------- OTHER ASSETS AND LIABILITIES - (3.4)% $ (15,717,138) ------------- TOTAL NET ASSETS - 100.0% $ 466,685,993 =============
* Non-Income producing security. (a) At December 31, 2006, the following securities were out on loan:
Market Shares Security Value 117,638 Great Plains Energy, Inc. $ 3,740,888 72,765 Liberty Property Trust 3,575,672 19,602 Mine Safety Appliances Co. 718,413 181,071 New York Times Co. 4,410,890 ----------- $12,445,863 ===========
8 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Income VCT Portfolio - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Year Year Year Year Ended Ended Ended Ended Ended Class I 12/31/06 12/31/05 12/31/04 12/31/03 12/31/02 Net asset value, beginning of period $ 21.25 $ 20.58 $ 18.09 $ 15.11 $ 18.40 ------- ------- ------- -------- --------- Increase (decrease) from investment operations: Net investment income $ 0.60 $ 0.51 $ 0.44 $ 0.41 $ 0.42 Net realized and unrealized gain (loss) on investments 4.05 0.66 2.49 2.96 (3.30) -------- -------- -------- -------- --------- Net increase (decrease) from investment operations $ 4.65 $ 1.17 $ 2.93 $ 3.37 $ (2.88) Distributions to shareowners: Net investment income (0.60) (0.50) (0.44) (0.39) (0.41) Net realized gain (0.37) -- -- -- -- ------- -------- -------- -------- -------- Net increase (decrease) in net asset value $ 3.68 $ 0.67 $ 2.49 $ 2.98 $ (3.29) -------- -------- -------- -------- -------- Net asset value, end of period $ 24.93 $ 21.25 $ 20.58 $ 18.09 $ 15.11 ======== ======== ======== ======== ========= Total return* 22.45% 5.72% 16.39% 0.86% (15.82)% Ratio of net expenses to average net assets+ 0.69% 0.71% 0.72% 0.78% 0.80% Ratio of net investment income to average net assets+ 2.70% 2.56% 2.40% 2.55% 2.48% Portfolio turnover rate 23% 22% 19% 12% 12% Net assets, end of period (in thousands) $310,682 $232,249 $188,234 $155,634 $ 133,258 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.69% 0.71% 0.72% 0.78% 0.80% Net investment income 2.70% 2.56% 2.40% 2.55% 2.48% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.69% 0.71% 0.72% 0.78% 0.80% Net investment income 2.70% 2.56% 2.40% 2.55% 2.48%
* 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 VARIABLE CONTRACTS TRUST Pioneer Equity Income VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $12,445,863) (cost $372,089,171) $ 482,403,131 Receivables -- Fund shares sold 573,763 Dividends, interest and foreign taxes withheld 1,514,737 Other 6,628 ------------- Total assets $ 484,498,259 ------------- LIABILITIES: Payables -- Investment securities purchased $ 2,373,525 Fund shares repurchased 2,355,737 Upon return of securities loaned 12,775,342 Due to bank 209,745 Due to affiliates 33,384 Accrued expenses 64,533 ------------- Total liabilities $ 17,812,266 ------------- NET ASSETS: Paid-in capital $ 337,540,788 Undistributed net investment income 2,013,430 Accumulated undistributed net realized gain on investments 16,817,815 Net unrealized gain on investments 110,313,960 ------------- Total net assets $ 466,685,993 ------------- NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 310,681,855 Shares outstanding 12,459,720 ------------- Net asset value per share $ 24.93 Class II: (No par value, unlimited number of shares authorized) Net assets $ 156,004,138 Shares outstanding 6,221,782 ------------- Net asset value per share $ 25.07
10 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Income VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Dividends $12,916,747 Interest 577,281 Income on securities loaned, net 8,550 ----------- Total investment income $13,502,578 ----------- EXPENSES: Management fees $ 2,587,321 Transfer agent fees and expenses 2,971 Distribution fees (Class II) 344,541 Administrative reimbursements 83,552 Custodian fees 44,345 Professional fees 23,299 Fees and expenses of nonaffiliated trustees 6,368 Miscellaneous 14,365 ----------- Total expenses $ 3,106,762 Less fees paid indirectly (12,529) ----------- Net expenses $ 3,094,233 ----------- Net investment income $10,408,345 ----------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain from investments $16,951,704 ----------- Change in net unrealized gain or loss from investments $54,119,461 ----------- Net gain on investments $71,071,165 =========== Net increase in net assets resulting from operations $81,479,510 ===========
The accompanying notes are an integral part of these financial statements. 11 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Income VCT Portfolio - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 10,408,345 $ 8,063,117 Net realized gain on investments 16,951,704 19,415,048 Change in net unrealized gain or (loss) on investments 54,119,461 (9,053,445) ------------- ------------- Net increase in net assets resulting from operations $ 81,479,510 $ 18,424,720 ------------- ------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income: Class I $ (6,915,751) $ (5,101,572) Class II (3,233,461) (2,458,044) Net realized gain Class I (4,037,203) -- Class II (2,136,789) -- ------------- ------------- Total distributions to shareowners $ (16,323,204) $ (7,559,616) ------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 90,541,666 $ 96,224,481 Reinvestment of distributions 16,323,202 7,559,617 Cost of shares repurchased (65,042,511) (36,867,650) ------------- ------------- Net increase in net assets resulting from Fund share transactions $ 41,822,357 $ 66,916,448 ------------- ------------- Net increase in net assets $ 106,978,663 $ 77,781,552 ------------- ------------- NET ASSETS: Beginning of year $ 359,707,330 $ 281,925,778 ------------- ------------- End of year $ 466,685,993 $ 359,707,330 ============= ============= Undistributed net investment income, end of year $ 2,013,430 $ 1,751,090 ============= =============
12 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Income VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Equity 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 II shares are presented in a separate book. The investment objective of the Portfolio is to seek capital appreciation. 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 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 year. 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 13 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Income VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, 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, 2006, 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. The Portfolio elected to defer $126,100 in capital losses recognized between November 1, 2006 and December 31, 2006 to its fiscal year ending December 31, 2007. At December 31, 2006, 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 Realized Loss Paid-In Capital - ---------------------------------------------------------------------------------------- Equity Income Portfolio $3,207 $ (3,207) $-- ====== ======== === - ----------------------------------------------------------------------------------------
14 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Income VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis.
- ---------------------------------------------------------------------------------- 2006 2005 - ---------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 10,135,801 $ 7,559,616 Long-Term capital gain 6,187,403 -- ----------------------------- Total distributions $ 16,323,204 $ 7,559,616 ============================= Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 1,104,382 Undistributed long-term gain 15,964,485 Post-October loss deferred (126,100) Unrealized appreciation 112,202,438 ----------------------------- Total $129,145,205 ============================= - ----------------------------------------------------------------------------------
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 adjustments on preferred stocks. 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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. 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 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. 15 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Income VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, $26,004 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 $4,167 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $3,213 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $370,198,483 $113,975,886 $ (1,771,238) $112,204,648 ============ ============ ============ ============ - --------------------------------------------------------------------------------------------------
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, 2006, were $124,191,598 and $90,761,661, respectively. 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- -------------------------------------------------------------------------------------------------- Equity Income Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - -------------------------------------------------------------------------------------------------- CLASS I: Shares sold 2,476,273 $ 57,609,960 2,853,636 $ 59,389,539 Reinvestment of distributions 482,580 10,952,953 242,794 5,101,573 Shares repurchased (1,426,377) (32,667,433) (1,317,139) (27,494,268) ---------- ------------- ---------- ------------- Net increase 1,532,476 $ 35,895,480 1,779,291 $ 36,996,844 ========== ============= ========== ============= CLASS II: Shares sold 1,413,782 $ 32,931,706 1,763,038 $ 36,834,942 Reinvestment of distributions 235,823 5,370,249 116,340 2,458,044 Shares repurchased (1,392,117) (32,375,078) (444,619) (9,373,382) ---------- ------------- ---------- ------------- Net increase 257,488 $ 5,926,078 1,434,759 $ 29,919,604 ========== ============= ========== ============= - --------------------------------------------------------------------------------------------------
16 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Income VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 8. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 17 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Income VCT Portfolio - -------------------------------------------------------------------------------- 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 of Pioneer Equity Income VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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 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, 2006, 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, 2006, 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 9, 2007 18 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Income 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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. 19 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Income VCT Portfolio - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- 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 absolute investment performance based upon total return and yield, as well as the Fund's performance relative to the performance of both a peer group considered appropriate by the Independent Trustees for this purpose and the Russell 1000 Value Index. The Fund's performance, based upon total return, was in the first quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, the first quintile of the peer group for the three years ended June 30, 2006, the second quintile for the five years ended June 30, 2006 and in the first quintile for the ten year period ended June 30, 2006. (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 yield of the Fund, before deduction of expenses, relative to the yield index. The Trustees, focusing on three-year total returns, concluded that the performance of the Fund was strong. 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 size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee for the 12 months ended June 30, 2006 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 also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 to be in the second quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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, 20 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Income VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees 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 portfolio's affairs. 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 trust within the meaning of the Ernst & Young LLP 1940 Act are referred to as Interested Trustees. Trustees who are not interested persons of the trust are referred to Principal Underwriter as Independent Trustees. Each of the Trustees serves as a Pioneer Funds Distributor, Inc. trustee of each of the 86 U.S. registered investment portfolios for which Pioneer serves as investment adviser Legal Counsel (the "Pioneer Funds"). The address for all Interested Wilmer Cutler Pickering Hale and Dorr LLP Trustees and all officers of the trust is 60 State Street, Boston, Massachusetts 02109. Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc.
- -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Board, Trustee until a successor trustee and President is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS John F. Cogan, Jr. (80)* Deputy Chairman and a Director of Pioneer Global Asset Management S.p.A. ("PGAM"); Non-Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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) - -------------------------------------------------------------------------------------------------------- NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Director of ICI Mutual Insurance Company * Mr. Cogan is an Interested Trustee because he is an officer or director of the portfolio's investment adviser and certain of its affiliates. - --------------------------------------------------------------------------------
22 Pioneer Equity Income VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE David R. Bock (63) Trustee Trustee since 2005. Serves 3050 K. Street NW, until a successor trustee Washington, DC 20007 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- Mary K. Bush (58) Trustee Trustee since 2000. Serves 3509 Woodbine Street, until a successor trustee Chevy Chase, MD 20815 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves 1001 Sherbrooke Street West, until a successor trustee Montreal, Quebec, Canada is elected or earlier H3A 1G5 retirement or removal. - -------------------------------------------------------------------------------- Thomas J. Perna (56) Trustee Trustee since 2006. Serves 89 Robbins Avenue, until a successor trustee Berkeley Heights, NJ is elected or earlier 07922 retirement or removal. - -------------------------------------------------------------------------------- Marguerite A. Piret (58) Trustee Trustee since 1995. Serves 200 State Street, 12th until a successor trustee Floor, Boston, MA 02109 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- John Winthrop (70) Trustee Trustee since 2000. Serves One North Adgers Wharf, until a successor trustee Charleston, SC 29401 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- NAME, AGE AND ADDRESS PRINCIPAL OCCUPATION DURING PAST FIVE YEARS David R. Bock (63) Senior Vice President and Chief Financial Officer, I-trax, Inc. (publicly traded 3050 K. Street NW, health care services company) (2001 - present); Managing Partner, Federal Washington, DC 20007 City Capital Advisors (boutique merchant bank) (2002 to 2004); and Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet- based mortgage trading company) (2000 - 2002) - ---------------------------------------------------------------------------------------------------------------- Mary K. Bush (58) President, Bush International (international financial advisory firm) 3509 Woodbine Street, Chevy Chase, MD 20815 - ---------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (59) Founding Director, The Winthrop Group, Inc. (consulting firm); and 1001 Sherbrooke Street West, Desautels Faculty of Management, McGill University Montreal, Quebec, Canada H3A 1G5 - ---------------------------------------------------------------------------------------------------------------- Thomas J. Perna (56) Private investor (2004 - present); and Senior Executive Vice President, The 89 Robbins Avenue, Bank of New York (financial and securities services) (1986 - 2004) Berkeley Heights, NJ 07922 - ---------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (58) President and Chief Executive Officer, Newbury, Piret & Company, Inc. 200 State Street, 12th (investment banking firm) Floor, Boston, MA 02109 - ---------------------------------------------------------------------------------------------------------------- John Winthrop (70) President, John Winthrop & Co., Inc. (private investment firm) One North Adgers Wharf, Charleston, SC 29401 - ---------------------------------------------------------------------------------------------------------------- NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE David R. Bock (63) Director of The Enterprise Social Investment 3050 K. Street NW, Company (privately-held affordable housing Washington, DC 20007 finance company); and Director of New York Mortgage Trust (publicly traded mortgage REIT) - -------------------------------------------------------------------------------- Mary K. Bush (58) Director of Brady Corporation (industrial 3509 Woodbine Street, identification and specialty coated material Chevy Chase, MD 20815 products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - -------------------------------------------------------------------------------- Margaret B.W. Graham (59) None 1001 Sherbrooke Street West, Montreal, Quebec, Canada H3A 1G5 - -------------------------------------------------------------------------------- Thomas J. Perna (56) Director of Quadriserv Inc. (technology 89 Robbins Avenue, products for securities lending industry) Berkeley Heights, NJ 07922 - -------------------------------------------------------------------------------- Marguerite A. Piret (58) Director of New America High Income Fund, 200 State Street, 12th Inc. (closed-end investment company) Floor, Boston, MA 02109 - -------------------------------------------------------------------------------- John Winthrop (70) None One North Adgers Wharf, Charleston, SC 29401 - --------------------------------------------------------------------------------
23 Pioneer Equity Income VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President discretion of the Board - -------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the discretion of the Board - -------------------------------------------------------------------------------- Christopher J. Kelley (42) Assistant Since 2003. Serves at the Secretary discretion of the Board - -------------------------------------------------------------------------------- Christopher P. Harvey (45) Assistant Since 2006. Serves at the Secretary discretion of the Board - -------------------------------------------------------------------------------- Vincent Nave (61) Treasurer Since 2000. Serves at the discretion of the Board - -------------------------------------------------------------------------------- Mark E. Bradley (47) Assistant Since 2004. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Since 2000. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- Gary Sullivan (48) Assistant Since 2002. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS Osbert M. Hood (54)+ President and Chief Executive Officer, PIM-USA since May 2003 (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 - ------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary of PIM-USA; Senior Vice President - Legal of Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------- Christopher J. Kelley (42) Vice President and Senior Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001); and Assistant Secretary of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------- Christopher P. Harvey (45) Partner, Wilmer Cutler Pickering Hale and Dorr LLP; and Assistant Secretary of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------- Vincent Nave (61) Vice President - Fund Accounting, Administration and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------- Mark E. Bradley (47) Deputy Treasurer of Pioneer since 2004; Treasurer and Senior 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 - ------------------------------------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Vice President - Fund Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------- Gary Sullivan (48) Fund Accounting Manager - Fund Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------- NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS OFFICER Osbert M. Hood (54)+ Trustee of certain Pioneer Funds +Mr. Hood resigned as EVP effective January 9, 2007. - -------------------------------------------------------------------------------- Dorothy E. Bourassa (58) None - -------------------------------------------------------------------------------- Christopher J. Kelley (42) None - -------------------------------------------------------------------------------- Christopher P. Harvey (45) None - -------------------------------------------------------------------------------- Vincent Nave (61) None - -------------------------------------------------------------------------------- Mark E. Bradley (47) None - -------------------------------------------------------------------------------- Luis I. Presutti (41) None - -------------------------------------------------------------------------------- Gary Sullivan (48) None - --------------------------------------------------------------------------------
24 Pioneer Equity Income VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Katherine Kim Sullivan (33) Assistant Since 2003. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Since 2006. Serves at the Compliance discretion of the Board Officer - -------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS Katherine Kim Sullivan (33) Fund Administration Manager - Fund Accounting, Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Compliance Officer of Pioneer and all of the Pioneer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------- NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS OFFICER Katherine Kim Sullivan (33) None - -------------------------------------------------------------------------------- Terrence J. Cullen (45) None - --------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 25 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 26 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 27 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 28 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 29 [Logo] PIONEER Investments(R) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18648-01-0207 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio -- Class I Shares ANNUAL REPORT December 31, 2006 PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Table of Contents - -------------------------------------------------------------------------------- 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 Fund VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/06 - -------------------------------------------------------------------------------- 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 93.2% Depositary Receipts for International Stocks 3.6% Temporary Cash Investment 1.9% International Common Stocks 1.3%
Sector Distribution (As a percentage of equity holdings) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Financials 16.8% Industrials 14.1% Information Technology 14.0% Consumer Discretionary 13.4% Health Care 12.9% Consumer Staples 11.2% Energy 8.3% Materials 4.3% Telecommunication Services 4.2% Utilities 0.8%
Five Largest Holdings (As a percentage of equity holdings) 1. Chevron Corp. 2.48% 2. McGraw-Hill Co., Inc. 2.41 3. Norfolk Southern Corp. 2.11 4. Wells Fargo & Co. 1.89 5. Deere & Co. 1.69
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $24.80 $21.55
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $0.3111 $ - $ -
- -------------------------------------------------------------------------------- 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 Fund Date VCT Portfolio S&P 500 10/31/1997 $10,000 $10,000 $10,550 $10,642 12/31/1998 $13,296 $13,686 $15,411 $16,564 12/31/2000 $15,600 $15,057 $13,908 $13,268 12/31/2002 $11,261 $10,337 $13,936 $13,300 12/31/2004 $15,504 $14,747 $16,462 $15,470 12/31/2006 $19,199 $17,912
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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- Life-of-Class (10/31/97) 7.38% 5 Years 6.66% 1 Year 16.63%
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.pioneerinvestments.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 Fund 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 Fund VCT Portfolio Based on actual returns from July 1, 2006 through December 31, 2006.
Share Class I - ------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,109.60 Expenses Paid During Period* $ 3.72
* Expenses are equal to the Portfolio's annualized expense ratio of 0.70% 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 Fund VCT Portfolio Based on a hypothetical 5% per year return before expenses, reflecting the period from July 1, 2006 through December 31, 2006.
Share Class I - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,021.68 Expenses Paid During Period* $ 3.57
* Expenses are equal to the Portfolio's annualized expense ratio of 0.70% 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 VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/06 - -------------------------------------------------------------------------------- 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, 2006. Q. John, how did Pioneer Fund VCT Portfolio perform during 2006? A. Overall, the Portfolio did well in 2006, versus both its stock-market benchmark and its mutual-fund peer group. However, the performance was stronger on a relative basis in the first half of the year than in the second. For the year as a whole, Class I shares of Pioneer Fund VCT Portfolio showed a total return of 16.63% at net asset value. By comparison, the Standard & Poor's 500, an unmanaged index of the general stock market, rose by 15.78%, and the 224 funds in the Lipper Large-Cap Core category had an average return of 13.31%. In the second half of the year, the Fund returned 10.96%, versus 12.73% for the S&P 500 and 11.56% for the 230 Lipper Large-Cap Core funds. Call 1-800-688-9915 or visit www.pioneerinvestments.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. Despite lagging in the last six months, we were pleased with our positive results for the year, especially in view of our having been cautious about the markets as we went into the year. Corporate earnings held up surprisingly well all year, and we think that that was the main reason for the good equity performance. Underlying the earnings advances was continued economic growth in the United States, accompanied by ongoing productivity improvements by American companies and historically low unemployment numbers. Other positives for the market were a fall-off in energy prices, a decline in the Federal budget deficit, robust merger-and-acquisition activity, and very good growth in many foreign countries, benefiting U.S. multinational companies. There were concerns later in the year about the changing political scene in Washington, the nerve-wracking international issues, the potential effects on consumer spending of the slowdown in housing, and some evidence of inventory build-up in commodities. But when the curtain fell on the year, investors had reason to be happy. Q. Please focus just on the last part of the year and discuss the relative underperformance. A. The underperformance in the last six months of 2006 was primarily attributable to sluggish returns for the Portfolio in consumer staples, financials, and industrials. Hershey trailed its consumer staples sector after lowering its forecasts amidst problems with its Canadian business and excessive retailer inventory. Norfolk Southern, Caterpillar, and Burlington Northern, in our industrials sector, saw some profit-taking in the wake of investor concerns of a slowing economy. In the financials sector, we lost some relative performance by not owning one name, Goldman Sachs, that did extremely well in the period and by lackluster performance from one of our larger and overweighted positions, National City. At the same time, we had positive performance attribution from a number of our holdings across various sectors, including McGraw-Hill and Nordstrom in consumer cyclicals, BellSouth and AT&T in telecommunications services, and PACCAR in industrials. It is sometimes a trade-off between short and long-term results, and we do not expect that each of our holdings will perform well in each time period. In cases of near-term underperformance such as we saw in the cases mentioned, we obviously want to review the long-term investment case closely and be sure it remains intact. If we think that the current difficulties reflect more fundamental issues, of course we need to re-assess our holding of the security. In the cases of Hershey, Norfolk Southern, Caterpillar, and Burlington Northern, we decided that the merits of each outweighed the shortcomings and retained the positions. 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.pioneerinvestments.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 Fund VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Q. What changes did you make to the portfolio in the second half of the year? A. Most of our activity in the six months ended December 31, 2006, was on the sell side. We eliminated ten positions and only added four, two of which were spin-offs from existing holdings. We added Wal-Mart Stores, the well-known discount retailer. After watching the stock for several years and noting its listless share price despite rising earnings, we finally thought that the opportunities exceeded the risks. Moderating gasoline prices help its clientele of average working people and mean they may be able to do more shopping. We also initiated a position in Advanced Micro Devices, a semiconductor company that has labored for years in the shadow of the much larger Intel. At last AMD appears to have secured some stable market share, on the back of new and highly competitive product offerings. In thinking about AMD versus Intel (which, by the way, we also own), we are heartened by the Biblical story of David and Goliath, though would note that the story does not always play out as it did in the Bible. Otherwise, we acquired shares of Windstream, a local telephone-service provider, when our holding ALLTEL spun it out, and we likewise received stock in Idearc, a publisher of yellow-page directories, when its parent, Verizon, distributed the equity of that company. Among our sales were three resulting from mergers and acquisitions. Inco, the Canadian nickel miner, was acquired at a large premium over our average cost by CVRD, a Brazilian company. Freescale Semiconductor and Golden West Financial were also acquired at attractive prices relative to what we had paid. We took profits during the period in Gamestop, which was spun out by our holding Barnes & Noble in 2002. Century Tel and Lockheed Martin appeared to us fully valued, and we also parted company with Masco, Yum! Brands, Bristol-Myers Squibb, and Exelon for sundry reasons. Q. Can you share with us your outlook for 2007? A. We think that the year ahead will be characterized by some of the same cross-currents as we experienced in 2006. One of the debates currently is with respect to the Federal Reserve and when or whether it might reduce interest rates. The Fed has signaled its concern over inflation. At the same time, a slower economy could be helped by lower rates. We do not expect any imminent action by the Fed and do not discount the possibility that the economy will stay strong enough that the Fed does not feel the need to act, at least over the next several months. Another debate has to do with the implications for business of the new Congress in Washington, D. C., where the Democrats now control both the House of Representatives and, if very narrowly, the Senate. We shall be attentive to possible changes in tax and other policy that might alter the environment in which companies do business. Of course neither party is consistently positive or negative for companies across the board, or even in individual industries, but instead each party has its own constituencies and its own agendas. The final and most important piece of the puzzle that is figuring out what 2007 holds in store for us is the rate of corporate earnings growth. Will the pace of earnings slow over the next few quarters, and if so, how will stocks react? An unusual feature about the bull market of the past four years has been the decline in price-to-earnings multiples as earnings have grown faster than share prices have risen. With that in mind, one could argue that the downside risk for the market is lower than it often is at this stage of a bull market, when multiples are usually comparatively high. We cannot, though, predict where the market will go, and would note that low multiples are no guarantee that prices cannot fall. So we intend to keep with our defensive posture, emphasizing companies we think have potential to do reasonably well even in a softer economy. As always, we shall devote considerable energy to our research process and learn as much as we can about companies before investing in their stocks. Thank you as ever 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 VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 98.0% Energy - 8.1% Integrated Oil & Gas - 6.2% 179,531 Chevron Corp. $ 13,200,914 88,025 ConocoPhillips 6,333,399 114,668 Exxon Mobil Corp. 8,787,009 107,450 Occidental Petroleum Corp. 5,246,784 ------------ $ 33,568,106 ------------ Oil & Gas Equipment & Services - 0.5% 65,062 Weatherford Intl, Inc.* $ 2,718,941 ------------ Oil & Gas Exploration & Production - 1.4% 76,894 Apache Corp. $ 5,114,220 67,515 Pioneer Natural Resources Co. 2,679,670 ------------ $ 7,793,890 ------------ Total Energy $ 44,080,937 ------------ Materials - 4.2% Aluminum - 1.1% 191,026 Alcoa, Inc. $ 5,732,690 ------------ Diversified Chemical - 0.7% 70,100 Dow Chemical Co. $ 2,799,794 26,034 E.I. du Pont de Nemours and Co. 1,268,116 ------------ $ 4,067,910 ------------ Diversified Metals & Mining - 1.2% 122,524 Rio Tinto Plc $ 6,522,710 ------------ Industrial Gases - 0.9% 25,334 Air Products & Chemicals, Inc. $ 1,780,474 53,762 Praxair, Inc. 3,189,699 ------------ $ 4,970,173 ------------ Specialty Chemicals - 0.3% 37,481 Ecolab, Inc. $ 1,694,141 ------------ Total Materials $ 22,987,624 ------------ Capital Goods - 10.0% Aerospace & Defense - 2.5% 86,022 General Dynamics Corp. $ 6,395,736 111,683 United Technologies Corp. 6,982,421 ------------ $ 13,378,157 ------------ Construction & Farm Machinery & Heavy Trucks - 4.4% 99,679 Caterpillar, Inc. $ 6,113,313 94,266 Deere & Co. 8,961,869 136,822 PACCAR, Inc. 8,879,748 ------------ $ 23,954,930 ------------ Shares Value Electrical Component & Equipment - 1.2% 97,280 Emerson Electric Co. $ 4,289,075 36,906 Rockwell International Corp. 2,254,218 ------------ $ 6,543,293 ------------ Industrial Conglomerates - 1.7% 43,600 3M Co. $ 3,397,748 154,654 General Electric Co. 5,754,675 ------------ $ 9,152,423 ------------ Industrial Machinery - 0.2% 16,367 Parker Hannifin Corp. $ 1,258,295 ------------ Total Capital Goods $ 54,287,098 ------------ Transportation - 3.8% Airlines - 0.7% 261,293 Southwest Airlines Co. $ 4,003,009 ------------ Railroads - 3.1% 74,802 Burlington Northern, Inc. $ 5,521,136 222,911 Norfolk Southern Corp. 11,210,194 ------------ $ 16,731,330 ------------ Total Transportation $ 20,734,339 ------------ Automobiles & Components - 2.0% Auto Parts & Equipment - 1.4% 91,445 Johnson Controls, Inc. $ 7,856,954 ------------ Automobile Manufacturers - 0.6% 416,051 Ford Motor Corp. $ 3,124,543 ------------ Total Automobiles & Components $ 10,981,497 ------------ Consumer Durables & Apparel - 0.2% Apparel, Accessories & Luxury Goods - 0.2% 23,883 Liz Claiborne, Inc. $ 1,037,955 ------------ Total Consumer Durables & Apparel $ 1,037,955 ------------ Media - 6.0% Advertising - 0.8% 42,090 Omnicom Group $ 4,400,089 ------------ Movies & Entertainment - 1.0% 162,516 The Walt Disney Co. $ 5,569,423 ------------ Publishing - 4.2% 41,058 Elsevier NV $ 700,087 64,140 Gannett Co. 3,877,904 6,457 Idearc, Inc.* 184,979 125,263 John Wiley & Sons, Inc. 4,818,868 188,438 McGraw-Hill Co., Inc. 12,817,553 ------------ $ 22,399,391 ------------ Total Media $ 32,368,903 ------------
6 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value Retailing - 5.0% Department Stores - 2.0% 100,356 Federated Department Stores, Inc. $ 3,826,574 147,889 Nordstrom, Inc. 7,296,843 ------------ $ 11,123,417 ------------ General Merchandise Stores - 1.6% 150,713 Target Corp. $ 8,598,177 ------------ Home Improvement Retail - 0.8% 141,584 Lowe's Companies, Inc. $ 4,410,342 ------------ Specialty Stores - 0.6% 29,018 Barnes & Noble, Inc. $ 1,152,305 69,072 Staples, Inc. 1,844,222 ------------ $ 2,996,527 ------------ Total Retailing $ 27,128,463 ------------ Food & Drug Retailing - 3.6% Drug Retail - 2.1% 75,467 CVS Corp. $ 2,332,685 190,303 Walgreen Co. 8,733,005 ------------ $ 11,065,690 ------------ Food Distributors - 1.1% 161,566 Sysco Corp. $ 5,939,166 ------------ Hypermarkets & Supercenters - 0.4% 19,649 Costco Wholesale Corp. $ 1,038,843 28,800 Wal-Mart Stores, Inc. 1,329,984 ------------ $ 2,368,827 ------------ Total Food & Drug Retailing $ 19,373,683 ------------ Food, Beverage & Tobacco - 5.5% Packaged Foods & Meats - 4.2% 118,941 Campbell Soup Co. $ 4,625,615 76,411 General Mills, Inc. 4,401,274 108,055 H.J. Heinz Co., Inc. 4,863,556 82,795 Hershey Foods Corp. 4,123,191 43,685 Kellogg Co. 2,186,871 162,773 Sara Lee Corp. 2,772,024 ------------ $ 22,972,531 ------------ Soft Drinks - 1.3% 113,124 PepsiCo, Inc. $ 7,075,906 ------------ Total Food, Beverage & Tobacco $ 30,048,437 ------------ Household & Personal Products - 1.8% Household Products - 1.3% 14,255 Clorox Co. $ 914,458 96,982 Colgate-Palmolive Co. 6,327,106 ------------ $ 7,241,564 ------------ Shares Value Personal Products - 0.5% 67,208 Estee Lauder Co. $ 2,743,431 ------------ Total Household & Personal Products $ 9,984,995 ------------ Health Care Equipment & Services - 5.0% Health Care Equipment - 5.0% 71,108 Becton, Dickinson & Co. $ 4,988,226 139,138 Biomet, Inc. 5,742,225 63,800 C. R. Bard, Inc. 5,293,486 75,039 Medtronic, Inc. 4,015,337 104,000 St. Jude Medical, Inc.* 3,802,240 39,300 Zimmer Holdings, Inc.* 3,080,334 ------------ $ 26,921,848 ------------ Total Health Care Equipment & Services $ 26,921,848 ------------ Pharmaceuticals & Biotechnology - 7.7% Biotechnology - 0.7% 53,778 Amgen, Inc.* $ 3,673,575 ------------ Pharmaceuticals - 7.0% 102,710 Abbott Laboratories $ 5,003,004 53,017 Barr Laboratorie, Inc.* 2,657,212 80,039 Eli Lilly & Co. 4,170,032 72,158 Johnson & Johnson 4,763,871 63,788 Merck & Co., Inc. 2,781,157 77,980 Novartis AG (A.D.R.) 4,479,171 204,900 Pfizer, Inc. 5,306,910 36,377 Roche Holdings AG (A.D.R.)* 3,260,325 175,915 Schering-Plough Corp. 4,158,631 44,611 Teva Pharmaceutical Industries, Ltd. 1,386,510 ------------ $ 37,966,823 ------------ Total Pharmaceuticals & Biotechnology $ 41,640,398 ------------ Banks - 8.3% Diversified Banks - 3.8% 235,635 U.S. Bancorp $ 8,527,631 39,577 Wachovia Corp. 2,253,910 281,946 Wells Fargo & Co. 10,026,000 ------------ $ 20,807,541 ------------ Regional Banks - 3.3% 25,377 Compass Bancshares, Inc. $ 1,513,738 83,035 First Horizon National Corp. 3,469,202 170,284 National City Corp. 6,225,583 55,102 SunTrust Banks, Inc. 4,653,364 21,817 Zions BanCorp. 1,798,593 ------------ $ 17,660,480 ------------
The accompanying notes are an integral part of these financial statements. 7 PIONEER VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Shares Value Thrifts & Mortgage Finance - 1.2% 146,301 Washington Mutual, Inc. $ 6,655,232 ------------ Total Banks $ 45,123,253 ------------ Diversified Financials - 5.4% Asset Management & Custody Banks - 1.9% 43,970 Federated Investors, Inc. $ 1,485,307 104,482 State Street Corp. 7,046,266 36,004 T. Rowe Price Associates, Inc. 1,575,895 ------------ $ 10,107,468 ------------ Consumer Finance - 1.2% 112,725 American Express Co. $ 6,839,026 ------------ Investment Banking & Brokerage - 1.0% 58,452 Merrill Lynch & Co., Inc. $ 5,441,881 ------------ Diversified Financial Services - 1.3% 86,529 Bank of America Corp. $ 4,619,783 42,750 Citigroup, Inc. 2,381,175 ------------ $ 7,000,958 ------------ Total Diversified Financials $ 29,389,333 ------------ Insurance - 2.7% Life & Health Insurance - 0.6% 49,100 MetLife, Inc. $ 2,897,391 ------------ Multi-Line Insurance - 0.4% 24,622 Hartford Financial Services Group, Inc. $ 2,297,479 ------------ Property & Casualty Insurance - 1.7% 137,506 Chubb Corp. $ 7,275,442 34,082 Safeco Corp. 2,131,829 ------------ $ 9,407,271 ------------ Total Insurance $ 14,602,141 ------------ Software & Services - 3.9% Application Software - 0.7% 86,186 Adobe Systems, Inc.* $ 3,543,968 ------------ Data Processing & Outsourced Services - 2.2% 181,884 Automatic Data Processing, Inc. $ 8,957,787 25,841 DST Systems, Inc.* 1,618,422 28,113 Fiserv, Inc.* 1,473,683 ------------ $ 12,049,892 ------------ Systems Software - 1.0% 181,275 Microsoft Corp. $ 5,412,872 ------------ Total Software & Services $ 21,006,732 ------------ Technology Hardware & Equipment - 6.8% Communications Equipment - 2.9% 139,000 Cisco Systems, Inc.* $ 3,798,870 313,651 Motorola, Inc. 6,448,665 274,102 Nokia Corp. (A.D.R.) 5,569,753 ------------ $ 15,817,288 ------------ Shares Value Computer Hardware - 2.7% 127,276 Dell, Inc.* $ 3,193,355 176,511 Hewlett-Packard Co. 7,270,488 746,472 Sun Microsystems, Inc.* 4,045,878 ------------ $ 14,509,721 ------------ Computer Storage & Peripherals - 0.3% 134,374 EMC Corp.* $ 1,773,737 ------------ Office Electronics - 0.9% 85,863 Canon, Inc. (A.D.R.) $ 4,858,987 ------------ Total Technology Hardware & Equipment $ 36,959,733 ------------ Semiconductors - 3.1% Semiconductor Equipment - 0.5% 149,770 Applied Materials, Inc. $ 2,763,257 ------------ Semiconductors - 2.6% 124,400 Advanced Micro Devices, Inc.* $ 2,531,540 258,029 Intel Corp. 5,225,087 211,248 Texas Instruments, Inc. 6,083,942 ------------ $ 13,840,569 ------------ Total Semiconductors $ 16,603,826 ------------ Telecommunication Services - 4.1% Integrated Telecommunication Services - 3.8% 235,088 AT&T Corp. $ 8,404,396 141,901 BellSouth Corp. 6,684,956 129,130 Verizon Communications, Inc. 4,808,801 59,603 Windstream Corp. 847,555 ------------ $ 20,745,708 ------------ Wireless Telecommunication Services - 0.3% 23,216 Alltel Corp. $ 1,404,104 ------------ Total Telecommunication Services $ 22,149,812 ------------ Utilities - 0.8% Electric Utilities - 0.4% 56,177 Southern Co. $ 2,070,684 ------------ Multi-Utilities - 0.4% 34,904 Consolidated Edison, Inc. $ 1,677,836 13,700 PG&E Corp. 648,421 ------------ $ 2,326,257 ------------ Total Utilities $ 4,396,941 ------------ TOTAL COMMON STOCKS (Cost $375,951,520) $531,807,948 ------------
8 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value TEMPORARY CASH INVESTMENT - 1.9% Repurchase Agreement - 1.9% 10,200,000 UBS AG, 4.7%, dated 12/29/06, repurchase price of $10,200,000 plus accrued interest on 1/2/06, collateralized by $10,549,000 U.S. Treasury Bill, 3.25%, 8/15/08 $ 10,200,000 ------------ TOTAL TEMPORARY CASH INVESTMENT (Cost $10,200,000) $ 10,200,000 ------------ TOTAL INVESTMENT IN SECURITIES - 99.9% (Cost $386,151,520) $542,007,948 ------------ OTHER ASSETS AND LIABILITIES - 0.1% $ 619,448 ------------ TOTAL NET ASSETS - 100.0% $542,627,396 ============
* Non-income producing security (A.D.R.) American Depositary Receipt The accompanying notes are an integral part of these financial statements. 9 PIONEER VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Year Year Year Year Ended Ended Ended Ended Ended Class I 12/31/06 12/31/05 12/31/04 12/31/03 12/31/02 Net asset value, beginning of period $ 21.55 $ 20.57 $ 18.70 $ 15.28 $ 19.08 -------- -------- -------- -------- -------- Increase (decrease) from investment operations: Net investment income $ 0.32 $ 0.27 $ 0.24 $ 0.20 $ 0.19 Net realized and unrealized gain (loss) on investments 3.24 0.99 1.85 3.41 (3.81) -------- -------- -------- -------- -------- Net increase (decrease) from investment operations $ 3.56 $ 1.26 $ 2.09 $ 3.61 $ (3.62) Distributions to shareowners: Net investment income (0.31) (0.28) (0.22) (0.19) (0.18) -------- -------- -------- -------- -------- Net increase (decrease) in net asset value $ 3.25 $ 0.98 $ 1.87 $ 3.42 $ (3.80) -------- -------- -------- -------- -------- Net asset value, end of period $ 24.80 $ 21.55 $ 20.57 $ 18.70 $ 15.28 -------- -------- -------- -------- -------- Total return* 16.63% 6.17% 11.26% 23.76% 19.03% Ratio of net expenses to average net assets+ 0.70% 0.70% 0.71% 0.76% 0.80% Ratio of net investment income to average net assets+ 1.35% 1.26% 1.26% 1.16% 1.09% Portfolio turnover rate 9% 23% 17% 11% 11% Net assets, end of period (in thousands) $386,917 $382,973 $454,136 $154,839 $141,892 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.70% 0.70% 0.71% 0.76% 0.80% Net investment income 1.35% 1.26% 1.26% 1.16% 1.09% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.70% 0.70% 0.71% 0.76% 0.80% Net investment income 1.35% 1.26% 1.26% 1.16% 1.09%
* 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 VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - --------------------------------------------------------------------------------
ASSETS: Investment in securities, at value (cost $386,151,520) $ 542,007,948 Receivables -- Fund shares sold 503,001 Dividends, interest and foreign taxes withheld 1,083,779 Other 34,553 ------------- Total assets $ 543,629,281 ------------- LIABILITIES: Payables -- Fund shares repurchased $ 595,350 Due to bank 286,971 Due to affiliates 35,640 Accrued expenses 83,924 ------------- Total liabilities $ 1,001,885 ------------- NET ASSETS: Paid-in capital $ 406,920,308 Undistributed net investment income 42,393 Accumulated net realized loss on investments (20,191,733) Net unrealized gain on investments 155,856,428 ------------- Total net assets $ 542,627,396 ------------- NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 386,917,044 Shares outstanding 15,604,332 ------------- Net asset value per share $ 24.80 Class II: (No par value, unlimited number of shares authorized) Net assets $ 155,710,352 Shares outstanding 6,296,048 ------------- Net asset value per share $ 24.73
The accompanying notes are an integral part of these financial statements. 11 PIONEER VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $78,149) $10,133,866 Interest 421,825 ----------- Total investment income $10,555,691 ----------- EXPENSES: Management fees $ 3,350,070 Transfer agent fees and expenses 2,832 Distribution fees (Class II) 341,019 Administrative reimbursements 113,433 Custodian fees 41,352 Professional fees 48,717 Printing 14,920 Fees and expenses of nonaffiliated trustees 8,431 Miscellaneous 21,437 ----------- Total expenses $ 3,942,211 Less fees paid indirectly (5,637) ----------- Net expenses $ 3,936,574 ----------- Net investment income $ 6,619,117 ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $19,969,864 Other assets and liabilities denominated in foreign currencies (20,302) ----------- $19,949,562 ----------- Change in net unrealized gain or loss from investments $52,425,564 ----------- Net gain on investments and foreign currency transactions $72,375,126 =========== Net increase in net assets resulting from operations $78,994,243 ===========
12 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 6,619,117 $ 6,406,915 Net realized gain on investments and foreign currency transactions 19,949,562 46,679,070 Change in net unrealized gain (loss) on investments 52,425,564 (23,029,256) ------------- ------------- Net increase in net assets resulting from operations $ 78,994,243 $ 30,056,729 ------------- ------------- DISTRIBUTIONS TO SHAREOWNERS Net investment income: Class I $ (5,053,431) $ (5,374,313) Class II (1,530,263) (1,440,262) ------------- ------------- Total distributions to shareowners $ (6,583,694) $ (6,814,575) ------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 81,852,880 $ 42,859,167 Shares issued in reorganization -- 53,856,933 Reinvestment of distributions 6,583,693 6,814,325 Cost of shares repurchased (117,849,268) (139,175,447) Redemption in kind -- (75,731,419) ------------- ------------- Net (decrease) in net assets resulting from Fund share transactions $ (29,412,695) $(111,376,441) ------------- ------------- Net increase (decrease) in net assets $ 42,997,854 $ (88,134,287) NET ASSETS: Beginning of year 499,629,542 587,763,829 ------------- ------------- End of year $ 542,627,396 $ 499,629,542 ------------- ------------- Undistributed net investment income, end of year $ 42,393 $ 27,272 ------------- -------------
The accompanying notes are an integral part of these financial statements. 13 PIONEER VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 the Portfolio is to seek capital appreciation. 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 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 year. 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 14 PIONEER VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2006, 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 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, 2006, the 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, if any, 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, 2006, 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 net realized gain on investment transactions, or from paid-in capital, depending on the type of book/tax differences that may exist. 15 PIONEER VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- Capital loss carryforwards are available to offset future realized capital gains. At December 31, 2006, the Portfolio had a net capital loss carryforward of $19,798,047, of which the following amounts will expire between 2010 and 2011 if not utilized: $6,780,520 in 2010 and $13,017,527 in 2011. At December 31, 2006, 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 Realized Gain Paid-In Capital Fund Portfolio $ (20,302) $20,302 $-- --------- ------- --- - --------------------------------------------------------------------------------
The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings as of December 31, 2006, on a tax basis.
- -------------------------------------------------------------------------------- 2006 2005 - -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 6,583,694 $6,814,575 ----------------------------- Total distributions $ 6,583,694 $6,814,575 ----------------------------- Distributable Earnings: Undistributed ordinary income $ 42,393 Capital loss carryforward (19,798,047) Unrealized appreciation 155,462,742 ----------------------------- Total $135,707,088 ============================= - --------------------------------------------------------------------------------
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), $625,557 in commissions on the sale of Portfolio shares for the year ended December 31, 2006. 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 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 16 PIONEER VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2006, $30,145 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 $2,287 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $3,208 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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) - ----------------------------------------------------------------------------------------------------- Pioneer Fund VCT Portfolio $386,545,206 $164,933,562 $(9,470,820) $155,462,742 ============ ============ =========== ============ - -----------------------------------------------------------------------------------------------------
17 PIONEER VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, were $46,027,111 and $86,246,237, respectively. 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005: - -------------------------------------------------------------------------------
Pioneer Fund VCT Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ------------------------------------------------------------------------------------------------------------- CLASS I: Shares sold 1,347,828 $ 31,570,652 580,758 $ 11,975,172 Reinvestment of distributions 218,022 5,053,431 257,653 5,374,312 Shares repurchased (3,732,955) (85,740,891) (5,148,933) (106,238,103) -------------------------------------------------------------- Net increase (decrease) (2,167,105) $(49,116,808) (4,310,522) $ (88,888,619) ============================================================== CLASS II: Shares sold 2,196,546 $ 50,282,228 1,500,748 $ 30,883,995 Class II shares issued in reorganization -- -- 2,567,061 53,856,933 Reinvestment of distribution 65,905 1,530,262 69,257 1,440,013 Shares repurchased (1,394,115) (32,108,377) (1,597,303) (32,937,344) Redemptions in kind -- -- (3,626,019) (75,731,419) -------------------------------------------------------------- Net increase (decrease) 868,336 $ 19,704,113 (1,086,256) $ (22,487,822) ============================================================== - -------------------------------------------------------------------------------------------------------------
8. Merger Information 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) ========== ======== - ----------------------------------------------------------------------------------------------------
18 PIONEER VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 9. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 19 PIONEER VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- 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 of Pioneer Fund VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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 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, 2006, by correspondence with the custodian and brokers. 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, 2006, 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 9, 2007 20 PIONEER VARIABLE CONTRACTS TRUST Pioneer Fund 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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. 21 PIONEER VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- 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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group and an index considered appropriate by the Independent Trustees for this purpose. The Fund's performance, based upon total return, was in the first quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, the second quintile of the peer group for the three years ended June 30, 2006 and the second quintile for the five years ended June 30, 2006. (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 noted that the return of the Fund, before deduction of expenses, exceeded the return of its benchmark index for the 12-month period ended June 30, 2006. The Trustees, focusing on three-year total returns, concluded that the performance of the Fund was good. 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 size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee for the 12 months ended June 30, 2006 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 also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 to be in the first quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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 VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- points in the management fees were not necessary. 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 23 Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS - -------------------------------------------------------------------------------- Investment Adviser Pioneer Investment Management, Inc. Custodian Brown Brothers Harriman & Co. Independent Registered Public Accounting Firm Ernst & Young LLP Principal Underwriter Pioneer Funds Distributor, Inc. Legal Counsel Wilmer Cutler Pickering Hale and Dorr LLP Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc. Trustees and Officers The trust's Board of Trustees provides broad supervision over the portfolio's affairs. The officers of the trust are responsible for the trust's operations. The trust's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the trust within the meaning of the 1940 Act are referred to as Interested Trustees. Trustees who are not interested persons of the trust are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 86 U.S. registered investment portfolios for which Pioneer serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the trust is 60 State Street, Boston, Massachusetts 02109. - -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Board, Trustee until a successor trustee and President is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS John F. Cogan, Jr. (80)* Deputy Chairman and a Director of Pioneer Global Asset Management S.p.A. ("PGAM"); Non-Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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) - ------------------------------------------------------------------------------------------------------------------------------------ NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Director of ICI Mutual Insurance Company *Mr. Cogan is an Interested Trustee because he is an officer or director of the portfolio's investment adviser and certain of its affiliates. - ------------------------------------------------------------------------------------------------------------------------------------
24 Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES
POSITIONS HELD LENGTH OF SERVICE NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE David R. Bock (63) Trustee Trustee since 2005. Serves 3050 K. Street NW, until a successor trustee Washington, DC 20007 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Trustee Trustee since 2000. Serves 3509 Woodbine Street, until a successor trustee Chevy Chase, MD 20815 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves 1001 Sherbrooke Street West, until a successor trustee Montreal, Quebec, Canada is elected or earlier H3A 1G5 retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Trustee Trustee since 2006. Serves 89 Robbins Avenue, until a successor trustee Berkeley Heights, NJ is elected or earlier 07922 retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Trustee Trustee since 1995. Serves 200 State Street, 12th until a successor trustee Floor, Boston, MA 02109 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) Trustee Trustee since 2000. Serves One North Adgers Wharf, until a successor trustee Charleston, SC 29401 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ NAME, AGE AND ADDRESS PRINCIPAL OCCUPATION DURING PAST FIVE YEARS David R. Bock (63) Senior Vice President and Chief Financial Officer, I-trax, Inc. (publicly traded 3050 K. Street NW, health care services company) (2001 - present); Managing Partner, Federal Washington, DC 20007 City Capital Advisors (boutique merchant bank) (2002 to 2004); and Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet- based mortgage trading company) (2000 - 2002) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) President, Bush International (international financial advisory firm) 3509 Woodbine Street, Chevy Chase, MD 20815 - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) Founding Director, The Winthrop Group, Inc. (consulting firm); and 1001 Sherbrooke Street West, Desautels Faculty of Management, McGill University Montreal, Quebec, Canada H3A 1G5 - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Private investor (2004 - present); and Senior Executive Vice President, The 89 Robbins Avenue, Bank of New York (financial and securities services) (1986 - 2004) Berkeley Heights, NJ 07922 - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) President and Chief Executive Officer, Newbury, Piret & Company, Inc. 200 State Street, 12th (investment banking firm) Floor, Boston, MA 02109 - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) President, John Winthrop & Co., Inc. (private investment firm) One North Adgers Wharf, Charleston, SC 29401 - ------------------------------------------------------------------------------------------------------------------------------------ NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE David R. Bock (63) Director of The Enterprise Social Investment 3050 K. Street NW, Company (privately-held affordable housing Washington, DC 20007 finance company); and Director of New York Mortgage Trust (publicly traded mortgage REIT) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Director of Brady Corporation (industrial 3509 Woodbine Street, identification and specialty coated material Chevy Chase, MD 20815 products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) None 1001 Sherbrooke Street West, Montreal, Quebec, Canada H3A 1G5 - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Director of Quadriserv Inc. (technology 89 Robbins Avenue, products for securities lending industry) Berkeley Heights, NJ 07922 - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Director of New America High Income Fund, 200 State Street, 12th Inc. (closed-end investment company) Floor, Boston, MA 02109 - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) None One North Adgers Wharf, Charleston, SC 29401 - ------------------------------------------------------------------------------------------------------------------------------------
25 Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- TRUST OFFICERS
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Assistant Since 2003. Serves at the Secretary discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey Assistant Since 2006. Serves at the (45) Secretary discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Treasurer Since 2000. Serves at the discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Assistant Since 2004. Serves at the Treasurer discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Since 2000. Serves at the Treasurer discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Assistant Since 2002. Serves at the Treasurer discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS OFFICER Osbert M. Hood (54)+ President and Chief Executive Officer, PIM-USA since May Trustee of certain Pioneer Funds 2003 (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly-owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary of PIM-USA; Senior Vice President - Legal of None Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Vice President and Senior Counsel of Pioneer since July None 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 of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey Partner, Wilmer Cutler Pickering Hale and Dorr LLP; and None (45) Assistant Secretary of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Vice President - Fund Accounting, Administration and None Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Deputy Treasurer of Pioneer since 2004; Treasurer and None Senior 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 - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Vice President - Fund Accounting, None Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Fund Accounting Manager - Fund Accounting, Administration None and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------------------------------
26 Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- TRUST OFFICERS
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Katherine Kim Sullivan Assistant Since 2003. Serves at the (33) Treasurer discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Since 2006. Serves at the Compliance discretion of the Board Officer - ------------------------------------------------------------------------------------------------------------------------------------ NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS OFFICER Katherine Kim Sullivan Fund Administration Manager - Fund Accounting, None (33) Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Compliance Officer of Pioneer and all of the None Pioneer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio'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) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18649-01-0207 [Logo]PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Opportunities VCT Portfolio -- Class I Shares ANNUAL REPORT December 31, 2006 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 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 Trustees, Officers and Service Providers 23
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 Growth Opportunities VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/06 - -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [The following data is represented by a pie chart in the printed material.] U.S. Common Stocks 82.0% Temporary Cash Investment 16.9% Depositary Receipts for International Stocks 0.7% International Common Stocks 0.4%
Sector Distribution (As a percentage of equity holdings) [The following data is represented by a pie chart in the printed material.] Information Technology 26.0% Industrials 19.1% Health Care 17.6% Consumer Discretionary 14.9% Financials 9.3% Energy 5.4% Materials 3.5% Consumer Staples 3.1% Telecommunication Services 0.6% Utilities 0.5%
Five Largest Holdings (As a percentage of equity holdings) 1. Scientific Games Corp. 1.29% 2. Phillips-Van Heusen 1.20 3. Merit Medical Systems, Inc. 1.20 4. Terex Corp. 1.20 5. Vertex Pharmaceuticals, Inc. 1.17
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $ 26.79 $ 25.37
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) 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 is represented by a mountain chart in the printed material.]
Pioneer Growth Russell 2000 Opportunities Growth Index 12/96 10000 10000 14455 11295 12/98 14720 11433 15549 16360 12/00 14590 12691 17383 11520 12/02 10835 8034 15488 11933 12/04 18946 13641 20212 14207 12/06 21344 16103
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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- 10 Years 7.88% 5 Years 4.19% 1 Year 5.60%
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 pioneerinvestments.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 Growth Opportunities 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 Growth Opportunities VCT Portfolio Based on actual returns from July 1, 2006 through December 31, 2006.
Share Class I - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,063.98 Expenses Paid During Period* $ 4.11
* 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, 2006 through December 31, 2006.
Share Class I - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 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 VARIABLE CONTRACTS TRUST Pioneer Growth Opportunities VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/06 - -------------------------------------------------------------------------------- In the following interview, Diego Franzin and Peter Wiley, members of Pioneer Growth Opportunities VCT Portfolio's team, discuss the factors that influenced performance during the 12-month period ended December 31, 2006. Q. How did the Portfolio perform during the twelve months ended December 31, 2006? A. Class I shares of the Portfolio produced a total return of 5.60% at net asset value during the 12-month period ended December 31, 2006, compared to a return of 13.35% for its benchmark, the Russell 2000 Growth Index. The average return of the 127 Lipper Small-Cap Core Funds was 15.23%. Call 1-800-688-9915 or visit www.pioneerinvestments.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. Why did the Portfolio underperform? A. The primary reason for underperformance is that our investment style didn't work well in the momentum-driven environment of the early part of 2006. To review, we begin with a quantitative screen that narrows down the broad investment universe based on a variety of fundamental factors, then we use an intensive research process to select what we believe are the very best stocks from those that the screen shows to be potentially attractive investments. Unfortunately, the types of stocks in which we invest - those with strong growth characteristics and reasonable valuations - underperformed lower-quality issues during the first half of the year. The result was that the Fund's first half return of -0.75% was well behind the 6.07% return of the benchmark. At mid-year, we made a handful of disciplined tweaks to the Portfolio's screens. It is important to note that any changes we make to the screens are not subjective; they are the result of an intensive analysis of the factors driving individual stock performance. This analytical process showed that we should put less of an emphasis on the value components of the screen and place a greater weight on "growth at a reasonable price," or "GARP," factors. These shifts paid off in the form of improved relative performance during the second half. As we noted in the June semiannual report to shareholders, quantitative management is an evolutionary process, and we will always be taking steps to improve the way we pick stocks for the Portfolio. Q. What specific holdings helped and hurt performance? A. We strive to keep the Portfolio's sector weightings close to the sector weightings in the Russell 2000 Growth benchmark, meaning that performance is driven primarily by our individual stock selection. During 2006, our best-performing stock pick was Skechers USA, which designs and markets branded footwear. The company generated excellent earnings on the strength of better expense management and the growing popularity of "sport fusion" sneakers, and its stock rose 117% during the year. Terex - a diversified global manufacturer of heavy-duty industrial trucks and related products - was the next-best performer, also with a return of 117% for the year. The company delivered four quarters of extremely strong earnings, easily beating expectations in each quarter. Rounding out the list of top contributors was Packeteer, which provides infrastructure systems to improve Internet application performance and better manage bandwidth. Its shares surged as a 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 pioneerinvestments.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 Growth Opportunities VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- growing customer focus on internet and network security led to a strong rebound in its business. Turning to detractors from performance, the Portfolio's worst-performing holding was Merge Technologies, a provider of clinical information systems for health care organizations. The company became subject to an investigation of its accounting and financial disclosure procedures; specifically, its allegedly improper revenue recognition practices. Three senior executives, including the chief executive officer and chief financial officer, resigned. Quanta Capital Holdings was the second-largest detractor. A Bermuda-based insurance company that writes coverage for special classes of risk, Quanta had its credit rating downgraded significantly by the rating agency A.M.Best due to an unexpected widening in the magnitude of its losses. Also weighing on the Portfolio's return was its position in CV Therapeutics, a biotechnology firm whose major product, Ranexa (a treatment for chronic angina), proved to be only marginally effective. Q. Do you have any closing thoughts for investors? A. We believe opportunities for individual stock selection will be plentiful in the year ahead. We believe that energy costs will likely be lower in 2007 compared with the past year, which is good both for consumers and the economy as a whole. In addition, the headwinds of rising interest rates and housing market weakness are likely to be less of an issue. Still, we doubt that it will be easy to make money simply by placing broad sector "bets." Instead, we expect that individual stock selection will prove critical. We believe that growth stocks, in particular, should offer fertile ground for stock pickers such as ourselves. Going forward, we will continue making every effort to continue to improve the Portfolio's performance through ongoing refinements to our investment process. 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 Growth Opportunities VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 94.5% Energy - 5.1% Coal & Consumable Fuels - 0.4% 71,000 Alpha Natural Resources, Inc.* $ 1,010,330 ------------ Oil & Gas Drilling - 1.9% 289,600 Grey Wolf, Inc.* $ 1,986,656 155,300 Parker Drilling Co.* 1,268,801 72,700 Pride International, Inc.* 2,181,727 ------------ $ 5,437,184 ------------ Oil & Gas Equipment & Services - 1.3% 53,900 Dresser-Rand Group, Inc.* $ 1,318,933 63,500 Hornbeck Offshore Services* 2,266,950 ------------ $ 3,585,883 ------------ Oil & Gas Exploration & Production - 1.0% 42,100 Comstock Resources, Inc.* $ 1,307,626 29,700 Newfield Exploration Co.* 1,364,715 ------------ $ 2,672,341 ------------ Oil & Gas Storage & Transportation - 0.5% 25,800 Energy Transfer Partners LP $ 1,395,780 ------------ Total Energy $ 14,101,518 ------------ Materials - 3.3% Construction Materials - 2.1% 42,450 Florida Rock Industries, Inc. (a) $ 1,827,473 50,300 Headwaters, Inc.*(a) 1,205,188 10,700 Martin Marietta Materials, Inc. 1,111,837 24,200 Texas Industries, Inc. (a) 1,554,366 ------------ $ 5,698,864 ------------ Diversified Chemical - 0.3% 38,400 Hercules, Inc.* $ 741,504 ------------ Precious Metals & Minerals - 0.5% 191,000 Helca Mining Co. Corp.* $ 1,463,060 ------------ Steel - 0.4% 25,800 Cleveland-Cliffs, Inc. (a) $ 1,249,752 ------------ Total Materials $ 9,153,180 ------------ Capital Goods - 11.8% Aerospace & Defense - 2.4% 20,200 Ceradyne, Inc.* $ 1,141,300 35,400 DRS Technologies, Inc. 1,864,872 56,700 Moog, Inc.* 2,165,373 36,400 Teledyne Technologies, Inc.* 1,460,732 ------------ $ 6,632,277 ------------ Building Products - 1.1% 44,300 Lennox International, Inc. $ 1,356,023 34,500 NCI Building Systems, Inc.* 1,785,375 ------------ $ 3,141,398 ------------
Shares Value Construction, Farm Machinery & Heavy Trucks - 2.1% 48,500 Terex Corp.* $ 3,132,130 36,300 Trinity Industries, Inc. 1,277,760 99,200 Wabash National Corp. (a) 1,497,920 ------------ $ 5,907,810 ------------ Electrical Component & Equipment - 2.5% 298,800 Power-One, Inc.* $ 2,175,264 26,800 Regal-Beloit Corp. 1,407,268 51,100 The Lamson & Sessions Co.*(a) 1,239,686 42,800 Thomas & Betts Corp.* 2,023,584 ------------ $ 6,845,802 ------------ Industrial Conglomerates - 1.9% 115,500 Cardiome Pharma Corp.* $ 1,287,825 120,300 Tredegar Corp. 2,719,983 40,300 Walter Industries, Inc.* 1,090,115 ------------ $ 5,097,923 ------------ Industrial Machinery - 1.8% 50,300 Crane Co. $ 1,842,992 34,200 Gardner Denver, Inc.* 1,276,002 40,900 Idex Corp. 1,939,069 1 Mueller Water Products, Inc. (Class B)* 14 ------------ $ 5,058,077 ------------ Total Capital Goods $ 32,683,287 ------------ Commercial Services & Supplies - 3.7% Commercial Printing - 0.4% 55,800 Cenevo, Inc.* $ 1,182,960 ------------ Diversified Commercial Services - 0.6% 39,500 School Specialty, Inc.* $ 1,480,855 ------------ Human Resource & Employment Services - 1.4% 20,500 Administaff, Inc. (a) $ 876,785 84,100 Labor Ready, Inc.* 1,541,553 20,200 Manpower, Inc. 1,513,586 ------------ $ 3,931,924 ------------ Office Services & Supplies - 1.3% 116,700 Ikon Office Solutions, Inc. $ 1,910,379 36,300 United Stationers, Inc.* 1,694,847 ------------ $ 3,605,226 ------------ Total Commercial Services & Supplies $ 10,200,965 ------------ Transportation - 2.6% Airlines - 2.2% 56,600 Alaska Air Group, Inc* $ 2,235,700 63,600 Continental Airlines (Class B)*(a) 2,623,500 138,800 ExpressJet Holdings, Inc.* 1,124,280 ------------ $ 5,983,480 ------------
6 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Opportunities VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value Trucking - 0.4% 41,000 Laidlaw International, Inc. $ 1,247,630 ------------ Total Transportation $ 7,231,110 ------------ Consumer Durables & Apparel - 5.7% Apparel, Accessories & Luxury Goods - 1.9% 55,900 Carter's, Inc.* $ 1,425,450 62,700 Phillips-Van Heusen 3,145,659 27,600 The Warnaco Group, Inc.* 700,488 ------------ $ 5,271,597 ------------ Footwear - 2.6% 26,900 K-Swiss, Inc. $ 826,906 76,400 Skechers U.S.A.* 2,544,884 35,800 Steven Madden, Ltd. 1,256,222 87,200 Wolverine World Wide, Inc. 2,486,944 ------------ $ 7,114,956 ------------ Housewares & Specialties - 0.5% 41,900 Jarden Corp.*(a) $ 1,457,701 ------------ Leisure Products - 0.7% 70,700 Marvel Entertainment, Inc.*(a) $ 1,902,537 ------------ Total Consumer Durables & Apparel $ 15,746,791 ------------ Consumer Services - 3.7% Casinos & Gaming - 1.9% 76,900 Monarch Casino & Resort, Inc.* $ 1,836,372 112,000 Scientific Games Corp.* 3,385,760 ------------ $ 5,222,132 ------------ Education Services - 0.5% 46,300 DeVry, Inc. $ 1,296,400 ------------ Hotels, Resorts & Cruise Lines - 0.5% 48,200 Ambassadors Group, Inc. $ 1,462,870 ------------ Restaurants - 0.8% 70,500 Rare Hospitality International, Inc.* $ 2,321,565 ------------ Total Consumer Services $ 10,302,967 ------------ Media - 0.5% Publishing - 0.5% 30,700 Morningstar, Inc.* $ 1,383,035 ------------ Total Media $ 1,383,035 ------------ Retailing - 4.2% Apparel Retail - 3.4% 111,200 Bebe Stores, Inc. (a) $ 2,200,648 40,700 Charlotte Russe, Inc.* 1,251,525 162,100 New York & Co., Inc.* 2,120,268 87,950 Stage Stores, Inc. 2,672,801 49,300 The Dress Barn, Inc.*(a) 1,150,169 ------------ $ 9,395,411 ------------
Shares Value Internet Retail - 0.8% 20,400 Nutri/System, Inc.*(a) $ 1,293,156 17,900 Priceline.com, Inc.*(a) 780,619 ------------ $ 2,073,775 ------------ Total Retailing $ 11,469,186 ------------ Food & Drug Retailing - 0.5% Food Retail - 0.5% 60,500 Alimentation Couche-Tard, Inc. $ 1,322,634 ------------ Total Food & Drug Retailing $ 1,322,634 ------------ Food, Beverage & Tobacco - 0.5% Tobacco - 0.5% 22,400 Loews Corp Carolina Group* $ 1,449,728 ------------ Total Food, Beverage & Tobacco $ 1,449,728 ------------ Household & Personal Products - 1.9% Household Products - 1.1% 61,600 Central Garden & Pet Co.* $ 2,982,672 ------------ Personal Products - 0.8% 156,900 Playtex Products, Inc.* $ 2,257,791 ------------ Total Household & Personal Products $ 5,240,463 ------------ Health Care Equipment & Services - 10.5% Health Care Distributors - 0.4% 54,700 PSS World Medical, Inc.* $ 1,068,291 ------------ Health Care Equipment - 4.5% 65,300 Adeza Biomedical Corp.* $ 973,623 40,100 Conceptus, Inc.* 853,729 44,600 Edwards Lifesciences Group* 2,097,984 57,300 Hologic, Inc.* 2,709,144 73,700 IntraLase Corp.* 1,649,406 181,000 NMT Medical, Inc.*(a) 2,448,930 89,800 Thoratec Corp.* 1,578,684 ------------ $ 12,311,500 ------------ Health Care Facilities - 1.4% 44,800 Psychiatric Solution, Inc.* $ 1,680,896 67,700 VCA Antech, Inc.* 2,179,263 ------------ $ 3,860,159 ------------ Health Care Services - 1.7% 101,500 AMN Healthcare Services* $ 2,795,310 57,400 Inventive Health, Inc.* 2,029,090 ------------ $ 4,824,400 ------------ Health Care Supplies - 1.1% 198,400 Merit Medical Systems, Inc.* $ 3,142,656 ------------ Health Care Technology - 0.7% 74,300 Allscripts, Inc.*(a) $ 2,005,357 ------------ Managed Health Care - 0.7% 28,000 WellCare Health Plans, Inc.*(a) $ 1,929,200 ------------ Total Health Care Equipment & Services $ 29,141,563 ------------
The accompanying notes are an integral part of these financial statements. 7 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Opportunities VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Shares Value Pharmaceuticals & Biotechnology - 6.1% Biotechnology - 3.8% 119,700 Array Biopharma, Inc.* $ 1,546,524 129,800 BioMarin Pharmaceutical, Inc.*(a) 2,127,422 132,900 Cubist Pharmaceuticals, Inc.*(a) 2,406,819 62,700 Regeneron Pharmaceuticals, Inc.* 1,258,389 82,153 Vertex Pharmaceuticals, Inc.* 3,074,165 ------------ $ 10,413,319 ------------ Life Sciences Tools & Services - 1.0% 47,200 Advanced Magnetics, Inc.* $ 2,818,784 ------------ Pharmaceuticals - 1.3% 55,800 Sciele Pharma, Inc.* $ 1,339,200 157,700 ViroPharma, Inc.* 2,308,728 ------------ $ 3,647,928 ------------ Total Pharmaceuticals & Biotechnology $ 16,880,031 ------------ Banks - 2.2% Regional Banks - 1.6% 61,900 Hansen Natural Corp.*(a) $ 2,084,792 78,680 Southwest Bancorp, Inc. 2,192,025 ------------ $ 4,276,817 ------------ Thrifts & Mortgage Finance - 0.6% 81,400 Franklin Bank Corp.* $ 1,671,956 ------------ Total Banks $ 5,948,773 ------------ Diversified Financials - 3.0% Asset Management & Custody Banks - 1.5% 92,564 Apollo Investment Corp. $ 2,073,434 72,000 Waddell & Reed Financial, Inc. 1,969,920 ------------ $ 4,043,354 ------------ Consumer Finance - 0.7% 10,500 Advanta Corp. (Class B) $ 458,115 34,200 World Acceptance Corp.* 1,605,690 ------------ $ 2,063,805 ------------ Investment Banking & Brokerage - 0.8% 22,000 A.G. Edwards, Inc. $ 1,392,380 60,000 TradeStation Group, Inc.* 825,000 ------------ $ 2,217,380 ------------ Total Diversified Financials $ 8,324,539 ------------ Insurance - 1.9% Property & Casualty Insurance - 0.4% 44,000 Assured Guaranty, Ltd. $ 1,170,400 ------------ Reinsurance - 1.5% 70,300 IPC Holdings, Ltd. $ 2,210,935 62,100 Platinum Underwriter Holdings, Ltd. 1,921,374 ------------ $ 4,132,309 ------------ Total Insurance $ 5,302,709 ------------
Shares Value Real Estate - 1.7% Mortgage Real Estate Investment Trusts - 1.7% 159,000 Annaly Capital Management, Inc. $ 2,211,690 154,800 Deerfield Triarc Capital Corp. 2,620,764 ------------ $ 4,832,454 ------------ Total Real Estate $ 4,832,454 ------------ Software & Services - 13.3% Application Software - 4.9% 93,900 Altiris, Inc.* $ 2,383,182 33,100 Ansys, Inc.* 1,439,519 41,300 Bottomline Technologies, Inc.* 472,885 67,800 Jack Henry & Associates, Inc. 1,450,920 18,500 MicroStrategy, Inc.* 2,109,185 137,300 Quest Software, Inc.* 2,011,445 176,200 Sonic Solutions*(a) 2,872,060 88,300 TIBCO Software, Inc.* 833,552 ------------ $ 13,572,748 ------------ Data Processing & Outsourced Services - 0.8% 78,000 eFunds Corp.* $ 2,145,000 ------------ Internet Software & Services - 5.0% 51,900 Digital Insight Corp.* $ 1,997,631 40,900 Digital River, Inc.* 2,281,811 36,600 Infospace, Inc.* 750,666 94,900 J2 Global Communications, Inc.*(a) 2,586,025 173,900 RealNetworks, Inc.* 1,902,466 214,800 Sonicwall, Inc.* 1,808,616 72,700 WebEx Communications, Inc.* 2,536,503 ------------ $ 13,863,718 ------------ IT Consulting & Other Services - 1.0% 72,100 Acxiom Corp. $ 1,849,365 38,300 Forrester Research, Inc.* 1,038,313 ------------ $ 2,887,678 ------------ Systems Software - 1.6% 52,600 Macrovision Corp.* $ 1,486,476 27,100 Micros Systems, Inc.* 1,428,170 55,800 Progress Software Corp.* 1,558,494 ------------ $ 4,473,140 ------------ Total Software & Services $ 36,942,284 ------------ Technology Hardware & Equipment - 6.0% Communications Equipment - 2.1% 46,400 CommScope, Inc.* $ 1,414,272 22,900 Comtech Telecommunications* 871,803 55,100 NETGEAR, Inc.* 1,446,375 159,900 Packeteer, Inc.* 2,174,640 ------------ $ 5,907,090 ------------
8 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Opportunities VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value Computer Hardware - 1.3% 67,600 Avid Technology, Inc.*(a) $ 2,518,776 24,400 Diebold, Inc. 1,137,040 ------------ $ 3,655,816 ------------ Electronic Manufacturing Services - 1.0% 66,900 Plexus Corp.* $ 1,597,572 93,800 TTM Technologies, Inc.* 1,062,754 ------------ $ 2,660,326 ------------ Technology Distributors - 1.6% 95,000 Avnet, Inc.* $ 2,425,350 68,000 Scansource, Inc.* 2,067,200 ------------ $ 4,492,550 ------------ Total Technology Hardware & Equipment $ 16,715,782 ------------ Semiconductors - 5.3% Semiconductor Equipment - 2.4% 103,300 Advanced Energy Industries, Inc.* $ 1,949,271 184,800 Emcore Corp.*(a) 1,021,944 82,800 MKS Instruments, Inc.* 1,869,624 104,300 Photronics, Inc.* 1,704,262 ------------ $ 6,545,101 ------------ Semiconductors - 2.9% 85,100 AMIS Holdings, Inc.* $ 899,507 162,600 Amkor Technology, Inc.*(a) 1,518,684 55,900 Atheros Communications* 1,191,787 87,400 IXYS Corp.* 777,860 183,000 SGC Holding Corp.*(a) 1,385,310 78,600 Silicon Image, Inc.* 999,792 35,700 Silicon Laboratories, Inc.* 1,237,005 ------------ $ 8,009,945 ------------ Total Semiconductors $ 14,555,046 ------------ Telecommunication Services - 0.5% Integrated Telecommunication Services - 0.5% 96,400 Alaska Communications Systems Group, Inc. $ 1,464,316 ------------ Total Telecommunication Services $ 1,464,316 ------------ Utilities - 0.5% Gas Utilities - 0.5% 37,300 Suburban Propane Properties LP*(a) $ 1,417,773 ------------ Total Utilities $ 1,417,773 ------------ TOTAL COMMON STOCKS (Cost $229,260,452) $261,810,134 ------------
Shares Value WARRANTS - 0.0% Health Care Equipment & Services - 0.0% Health Care Facilities - 0.0% 140,000 Lifepoint, Exp. 4/1/07* $ -- 84,000 Lifepoint, Exp. 7/21/07* -- ------------ Total Health Care Equipment & Services $ -- ------------ Pharmaceuticals & Biotechnology - 0.0% Biotechnology - 0.0% 250,000 Photomedex, Exp. 6/13/07* $ -- ------------ Total Pharmaceuticals & Biotechnology $ -- ------------ TOTAL WARRANTS (Cost $0) $ -- ------------ Principal Amount TEMPORARY CASH INVESTMENTS - 19.3% Repurchase Agreement - 5.0% $13,800,000 UBS Warburg, Inc., 4.7%, dated 12/29/06, repurchase price of $13,800,000 plus accrued interest on 1/2/07 collateralized by $13,868,000 U.S. Treasury Bill, 5.625%, 5/15/08 $ 13,800,000 ------------ Shares Security Lending Collateral - 14.3% 39,471,064 Securities Lending Investment Fund, 5.26% $ 39,471,064 ------------ TOTAL TEMPORARY CASH INVESTMENTS (Cost $53,271,064) $ 53,271,064 ------------ TOTAL INVESTMENT IN SECURITIES - 113.8% (Cost $282,531,516) $315,081,198 ------------ OTHER ASSETS AND LIABILITIES - (13.8)% $(38,134,268) ------------ TOTAL NET ASSETS - 100.0% $276,946,931 ============
The accompanying notes are an integral part of these financial statements. 9 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Opportunities VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- * Non-income producing security. (a) At December 31, 2006, the following securities were out on loan:
Shares Security Value 20,295 Administaff, Inc. $ 868,017 73,557 Allscripts, Inc.* 1,985,303 38,974 Amkor Technology, Inc.* 364,017 66,924 Avid Technology, Inc.* 2,493,588 66,855 Bebe Stores, Inc. 1,323,060 125,500 BioMarin Pharmaceutical, Inc.* 2,056,945 25,542 Cleveland-Cliffs, Inc. 1,237,254 17,934 Continental Airlines (Class B)* 739,778 131,009 Cubist Pharmaceuticals, Inc.* 2,372,573 48,681 The Dress Barn, Inc.* 1,135,728 182,000 Emcore Corp.* 1,006,460 42,025 Florida Rock Industries, Inc. 1,809,176 61,281 Hansen Natural Corp.* 2,063,944 34,177 Headwaters, Inc.* 818,881 83,200 J2 Global Communications, Inc.* 2,267,200 41,481 Jarden Corp.* 1,443,124 50,589 The Lamson & Sessions Co.* 1,227,289 52,800 Marvel Entertainment, Inc.* 1,420,848 63,162 NMT Medical, Inc.* 854,582 20,196 Nutri/System, Inc.* 1,280,224 181,170 SGC Holding Corp.* 1,371,457 11,621 Priceline.com, Inc.* 506,792 174,009 Sonic Solutions* 2,836,347 17,268 Suburban Propane Properties LP* 656,357 23,958 Texas Industries, Inc. 1,538,822 29,500 Wabash National Corp. 445,450 27,710 WellCare Health Plans, Inc.* 1,909,219 ----------- Total $38,032,435 ===========
10 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Opportunities VCT Portfolio - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Year Year Year Year Ended Ended Ended Ended Ended Class I 12/31/06 12/31/05 12/31/04 (b) 12/31/03 12/31/02 Net asset value, beginning of period $ 25.37 $ 23.78 $ 19.44 $ 13.60 $ 21.89 -------- -------- -------- -------- --------- Increase (decrease) from investment operations: Net investment loss $ (0.01) $ (0.01) $ (0.01) $ (0.02) $ (0.10) Net realized and unrealized gain (loss) on investments and foreign currency transactions 1.43 1.60 4.35 5.86 (8.12)(a) -------- -------- -------- -------- --------- Net increase (decrease) from investment operations $ 1.42 $ 1.59 $ 4.34 $ 5.84 $ (8.22) Distributions to shareowners: Net realized gain -- -- -- -- (0.07) -------- -------- -------- -------- --------- Net increase (decrease) in net asset value $ 1.42 $ 1.59 $ 4.34 $ 5.84 $ (8.29) -------- -------- -------- -------- --------- Net asset value, end of period $ 26.79 $ 25.37 $ 23.78 $ 19.44 $ 13.60 ======== ======== ======== ======== ========= Total return* 5.60% 6.69% 22.33% 42.94% (37.67)% Ratio of net expenses to average net assets 0.79% 0.79% 0.81% 0.80% 0.79% Ratio of net investment loss to average net assets (0.05)% (0.02)% (0.06)% (0.16)% (0.58)% Portfolio turnover rate 105% 75% 19% 54% 38% Net assets, end of period (in thousands) $276,947 $323,945 $383,468 $337,573 $245,954 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.82% 0.80% 0.81% 0.80% 0.79% Net investment loss (0.08)% (0.03)% (0.06)% (0.16)% (0.58)% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.79% 0.79% 0.81% 0.80% 0.79% Net investment loss (0.05)% (0.02)% (0.06)% (0.16)% (0.58)%
* 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. (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. 11 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Opportunities VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $38,032,435) (cost $282,531,516) $315,081,198 Receivables -- Investment securities sold 1,684,679 Fund shares sold 148,190 Dividends, interest and foreign taxes withheld 167,603 Other 6,051 ------------ Total assets $317,087,721 ------------ LIABILITIES: Payables -- Fund shares repurchased $ 522,933 Upon return of securities loaned 39,471,064 Due to bank 70,875 Due to affiliates 17,505 Accrued expenses 58,413 ------------ Total liabilities $ 40,140,790 ------------ NET ASSETS: Paid-in capital $213,791,851 Accumulated net investment loss (3,085) Accumulated net realized gain on investments 30,608,483 Net unrealized gain on investments 32,549,682 ------------ Total net assets $276,946,931 ------------ NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $276,946,931 Shares outstanding 10,336,211 ------------ Net asset value per share $ 26.79
12 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Opportunities VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $1,179) $ 1,716,973 Interest 306,644 Income on securities loaned, net 197,047 ------------- Total investment income $ 2,220,664 ------------- EXPENSES: Management fees $ 2,212,733 Transfer agent fees and expenses 2,148 Administrative reimbursements 57,789 Registration fees 7 Custodian fees 47,385 Professional fees 53,901 Printing expense 44,488 Fees and expenses of nonaffiliated trustees 6,420 Miscellaneous 15,618 ------------- Total expenses $ 2,440,489 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (78,245) ------------- Net expenses $ 2,362,244 ------------- Net investment loss $ (141,580) ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ 45,300,334 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (7,696) ------------- $ 45,292,638 ------------- Change in net unrealized gain from: Investments $ (29,849,607) ------------- Net gain on investments and foreign currency transactions $ 15,443,031 ============= Net increase in net assets resulting from operations $ 15,301,451 =============
The accompanying notes are an integral part of these financial statements. 13 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Opportunities VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment loss $ (141,580) $ (68,614) Net realized gain on investments and foreign currency transactions 45,292,638 74,701,451 Change in net unrealized gain (loss) on investments and foreign currency transactions (29,849,607) (54,760,663) ------------- ------------- Net increase in net assets resulting from operations $ 15,301,451 $ 19,872,174 ------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 16,282,566 $ 9,685,009 Cost of shares repurchased (78,582,281) (89,080,383) ------------- ------------- Net decrease in net assets resulting from Fund share transactions $ (62,299,715) $ (79,395,374) ------------- ------------- Net decrease in net assets $ (46,998,264) $ (59,523,200) NET ASSETS: Beginning of year 323,945,195 383,468,395 ------------- ------------- End of year $ 276,946,931 $ 323,945,195 ============= ============= Accumulated net investment loss, end of year $ (3,085) $ -- ============= =============
14 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Opportunities VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 Portfolio seeks capital appreciation. 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(es). Please refer to those documents when considering the Portfolio's risks. 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 year. Actual results could differ from those estimates. The following is a summary of significant 15 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Opportunities VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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 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, 2006, 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 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 $3,853,566 in capital losses recognized between November 1, 2006 and December 31, 2006 to its fiscal year ending December 31, 2007. At December 31, 2006, 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 - -------------------------------------------------------------------------------------------------------------- Growth Opportunities Portfolio $138,495 $61,359 $ (199,854) ======== ======= ========== - --------------------------------------------------------------------------------------------------------------
16 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Opportunities VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis. There were no distributions paid during the years ended December 31, 2006 and December 31, 2005.
- -------------------------------------------------------------------------------- 2006 - -------------------------------------------------------------------------------- Distributable Earnings (Accumulated Losses): Undistributed long-term gain $34,462,442 Current Year Post October Loss Deferred (3,856,651) Unrealized appreciation 32,549,289 ----------- Total $63,155,080 =========== - --------------------------------------------------------------------------------
The difference between book basis and tax basis unrealized appreciation is attributable to the tax deferral of losses on wash sales. 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, if any, 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. 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) $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. Dividends and distributions to shareowners are recorded on the ex-dividend date. F. Securities Lending The Portfolio lends securities in its portfolio to certain broker-dealers or other institutional investors, with the Portfolio's custodian acting as the lending agent. When entering into a loan, the Portfolio receives collateral which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive interest or dividends on the securities loaned, and gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for 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. 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. 17 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Opportunities VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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. 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 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, 2006, $17,356 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 negotiated rates. Included in due to affiliates is $149 in transfer agent fees payable to PIMSS at December 31, 2006. 4. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $282,531,909 $39,712,805 $(7,163,516) $32,549,289 ============ =========== =========== =========== - ------------------------------------------------------------------------------------------------------------
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, 2006, were $307,627,669 and $381,532,309, respectively. 6. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- ---------------------------------------------------------------------------------------------------------- Growth Opportunities Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ---------------------------------------------------------------------------------------------------------- Class I: Shares Sold 614,603 $ 16,282,566 406,285 $ 9,685,009 Shares repurchased (3,045,544) (78,582,281) (3,765,592) (89,080,383) -------------------------------------------------------------------- Net decrease (2,430,941) $(62,299,715) (3,359,307) $(79,395,374) ==================================================================== - ----------------------------------------------------------------------------------------------------------
7. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 18 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Opportunities VCT Portfolio - -------------------------------------------------------------------------------- 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 of Pioneer Growth Opportunities VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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, 2006, by correspondence with the custodian and brokers. 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, 2006, 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 Boston, Massachusetts February 9, 2007 19 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Opportunities 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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. 20 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Opportunities 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. The Trustees also reviewed the Fund's absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group and an index considered appropriate by the Independent Trustees for this purpose. The Fund's performance, based upon total return, was in the fifth quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, the second quintile of the peer group for the three years ended June 30, 2006, the fourth quintile for the five years ended June 30, 2006 and the third quintile for the ten years ended June 30, 2006. (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, focusing on three-year total returns, concluded that the performance of the Fund was satisfactory. 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 size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee for the 12 months ended June 30, 2006 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 also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 (after giving effect to the expense limitation) to be in the second quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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. 21 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Opportunities VCT Portfolio - -------------------------------------------------------------------------------- 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. 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fees payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 22 Pioneer Growth Opportunities 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 portfolio's affairs. 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 Principal Underwriter interested persons of the trust within the meaning of the Pioneer Funds Distributor, Inc. 1940 Act are referred to as Interested Trustees. Trustees who are not interested persons of the trust are referred to Legal Counsel as Independent Trustees. Each of the Trustees serves as a Wilmer Cutler Pickering Hale and Dorr LLP trustee of Independent Registered Public Accounting Firm each of the 86 U.S. registered investment portfolios for Shareowner Services and Transfer which Pioneer serves as investment adviser (the Ernst & Pioneer Investment Management Shareholder Services, Inc. Young LLP "Pioneer Funds"). The address for all Interested Trustees and all officers of the trust is 60 State Street, Boston, Massachusetts 02109.
- -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Board, Trustee until a successor trustee and President is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS John F. Cogan, Jr. (80)* Deputy Chairman and a Director of Pioneer Global Asset Management S.p.A. ("PGAM"); Non-Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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) - --------------------------------------------------------------------------------------------------------- NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Director of ICI Mutual Insurance Company *Mr. Cogan is an Interested Trustee because he is an officer or director of the portfolio's investment adviser and certain of its affiliates. - --------------------------------------------------------------------------------
23 Pioneer Growth Opportunities VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE David R. Bock (63) Trustee Trustee since 2005. Serves 3050 K. Street NW, until a successor trustee Washington, DC 20007 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- Mary K. Bush (58) Trustee Trustee since 2000. Serves 3509 Woodbine Street, until a successor trustee Chevy Chase, MD 20815 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves 1001 Sherbrooke Street West, until a successor trustee Montreal, Quebec, Canada is elected or earlier H3A 1G5 retirement or removal. - -------------------------------------------------------------------------------- Thomas J. Perna (56) Trustee Trustee since 2006. Serves 89 Robbins Avenue, until a successor trustee Berkeley Heights, NJ is elected or earlier 07922 retirement or removal. - -------------------------------------------------------------------------------- Marguerite A. Piret (58) Trustee Trustee since 1995. Serves 200 State Street, 12th until a successor trustee Floor, Boston, MA 02109 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- John Winthrop (70) Trustee Trustee since 2000. Serves One North Adgers Wharf, until a successor trustee Charleston, SC 29401 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- NAME, AGE AND ADDRESS PRINCIPAL OCCUPATION DURING PAST FIVE YEARS David R. Bock (63) Senior Vice President and Chief Financial Officer, I-trax, Inc. (publicly traded 3050 K. Street NW, health care services company) (2001 - present); Managing Partner, Federal Washington, DC 20007 City Capital Advisors (boutique merchant bank) (2002 to 2004); and Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet- based mortgage trading company) (2000 - 2002) - ----------------------------------------------------------------------------------------------------------------- Mary K. Bush (58) President, Bush International (international financial advisory firm) 3509 Woodbine Street, Chevy Chase, MD 20815 - ----------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (59) Founding Director, The Winthrop Group, Inc. (consulting firm); and 1001 Sherbrooke Street West, Desautels Faculty of Management, McGill University Montreal, Quebec, Canada H3A 1G5 - ----------------------------------------------------------------------------------------------------------------- Thomas J. Perna (56) Private investor (2004 - present); and Senior Executive Vice President, The 89 Robbins Avenue, Bank of New York (financial and securities services) (1986 - 2004) Berkeley Heights, NJ 07922 - ----------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (58) President and Chief Executive Officer, Newbury, Piret & Company, Inc. 200 State Street, 12th (investment banking firm) Floor, Boston, MA 02109 - ----------------------------------------------------------------------------------------------------------------- John Winthrop (70) President, John Winthrop & Co., Inc. (private investment firm) One North Adgers Wharf, Charleston, SC 29401 - ----------------------------------------------------------------------------------------------------------------- NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE David R. Bock (63) Director of The Enterprise Social Investment 3050 K. Street NW, Company (privately-held affordable housing Washington, DC 20007 finance company); and Director of New York Mortgage Trust (publicly traded mortgage REIT) - -------------------------------------------------------------------------------- Mary K. Bush (58) Director of Brady Corporation (industrial 3509 Woodbine Street, identification and specialty coated material Chevy Chase, MD 20815 products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - -------------------------------------------------------------------------------- Margaret B.W. Graham (59) None 1001 Sherbrooke Street West, Montreal, Quebec, Canada H3A 1G5 - -------------------------------------------------------------------------------- Thomas J. Perna (56) Director of Quadriserv Inc. (technology 89 Robbins Avenue, products for securities lending industry) Berkeley Heights, NJ 07922 - -------------------------------------------------------------------------------- Marguerite A. Piret (58) Director of New America High Income Fund, 200 State Street, 12th Inc. (closed-end investment company) Floor, Boston, MA 02109 - -------------------------------------------------------------------------------- John Winthrop (70) None One North Adgers Wharf, Charleston, SC 29401 - --------------------------------------------------------------------------------
24 Pioneer Growth Opportunities VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President discretion of the Board - -------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the discretion of the Board - -------------------------------------------------------------------------------- Christopher J. Kelley (42) Assistant Since 2003. Serves at the Secretary discretion of the Board - -------------------------------------------------------------------------------- Christopher P. Harvey (45) Assistant Since 2006. Serves at the Secretary discretion of the Board - -------------------------------------------------------------------------------- Vincent Nave (61) Treasurer Since 2000. Serves at the discretion of the Board - -------------------------------------------------------------------------------- Mark E. Bradley (47) Assistant Since 2004. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Since 2000. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- Gary Sullivan (48) Assistant Since 2002. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS Osbert M. Hood (54)+ President and Chief Executive Officer, PIM-USA since May 2003 (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 - ------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary of PIM-USA; Senior Vice President - Legal of Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------- Christopher J. Kelley (42) Vice President and Senior Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001); and Assistant Secretary of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------- Christopher P. Harvey (45) Partner, Wilmer Cutler Pickering Hale and Dorr LLP; and Assistant Secretary of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------- Vincent Nave (61) Vice President - Fund Accounting, Administration and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------- Mark E. Bradley (47) Deputy Treasurer of Pioneer since 2004; Treasurer and Senior 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 - ------------------------------------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Vice President - Fund Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------- Gary Sullivan (48) Fund Accounting Manager - Fund Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------- NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS OFFICER Osbert M. Hood (54)+ Trustee of certain Pioneer Funds +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------- Dorothy E. Bourassa (58) None - ------------------------------------------------------------------------------- Christopher J. Kelley (42) None - ------------------------------------------------------------------------------- Christopher P. Harvey (45) None - ------------------------------------------------------------------------------- Vincent Nave (61) None - ------------------------------------------------------------------------------- Mark E. Bradley (47) None - ------------------------------------------------------------------------------- Luis I. Presutti (41) None - ------------------------------------------------------------------------------- Gary Sullivan (48) None - -------------------------------------------------------------------------------
25 Pioneer Growth Opportunities VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Katherine Kim Sullivan (33) Assistant Since 2003. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Since 2006. Serves at the Compliance discretion of the Board Officer - -------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS Katherine Kim Sullivan (33) Fund Administration Manager - Fund Accounting, Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Compliance Officer of Pioneer and all of the Pioneer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------------- NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS OFFICER Katherine Kim Sullivan (33) None - -------------------------------------------------------------------------------- Terrence J. Cullen (45) None - --------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio'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 Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18655-01-0207 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Shares VCT Portfolio -- Class I Shares ANNUAL REPORT December 31, 2006 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 Growth Shares VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/06 - -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL.]
U.S. Common Stocks 93.2% Depositary Receipts for International Stocks 4.0 Temporary Cash Investment 2.8
Sector Distribution (As a percentage of equity holdings) [THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL.]
Information Technology 30.1% Health Care 21.5 Consumer Discretionary 12.5 Industrials 12.3 Consumer Staples 11.0 Financials 7.7 Energy 2.8 Utilities 2.1
Five Largest Holdings (As a percentage of equity holdings)
1. Microsoft Corp. 6.32% 2. Cisco Systems, Inc. 5.05 3. Altria Group, Inc. 4.26 4. Boston Scientific Corp. 4.03 5. Home Depot, Inc. 3.90
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $ 14.60 $ 13.39
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $ 0.0272 $ - $ -
- -------------------------------------------------------------------------------- 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 TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Pioneer Growth Shares VCT Portfolio Russell 1000 Growth Index 10/97 10,000 10,000 10,227 10,542 12/98 13,561 14,622 14,637 19,470 12/00 13,484 15,104 10,962 12,019 12/07 7,157 8,668 8,971 11,247 12/07 9,573 11,955 9,906 12,584 12/07 10,824 13,726
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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- Life-of-Class (10/31/97) 0.87% 5 Years -0.25% 1 Year 9.27%
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.pioneerinvestments.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 Growth Shares 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 Growth Shares VCT Portfolio Based on actual returns from July 1, 2006 through December 31, 2006.
Share Class I - ---------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,123.14 Expenses Paid During Period* $ 5.62
* Expenses are equal to the Portfolio's annualized expense ratio of 1.05% 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 Shares VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2006 through December 31, 2006.
Share Class I - ---------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,019.91 Expenses Paid During Period* $ 5.35
* Expenses are equal to the Portfolio's annualized expense ratio of 1.05% 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 VARIABLE CONTRACTS TRUST Pioneer Growth Shares VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/06 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Note to Shareholders: Andrew Acheson and Timothy Mulrenan, two veteran equity managers, have assumed portfolio management responsibilities for Pioneer Growth Shares VCT Portfolio, effective January 16, 2007. Mr. Acheson has more than 12 years of professional investment experience, seven of them at Pioneer, where his responsibilities have included managing Pioneer Independence Fund and Pioneer Select Equity Fund. He holds an MBA from the Cranfield School of Management, England. Mr. Mulrenan, CFA, has more than 21 years of professional experience, including 10 years at Pioneer, where he is a member of the large-cap growth team. He has managed Pioneer's Concentrated Growth institutional portfolios as well as large-cap equity portfolios of balanced funds. - -------------------------------------------------------------------------------- Despite a dramatic decline from mid-May through mid-July, the domestic stock market posted strong results in 2006. As equities began recovering in July, large-cap growth companies assumed a leadership role in market performance for the second half of the year, while more cyclical stocks, which had been in favor the previous two years, began to lag. In the following interview, Christopher M. Galizio and Stephen A. Balter discuss the market and the factors that influenced performance during 2006, when they managed the Portfolio. Portfolio managers Andrew Acheson and Timothy Mulrenan, who took responsibility for the Portfolio's management on January 16, 2007, give their views on the outlook. Q. How did the Portfolio perform during the 12 months ended December 31, 2006? A. Pioneer Growth Shares VCT Portfolio's performance improved dramatically in the second half of the year as the stock market finally began recognizing values in the large-cap growth stocks that we emphasize. After trailing the benchmark Russell 1000 Growth Index by more than two full percentage points during the year's first six months, the Portfolio's relative performance improved noticeably beginning in July. The Portfolio's Class I shares generated a total return of 9.27%, at net asset value, for the 12 months. During the same period, the Russell 1000 Growth Index returned 9.07%, while the average performance of the 193 variable annuity portfolios in Lipper's Large Cap Growth category was 6.31%. Call 1-800-688-9915 or visit www.pioneerinvestments.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 primary factors affecting performance during the year? A. Throughout the 12 months, we positioned the Portfolio for a growth environment, emphasizing companies that we believed should be helped by developing long-term trends. These trends included information technology companies whose products and services would be in demand as innovations speeded data transmission, allowed new formats to be transmitted digitally, and boosted corporate productivity generally. The trends also included health care companies that could offer services and products for an aging population. We saw good value in many large-cap companies in these sectors. Conversely, we deemphasized the more cyclical sectors, such as energy and industrials, that had performed well over the previous two years, but now appeared to be richly priced as the 2003-2005 cyclical recovery played out. In the first half of 2006, this positioning did not yield good results, particularly as stock values dropped in the May-July interval. However, when the stock market began to recover in mid-July, the large-cap growth companies that we favored started leading the market, with technology stocks performing particularly well. In addition, many consumer discretionary companies, which had fallen to relatively low prices, outperformed as consumer spending in the face of expectations that a decelerating economy would impact consumption. In general, the secular growth companies that we emphasized led the market's second-half charge. 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 pioneerinvestments.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 Growth Shares VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Q. What types of investments most influenced Portfolio results in 2006? A. Our technology investments performed well, with many of our holdings benefiting from the growing need for more bandwidth on the Internet to allow transmission of more complex digital files, including video. This trend led to strong revenue growth for holdings such as Cisco Systems and Juniper Networks, both of which produce routers and switchers, and for F5 Networks, a smaller company that specializes in sophisticated switches that increase network efficiency. We also had excellent results from our investment in Macrovision. Its software products make it easier to install software and that protect against copyright theft over the Internet. Macrovision's stock alone climbed by more than 50% during 2006. Other outstanding performers included Altria Group, the parent company of both Philip Morris and Kraft Foods. As the risks from tobacco liability lawsuits appeared to decline, Altria announced plans to spin off its Kraft Foods unit --a move welcomed by the stock market. Our investment in General Electric also performed well. We purchased GE at a low stock price at a time when we believed its earnings prospects were improving because of its leadership in many late-cyclical businesses, such as power generation plants and medical imaging. In health care, a stand-out performer was AstraZeneca, a London-based pharmaceutical company that appeared to be inexpensive and which was undergoing a restructuring program that reduced its operating costs substantially while maintaining revenues. We took profits and sold our position in AstraZeneca. Amgen, another health care holding, was a disappointment in 2006, however. This biotechnology company underperformed because of fears about competition in the anemia market from a new drug that was being introduced by Roche. Another investment that detracted from Portfolio performance was Corning, a leading producer of glass for flat-panel televisions and computers. It was affected by intense competition in the flat-panel television market that pressured its revenue growth. Also holding back results was our position in Intel, which faced increased competition from AMD in semiconductors for personal computers. We have sold our Intel holding and retained positions in Amgen and Corning as of December 31, 2006. Q. Andrew and Tim, what is your investment outlook? A. Entering 2007, we think there is a generally favorable environment for large-cap stocks. We think economic growth, which has been decelerating during the latter months of 2006, should start to pick up in the first half of 2007. Factors such as a sluggish housing market, which have weighed on the economy in recent months, should not be as significant a factor in the coming months. While inflation may remain at somewhat elevated levels, we don't think it should pose a serious threat, given the ability of companies to absorb higher costs through improvements in productivity. However, continued inflationary pressures in a period of renewed growth may prompt the Federal Reserve Board to raise short-term interest rates again. Our biggest fear is that the Federal Reserve might over-react to evidence of a pick-up in growth, increasing the chances of a recession. We believe the valuations of most stocks remain reasonable, while large-cap stocks in recent months have begun outperforming small- and mid-cap stocks. We believe large-caps should continue to do well, even in an economic slowdown, as they have tended to have superior competitive positions in their industries and have retained large cash positions on their balance sheets. In addition, larger companies tend to sell more of their products overseas, where their competitive positions may have been strengthened by the recent weakening of the U.S. dollar. Overall, we think large-cap stocks are well positioned to perform well in the coming months. 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 Growth Shares VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 99.7% Energy - 2.8% Integrated Oil & Gas - 2.8% 8,000 ConocoPhillips $ 575,600 8,000 Repsol SA (A.D.R.) (a) 276,000 ----------- $ 851,600 ----------- Total Energy $ 851,600 ----------- Capital Goods - 12.3% Aerospace & Defense - 3.8% 4,600 L-3 Communications Holdings, Inc. $ 376,188 13,000 United Technologies Corp. 812,760 ----------- $ 1,188,948 ----------- Industrial Conglomerates - 8.5% 9,600 3M Co. $ 748,128 32,100 General Electric Co. 1,194,441 22,100 Tyco International, Ltd. 671,840 ----------- $ 2,614,409 ----------- Total Capital Goods $ 3,803,357 ----------- Consumer Durables & Apparel - 1.6% Footwear - 1.6% 5,000 Nike, Inc. $ 495,150 ----------- Total Consumer Durables & Apparel $ 495,150 ----------- Consumer Services - 1.4% Hotels, Resorts & Cruise Lines - 1.4% 9,000 Carnival Corp. $ 441,450 ----------- Total Consumer Services $ 441,450 ----------- Media - 1.4% Movies & Entertainment - 1.4% 10,750 Viacom, Inc. (Class B)* $ 441,073 ----------- Total Media $ 441,073 ----------- Retailing - 8.0% Apparel Retail - 4.1% 9,800 Abercrombie & Fitch Co. $ 682,374 20,400 TJX Companies, Inc. 581,808 ----------- $ 1,264,182 ----------- Home Improvement Retail - 3.9% 29,900 Home Depot, Inc. $ 1,200,784 ----------- Total Retailing $ 2,464,966 ----------- Food & Drug Retailing - 2.5% Drug Retail - 2.5% 25,100 CVS Corp. $ 775,841 ----------- Total Food & Drug Retailing $ 775,841 ----------- Food, Beverage & Tobacco - 5.1% Soft Drinks - 0.8% 2,200 Fomento Economico Mexicano SA de CV $ 254,672 -----------
Shares Value Tobacco - 4.3% 15,300 Altria Group, Inc. $ 1,313,046 ----------- Total Food, Beverage & Tobacco $ 1,567,718 ----------- Household & Personal Products - 3.4% Household Products - 3.4% 16,500 Procter & Gamble Co. $ 1,060,455 ----------- Total Household & Personal Products $ 1,060,455 ----------- Health Care Equipment & Services - 9.0% Health Care Equipment - 6.8% 12,000 Biomet, Inc. $ 495,240 72,253 Boston Scientific Corp.* 1,241,307 7,000 Medtronic, Inc. 374,570 ----------- $ 2,111,117 ----------- Health Care Supplies - 1.1% 7,800 Cooper Companies, Inc. (a) $ 347,100 ----------- Managed Health Care - 1.1% 7,600 Aetna, Inc. $ 328,168 ----------- Total Health Care Equipment & Services $ 2,786,385 ----------- Pharmaceuticals & Biotechnology - 12.4% Biotechnology - 4.9% 14,858 Amgen, Inc.* $ 1,014,950 7,800 Gilead Sciences, Inc.* 506,454 ----------- $ 1,521,404 ----------- Pharmaceuticals - 7.5% 15,400 Eli Lilly & Co. $ 802,340 6,600 Johnson & Johnson 435,732 15,392 Par Pharmaceutical Co., Inc.* 344,319 23,404 Teva Pharmaceutical Industries, Ltd. 727,396 ----------- $ 2,309,787 ----------- Total Pharmaceuticals & Biotechnology $ 3,831,191 ----------- Banks - 0.9% Regional Banks - 0.9% 7,900 Hansen Natural Corp.* $ 266,072 ----------- Total Banks $ 266,072 ----------- Diversified Financials - 6.8% Asset Management & Custody Banks - 3.0% 5,400 Franklin Resources, Inc. $ 594,918 3,600 Legg Mason, Inc. 342,180 ----------- $ 937,098 ----------- Consumer Finance - 2.5% 12,600 American Express Co. $ 764,442 -----------
6 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Shares VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value Investment Banking & Brokerage - 1.3% 4,300 Merrill Lynch & Co., Inc. $ 400,330 ----------- Total Diversified Financials $ 2,101,870 ----------- Software & Services - 10.8% Internet Software & Services - 1.2% 14,800 Yahoo!, Inc.* $ 377,992 ----------- Systems Software - 9.6% 35,800 Macrovision Corp.* $ 1,011,708 65,200 Microsoft Corp. 1,946,871 ----------- $ 2,958,579 ----------- Total Software & Services $ 3,336,571 ----------- Technology Hardware & Equipment - 14.6% Communications Equipment - 13.1% 56,850 Cisco Systems, Inc.* $ 1,553,711 37,500 Corning, Inc.* 701,625 6,160 F5 Networks, Inc.* 457,134 32,380 Juniper Networks, Inc.* 613,277 35,300 Motorola, Inc. 725,768 ----------- $ 4,051,515 ----------- Computer Hardware - 1.5% 31,070 Palm, Inc.*(a) $ 437,776 ----------- Total Technology Hardware & Equipment $ 4,489,291 ----------- Semiconductors - 4.7% Semiconductors - 4.7% 13,100 Advanced Micro Devices, Inc.* $ 266,585 7,490 Maxim Integrated Products 229,344 32,700 Texas Instruments, Inc. 941,760 ----------- $ 1,437,689 ----------- Total Semiconductors $ 1,437,689 ----------- Utilities - 2.1% Independent Power Producer & Energy Traders - 2.1% 11,900 TXU Corp. $ 645,099 ----------- Total Utilities $ 645,099 ----------- TOTAL COMMON STOCKS (Cost $28,403,306) $30,795,778 -----------
Shares Value TEMPORARY CASH INVESTMENT - 2.8% Security Lending Collateral - 2.8% 873,306 Securities Lending Investment Fund, 5.26% $ 873,306 ----------- TOTAL TEMPORARY CASH INVESTMENT (Cost $873,306) $ 873,306 ----------- TOTAL INVESTMENT IN SECURITIES - 102.6% (Cost $29,276,612) $31,669,084 ----------- OTHER ASSETS AND LIABILITIES - (2.6)% $ (795,763) ----------- TOTAL NET ASSETS - 100.0% $30,873,321 ===========
* Non-income producing security. (A.D.R.) American Depositary Receipt (a) At December 31, 2006, the following securities were out on loan:
Shares Security Value 7,722 Cooper Companies, Inc. $343,629 25,314 Palm, Inc.* 356,674 4,338 Repsol SA (A.D.R.) 149,661 -------- Total $849,964 ========
The accompanying notes are an integral part of these financial statements. 7 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Shares VCT Portfolio - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Year Year Year Year Ended Ended Ended Ended Ended Class I 12/31/06 12/31/05 12/31/04 12/31/03 12/31/02 Net asset value, beginning of period $ 13.39 $ 13.04 $ 12.22 $ 9.75 $ 14.95 ------- ------- ------- --------- --------- Increase (decrease) from investment operations: Net investment income (loss) $ 0.03 $ 0.04 $ 0.09 $ (0.01) $ 0.00(a) Net realized and unrealized gain (loss) on investments 1.21 0.41 0.73 2.48 (5.19) ------- ------- ------- --------- --------- Net increase (decrease) from investment operations $ 1.24 $ 0.45 $ 0.82 $ 2.47 $ (5.19) Distributions to shareowners: Net investment income (0.03) (0.10) -- (0.00)(a) (0.01) ------- ------- ------- --------- --------- Net increase (decrease) in net asset value $ 1.21 $ 0.35 $ 0.82 $ 2.47 $ (5.20) ------- ------- ------- --------- --------- Net asset value, end of period $ 14.60 $ 13.39 $ 13.04 $ 12.22 $ 9.75 ======= ======= ======= ========= ========= Total return* 9.27% 3.48% 6.71% 25.35% (34.71)% Ratio of net expenses to average net assets+ 1.05% 0.96% 0.96% 1.08% 0.97% Ratio of net investment income (loss) to average net assets+ 0.21% 0.19% 0.71% ( 0.05%) 0.01% Portfolio turnover rate 62% 79% 206% 58% 86% Net assets, end of period (in thousands) $23,322 $26,986 $32,300 $ 35,750 $ 34,746 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.05% 0.96% 0.97% 1.08% 0.97% Net investment income (loss) 0.21% 0.19% 0.71% ( 0.05%) 0.01% Ratios with waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.05% 0.96% 0.96% 1.08% 0.97% Net investment income (loss) 0.21% 0.19% 0.71% ( 0.05%) 0.01%
(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. 8 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Shares VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - --------------------------------------------------------------------------------
ASSETS: Investment in securities, at value (including securities loaned of $849,964) (cost $ 31,669,084 $29,276,612) Cash 73,028 Receivables -- Investment securities sold 107,200 Dividends 34,919 Other 828 ------------- Total assets $ 31,885,059 ------------- LIABILITIES: Payables -- Investment securities purchased $ 46,310 Fund shares repurchased 23,391 Upon return of securities loaned 873,306 Due to affiliates 6,420 Accrued expenses 62,311 ------------- Total liabilities $ 1,011,738 ------------- NET ASSETS: Paid-in capital $ 63,854,296 Undistributed net investment income 46,959 Accumulated net realized loss on investments (35,420,406) Net unrealized gain on investments 2,392,472 ------------- Total net assets $ 30,873,321 ------------- NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 23,322,308 Shares outstanding 1,597,455 ------------- Net asset value per share $ 14.60 Class II: (No par value, unlimited number of shares authorized) Net assets $ 7,551,013 Shares outstanding 524,813 ------------- Net asset value per share $ 14.39
The accompanying notes are an integral part of these financial statements. 9 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Shares VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $1,232) $ 391,915 Interest 6,272 Income on securities loaned, net 1,078 ---------- Total investment income $ 399,265 ---------- EXPENSES: Management fees $ 222,976 Transfer agent fees and expenses 3,221 Distribution fees (Class II) 17,692 Administrative reimbursements 7,150 Custodian fees 27,575 Professional fees 31,154 Printing expense 28,365 Fees and expenses of nonaffiliated trustees 8,356 Miscellaneous 6,623 ---------- Total expenses $ 353,112 ---------- Less fees paid indirectly (972) ---------- Net expenses $ 352,140 ---------- Net investment income $ 47,125 ---------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain from investments $1,204,415 ---------- Change in net unrealized gain from investments $1,499,336 ---------- Net gain on investments $2,703,751 ========== Net increase in net assets resulting from operations $2,750,876 ==========
10 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Shares VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 47,125 $ 49,245 Net realized gain on investments 1,204,415 3,211,502 Change in net unrealized gain (loss) on investments 1,499,336 (2,083,627) ------------ ------------ Net increase in net assets resulting from operations $ 2,750,876 $ 1,177,120 ------------ ------------ DISTRIBUTIONS TO SHAREOWNERS Net investment income: Class I $ (49,224) $ (221,887) Class II -- (50,023) ------------ ------------ Total distributions to shareowners $ (49,224) $ (271,910) ------------ ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 1,593,421 $ 2,192,354 Reinvestment of distributions 49,224 271,910 Cost of shares repurchased (7,552,661) (9,337,142) ------------ ------------ Net decrease in net assets resulting from Fund share transactions $ (5,910,016) $ (6,872,878) ------------ ------------ Net decrease in net assets $ (3,208,364) $ (5,967,668) ------------ ------------ NET ASSETS: Beginning of year 34,081,685 40,049,353 ------------ ------------ End of year $ 30,873,321 $ 34,081,685 ============ ============ Undistributed net investment income, end of year $ 46,959 $ 49,058 ============ ============
The accompanying notes are an integral part of these financial statements. 11 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Shares VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 the Portfolio is to seek capital appreciation. 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(es). Please refer to those documents when considering the Portfolio's risks. 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 year. 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) 12 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Shares VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 exchange. At December 31, 2006, 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 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, 2006, Growth Shares Portfolio had a net capital loss carryforward of $35,044,842, of which the following amounts will expire between 2009 and 2011 if not utilized: $8,480,418 in 2009, $19,245,183 in 2010 and $7,319,241 in 2011. The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis.
- --------------------------------------------------------------------------------------- 2006 2005 - --------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 49,224 $271,910 Long-Term Capital Gain -- -- --------------------------- $ 49,224 $271,910 Return of Capital -- -- --------------------------- Total Distributions $ 49,224 $271,910 --------------------------- Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 46,959 Undistributed long-term gain/(capital loss carryforward) (35,044,843) Unrealized appreciation (depreciation) 2,016,909 ------------ Total $(32,980,975) ============ - ---------------------------------------------------------------------------------------
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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. Distribution fees for Class II shares are calculated 13 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Shares VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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 sub custodian. 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, 2006, $1,841 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 $4,423 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $156 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $29,652,175 $3,556,380 $ (1,539,471) $2,016,909 =========== ========== ============ ========== - ------------------------------------------------------------------------------------------------
14 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Shares 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, 2006, were $19,738,235 and $25,747,363, respectively. 7. Commission Recapture and Expense Offset Arrangements Effective July 15, 2005, the Portfolio has entered into commission recapture arrangements with brokers with whom PIM places trades on behalf of the Portfolio where they provide services to the Portfolio in addition to trade execution. These services included payments of certain expenses on behalf of the Portfolio. For the year ended December 31, 2006, expenses were reduced by $972 under this agreement. In addition, the Portfolio has entered into certain expense offset arrangements with PIMSS resulting in a reduction in the Portfolio's total expenses due to interest earned on cash held by PIMSS. For the year ended December 31, 2006, the Portfolio's expenses were not reduced under such arrangements. 8. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- ----------------------------------------------------------------------------------------------- Growth Shares Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ----------------------------------------------------------------------------------------------- CLASS I: Shares sold 23,372 $ 317,217 34,054 $ 438,600 Reinvestment of distributions 3,819 49,224 17,362 221,887 Shares repurchased (445,513) (6,086,390) (512,773) (6,658,363) ----------------------------------------------------------- Net decrease (418,322) $(5,719,949) (461,357) $(5,997,876) =========================================================== CLASS II: Shares sold 96,505 $ 1,276,204 137,249 $ 1,753,754 Reinvestment of distributions -- -- 3,965 50,023 Shares repurchased (109,182) (1,466,271) (205,695) (2,678,779) ----------------------------------------------------------- Net decrease (12,677) $ (190,067) (64,481) $ (875,002) =========================================================== - -----------------------------------------------------------------------------------------------
9. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 15 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Shares VCT Portfolio - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the Shareowners of Pioneer Growth Shares VCT Portfolio: We have audited the accompanying statement of assets and liabilities of Pioneer Growth Shares VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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, 2006, 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 Growth Shares VCT Portfolios of the Pioneer Variable Contracts Trust at December 31, 2006, 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 9, 2007 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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. 17 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Shares VCT Portfolio - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- 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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group and an index considered appropriate by the Independent Trustees for this purpose. The Fund's performance, based upon total return, was in the fifth quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, the fifth quintile of the peer group for the three years ended June 30, 2006, and the fifth quintile for the five years ended June 30, 2006. (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, focusing on three-year total returns, concluded that the Fund underperformed relative to its peer group. 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 size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee for the 12 months ended June 30, 2006 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 also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 to be in the fourth quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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. As the assets increase, the Trustees will continue to evaluate annually the appropriateness of break points. 18 PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Shares 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 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 19 Pioneer Growth Shares 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 portfolio's affairs. The officers of the trust are responsible for the Custodian trust's operations. The trust's Trustees and officers are listed Brown Brothers Harriman & Co. below, together with their principal occupations during the past five years. Trustees who are interested persons of the trust within the Independent Registered Public Accounting Firm meaning of the 1940 Act are referred to as Interested Trustees. Ernst & Young LLP Trustees who are not interested persons of the trust are referred to as Independent Trustees. Each of the Trustees serves as a trustee of Principal Underwriter each of the 86 U.S. registered investment portfolios for which Pioneer Pioneer Funds Distributor, Inc. serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the trust is 60 State Legal Counsel Street, Boston, Massachusetts 02109. Wilmer Cutler Pickering Hale and Dorr LLP Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc.
- -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. Chairman of the Trustee since 1994. Serves Deputy Chairman and a Director of Director of ICI Mutual (80)* Board, Trustee until a successor trustee Pioneer Global Asset Management Insurance Company and President is elected or earlier S.p.A. ("PGAM"); Non-Executive retirement or removal. Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - -----------------------------------------------------------------------------------------------------------------------------------
20 Pioneer Growth Shares VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock (63) Trustee Trustee since 2005. Senior Vice President and Chief 3050 K. Street NW, Serves until a Financial Officer, I-trax, Inc. Director of The Washington, DC 20007 successor trustee is (publicly traded health care Enterprise Social elected or earlier services company) (2001 - present); Investment Company retirement or Managing Partner, Federal City (privately-held removal. Capital Advisors (boutique merchant affordable housing bank) (2002 to 2004); and Executive finance company); and Vice President and Chief Financial Director of New York Officer, Pedestal Inc. (internet- Mortgage Trust (publicly based mortgage trading company) traded mortgage REIT) (2000 - 2002) - ---------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (58) Trustee Trustee since 2000. President, Bush International Director of Brady 3509 Woodbine Street, Serves until a (international financial advisory Corporation Chevy Chase, MD 20815 successor trustee is firm) (industrial elected or earlier identification and retirement or specialty coated removal. material products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ---------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (59) Trustee Trustee since 2000. Founding Director, The Winthrop None 1001 Sherbrooke Street West, Serves until a Group, Inc. (consulting firm); and Montreal, Quebec, Canada successor trustee is Desautels Faculty of Management, H3A 1G5 elected or earlier McGill University retirement or removal. - ---------------------------------------------------------------------------------------------------------------------------------- Thomas J. Perna (56) Trustee Trustee since 2006. Private investor (2004 - present); Director of Quadriserv 89 Robbins Avenue, Serves until a and Senior Executive Vice Inc. (technology Berkeley Heights, NJ successor trustee is President, The Bank of New York products for 07922 elected or earlier (financial and securities services) securities lending retirement or (1986 - 2004) industry) removal. - ---------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (58) Trustee Trustee since 1995. President and Chief Executive Director of New 200 State Street, 12th Serves until a Officer, Newbury, Piret & Company, America High Income Floor, Boston, MA 02109 successor trustee is Inc. (investment banking firm) Fund, Inc. (closed-end elected or earlier investment company) retirement or removal. - ---------------------------------------------------------------------------------------------------------------------------------- John Winthrop (70) Trustee Trustee since 2000. President, John Winthrop & Co., None One North Adgers Wharf, Serves until a 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 LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (54)+ Executive Vice Since 2003. Serves President and Chief Executive Trustee of certain Pioneer President at the discretion of Officer, PIM-USA since May 2003 Funds the Board (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since 2000. Serves Secretary of PIM-USA; Senior Vice None at the discretion of President - Legal of Pioneer; the Board Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Kelley (42) Assistant Since 2003. Serves Vice President and Senior Counsel None Secretary at the discretion of of Pioneer since July 2002; Vice the Board 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 of the Pioneer Funds since September 2003 - ----------------------------------------------------------------------------------------------------------------------------------- Christopher P. Harvey Assistant Since 2006. Serves Partner, Wilmer Cutler Pickering None (45) Secretary at the discretion of Hale and Dorr LLP; and Assistant the Board Secretary of all of the Pioneer Funds since July 2006. - ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (61) Treasurer Since 2000. Serves Vice President - Fund Accounting, None at the discretion of Administration and Controllership the Board Services of Pioneer; and Treasurer of all of the Pioneer Funds - ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (47) Assistant Since 2004. Serves Deputy Treasurer of Pioneer since None Treasurer at the discretion of 2004; Treasurer and Senior Vice the Board 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 - ----------------------------------------------------------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Since 2000. Serves Assistant Vice President - Fund None Treasurer at the discretion of Accounting, Administration and the Board Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ----------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (48) Assistant Since 2002. Serves Fund Accounting Manager - Fund None Treasurer at the discretion of Accounting, Administration and the Board Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - -----------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Growth Shares VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS BY THIS OFFICER Katherine Kim Sullivan Assistant Since 2003. Serves Fund Administration Manager - Fund None (33) Treasurer at the discretion of Accounting, Administration and the Board Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ----------------------------------------------------------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Since 2006. Serves Chief Compliance Officer of Pioneer None Compliance at the discretion of and all of the Pioneer Funds since Officer the Board March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ----------------------------------------------------------------------------------------------------------------------------------- The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio'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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 26 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 27 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 28 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 29 [LOGO] PIONEER Investments(R) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18659-01-0207 [LOGO]PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio -- Class I Shares ANNUAL REPORT December 31, 2006 PIONEER VARIABLE CONTRACTS TRUST T a b l e o f C o n t e n t s - -------------------------------------------------------------------------------- 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 High Yield VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/06 - -------------------------------------------------------------------------------- [THE FOLLOWING DATA WAS REPRESENTED BY A PIE CHART] Portfolio Diversification (As a percentage of total investment in securities) U.S. Corporate Bonds 72.1% U.S. Common Stocks 17.3% Convertible Corporate Bonds 6.3% Convertible Preferred Stocks 3.7% Depositary Receipts for International Stocks 0.5% Temporary Cash Investment 0.1%
[THE FOLLOWING DATA WAS REPRESENTED BY A PIE CHART] Maturity Distribution (As a percentage of total investment in securities) 0-1 year 3.0% 1-3 years 20.2% 3-4 years 32.2% 4-6 years 33.9% 6-8 years 7.2% 8+ years 3.5%
Five Largest Holdings (As a percentage of long-term holdings) 1. Mueller Industries, Inc., 6.0%, 11/1/14 3.88% 2. DRS Technologies, Inc., 6.875%, 11/1/13 3.54 3. Allegheny Energy Supply, 7.8%, 3/15/11 3.11 4. Wesco Distribution, Inc., 7.5%, 10/15/17 3.09 5. Forest City Enterprises, 7.625%, 6/1/15 3.08
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $ 11.01 $ 10.88
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $ 0.6009 $ 0.0731 $ 0.0801
- -------------------------------------------------------------------------------- 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 BY A LINE CHART] Pioneer High Yield ML Index of Convertible ML High Yield VCT Portfolio Bonds(Speculative Quality) Master II Index 5/00 10000 10000 10000 10623 8424 9769 12387 7883 10206 12/02 12211 7747 10013 16215 10535 12831 12/04 17517 11867 14226 17859 11485 14615 12/06 19379 13454 16335
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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- Life-of-Class (5/1/00) 10.10% 5 Years 9.36% 1 Year 8.52%
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.pioneerinvestments.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 High Yield 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 High Yield VCT Portfolio Based on actual returns from July 1, 2006 through December 31, 2006.
Share Class I - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,068.95 Expenses Paid During Period* $ 3.86
* Expenses are equal to the Portfolio's annualized expense ratio of 0.74% 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 High Yield VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2006 through December 31, 2006.
Share Class I - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,021.48 Expenses Paid During Period* $ 3.77
* Expenses are equal to the Portfolio's annualized expense ratio of 0.74% 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 VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/06 - -------------------------------------------------------------------------------- Steady U.S. economic growth, low default rates and ample liquidity helped drive strong returns in the high-yield bond market during the 12 months ended December 31, 2006. Portfolio Manager Margaret Patel elaborates on the backdrop and explains why the Portfolio underperformed its benchmarks. Q. How did the Portfolio perform? A. During the 12 months ended December 31, 2006, the Portfolio's Class I shares had a total return based on net asset value of 8.52%. By comparison, the Merrill Lynch High Yield Master II Index returned 11.77%, the Merrill Lynch Index of Convertible Securities/ Speculative Grade returned 17.15%, and the 100 funds underlying Lipper's Variable Annuity High Current Yield Funds Average returned 9.96%. Call 1-800-688-9915 or visit www.pioneerinvestments.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 high-yield market? A. Continued steady economic growth in the U.S., historically low default rates, and abundant liquidity in the capital markets were among the catalysts for a strong 2006 for high-yield bonds. Healthy returns from equities also helped, as the performance of high-yield bonds and convertible securities, like the performance of stocks, is tied to the underlying health of corporate issuers. The positive backdrop encouraged investors to feel more comfortable investing in lower-quality high-yield bonds - particularly those in the automotive and airline sectors - propelling their outperformance of higher-quality alternatives. Q. Why did the Portfolio lag the two Merrill Lynch indexes? A. The Portfolio underperformed the indexes because of our avoidance or underweighting of the top-performing areas of the market mentioned above. Our approach was predicated on our belief that the extra yield offered by lower-quality securities was not enough to compensate the Portfolio for the greater level of risk of potential future bankruptcies or erosion in credit quality inherent in them. Instead, we continued to focus on higher-quality securities, with particular focus on economically sensitive industries, including materials, industrials, and real estate. Q. Which investments performed best during the period? Which disappointed? A. Hotel real estate investment trust (REIT) MeriStar Hospitality was bought by private equity firm, The Blackstone Group, with our holdings of the company's common stock purchased at a premium. The Portfolio also benefited from oil and gas pipeline operator Kinder Morgan, which is in the process of being bought out by the company's management team. Additionally, investments in Coeur d'Alene Mines and copper and gold produced Freeport McMoRan helped, as steel, copper and gold prices moved higher. Our convertible security holdings in industrial firm Roper Industries rose, reflecting stronger business fundamentals for the firm. Convertible securities of advertising agency Interpublic Group appreciated as a result of a management turnaround, and we benefited from our holdings in the common stock of Vertex Pharmaceuticals, which experienced promising results for the company's new hepatitis drug. Finally, the bonds we held in industrial and farm equipment manufacturer JLG Industries appreciated when Oshkosh Trucking announced its intention to purchase the firm. Detractors included the convertible securities of Millennium Chemical, which depreciated along with the underlying stock price because of concerns about slowing demand, lower prices, and the negative impact of lead paint litigation. Nova Chemical also declined due to lower operating results arising from higher input costs and softer prices for the company's basic commodity products. Paper and forest products manufacturers Abitibi and Bowater fell due to declining demand for newsprint and higher energy costs. Valiant Pharmaceuticals depreciated as a result of the firm's slow pace of new-drug development. The bonds of real estate developer Forest City Enterprises declined because of fears of a slowdown in real estate construction, and coal producer Massey Energy fell due to declining coal prices resulting from a combination of increased production and warmer weather that limited utilities' coal consumption. Q. What is your outlook? A. We anticipate the U.S. economy to remain healthy and default rates to stay relatively low compared to historical averages, driven by solid economic growth and liquidity that has given even the most marginal of borrowers easy access to capital. We believe the Portfolio's emphasis on higher-quality issues should position it well if the market confronts tighter financial conditions, lower liquidity or slower economic growth. Historically, lower-rated credits have been more vulnerable to declines during economic slowdowns or periods of financial stringency, and their future performance remains particularly questionable in the wake of their outperformance during the past 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. 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.pioneerinvestments.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 High Yield VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Shares/ S&P/Moody's Principal Ratings Amount (unaudited) Value CONVERTIBLE PREFERRED STOCKS - 1.9% Materials - 1.3% Diversified Metals & Mining - 1.3% 1,200 NR/NR Freeport-MC Copp, 5.5%, 12/31/49 $ 1,564,950 ------------ Total Materials $ 1,564,950 ------------ Banks - 0.6% Thrifts & Mortgage Finance - 0.6% 14,000 NR/NR Sovereign Cap Trust IV, 4.375%, 3/1/34 $ 693,000 ------------ Total Banks $ 693,000 ------------ TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $1,831,500) $ 2,257,950 ------------ CONVERTIBLE CORPORATE BONDS - 6.0% Materials - 0.6% Gold - 0.6% $ 800,000 B-/NR Coeur D'Alene Mines Corp., 1.25%, 1/15/24 $ 756,000 ------------ Total Materials $ 756,000 ------------ Capital Goods - 1.1% Electrical Component & Equipment - 1.1% 2,000,000 BB-/B1 Roper Industries, Inc., 1.4813%, 1/15/34 $ 1,300,000 ------------ Total Capital Goods $ 1,300,000 ------------ Media - 1.8% Advertising - 1.8% 1,800,000 B/Ba3 Interpublic Group Co., 4.25%, 3/15/23 (144A) $ 2,200,500 ------------ Total Media $ 2,200,500 ------------ Retailing - 0.8% Automotive Retail - 0.8% 1,000,000 B/B2 Sonic Automotive, Inc., 5.25%, 5/7/09 $ 980,000 ------------ Total Retailing $ 980,000 ------------ Health Care Equipment & Services - 0.3% Health Care Equipment - 0.2% 375,000 NR/NR Epix Medical, 3.0%, 6/15/24 (144A) $ 299,063 ------------ Total Health Care Equipment & Services $ 299,063 ------------ Pharmaceuticals & Biotechnology - 0.5% Biotechnology - 0.5% 615,000 NA/NA Mannkind Corp., 3.75%, 12/15/13 $ 644,212 ------------ Total Pharmaceuticals & Biotechnology $ 644,212 ------------ Technology Hardware & Equipment - 0.8% Electronic Equipment & Instruments - 0.8% 1,000,000 NR/NR Veeco Instruments, 4.125%, 12/21/08 $ 970,000 ------------ Total Technology Hardware & Equipment $ 970,000 ------------ TOTAL CONVERTIBLE CORPORATE BONDS (Cost $7,102,208) $ 7,149,775 ------------
The accompanying notes are an integral part of these financial statements. 5 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
S&P/Moody's Ratings Shares (unaudited) Value PREFERRED STOCKS - 1.6% Real Estate - 1.6% Real Estate Management & Development - 1.6% 75,000 Forest City Enterprises, 7.375%, 2/1/34 $ 1,932,750 ------------ TOTAL PREFERRED STOCKS (Cost $1,917,000) $ 1,932,750 ------------ COMMON STOCKS - 17.0% Energy - 1.6% Oil & Gas Exploration & Production - 0.3% 8,110 Pogo Producing Co. $ 392,848 ------------ Oil & Gas Refining & Marketing - 0.5% 7,800 Tesoro Petroleum Corp. $ 513,006 ------------ Oil & Gas Storage & Transportation - 0.8% 7,900 Kinder Morgan, Inc. $ 835,425 ------------ Total Energy $ 1,741,279 ------------ Materials - 3.3% Construction Materials - 0.1% 1,752 Texas Industries, Inc. (a) $ 112,531 ------------ Diversified Chemical - 0.7% 20,000 Dow Chemical Co. $ 798,800 ------------ Diversified Metals & Mining - 0.9% 17,600 Barrick Gold Corp. $ 540,320 10,400 Freeport-McMoRan Copper & Gold, Inc. (Class B) 579,592 ------------ $ 1,119,912 ------------ Industrial Gases - 0.5% 8,200 Air Products & Chemicals, Inc. $ 576,296 ------------ Specialty Chemicals - 1.1% 1,700 Arch Chemicals, Inc. $ 56,627 63,100 RPM, Inc. 1,318,159 ------------ $ 1,374,786 ------------ Total Materials $ 3,982,325 ------------ Capital Goods - 1.9% Electrical Component & Equipment - 1.4% 6,200 Cooper Industries, Inc. $ 560,666 5,200 Franklin Electric Co., Inc. 267,228 19,500 General Cable Corp.* 852,345 ------------ $ 1,680,239 ------------ Industrial Machinery - 0.5% 10,500 ITT Corp. $ 596,610 ------------ Total Capital Goods $ 2,276,849 ------------
6 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
S&P/Moody's Ratings Shares (unaudited) Value Commercial Services & Supplies - 0.5% Office Services & Supplies - 0.5% 9,200 Avery Dennison Corp. $ 624,956 ------------ Total Commercial Services & Supplies $ 624,956 ------------ Health Care Equipment & Services - 0.6% Health Care Equipment - 0.6% 12,550 Beckman Coulter, Inc. $ 750,490 ------------ Total Health Care Equipment & Services $ 750,490 ------------ Pharmaceuticals & Biotechnology - 2.3% Biotechnology - 1.0% 11,900 PDL BioPharma, Inc.* $ 239,666 25,699 Vertex Pharmaceuticals, Inc.* 961,657 ------------ $ 1,201,323 ------------ Life Sciences Tools & Services - 1.3% 5,300 Applera Corp. - Applied Biosystems Group* $ 194,457 15,100 Bio-Rad Laboratories, Inc.* 1,246,052 3,400 Pharmaceutical Product Development, Inc. 109,548 ------------ $ 1,550,057 ------------ Total Pharmaceuticals & Biotechnology $ 2,751,380 ------------ Diversified Financials - 0.2% Investment Banking & Brokerage - 0.2% 4,900 Lazard, Ltd.* $ 231,966 ------------ Total Diversified Financials $ 231,966 ------------ Real Estate - 2.0% Office Real Estate Investment Trusts - 0.0% 1,500 Equity Office Properties Trust (a) $ 72,255 ------------ Retail Real Estate Investment Trusts - 1.0% 22,900 General Growth Pro TLB SC $ 1,196,067 ------------ Specialized Real Estate Investment Trusts - 1.0% 47,600 Host Hotels & Resorts, Inc. $ 1,168,580 ------------ Total Real Estate $ 2,436,902 ------------ Technology Hardware & Equipment - 0.5% Electronic Equipment & Instruments - 0.5% 10,000 Amphenol Corp. $ 620,800 ------------ Total Technology Hardware & Equipment $ 620,800 ------------ Utilities - 4.1% Gas Utilities - 1.8% 6,700 Questar Corp. $ 556,435 47,700 Southern Union Co. 1,333,215 9,600 Washington Gas Light Co. 312,768 ------------ $ 2,202,418 ------------ Independent Power Producer & Energy Traders - 2.0% 42,600 NRG Energy, Inc.* $ 2,386,026 ------------ Multi-Utilities - 0.3% 3,700 Public Service Enterprise Group, Inc. $ 245,606 ------------ Total Utilities $ 4,834,050 ------------ TOTAL COMMON STOCKS (Cost $17,473,371) $ 20,250,997 ------------
The accompanying notes are an integral part of these financial statements. 7 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
S&P/Moody's Principal Ratings Amount (unaudited) Value CORPORATE BONDS - 69.1% Energy - 6.5% Coal & Consumable Fuels - 1.9% $ 2,500,000 B+/B2 Massey Energy Co., 6.875%, 12/15/13 $ 2,350,000 ------------ Oil & Gas Refining & Marketing - 4.5% 1,531,000 B+/B1 Frontier Oil Corp., 6.625%, 10/1/11 $ 1,527,173 2,850,000 BB+/Ba1 Tesoro Corp., 6.25%, 11/1/12 2,835,750 1,000,000 BB+/Ba1 Tesoro Corp., 6.625%, 11/1/15 992,500 ------------ $ 5,355,423 ------------ Total Energy $ 7,705,423 ------------ Materials - 20.4% Aluminum - 1.8% 2,300,000 B/B2 Novelis, Inc., 7.25%, 2/15/15 $ 2,225,250 ------------ Commodity Chemicals - 7.6% 1,750,000 B+/B1 Arco Chemical Co., 9.8%, 2/1/20 $ 2,021,250 2,850,000 B+/B1 Georgia Gulf Corp, 9.5%, 10/15/14 (144A) 2,778,750 2,000,000 BB-/Ba2 Nova Chemicals Corp., 7.4%, 4/1/09 2,025,000 2,500,000 BB-/Ba3 Nova Chemicals Corp., 7.875%, 9/15/25 2,275,000 ------------ $ 9,100,000 ------------ Construction Materials - 1.3% 1,500,000 BB-/Ba3 Texas Industries, Inc, 7.25%, 7/15/13 $ 1,522,500 ------------ Fertilizers & Agricultural Chemicals - 2.2% 2,500,000 B+/Ba2 Scotts Co., 6.625%, 11/15/13 $ 2,618,750 ------------ Metal & Glass Containers - 0.6% 800,000 B/B2 Crown Cork and Seal Co., Inc., 7.375%, 12/15/26 $ 748,000 ------------ Paper Products - 4.3% 2,250,000 B+/B2 Abitibi Consolidated, Inc., 8.55%, 8/1/10 $ 2,137,500 200,000 B+/B2 Abitibi-Consolidated, Inc., 6.0%, 6/20/13 160,000 3,100,000 B+/B2 Bowater, Inc., 6.5%, 6/15/13 2,828,750 ------------ $ 5,126,250 ------------ Specialty Chemicals - 2.5% 2,090,000 B+/B1 Millennium America, Inc., 7.625%, 11/15/26 $ 1,907,125 1,000,000 B+/B1 Millennium America, Inc., 9.25%, 6/15/08 1,032,500 ------------ $ 2,939,625 ------------ Total Materials $ 24,280,375 ------------ Capital Goods - 17.1% Aerospace & Defense - 6.1% 4,000,000 B/B3 DRS Technologies, Inc., 6.875%, 11/1/13 $ 4,030,000 3,150,000 B+/Ba3 Esterline Technology, 7.75%, 6/15/13 3,213,000 ------------ $ 7,243,000 ------------ Construction & Farm Machinery & Heavy Trucks - 0.6% 750,000 B+/B1 Greenbrier Co., Inc., 8.375%, 5/15/15 $ 763,125 ------------ Industrial Machinery - 7.4% 2,500,000 B/B1 Gardner Denver, Inc., 8.0%, 5/1/13 (144A) $ 2,600,000 1,800,000 BB-/Ba3 Manitowoc Co. Inc., 7.125%, 11/1/13 1,818,000 4,750,000 NR/NR Mueller Industries, Inc. 6.0%, 11/1/14 4,423,438 ------------ $ 8,841,438 ------------
8 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
S&P/Moody's Principal Ratings Amount (unaudited) Value Trading Companies & Distributors - 2.9% $ 3,500,000 B/B1 Wesco Distribution, Inc., 7.5%, 10/15/17 $ 3,517,500 ------------ Total Capital Goods $ 20,365,063 ------------ Consumer Durables & Apparel - 0.1% Homebuilding - 0.1% 185,000 BB-/Ba2 Meritage Homes Corp., 6.25%, 3/15/15 $ 175,750 ------------ Total Consumer Durables & Apparel $ 175,750 ------------ Media - 2.0% Advertising - 1.9% 2,300,000 B/Ba3 Interpublic Group, Inc., 7.25%, 8/15/11 $ 2,323,000 ------------ Total Media $ 2,323,000 ------------ Health Care Equipment & Services - 1.3% Health Care Supplies - 1.3% 1,500,000 CCC+/Caa1 Inverness Medical Innovation, 8.75%, 2/15/12 $ 1,560,000 ------------ Total Health Care Equipment & Services $ 1,560,000 ------------ Pharmaceuticals & Biotechnology - 1.6% Pharmaceuticals - 1.6% 2,000,000 B+/Ba3 Valeant Pharmaceuticals, 7.0%, 12/15/11 $ 1,920,000 ------------ Total Pharmaceuticals & Biotechnology $ 1,920,000 ------------ Real Estate - 6.8% Real Estate Management & Development - 2.9% 3,435,000 BB-/Ba3 Forest City Enterprises, 7.625%, 6/1/15 $ 3,503,700 ------------ Real Estate Investment Trusts - 1.7% 1,500,000 BB-/B2 BF Saul Real Estate Investment Trust, 7.5%, 3/1/14 $ 1,524,375 500,000 B/B1 Crescent Real Estate, 9.25%, 4/15/09 513,125 ------------ $ 2,037,500 ------------ Retail Real Estate Investment Trusts - 2.1% 2,500,000 BB+/Ba1 Rouse Co Lp/TRC Co., ISSR, 6.75%, 5/1/13 (144A) $ 2,510,630 ------------ Total Real Estate $ 8,051,830 ------------ Technology Hardware & Equipment - 4.2% Electronic Equipment & Instruments - 2.9% 1,835,000 B+/B1 General Cable Corp., 9.5%, 11/15/10 $ 1,945,100 1,500,000 B/Ba1 Itron, Inc., 7.75%, 5/15/12 1,533,750 ------------ $ 3,478,850 ------------ Technology Distributors - 1.2% 1,600,000 BB+/Baa3 Anixter International Corp., 5.95%, 3/1/15 $ 1,480,000 ------------ Total Technology Hardware & Equipment $ 4,958,850 ------------ Utilities - 9.2% Electric Utilities - 5.0% 3,300,000 BB-/Ba3 Allegheny Energy Supply, 7.8%, 3/15/11 $ 3,539,250 1,000,000 BB-/Ba3 Allegheny Energy Supply, 8.25%, 4/15/12 (144A) 1,097,500 1,300,000 B+/Ba3 CMS Energy Corp., 7.5%, 1/15/09 1,340,625 ------------ $ 5,977,375 ------------ Independent Power Producer & Energy Traders - 1.1% 1,333,000 B-/B1 NRG Energy, Inc., 7.375%, 1/15/17 $ 1,336,333 ------------
The accompanying notes are an integral part of these financial statements. 9 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
S&P/Moody's Principal Ratings Amount (unaudited) Value Multi-Utilities - 3.0% $ 3,000,000 B+/Ba3 CMS Energy Corp. 7.75%, 8/1/10 $ 3,165,000 450,000 B+/Ba3 CMS Energy Corp., 6.875%, 12/15/15 464,624 ------------ $ 3,629,624 ------------ Total Utilities $ 10,943,332 ------------ TOTAL CORPORATE BONDS (Cost $82,684,060) $ 82,283,623 ============
Shares TEMPORARY CASH INVESTMENT - 0.1% Security Lending Collateral - 0.1% 143,105 Securities Lending Investment Fund, 5.26% $ 143,105 ------------ TOTAL TEMPORARY CASH INVESTMENT (Cost $143,105) $ 143,105 ------------ TOTAL INVESTMENT IN SECURITIES - 95.8% (Cost $111,151,244) $114,018,200 ------------ OTHER ASSETS AND LIABILITIES - 4.2% $ 5,068,186 ------------ TOTAL NET ASSETS - 100.0% $119,086,387 ============
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, 2006, the value of these securities amounted to $11,486,443 or 9.6% of net assets. (a) At December 31, 2005, the following securities were out on loan:
Shares Description Value 1,125 Equity Office Properties Trust $ 54,191 1,314 Texas Industries, Inc. 84,398 -------- $138,589 ========
10 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Year Year Year Year Ended Ended Ended Ended Ended Class I 12/31/06 12/31/05 12/31/04 12/31/03 12/31/02 Net asset value, beginning of period $ 10.88 $ 11.67 $ 11.45 $ 9.27 $ 10.33 ------- ------- ------- ------- ------- Increase (decrease) from investment operations: Net investment income $ 0.59 $ 0.61 $ 0.62 $ 0.76 $ 0.92 Net realized and unrealized gain (loss) on investments 0.29 ( 0.41) 0.27 2.18 ( 1.06) ------- -------- ------- ------- ------- Net increase (decrease) from investment operations $ 0.88 $ 0.20 $ 0.89 $ 2.94 $ (0.14) Distributions to shareowners: Net investment income ( 0.60) ( 0.61) ( 0.62) ( 0.76) ( 0.92) Net realized gain ( 0.15) ( 0.38) ( 0.05) -- -- ------- -------- ------- ------- ------- Net increase (decrease) in net asset value $ 0.13 $ (0.79) $ 0.22 $ 2.18 $ (1.06) ------- -------- ------- ------- ------- Net asset value, end of period $ 11.01 $ 10.88 $ 11.67 $ 11.45 $ 9.27 ======= ======= ======= ======= ======= Total return* 8.52% 1.95% 8.03% 32.78% ( 1.42)% Ratio of net expenses to average net assets+ 0.74% 0.77% 0.78% 0.89% 1.02% Ratio of net investment income to average net assets+ 5.51% 5.52% 5.40% 7.22% 9.39% Portfolio turnover rate 28% 37% 42% 48% 42% Net assets, end of period (in thousands) $65,890 $ 63,452 $70,890 $66,587 $41,111 Ratios with no waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.74% 0.77% 0.78% 0.89% 1.02% Net investment income 5.51% 5.52% 5.40% 7.22% 9.39%
* 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. 11 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $138,589) (cost $114,018,200 $111,151,244) Cash 2,859,436 Receivables - Fund shares sold 1,010,098 Dividends, interest and foreign taxes withheld 1,420,217 Other 2,532 ------------ Total assets $119,310,483 ------------ LIABILITIES: Payables - Fund shares repurchased $ 21,435 Upon return of securities loaned 143,105 Due to affiliates 11,768 Accrued expenses 47,788 ------------ Total liabilities $ 224,096 ------------ NET ASSETS: Paid-in capital $116,285,176 Undistributed net investment income 11,917 Accumulated net realized loss on investments (77,662) Net unrealized gain on investments 2,866,956 ------------ Total net assets $119,086,387 ------------ NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 65,890,481 Shares outstanding 5,982,727 ------------ Net asset value per share $ 11.01 Class II: (No par value, unlimited number of shares authorized) Net assets $ 53,195,906 Shares outstanding 4,831,564 ------------ Net asset value per share $ 11.01
12 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $581) $ 462,433 Interest 6,577,109 Income on securities loaned, net 3,501 ---------- Total investment income $7,043,043 ---------- EXPENSES: Management fees $ 732,223 Transfer agent fees and expenses 3,010 Distribution fees (Class II) 120,624 Administrative reimbursements 23,540 Custodian fees 27,714 Professional fees 39,745 Fees and expenses of nonaffiliated trustees 3,723 Miscellaneous 5,855 ---------- Total expenses $ 956,434 ---------- Net expenses $ 956,434 ---------- Net investment income $6,086,609 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss from investments $ (69,615) ---------- Change in net unrealized gain or loss from investments $3,072,205 ---------- Net gain on investments $3,002,590 ---------- Net increase in net assets resulting from operations $9,089,199 ==========
The accompanying notes are an integral part of these financial statements. 13 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 6,086,609 $ 6,046,966 Net realized gain (loss) on investments (69,615) 1,530,055 Change in net unrealized gain (loss) on investments 3,072,205 (5,535,598) ------------- ------------- Net increase in net assets resulting from operations $ 9,089,199 $ 2,041,423 ------------- ------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income: Class I $ (3,561,448) $ (3,563,099) Class II (2,573,283) (2,466,908) Net realized gain Class I (896,053) (2,147,727) Class II (641,246) (1,587,624) ------------- ------------- Total distributions to shareowners $ (7,672,030) $ (9,765,358) ------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 42,128,260 $ 43,512,782 Reinvestment of distributions 7,664,420 9,721,259 Cost of shares repurchased (42,744,410) (57,690,620) ------------- ------------- Net increase (decrease) in net assets resulting from Fund share transactions $ 7,048,270 $ (4,456,579) ------------- ------------- Net increase (decrease) in net assets $ 8,465,439 $ (12,180,514) NET ASSETS: Beginning of year 110,620,948 122,801,462 ------------- ------------- End of year $ 119,086,387 $ 110,620,948 ============= ============= Undistributed net investment income, end of year $ 11,917 $ 59,865 ============= =============
14 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 the Portfolio is to maximize total return through a combination of income and capital appreciation. Investments in high-yield or lower-rated securities are subject to greater-than-average risk. In addition, the non-diversified Portfolio may have concentrations in certain asset types, which may subject the Portfolio to additional risks. 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 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 year. 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 15 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, 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. 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, if any, 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, 2006, 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 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, 2006, no such taxes were paid. 16 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield 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. The Portfolio elected to defer $4,026 in capital losses recognized between November 1, 2006 and December 31, 2006 to its fiscal year ending December 31, 2007. At December 31, 2006, 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 Realized Loss Paid-In Capital - ----------------------------------------------------------------------------------------------- Pioneer High Yield VCT Portfolio $174 $ (174) $-- ==== ======= === - -----------------------------------------------------------------------------------------------
The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis.
- ----------------------------------------------------------------------------------------------- 2006 2005 ---------------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $6,868,259 $6,600,658 Long-Term capital gain 803,771 3,164,700 -------------------------------------------- $7,672,030 $9,765,358 -------------------------------------------- Total distributions $7,672,030 $9,765,358 ============================================ Distributable Earnings: Undistributed ordinary income $ 44,667 Undistributed long-term gain 102,907 Post October loss deferred (4,026) Unrealized appreciation 2,657,663 -------------------------------------------- Total $2,801,211 ============================================ - -----------------------------------------------------------------------------------------------
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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006 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. 17 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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 sub custodian. 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, 2006, $6,496 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 $4,203 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $1,069 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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) - ------------------------------------------------------------------------------------------------------------ Pioneer High Yield VCT Portfolio $111,339,168 $4,920,699 $ (2,241,667) $2,679,032 ============ ========== ============= =========== - -------------------------------------------------------------------------------------------------------------
18 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield 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, 2006, were $35,104,931 and $31,290,575, respectively. 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- -------------------------------------------------------------------------------------------------- High Yield Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - -------------------------------------------------------------------------------------------------- CLASS I: Shares sold 1,596,995 $17,290,829 1,902,148 $21,181,455 Reinvestment of distributions 413,480 4,450,031 514,993 5,666,754 Shares repurchased (1,859,060) (20,124,873) (2,659,638) (29,739,088) ----------------------------------------------------------------- Net increase (decrease) 151,415 $ 1,615,987 (242,497) $(2,890,879) ================================================================= CLASS II: Shares sold 2,285,628 $24,837,431 2,014,754 $22,331,327 Reinvestment of distributions 298,606 3,214,389 368,486 4,054,505 Shares repurchased (2,087,846) (22,619,537) (2,495,978) (27,951,532) ----------------------------------------------------------------- Net increase (decrease) 496,388 $ 5,432,283 (112,738) $(1,565,700) ================================================================= - --------------------------------------------------------------------------------------------------
8. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 19 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- 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 of Pioneer High Yield VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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, 2006, 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 High Yield VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2006, 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 9, 2007 20 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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. 21 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- 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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group considered appropriate by the Independent Trustees for this purpose and the Merrill Lynch High Yield Master II Index. The Fund's performance, based upon total return, was in the third quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, the fourth quintile of the peer group for the three years ended June 30, 2006 and the first quintile for the five years ended June 30, 2006. (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 of the Fund, before deduction of expenses, relative to the yield of the index. The Trustees, focusing on three-year total returns, concluded that the Fund underperformed relative to its peers. The Trustees noted however that the Fund's performance trend was improving and five-year total returns were strong. 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 size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee for the 12 months ended June 30, 2006 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 also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 to be in the second quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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 22 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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). 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 23
Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS - -------------------------------------------------------------------------------- Investment Adviser Pioneer Investment Management, Inc. Trustees and Officers The trust's Board of Trustees provides broad supervision over the portfolio's affairs. The officers of the Custodian trust are responsible for the trust's operations. The trust's Brown Brothers Harriman & Co. Trustees 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 trust within the meaning Ernst & Young LLP of the 1940 Act are referred to as Interested Trustees. Trustees who are not interested persons of the trust Principal Underwriter are referred to as Independent Trustees. Each of the Trustees Pioneer Funds Distributor, Inc. serves as a trustee of each of the 86 U.S. registered investment portfolios for which Pioneer serves as Legal Counsel investment adviser (the "Pioneer Funds"). The address Wilmer Cutler Pickering Hale and Dorr LLP for all Interested Trustees and all officers of the trust is 60 State Street, Boston, Massachusetts Shareowner Services and Transfer 02109. Pioneer Investment Management Shareholder Services, Inc.
- -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Board, Trustee until a successor trustee and President is elected or earlier retirement or removal. *Mr. Cogan is an Interested Trustee because he is an officer or director of the portfolio's investment adviser and certain of its affiliates. - -------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS John F. Cogan, Jr. (80)* Deputy Chairman and a Director of Pioneer Global Asset Management S.p.A. ("PGAM"); Non-Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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) NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Director of ICI Mutual Insurance Company
24 Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE David R. Bock (63) Trustee Trustee since 2005. Serves 3050 K. Street NW, until a successor trustee Washington, DC 20007 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- Mary K. Bush (58) Trustee Trustee since 2000. Serves 3509 Woodbine Street, until a successor trustee Chevy Chase, MD 20815 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves 1001 Sherbrooke Street West, until a successor trustee Montreal, Quebec, Canada is elected or earlier H3A 1G5 retirement or removal. - -------------------------------------------------------------------------------- Thomas J. Perna (56) Trustee Trustee since 2006. Serves 89 Robbins Avenue, until a successor trustee Berkeley Heights, NJ is elected or earlier 07922 retirement or removal. - -------------------------------------------------------------------------------- Marguerite A. Piret (58) Trustee Trustee since 1995. Serves 200 State Street, 12th until a successor trustee Floor, Boston, MA 02109 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- John Winthrop (70) Trustee Trustee since 2000. Serves One North Adgers Wharf, until a successor trustee Charleston, SC 29401 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- NAME, AGE AND ADDRESS PRINCIPAL OCCUPATION DURING PAST FIVE YEARS David R. Bock (63) Senior Vice President and Chief Financial Officer, I-trax, Inc. (publicly traded 3050 K. Street NW, health care services company) (2001 - present); Managing Partner, Federal Washington, DC 20007 City Capital Advisors (boutique merchant bank) (2002 to 2004); and Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet- based mortgage trading company) (2000 - 2002) - ----------------------------------------------------------------------------------------------------------------- Mary K. Bush (58) President, Bush International (international financial advisory firm) 3509 Woodbine Street, Chevy Chase, MD 20815 - ----------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (59) Founding Director, The Winthrop Group, Inc. (consulting firm); and 1001 Sherbrooke Street West, Desautels Faculty of Management, McGill University Montreal, Quebec, Canada H3A 1G5 - ----------------------------------------------------------------------------------------------------------------- Thomas J. Perna (56) Private investor (2004 - present); and Senior Executive Vice President, The 89 Robbins Avenue, Bank of New York (financial and securities services) (1986 - 2004) Berkeley Heights, NJ 07922 - ----------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (58) President and Chief Executive Officer, Newbury, Piret & Company, Inc. 200 State Street, 12th (investment banking firm) Floor, Boston, MA 02109 - ----------------------------------------------------------------------------------------------------------------- John Winthrop (70) President, John Winthrop & Co., Inc. (private investment firm) One North Adgers Wharf, Charleston, SC 29401 - ----------------------------------------------------------------------------------------------------------------- NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE David R. Bock (63) Director of The Enterprise Social Investment 3050 K. Street NW, Company (privately-held affordable housing Washington, DC 20007 finance company); and Director of New York Mortgage Trust (publicly traded mortgage REIT) - ------------------------------------------------------------------------------- Mary K. Bush (58) Director of Brady Corporation (industrial 3509 Woodbine Street, identification and specialty coated material Chevy Chase, MD 20815 products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ------------------------------------------------------------------------------- Margaret B.W. Graham (59) None 1001 Sherbrooke Street West, Montreal, Quebec, Canada H3A 1G5 - ------------------------------------------------------------------------------- Thomas J. Perna (56) Director of Quadriserv Inc. (technology 89 Robbins Avenue, products for securities lending industry) Berkeley Heights, NJ 07922 - ------------------------------------------------------------------------------- Marguerite A. Piret (58) Director of New America High Income Fund, 200 State Street, 12th Inc. (closed-end investment company) Floor, Boston, MA 02109 - ------------------------------------------------------------------------------- John Winthrop (70) None One North Adgers Wharf, Charleston, SC 29401 - -------------------------------------------------------------------------------
25 Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President discretion of the Board +Mr. Hood resigned as EVP effective January 9, 2007. - -------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the discretion of the Board - -------------------------------------------------------------------------------- Christopher J. Kelley (42) Assistant Since 2003. Serves at the Secretary discretion of the Board - -------------------------------------------------------------------------------- Christopher P. Harvey Assistant Since 2006. Serves at the (45) Secretary discretion of the Board - -------------------------------------------------------------------------------- Vincent Nave (61) Treasurer Since 2000. Serves at the discretion of the Board - -------------------------------------------------------------------------------- Mark E. Bradley (47) Assistant Since 2004. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Since 2000. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- Gary Sullivan (48) Assistant Since 2002. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS Osbert M. Hood (54)+ President and Chief Executive Officer, PIM-USA since May 2003 (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 - ------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary of PIM-USA; Senior Vice President - Legal of Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------- Christopher J. Kelley (42) Vice President and Senior Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001); and Assistant Secretary of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------- Christopher P. Harvey Partner, Wilmer Cutler Pickering Hale and Dorr LLP; and Assistant Secretary (45) of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------- Vincent Nave (61) Vice President - Fund Accounting, Administration and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------- Mark E. Bradley (47) Deputy Treasurer of Pioneer since 2004; Treasurer and Senior 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 - ------------------------------------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Vice President - Fund Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------- Gary Sullivan (48) Fund Accounting Manager - Fund Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------- NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS OFFICER Osbert M. Hood (54)+ Trustee of certain Pioneer Funds - ------------------------------------------------------------------------------- Dorothy E. Bourassa (58) None - ------------------------------------------------------------------------------- Christopher J. Kelley (42) None - ------------------------------------------------------------------------------- Christopher P. Harvey None (45) - ------------------------------------------------------------------------------- Vincent Nave (61) None - ------------------------------------------------------------------------------- Mark E. Bradley (47) None - ------------------------------------------------------------------------------- Luis I. Presutti (41) None - ------------------------------------------------------------------------------- Gary Sullivan (48) None - -------------------------------------------------------------------------------
26 Pioneer High Yield VCT Portfolio - ------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TRUST OFFICERS - -------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Katherine Kim Sullivan Assistant Since 2003. Serves at the (33) Treasurer discretion of the Board - ------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Since 2006. Serves at the Compliance discretion of the Board Officer - ------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS Katherine Kim Sullivan Fund Administration Manager - Fund Accounting, Administration and (33) Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Compliance Officer of Pioneer and all of the Pioneer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------------- NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS OFFICER Katherine Kim Sullivan None (33) - ------------------------------------------------------------------------------- Terrence J. Cullen (45) None - -------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio'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) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18651-01-0207 [LOGO] PIONEER INVESTMENTS(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer International Value VCT Portfolio -- Class I Shares ANNUAL REPORT December 31, 2006 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 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 International Value VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/06 - -------------------------------------------------------------------------------- [THE FOLLOWING DATA WAS REPRESENTED BY A PIE CHART IN THE PRINTED DOCUMENT.]
Portfolio Diversification (As a percentage of total investment portfolio) International Common Stocks 86.6% Depositary Receipts for International Stocks 7.4% U.S. Common Stocks 3.2% International Preferred Stocks 1.8% Temporary Cash Investments 1.0%
[THE FOLLOWING DATA WAS REPRESENTED BY A PIE CHART IN THE PRINTED DOCUMENT.]
Geographical Distribution (As a percentage of equity holdings) Other (individually less than 1%) 3.4% Japan 28.9% United Kingdom 13.5% France 8.5% Switzerland 7.3% Germany 6.9% Brazil 3.4% South Korea 3.3% Australia 3.0% Russia 3.0% Italy 2.7% Singapore 2.4% Turkey 1.6% Ireland 1.5% Belgium 1.5% Sweden 1.4% United States 1.3% South Africa 1.1% Taiwan 1.1% Netherlands 1.1% Austria 1.1% Mexico 1.0% Spain 1.0%
Five Largest Holdings (As a percentage of equity holdings) 1. Toyota Motor Co. 2.45% 2. Royal Bank of Scotland Group Plc 2.37 3. CS Group 2.30 4. JFE Holdings, Inc. 1.97 5. BNP Paribas SA 1.91
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $16.77 $13.71
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $ 0.0713 $ - $ -
- -------------------------------------------------------------------------------- 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 BY A LINE CHART IN THE PRINTED DOCUMENT.] 12/96 10000 10000 10487 10204 12/98 10138 11680 14638 15289 12/00 11343 12983 8650 10452 12/02 7499 8919 9753 12612 12/04 11578 15306 13382 17925 12/06 16453 22793
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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- 10 Years 5.10% 5 Years 13.72% 1 Year 22.94%
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.pioneerinvestments.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 International 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 [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, 2006 through December 31, 2006.
Share Class I -------------------------------------------------------- Beginning Account Value on 7/1/06 $1,000.00 Ending Account Value on 12/31/06 $1,138.44 Expenses Paid During Period* $ 7.49
* Expenses are equal to the Portfolio's annualized expense ratio of 1.39% 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 International Value VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2006 through December 31, 2006.
Share Class I - ---------------------------------------------------------------- Beginning Account Value on 7/1/06 $1,000.00 Ending Account Value on 12/31/06 $1,018.05 Expenses Paid During Period* $ 7.07
* Expenses are equal to the Portfolio's annualized expense ratio of 1.39% 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 VARIABLE CONTRACTS TRUST Pioneer International Value VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/06 - -------------------------------------------------------------------------------- International stocks delivered strong returns during the fiscal year, led in large measure by stocks in Europe and the emerging markets. In the following interview, portfolio manager Christopher Smart discusses the factors that affected performance during the reporting period. Q. How did the Portfolio perform during the year ended December 31, 2006? A. For the fourth straight year, the Portfolio achieved strong double-digit returns. Class I shares had a total return of 22.94% at net asset value for the 12-month period. An overweight position in emerging markets and financial stocks in Europe contributed significantly to this return. However, the Portfolio trailed the 24.35% average return for the 133 International Large-Cap Core funds in its Lipper category. The Portfolio also lagged the 27.16% return for the Morgan Stanley Capital International (MSCI) All Country World Index (excluding the United States) for the same period; however, the performance of the benchmark does not reflect any management fees or transaction expenses. Call 1-800-688-9915 or visit www.pioneerinvestments.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 major factors that contributed to performance? A. The fiscal year proved to be a good time to be invested in European stock markets. Diversified financial stocks were standout performers. BNP Paribas (France) continued to deliver good results on growing sales across its diverse distribution platforms, while U.K.-based Barclays Bank benefited from the success of its domestic retail banking arm, which experienced increased revenue from both its savings account and mortgage financing businesses. In the utility sector, the German electricity provider RWE profited from strong demand for electricity domestically and a more favorable pricing environment. Q. The emerging markets had a setback last spring but resumed their rally. Are you still optimistic about this sector? A. Very much so. Investments in Russia, South Korea and China were very rewarding. Mobile Telesystems, a provider of wireless telecommunications services, gained new users across Russia and beyond its borders in Ukraine and Kazakhstan. Hyundai Heavy Industries, one of the world's largest shipbuilders, was a prime beneficiary of surging global demand, and this Korean company has a three-year order book for most of its ships. China Life Insurance climbed 129% for the period. But given the dramatic appreciation in this stock, which has become overvalued in our opinion, we sold the position to lock in gains. Q. What investments detracted from performance? A. Investments in Turkey suffered last May when global inflationary concerns sparked a more cautious outlook and a brief flight to quality. While most emerging markets investments began to recover when inflation fears abated, Turkish stocks continued to decline in response to the government's rising 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 1-800-688-9915 or visit www.pioneerinvestments.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 International Value VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- current account deficit, climbing interest rates and a weakening currency. A slight overweight in Turkey relative to its benchmark also hurt the Portfolio's performance. Although the Japanese market rose 12% for the year, the Portfolio's particular mix of stocks produced a combined return of 17%. This was gratifying, except for the fact that even that performance failed to keep pace with the benchmark and our decision to overweight the country also lowered returns. Nevertheless, we continue to see good potential for growth in Japan, given the improvement in domestic spending. Q. Did you make any noteworthy changes to the portfolio during the year? A. We did make some adjustments in the struggling telecommunications service sector in Europe. Wireless provider Vodafone Group (United Kingdom) and telecommunications provider France Telecom both produced disappointing results before we sold them. The industry faces a variety of challenges, including intense competition and high costs of investing in quickly-changing technologies. Q. After a multi-year rally in international stocks, are you still confident about the sector? A. Yes, we remain upbeat for the foreseeable future. Global growth remains fairly robust - particularly in the emerging markets, where we believe the risks associated with these investments are lower than at any other time in their recent history. We do not think these markets will not be immune from economic cycles, but we believe their overall growth should be better than the more developed countries. In the developed markets of Europe and Japan, which constitute the majority of the Portfolio's holdings, we think stock prices remain attractive and economic growth shows signs of improvement. We believe the chief risks for international stock investing remain a global economic slowdown and rising interest rates. However, while we think the outlook is still favorable for international stocks, we intend to keep a sharp eye on valuations to ensure that prices remain reasonable relative to earnings prospects. 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 International Value VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Shares Value PREFERRED STOCKS - 1.8% Automobiles & Components - 0.5% Automobile Manufacturers - 0.5% 245 Porsche AG $ 311,536 ----------- Total Automobiles & Components $ 311,536 ----------- Utilities - 1.3% Multi-Utilities - 1.3% 7,912 RWE AG - Non-Voting $ 750,570 ----------- Total Utilities $ 750,570 ----------- TOTAL PREFERRED STOCKS (Cost $1,170,287) $ 1,062,106 ----------- COMMON STOCKS - 95.5% Energy - 8.8% Integrated Oil & Gas - 7.0% 12,728 Gazprom (A.D.R.) $ 585,886 6,130 Lukoil Holding (A.D.R.)* 535,762 6,361 Petrobras Brasileiro (A.D.R.) 590,046 15,475 Repsol SA 534,141 27,900 Royal Dutch Shell Plc 983,858 10,809 Total SA 779,252 ----------- $ 4,008,945 ----------- Oil & Gas Equipment & Services - 0.4% 3,812 Technip $ 261,513 ----------- Oil & Gas Exploration & Production - 1.4% 550,630 CNOOC, Ltd. $ 521,136 9,700 Norsk Hydro AS* 298,103 ----------- $ 819,239 ----------- Total Energy $ 5,089,697 ----------- Materials - 8.8% Commodity Chemicals - 1.0% 85,200 Asahi Kasei Corp.* $ 558,372 ----------- Construction Materials - 1.8% 3,781 CRH Plc $ 157,013 7,432 Holcim, Ltd. 679,055 1,313 Lafarge 195,212 ----------- $ 1,031,280 ----------- Diversified Metals & Mining - 2.5% 30,722 Broken Hill Proprietary Co., Ltd. $ 611,036 8,770 Freeport-McMoRan Copper & Gold, Inc. (Class B) 488,752 6,358 Rio Tinto Plc 337,914 ----------- $ 1,437,702 -----------
Shares Value Steel - 3.5% 28,241 Companhia Vale do Rio Doce (A.D.R.) $ 741,326 17,600 Hitachi Metals, Ltd. 187,600 21,600 JFE Holdings, Inc. 1,106,924 ----------- $ 2,035,850 ----------- Total Materials $ 5,063,204 ----------- Capital Goods - 12.2% Building Products - 1.4% 33,000 Asahi Glass Co., Ltd. $ 396,662 4,750 Compagnie de Saint Gobain 398,829 ----------- $ 795,491 ----------- Construction & Farm Machinery & Heavy Trucks - 1.7% 15,770 Daewoo Heavy Industries & Machinery, Ltd. $ 494,307 3,700 Hyundai Heavy Industries* 499,688 ----------- $ 993,995 ----------- Electrical Component & Equipment - 0.4% 2,166 Schneider Electric SA $ 239,514 ----------- Heavy Electrical Equipment - 1.5% 94,200 Mitsubishi Electric Corp. $ 860,663 ----------- Industrial Conglomerates - 4.0% 42,000 Hutchinson Whampoa, Ltd. $ 425,418 62,800 Keppel Corp. 718,922 115,870 KOC Holding AS* 446,152 7,293 Siemens 727,210 ----------- $ 2,317,702 ----------- Industrial Machinery - 1.3% 17,338 AB SKF $ 318,625 31,320 Nabtesco Corp. 392,999 ----------- $ 711,624 ----------- Trading Companies & Distributors - 1.9% 43,100 Mitsubishi Corp.* $ 808,716 11,655 Wolseley 280,410 ----------- $ 1,089,126 ----------- Total Capital Goods $ 7,008,115 ----------- Commercial Services & Supplies - 0.2% Office Services & Supplies - 0.2% 6,200 Buhrmann NV $ 92,094 ----------- Total Commercial Services & Supplies $ 92,094 ----------- Transportation - 1.4% Air Freight & Couriers - 0.8% 1,325 Panalpina Welttransport Holding AG $ 180,599 6,727 TNT NV 289,343 ----------- $ 469,942 -----------
6 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer International Value VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value Railroads - 0.6% 49 East Japan Railway Co. $ 326,712 ----------- Total Transportation $ 796,654 ----------- Automobiles & Components - 4.6% Auto Parts & Equipment - 1.0% 14,895 Denso Corp. $ 591,391 ----------- Automobile Manufacturers - 3.1% 6,087 Hyundai Motor Co., Ltd.* $ 442,048 21,000 Toyota Motor Co. 1,377,138 ----------- $ 1,819,186 ----------- Tires & Rubber - 0.4% 1,977 Continental AG $ 229,784 ----------- Total Automobiles & Components $ 2,640,361 ----------- Consumer Durables & Apparel - 3.6% Apparel, Accessories & Luxury Goods - 0.3% 3,131 Adidas-Salomon AG $ 155,859 ----------- Consumer Electronics - 1.8% 39,000 Matsushita Electric Industrial Co., Ltd. $ 784,195 5,700 TomTom NV* 246,018 ----------- $ 1,030,213 ----------- Homebuilding - 0.8% 15,575 Persimmon Plc. $ 465,355 ----------- Leisure Products - 0.3% 6,000 Sega Sammy Holdings, Inc. $ 161,989 ----------- Photographic Products - 0.4% 10,400 Agfa Gevaert NV* $ 265,582 ----------- Total Consumer Durables & Apparel $ 2,078,998 ----------- Consumer Services - 0.6% Casinos & Gaming - 0.2% 3,938 Opap SA $ 152,127 ----------- Hotels, Resorts & Cruise Lines - 0.4% 4,510 Carnival Corp. $ 221,216 ----------- Total Consumer Services $ 373,343 ----------- Media - 1.0% Broadcasting & Cable TV - 0.4% 20,695 Mediaset S.p.A $ 245,449 ----------- Movies & Entertainment - 0.6% 8,315 Vivendi SA $ 323,790 ----------- Total Media $ 569,239 ----------- Retailing - 2.9% Apparel Retail - 1.1% 140,674 Truworths International, Ltd. $ 640,702 -----------
Shares Value Department Stores - 1.8% 1,100 Pinault-Printemps Redoute* $ 164,264 62,740 Takashimaya Co., Ltd.* 887,535 ----------- $ 1,051,799 ----------- Total Retailing $ 1,692,501 ----------- Food & Drug Retailing - 0.5% Drug Retail - 0.5% 18,700 Alliance Boots Plc $ 305,261 ----------- Total Food & Drug Retailing $ 305,261 ----------- Food, Beverage & Tobacco - 4.1% Brewers - 0.7% 18,350 South African Breweries Plc $ 421,086 ----------- Distillers & Vintners - 0.8% 25,400 C&C Group Plc $ 449,413 ----------- Packaged Foods & Meats - 0.9% 1,413 Nestle SA (Registered Shares) $ 500,971 ----------- Soft Drinks - 1.0% 4,944 Fomento Economico Mexicano SA de C.V. $ 572,317 ----------- Tobacco - 0.7% 15,530 British American Tobacco Plc $ 434,515 ----------- Total Food, Beverage & Tobacco $ 2,378,302 ----------- Household & Personal Products - 1.5% Household Products - 0.3% 3,768 Reckitt Benckiser Plc $ 172,218 ----------- Personal Products - 1.2% 22,170 Kose Corp. $ 669,255 ----------- Total Household & Personal Products $ 841,473 ----------- Health Care Equipment & Services - 0.7% Health Care Equipment - 0.5% 2,130 Synthes, Inc. $ 253,840 ----------- Health Care Services - 0.2% 989 Fresenius Medical Care AG $ 131,382 ----------- Total Health Care Equipment & Services $ 385,222 ----------- Pharmaceuticals & Biotechnology - 4.6% Pharmaceuticals - 4.6% 9,887 Astrazeneca Plc $ 530,508 20,300 Daiichi Sankyo Co., Ltd. 634,419 5,194 Roche Holdings AG 929,087 2,751 Shire Pharmaceuticals Group Plc (A.D.R.) 169,902 5,558 UCB SA 380,983 ----------- $ 2,644,899 ----------- Total Pharmaceuticals & Biotechnology $ 2,644,899 -----------
The accompanying notes are an integral part of these financial statements. 7 PIONEER VARIABLE CONTRACTS TRUST Pioneer International Value VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Shares Value Banks - 16.4% Diversified Banks - 16.4% 69,021 Banca Intesa S.p.A. $ 531,446 55,500 Barclays Plc 790,534 9,890 BNP Paribas SA 1,074,015 16,596 Commonwealth Bank of Australia 646,534 13,947 Depfa Bank Plc 250,286 40,900 Development Bank of Singapore, Ltd. 602,505 7,100 Dexia* 194,364 5,170 Kookmin Bank (A.D.R.)* 416,909 -- Mitsubishi UFJ Financial Group, Inc. 1,244 140 Mizuho Financial Group, Inc.* 1,001,147 34,193 Royal Bank of Scotland Group Plc 1,329,329 3,947 Societe Generale 667,653 49 Sumitomo Mitsui Financial Group, Inc. 499,761 97,806 Turkiye Is Bankasi (Isbank) 445,297 6,136 Uniao de Bancos Brasileiros S.A. (Unibanco) (G.D.R.) (144A) (b) 570,403 22,942 Westpac Banking Corp. 437,605 ----------- $ 9,459,032 ----------- Total Banks $ 9,459,032 ----------- Diversified Financials - 4.1% Asset Management & Custody Banks - 0.3% 17,177 Man Group Plc $ 175,765 ----------- Diversified Capital Markets - 3.0% 18,547 CS Group $ 1,293,717 3,320 Deutsche Bank AG 443,696 ----------- $ 1,737,413 ----------- Investment Banking & Brokerage - 0.8% 24,200 Nomura Securities Co., Ltd. $ 457,766 ----------- Total Diversified Financials $ 2,370,944 ----------- Insurance - 3.8% Multi-Line Insurance - 3.0% 32,797 Aviva Plc $ 528,658 16,581 AXA 668,428 1,942 Zurich Financial Services 520,880 ----------- $ 1,717,966 ----------- Property & Casualty Insurance - 0.8% 41,840 Mitsui Sumitomo Insurance Co. $ 458,317 ----------- Total Insurance $ 2,176,283 ----------- Real Estate - 1.5% Real Estate Management & Development - 1.5% 35,681 Mitsui Fudosan Co.* $ 872,495 ----------- Total Real Estate $ 872,495 ----------- Software & Services - 0.3% Application Software - 0.3% 2,900 Sap AG $ 153,985 ----------- Total Software & Services $ 153,985 -----------
Shares Value Technology Hardware & Equipment - 3.2% Communications Equipment - 0.8% 115,966 Ericsson LM Tel Sur B $ 467,353 ----------- Electronic Equipment & Instruments - 1.0% 7,377 Nidec Corp. $ 571,331 ----------- Office Electronics - 1.4% 14,418 Canon, Inc. $ 816,396 ----------- Total Technology Hardware & Equipment $ 1,855,080 ----------- Semiconductors - 2.7% Semiconductor Equipment - 1.6% 11,594 Tokyo Electron, Ltd. $ 915,424 ----------- Semiconductors - 1.1% 45,365 Hon Hai Precision Industry, (G.D.R)* $ 638,853 ----------- Total Semiconductors $ 1,554,277 ----------- Telecommunication Services - 5.8% Alternative Carriers - 2.4% 12,800 Fastweb $ 728,433 88,280 Inmarsat Plc 657,476 ----------- $ 1,385,909 ----------- Integrated Telecommunication Services - 2.4% 126 Nippon Telegraph & Telephone Corp. $ 622,515 23,148 Telekom Austria AG 619,481 19,881 Telekomunikacja Polska SA 167,869 ----------- $ 1,409,865 ----------- Wireless Telecommunication Services - 1.0% 11,427 Mobile Telesystems (A.D.R.) $ 573,521 ----------- Total Telecommunication Services $ 3,369,295 ----------- Utilities - 2.3% Electric Utilities - 2.3% 11,500 Chubu Electric Power Co., Inc. $ 343,408 7,071 E.On AG 959,126 ----------- $ 1,302,534 ----------- Total Utilities $ 1,302,534 ----------- TOTAL COMMON STOCKS (Cost $46,981,250) $55,073,288 -----------
8 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer International Value VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value TEMPORARY CASH INVESTMENT - 1.0% Security Lending Collateral - 1.0% 584,348 Securities Lending Investment Fund, 5.26% $ 584,348 ----------- TOTAL TEMPORARY CASH INVESTMENT (Cost $584,348) $ 584,348 ----------- TOTAL INVESTMENT IN SECURITIES - 98.4% (Cost $48,735,885) (a) $56,719,742 ----------- OTHER ASSETS AND LIABILITIES - 1.6% $ 931,349 ----------- TOTAL NET ASSETS - 100.0% $57,651,091 ===========
* 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, 2006, the value of these securities amounted to $570,403 or 1.0% 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 28.9% United Kingdom 13.5% France 8.5% Switzerland 7.3% Germany 6.9% Brazil 3.4% South Korea 3.3% Australia 3.0% Russia 3.0% Italy 2.7% Singapore 2.4% Turkey 1.6% Ireland 1.5% Belgium 1.5% Sweden 1.4% United States 1.3% South Africa 1.1% Taiwan 1.1% Netherlands 1.1% Australia 1.1% Mexico 1.0% Spain 1.0% Other (individually less than 1%) 3.4% ----- 100.0% =====
(b) At December 31, 2006, the following security was out on loan:
Shares Security Value 6,068 Uniao de Bancos Brasileiros S.A. (Unibanco) (G.D.R.) (144A) $564,081 -------- $564,081 ========
The accompanying notes are an integral part of these financial statements. 9 PIONEER VARIABLE CONTRACTS TRUST Pioneer International Value VCT Portfolio - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Year Year Year Year Ended Ended Ended Ended Ended Class I 12/31/06 12/31/05 12/31/04 12/31/03 12/31/02 Net asset value, beginning of period $ 13.71 $ 11.88 $ 10.06 $ 7.79 $ 9.00 ------- ------- ------- ------- -------- Increase (decrease) from investment operations: Net investment income $ 0.10 $ 0.10 $ 0.05 $ 0.07 $ 0.03 Net realized and unrealized gain (loss) on investments and foreign currency transactions 3.03 1.75 1.82 2.26 (1.23) ------- ------- ------- ------- -------- Net increase (decrease) from investment operations $ 3.13 $ 1.85 $ 1.87 $ 2.33 $ (1.20) Distributions to shareowners: Net investment income (0.07) (0.02) (0.05) (0.06) (0.01) ------- ------- ------- ------- -------- Net increase (decrease) in net asset value $ 3.06 $ 1.83 $ 1.82 $ 2.27 $ (1.21) ------- ------- ------- ------- -------- Net asset value, end of period $ 16.77 $ 13.71 $ 11.88 $ 10.06 $ 7.79 ======= ======= ======= ======= ======== Total return* 22.94% 15.58% 18.71% 30.06% (13.31)% Ratio of net expenses to average net assets+ 1.39% 1.53% 1.75% 1.69% 1.46% Ratio of net investment income to average net assets+ 0.82% 0.70% 0.45% 0.68% 0.62% Portfolio turnover rate 153% 108% 129% 99% 31% Net assets, end of period (in thousands) $32,046 $21,176 $22,859 $22,506 $ 21,271 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.39% 1.53% 1.75% 1.69% 1.46% Net investment income 0.82% 0.70% 0.45% 0.68% 0.62% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 1.39% 1.53% 1.75% 1.69% 1.46% Net investment income 0.82% 0.70% 0.45% 0.68% 0.62%
* 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 VARIABLE CONTRACTS TRUST Pioneer International Value VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $564,081) (cost $ 56,719,742 $48,735,885) Cash 1,827,837 Foreign currencies, at value (cost $101) 101 Receivables -- Investment securities sold 188,792 Fund shares sold 43,806 Dividends, interest and foreign taxes withheld 52,821 Other 2,524 ------------ Total assets $ 58,835,623 ------------ LIABILITIES: Payables -- Investment securities purchased $ 287,262 Fund shares repurchased 150,665 Upon return of securities loaned 584,348 Forward foreign currency portfolio hedge contracts, open -- net 451 Due to affiliates 9,975 Accrued expenses 151,831 ------------ Total liabilities $ 1,184,532 ------------ NET ASSETS: Paid-in capital $ 52,872,762 Undistributed net investment income 217,885 Accumulated net realized loss (3,428,334) Net unrealized gain on: Investments 7,983,857 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 4,921 ------------ Total net assets $ 57,651,091 ------------ NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 32,045,993 Shares outstanding 1,910,832 ------------ Net asset value per share $ 16.77 Class II: (No par value, unlimited number of shares authorized) Net assets $ 25,605,098 Shares outstanding 1,536,750 ------------ Net asset value per share $ 16.66
The accompanying notes are an integral part of these financial statements. 11 PIONEER VARIABLE CONTRACTS TRUST Pioneer International Value VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS 12/31/06 - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $73,530) $ 615,866 Interest 22,003 Income on securities loaned, net 14,974 ------------ Total investment income $ 652,843 ------------ EXPENSES: Management fees $ 255,471 Transfer agent fees and expenses 2,897 Distribution fees (Class II) 20,538 Administrative reimbursements 6,768 Custodian fees 77,984 Professional fees 38,297 Printing expenses 16,310 Fees and expenses of nonaffiliated trustees 5,852 Miscellaneous 18,178 ------------ Total expenses $ 442,295 ------------ Net expenses $ 442,295 ------------ Net investment income $ 210,548 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain from: Investments $ 9,571,942 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 7,472 ------------ $ 9,579,414 ------------ Change in net unrealized gain or (loss) from: Investments $ (3,663,013) Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 5,415 ------------ $ (3,657,598) ------------ Net gain on investments and foreign currency transactions $ 5,921,816 ============ Net increase in net assets resulting from operations $ 6,132,364 ============
12 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer International Value VCT Portfolio - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 210,548 $ 163,925 Net realized gain on investments 9,579,414 4,186,631 Change in net unrealized loss on investments and foreign currency transactions (3,657,598) (617,934) ------------ ------------ Net increase in net assets resulting from operations $ 6,132,364 $ 3,732,622 ------------ ------------ DISTRIBUTIONS TO SHAREOWNERS: Net investment income: Class I $ (100,558) $ (31,154) Class II (20,184) (3,084) ------------ ------------ Total distributions to shareowners $ (120,742) $ (34,238) ------------ ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 5,815,627 $ 3,244,454 Shares issued in reorganization 25,497,152 -- Reinvestment of distributions 120,741 34,238 Cost of shares repurchased (6,695,775) (7,067,685) ------------ ------------ Net increase (decrease) in net assets resulting from Fund share transactions $ 24,737,745 $ (3,788,993) ------------ ------------ Net increase (decrease) in net assets $ 30,749,367 $ (90,609) NET ASSETS: Beginning of year $ 26,901,724 $ 26,992,333 ------------ ------------ End of year $ 57,651,091 $ 26,901,724 ============ ============ Undistributed net investment income $ 217,885 $ 120,607 ============ ============
The accompanying notes are an integral part of these financial statements. 13 PIONEER VARIABLE CONTRACTS TRUST Pioneer International Value VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer International 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 II shares are presented in a separate book. The investment objective of the Portfolio is to seek long-term capital growth. 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 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 year. 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 14 PIONEER VARIABLE CONTRACTS TRUST Pioneer International Value VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2006, there were no fair valued securities except as noted below. Temporary cash investments are valued at amortized cost. 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 the 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, if any, 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, 2006, the Portfolio had no outstanding portfolio hedges. As of December 31, 2006, the Portfolio's gross forward currency settlement contracts receivable and payable were $287,262 and $287,713, respectively, resulting in a net payable of $451. 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. 15 PIONEER VARIABLE CONTRACTS TRUST Pioneer International Value VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, 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, 2006, 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, 2006, International Value Portfolio had a net capital loss carryforward of $3,939,983, of which the following amounts will expire between 2010 and 2011 if not utilized: $1,808,985 in 2010 and $2,130,998 in 2011. At December 31, 2006, 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 Realized Loss Paid-In Capital - -------------------------------------------------------------------------------------------------------- Pioneer International Value VCT Portfolio $7,472 $(7,472) $-- ====== ======== === - --------------------------------------------------------------------------------------------------------
The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings as of December 31, 2006, on a tax basis.
- ---------------------------------------------------------------------------------------------------------- 2006 2005 - ---------------------------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 120,742 $34,238 ------------ ------- Total distributions $ 120,742 $34,238 ============ ======= Distributable Earnings: Undistributed ordinary income $ 217,434 Capital loss carryforward (669,903) Capital loss carryforward from International Value VCT Portfolio (limited) (3,939,983) Unrealized appreciation 7,830,975 ------------ Total $ 4,778,329 ============ - ----------------------------------------------------------------------------------------------------------
16 PIONEER VARIABLE CONTRACTS TRUST Pioneer International Value VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- For the fiscal year ending December 31, 2006, the Portfolio has elected to pass through foreign tax credits of $58,636. The difference between book-basis and tax-basis unrealized appreciation is attributable to the tax deferral of losses on wash sales 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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. 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 sub custodian. 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 0.85% up to $500 million and 0.75% on assets over $500 million. 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, 2006, $4,145 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 $5,305 in transfer agent fees payable to PIMSS at December 31, 2006. 17 PIONEER VARIABLE CONTRACTS TRUST Pioneer International Value VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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 $525 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $48,894,138 $8,083,695 $(258,091) $7,825,604 =========== ========== ========== =========== - -------------------------------------------------------------------------------------------------------
6. Portfolio Transactions The cost of purchases and the proceeds from sales of investments other than U.S. Government obligations and temporary cash investments for the year ended December 31, 2006, were $47,012,489 and $48,643,695, respectively. 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- ------------------------------------------------------------------------------------------------------- International Value Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ------------------------------------------------------------------------------------------------------- CLASS I: Shares sold 103,410 $ 1,561,977 48,222 $ 576,930 Shares issued in reorganization 604,476 10,064,511 -- -- Reinvestment of distributions 7,188 100,557 2,721 31,154 Shares repurchased (348,668) (5,239,852) (430,261) (5,229,863) ------------------------------------------------------------ Net increase (decrease) 366,406 $ 6,487,193 (379,318) $(4,621,779) ============================================================ CLASS II: Shares sold 282,201 $ 4,253,650 218,007 $ 2,667,524 Shares issued in reorganization 933,050 15,432,641 -- -- Reinvestment of distributions 1,451 20,184 270 3,084 Shares repurchased (100,055) (1,455,923) (147,285) (1,837,822) ------------------------------------------------------------ Net increase 1,116,647 $18,250,552 70,992 $ 832,786 ============================================================= - -------------------------------------------------------------------------------------------------------
8. Merger Information On December 14, 2006, beneficial owners of Pioneer Europe VCT Portfolio approved a proposed Agreement and Plan of Reorganization that provided for the merger listed below. This tax-free reorganization was accomplished on December 15, 2006, by exchanging all of Pioneer Europe VCT Portfolio's Class I and Class II net assets for Pioneer International Value VCT Portfolio's shares, based on Pioneer International Value VCT Portfolio's Class I and Class II shares' ending net asset value, respectively. The following charts show the details of the reorganization as of that closing date ("Closing Date"): 18 PIONEER VARIABLE CONTRACTS TRUST Pioneer International Value VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------- Pioneer International Pioneer Europe Pioneer International Value VCT Portfolio VCT Portfolio Value VCT Portfolio (Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization) - ------------------------------------------------------------------------------------------------------- Net Assets Class I $21,992,184 $10,064,511 $32,056,695 Class II 9,736,352 15,432,641 25,168,993 ----------- ----------- ----------- Total Net Assets $31,728,536 $25,497,152 $57,225,688 =========== =========== =========== Shares Outstanding Class I 1,321,228 695,710 1,925,704 Class II 588,712 1,086,039 1,521,761 Shares Issued in Reorganization Class I 604,476 Class II 933,050 - -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Accumulated Unrealized Appreciation Gain/(Loss) on on Closing Date Closing Date - -------------------------------------------------------------------------------- Pioneer Europe VCT Portfolio $6,114,583 $(3,144,553) ========== ============ - --------------------------------------------------------------------------------
9. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 19 PIONEER VARIABLE CONTRACTS TRUST Pioneer International 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 International Value VCT Portfolio: We have audited the accompanying statement of assets and liabilities of Pioneer International Value VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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, 2006, 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, 2006, 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 9, 2007 20 PIONEER VARIABLE CONTRACTS TRUST Pioneer International 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"), 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 break points in the management fee, reasonable growth expectations for the Fund and certain of the Fund's expenses that are incurred on a basis other than as 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. 21 PIONEER VARIABLE CONTRACTS TRUST Pioneer International Value VCT Portfolio - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- 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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group and an index considered appropriate by the Independent Trustees for this purpose. The Fund's performance, based upon total return, was in the first quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, the third quintile of the peer group for the three years ended June 30, 2006, the second quintile for the five years ended June 30, 2006 and the fifth quintile for the ten year period ended June 30, 2006. (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 noted that the return of the Fund, before deduction of expenses, exceeded the return of the Fund's benchmark index for the 12-month period ended June 30, 2006. The Trustees, focusing on three-year total returns, concluded that the performance of the Fund was satisfactory. 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 size, 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee, based on 2006 data, 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 also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 to be in the fifth quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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 22 PIONEER VARIABLE CONTRACTS TRUST Pioneer International Value 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 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 23
Pioneer International Value 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 portfolio's affairs. The officers of the trust are responsible for the trust's operations. Custodian The trust's Trustees and officers are listed below, together with their Brown Brothers Harriman & Co. principal occupations during the past five years. Trustees who are interested persons of the trust within the meaning of the 1940 Act are referred to as Independent Registered Public Accounting Firm Interested Trustees. Trustees who are not interested persons of the trust are Ernst & Young LLP referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 86 U.S. registered investment portfolios for which Pioneer Principal Underwriter serves as investment adviser (the "Pioneer Funds"). The address for all Pioneer Funds Distributor, Inc. Interested Trustees and all officers of the trust is 60 State Street, Boston, Massachusetts 02109. Legal Counsel Wilmer Cutler Pickering Hale and Dorr LLP Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc.
- -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Board, Trustee until a successor trustee and President is elected or earlier retirement or removal. *Mr. Cogan is an Interested Trustee because he is an officer or director of the portfolio's investment adviser and certain of its affiliates. - -------------------------------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS John F. Cogan, Jr. (80)* Deputy Chairman and a Director of Pioneer Global Asset Management S.p.A. ("PGAM"); Non-Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - -------------------------------------------------------------------------------------------------------- NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Director of ICI Mutual Insurance Company *Mr. Cogan is an Interested Trustee because he is an officer or director of the portfolio's investment adviser and certain of its affiliates. - --------------------------------------------------------------------------------
24 Pioneer International Value VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE David R. Bock (63) Trustee Trustee since 2005. Serves 3050 K. Street NW, until a successor trustee Washington, DC 20007 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- Mary K. Bush (58) Trustee Trustee since 2000. Serves 3509 Woodbine Street, until a successor trustee Chevy Chase, MD 20815 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves 1001 Sherbrooke Street West, until a successor trustee Montreal, Quebec, Canada is elected or earlier H3A 1G5 retirement or removal. - -------------------------------------------------------------------------------- Thomas J. Perna (56) Trustee Trustee since 2006. Serves 89 Robbins Avenue, until a successor trustee Berkeley Heights, NJ is elected or earlier 07922 retirement or removal. - -------------------------------------------------------------------------------- Marguerite A. Piret (58) Trustee Trustee since 1995. Serves 200 State Street, 12th until a successor trustee Floor, Boston, MA 02109 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- John Winthrop (70) Trustee Trustee since 2000. Serves One North Adgers Wharf, until a successor trustee Charleston, SC 29401 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- NAME, AGE AND ADDRESS PRINCIPAL OCCUPATION DURING PAST FIVE YEARS David R. Bock (63) Senior Vice President and Chief Financial Officer, I-trax, Inc. (publicly traded 3050 K. Street NW, health care services company) (2001 - present); Managing Partner, Federal Washington, DC 20007 City Capital Advisors (boutique merchant bank) (2002 to 2004); and Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet- based mortgage trading company) (2000 - 2002) - ----------------------------------------------------------------------------------------------------------------- Mary K. Bush (58) President, Bush International (international financial advisory firm) 3509 Woodbine Street, Chevy Chase, MD 20815 - ----------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (59) Founding Director, The Winthrop Group, Inc. (consulting firm); and 1001 Sherbrooke Street West, Desautels Faculty of Management, McGill University Montreal, Quebec, Canada H3A 1G5 - ----------------------------------------------------------------------------------------------------------------- Thomas J. Perna (56) Private investor (2004 - present); and Senior Executive Vice President, The 89 Robbins Avenue, Bank of New York (financial and securities services) (1986 - 2004) Berkeley Heights, NJ 07922 - ----------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (58) President and Chief Executive Officer, Newbury, Piret & Company, Inc. 200 State Street, 12th (investment banking firm) Floor, Boston, MA 02109 - ----------------------------------------------------------------------------------------------------------------- John Winthrop (70) President, John Winthrop & Co., Inc. (private investment firm) One North Adgers Wharf, Charleston, SC 29401 - ----------------------------------------------------------------------------------------------------------------- NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE David R. Bock (63) Director of The Enterprise Social Investment 3050 K. Street NW, Company (privately-held affordable housing Washington, DC 20007 finance company); and Director of New York Mortgage Trust (publicly traded mortgage REIT) - ----------------------------------------------------------------------------------------------------------------- Mary K. Bush (58) Director of Brady Corporation (industrial 3509 Woodbine Street, identification and specialty coated material Chevy Chase, MD 20815 products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ----------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (59) None 1001 Sherbrooke Street West, Montreal, Quebec, Canada H3A 1G5 - ----------------------------------------------------------------------------------------------------------------- Thomas J. Perna (56) Director of Quadriserv Inc. (technology 89 Robbins Avenue, products for securities lending industry) Berkeley Heights, NJ 07922 - ----------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (58) Director of New America High Income Fund, 200 State Street, 12th Inc. (closed-end investment company) Floor, Boston, MA 02109 - ----------------------------------------------------------------------------------------------------------------- John Winthrop (70) None One North Adgers Wharf, Charleston, SC 29401 - -----------------------------------------------------------------------------------------------------------------
25 - -------------------------------------------------------------------------------- Pioneer International Value VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President discretion of the Board +Mr. Hood resigned as EVP effective January 9, 2007. - -------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the discretion of the Board - -------------------------------------------------------------------------------- Christopher J. Kelley (42) Assistant Since 2003. Serves at the Secretary discretion of the Board - -------------------------------------------------------------------------------- Christopher P. Harvey Assistant Since 2006. Serves at the (45) Secretary discretion of the Board - -------------------------------------------------------------------------------- Vincent Nave (61) Treasurer Since 2000. Serves at the discretion of the Board - -------------------------------------------------------------------------------- Mark E. Bradley (47) Assistant Since 2004. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Since 2000. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- Gary Sullivan (48) Assistant Since 2002. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS Osbert M. Hood (54)+ President and Chief Executive Officer, PIM-USA since May 2003 (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary of PIM-USA; Senior Vice President - Legal of Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------- Christopher J. Kelley (42) Vice President and Senior Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001); and Assistant Secretary of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------- Christopher P. Harvey Partner, Wilmer Cutler Pickering Hale and Dorr LLP; and Assistant Secretary (45) of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------- Vincent Nave (61) Vice President - Fund Accounting, Administration and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------- Mark E. Bradley (47) Deputy Treasurer of Pioneer since 2004; Treasurer and Senior 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 - ------------------------------------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Vice President - Fund Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------- Gary Sullivan (48) Fund Accounting Manager - Fund Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------- NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS OFFICER Osbert M. Hood (54)+ Trustee of certain Pioneer Funds +Mr. Hood resigned as EVP effective January 9, 2007. - -------------------------------------------------------------------------------- Dorothy E. Bourassa (58) None - -------------------------------------------------------------------------------- Christopher J. Kelley (42) None - -------------------------------------------------------------------------------- Christopher P. Harvey None (45) - -------------------------------------------------------------------------------- Vincent Nave (61) None - -------------------------------------------------------------------------------- Mark E. Bradley (47) None - -------------------------------------------------------------------------------- Luis I. Presutti (41) None - -------------------------------------------------------------------------------- Gary Sullivan (48) None - --------------------------------------------------------------------------------
26 Pioneer International Value VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Katherine Kim Sullivan Assistant Since 2003. Serves at the (33) Treasurer discretion of the Board - ------------------------------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Since 2006. Serves at the Compliance discretion of the Board Officer - ------------------------------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS Katherine Kim Sullivan Fund Administration Manager - Fund Accounting, Administration and (33) Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Compliance Officer of Pioneer and all of the Pioneer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------- NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS OFFICER Katherine Kim Sullivan None (33) - ------------------------------------------------------------------------------------------------------- Terrence J. Cullen (45) None - -------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio'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) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 20363-00-0207 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Mid Cap Value VCT Portfolio -- Class I Shares ANNUAL REPORT December 31, 2006 PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Table of Contents - -------------------------------------------------------------------------------- Pioneer Mid Cap Value 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 17 Factors Considered by the Independent Trustees in Approving the Management Contract 18 Trustees, Officers and Service Providers 21
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 12/31/06 - -------------------------------------------------------------------------------- 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 97.5% Temporary Cash Investment 2.5%
Sector Distribution (As a percentage of equity holdings) [The following data was represented as a pie chart in the printed material] Financials 24.1% Consumer Discretionary 14.8% Information Technology 11.6% Utilities 10.8% Consumer Staples 9.4% Industrials 8.6% Materials 7.0% Health Care 6.8% Energy 5.7% Telecommunication Services 1.2%
Five Largest Holdings (As a percentage of equity holdings) 1. UNUM Corp. 2.47% 2. NCR Corp. 2.39 3. Ball Corp. 2.20 4. Air Products & Chemicals, Inc. 2.14 5. The Interpublic Group of Companies, Inc. 2.14
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $ 20.32 $ 25.00
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $ 0.2648 $ 1.8961 $ 4.7000
- -------------------------------------------------------------------------------- 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 graph in the printed material]
Russell Mid-Cap Pioneer Mid Cap Value Index Value VCT Portfolio 12/96 $10,000 $10,000 12/98 $11,976 $14,120 12/00 $15,976 $16,810 12/02 $15,106 $15,542 12/04 $25,359 $26,544 12/06 $30,803 $35,947
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, 2006) - -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- 10 Years 11.91% 5 Years 12.61% 1 Year 12.59%
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.pioneerinvestments.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, 2006 through December 31, 2006.
Share Class I - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,112.77 Expenses Paid During Period* $ 3.78
* Expenses are equal to the Portfolio's annualized expense ratio of 0.71% 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 Mid Cap Value VCT Portfolio Based on a hypothetical 5% per year return before expenses, reflecting the period from July 1, 2006 through December 31, 2006.
Share Class I - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,021.63 Expenses Paid During Period* $ 3.62
* Expenses are equal to the Portfolio's annualized expense ratio of 0.71% 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 Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/06 - -------------------------------------------------------------------------------- Domestic stock prices trended up through most of 2006, as the market ascent was interrupted only during a slump from mid-May through mid-July, when fears of higher interest rates and rising energy prices took hold. However in the final half of the year, investors grew more confident about stocks as energy prices receded and the Federal Reserve Board kept short-term interest rate levels stable. Earlier in the year, many lower-quality and more volatile stocks tended to outperform. In the latter part of the year, the rally was more broad-based. In the following discussion, Rod Wright, portfolio manager of Pioneer Mid Cap Value VCT Portfolio, provides an update on the Portfolio, its investment strategies, and the factors that influenced performance during the 12 months ended December 31, 2006. Q. How did the Portfolio perform in 2006? A. The Portfolio trailed the mid-cap value sector and the overall market during the year. Pioneer Mid Cap Value VCT Portfolio (Class I shares) had a total return of 12.59%, at net asset value, for the 12 months ended December 31, 2006. During the same year, the Russell Midcap Value Index rose by 20.22%, while the Standard & Poor's 500 Index gained 15.78%. The average return of the 65 portfolios in Lipper's Mid-Cap Value Funds category was 14.39%. Call 1-800-688-9915 or visit www.pioneerinvestments.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 performance during the year? A. The Portfolio struggled in the early months, when the stock market surged, led by the types of stocks that we tend to avoid. In the final six months of the year, our lack of exposure to real estate investment trusts hurt, as did some of our stock selections in the insurance industry. We declined to invest in real estate investment trusts because they appeared to be richly priced, but they nevertheless rallied in late 2006, helped in part by some high-profile buyouts by private equity funds. No one financial holding hurt significantly, but several of our insurance holdings, including UNUM and Genworth, trailed the market. Overall, while the Portfolio had good absolute performance, the companies in which we invest were out of favor. Our investment discipline emphasizes companies that we believe are higher quality - companies that generally have these characteristics: o High returns on equity and invested capital; o Good growth and profit records; o Solid balance sheets; o Strong managements; and o Solid positions in their markets. Q. What were some of the investments that most affected performance? A. A number of our holdings did perform very well in 2006. We had particularly strong results from U.S. Tobacco; telecommunications equipment company Tellabs; grocery chain Safeway; motorcycle producer Harley Davidson; farm equipment company Deere; consumer staples company International Flavors and Fragrances; and Laboratory Corporation of America, a leader in DNA testing services. In addition, two of our technology holdings were acquired by larger companies: Freescale Semiconductor and Symbol Technology, a producer of scanning equipment. We sold our positions in Tellabs and Deere during the period. Holdings that had disappointing results included on-line travel service Expedia; coal miner Massey Energy, which declined as energy prices dipped in the second half of the year; Boston Scientific, the medical device company that has underperformed since its acquisition of Guidant, another cardiac device company; and Palm, which produces hand-held communications and computing devices. Q. What is your investment outlook? A. We remain confident in our long-term strategy and invest only in those companies that meet our quality criteria. We retain our belief that if we keep to our discipline, the higher-quality companies that we favor should outperform. As we enter 2007, we have some optimism about the stock market. The economy appears to be strong, corporate earnings are growing, while energy prices and short-term interest rates have stabilized. We believe that these factors should have a dominant influence on the economy and stock performance, despite pockets of concern, such as the weak housing market. Overall, we think the solid economic picture should help stock market performance. 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 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.pioneerinvestments.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 - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 99.1% Energy - 5.7% Coal & Consumable Fuels - 1.2% 199,110 Massey Energy Co. $ 4,625,325 ------------ Integrated Oil & Gas - 1.0% 81,310 Hess Corp. $ 4,030,537 ------------ Oil & Gas Equipment & Services - 0.7% 63,752 Weatherford Intl, Inc.* $ 2,664,196 ------------ Oil & Gas Exploration & Production - 2.1% 88,300 Plains Exploration & Product* $ 4,196,899 111,900 Southwestern Energy Co.* 3,922,095 ------------ $ 8,118,994 ------------ Oil & Gas Refining & Marketing - 0.7% 44,304 Tesoro Petroleum Corp. $ 2,913,874 ------------ Total Energy $ 22,352,926 ------------ Materials - 7.0% Diversified Metals & Mining - 1.0% 66,500 Freeport-McMoRan Copper & Gold, Inc. (Class B) $ 3,706,045 ------------ Industrial Gases - 2.1% 118,682 Air Products & Chemicals, Inc. $ 8,340,971 ------------ Metal & Glass Containers - 2.2% 196,436 Ball Corp. $ 8,564,610 ------------ Specialty Chemicals - 1.7% 138,110 International Flavor & Fragrances, Inc. $ 6,789,488 ------------ Total Materials $ 27,401,114 ------------ Capital Goods - 4.2% Electrical Component & Equipment - 1.4% 118,400 Thomas & Betts Corp.* $ 5,597,952 ------------ Industrial Conglomerates - 1.3% 162,710 Tyco International, Ltd. $ 4,946,384 ------------ Trading Companies & Distributors - 1.5% 87,446 W.W. Grainger, Inc. $ 6,115,973 ------------ Total Capital Goods $ 16,660,309 ------------ Commercial Services & Supplies - 3.4% Diversified Commercial Services - 1.6% 158,100 Equifax, Inc. $ 6,418,860 ------------ Environmental & Facilities Services - 1.8% 171,773 Republic Services, Inc. $ 6,986,008 ------------ Total Commercial Services & Supplies $ 13,404,868 ------------ Transportation - 0.9% Railroads - 0.9% 104,100 CSX Corp. $ 3,584,163 ------------ Total Transportation $ 3,584,163 ------------ Automobiles & Components - 0.9% Auto Parts & Equipment - 0.9% 62,700 Borg-Warner Automotive, Inc. $ 3,700,554 ------------ Total Automobiles & Components $ 3,700,554 ------------ Consumer Durables & Apparel - 2.2% Consumer Electronics - 0.9% 37,000 Harman International Industries, Inc. $ 3,696,670 ------------ Housewares & Specialties - 1.3% 59,000 Fortune Brands, Inc. $ 5,038,010 ------------ Total Consumer Durables & Apparel $ 8,734,680 ------------ Consumer Services - 4.3% Casinos & Gaming - 1.7% 81,210 Harrah's Entertainment, Inc. $ 6,717,691 ------------ Education Services - 1.1% 114,500 Apollo Group, Inc.* $ 4,462,065 ------------ Hotels, Resorts & Cruise Lines - 1.5% 120,100 Carnival Corp. $ 5,890,905 ------------ Total Consumer Services $ 17,070,661 ------------ Media - 5.7% Advertising - 2.1% 679,080 The Interpublic Group of Companies, Inc.* $ 8,311,939 ------------ Broadcasting & Cable TV - 2.6% 214,422 Clear Channel Communications, Inc. $ 7,620,558 92,315 Entercom Communications Corp. 2,601,437 ------------ $ 10,221,995 ------------ Publishing - 1.0% 66,200 Gannett Co. $ 4,002,452 ------------ Total Media $ 22,536,386 ------------ Retailing - 1.5% Department Stores - 1.5% 73,800 J.C. Penney Co., Inc. $ 5,709,168 ------------ Total Retailing $ 5,709,168 ------------ Food & Drug Retailing - 3.1% Food Retail - 3.1% 264,900 Kroger Co. $ 6,111,243 177,508 Safeway, Inc. 6,134,676 ------------ $ 12,245,919 ------------ Total Food & Drug Retailing $ 12,245,919 ------------
The accompanying notes are an integral part of these financial statements. 5 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Shares Value Food, Beverage & Tobacco - 5.1% Brewers - 1.1% 59,331 Molson Coors Brewing Co. (Class B) $ 4,535,262 ------------ Packaged Foods & Meats - 1.4% 106,000 William Wrigley Jr. Co. $ 5,482,320 ------------ Tobacco - 2.6% 67,000 Loews Corp. -- Carolina Group* $ 4,336,240 98,110 UST, Inc. 5,710,002 ------------ $ 10,046,242 ------------ Total Food, Beverage & Tobacco $ 20,063,824 ------------ Household & Personal Products - 1.1% Personal Products - 1.1% 134,400 Avon Products, Inc. $ 4,440,576 ------------ Total Household & Personal Products $ 4,440,576 ------------ Health Care Equipment & Services - 6.8% Health Care Equipment - 1.0% 237,410 Boston Scientific Corp.* $ 4,078,704 ------------ Health Care Services - 1.5% 77,662 Laboratory Corp. of America Holdings* $ 5,705,827 ------------ Health Care Supplies - 1.3% 118,500 Cooper Companies, Inc. $ 5,273,250 ------------ Managed Health Care - 3.0% 92,600 AETNA, Inc. $ 3,998,468 57,714 CIGNA Corp. 7,593,431 ------------ $ 11,591,899 ------------ Total Health Care Equipment & Services $ 26,649,680 ------------ Banks - 8.5% Regional Banks - 6.0% 134,125 KeyCorp $ 5,100,774 110,510 Marshall & Ilsley Corp. 5,316,636 67,610 PNC Bank Corp. 5,005,844 141,810 TCF Financial Corp. 3,888,430 52,200 Zions BanCorp. 4,303,368 ------------ $ 23,615,052 ------------ Thrifts & Mortgage Finance - 2.5% 376,721 Hudson City Bancorp, Inc. $ 5,228,887 96,599 The PMI Group, Inc. 4,556,575 ------------ $ 9,785,462 ------------ Total Banks $ 33,400,514 ------------ Diversified Financials - 5.0% Asset Management & Custody Banks - 3.2% 177,314 Federated Investors, Inc. $ 5,989,667 70,000 Legg Mason, Inc. 6,653,500 ------------ $ 12,643,167 ------------ Investment Banking & Brokerage - 1.8% 314,600 E*TRADE Financial Corp.* $ 7,053,332 ------------ Total Diversified Financials $ 19,696,499 ------------ Insurance - 7.5% Insurance Brokers - 0.7% 77,610 Aon Corp. $ 2,742,737 ------------ Life & Health Insurance - 2.5% 462,411 UNUM Corp. $ 9,608,901 ------------ Multi-Line Insurance - 0.9% 103,828 Genworth Financial, Inc. $ 3,551,956 ------------ Property & Casualty Insurance - 2.4% 55,500 Ambac Financial Group, Inc. $ 4,943,385 163,000 Progressive Corp. 3,947,860 943 White Mountains Insurance Group, Ltd. 546,402 ------------ $ 9,437,647 ------------ Reinsurance - 1.0% 131,292 Platinum Underwriter Holdings, Ltd. $ 4,062,174 ------------ Total Insurance $ 29,403,415 ------------ Real Estate - 2.7% Industrial Real Estate Investment Trusts - 0.9% 58,500 ProLogis Trust $ 3,555,045 ------------ Mortgage Real Estate Investment Trusts - 0.9% 241,410 Annaly Capital Management, Inc. $ 3,358,013 ------------ Specialized Real Estate Investment Trusts - 0.9% 145,010 Host Hotels & Resorts, Inc. $ 3,559,996 ------------ Total Real Estate $ 10,473,054 ------------ Software & Services - 2.7% Data Processing & Outsourced Services - 1.3% 194,100 First Data Corp. $ 4,953,432 ------------ Systems Software - 1.4% 269,900 Symantec Corp.* $ 5,627,415 ------------ Total Software & Services $ 10,580,847 ------------ Technology Hardware & Equipment - 6.7% Communications Equipment - 2.3% 296,220 Juniper Networks, Inc.* $ 5,610,407 124,700 KBR, Inc.* 3,262,152 ------------ $ 8,872,559 ------------
6 accompanying notes are an integral part of these financial statements. Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value Computer Hardware - 3.1% 217,610 NCR Corp.* $ 9,305,004 211,110 Palm, Inc.* 2,974,540 ------------ $ 12,279,544 ------------ Office Electronics - 1.3% 296,719 Xerox Corp.* $ 5,029,387 ------------ Total Technology Hardware & Equipment $ 26,181,490 ------------ Semiconductors - 2.1% 222,500 Advanced Micro Devices, Inc.* $ 4,527,875 164,500 National Semiconductor Corp. 3,734,150 ------------ $ 8,262,025 ------------ Total Semiconductors $ 8,262,025 ------------ Telecommunication Services - 1.2% Wireless Telecommunication Services - 1.2% 244,200 Sprint Nextel Corp. $ 4,612,938 ------------ Total Telecommunication Services $ 4,612,938 ------------ Utilities - 10.7% Electric Utilities - 5.4% 62,900 American Electric Power Co., Inc. $ 2,678,282 167,081 Edison International 7,598,844 94,210 Firstenergy Corp. 5,680,863 149,400 PPL Corp. 5,354,496 ------------ $ 21,312,485 ------------ Gas Utilities - 1.7% 81,000 Questar Corp. $ 6,727,050 ------------ Independent Power Producer & Energy Traders - 1.7% 118,266 NRG Energy, Inc.* $ 6,624,079 ------------ Multi-Utilities - 1.9% 120,784 NSTAR $ 4,150,138 49,700 Public Service Enterprise Group, Inc. 3,299,086 ------------ $ 7,449,224 ------------ Total Utilities $ 42,112,838 ------------ TOTAL COMMON STOCKS (Cost $348,201,177) $389,278,448 ============
Principal Amount Value TEMPORARY CASH INVESTMENT - 2.5% Repurchase Agreement - 2.5% $10,000,000 UBS AG, 4.7%, dated 12/29/06, repurchase price of $10,000,000 plus accrued interest on 1/2/06, collateralized by $10,049,000 U.S. Treasury Bill, 5.625%, 5/15/08 $ 10,000,000 ------------ TOTAL TEMPORARY CASH INVESTMENT (Cost $10,000,000) $ 10,000,000 ------------ TOTAL INVESTMENT IN SECURITIES - 101.7% (Cost $358,201,177) $399,278,448 ------------ OTHER ASSETS AND LIABILITIES - (1.7)% $ (6,581,115) ------------ TOTAL NET ASSETS - 100.0% $392,697,333 ============
* Non-income producing security. The accompanying notes are an integral part of these financial statements. 7 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Year Year Year Year Ended Ended Ended Ended Ended Class I 12/31/06 12/31/05 12/31/04 12/31/03 12/31/02 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $ 25.00 $ 24.67 $ 20.47 $ 14.94 $ 17.35 ----------- ----------- ----------- ----------- ----------- Increase (decrease) from investment operations: Net investment income $ 0.20 $ 0.15 $ 0.08 $ 0.14 $ 0.07 Net realized and unrealized gain (loss) on investments 1.98 1.75 4.41 5.45 (1.97) ----------- ----------- ----------- ----------- ----------- Net increase (decrease) from investment operations $ 2.18 $ 1.90 $ 4.49 $ 5.59 $ (1.90) Distributions to shareowners: Net investment income (0.26) (0.08) (0.08) (0.06) (0.05) Net realized gain (6.60) (1.49) (0.21) -- (0.46) ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net asset value $ (4.68) $ 0.33 $ 4.20 $ 5.53 $ (2.41) ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 20.32 $ 25.00 $ 24.67 $ 20.47 $ 14.94 ----------- ----------- ----------- ----------- ----------- Total return* 12.59% 7.88% 22.12% 37.48% (11.21)% Ratio of net expenses to average net assets+ 0.71% 0.71% 0.72% 0.76% 0.80% Ratio of net investment income to average net assets+ 0.88% 0.58% 0.53% 0.86% 0.46% Portfolio turnover rate 104% 42% 55% 52% 68% Net assets, end of period (in thousands) $ 292,001 $ 288,837 $ 303,138 $ 170,237 $ 120,687 Ratio with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.71% 0.71% 0.72% 0.76% 0.80% Net investment income 0.88% 0.58% 0.53% 0.86% 0.46% Ratio with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.71% 0.71% 0.72% 0.76% 0.80% Net investment income 0.88% 0.58% 0.53% 0.86% 0.46%
* 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 Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (cost $358,201,177) $ 399,278,448 Receivables -- Investment securities sold 368,305 Fund shares sold 224,247 Dividends, interest and foreign taxes withheld 407,175 Other 6,618 ------------- Total assets $ 400,284,793 ------------- LIABILITIES: Payables -- Investment securities purchased $ 5,047,088 Fund shares repurchased 2,355,044 Due to bank 64,539 Due to affiliates 28,403 Accrued expenses 92,386 ------------- Total liabilities $ 7,587,460 ------------- NET ASSETS: Paid-in capital $ 307,374,870 Undistributed net investment income 3,078,676 Accumulated net realized gain on investments 41,166,516 Net unrealized gain on investments 41,077,271 ------------- Total net assets $ 392,697,333 ------------- Net Asset Value Per Share: Class I: (No par value, unlimited number of shares authorized) Net assets $ 292,001,408 Shares outstanding 14,371,145 ------------- Net asset value per share $ 20.32 Class II: (No par value, unlimited number of shares authorized) Net assets $ 100,695,925 Shares outstanding 4,974,295 ------------- Net asset value per share $ 20.24
The accompanying notes are an integral part of these financial statements. 9 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS 12/31/06 - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $5,322) $ 5,481,920 Interest 494,961 ------------ Total investment income $ 5,976,881 ------------ EXPENSES: Management fees $ 2,452,157 Transfer agent fees and expenses 2,970 Distribution fees (Class II) 235,194 Administrative reimbursements 83,636 Custodian fees 57,320 Professional fees 43,067 Fees and expenses of nonaffiliated trustees 5,971 Miscellaneous 29,629 ------------ Total expenses $ 2,909,944 Less fees paid indirectly (12,204) ------------ Net expenses $ 2,897,740 ------------ Net investment income $ 3,079,141 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain from investments $ 46,179,846 ------------ Change in net unrealized gain or loss from investments $ (4,780,082) ------------ Net gain on investments $ 41,399,764 ============ Net increase in net assets resulting from operations $ 44,478,905 ============
10 The accompanying notes are an integral part of these financial statements. Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 3,079,141 $ 2,876,590 Net realized gain on investments 46,179,846 146,233,723 Change in net unrealized loss on investments (4,780,082) (98,298,212) ------------- -------------- Net increase in net assets resulting from operations $ 44,478,905 $ 50,812,101 ------------- -------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income: Class I $ (2,875,197) $ (980,182) Class II -- (1,186,576) Net realized gain Class I (71,620,431) (18,901,870) Class II (24,935,216) (33,992,323) ------------- -------------- Total distributions to shareowners $ (99,430,844) $ (55,060,951) ------------- -------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 47,649,108 $ 138,080,446 Reinvestment of distributions 99,430,844 55,060,951 Cost of shares repurchased (76,484,657) (163,603,573) Redemption in kind -- (488,210,933) ------------- -------------- Net increase (decrease) in net assets resulting from Fund share transactions $ 70,595,295 $ (458,673,109) ------------- -------------- Net increase (decrease) in net assets $ 15,643,356 $ (462,921,959) NET ASSETS: Beginning of year 377,053,977 839,975,936 ------------- -------------- End of year $ 392,697,333 $ 377,053,977 ============= ============== Undistributed net investment income, end of year $ 3,078,676 $ 2,874,732 ============= ==============
The accompanying notes are an integral part of these financial statements. 11 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 the Portfolio is to seek capital appreciation. 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 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 year. 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 12 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2006, 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 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, 2006, the 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, if any, 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, 2006, the Portfolio had no outstanding portfolio or settlement hedges. 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 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, 2006, 13 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- the Portfolio had a net capital loss carryforward of $1,738,582 which will expire in 2010 if not utilized. The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis.
- -------------------------------------------------------------------------------- 2006 2005 - -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $30,630,865 $ 6,510,571 Long-Term capital gain 68,799,978 48,550,380 -------------------------------------- $99,430,843 $55,060,951 -------------------------------------- Total distributions $99,430,843 $55,060,951 ====================================== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $10,059,518 Undistributed long-term gain 37,275,348 Capital loss carryforward (1,738,582) Unrealized appreciation 39,726,179 -------------------------------------- Total $85,322,463 ====================================== - --------------------------------------------------------------------------------
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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. 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 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 14 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2006, $22,155 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 $4,169 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $2,079 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $359,552,268 $48,073,184 $ (8,347,004) $39,726,180 ============ =========== ============ =========== - ----------------------------------------------------------------------------------------------------
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, 2006, were $383,220,373 and $402,802,696, respectively. 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- ----------------------------------------------------------------------------------------------------- Mid Cap Value Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ----------------------------------------------------------------------------------------------------- CLASS I: Shares sold 1,049,089 $ 22,445,647 2,037,703 $ 50,295,966 Reinvestment of distributions 4,182,798 74,495,628 821,233 19,882,052 Shares repurchased (2,414,244) (53,000,695) (2,727,151) (66,908,971) Redemptions in kind -- -- (868,079) (21,000,610) -------------------------------------------------------------------- Net increase (decrease) 2,817,643 $ 43,940,580 (736,294) $ (17,731,563) ==================================================================== CLASS II: Shares sold 1,146,480 $ 25,203,461 3,599,252 $ 87,784,480 Reinvestment of distributions 1,403,220 24,935,216 1,468,235 35,178,899 Shares repurchased (1,144,450) (23,483,962) (3,965,242) (96,694,602) Redemptions in kind -- -- (19,499,464) (467,210,323) -------------------------------------------------------------------- Net increase (decrease) 1,405,250 $ 26,654,715 (18,397,219) $ (440,941,546) ==================================================================== - -----------------------------------------------------------------------------------------------------
15 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 8. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 16 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 of Pioneer Mid Cap Value VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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 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, 2006, 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, 2006, 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 9, 2007 17 PIONEER VARIABLE CONTRACTS TRUST Pioneer Mid Cap 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"), 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 these contracts: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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, five and ten year periods ended June 30, 2006 for the Fund and a peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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. 18 Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group and an index considered appropriate by the Independent Trustees for this purpose. The Fund's performance, based upon total return, was in the fifth quintile of its Morningstar category peer group for the 12-months ended June 30, 2006, the third quintile of the peer group for the three years ended June 30, 2006, in the third quintile for the five year period ended June 30, 2006 and in the fourth quintile for the ten year period ended June 30, 2006. (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, focusing on three-year total returns, concluded that the performance of the Fund was satisfactory. 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 size, 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 has 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee for the 12 months ended June 30, 2006 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 also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 to be in the second quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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 VARIABLE CONTRACTS TRUST Pioneer Mid Cap Value VCT Portfolio - -------------------------------------------------------------------------------- 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 the Investment Adviser and the Fund's shareholders. 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 20 Pioneer Mid Cap Value 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 portfolio's affairs. 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 trust within the meaning of the 1940 Act are referred to Principal Underwriter as Interested Trustees. Trustees who are not Pioneer Funds Distributor, Inc. interested persons of the trust are referred to as Independent Trustees. Each of the Trustees serves as Legal Counsel a trustee of each of the 86 U.S. registered Wilmer Cutler Pickering Hale and Dorr LLP investment portfolios for which Pioneer serves as investment adviser (the "Pioneer Funds"). The Shareowner Services and Transfer address for all Interested Trustees and all officers Pioneer Investment Management Shareholder Services, Inc. of the trust is 60 State Street, Boston, Massachusetts 02109.
- -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Deputy Chairman and a Director Director of ICI Board, Trustee until a successor trustee of Pioneer Global Asset Mutual Insurance and President is elected or earlier Management S.p.A. ("PGAM"); Company retirement or removal. Non-Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - ------------------------------------------------------------------------------------------------------------------------------------
21 Pioneer Mid Cap Value VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE David R. Bock (63) Trustee Trustee since 2005. Serves Senior Vice President and Director of The 3050 K. Street NW, until a successor trustee Chief Financial Officer, Enterprise Social Washington, DC 20007 is elected or earlier I-trax, Inc. (publicly traded Investment Company retirement or removal. health care services company) (privately-held (2001 - present); Managing affordable housing Partner, Federal City Capital finance company); and Advisors (boutique merchant Director of New York bank) (2002 to 2004); and Mortgage Trust Executive Vice President and (publicly traded Chief Financial Officer, mortgage REIT) Pedestal Inc. (internet- based mortgage trading company) (2000 - 2002) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Trustee Trustee since 2000. Serves President, Bush International Director of Brady 3509 Woodbine Street, until a successor trustee (international financial Corporation Chevy Chase, MD 20815 is elected or earlier advisory firm) (industrial retirement or removal. identification and specialty coated material products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves Founding Director, The None 1001 Sherbrooke Street West, until a successor trustee Winthrop Group, Inc. Montreal, Quebec, Canada is elected or earlier (consulting firm); and H3A 1G5 retirement or removal. Desautels Faculty of Management, McGill University - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Trustee Trustee since 2006. Serves Private investor (2004 - Director of 89 Robbins Avenue, until a successor trustee present); and Senior Executive Quadriserv Inc. Berkeley Heights, NJ is elected or earlier Vice President, The Bank of (technology products 07922 retirement or removal. New York (financial and for securities securities services) (1986 - lending industry) 2004) - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Trustee Trustee since 1995. Serves President and Chief Executive Director of New 200 State Street, 12th until a successor trustee Officer, Newbury, Piret & America High Income Floor, Boston, MA 02109 is elected or earlier Company, Inc. (investment Fund, Inc. retirement or removal. banking firm) (closed-end investment company) - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) Trustee Trustee since 2000. Serves President, John Winthrop & None One North Adgers Wharf, until a successor trustee Co., Inc. (private investment Charleston, SC 29401 is elected or earlier firm) retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Mid Cap Value VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President and Chief Executive Trustee of certain President discretion of the Board Officer, PIM-USA since May Pioneer Funds 2003 (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the Secretary of PIM-USA; Senior None discretion of the Board Vice President - Legal of Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Assistant Since 2003. Serves at the Vice President and Senior None Secretary discretion of the Board Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001); and Assistant Secretary of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey (45) Assistant Since 2006. Serves at the Partner, Wilmer Cutler None Secretary discretion of the Board Pickering Hale and Dorr LLP; and Assistant Secretary of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Treasurer Since 2000. Serves at the Vice President - Fund None discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Assistant Since 2004. Serves at the Deputy Treasurer of Pioneer None Treasurer discretion of the Board since 2004; Treasurer and Senior 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 - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Since 2000. Serves at the Assistant Vice President - None Treasurer discretion of the Board Fund Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Assistant Since 2002. Serves at the Fund Accounting Manager - Fund None Treasurer discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------------------------------
23 Pioneer Mid Cap Value VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Katherine Kim Sullivan Assistant Since 2003. Serves at the Fund Administration Manager - None (33) Treasurer discretion of the Board Fund Accounting, Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Since 2006. Serves at the Chief Compliance Officer of None Compliance discretion of the Board Pioneer and all of the Pioneer Officer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 24 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 25 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 26 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 27 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 28 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 29 Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18647-01-0207 [LOGO]PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Money Market VCT Portfolio -- Class I Shares ANNUAL REPORT December 31, 2006 PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- Table of Contents - -------------------------------------------------------------------------------- Pioneer Money Market VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Schedule of Investments 4 Financial Statements 7 Notes to Financial Statements 11 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 - -------------------------------------------------------------------------------- PORTFOLIO AND PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- After raising the key Fed Funds rate four times during the first six months of 2006, the U.S. Federal Reserve Board allowed short-term rates to remain unchanged in the final half of the year. While the Fed governors said their monetary policy would be "data dependent" on new reports on the economy and inflation, evidence accumulated that the economy appeared to be decelerating and that inflationary pressures might be receding in the final months of the year. Pioneer Money Market VCT Portfolio invests exclusively in high-quality money market instruments issued by the U.S. government and domestic corporations and banks. All holdings have the highest ratings from the two nationally recognized ratings services: A1 by Standard & Poor's Investors Services and P1 by Moody's Investors Services. (Ratings apply to underlying securities, not Portfolio shares.) In the following discussion, portfolio manager Seth Roman reviews the investment environment and the strategies that affected Pioneer Money Market VCT Portfolio over the 12 months ended December 31, 2006. Mr. Roman 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 2006? A. Pioneer Money Market VCT Portfolio (Class I shares) had a total return of 4.50% at net asset value during the 12 months ended December 31, 2006. During the same period, the average return of the 109 variable annuity portfolios in Lipper's Money Market Funds category was 4.54%. On December 31, 2006, the Portfolio's 7-day SEC yield was 4.76%. The Portfolio's net asset value remained stable at $1.00 during the year. Call 1-800-688-9915 or visit www.pioneerinvestments.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 your principal strategies during the year? A. During the first half of the year, as the Fed was continuing to raise short-term rates in an effort to moderate the pace of the economic expansion, we kept the Portfolio's duration relatively short, in the 30-to-35 day range. This allowed the Portfolio to invest in higher-yielding securities as they became available with each hike in the Fed Funds rate. However, the Federal Reserve Board, at its August meeting, let the Fed Funds rate stand unchanged at 5.25%, and the board continued to leave rates stable for the remainder of the year. Fed governors indicated that while they remained concerned about inflationary pressures, they believe growth in the economy was starting to decelerate. Given this change in policy, we extended the Fund's duration to the 50-day range, which we believed was appropriate for an economy where growth was at "a slow boil." At the close of the year, the Portfolio's weighted average duration was 50 days. We believed this positioning allowed the Fund to lock in higher yields that were available to the market, and yet still remain flexible. Q. What is your investment outlook? A. The Federal Reserve has indicated that it plans to remain "data dependent" as it watches for any change in economic trends. Meanwhile, it has left the Fed Funds rate at the 5.25% level. Corporate profit growth remains strong, while employment is at relatively high levels. Given this outlook and the unchanged monetary policy by the Federal Reserve, we expect to continue to focus on high-quality, money market securities in the 50-day maturity range. Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $ 1.00 $ 1.00
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $ 0.0441 $ - $ -
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.pioneerinvestments.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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- 10 Years 3.20% 5 Years 1.86% 1 Year 4.50%
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. 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. 2 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, 2006 through December 31, 2006.
Share Class I - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,024.01 Expenses Paid During Period* $ 3.11
* Expenses are equal to the Portfolio's annualized expense ratio of 0.61% 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, 2006 through December 31, 2006.
Share Class I - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,022.13 Expenses Paid During Period* $ 3.11
* Expenses are equal to the Portfolio's annualized expense ratio of 0.61% 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 Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
S&P/Moody's Principal Floating Ratings Amount Rate (a) (unaudited) Value COLLATERALIZED MORTGAGE OBLIGATIONS - 2.8% Banks - 2.8% Thrifts & Mortgage Finance - 2.8% $ 969,220 5.32 AAA/Aaa Federal Home Loan Mortgage Corp., Multifamily VRD Certificate, Floating Rate Note, 1/15/42 $ 969,220 ----------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $969,220) $ 969,220 ----------- CORPORATE BONDS - 38.9% Capital Goods - 6.1% Construction & Farm Machinery & Heavy Trucks - 4.6% 1,600,000 5.44 A/A2 Caterpillar Financial Services, Floating Rate Note, 2/26/07 $ 1,600,198 ----------- Industrial Conglomerates - 1.5% 500,000 5.47 AAA/AAA GE Capital Corp., Floating Rate Note, 10/17/07 $ 500,000 ----------- Total Capital Goods $ 2,100,198 ----------- Food & Drug Retailing - 2.6% Hypermarkets & Supercenters - 2.6% 900,000 5.26 AA/AA3 Wal-Mart Stores, Floating Rate Note, 3/28/07 $ 899,915 ----------- Total Food & Drug Retailing $ 899,915 ----------- Banks - 3.5% Diversified Banks - 3.5% 345,000 5.45 A+/AA3 Wachovia Corp., Floating Rate Note, 7/20/07 $ 345,227 864,000 5.34 AA/AA1 Wells Fargo & Co., Floating Rate Note, 1/3/08 864,151 ----------- $ 1,209,378 ----------- Total Banks $ 1,209,378 ----------- Diversified Financials - 26.7% Consumer Finance - 2.6% 145,000 5.41 AA-/AA3 HSBC Finance Corp., Floating Rate Note, 2/28/07 $ 145,014 750,000 5.41 AA-/AA3 HSBC Finance Corp., Floating Rate Note, 5/10/07 750,103 ----------- $ 895,117 ----------- Diversified Capital Markets - 0.4% 150,000 AA+/Aa2 UBS AG Stamford, 5.4%, 12/14/07 $ 150,000 ----------- Investment Banking & Brokerage - 13.1% 500,000 5.46 AA-/AA3 Goldman Sachs Group, Inc., Floating Rate Note, 3/30/07 $ 500,149 500,000 5.50 AA-/AA3 Goldman Sachs Group, Inc., Floating Rate Note, 7/2/07 500,373 400,000 5.49 A+/A1 Lehman Brothers Holdings, Floating Rate Note, 4/20/07 400,143 400,000 5.40 A+/A1 Lehman Brothers Holdings, Floating Rate Note, 5/31/07 400,131 200,000 5.50 AA-/AA3 Merrill Lynch & Co., Floating Rate Note, 7/27/07 200,152 1,000,000 5.60 AA-/AA3 Merrill Lynch & Co., Floating Rate Note, Extendable 1,000,000 1,500,000 5.51 A+/AA3 Morgan Stanley Dean Witter, Floating Rate Note, 1/12/07 1,500,073 ----------- $ 4,501,021 ----------- Diversified Financial Services - 7.8% 700,000 A/A1 Bank One Corp., 7.6%, 5/1/07 $ 704,155 1,050,000 5.44 AA-/AA1 Citigroup, Inc., Floating Rate Note, 1/12/07 1,050,023 135,000 5.43 AA-/Aa1 Citigroup, Inc., Floating Rate Note, 6/4/07 135,051 800,000 5.47 AAA/AAA GE Capital Corp., Floating Rate Note, Extendable 800,000 ----------- $ 2,689,229 -----------
4 The accompanying notes are an integral part of these financial statements. Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
S&P/Moody's Principal Floating Ratings Amount Rate (a) (unaudited) Value Specialized Finance - 2.7% $ 325,000 5.59 A/A2 CIT Group, Inc., Floating Rate Note, 5/18/07 $ 325,291 400,000 5.57 A/A2 Citigroup, Inc., Floating Rate Note, 2/15/07 400,098 200,000 A/A2 National Rural Utilities, 6.5%, 3/1/07 200,233 ----------- $ 925,622 ----------- Total Diversified Financials $ 9,160,989 ----------- TOTAL CORPORATE BONDS (Cost $13,370,480) $13,370,480 ----------- U.S. GOVERNMENT AGENCY OBLIGATIONS - 5.8% Government - 5.8% 170,000 AAA/Aaa Federal Home Loan Bank, 5.35%, 12/28/07 $ 170,000 190,000 AAA/AAA Federal Home Loan Bank, 5.54%, 8/21/07 190,000 450,000 AAA/Aaa Federal Home Loan Bank, 5.5%, 10/2/07 450,000 165,000 AAA/Aaa Federal National Mortgage Association, 5.35%, 12/19/07 165,000 1,000,000 4.76 AAA/AAA Federal National Mortgage Association, Floating Rate Note, 1/26/07 1,000,000 ----------- $ 1,975,000 ----------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $1,975,000) $ 1,975,000 ----------- MUNICIPAL BONDS - 0.6% Government - 0.6% 110,000 5.37 AA/AA1 Texas State Tax & Revenue Antic, Floating Rate Note, 12/1/27 $ 110,000 110,000 5.37 AA/AA1 Texas State Var-Ref-Taxable, Floating Rate Note, 12/1/26 110,000 ----------- $ 220,000 ----------- TOTAL MUNICIPAL BONDS (Cost $220,000) $ 220,000 ----------- TEMPORARY CASH INVESTMENTS - 52.2% Commercial Paper - 52.2% 300,000 NR/NR Abbey National Plc, 5.230%, 3/7/07 $ 297,167 330,000 NR/NR Abbey National Plc, 5.25%, 1/3/07 329,904 400,000 NR/NR Abbey National Plc, 5.25%, 3/29/07 394,925 225,000 AA-/Aa2 Bank of America Corp., 5.205%, 6/4/07 219,990 150,000 NR/NR Bank of America Corp., 5.22%, 3/9/07 148,543 100,000 NR/NR Bank of America Corp., 5.23%, 3/13/07 98,969 100,000 NR/NR Bank of America Corp., 5.25%, 3/28/07 98,746 175,000 NR/NR Bank of America Corp., 5.26%, 3/1/07 173,491 200,000 AA-/Aa2 Bank of America Corp., 5.27%, 04/3/07 197,306 475,000 AA-/Aa2 Bank of America Corp., 5.27%, 2/1/07 472,835 500,000 NR/AA1 Bank of Ireland, 5.3%, 3/8/07 500,000 300,000 NR/NR Barclay's Capital, Inc., 5.245%, 2/20/07 297,815 300,000 NR/NR Barclay's Capital, Inc., 5.26%, 3/14/07 296,844 300,000 NR/NR Barclays U.S Funding Corp., 5.25%, 1/12/07 299,519 100,000 NR/NR Barclays U.S Funding Corp., 5.255%, 1/17/07 99,767 760,000 NR/NR BNP Paribas Financial, Inc., 5.3%, 1/16/07 758,327 500,000 NR/NR BNP Paribas Financial, Inc., 5.24%, 3/7/07 495,270 600,000 AA-/Aa3 Depfa Bank Plc, 5.34%, 4/27/07 600,000 375,000 NR/NR Depfa Bank Plc, 5.425%, 2/15/07 375,000 340,000 NR/NR Deutsche Bank, 5.31%, 9/4/07 340,000 350,000 NR/NR Deutsche Bank, 5.37%, 10/12/07 350,000 300,000 A-1+/P-1 Dexia Delaware LLC, 5.27%, 2/20/07 297,804 200,000 A-1+/P-1 Dexia Delaware LLC, 5.34%, 1/17/07 199,529
The accompanying notes are an integral part of these financial statements. 5 Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
S&P/Moody's Principal Floating Ratings Amount Rate (a) (unaudited) Value $ 570,000 A-1+/P-1 Dexia Delaware LLC, 5.36%, 1/18/07 $ 568,578 170,000 A-1/P-1 Dresner U.S. Finance, Inc., 5.26%, 1/4/07 169,925 200,000 NR/NR Dresner U.S. Finance, Inc., 5.23%, 4/27/07 196,630 170,000 A-1+/P-1 Fortis Banque Luxemburg, 5.31%, 1/26/07 169,373 200,000 A-1+/P-1 General Electric Capital Corp., 5.19%, 1/16/07 199,562 175,000 NR/A-1+ Goldman, Sachs & Co., 5.3%, 1/22/07 174,459 250,000 NA/NA HBOS Treasury Services NY, 5.2%, 3/30/07 249,790 670,000 AA/Aa2 HBOS Treasury Services Plc, 5.25%, 3/15/07 662,874 200,000 AA/Aa2 HBOS Treasury Services Plc, 5.26%, 3/19/07 197,750 150,000 AA/Aa2 HBOS Treasury Services Plc, 5.3%, 2/15/07 149,006 113,000 NR/NR ING Funding LLC, 5.2%, 4/5/07 111,466 170,000 NR/NR ING Funding LLC, 5.25%, 2/8/07 169,057 125,000 NR/NR ING Funding LLC, 5.3%, 1/8/07 124,871 100,000 NR/NR ING Funding LLC, 5.3%, 3/29/07 98,719 200,000 NR/NR ING Funding LLC, 5.32%, 1/29/07 199,174 150,000 NR/NR ING Funding LLC, 5.4%, 1/3/07 149,955 100,000 NR/NR J.P. Morgan Chase & Co., 5.24%, 3/15/07 98,938 300,000 NR/NR J.P. Morgan Chase & Co., 5.26%, 2/5/07 298,466 180,000 A+/Aa1 Landesbank Baden-Wurttemberg NY, 5.345%, 5/24/07 179,948 520,000 NR/NR Landesbank Baden-Wurttemberg NY, 5.26%, 1/16/07 518,861 270,000 NR/NR Lloyds TSB Bank Plc, 5.25%, 1/29/07 268,898 120,000 NR/NR Merrill Lynch & Co., 5.15%, 6/15/07 117,164 226,000 NR/NR MetLife Funding Corp., 5.27%, 2/5/07 224,842 200,000 A1/P1 National Rural Utilities, 5.25%, 1/16/07 199,563 300,000 A1/P1 National Rural Utilities, 5.26%, 1/8/07 299,693 170,000 NR/NR Nordea North America, Inc., 5.13%, 7/13/07 165,324 440,000 NR/NR Nordea North America, Inc., 5.29%, 1/3/07 439,872 1,000,000 A-1+/P-1 Rabobank USA Financial Corp., 5.25%, 1/3/07 999,708 125,000 AA/AA1 Royal Bank of Scotland Plc, 5.26%, 1/22/07 124,616 125,000 NR/NR Royal Bank of Scotland Plc, 5.31%, 2/5/07 124,355 100,000 NR/NR Societe Generale, 5.25%, 4/2/07 98,673 320,000 NR/NR Societe Generale, 5.3%, 3/8/07 316,891 200,000 NR/NR Societe Generale, 5.31%, 2/16/07 198,643 450,000 A-1+/P-1 Societe Generale, 5.33%, 1/8/07 449,540 250,000 A-1+/P-1 Toyota Motor Credit Corp., 5.27%, 1/2/07 249,963 250,000 A-1+/P-1 Toyota Motor Credit Corp., 5.32%, 2/6/07 248,675 100,000 NR/NR UBS Finance LLC, 5.37%, 1/26/06 99,622 150,000 NR/NR UBS Finance, 5.25%, 2/15/07 149,016 250,000 NR/NR UBS Finance, 5.25%, 2/5/07 248,724 500,000 NR/NR UBS Finance, 5.27%, 1/2/07 499,927 100,000 NR/NR UBS Finance, 5.30%, 1/12/07 99,838 275,000 NR/NR UBS Finance, 5.34%, 1/3/07 274,918 ----------- $17,927,618 ----------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $17,927,618) $17,927,618 ----------- TOTAL INVESTMENT IN SECURITIES - 100.4 (Cost $34,462,318) $34,462,318 ----------- OTHER ASSETS AND LIABILITIES - (0.4)% $ (128,733) ----------- TOTAL NET ASSETS - 100.0% $34,333,585 ===========
(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. NR: Not rated by either S&P or Moody's. 6 The accompanying notes are an integral part of these financial statements. Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Year Year Year Year Ended Ended Ended Ended Ended Class I 12/31/06 12/31/05 12/31/04 12/31/03 12/31/02 Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.000 $ 1.000 $ 1.00 ------- ------- ------- ------- ------- Increase (decrease) from investment operations: Net investment income $ 0.040 $ 0.025 $ 0.007 $ 0.006 $ 0.01 Net realized and unrealized gain (loss) on investments -- -- -- -- -- ------- ------- ------- ------- ------- Net increase (decrease) from investment operations $ 0.04 $ 0.025 $ 0.007 $ 0.006 $ 0.01 Distributions to shareowners: Net investment income (0.040) (0.025) (0.007) (0.006) (0.01) ------- ------- ------- ------- ------- Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======= ======= ======= ======= ======= Total return* 4.50% 2.47% 0.65% 0.56% 1.19% Ratio of net expenses to average net assets+ 0.61% 0.73% 0.74% 0.72% 0.78% Ratio of net investment income to average net assets+ 4.43% 2.40% 0.66% 0.58% 1.11% Net assets, end of period (in thousands) $34,334 $33,216 $42,896 $34,736 $59,521 Ratios with no waiver of fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.61% 0.73% 0.74% 0.72% 0.78% Net investment income 4.43% 2.40% 0.66% 0.58% 1.11% Ratios with waiver of fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.61% 0.73% 0.74% 0.72% 0.78% Net investment income 4.43% 2.40% 0.66% 0.58% 1.11%
* 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. 7 Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (cost $34,462,318) $34,462,318 Cash 18,818 Receivables -- Fund shares sold 17,793 Dividends, interest and foreign taxes withheld 145,060 Other 756 ----------- Total assets $34,644,745 ----------- LIABILITIES: Payables -- Investment securities purchased $ 135,662 Fund shares repurchased 129,000 Dividends 5,628 Due to affiliates 5,255 Accrued expenses 35,615 ----------- Total liabilities $ 311,160 ----------- NET ASSETS: Paid-in capital $34,336,559 Accumulated net realized loss (2,974) ----------- Total net assets $34,333,585 ----------- NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $34,333,585 Shares outstanding 34,340,927 ----------- Net asset value per share $ 1.00
8 The accompanying notes are an integral part of these financial statements. Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS 12/31/06 - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Interest $1,792,372 ---------- Total investment income $1,792,372 ---------- EXPENSES: Management fees $ 142,140 Transfer agent fees and expenses 1,728 Administrative reimbursements 8,003 Custodian fees 25,077 Professional fees 26,602 Printing expense 5,316 Fees and expenses of nonaffiliated trustees 5,414 Miscellaneous 4,155 ---------- Total expenses $ 218,435 ---------- Net expenses $ 218,435 ---------- Net investment income $1,573,937 ---------- UNREALIZED GAIN (LOSS) ON INVESTMENTS Change in net unrealized gain or (loss) from investments $ (126) ---------- Net loss on investments $ (126) =========== Net increase in net assets resulting from operations $1,573,811 ===========
The accompanying notes are an integral part of these financial statements. 9 Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 1,573,937 $ 942,592 Net realized gain on investments -- 85 Change in net unrealized gain or (loss) on investments (126) 125 ------------- ------------- Net increase in net assets resulting from operations $ 1,573,811 $ 942,803 ------------- ------------- DISTRIBUTIONS TO SHAREOWNERS Net investment income: Class I $ (1,574,272) $ (944,260) ------------- ------------- Total distributions to shareowners $ (1,574,272) $ (944,260) ------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 19,517,030 $ 19,583,940 Reinvestment of distributions 1,571,489 942,853 Cost of shares repurchased (19,970,568) (30,205,433) ------------- ------------- Net increase (decrease) in net assets resulting from Fund share transactions $ 1,117,951 $ (9,678,640) ------------- ------------- Net increase (decrease) in net assets $ 1,117,490 $ (9,680,097) NET ASSETS: Beginning of year 33,216,095 42,896,192 ------------- ------------- End of year $ 34,333,585 $ 33,216,095 ============= ============= Undistributed net investment income, end of year $ -- $ 333 ============= =============
10 The accompanying notes are an integral part of these financial statements. Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 seeks current income consistent with preserving capital and providing liquidity. 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 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 year. Actual results could differ from those estimates. 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. 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. 11 Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, the 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. At December 31, 2006, 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 Money Market VCT Portfolio $2 $-- $ (2) == === ===== - ------------------------------------------------------------------------------------------------------
The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis.
- -------------------------------------------------------------------------------- 2006 2005 - -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $1,574,272 $944,260 ---------- -------- Total distributions $1,574,272 $944,260 ========== ======== Distributable Earnings: Capital loss carryforward $ (2,974) ---------- -------- Total $ (2,974) ========== ======== - --------------------------------------------------------------------------------
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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. 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. 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 12 Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 0.40% 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, 2006, $1,215 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 $4,040 in transfer agent fees payable to PIMSS at December 31, 2006. 4. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $34,462,318 $-- $-- $-- =========== === === === - ------------------------------------------------------------------------------------------
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, 2006, were $493,359,499 and $494,251,188, respectively. 6. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- ---------------------------------------------------------------------------------------- Money Market Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ---------------------------------------------------------------------------------------- CLASS I: Shares sold 19,517,030 $19,517,030 19,584,349 $19,583,940 Reinvestment of distributions 1,571,489 1,571,489 942,853 942,853 Shares repurchased (19,970,568) (19,970,568) (30,205,433) (30,205,433) ------------------------------------------------------- Net increase (decrease) 1,117,951 $ 1,117,951 (9,678,231) $(9,678,640) ======================================================= - ----------------------------------------------------------------------------------------
7. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 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 of Pioneer Money Market VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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 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, 2006, by correspondence with the custodian and brokers. 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, 2006, 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 9, 2007 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"), 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 break points in the management fee, reasonable growth expectations for the Fund and certain of the Fund's expenses that are incurred on a basis other than as 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. 15 Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- 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 absolute investment performance based upon total return and yield, as well as the Fund's performance relative to the performance of both a peer group considered appropriate by the Independent Trustees for this purpose and the yield on 30-day U.S. Treasury Securities. The Fund's performance, based upon total return, was in the fourth quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, the fourth quintile of the peer group for the three years ended June 30, 2006, the fifth quintile for the five years ended June 30, 2006 and the fifth quintile for the ten year period ended June 30, 2006. (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 Trustee also considered the yield of the Fund, before deduction of expenses, relative to the yield on 30-day U.S. Treasury securities. The Trustees, focusing on three-year total returns, concluded that the Fund underperformed relative to its peer group. 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 size, 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 perform its duties under the Management Contract. D. Nature and Quality of Other Services. The Trustees considered the nature, quality 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee, based on 2006 data, 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 also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 (after giving effect to the expense limitation) to be in the fifth quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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 16 Pioneer Money Market 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 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal as in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 17 Pioneer Money Market 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 portfolio's affairs. 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 trust within the meaning of the Ernst & Young LLP 1940 Act are referred to as Interested Trustees. Trustees who are not interested persons of the trust are referred to Principal Underwriter as Independent Trustees. Each of the Trustees serves as a Pioneer Funds Distributor, Inc. trustee of each of the 86 U.S. registered investment portfolios for which Pioneer serves as investment adviser Legal Counsel (the "Pioneer Funds"). The address for all Interested Wilmer Cutler Pickering Hale and Dorr LLP Trustees and all officers of the trust is 60 State Street, Boston, Massachusetts 02109. Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc.
- -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Deputy Chairman and a Director of Director of ICI Mutual Board, Trustee until a successor trustee Pioneer Global Asset Management Insurance Company and President is elected or earlier S.p.A. ("PGAM"); Non-Executive retirement or removal. Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - ---------------------------------------------------------------------------------------------------------------------------------
18 Pioneer Money Market VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE David R. Bock (63) Trustee Trustee since 2005. Serves Senior Vice President and Chief Director of The 3050 K. Street NW, until a successor trustee Financial Officer, I-trax, Inc. Enterprise Social Washington, DC 20007 is elected or earlier (publicly traded health care Investment Company retirement or removal. services company) (2001 - present); (privately-held Managing Partner, Federal City affordable housing Capital Advisors (boutique merchant finance company); and bank) (2002 to 2004); and Executive Director of New York Vice President and Chief Financial Mortgage Trust Officer, Pedestal Inc. (internet- (publicly traded based mortgage trading company) mortgage REIT) (2000 - 2002) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Trustee Trustee since 2000. Serves President, Bush International Director of Brady 3509 Woodbine Street, until a successor trustee (international financial advisory Corporation (industrial Chevy Chase, MD 20815 is elected or earlier firm) identification and retirement or removal. specialty coated material products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until a successor trustee Group, Inc. (consulting firm); and West, Montreal, Quebec, is elected or earlier Desautels Faculty of Management, Canada H3A 1G5 retirement or removal. McGill University - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Trustee Trustee since 2006. Serves Private investor (2004 - present); Director of Quadriserv 89 Robbins Avenue, until a successor trustee and Senior Executive Vice Inc. (technology Berkeley Heights, NJ is elected or earlier President, The Bank of New York products for 07922 retirement or removal. (financial and securities services) securities lending (1986 - 2004) industry) - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Trustee Trustee since 1995. Serves President and Chief Executive Director of New 200 State Street, 12th until a successor trustee Officer, Newbury, Piret & Company, America High Income Floor, Boston, MA 02109 is elected or earlier Inc. (investment banking firm) Fund, Inc. (closed-end retirement or removal. investment company) - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) Trustee Trustee since 2000. Serves President, John Winthrop & Co., None One North Adgers Wharf, until a successor trustee Inc. (private investment firm) Charleston, SC 29401 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------
19 Pioneer Money Market VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President and Chief Executive Trustee of certain President discretion of the Board Officer, PIM-USA since May 2003 Pioneer Funds (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the Secretary of PIM-USA; Senior Vice None discretion of the Board President - Legal of Pioneer; Secretary/Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Kelley (42) Assistant Since 2003. Serves at the Vice President and Senior Counsel None Secretary discretion of the Board of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001); and Assistant Secretary of all of the Pioneer Funds since September 2003 - ----------------------------------------------------------------------------------------------------------------------------------- Christopher P. Harvey (45) Assistant Since 2006. Serves at the Partner, Wilmer Cutler Pickering None Secretary discretion of the Board Hale and Dorr LLP; and Assistant Secretary of all of the Pioneer Funds since July 2006. - ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (61) Treasurer Since 2000. Serves at the Vice President - Fund Accounting, None discretion of the Board Administration and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (47) Assistant Since 2004. Serves at the Deputy Treasurer of Pioneer since None Treasurer discretion of the Board 2004; Treasurer and Senior 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 - ----------------------------------------------------------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Since 2000. Serves at the Assistant Vice President - Fund None Treasurer discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ----------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (48) Assistant Since 2002. Serves at the Fund Accounting Manager - Fund None Treasurer discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - -----------------------------------------------------------------------------------------------------------------------------------
20 Pioneer Money Market VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Katherine Kim Sullivan Assistant Since 2003. Serves at the Fund Administration Manager - Fund None (33) Treasurer discretion of the Board Accounting, Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ----------------------------------------------------------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Since 2006. Serves at the Chief Compliance Officer of Pioneer None Compliance discretion of the Board and all of the Pioneer Funds since Officer March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - -----------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 21 [LOGO]PIONEER Investments(R) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18654-01-0207 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Real Estate Shares VCT Portfolio -- Class I Shares ANNUAL REPORT December 31, 2006 PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Table of Contents - -------------------------------------------------------------------------------- Pioneer Real Estate Shares VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 6 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 12/31/06 - -------------------------------------------------------------------------------- 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 81.5% Temporary Cash Investment 18.5%
Sector Distribution (As a percentage of equity holdings) [The following data was represented as a pie chart in the printed material] Office 19.2% Apartment 18.5% Regional Mall 14.7% Industrial 12.5% Shopping Center 11.7% Hotel 8.6% Storage 5.8% Diversified 4.8% Health Care 2.7% Triple-Net Lease 1.5%
Five Largest Holdings (As a percentage of equity holdings) 1. Simon DeBartolo Group, Inc. 8.17% 2. Boston Properties, Inc. 5.62 3. Equity Residential Property Trust 4.82 4. ProLogis Trust 4.59 5. Public Storage, Inc. 4.52
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $ 33.01 $ 26.13
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $ 0.3911 $ 0.0033 $ 1.8783
- -------------------------------------------------------------------------------- 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 graph in the printed material]
Wilshire Pioneer Real Estate Real Estate Securities Shares VCT Index Portfolio 12/96 $10,000 $10,000 12/98 $ 9,845 $ 9,889 12/00 $12,219 $12,516 12/02 $13,506 $14,191 12/04 $24,703 $26,224 12/06 $38,915 $40,645
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, 2006) - -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- 10 Years 14.55% 5 Years 24.19% 1 Year 36.82%
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.pioneerinvestments.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 [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 Real Estate Shares VCT Portfolio Based on actual returns from July 1, 2006 through December 31, 2006.
Share Class I - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,191.50 Expenses Paid During Period* $ 4.97
* Expenses are equal to the Portfolio's annualized expense ratio of 0.90% 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 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, 2006 through December 31, 2006.
Share Class I - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,020.67 Expenses Paid During Period* $ 4.58
* Expenses are equal to the Portfolio's annualized expense ratio of 0.90% 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 Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/06 - -------------------------------------------------------------------------------- A combination of strong underlying property fundamentals, steady economic growth and a continued strong investor appetite for real estate propelled the public real estate securities market to another year of stellar performance in 2006. In the following interview, Matthew Troxell of AEW Capital Management, L.P. discusses the factors that contributed to this strong performance as well as his outlook for the coming months. Q: How did the Portfolio perform for the fiscal year ended December 31, 2006? A: For the year ended December 31, 2006, Class I shares generated a total return of 36.82% at net asset value. In comparison, the Wilshire Real Estate Securities Index posted a return of 35.88% for the same period. The average return for the 53 real estate funds tracked by Lipper Inc., the Portfolio's peer group, was 35.60%. Given the rather solid economic backdrop in 2006, the property fundamentals across all the property sectors improved - giving breath and depth to the rally in real estate stocks. However, we think effective stock picking, particularly in the regional mall, hotel and apartment sectors, contributed to the Portfolio's strong performance. Call 1-800-688-9915 or visit www.pioneerinvestments.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 investments contributed to the Fund's strong performance? A: On an absolute basis, the Fund's top individual contributors to performance for the year included office REIT Boston Properties, Inc., mall REIT Simon Property Group Inc. and apartment company AvalonBay Communities Inc. These companies, which the Fund holds as overweight positions relative to its benchmark, posted lofty returns of 63.5%, 37.0% and 49.7%, respectively, for the year. Boston Properties Inc., the Fund's top overall contributor to performance, posted solid operating results during the period as strong demand for the company's high-quality office properties in core markets has continued to stimulate investor demand for the stock. Simon Property Group, the largest REIT in North America, also continued its strong performance run during the past year, primarily due to increased sales and strong leasing initiatives across its regional mall portfolio. AvalonBay Communities, Inc. has benefited from one of the industry's largest development pipelines and its focus on owning properties in high barrier-to-entry markets. Q: Are you concerned that REITs and other real estate investments have become overvalued? A: Given the positive transformation that has taken place in the real estate industry over the last decade, we don't think that you can draw a straight line and compare the prices of real estate stocks today with those five or ten years ago. On that basis alone, stocks may look expensive, but this may not tell the whole story. 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.pioneerinvestments.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 Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- We see several encouraging factors that appear to be exerting a stabilizing influence on REIT pricing. First, the sector's strong performance has much to do with its overall health, which has helped it to weather economic downturns more efficiently than it did in the past. Secondly, supply/demand dynamics across the various property types are in general the healthiest that we've seen in some time. And with the cost of building materials so high today - from labor to energy to raw materials - developers have more of an incentive to work with existing inventory, effectively slowing the pace of new construction. With supply moderating, property types are experiencing strong rent growth and higher occupancy levels. On the demand side, both individual and institutional investors have been diversifying into real estate investments in increasing numbers. Strong demand from private equity investors in particular, including U.S. tax-exempt institutions, high net worth individuals and foreign investors, has helped to support prices on the upside. Q: What is your outlook? A: We think that the positive factors underlying the strength of the real estate market in 2006 will continue into fiscal 2007. However, since real estate stocks are not a homogenous group, a more uneven pattern of performance may eventually emerge across the various sub sectors as the pace of economic growth changes course. We believe that in all likelihood, performance returns may eventually approach more sustainable levels that are more in line with historical averages, probably averaging in the five to ten percent range annually over the next five years. Our investment process will continue to focus on securities selection within each property sector, with the goal of identifying real estate equity securities that we believe are mispriced relative to their peers and, thus, represent the greatest relative value and strongest price appreciation potential, as well as lower downside risk. We believe our disciplined approach to stock selection will serve to foster consistency of income and growth over time. 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 Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 98.1% Consumer Services - 3.7% Hotels, Resorts & Cruise Lines - 3.7% 74,000 Hilton Hotels Corp. (a) $ 2,582,600 30,000 Starwood Hotels & Resorts 1,875,000 ------------- $ 4,457,600 ------------- Total Consumer Services $ 4,457,600 ------------- Real Estate - 93.8% Diversified Real Estate Investment Trusts - 8.8% 77,000 Liberty Property Trust (a) $ 3,783,780 18,000 PS Business Parks, Inc. 1,272,780 52,700 Spirit Finance Corp. 657,169 39,500 Vornado Realty Trust 4,799,250 ------------- $ 10,512,979 ------------- Industrial Real Estate Investment Trusts - 7.5% 33,800 AMB Property Corp. $ 1,981,018 72,200 DCT Industrial Trust, Inc. 851,960 27,000 First Potomac Realty Trust 785,970 88,700 ProLogis Trust 5,390,299 ------------- $ 9,009,247 ------------- Mortgage Real Estate Investment Trusts - 0.9% 23,500 iStar Financial, Inc. $ 1,123,770 ------------- Office Real Estate Investment Trusts - 16.3% 28,000 BioMed Property Trust, Inc. $ 800,800 59,000 Boston Properties, Inc. 6,600,920 70,000 Brandywine Realty Trust 2,327,500 29,000 Corporate Office Properties (a) 1,463,630 14,500 Digital Realty Trust, Inc. 496,335 15,800 Duke Realty Investments, Inc. 646,220 44,500 Equity Office Properties Trust (a) 2,143,565 51,000 Highwoods Properties, Inc. 2,078,760 106,000 HRPT Properties Trust 1,309,100 21,500 Kilroy Realty Corp. 1,677,000 ------------- $ 19,543,830 ------------- Real Estate Management & Development - 3.8% 114,200 Brookfield Properties Corp. $ 4,491,486 ------------- Residential Real Estate Investment Trusts - 18.2% 23,600 Apartment Investment & Management Co. $ 1,322,072 75,200 Archstone-Smith Trust 4,377,392 40,000 AvalonBay Communities, Inc. (a) 5,202,000 36,000 Camden Property Trust 2,658,600 111,700 Equity Residential Property Trust 5,668,775 13,900 Home Properties, Inc. (a) 823,853 54,500 United Dominion Realty Trust (a) 1,732,555 ------------- $ 21,785,247 ------------- Retail Real Estate Investment Trusts - 25.9% 21,000 Cedar Shopping Centers, Inc.* $ 334,110 74,700 Developers Diversifies Realty Corp. (a) 4,702,365 35,000 Federal Realty Investment Trust 2,975,000 60,000 General Growth Properties, Inc. 3,133,800 47,200 Kimco Realty Corp. 2,121,640 26,600 Kite Realty Group Trust 495,292 41,000 Regency Centers Corp. 3,204,970 94,800 Simon DeBartolo Group, Inc. 9,602,292 36,000 Taubman Centers, Inc. 1,830,960 30,800 The Macerich Co. 2,666,356 ------------- $ 31,066,785 ------------- Specialized Real Estate Investment Trusts - 12.4% 37,000 Ashford Hospitality Trust $ 460,650 66,800 Extra Space Storage, Inc. 1,219,768 11,000 Healthcare Realty Trust, Inc. (a) 434,940 12,000 Hospitality Properties Trust 570,360 188,000 Host Hotels & Resorts, Inc. (a) 4,615,400 65,500 Nationwide Health Properties, Inc. (a) 1,979,410 54,500 Public Storage, Inc. (a) 5,313,750 12,200 U-Store-It Trust 250,710 ------------- $ 14,844,988 ------------- Total Real Estate $ 112,378,332 ------------- Telecommunication Services - 0.6% Integrated Telecommunication Services - 0.6% 18,900 Health Care Properties Invest, Inc.* $ 695,898 ------------- Total Telecommunication Services $ 695,898 ------------- TOTAL COMMON STOCKS (Cost $58,706,553) $ 117,531,830 ------------- TEMPORARY CASH INVESTMENT - 22.3% Security Lending Collateral - 22.3% 26,706,744 Securities Lending Investment Fund, 5.26% $ 26,706,744 ------------- TOTAL TEMPORARY CASH INVESTMENT (Cost $26,706,744) $ 26,706,744 ------------- TOTAL INVESTMENT IN SECURITIES - 120.4% (Cost $85,413,297) $ 144,238,574 ------------- OTHER ASSETS AND LIABILITIES - (20.4)% $ (24,466,580) ------------- TOTAL NET ASSETS - 100.0% $ 119,771,995 =============
* Non-income producing security. (a) At December 31, 2006, the following securities were out on loan:
Shares Security Value 35,000 AvalonBay Communities, Inc. 4,551,750 26,235 Corporate Office Properties 1,324,080 69,300 Developers Diversifies Realty Corp. 4,362,435 44,055 Equity Office Properties Trust 2,122,129 10,890 Healthcare Realty Trust, Inc. 430,591 73,260 Hilton Hotels Corp. 2,556,774 13,761 Home Properties, Inc. 815,614 130,000 Host Hotels & Resorts, Inc. 3,191,500 76,230 Liberty Property Trust 3,745,942 11,700 Nationwide Health Properties, Inc. 353,574 9,000 Public Storage, Inc. 877,500 53,955 United Dominion Realty Trust 1,715,229 ----------- Total $26,047,118 ===========
6 The accompanying notes are an integral part of these financial statements. Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Class I 12/31/06 12/31/05 12/31/04 12/31/03 12/31/02 ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period $ 26.13 $ 24.30 $ 18.57 $ 14.47 $ 14.77 ---------- ---------- ---------- ---------- ---------- Increase from investment operations: Net investment income $ 0.45 $ 0.43 $ 0.52 $ 0.74 $ 0.62 Net realized and unrealized gain (loss) on investments 8.70 3.10 5.99 4.16 (0.23) ---------- ---------- ---------- ---------- ---------- Net increase from investment operations $ 9.15 $ 3.53 $ 6.51 $ 4.90 $ 0.39 Distributions to shareowners: Net investment income (0.39) (0.39) (0.45) (0.64) (0.69) Net realized gain (1.88) (1.31) (0.33) -- -- Tax return of capital -- -- -- (0.16) -- ---------- ---------- ---------- ---------- ---------- Net increase (decrease) in net asset value $ 6.88 $ 1.83 $ 5.73 $ 4.10 $ (0.30) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 33.01 $ 26.13 $ 24.30 $ 18.57 $ 14.47 ========== ========== ========== ========== ========== Total return* 36.82% 15.13% 35.74% 34.75% (2.53)% Ratio of net expenses to average net assets+ 0.91% 0.94% 0.98% 1.03% 1.07% Ratio of net investment income to average net assets+ 1.43% 1.65% 2.41% 4.49% 4.76% Portfolio turnover rate 18% 12% 35% 20% 29% Net assets, end of period (in thousands) $ 34,597 $ 32,086 $ 36,447 $ 31,891 $ 29,873
* 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. 7 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $26,047,118) (cost $85,413,297) $ 144,238,574 Cash 1,499,464 Receivables -- Investment securities sold 220,010 Fund shares sold 20,401 Dividends, interest and foreign taxes withheld 768,789 Other 1,931 ------------- Total assets $ 146,749,169 ------------- LIABILITIES: Payables -- Investment securities purchased $ 170,822 Fund shares repurchased 15,220 Upon return of securities loaned 26,706,744 Due to affiliates 13,986 Accrued expenses 70,402 ------------- Total liabilities $ 26,977,174 ------------- NET ASSETS: Paid-in capital $ 51,019,057 Undistributed net investment income 296,814 Accumulated net realized gain on investments 9,630,847 Net unrealized gain on: Investments 58,825,277 ------------- Total net assets $ 119,771,995 ------------- NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 34,597,020 Shares outstanding 1,047,925 ------------- Net asset value per share $ 33.01 Class II: (No par value, unlimited number of shares authorized) Net assets $ 85,174,975 Shares outstanding 2,584,309 ------------- Net asset value per share $ 32.96
8 The accompanying notes are an integral part of these financial statements. Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $12,336) $ 2,478,217 Interest 59,988 Income on securities loaned, net 21,309 ----------- Total investment income $ 2,559,514 ----------- EXPENSES: Management fees $ 864,301 Transfer agent fees and expenses 2,721 Distribution fees (Class II) 187,632 Administrative reimbursements 26,043 Custodian fees 18,352 Professional fees 40,768 Printing expenses 18,582 Fees and expenses of nonaffiliated trustees 4,443 Miscellaneous 6,642 ----------- Total expenses $ 1,169,484 ----------- Net investment income $ 1,390,030 ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain from: Investments $11,231,265 ----------- Change in net unrealized gain from investments $20,961,544 ----------- Net gain on investments $32,192,809 =========== Net increase in net assets resulting from operations $33,582,839 ===========
The accompanying notes are an integral part of these financial statements. 9 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 1,390,030 $ 1,488,954 Net realized gain on investments 11,231,265 6,859,537 Change in net unrealized gain or loss on investments 20,961,544 5,415,473 ------------- ------------- Net increase in net assets resulting from operations $ 33,582,839 $ 13,763,964 ------------- ------------- DISTRIBUTIONS TO SHAREOWNERS Net investment income: Class I $ (424,329) $ (513,835) Class II (782,250) (868,561) Net realized gain Class I (2,014,498) (1,720,481) Class II (4,599,374) (3,467,765) ------------- ------------- Total distributions to shareowners $ (7,820,451) $ (6,570,642) ------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 12,816,525 $ 14,850,583 Reinvestment of distributions 7,820,451 6,570,642 Cost of shares repurchased (26,096,623) (27,391,461) ------------- ------------- Net decrease in net assets resulting from Fund share transactions $ (5,459,647) $ (5,970,236) ------------- ------------- Net increase in net assets $ 20,302,741 $ 1,223,086 NET ASSETS: Beginning of year 99,469,254 98,246,168 ------------- ------------- End of year $ 119,771,995 $ 99,469,254 ============= ============= Undistributed net investment income, end of year $ 296,814 $ 211,528 ============= =============
10 The accompanying notes are an integral part of these financial statements. Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 the Portfolio is to pursue long-term capital growth, with current income as a secondary objective. Because the 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(es). Please refer to those documents when considering the Portfolio's risks. The financial highlights for the Portfolio's Class II 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 year. 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) 11 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (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, 2006, 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, if any, 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. 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. 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. At December 31, 2006, 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 - -------------------------------------------------------------------------------------------------------- Real Estate Shares Portfolio $ (98,165) $ 79,454 $ 18,711 ========= ========= ========= - --------------------------------------------------------------------------------------------------------
12 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis.
- -------------------------------------------------------------------------------- 2006 2005 - -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 1,218,324 $1,584,389 Long-Term capital gain 6,602,127 4,986,253 ----------- ---------- 7,820,451 6,570,642 Return of Capital -- -- ----------- ---------- Total distributions $ 7,820,451 $6,570,642 =========== ========== Distributable Earnings (Accumulated Losses): Undistributed long-term gain $ 9,813,003 REIT Dividend Payable 296,814 Unrealized appreciation 58,643,121 ----------- Total $68,752,938 =========== - --------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation is primarily attributable to the tax deferral of losses on wash sales. 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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. 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. 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 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. 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. 13 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, $8,075 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 $4,167 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $1,744 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $85,595,453 $58,678,633 $ (35,512) $58,643,121 =========== =========== ========= =========== - --------------------------------------------------------------------------------------------------------
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, 2006, were $19,608,088 and $30,962,587, respectively. 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
Real Estate Shares Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ---------------------------------------------------------------------------------------------- CLASS I: Shares sold 84,036 $ 2,506,439 57,099 $ 1,401,143 Reinvestment of distributions 87,715 2,438,826 91,076 2,234,316 Shares repurchased (351,719) (10,297,594) (420,029) (10,198,782) --------------------------------------------------------------- Net decrease (179,968) $ (5,352,329) (271,854) $ (6,563,323) =============================================================== CLASS II: Shares sold 347,079 $ 10,310,086 558,332 $ 13,449,440 Reinvestment of distributions 194,162 5,381,625 176,725 4,336,326 Shares repurchased (540,124) (15,799,029) (699,655) (17,192,679) --------------------------------------------------------------- Net increase (decrease) 1,117 $ (107,318) 35,402 $ 593,087 =============================================================== - --------------------------------------------------------------------------------------------------------
14 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 8. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 15 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 of Pioneer Real Estate Shares VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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, 2006, 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 Real Estate Shares VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2006, 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 9, 2007 16 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 investment and compliance staffs 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 fees 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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 Real Estate Shares 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 and the Sub-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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group and an index considered appropriate by the Independent Trustees for this purpose. The Fund's performance, based upon total return, was in the second quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, the second quintile of the peer group for the three years ended June 30, 2006, the second quintile for the five years ended June 30, 2006 and the third quintile for the ten year period ended June 30, 2006. (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, focusing on three-year total returns, concluded that the performance of the Fund was good. 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 and Sub-adviser responsible for investment operations. Among other things, the Trustees considered the size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee for the 12 months ended June 30, 2006 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 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 they were consistent with other sub-advised funds. The Trustees also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 to be in the third quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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 Real Estate Shares 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 assets levels, a break point in the management fee was not necessary. 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 its 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. In light of the Investment Adviser's and Sub-adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser and the Sub-adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the Sub-adviser, and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund and the Sub-advisory Agreement, including the fees payable thereunder, were fair and reasonable and that their renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract and the Sub-advisory Agreement for another year. 19 Pioneer Real Estate Shares 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 portfolio's affairs. 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 trust within the meaning of the 1940 Act are referred to Principal Underwriter as Interested Trustees. Trustees who are not Pioneer Funds Distributor, Inc. interested persons of the trust are referred to as Independent Trustees. Each of the Trustees serves as Legal Counsel a trustee of each of the 86 U.S. registered Wilmer Cutler Pickering Hale and Dorr LLP investment portfolios for which Pioneer serves as investment adviser (the "Pioneer Funds"). The Shareowner Services and Transfer address for all Interested Trustees and all officers Pioneer Investment Management Shareholder Services, Inc. of the trust is 60 State Street, Boston, Massachusetts 02109.
- -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Deputy Chairman and a Director Director of ICI Board, Trustee until a successor trustee of Pioneer Global Asset Mutual Insurance and President is elected or earlier Management S.p.A. ("PGAM"); Company retirement or removal. Non-Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - ------------------------------------------------------------------------------------------------------------------------------------
20 Pioneer Real Estate Shares VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE David R. Bock (63) Trustee Trustee since 2005. Serves Senior Vice President and Director of The 3050 K. Street NW, until a successor trustee Chief Financial Officer, Enterprise Social Washington, DC 20007 is elected or earlier I-trax, Inc. (publicly traded Investment Company retirement or removal. health care services company) (privately-held (2001 - present); Managing affordable housing Partner, Federal City Capital finance company); and Advisors (boutique merchant Director of New York bank) (2002 to 2004); and Mortgage Trust Executive Vice President and (publicly traded Chief Financial Officer, mortgage REIT) Pedestal Inc. (internet- based mortgage trading company) (2000 - 2002) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Trustee Trustee since 2000. Serves President, Bush International Director of Brady 3509 Woodbine Street, until a successor trustee (international financial Corporation Chevy Chase, MD 20815 is elected or earlier advisory firm) (industrial retirement or removal. identification and specialty coated material products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves Founding Director, The None 1001 Sherbrooke Street West, until a successor trustee Winthrop Group, Inc. Montreal, Quebec, Canada is elected or earlier (consulting firm); and H3A 1G5 retirement or removal. Desautels Faculty of Management, McGill University - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Trustee Trustee since 2006. Serves Private investor (2004 - Director of 89 Robbins Avenue, until a successor trustee present); and Senior Executive Quadriserv Inc. Berkeley Heights, NJ is elected or earlier Vice President, The Bank of (technology products 07922 retirement or removal. New York (financial and for securities securities services) (1986 - lending industry) 2004) - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Trustee Trustee since 1995. Serves President and Chief Executive Director of New 200 State Street, 12th until a successor trustee Officer, Newbury, Piret & America High Income Floor, Boston, MA 02109 is elected or earlier Company, Inc. (investment Fund, Inc. retirement or removal. banking firm) (closed-end investment company) - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) Trustee Trustee since 2000. Serves President, John Winthrop & None One North Adgers Wharf, until a successor trustee Co., Inc. (private investment Charleston, SC 29401 is elected or earlier firm) retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------
21 Pioneer Real Estate Shares VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President and Chief Executive Trustee of certain President discretion of the Board Officer, PIM-USA since May Pioneer Funds 2003 (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the Secretary of PIM-USA; Senior None discretion of the Board Vice President - Legal of Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Assistant Since 2003. Serves at the Vice President and Senior None Secretary discretion of the Board Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001); and Assistant Secretary of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey Assistant Since 2006. Serves at the Partner, Wilmer Cutler None (45) Secretary discretion of the Board Pickering Hale and Dorr LLP; and Assistant Secretary of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Treasurer Since 2000. Serves at the Vice President - Fund None discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Assistant Since 2004. Serves at the Deputy Treasurer of Pioneer None Treasurer discretion of the Board since 2004; Treasurer and Senior 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 - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Since 2000. Serves at the Assistant Vice President - None Treasurer discretion of the Board Fund Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Assistant Since 2002. Serves at the Fund Accounting Manager - Fund None Treasurer discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Real Estate Shares VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Katherine Kim Sullivan Assistant Since 2003. Serves at the Fund Administration Manager - None (33) Treasurer discretion of the Board Fund Accounting, Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Since 2006. Serves at the Chief Compliance Officer of None Compliance discretion of the Board Pioneer and all of the Pioneer Officer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio'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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 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 Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18653-01-0207 [LOGO]PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio -- Class I Shares ANNUAL REPORT December 31, 2006 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 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/06 - -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [The following table was depicted as a pie chart in the printed material.]
U.S. Common Stocks 78.2% Temporary Cash Investment 17.9% Depositary Receipts for International Stocks 1.9% Exchange Traded Fund 0.8% International Common Stocks 0.8% Preferred Stocks 0.4%
Sector Distribution (As a percentage of equity holdings) [The following table was depicted as a pie chart in the printed material.]
Financials 24.6% Information Technology 18.9% Industrials 15.6% Consumer Discretionary 11.7% Health Care 11.2% Energy 6.4% Consumer Staples 5.1% Materials 3.0% Utilities 2.0% Telecommunication Services 1.5%
Five Largest Holdings (As a percentage of equity holdings) 1. Apollo Investment Corp. 2.04% 2. Deerfield Triarc Capital Corp. 1.98 3 . Assured Guaranty, Ltd. 1.77 4. Insight Enterprises, Inc. 1.76 5 . Cross Country Healthcares, Inc. 1.65
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $ 17.92 $ 16.19
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $ 0.0213 $ 0.1027 $ 0.4162
- -------------------------------------------------------------------------------- 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 and 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 table was depicted as a line chart in the printed material.]
Pioneer Small Cap Russell 2000 Russell 2000 Value VCT Portfolio Index Value Index 11/01 10,000 10,000 10,000 10,574 10,617 10,612 12/02 9,879 8,442 9,400 12,160 12,432 13,726 12/04 14,611 14,711 16,780 16,275 15,380 17,570 12/06 18,624 18,205 21,695
The Russell 2000 Value Index measures the performance of U.S. small-cap value stocks. The Russell 2000 Index measures the performance of U.S. small-cap stocks. The Russell 2000 Value Index is now the Portfolio's secondary benchmark 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, 2006)
Net Asset Value Life-of-Class (11/8/01) 13.45% 5 Years 11.99% 1 Year 14.43%
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.pioneerinvestments.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 Small Cap 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 [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, 2006 through December 31, 2006.
Share Class I - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,085.36 Expenses Paid During Period* $ 4.89
* Expenses are equal to the Portfolio's annualized expense ratio of 0.93% 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 VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2006 through December 31, 2006.
Share Class I - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,020.52 Expenses Paid During Period* $ 4.74
* Expenses are equal to the Portfolio's annualized expense ratio of 0.93% 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 VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/06 - -------------------------------------------------------------------------------- Since November 1, 2006, day-to-day management of Pioneer Small Cap Value VCT Portfolio has been the responsibility of Peter Wiley and Scott Zilora. Mr. Wiley, a vice president, joined Pioneer in 2006 from Trove Partners, LLC, where he was a director and portfolio manager. Mr. Zilora, a vice president, joined Pioneer in 1996 as an equity analyst. In the following pages, they detail the Portfolio's recent results and offer their outlook for small-cap stocks in the year ahead. Q. How did the Portfolio perform over this period? A. For the twelve months ended December 31, 2006, Class I shares of Pioneer Small Cap Value VCT Portfolio returned 14.43% at net asset value. This result trailed the 18.37% return of the Russell 2000 Index, the Fund's primary benchmark, as well as the 23.48% return of the Russell 2000 Value Index, the Fund's secondary benchmark. The Portfolio's return also lagged the 17.31% average return of the 37 Lipper Small-Cap Value Funds for the same period. Call 1-800-688-9915 or visit www.pioneerinvestments.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 this period. A. Positive economic expectations that fueled a vigorous spring rally yielded to pessimism by summer, causing the market to surrender all of its earlier gains and a bit more. Investor concerns included high energy prices, especially for gasoline, that appeared likely to pinch off consumer spending and thus slow the economy. At the same time, rising interest rates were increasing borrowing costs, and the housing bubble appeared ready to burst. Housing deflation shook homeowners, who had grown accustomed to steady rises in the value of their homes and their perceived wealth. But these fears soon eased. Gasoline and oil prices receded and the housing market appears to have flattened. In addition, the Federal Reserve Board's decision to interrupt its long string of interest rates hikes supported the idea of a soft economic landing, as opposed to the recession that sometimes follows a period of strong expansion. November's election passed without notable market impact on financial markets, and by period's end, Wall Street's overall tone had grown more positive. Q. Which of the Portfolio's sector exposures or holdings helped performance? A. The portfolio benefited from a series of moderate gains in health care as well as from being underweight in the sector. Avoiding the underperforming consumer discretionary sector also aided returns. Technitrol, which produces electronic components and assemblies, boosted earnings while advancing strategic priorities that include a review of product offerings, well-targeted acquisitions, and increasing revenue through margin expansion and price increases. Alaska Communications, a rural telecommunications company, delivered unexpectedly high earnings and an attractive dividend as it enjoyed solid growth in wireless services. Favorable trends in managed Medicaid benefits have significantly aided Amerigroup, an HMO serving beneficiaries of Medicaid and other public programs. Amerigroup has added to its roster of state Medicaid programs, tightened cost controls, and kept claims expenses within expectations. Watson Wyatt provides human resources and other business consulting services. Favorable economic conditions have brought increased consulting activity and good earnings growth. And RentWay, a rent-to-buy retailer, was acquired by Rent-A-Center in a friendly merger of competitors. 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. 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.pioneerinvestments.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 Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Q. What detracted from results? A. In the first and third quarter of the year, in particular, the Portfolio's deep value strategy was not in favor, and this proved to be a detractor from performance. More specifically, exposure to energy stocks amid declining oil and gas prices was another factor in the Portfolio's underperformance relative to its benchmarks. Adverse stock selection in technology was another. Delays in defense programs and weak semiconductor orders caused Mercury Computer Systems to revise earnings expectations downward. Black Box suffered revenue shortfalls in its voice and data product lines. Borland Software continued to revamp its strategy under a new CEO, creating a period of uncertainty. And Avid Technology's earnings remained under pressure from problems associated with attempts to integrate a 2005 acquisition. We continued to hold these companies as we move ahead with our review of Portfolio holdings. Q. What will be your approach to managing the Portfolio? A. We do not expect to make wholesale changes in the Portfolio; instead, our approach will be gradual and cautious, and based on an analysis of each holding. We are taking a fresh look at each stock in terms of its risk and reward potential. We are also reviewing the size of each position in order to avoid overexposure to a single company. That assessment may lead us to pare back stocks that have appreciated beyond our standard of what the Portfolio's maximum commitment to any one issue should be. In that way, we hope to manage the overall risk and return attributes of the portfolio effectively. Q. What is your outlook for the upcoming year? A. We believe small-cap stocks will continue to outperform larger-capitalization issues in 2007. Now that energy prices have backed down and fears of further interest rates hikes are abating, there appears to be more potential for growth among smaller companies. Stable or declining rates should allow small-cap companies to expand earnings without fear of rising borrowing costs. Smaller companies also tend to be more economically sensitive, and so the moderating economic expansion that we anticipate could make the next year one in which careful, bottom-up stock selection is especially important. We do not expect a repeat of recent years when stocks rose broadly. Rather, good analysis will be the key to finding pockets of value and potentially rewarding opportunities. 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 Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Shares Value PREFERRED STOCKS - 0.4% Insurance - 0.4% Multi-Line Insurance - 0.4% 18,640 Quanta Capital Holdings, 10.25%, 12/1/49 $ 345,772 ----------- Total Insurance $ 345,772 ----------- TOTAL PREFERRED STOCKS (Cost $466,000) $ 345,772 ----------- COMMON STOCKS - 86.7% Energy - 5.6% Coal & Consumable Fuels - 0.4% 16,887 Massey Energy Co. $ 392,285 ----------- Oil & Gas Drilling - 0.2% 5,974 Todco $ 204,132 ----------- Oil & Gas Equipment & Services - 2.7% 34,435 Dresser-Rand Group, Inc.* $ 842,624 21,628 Gulfmark Offshore, Inc.* 809,103 52,111 Key Energy Services, Inc.* 815,537 ----------- $ 2,467,264 ----------- Oil & Gas Exploration & Production - 2.3% 18,326 Forest Oil Corp.* $ 598,894 8,617 Penn Virginia Corp. 603,535 21,180 Riata Energy, Inc. (144A)* 381,240 13,890 Southwestern Energy Co.* 486,845 ----------- $ 2,070,514 ----------- Total Energy $ 5,134,195 ----------- Materials - 2.6% Gold - 1.7% 26,978 Goldcorp, Inc. $ 767,254 93,526 IAMGOLD Corp. 823,964 ----------- $ 1,591,218 ----------- Paper Products - 0.3% 35,340 Domtar, Inc. (a) $ 298,270 ----------- Specialty Chemicals - 0.4% 33,101 Chemtura Corp. $ 318,763 ----------- Steel - 0.2% 18,243 NN, Inc. $ 226,760 ----------- Total Materials $ 2,435,011 ----------- Capital Goods - 7.1% Building Products - 0.1% 5,397 Goodman Global, Inc.* $ 92,828 ----------- Construction & Engineering - 0.5% 17,841 Insituform Technologies, Inc.* $ 461,368 -----------
Shares Value Construction, Farm Machinery & Heavy Trucks - 3.1% 34,561 Commercial Vehicle Group, Inc.* $ 753,430 34,652 Federal Signal Corp. 555,818 3,071 Joy Global, Inc. 148,452 2,531 Nacco Industries, Inc. 345,735 34,601 Wabtec Corp. 1,051,178 ----------- $ 2,854,613 ----------- Electrical Component & Equipment - 2.2% 47,100 C&D Technologies, Inc. (a) $ 223,254 92,267 Graftech International, Ltd.* 638,488 152,024 Power-One, Inc.* 1,106,735 ----------- $ 1,968,477 ----------- Industrial Conglomerates - 0.4% 30,300 Cardiome Pharma Corp.* $ 337,845 ----------- Industrial Machinery - 0.5% 9,147 Flowserve Corp.* $ 461,649 ----------- Trading Companies & Distributors - 0.3% 11,567 Applied Industrial Technologies, Inc. $ 304,328 ----------- Total Capital Goods $ 6,481,108 ----------- Commercial Services & Supplies - 2.9% Diversified Commercial Services - 0.7% 16,384 School Specialty, Inc.* $ 614,236 ----------- Human Resource & Employment Services - 2.2% 21,949 Korn/Ferry International* $ 503,949 38,330 On Assignment, Inc.* 450,378 23,438 Watson Wyatt Worldwide, Inc. 1,058,226 ----------- $ 2,012,553 ----------- Total Commercial Services & Supplies $ 2,626,789 ----------- Transportation - 3.7% Air Freight & Couriers - 1.0% 14,251 Forward Air Corp. $ 412,281 17,344 Pacer International, Inc. 516,331 ----------- $ 928,612 ----------- Marine - 1.3% 4,569 Dryships, Inc. (a) $ 82,288 21,826 Excel Maritime Carriers, Ltd.* 318,878 10,732 Genco Shipping & Trading, Ltd. 299,852 40,205 Quintana Maritime, Ltd. (a) 443,059 ----------- $ 1,144,077 ----------- Railroads - 0.7% 24,891 Genesee & Wyoming, Inc.* $ 652,891 ----------- Trucking - 0.7% 10,190 Dollar Thrifty Automotive Group* $ 464,766 8,501 Universal Truckload Services, Inc.* 201,899 ----------- $ 666,665 ----------- Total Transportation $ 3,392,245 -----------
6 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value Automobiles & Components - 1.0% Tires & Rubber - 1.0% 64,750 Cooper Tire & Rubber (a) $ 925,925 ----------- Total Automobiles & Components $ 925,925 ----------- Consumer Durables & Apparel - 3.1% Apparel, Accessories & Luxury Goods - 0.9% 15,500 Phillips-Van Heusen $ 777,635 ----------- Footwear - 1.3% 17,500 Skechers U.S.A.* $ 582,925 22,200 Wolverine World Wide, Inc. 633,144 ----------- $ 1,216,069 ----------- Housewares & Specialties - 0.9% 23,141 Jarden Corp.*(a) $ 805,075 ----------- Total Consumer Durables & Apparel $ 2,798,779 ----------- Consumer Services - 2.8% Casinos & Gaming - 1.2% 36,700 Scientific Games Corp.* $ 1,109,441 ----------- Hotels, Resorts & Cruise Lines - 0.4% 11,900 Ambassadors Group, Inc. $ 361,165 ----------- Restaurants - 1.2% 30,575 AFC Enterprises, Inc.* $ 540,260 16,600 Rare Hospitality International, Inc.* 546,638 ----------- $ 1,086,898 ----------- Total Consumer Services $ 2,557,504 ----------- Media - 0.6% Advertising - 0.6% 114,600 Harris Interactive Inc.* $ 577,584 ----------- Total Media $ 577,584 ----------- Retailing - 2.8% Apparel Retail - 2.8% 31,300 Bebe Stores, Inc. $ 619,427 45,700 New York & Co., Inc.* 597,756 23,549 Stage Stores, Inc. 715,654 26,900 The Dress Barn, Inc.* 627,577 ----------- $ 2,560,414 ----------- Total Retailing $ 2,560,414 ----------- Food & Drug Retailing - 0.5% Food Retail - 0.5% 22,900 Alimentation Couche-Tard, Inc. $ 500,633 ----------- Total Food & Drug Retailing $ 500,633 ----------- Food, Beverage & Tobacco - 0.6% Packaged Foods & Meats - 0.6% 27,260 B & G Foods, Inc. $ 545,745 ----------- Total Food, Beverage & Tobacco $ 545,745 -----------
Shares Value Household & Personal Products - 3.3% Household Products - 0.8% 15,500 Central Garden & Pet Co.* $ 750,510 ----------- Personal Products - 2.5% 40,900 Elizabeth Arden* $ 779,145 19,295 Herbalife, Ltd.* 774,887 38,012 Nu Skin Enterprises, Inc. 692,959 1,510 Reliv International, Inc. 13,107 ----------- $ 2,260,098 ----------- Total Household & Personal Products $ 3,010,608 ----------- Health Care Equipment & Services - 8.0% Health Care Equipment - 1.0% 16,818 Analogic Corp. $ 944,163 ----------- Health Care Facilities - 0.6% 8,750 Lifepoint Hospitals, Inc.* $ 294,875 6,865 Triad Hospitals, Inc.* 287,163 ----------- $ 582,038 ----------- Health Care Services - 3.9% 17,797 Chemed Corp. $ 658,133 60,862 Cross Country Healthcares, Inc.* 1,328,009 15,808 Pediatrix Medical Group, Inc.* 773,011 31,249 Providence Service Corp.*(a) 785,287 ----------- $ 3,544,440 ----------- Health Care Supplies - 1.1% 61,120 Merit Medical Systems, Inc.* $ 968,141 ----------- Managed Health Care - 1.4% 35,250 AMERIGROUP Corp.* $ 1,265,123 ----------- Total Health Care Equipment & Services $ 7,303,905 ----------- Pharmaceuticals & Biotechnology - 1.9% Biotechnology - 1.3% 31,400 Array Biopharma, Inc.* $ 405,688 5,625 Cubist Pharmaceuticals, Inc.*(a) 101,869 16,500 Regeneron Pharmaceuticals, Inc.* 331,155 8,800 Vertex Pharmaceuticals, Inc.* 329,296 ----------- $ 1,168,008 ----------- Life Sciences Tools & Services - 0.6% 8,900 Advanced Magnetics, Inc.* $ 531,508 ----------- Total Pharmaceuticals & Biotechnology $ 1,699,516 -----------
The accompanying notes are an integral part of these financial statements. 7 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Shares Value Banks - 5.3% Regional Banks - 4.5% 15,483 Alliance Bankshares Corp.* $ 242,309 18,950 Cadence Financial Corp.* 410,647 48,365 Cardinal Financial Corp. 495,741 10,045 City National Corp. 715,204 22,900 Hansen Natural Corp.*(a) 771,272 3,209 Signature Bank* 99,415 27,508 Southwest Bancorp, Inc. 766,373 16,152 Sterling Bancshares, Inc. 210,299 18,909 Texas Capital Bancshares, Inc.* 375,911 ----------- $ 4,087,171 ----------- Thrifts & Mortgage Finance - 0.8% 31,088 BankAtlantic Bancorp, Inc. $ 429,325 17,004 Provident Financial Services, Inc. 308,283 ----------- $ 737,608 ----------- Total Banks $ 4,824,779 ----------- Diversified Financials - 5.3% Asset Management & Custody Banks - 1.8% 73,160 Apollo Investment Corp. $ 1,638,784 ----------- Consumer Finance - 2.1% 15,097 Advanta Corp. $ 601,012 17,671 Advanta Corp. (Class B) 770,986 11,736 Cash America International, Inc. 550,418 ----------- $ 1,922,416 ----------- Investment Banking & Brokerage - 0.7% 9,505 A.G. Edwards, Inc. $ 601,571 ----------- Multi-Sector Holding - 0.6% 34,050 Compass Diversified Trust $ 583,958 ----------- Specialized Finance - 0.1% 4,026 Nasdaq Stock Market, Inc.* $ 123,961 ----------- Total Diversified Financials $ 4,870,690 ----------- Insurance - 6.0% Life & Health Insurance - 0.4% 29,718 American Equity Investment Life Holding $ 387,226 ----------- Multi-Line Insurance - 0.3% 130,114 Quanta Capital Holdings* $ 279,745 ----------- Property & Casualty Insurance - 2.1% 53,534 Assured Guaranty, Ltd. $ 1,424,004 3,700 Ohio Casualty Corp. 110,297 6,528 Selective Insurance Group, Inc. 373,989 ----------- $ 1,908,290 -----------
Shares Value Reinsurance - 3.2% 38,025 IPC Holdings, Ltd. $ 1,195,886 16,466 Max Re Capital, Ltd. 408,686 21,688 Platinum Underwriter Holdings, Ltd. 671,027 41,717 Ram Holdings, Ltd.* 596,136 ----------- $ 2,871,735 ----------- Total Insurance $ 5,446,996 ----------- Real Estate - 3.8% Mortgage Real Estate Investment Trusts - 2.3% 41,035 Annaly Capital Management, Inc. $ 570,797 93,841 Deerfield Triarc Capital Corp. 1,588,728 ----------- $ 2,159,525 ----------- Office Real Estate Investment Trusts - 1.2% 37,895 BioMed Property Trust, Inc. $ 1,083,797 ----------- Retail Real Estate Investment Trusts - 0.3% 19,736 Feldman Mall Properties, Inc. $ 246,700 ----------- Total Real Estate $ 3,490,022 ----------- Software & Services - 6.8% Application Software - 4.5% 91,402 Aspen Technology, Inc.* $ 1,007,250 46,449 Bottomline Technologies, Inc.* 531,841 23,941 Corel Corp.* 323,204 52,413 Sonic Solutions*(a) 854,332 20,629 SPSS, Inc.* 620,314 84,189 TIBCO Software, Inc.* 794,744 ----------- $ 4,131,685 ----------- IT Consulting & Other Services - 1.1% 39,893 Gartner Group, Inc.* $ 789,482 13,155 NCI, Inc.* 201,140 ----------- $ 990,622 ----------- Systems Software - 1.2% 111,728 Borland Software Corp.* $ 607,800 18,172 Sybase, Inc.* 448,848 ----------- $ 1,056,648 ----------- Total Software & Services $ 6,178,955 ----------- Technology Hardware & Equipment - 9.0% Communications Equipment - 2.7% 10,858 Black Box Corp. $ 455,927 38,324 Dycom Industries, Inc.* 809,403 132,383 Symmetricom, Inc.* 1,180,856 ----------- $ 2,446,186 ----------- Computer Hardware - 1.7% 34,261 Avid Technology, Inc.*(a) $ 1,276,565 144,936 Concurrent Computer Corp.* 262,334 ----------- $ 1,538,899 -----------
8 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value Computer Storage & Peripherals - 0.7% 23,714 Electronics for Imaging, Inc.* $ 630,318 ----------- Electronic Equipment & Instruments - 1.0% 4,344 Electro Scientific Industrials* $ 87,488 18,490 Planar Systems, Inc.* 178,798 25,962 Technitrol, Inc. 620,232 ----------- $ 886,518 ----------- Electronic Manufacturing Services - 1.4% 35,289 Mercury Computer Systems, Inc.* $ 471,461 60,725 Smart Modular Technologies (WWH), Inc.* 817,359 ----------- $ 1,288,820 ----------- Technology Distributors - 1.5% 74,806 Insight Enterprises, Inc.* $ 1,411,589 ----------- Total Technology Hardware & Equipment $ 8,202,330 ----------- Semiconductors - 0.9% Semiconductor Equipment - 0.3% 23,213 Brooks Automation, Inc.* $ 334,267 ----------- Semiconductors - 0.6% 80,844 Lattice Semiconductor Corp.* $ 523,869 ----------- Total Semiconductors $ 858,136 ----------- Telecommunication Services - 1.3% Integrated Telecommunication Services - 1.3% 80,733 Alaska Communications Systems Group, Inc. $ 1,226,334 ----------- Total Telecommunication Services $ 1,226,334 ----------- Utilities - 1.8% Gas Utilities - 1.8% 26,598 AGL Resources, Inc. $ 1,034,928 12,206 Energen Corp. 572,950 ----------- $ 1,607,878 ----------- Total Utilities $ 1,607,878 ----------- TOTAL COMMON STOCKS (Cost $69,200,973) $79,256,081 ----------- EXCHANGE TRADED FUNDS - 0.9% 3,177 Russell 2000 Exchange Traded Fund (a) $ 247,901 3,345 Russell 2000 Growth Exchange Traded Fund 263,486 3,620 Russell 2000 Value Exchange Traded Fund (a) 289,745 ----------- $ 801,132 ----------- TOTAL EXCHANGE TRADED FUNDS (Cost $621,348) $ 801,132 -----------
Principal Amount Value TEMPORARY CASH INVESTMENTS - 19.1% Repurchase Agreement - 11.8% $10,800,000 UBS Warburg, Inc., 4.7%, dated 12/29/06, repurchase price of $10,800,000 plus accrued interest on 1/2/07 collateralized by $10,853,000 U.S. Treasury Bill, 5.625%, 5/15/08 $10,800,000 ----------- Shares Security Lending Collateral - 7.3% 6,700,960 Securities Lending Investment Fund, 5.26% $ 6,700,960 ----------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $17,500,960) $17,500,960 ----------- TOTAL INVESTMENT IN SECURITIES - 107.1% (Cost $87,789,281) $97,903,945 ----------- OTHER ASSETS AND LIABILITIES - (7.1)% $(6,508,155) ----------- TOTAL NET ASSETS - 100.0% $91,395,790 ===========
* 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, 2006, the value of these securities amounted to $381,240 or 0.4% of total net assets. (a) At December 31, 2006, the following securities were out on loan:
Shares Security Value 33,918 Avid Technology, Inc.* $ 1,263,785 46,629 C&D Technologies, Inc. 221,021 64,102 Cooper Tire & Rubber 916,659 5,569 Cubist Pharmaceuticals, Inc.* 100,855 34,942 Domtar, Inc. 294,910 4,522 Dryships, Inc. 81,441 19,998 Hansen Natural Corp.* 673,533 20,633 Jarden Corp.* 717,822 30,845 Providence Service Corp.* 775,135 39,739 Quintana Maritime. Ltd. 437,924 3,059 Russell 2000 Exchange Traded Fund 238,694 3,556 Russell 2000 Value Exchange Traded Fund 284,622 29,317 Sonic Solutions* 477,867 ----------- Total $ 6,484,268 ===========
The accompanying notes are an integral part of these financial statements. 9 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Year Year Year Year Ended Ended Ended Ended Ended Class I 12/31/06 12/31/05 12/31/04 12/31/03 12/31/02 Net asset value, beginning of period $ 16.19 $ 15.02 $ 12.50 $ 9.23 $ 10.87 ------- ------- ------- ------- --------- Increase (decrease) from investment operations: Net investment income (loss) $ 0.10 $ 0.05 $ (0.03) $ -- $ (0.01) Net realized and unrealized gain (loss) on investments, futures contracts and foreign currency transactions 2.17 1.61 2.55 3.27 (1.63) ------- ------- ------- ------- --------- Net increase (decrease) from investment operations $ 2.27 $ 1.66 $ 2.52 $ 3.27 $ (1.64) Distributions to Shareowners: Net investment income (0.02) -- -- -- (0.00)(a) Net realized gain (0.52) (0.49) -- -- (0.00)(a) ------- ------- ------- ------- --------- Net increase (decrease) in net asset value $ 1.73 $ 1.17 $ 2.52 $ 3.27 $ (1.65) ------- ------- ------- ------- --------- Net asset value, end of period $ 17.92 $ 16.19 $ 15.02 $ 12.50 $ 9.23 ======= ======= ======= ======= ======== Total return* 14.43% 11.39% 20.16% 35.43% (15.08)% Ratio of net expenses to average net assets+ 0.93% 1.15% 1.25% 1.25% 1.25% Ratio of net investment income (loss) to average net assets+ 0.89% 0.35% ( 0.21)% 0.03% (0.05)% Portfolio turnover rate 78% 38% 36% 74% 50% Net assets, end of period (in thousands) $55,670 $20,555 $17,993 $12,049 $ 6,603 Ratios with no waiver of management fees and assumption of expenses by PIM: Net expenses 0.93% 1.15% 1.30% 2.40% 2.76% Net investment income (loss) 0.89% 0.35% (0.26)% (1.12)% (1.56)% Ratios with waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.93% 1.15% 1.25% 1.25% 1.25% Net investment income (loss) 0.89% 0.35% (0.21)% 0.03% (0.05)%
(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. 10 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $6,484,268) (cost $87,789,281) $97,903,945 Receivables -- Investment securities sold 651,638 Fund shares sold 101,652 Dividends, interest and foreign taxes withheld 126,371 Other 9,512 ----------- Total assets $98,793,118 ----------- LIABILITIES: Payables -- Investment securities purchased $ 78,076 Fund shares repurchased 305,333 Upon return of securities loaned 6,700,960 Variation margin 79,300 Due to bank 84,431 Due to affiliates 7,838 Accrued expenses 141,390 ----------- Total liabilities $ 7,397,328 ----------- NET ASSETS: Paid-in capital $61,214,027 Undistributed net investment income 567,692 Accumulated net realized gain on investments 19,571,576 Net unrealized gain (loss) on: Investments 10,114,664 Futures contracts (72,169) ----------- Total net assets $91,395,790 ----------- NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $55,669,901 Shares outstanding 3,107,085 ----------- Net asset value per share $ 17.92 Class II: (No par value, unlimited number of shares authorized) Net assets $35,725,889 Shares outstanding 2,011,414 ----------- Net asset value per share $ 17.76
The accompanying notes are an integral part of these financial statements. 11 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $1,158) $ 935,589 Interest 311,412 Income on securities loaned, net 45,624 ------------- Total investment income $ 1,292,625 ------------- EXPENSES: Management fees $ 536,724 Transfer agent fees and expenses 2,974 Distribution fees (Class II) 74,174 Administrative reimbursements 6,693 Custodian fees 53,883 Professional fees 46,456 Printing expense 20,794 Fees and expenses of nonaffiliated trustees 3,943 Miscellaneous 3,941 ------------- Total expenses $ 749,582 Less fees paid indirectly (4,322) ------------- Net expenses $ 745,260 ------------- Net investment income $ 547,365 ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ 19,476,657 Redemption in kind 2,170,275 Futures contracts 228,269 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 3,557 ------------- $ 21,878,758 ------------- Change in net unrealized gain or loss from: Investments $ (12,238,362) Futures contracts (54,441) ------------- $ (12,292,803) ------------- Net gain on investments, futures contracts and foreign currency transactions $ 9,585,955 ============= Net increase in net assets resulting from operations $ 10,133,320 =============
12 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 547,365 $ 92,250 Net realized gain on investments 21,878,758 3,025,018 Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions (12,292,803) 1,010,721 ------------- ------------ Net increase in net assets resulting from operations $ 10,133,320 $ 4,127,989 ------------- ------------ DISTRIBUTIONS TO SHAREOWNERS: Net investment income: Class I $ (73,422) $ -- Class II (580) -- Net realized gain Class I (1,788,652) (593,880) Class II (1,003,743) (497,417) ------------- ------------ Total distributions to shareowners $ (2,866,397) $ (1,091,297) ------------- ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 22,676,670 $ 20,346,152 Shares issued in reorganization 51,400,124 -- Redemption in kind (11,792,154) -- Reinvestment of distributions 2,866,396 -- Cost of shares repurchased (23,276,376) (9,966,656) ------------- ------------ Net increase in net assets resulting from Fund share transactions $ 41,874,660 $ 10,379,496 ------------- ------------ Net increase in net assets $ 49,141,583 $ 13,416,188 ------------- ------------ NET ASSETS: Beginning of year $ 42,254,207 $ 28,838,019 ------------- ------------ End of year $ 91,395,790 $ 42,254,207 ============= ============ Undistributed net investment income, end of year $ 567,692 $ 94,683 ============= ============
The accompanying notes are an integral part of these financial statements. 13 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 the Portfolio is to seek capital appreciation. 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(es). Please refer to those documents when considering the Portfolio's risks. 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 year. 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 are valued at their fair values as determined by, or under the direction of, the Board of Trustees. 14 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2006, 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. 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, 2006, 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 26 March '07 $10,333,700 $(72,169) =========== ======== - -------------------------------------------------------------------------------------------------------------
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, if any, 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. 15 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, 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 - -------------------------------------------------------------------------------- Small Cap Value Portfolio $(24,127) $(2,112,239) $2,136,366 ======== =========== ========== - --------------------------------------------------------------------------------
The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis.
- ------------------------------------------------------------------------------------------------- 2006 2005 - ------------------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 626,668 $ -- Long-Term Capital Gain 2,239,729 1,091,297 ----------- ---------- $ 2,866,397 $1,091,297 Return of Capital -- -- ----------- ---------- Total Distributions $ 2,866,397 $1,091,297 =========== ========== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 1,693,319 Undistributed long-term gain/(Capital loss carryforward) 18,430,339 Unrealized appreciation (depreciation) 10,058,105 ----------- Total $30,181,763 =========== - -------------------------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation is primarily attributable to the tax deferral of losses on wash sales, tax basis adjustments on Real Estate Investment Trust (REIT) holdings, exchange traded funds and open future contracts. 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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. 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. 16 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 0.75% 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, 2006, $5,858 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 $1,242 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $738 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $87,845,840 $12,007,784 $(1,949,679) $10,058,105 =========== =========== =========== =========== - ---------------------------------------------------------------------------------------------------
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, 2006, were $52,507,516 and $75,006,993, respectively. 7. Commission Recapture and Expense Offset Arrangements Effective July 15, 2005, the Portfolio has entered into commission recapture arrangements with brokers with whom PIM places trades on behalf of the Portfolio where they provide services to the Portfolio in addition to trade execution. These services included payments of certain expenses on behalf of the Portfolio. For the year ended 17 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- December 31, 2006, expenses were reduced by $4,322 under this agreement. In addition, the Portfolio has entered into certain expense offset arrangements with PIMSS resulting in a reduction in the Portfolio's total expenses due to interest earned on cash held by PIMSS. For the year ended December 31, 2006, the Portfolio's expenses were not reduced under such arrangements. 8. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- -------------------------------------------------------------------------------------------------------- Small Cap Value Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - -------------------------------------------------------------------------------------------------------- CLASS I: Shares sold 431,363 $ 7,373,050 571,103 $ 8,553,972 Shares issued in reorganizations 2,861,983 48,796,816 -- -- Redemption in kind (654,874) (11,792,154) -- -- Reinvestment of distributions 116,744 1,862,073 40,427 589,019 Shares repurchased (917,774) (15,465,902) (539,585) (8,145,222) -------------------------------------------------------------- Net increase 1,837,442 $ 30,773,883 71,945 $ 997,769 ============================================================== CLASS II: Shares sold 904,223 $ 15,303,620 712,018 $ 10,705,770 Shares issued in reorganizations 153,951 2,603,308 -- -- Reinvestment of distributions 63,445 1,004,323 34,350 497,391 Shares repurchased (460,455) (7,810,474) (121,596) (1,821,434) -------------------------------------------------------------- Net increase 661,164 $ 11,100,777 624,772 $ 9,381,727 ============================================================== - --------------------------------------------------------------------------------------------------------
9. Merger Information On May 23, 2006, beneficial owners of Pioneer Small Company VCT Portfolio and Pioneer Small Cap Value II VCT Portfolio approved a proposed Agreement and Plan of Reorganization that provided for the merger listed below. This tax-free reorganization was accomplished on May 24, 2006, by exchanging all of Pioneer Small Company VCT Portfolio's Class I and Class II net assets and Pioneer Small Cap Value II VCT Portfolio's Class I net assets for Pioneer Small Cap Value VCT Portfolio's shares, based on Pioneer Small Cap Value VCT Portfolio's Class I and Class II shares' ending net asset value, respectively. The following charts show the details of the reorganization as of that closing date ("Closing Date"):
- --------------------------------------------------------------------------------------------------------------------------------- Pioneer Small Pioneer Small Pioneer Small Pioneer Small Cap Value Company Cap Value II Cap Value VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio (Pre-Reorganization) (Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization) - --------------------------------------------------------------------------------------------------------------------------------- Net Assets Class I $11,665,357 $3,024,465 $45,772,351 $60,462,173 Class II 30,138,805 2,603,308 -- 32,742,113 ----------------------------------------------------------------------------------------- Total Net Assets $41,804,162 $5,627,773 $45,772,351 $93,204,286 ========================================================================================= Shares Outstanding Class I 684,211 247,234 2,521,638 3,546,194 Class II 1,782,074 215,447 -- 1,936,025 Shares Issued in Reorganization Class I 2,861,983 Class II 153,951 - ---------------------------------------------------------------------------------------------------------------------------------
18 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------- Unrealized Appreciation Accumulated Gain/(Loss) on Closing Date on Closing Date - -------------------------------------------------------------------------------------------------------- Pioneer Small Company VCT Portfolio $ 1,554,529 $ 1,706 Pioneer Small Cap Value II VCT Portfolio 14,635,856 (85,337) --------------------------------------------- Total $16,190,385 $ (83,631) ============================================= - --------------------------------------------------------------------------------------------------------
10. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 19 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap 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 Small Cap Value VCT Portfolio: We have audited the accompanying statement of assets and liabilities of Pioneer Small Cap Value VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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, 2006, by correspondence with the custodian and brokers. 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, 2006, the results of its operations for the year then ended, the changes in their 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 9, 2007 20 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap 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"), 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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. 21 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- 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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group and an index considered appropriate by the Independent Trustees for this purpose. The Fund's performance, based upon total return, was in the second quintile of its Morningstar category peer group for the 12 months ended June 30, 2006 and the second quintile of the peer group for the three years ended June 30, 2006. (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 noted that the return of the Fund, before deduction of fees, exceeded the return of the Fund's benchmark index for the 12-month period ended June 30, 2006 The Trustees, focusing on three-year total returns, concluded that the performance of the Fund was good. 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 size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee for the 12 months ended June 30, 2006 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 also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 (after giving effect to the expense limitation) to be in the third quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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 22 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- break point in the management fee was not necessary. 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, 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 23 Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS - -------------------------------------------------------------------------------- Investment Adviser Pioneer Investment Management, Inc. Custodian Brown Brothers Harriman & Co. Independent Registered Public Accounting Firm Ernst & Young LLP Principal Underwriter Pioneer Funds Distributor, Inc. Legal Counsel Wilmer Cutler Pickering Hale and Dorr LLP Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc. Trustees and Officers The trust's Board of Trustees provides broad supervision over the portfolio's affairs. The officers of the trust are responsible for the trust's operations. The trust's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the trust within the meaning of the 1940 Act are referred to as Interested Trustees. Trustees who are not interested persons of the trust are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 86 U.S. registered investment portfolios for which Pioneer serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the trust is 60 State Street, Boston, Massachusetts 02109. - -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Deputy Chairman and a Director of Pioneer Global Asset Board, Trustee until a successor trustee Management S.p.A. ("PGAM"); Non-Executive Chairman and a and President is elected or earlier Director of Pioneer Investment Management USA Inc. retirement or removal. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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) - ------------------------------------------------------------------------------------------------------------------------------------ NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Director of ICI Mutual Insurance Company *Mr. Cogan is an Interested Trustee because he is an officer or director of the portfolio's investment adviser and certain of its affiliates. - ------------------------------------------------------------------------------------------------------------------------------------
24 Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES
POSITIONS HELD LENGTH OF SERVICE NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS David R. Bock (63) Trustee Trustee since 2005. Serves Senior Vice President and Chief Financial Officer, 3050 K. Street NW, until a successor trustee I-trax, Inc. (publicly traded health care services Washington, DC 20007 is elected or earlier company) (2001 - present); Managing Partner, Federal retirement or removal. City Capital Advisors (boutique merchant bank) (2002 to 2004); and Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet- based mortgage trading company) (2000 - 2002) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Trustee Trustee since 2000. Serves President, Bush International (international financial 3509 Woodbine Street, until a successor trustee advisory firm) Chevy Chase, MD 20815 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves Founding Director, The Winthrop Group, Inc. (consulting 1001 Sherbrooke Street West, until a successor trustee firm); and Desautels Faculty of Management, McGill Montreal, Quebec, Canada is elected or earlier University H3A 1G5 retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Trustee Trustee since 2006. Serves Private investor (2004 - present); and Senior Executive 89 Robbins Avenue, until a successor trustee Vice President, The Bank of New York (financial and Berkeley Heights, NJ is elected or earlier securities services) (1986 - 2004) 07922 retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Trustee Trustee since 1995. Serves President and Chief Executive Officer, Newbury, Piret & 200 State Street, 12th until a successor trustee Company, Inc. (investment banking firm) Floor, Boston, MA 02109 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) Trustee Trustee since 2000. Serves President, John Winthrop & Co., Inc. (private One North Adgers Wharf, until a successor trustee investment firm) Charleston, SC 29401 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE David R. Bock (63) Director of The Enterprise Social Investment 3050 K. Street NW, Company (privately-held affordable housing Washington, DC 20007 finance company); and Director of New York Mortgage Trust (publicly traded mortgage REIT) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Director of Brady Corporation (industrial 3509 Woodbine Street, identification and specialty coated material Chevy Chase, MD 20815 products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) None 1001 Sherbrooke Street West, Montreal, Quebec, Canada H3A 1G5 - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Director of Quadriserv Inc. (technology 89 Robbins Avenue, products for securities lending industry) Berkeley Heights, NJ 07922 - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Director of New America High Income Fund, 200 State Street, 12th Inc. (closed-end investment company) Floor, Boston, MA 02109 - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) None One North Adgers Wharf, Charleston, SC 29401 - ------------------------------------------------------------------------------------------------------------------------------------
25 Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President discretion of the Board +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Assistant Since 2003. Serves at the Secretary discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey Assistant Since 2006. Serves at the (45) Secretary discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Treasurer Since 2000. Serves at the discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Assistant Since 2004. Serves at the Treasurer discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Since 2000. Serves at the Treasurer discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Assistant Since 2002. Serves at the Treasurer discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS OFFICER Osbert M. Hood (54)+ President and Chief Executive Officer, PIM-USA since Trustee of certain Pioneer Funds May 2003 (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary of PIM-USA; Senior Vice President - Legal of None Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Vice President and Senior Counsel of Pioneer since July None 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 of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey Partner, Wilmer Cutler Pickering Hale and Dorr LLP; and None (45) Assistant Secretary of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Vice President - Fund Accounting, Administration and None Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Deputy Treasurer of Pioneer since 2004; Treasurer and None Senior 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 - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Vice President - Fund Accounting, None Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Fund Accounting Manager - Fund Accounting, None Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------------------------------
26 Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Katherine Kim Sullivan Assistant Since 2003. Serves at the (33) Treasurer discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Since 2006. Serves at the Compliance discretion of the Board Officer - ------------------------------------------------------------------------------------------------------------------------------------ NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS OFFICER Katherine Kim Sullivan Fund Administration Manager - Fund Accounting, None (33) Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Compliance Officer of Pioneer and all of the None Pioneer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio'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) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18650-01-0207 [Logo]PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio -- Class I Shares ANNUAL REPORT December 31, 2006 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 6 Financial Statements 15 Notes to Financial Statements 19 Report of Independent Registered Public Accounting Firm 24 Factors Considered by the Independent Trustees in Approving the Management Contract 25 Trustees, Officers and Service Providers 28
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/06 - -------------------------------------------------------------------------------- [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL.]
Portfolio Diversification (As a percentage of total investment portfolio) U.S. Government Securities 48.5% U.S. Corporate Bonds 37.9% Foreign Government Bonds 6.2% Asset Backed Securities 3.4% Municipal Bonds 1.2% Senior Secured Loans 1.1% Collateralized Mortgage Obligations 1.0% Temporary Cash Investment 0.7%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL.]
Maturity Distribution (As a percentage of total investment portfolio) 0-1 years 15.9% 1-3 years 10.5% 3-4 years 24.3% 4-6 years 32.3% 6-8 years 8.8% 8+ years 8.2%
Five Largest Holdings (As a percentage of long-term holdings) 1. U.S. Treasury Inflation Protected Security, 3.5%, 1/15/11 2.09% 2. U.S. Treasury Notes, 5.0%, 2/15/11 2.05 3. U.S. Treasury Inflation Notes, 1.875%, 7/15/15 2.01 4. U.S. Treasury Notes, 5.5%, 8/15/28 1.77 5. U.S. Treasury Bonds, 5.25%, 11/15/28 1.70
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $10.80 $10.76
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $0.5807 $0.0270 $0.0254
- -------------------------------------------------------------------------------- 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 BY A LINE CHART IN THE PRINTED MATERIAL.]
Pioneer Strategic Lehman Brothers U.S. Date Income VCT Portfolio Universal Index 7/99 10000 10000 10070 10136 12/00 10525 11233 11252 12142 12/02 12458 13337 15104 14113 12/04 16651 14814 17108 15216 12/06 18217 15973
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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- Life-of-Class (7/29/99) 8.41% 5 Years 10.12% 1 Year 6.48%
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.pioneerinvestments.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 Strategic Income 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 Strategic Income VCT Portfolio Based on actual returns from July 1, 2006 through December 31, 2006.
Share Class I - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,052.59 Expenses Paid During Period* $ 4.29
* Expenses are equal to the Portfolio's annualized expense ratio of 0.83% 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 Strategic Income VCT Portfolio Based on a hypothetical 5% return per year before expenses, reflecting the period from July 1, 2006 through December 31, 2006.
Share Class I - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,021.02 Expenses Paid During Period* $ 4.23
* Expenses are equal to the Portfolio's annualized expense ratio of 0.83% 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 VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/06 - -------------------------------------------------------------------------------- Riskier asset classes tended to deliver the handsomest investment rewards in 2006, a year in which economies grew and corporate profits rose throughout the world. The only slump in the performance of riskier fixed-income sectors - including domestic high-yield bonds and emerging market debt - occurred during a two-month period, beginning in mid-May. Overall, though, investors showed a willingness to take on credit risk, and lower-rated bonds outperformed government bonds and other high-grade securities. The following is an interview with Kenneth J. Taubes, who discusses the performance of Pioneer Strategic Income VCT Portfolio during the fiscal year ended December 31, 2006. 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 2006? A. Pioneer Strategic Income VCT Portfolio Class I shares generated a total return of 6.48%, at net asset value, for the 12 months ended December 31, 2006. During the same 12 months, the Lehman Brothers U.S. Universal Bond Index returned 4.97% and the average return of the 50 portfolios in Lipper's general bond variable annuity portfolio category was 6.07%. On December 31, 2006, the 30-day Standardized SEC yield for the Portfolio's Class I shares was 5.11%. Call 1-800-688-9915 or visit www.pioneerinvestments.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 2006? A. Over the course of the year, the domestic high-yield bond market delivered the strongest results among the major fixed-income sectors, followed by emerging market bonds. Government securities and other high-grade bonds tended to trail the higher-risk classes. The only exception to this general trend occurred during a two-month stretch, starting in mid-May, when concerns about rising inflationary pressures and the interest-rate hikes by the U.S. Federal Reserve led to a general decline of riskier assets, including high-yield corporates and emerging market debt. Over the final six months of the year, however, confidence returned as the Federal Reserve left rates unchanged and inflation pressures appeared to ease as oil prices receded. Confidence in the durability of the global economic expansion returned. Emerging market bonds then provided the best returns in the fixed-income assets, followed by domestic high-yield bonds. High-grade investments trailed during the final six months, although they generally still provided positive results. Q. What were your principal strategies during the year, and how did they affect performance? A. The Portfolio performed well during the year, helped by its exposure to high-yielding securities, including domestic high-yield bonds, international high yield bonds and emerging market debt. Moreover, our positions in investments denominated in foreign currencies also helped, notably our holdings denominated in the Swedish kroner and the euro. Only our exposure to the Japanese yen detracted from results. In addition, our duration management was successful. (Duration is a measure of a bond's price sensitivity to changes in interest rates.) We maintained a relatively short duration when interest rates were rising in the first half of the year. Beginning in June, we moved to a longer duration, which positioned the Portfolio to benefit when longer-maturity rates began to decline. During the first half of the year, we allocated about 10% of 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 1-800-688-9915 or visit www.pioneerinvestments.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 Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- assets to Treasury Inflation Protected Securities (TIPS), which contributed to performance as interest rates were rising. Although we reduced that positioning during the second half of the year, our investments in TIPS during the final six months did not help as they underperformed straight Treasuries as well as mortgage-backed securities. Q. What were some of the investments that most affected performance? A. We had solid, positive contributions from a number of holdings. The debt of Norwegian oil services company Aker Kvaerner, for example, appreciated as oil drilling activity around the world increased. Rising iron ore prices, spurred by increased demand from emerging markets, led to strong results from our investments in bonds of CVRD of Brazil, one of the world's largest iron ore-mining corporation. Bonds of Platinum Underwriters, a property-and-casualty re-insurance company, appreciated when the company encountered relatively few storm-related claims in 2006, after raising premiums following the severe 2005 hurricane season. Trustreet Properties, a real estate investment trust, contributed as its bonds were bought back when the company was acquired. Securities issued by Ford Motor Credit appreciated during the year, after declining in 2005, as investors realized the company was not about to file for bankruptcy protection. Disappointments included bonds of Angiotech company, a producer of medical devices including stents for the treatment of clogged arteries. These bonds lost value early in the year amid concerns about the effects of drug-coated stents. The bonds recovered some of their value late in the year, however, as concerns waned with a favorable finding by the FDA. Ainsworth Lumber, a Canadian-based building materials company, was hurt by weakness in the U.S. housing market and the rising Canadian dollar. Also holding back results was the investment in securities of Stratos Global, a Canadian-based provider of satellite communications services. Q. What is your investment outlook? A. As we enter 2007, we believe the environment looks favorable for our strategic income strategy, which emphasizes diversification in the fixed-income markets. The global economic picture is encouraging, and there is ample liquidity in the capital markets, even though some central banks are tightening their monetary policies. Given our expectations for continuing global growth, we do not expect the Federal Reserve to lower short-term rates in the near future. As a consequence, we are maintaining a shorter-than-benchmark duration policy to protect against the potential that interest rates might rise. We also have reduced the Portfolio's exposure to foreign currencies, as we do not see much further weakening in the relative value of the U.S. dollar in the immediate future. Unfortunately, we believe that generally favorable outlook is reflected in current bond prices, and so opportunities to take advantage of mispriced securities may be limited. 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 Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value ASSET BACKED SECURITIES - 3.1% Energy - 0.2% Oil & Gas Equipment & Services - 0.2% 135,000 A-/A1 Nakilat, Inc., 6.267%, 12/31/33 (144A) $ 133,755 ----------- Total Energy $ 133,755 ----------- Banks - 0.5% Thrifts & Mortgage Finance - 0.5% 309,509 A-/Baa1 Taganka Car Loan Finance Plc, 6.35%, 11/14/13 (144A) (b) $ 309,508 ----------- Total Banks $ 309,508 ----------- Diversified Financials - 0.9% Consumer Finance - 0.0% DKK 18,055 AAA/Aaa Realkredit Danmark, 7.0%, 10/1/32 $ 3,427 ----------- Diversified Financial Services - 0.9% 216,117 BB-/Ba2 Caithness Coso Fund Corp., 6.263%, 6/15/14 (144A) $ 210,712 174,902 BBB+/Baa2 PF Export Receivable Master Trust, 6.436%, 6/1/15 (144A) 178,400 229,240 BBB/Baa2 Power Receivables Finance, 6.29%, 1/1/12 (144A) 230,494 ----------- $ 619,606 ----------- Total Diversified Financials $ 623,033 ----------- Utilities - 1.0% Electric Utilities - 1.0% 209,880 BB-/Ba2 FPL Energy Wind Funding, 6.876%, 6/27/17 (144A) $ 211,716 376,193 NR/NR Ormat Funding Corp., 8.25%, 12/30/20 383,717 53,307 BB-/Ba2 Tenaska Alabama, 7.0%, 6/30/21 (144A) 52,942 ----------- $ 648,375 ----------- Total Utilities $ 648,375 ----------- Government - 0.5% 303,599 BB+/Ba2 Republic of Columbia, 9.75%, 4/9/11 $ 329,405 ----------- Total Government $ 329,405 ----------- TOTAL ASSET BACKED SECURITIES (Cost $2,041,493) $ 2,044,076 ----------- COLLATERALIZED MORTGAGE OBLIGATIONS - 0.9% Banks - 0.6% Thrifts & Mortgage Finance - 0.6% 110,000 NR/Ba2 SBA CMBS Trust, 6.904%, 11/15/36 $ 110,317 265,000 AAA/Ba2 T SRA R 2006-1 F, 7.5296%, 10/15/36 (144A) 268,002 ----------- $ 378,319 ----------- Total Banks $ 378,319 ----------- Diversified Financials - 0.3% Diversified Financial Services - 0.3% 80,000 NR/Ba1 Global Signal, 7.036%, 2/15/36 (144A) $ 81,388 155,000 NR/Ba2 Tower 2004-2A F, 6.376%, 12/15/14 149,909 ----------- $ 231,297 ----------- Total Diversified Financials $ 231,297 ----------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $610,000) $ 609,616 -----------
6 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value CORPORATE BONDS - 33.7% Energy - 4.4% Coal & Consumable Fuels - 0.4% 250,000 B+/Ba3 Adaro Finance BV, 8.5%, 12/8/10 (144A) $ 256,250 ----------- Oil & Gas Drilling - 0.6% 300,000 NR/NR DDI Holdings AS, 9.3%, 1/19/12 (144A) $ 314,250 75,000 NA/NA DDI Holdings AS, 9.3%, 4/23/12 (144A) 78,563 ----------- $ 392,813 ----------- Oil & Gas Equipment & Services - 0.5% 110,000 A+/Aa3 Nakilat, Inc., 6.067%, 12/31/33 (144A) $ 109,168 500,000 NR/NR Petromena AS, 9.75%, 5/24/12 (144A) 84,226 150,000 NR/B1 Semgroup LP, 8.75%, 11/15/15 (144A) 150,750 ----------- $ 344,144 ----------- Oil & Gas Exploration & Production - 2.6% 210,000 B-/B3 Baytex Energy, Ltd., 9.625%, 7/15/10 $ 218,925 260,000 B-/B3 Clayton Williams Energy, 7.75%, 8/1/13 239,850 245,000 B/B2 Compton Petroleum Corp., 7.625%, 12/1/13 236,425 355,000 BBB+/NR Gazprom International SA, 7.201%, 2/1/20 (144A) 375,408 170,000 B-/B3 Harvest Operations Corp., 7.875%, 10/15/11 161,075 ITL 275,000,000 BBB-/Baa1 Petroleos Mexicanos, 7.375%, 8/13/07 190,775 115,000 CCC+/Caa2 Petroquest Energy, Inc., 10.375%, 5/15/12 121,038 200,000 B/B1 Quicksilver Resources, Inc., 7.125%, 4/1/16 195,500 45,000 BB+/Ba2 Southern Star Central Corp., 6.75%, 3/1/16 44,888 ----------- $ 1,783,884 ----------- Oil & Gas Storage & Transportation - 0.3% 30,000 B/B2 Copano Energy LLC, 8.125%, 3/1/16 $ 31,050 75,000 B/B1 Inergy LP, 8.25%, 3/1/16 78,750 85,000 B-/B3 Targa Resources, Inc., 8.50%, 11/1/13 (144A) 85,638 ----------- $ 195,438 ----------- Total Energy $ 2,972,529 ----------- Materials - 6.3% Aluminum - 0.9% 95,000 B-/B3e Aleris International, Inc., 9.0%, 12/15/14 (144A) $ 95,475 370,000 BB-/B1 Asia Aluminum Holdings, 8.0%, 12/23/11 (144A) 369,075 140,000 B/B2 Novelis, Inc., 7.25%, 2/15/15 135,450 ----------- $ 600,000 ----------- Commodity Chemicals - 1.1% 110,000 B+/B1 Arco Chemical Co., 9.8%, 2/1/20 $ 127,050 285,000 B+/B1 Georgia Gulf Corp., 9.5%, 10/15/14 (144A) 277,875 300,000 B+/Ba3 Invista, 9.25%, 5/1/12 (144A) 321,750 ----------- $ 726,675 ----------- Construction Materials - 0.3% 220,000 B-/B2 U.S. Concrete, Inc., 8.375%, 4/1/14 $ 215,050 -----------
The accompanying notes are an integral part of these financial statements. 7 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Diversified Chemical - 1.4% 130,000 B-/B2 Basell Finance Co., 8.1%, 3/15/27 (144A) $ 123,500 350,000 B/B3 Crystal US Holdings, Inc., 10.5%, 10/1/14 (b) 301,000 100,000 B-/B2 Ineos Group Holdings PLC, 7.875%, 2/15/16 (144A) 125,706 EURO 145,000 B-/B2 Nell AF Sarl, 8.375%, 8/15/15 (144A) 205,238 160,000 B-/B2 Phibro Animal Health Corp., 10.0, 8/1/13 (144A) 166,000 ----------- $ 921,444 ----------- Diversified Metals & Mining - 1.5% 70,000 B-/Caa1 American Rock Salt Co., LLC, 9.5%, 3/15/14 $ 72,100 105,000 BB-/Ba3 FMG Finance Pty, Ltd., 10.625%, 9/1/16 (144A) 112,613 100,000 BBB/Baa3 Vale Overseas, Ltd., 6.25%, 1/11/16 100,972 400,000 BBB/Baa3 Vale Overseas, Ltd., 8.25%, 1/17/34 473,817 230,000 BB/Ba1 Vedenta Resources Plc, 6.625%, 2/22/10 (144A) 227,125 ----------- $ 986,627 ----------- Forest Products - 0.3% 305,000 B/B2 Ainsworth Lumber, 6.75%, 3/15/14 $ 231,800 ----------- Paper Packaging - 0.2% 110,000 CCC+/Caa1 Graham Packaging Co., 9.875%, 10/15/14 (a) $ 111,100 ----------- Paper Products - 0.4% 100,000 B+/B2 Abitibi-Consolidated, Inc., 6.0%, 6/20/13 $ 80,000 200,000 B+/B2 Bowater, Inc., 6.5%, 6/15/13 182,500 ----------- $ 262,500 ----------- Specialty Chemicals - 0.2% 150,000 BB+/NA LPG International, Inc., 7.25%, 12/20/15 $ 150,750 ----------- Total Materials $ 4,205,946 ----------- Capital Goods - 3.1% Aerospace & Defense - 0.1% 75,000 BB+/Ba3 L-3 Communications Corp., 6.375%, 10/15/15 $ 74,250 ----------- Building Products - 0.5% 325,000 B/B2 Builders Firstsource, Inc., 9.624%, 2/15/12 (b) $ 319,719 ----------- Construction & Engineering - 0.3% 160,000 B+/Ba3 Dycom Industries, 8.125%, 10/15/15 $ 165,600 ----------- Construction, Farm Machinery & Heavy Trucks - 0.7% 130,000 B+/B1 Commercial Vehicle Group, 8.0%, 7/1/13 $ 127,075 270,000 B+/B1 Greenbrier Co., Inc., 8.375%, 5/15/15 274,725 65,000 B/B3 Titan Wheel International, Inc., 8.0%, 1/15/12 (144A) 65,406 ----------- $ 467,206 ----------- Electrical Component & Equipment - 0.2% 200,000 NR/NR Power Contract Financing LLC, 0.0%, 2/5/10 (144A) (b) $ 158,750 ----------- Industrial Machinery - 0.2% 150,000 B/B1 Gardner Denver, Inc., 8.0%, 5/1/13 (144A) $ 156,000 ----------- Trading Companies & Distributors - 1.1% 325,000 BBB-/Baa3 Glencore Funding LLC, 6.0%, 4/15/14 (144A) $ 316,820 435,000 BB+/Ba1 Noble Group, Ltd., 6.625%, 3/17/15 (144A) 395,137 ----------- $ 711,957 ----------- Total Capital Goods $ 2,053,482 -----------
8 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Commercial Services & Supplies - 1.9% Diversified Commercial Services - 1.3% 130,000 B+/Ba2 FTI Consulting, 7.625%, 6/15/13 $ 134,225 500,000 B-/B3 NCO Group, Inc., 10.244%, 11/15/13 (144A) (b) 496,250 240,000 B-/B3 Park-Ohio Industries, Inc., 8.375%, 11/15/14 223,800 ----------- $ 854,275 ----------- Environmental & Facilities Services - 0.5% 80,000 B+/Ba3 Clean Harbors, Inc., 11.25%, 7/15/12 (144A) $ 89,050 240,000 CCC+/B3 Hydrochem Industrial Service, 9.25%, 2/15/13 (144A) 241,200 ----------- $ 330,250 ----------- Office Services & Supplies - 0.1% 90,000 CCC/B3 Nutro Products, Inc., 9.4%, 10/15/13 (144A) (b) $ 93,150 ----------- Total Commercial Services & Supplies $ 1,277,675 ----------- Transportation - 0.6% Marine - 0.5% 185,000 BB+/NR CMA CGM SA, 7.25%, 2/1/13 (144A) $ 180,375 125,000 BB-/Ba3 Stena AB, 7.0%, 12/1/16 118,750 40,000 B-/B3 Trailer Bridge, Inc., 9.25%, 11/15/11 41,250 ----------- $ 340,375 ----------- Railroads - 0.1% 70,000 B-/B3 TFM SA De CV, 9.375%, 5/1/12 $ 74,725 ----------- Total Transportation $ 415,100 ----------- Consumer Durables & Apparel - 1.3% Footwear - 0.2% 153,000 BB-/B1 Brown Shoe Co., Inc., 8.75%, 5/1/12 $ 161,415 ----------- Homebuilding - 1.1% 95,000 BBB-/BBB- C10 Capital SPV, Ltd., 6.722%, 12/31/49 (b) $ 95,228 238,000 BB-/Ba2 Meritage Homes Corp., 6.25%, 3/15/15 226,100 130,000 BB/Ba3 Urbi Desarrollos Urbanos, 8.5%, 4/19/16 (144A) 140,530 150,000 B+/B3 WCI Communities, Inc., 6.625%, 3/15/15 (a) 129,000 150,000 B/B3 WCI Communities, Inc., 7.875%, 10/1/13 (a) 134,250 ----------- $ 725,108 ----------- Total Consumer Durables & Apparel $ 886,523 ----------- Consumer Services - 1.5% Casinos & Gaming - 1.4% 200,000 AAA/Aaa Lottomatica S.p.A, 8.25%, 3/31/66 (144A) $ 280,183 225,000 B/Ba3 Station Casinos, Inc., 6.625%, 3/15/18 192,938 250,000 CCC+/B3 Tropicana Entertainment, 9.625%, 12/15/14 (144A) 248,750 245,000 B-/Caa1 Trump Entertainment Resorts, 8.5%, 6/1/15 243,775 ----------- $ 965,646 ----------- Specialized Consumer Services - 0.1% 50,000 BB-/B1 Service Corporation International, 7.625%, 10/1/18 $ 53,000 ----------- Total Consumer Services $ 1,018,646 ----------- Media - 1.5% Broadcasting & Cable TV - 0.8% 250,000 BB+/Ba2 C&M Finance, Ltd., 8.1%, 2/1/16 (144A) $ 256,875 210,000 B-/B2 Kabel Deutschland GMBH, 10.625%, 7/1/14 232,838 ----------- $ 489,713 -----------
The accompanying notes are an integral part of these financial statements. 9 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Movies & Entertainment - 0.4% 285,000 B+/Ba2 Corp Interamer De Entret, 8.875%, 6/14/15 (144A) $ 283,575 ----------- Publishing - 0.3% 200,000 B/B2 Sheridan Acquisition Corp., 10.25%, 8/15/11 $ 208,000 ----------- Total Media $ 981,288 ----------- Retailing - 0.2% Automotive Retail - 0.2% 115,000 BB+/Ba2 Autonation, Inc., 7.0%, 4/15/14 $ 115,863 ----------- Total Retailing $ 115,863 ----------- Food, Beverage & Tobacco - 0.7% Brewers - 0.7% 142,000 NR/NR Argentine Beverages, 7.375%, 3/22/12 (144A) $ 145,905 220,000 BBB/Baa1 Cia Brasileira de Bebida, 8.75%, 9/15/13 256,300 80,000 BBB/Baa1 Cia Brasileira de Bebida, 10.5%, 12/15/11 96,800 ----------- $ 499,005 ----------- Total Food, Beverage & Tobacco $ 499,005 ----------- Health Care Equipment & Services - 0.4% Health Care Facilities - 0.1% 65,000 BB-/B2 HCA, Inc., 9.625%, 11/15/16 $ 69,875 ----------- Health Care Services - 0.3% 165,000 CCC+/B3 Rural/Metro Corp., 9.875%, 3/15/15 $ 171,600 ----------- Total Health Care Equipment & Services $ 241,475 ----------- Pharmaceuticals & Biotechnology - 0.6% Biotechnology - 0.4% 350,000 B-/B2 Angiotech Pharmaceutical, 7.75%, 4/1/14 (144A) $ 304,500 ----------- Pharmaceuticals - 0.2% 116,000 B-/Caa1 Warner Chilcott Corp., 8.75%, 2/1/15 $ 118,900 ----------- Total Pharmaceuticals & Biotechnology $ 423,400 ----------- Banks - 1.6% Diversified Banks - 1.6% 160,000 B/Ba1 ATF Bank JSC, 9.25%, 4/12/12 (144A) $ 161,888 135,000 BB+/Baa1 Kazkommerts International BV, 8.0%, 11/3/15 140,400 150,000 B+/Ba2 Russian Stand Bank, 7.5%, 10/7/10 (144A) 144,563 200,000 NA/NA Sibacademfinance Plc, 9.0%, 5/12/09 (144A) 203,120 240,000 BB+/Baa2 TNK-BP Finance SA, 7.5%, 7/18/16 (144A) 255,300 175,000 BB/Baa1 Turanalem Finance BV, 8.5%, 2/10/15 (144A) 181,344 ----------- $ 1,086,615 ----------- Total Banks $ 1,086,615 ----------- Diversified Financials - 1.9% Consumer Finance - 0.8% 235,000 B/B1 Ford Motor Credit Co., 5.7%, 1/15/10 $ 225,272 35,000 B/B1 Ford Motor Credit Co., 5.8%, 1/12/09 34,365 320,000 A/A2 SLM Corp., 4.0%, 7/25/14 (b) 293,971 ----------- $ 553,608 -----------
10 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Specialized Finance - 1.1% 320,000 NA/Baa3 Alfa Div Pymt Rights Fin, 7.247%, 12/15/11 (144A) (b) $ 319,968 210,000 B-/B2e Louis No1 Plc, 8.5%, 12/1/14 (144A) 281,998 120,000 CCC+/B2 Sally Holdings, 9.25%, 11/15/14 (144A) 122,250 ----------- $ 724,216 ----------- Total Diversified Financials $ 1,277,824 ----------- Insurance - 2.5% Life & Health Insurance - 0.4% 300,000 B-/B2 Presidential Life Corp., 7.875%, 2/15/09 $ 286,500 ----------- Multi-Line Insurance - 0.5% 300,000 BB+/Ba1 Hanover Insurance Group, 7.625%, 10/15/25 $ 321,503 ----------- Property & Casualty Insurance - 1.0% 285,000 BBB-/NR Kingsway America, Inc., 7.5%, 2/1/14 $ 289,008 350,000 BBB-/Baa3 Ohio Casualty Corp., 7.3%, 6/15/14 373,662 ----------- $ 662,670 ----------- Reinsurance - 0.6% 365,000 BBB/NA Platinum Underwriters Holding, 7.5%, 6/1/17 $ 384,920 ----------- Total Insurance $ 1,655,593 ----------- Real Estate - 1.2% Real Estate Management & Development - 0.2% 125,000 BB-/Ba3 Forest City Enterprises, 7.625%, 6/1/15 $ 127,500 ----------- Real Estate Investment Trusts - 1.0% 120,000 BB-/B2 BF Saul Real Estate Investment Trust, 7.5%, 3/1/14 $ 121,950 95,000 B/B1 Crescent Real Estate, 9.25%, 4/15/09 97,494 340,000 B+/B1 Trustreet Properties, Inc., 7.5%, 4/1/15 367,200 120,000 BB+/Ba2 Ventas Realty Capital Corp., 7.125%, 6/1/15 (144A) 126,000 ----------- $ 712,644 ----------- Total Real Estate $ 840,144 ----------- Technology Hardware & Equipment - 0.4% Technology Distributors - 0.4% 311,000 BB+/Baa3 Anixter International Corp., 5.95%, 3/1/15 $ 287,675 ----------- Total Technology Hardware & Equipment $ 287,675 ----------- Semiconductors - 0.4% 175,000 BBB-/Baa3 Chartered Semiconductor, 6.375%, 8/3/15 $ 175,527 65,000 BB+/Ba2 NXP BV, 7.785%, 10/15/14 (144A) 67,194 ----------- $ 242,721 ----------- Total Semiconductors $ 242,721 ----------- Telecommunication Services - 1.9% Integrated Telecommunication Services - 0.6% 140,000 B-/B3 Eschelon Operating Co., 8.375%, 3/15/10 $ 135,100 210,000 CCC+/B3 Stratos Global Corp., 9.875%, 2/15/13 202,650 63,000 NR/Baa3 Tele Norte Leste Participacoes, 8.0%, 12/18/13 66,938 ----------- $ 404,688 -----------
The accompanying notes are an integral part of these financial statements. 11 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Wireless Telecommunication Services - 1.3% 260,000 NR/B3 Digicel, Ltd., 9.25%, 9/1/12 (144A) $ 277,550 240,000 B/B3 Intelsat Intermediate, 9.25%, 2/1/15 182,400 115,000 BB-/Ba3 Mobile Telesystems Finance, 8.375%, 10/14/10 (144A) 121,613 290,000 B/B2 True Move Co., Ltd., 10.75%, 12/16/13 (144A) 283,475 ----------- $ 865,038 ----------- Total Telecommunication Services $ 1,269,726 ----------- Utilities - 1.3% Electric Utilities - 1.1% 292,133 NR/Ba1 Juniper Generation, 6.79%, 12/31/14 (144A) $ 282,665 250,000 BBB-/Baa3 Kiowa Power Partners LLC, 5.737%, 3/30/21 (144A) 242,030 190,000 BB-/Ba3 MSW Energy Holdings, 7.375%, 9/1/10 193,800 ----------- $ 718,495 ----------- Gas Utilities - 0.2% 125,000 BB/Ba1 Southern Union Co., 7.2%, 11/1/66 $ 123,220 ----------- Total Utilities $ 841,715 ----------- TOTAL CORPORATE BONDS (Cost $22,155,237) $22,592,945 ----------- U.S. GOVERNMENT & AGENCY OBLIGATIONS - 43.1% 1,443,765 Federal Home Loan Mortgage Corp., 4.5%, 4/1/20 - 4/1/35 $ 1,385,752 516,788 Federal Home Loan Mortgage Corp., 5.0%, 5/1/34 - 6/1/36 498,695 1,096,586 Federal Home Loan Mortgage Corp., 5.5%, 10/1/16 - 1/1/35 1,086,403 1,206,958 Federal Home Loan Mortgage Corp., 6.0%, 6/1/17 - 6/1/35 1,218,320 1,186,665 Federal National Mortgage Association, 4.5%, 5/1/20 - 9/1/35 1,124,971 1,834,336 Federal National Mortgage Association, 5.0%, 10/1/20 - 4/1/36 1,787,315 1,852,198 Federal National Mortgage Association, 5.5%, 3/1/18 - 5/1/36 1,833,536 603,284 Federal National Mortgage Association, 6.0%, 7/1/17 - 1/1/34 608,692 800,000 Federal National Mortgage Association, 6.375%, 8/15/07 630,826 12,811 Federal National Mortgage Association, 6.5%, 10/1/31 - 7/1/31 13,117 985 Federal National Mortgage Association, 7.0%, 9/1/29 1,016 1,204,385 Government National Mortgage Association, 4.5%, 9/15/33 - 3/15/36 1,138,145 602,922 Government National Mortgage Association, 5.0%, 12/15/34 - 4/15/35 586,535 2,843,919 Government National Mortgage Association, 5.5%, 10/15/19 - 11/15/36 2,833,571 1,849,747 Government National Mortgage Association, 6.0%, 8/15/16 - 3/15/36 1,878,730 188,627 Government National Mortgage Association, 6.5%, 3/15/29 - 1/15/34 193,711 809 Government National Mortgage Association, 7.0%, 3/15/31 836 8,855 Government National Mortgage Association, 7.5%, 5/15/23 9,146 2,127 Government National Mortgage Association I, 7.0%, 3/15/31 2,198 113,348 Government National Mortgage Association II, 5.5%, 3/20/34 112,590 211,692 Government National Mortgage Association II, 6.0%, 11/20/33 214,321 625,000 U.S. Treasury Bonds, 4.375%, 12/15/10 617,798 960,000 U.S. Treasury Bonds, 5.25%, 11/15/28 1,006,725 720,000 U.S. Treasury Bonds, 6.25%, 8/15/23 828,732 1,240,004 U.S. Treasury Inflation Notes, 1.875%, 7/15/15 1,188,320 315,245 U.S. Treasury Inflation Notes, 2.0%, 1/15/16 304,384 599,652 U.S. Treasury Inflation Notes, 2.5%, 7/15/16 604,196 841,920 U.S. Treasury Inflation Notes, 3.0%, 7/15/12 866,422 153,453 U.S. Treasury Inflation Protected Security, 3.375%, 1/15/12 160,209 1,188,662 U.S. Treasury Inflation Protected Security, 3.5%, 1/15/11 1,237,416 1,445,000 U.S. Treasury Notes, 4.25%, 1/15/11 - 8/15/15 1,409,683
12 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value U.S. Government & Agency Obligations (Cont.) 600,000 U.S. Treasury Notes, 4.625%, 11/15/09 $ 598,125 265,000 U.S. Treasury Notes, 4.875%, 2/15/12 267,422 1,200,000 U.S. Treasury Notes, 5.0%, 2/15/11 1,215,000 970,000 U.S. Treasury Notes, 5.5%, 8/15/28 1,047,903 520,000 U.S. Treasury Strip, 0.0%, 11/15/13 378,132 ----------- $28,888,893 ----------- TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $28,934,646) $28,888,893 ----------- FOREIGN GOVERNMENT BONDS - 5.5% ITL 195,000,000 B+/B2 Banco Nac De Desen Econo, 8.0%, 4/28/10 $ 146,468 SEK 3,445,000 AAA/Aaa Government of Sweden, 5.25%, 3/15/11 530,689 SEK 2,955,000 NR/NR Government of Sweden, 5.5%, 10/8/12 468,114 SEK 2,150,000 NR/NR Government of Sweden, 8.0%, 8/15/07 322,688 NOK 1,320,000 AAA/Aaa Norwegian Government, 6.0%, 5/16/11 225,082 NOK 1,500,000 AAA/Aaa Norwegian Government, 5.5%, 5/15/09 246,667 NOK 3,410,000 AAA/Aaa Norwegian Government, 6.75%, 1/15/07 547,609 AUD 532,000 AAA/Aaa Ontario Province, 5.5%, 4/23/13 400,134 AUD 207,000 AAA/Aaa Queensland Treasury, 6.0%, 8/14/13 161,889 335,000 AAA/Aaa United Kingdom Treasury, 4.75%, 6/7/10 648,994 ----------- $ 3,698,334 ----------- TOTAL FOREIGN GOVERNMENT BONDS (Cost $3,340,706) $ 3,698,334 ----------- MUNICIPAL BONDS - 1.0% Muni Airport - 0.5% 50,000 B/CAA1 New Jersey Economic Development Authority, 6.25%, 9/15/29 $ 51,591 175,000 B/CAA1 New Jersey Economic Development Authority Special Facility Revenue, 7.0%, 11/15/30 187,227 100,000 NR/NR Wayne Charter County SPL, 6.75%, 12/1/15 81,479 ----------- $ 320,297 ----------- Muni Tobacco - 0.4% 90,000 BBB/Baa3 Golden State Tobacco Securitization, 6.75%, 6/1/39 $ 103,043 105,000 BBB/Baa3 Tobacco Settlement Authority Washington, 6.625%, 6/1/32 117,482 60,000 BBB/Baa3 Tobacco Settlement Financing Corp., 7.0%, 6/1/41 69,573 ----------- $ 290,098 ----------- Muni Utilities - 0.1% 60,000 AAA/Aaa San Antonio Texas Electric & Gas, 5.65%, 2/1/19 (144A) (b) $ 80,779 ----------- TOTAL MUNICIPAL BONDS (Cost $565,128) $ 691,174 ----------- SENIOR SECURED FLOATING RATE LOAN INTERESTS - 1.0%** 100,000 BB/Ba2 Banta Corp., Term Loan, 7.11%, 11/20/13 $ 100,250 100,000 B/B2 Freescale Semiconductor, Inc., Term Loan, 7.369%, 12/2/13 100,500 249,370 B/Ba3 Georgia-Pacific LLC, Term B Loan, 7.356%, 12/20/12 250,825 200,000 BB-/Ba2 Sanmina-SCI Corp., Term Loan, 7.88%, 1/31/08 200,800 ----------- $ 652,375 ----------- TOTAL SENIOR SECURED FLOATING RATE LOAN INTERESTS (Cost $651,586) $ 652,375 -----------
The accompanying notes are an integral part of these financial statements. 13 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Shares Value RIGHTS/WARRANTS - 0.0% Transportation - 0.0% Railroads - 0.0% 210 Atlantic Express Transportation, Exp. 4/15/08* $ 420 ----------- Total Transportation $ 420 ----------- TOTAL RIGHTS/WARRANTS (Cost $0) $ 420 ----------- TEMPORARY CASH INVESTMENT - 0.6% Security Lending Collateral - 0.6% 386,291 Securities Lending Investment Fund, 5.26% $ 386,291 ----------- TOTAL TEMPORARY CASH INVESTMENT (Cost $386,291) $ 386,291 ----------- TOTAL INVESTMENT IN SECURITIES - 88.9% (Cost $58,685,087) $59,564,124 ----------- OTHER ASSETS AND LIABILITIES - 11.1% $ 7,476,455 ----------- TOTAL NET ASSETS - 100.0% $67,040,580 ===========
* 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, 2006, the value of these securities amounted to $12,159,720 or 18.1% of total net assets. NR Not rated by either S&P or Moody's. (a) At December 31, 2006, the following securities were out on loan:
Principal Amount Security Value $ 108,900 Graham Packaging Co., 9.875%, 10/15/14 $109,989 147,500 WCI Communities, Inc., 6.625%, 3/15/15 126,850 148,500 WCI Communities, Inc., 7.875%, 10/1/13 132,908 -------- Total $369,747 ========
(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. ** Senior secured floating rate loan interests in which the Portfolio invests generally pay interest at rates that are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates are generally (i) the lending rate offered by one or more major European banks, such as LIBOR (London InterBank Offered Rate), (ii) the prime rate offered by one or more major United States banks, (iii) the certificate of deposit or (iv) other base lending rates used by commercial lenders. The rate shown is the coupon rate at period end. NOTE: Principal amounts are denominated in U.S. dollars unless otherwise noted. EURO Euro ITL Italian Lira DKK Danish Kroner SEK Swedish Krona NOK Norwegian Kroner AUD Australian Dollar 14 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Class I 12/31/06 12/31/05 12/31/04 12/31/03 12/31/02 Net asset value, beginning of period $ 10.76 $ 11.26 $ 11.01 $ 9.67 $ 9.33 ------- -------- -------- -------- ------- Increase (decrease) from investment operations: Net investment income $ 0.55 $ 0.61 $ 0.60 $ 0.62 $ 0.65 Net realized and unrealized gain (loss) on investments and foreign currency transactions 0.12 (0.31) 0.47 1.38 0.32 ------- -------- -------- -------- ------- Net increase from investment operations $ 0.67 $ 0.30 $ 1.07 $ 2.00 $ 0.97 Distributions to shareowners: Net investment income (0.58) (0.64) (0.66) (0.66) (0.63) Net realized gain (0.05) (0.16) (0.16) - - ------- -------- --------- -------- ------- Net increase (decrease) in net asset value $ 0.04 $ (0.50) $ 0.25 $ 1.34 $ 0.34 ------- -------- --------- -------- ------- Net asset value, end of period $ 10.80 $ 10.76 $ 11.26 $ 11.01 $ 9.67 ======= ======== ========= ======== ======= Total return* 6.48% 2.74% 10.25% 21.24% 10.72% Ratio of net expenses to average net assets+ 0.83% 0.89% 1.03% 1.25% 1.25% Ratio of net investment income to average net assets+ 5.13% 5.57% 5.52% 5.95% 6.75% Portfolio turnover rate 44% 46% 53% 68% 50% Net assets, end of period (in thousands) $18,989 $ 20,662 $ 20,814 $ 19,312 $14,692 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.83% 0.89% 1.03% 1.25% 1.62% Net investment income 5.13% 5.57% 5.52% 5.95% 6.38% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.83% 0.89% 1.03% 1.25% 1.25% Net investment income 5.13% 5.57% 5.52% 5.95% 6.75%
* 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. 15 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $369,747) (cost $58,685,087) $59,564,124 Cash 5,319,033 Foreign currencies, at value (cost $1,943,616) 1,947,762 Receivables -- Investment securities sold 262 Fund shares sold 6,338 Dividends, interest and foreign taxes withheld 844,736 Other 2,200 ----------- Total assets $67,684,455 ----------- LIABILITIES: Payables -- Fund shares repurchased $ 158,240 Upon return of securities loaned 386,291 Forward foreign currency portfolio hedge contracts, open -- net 33,812 Due to affiliates 9,046 Accrued expenses 56,486 ----------- Total liabilities $ 643,875 ----------- NET ASSETS: Paid-in capital $65,251,460 Undistributed net investment income 547,679 Accumulated net realized gain on investments 387,017 Net unrealized gain (loss) on: Investments 879,037 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (24,613) ----------- Total net assets $67,040,580 ----------- Net Asset Value Per Share: Class I: (No par value, unlimited number of shares authorized) Net assets $18,988,611 Shares outstanding 1,757,406 ----------- Net asset value per share $ 10.80 Class II: (No par value, unlimited number of shares authorized) Net assets $48,051,969 Shares outstanding 4,447,457 ----------- Net asset value per share $ 10.80
16 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Interest $3,727,194 Income on securities loaned, net 1,426 ---------- Total investment income $3,728,620 ---------- EXPENSES: Management fees $ 407,128 Transfer agent fees and expenses 3,171 Distribution fees (Class II) 107,745 Administrative reimbursements 14,120 Custodian fees 26,343 Professional fees 32,454 Printing expense 6,854 Fees and expenses of nonaffiliated trustees 4,856 Miscellaneous 21,764 ---------- Total expenses $ 624,435 ---------- Net investment income $3,104,185 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ 833,425 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (63,960) ---------- $ 769,465 ---------- Change in net unrealized gain (loss) from: Investments $ 62,046 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (34,271) ---------- $ 27,775 ---------- Net gain on investments and foreign currency transactions $ 797,240 ========== Net increase in net assets resulting from operations $3,901,425 ==========
The accompanying notes are an integral part of these financial statements. 17 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 3,104,185 $ 2,985,351 Net realized gain on investments 769,465 511,506 Change in net unrealized gain (loss) on investments and foreign currency transactions 27,775 (2,035,611) ------------- ------------ Net increase in net assets resulting from operations $ 3,901,425 $ 1,461,246 ------------- ------------ DISTRIBUTIONS TO SHAREOWNERS: Net investment income: Class I $ (1,059,142) $ (1,227,712) Class II (2,235,620) (1,916,310) Net realized gain Class I (95,758) (308,227) Class II (211,483) (487,951) ------------- ------------ Total distributions to shareowners $ (3,602,003) $ (3,940,200) ------------- ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 13,951,457 $ 19,663,891 Reinvestment of distributions 3,570,906 3,902,297 Cost of shares repurchased (11,488,616) (6,220,715) ------------- ------------ Net increase in net assets resulting from Fund share transactions $ 6,033,747 $ 17,345,473 ------------- ------------ Net increase in net assets $ 6,333,169 $ 14,866,519 ------------- ------------ NET ASSETS: Beginning of year $ 60,707,411 $ 45,840,892 ------------- ------------ End of year $ 67,040,580 $ 60,707,411 ============= ============ Undistributed net investment income, end of year $ 547,679 $ 397,503 ============= ============
18 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 the Portfolio is to produce a high level of current income. 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(es). Please refer to those documents when considering the Portfolio's risks. 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 year. 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. 19 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, 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. 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, if any, 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, 2006, 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 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. 20 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- At December 31, 2006, 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 Investment Income Net Realized Paid-In Portfolio (Loss) Gain (Loss) Capital - -------------------------------------------------------------------------------- Strategic Income Portfolio $340,753 $(340,753) $-- -------- --------- --- - --------------------------------------------------------------------------------
The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis.
- --------------------------------------------------------------------------------------- 2006 2005 - --------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 3,453,073 $3,166,871 Long-Term capital gain 148,930 773,329 ----------- ---------- $ 3,602,003 $3,940,200 Return of Capital -- -- ----------- ---------- Total distributions $ 3,602,003 $3,940,200 ----------- ---------- Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 623,950 Undistributed long-term gain/(capital loss carryforward) 287,651 Unrealized appreciation (depreciation) 877,519 ---------- Total $1,789,120 ========== - ---------------------------------------------------------------------------------------
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 the 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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. 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. 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 21 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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. 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, 2006, $3,696 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 $4,367 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $983 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $58,695,804 $1,590,789 $(722,469) $868,320 =========== ========== ========= ======== - -----------------------------------------------------------------------------------------------------
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, 2006, were $11,407,145 and $15,470,095, respectively. The cost of purchases and the proceeds from sales of U.S. Government obligations were $15,195,943 and $10,344,108, respectively. 22 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- ---------------------------------------------------------------------------------------------- Strategic Income Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ---------------------------------------------------------------------------------------------- CLASS I: Shares sold 232,122 $ 2,485,261 299,475 $ 3,285,765 Reinvestment of distributions 105,161 1,123,803 136,735 1,498,145 Shares repurchased (500,163) (5,370,642) (364,351) (3,995,330) -------- ----------- -------- ------------ Net increase (decrease) (162,880) $(1,761,578) 71,859 $ 788,580 -------- ----------- -------- ------------ CLASS II: Shares sold 1,068,521 $11,466,196 1,483,721 $16,378,126 Reinvestment of distributions 229,026 2,447,103 219,709 2,404,152 Shares repurchased (571,426) (6,117,974) (204,670) (2,225,385) --------- ----------- --------- ------------ Net increase 726,121 $ 7,795,325 1,498,760 $16,556,893 --------- ----------- --------- ------------
8. Forward Foreign Currency Contracts During the year ended December 31, 2006, the Portfolio had entered into various contracts that obligate the Portfolio to deliver currencies at specified future dates. At the maturity of a contract, the Portfolio must make delivery of the foreign currency. Alternatively, prior to the settlement date of a portfolio hedge, the Portfolio may close out such contracts by entering into an offsetting hedge contract. As of December 31, 2006, 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 (925,000) $(714,266) 2/6/07 $ (729,813) $(15,547) Strategic Income Portfolio EUR (400,000) (532,170) 1/12/07 (528,280) 3,890 Strategic Income Portfolio EUR (570,000) (760,511) 1/8/07 (752,633) 7,878 Strategic Income Portfolio GBP (335,000) (654,918) 1/16/07 (656,307) (1,389) Strategic Income Portfolio JPY 214,030,000 1,837,626 2/13/07 1,808,982 (28,644) - -------------------------------------------------------------------------------------------------------------------
9. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 23 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the Shareowners of Pioneer Strategic Income VCT Portfolio: We have audited the accompanying statement of assets and liabilities of Pioneer Strategic Income VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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, 2006, by correspondence with the custodian and brokers. 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, 2006, 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 periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 9, 2007 24 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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. 25 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- 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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group considered appropriate by the Independent Trustees for this purpose and the Lehman Brothers Universal Bond Index. The Fund's performance, based upon total return, was in the second quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, the first quintile of the peer group for the three years ended June 30, 2006 and the first quintile for the five years ended June 30, 2006. (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.) Trustees also considered the yield of the Fund, before deduction of expenses, relative to the yield of the index. The Trustees, focusing on three-year total returns, concluded that the performance of the Fund was strong. 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 size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee, based on 2006 data, 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 also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 to be in the fourth quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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, 26 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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). 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 27 Pioneer Strategic 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 portfolio's affairs. 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 trust within the meaning of the Ernst & Young LLP 1940 Act are referred to as Interested Trustees. Trustees who are not interested persons of the trust are referred to Principal Underwriter as Independent Trustees. Each of the Trustees serves as a Pioneer Funds Distributor, Inc. trustee of each of the 86 U.S. registered investment portfolios for which Pioneer serves as investment adviser Legal Counsel (the "Pioneer Funds"). The address for all Interested Wilmer Cutler Pickering Hale and Dorr LLP Trustees and all officers of the trust is 60 State Street, Boston, Massachusetts 02109. Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc.
- -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Board, Trustee until a successor trustee and President is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS John F. Cogan, Jr. (80)* Deputy Chairman and a Director of Pioneer Global Asset Management S.p.A. ("PGAM"); Non-Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - -------------------------------------------------------------------------------------------------------- NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Director of ICI Mutual Insurance Company * Mr. Cogan is an Interested Trustee because he is an officer or director of the portfolio's investment adviser and certain of its affiliates. - --------------------------------------------------------------------------------
28 - -------------------------------------------------------------------------------- Pioneer Strategic Income VCT Portfolio TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) INDEPENDENT TRUSTEES
POSITIONS HELD LENGTH OF SERVICE NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE David R. Bock (63) Trustee Trustee since 2005. Serves 3050 K. Street NW, until a successor trustee Washington, DC 20007 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- Mary K. Bush (58) Trustee Trustee since 2000. Serves 3509 Woodbine Street, until a successor trustee Chevy Chase, MD 20815 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves 1001 Sherbrooke Street West, until a successor trustee Montreal, Quebec, Canada is elected or earlier H3A 1G5 retirement or removal. - -------------------------------------------------------------------------------- Thomas J. Perna (56) Trustee Trustee since 2006. Serves 89 Robbins Avenue, until a successor trustee Berkeley Heights, NJ is elected or earlier 07922 retirement or removal. - -------------------------------------------------------------------------------- Marguerite A. Piret (58) Trustee Trustee since 1995. Serves 200 State Street, 12th until a successor trustee Floor, Boston, MA 02109 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- John Winthrop (70) Trustee Trustee since 2000. Serves One North Adgers Wharf, until a successor trustee Charleston, SC 29401 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- NAME, AGE AND ADDRESS PRINCIPAL OCCUPATION DURING PAST FIVE YEARS David R. Bock (63) Senior Vice President and Chief Financial Officer, I-trax, Inc. (publicly traded 3050 K. Street NW, health care services company) (2001 - present); Managing Partner, Federal Washington, DC 20007 City Capital Advisors (boutique merchant bank) (2002 to 2004); and Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet- based mortgage trading company) (2000 - 2002) - ----------------------------------------------------------------------------------------------------------------- Mary K. Bush (58) President, Bush International (international financial advisory firm) 3509 Woodbine Street, Chevy Chase, MD 20815 - ----------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (59) Founding Director, The Winthrop Group, Inc. (consulting firm); and 1001 Sherbrooke Street West, Desautels Faculty of Management, McGill University Montreal, Quebec, Canada H3A 1G5 - ----------------------------------------------------------------------------------------------------------------- Thomas J. Perna (56) Private investor (2004 - present); and Senior Executive Vice President, The 89 Robbins Avenue, Bank of New York (financial and securities services) (1986 - 2004) Berkeley Heights, NJ 07922 - ----------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (58) President and Chief Executive Officer, Newbury, Piret & Company, Inc. 200 State Street, 12th (investment banking firm) Floor, Boston, MA 02109 - ----------------------------------------------------------------------------------------------------------------- John Winthrop (70) President, John Winthrop & Co., Inc. (private investment firm) One North Adgers Wharf, Charleston, SC 29401 - ----------------------------------------------------------------------------------------------------------------- NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE David R. Bock (63) Director of The Enterprise Social Investment 3050 K. Street NW, Company (privately-held affordable housing Washington, DC 20007 finance company); and Director of New York Mortgage Trust (publicly traded mortgage REIT) - -------------------------------------------------------------------------------- Mary K. Bush (58) Director of Brady Corporation (industrial 3509 Woodbine Street, identification and specialty coated material Chevy Chase, MD 20815 products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - -------------------------------------------------------------------------------- Margaret B.W. Graham (59) None 1001 Sherbrooke Street West, Montreal, Quebec, Canada H3A 1G5 - -------------------------------------------------------------------------------- Thomas J. Perna (56) Director of Quadriserv Inc. (technology 89 Robbins Avenue, products for securities lending industry) Berkeley Heights, NJ 07922 - -------------------------------------------------------------------------------- Marguerite A. Piret (58) Director of New America High Income Fund, 200 State Street, 12th Inc. (closed-end investment company) Floor, Boston, MA 02109 - -------------------------------------------------------------------------------- John Winthrop (70) None One North Adgers Wharf, Charleston, SC 29401 - --------------------------------------------------------------------------------
29 Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President discretion of the Board + Mr. Hood resigned as EVP effective January 9, 2007. - -------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the discretion of the Board - -------------------------------------------------------------------------------- Christopher J. Kelley (42) Assistant Since 2003. Serves at the Secretary discretion of the Board - -------------------------------------------------------------------------------- Christopher P. Harvey (45) Assistant Since 2006. Serves at the Secretary discretion of the Board - -------------------------------------------------------------------------------- Vincent Nave (61) Treasurer Since 2000. Serves at the discretion of the Board - -------------------------------------------------------------------------------- Mark E. Bradley (47) Assistant Since 2004. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Since 2000. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- Gary Sullivan (48) Assistant Since 2002. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS Osbert M. Hood (54)+ President and Chief Executive Officer, PIM-USA since May 2003 (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 + Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary of PIM-USA; Senior Vice President - Legal of Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------- Christopher J. Kelley (42) Vice President and Senior Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001); and Assistant Secretary of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------- Christopher P. Harvey (45) Partner, Wilmer Cutler Pickering Hale and Dorr LLP; and Assistant Secretary of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------- Vincent Nave (61) Vice President - Fund Accounting, Administration and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------- Mark E. Bradley (47) Deputy Treasurer of Pioneer since 2004; Treasurer and Senior 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 - ------------------------------------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Vice President - Fund Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------- Gary Sullivan (48) Fund Accounting Manager - Fund Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------- NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS OFFICER Osbert M. Hood (54)+ Trustee of certain Pioneer Funds +Mr. Hood resigned as EVP effective January 9, 2007. - -------------------------------------------------------------------------------- Dorothy E. Bourassa (58) None - -------------------------------------------------------------------------------- Christopher J. Kelley (42) None - -------------------------------------------------------------------------------- Christopher P. Harvey (45) None - -------------------------------------------------------------------------------- Vincent Nave (61) None - -------------------------------------------------------------------------------- Mark E. Bradley (47) None - -------------------------------------------------------------------------------- Luis I. Presutti (41) None - -------------------------------------------------------------------------------- Gary Sullivan (48) None - --------------------------------------------------------------------------------
30 Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Katherine Kim Sullivan (33) Assistant Since 2003. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Since 2006. Serves at the Compliance discretion of the Board Officer - -------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS Katherine Kim Sullivan (33) Fund Administration Manager - Fund Accounting, Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Compliance Officer of Pioneer and all of the Pioneer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------------- NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS OFFICER Katherine Kim Sullivan (33) None - -------------------------------------------------------------------------------- Terrence J. Cullen (45) None - --------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 31 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 32 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 33 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 34 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 35 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 36 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 37 [LOGO] PIONEER Investments(R) Pioneer Variable Contracts Trust Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 20364-00-0207 [logo] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer America Income VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2006 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 8 Notes to Financial Statements 12 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 12/31/06 - -------------------------------------------------------------------------------- [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Portfolio Diversification (As a percentage of total investment portfolio) U.S. Government Securities 88.5% Collateralized Mortgage Obligations 8.7% Temporary Cash Investment 2.2% U.S. Corporate Bonds 0.6%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Maturity Distribution (As a percentage of total investment portfolio) 8+ years 11.4% 6-8 years 9.6% 4-6 years 19.9% 3-4 years 25.5% 1-3 years 31.1% 0-1 year 2.5%
Five Largest Holdings (As a percentage of long-term holdings) - ---------------------------------------------------- 1. U.S. Treasury Inflation Notes, 3.375%, 1/15/12 7.83% - ---------------------------------------------------- 2. U.S. Treasury Bonds, 6.25%, 8/15/23 5.88 - ---------------------------------------------------- 3. Fannie Mae, 4.92%, 7/25/20 3.92 - ---------------------------------------------------- 4. Government National Mortgage Association, 5.0%, 11/16/46 3.65 - ---------------------------------------------------- 5. U.S. Treasury Notes, 6.5%, 2/15/10 3.53 - ----------------------------------------------------
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $9.72 $9.85 Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $0.4298 $ - $ -
- -------------------------------------------------------------------------------- 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 was represented as a line chart in the printed material]
Pioneer America Lehman Brothers Lehman Brothers Income VCT Government Fixed-Rate Date Portfolio Bond Index Mortgage-Backed Index 12/96 $10,000 $10,000 $10,000 $10,817 $10,959 $10,949 12/98 $11,670 $12,038 $11,711 $11,348 $11,770 $11,928 12/00 $12,650 $13,328 $13,260 $13,441 $14,292 $14,350 12/02 $14,791 $15,935 $15,605 $15,031 $16,310 $16,084 12/04 $15,489 $16,878 $16,840 $15,762 $17,325 $17,280 12/06 $16,259 $17,927 $18,183
The Lehman Brothers Government Bond Index measures the performance of the U.S. government bond market. The Lehman Brothers Fixed-Rate Mortgage-Backed 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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- 10 Years 4.98% 5 Years 3.88% 1 Year 3.15%
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.pioneerinvestments.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, 2006 through December 31, 2006.
Share Class II - ----------------------------------------------------------- Beginning Account Value on 7/1/06 $1,000.00 Ending Account Value on 12/31/06 $1,043.61 Expenses Paid During Period* $ 4.69
* Expenses are equal to the Portfolio's annualized expense ratio of 0.91% 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, 2006 through December 31, 2006.
Share Class II - ------------------------------------------------------------- Beginning Account Value on 7/1/06 $1,000.00 Ending Account Value on 12/31/06 $1,020.62 Expenses Paid During Period* $ 4.63
* Expenses are equal to the Portfolio's annualized expense ratio of 0.91% 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 12/31/06 - -------------------------------------------------------------------------------- During a period of moderating economic growth, Pioneer America Income Trust VCT Portfolio provided shareholders with a solid level of income by investing in securities issued by the U.S. government and its agencies. 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 fiscal year. Q. How did the portfolio perform during the 12-month period ended December 31, 2006? A. Over the 12 months, Class II shares of Pioneer America Income Trust VCT Portfolio produced a total return of 3.15% at net asset value. For the same period, the Trust performed in line with the Lehman Brothers Government Bond Index, which returned 3.48%. It underperformed the Lehman Brothers Fixed-Rate Mortgage-Backed Index, which returned 5.22%. The Trust outpaced the average 2.81% return generated by the U.S. Government Funds category of Lipper, Inc., an independent monitor of mutual fund performance. At the end of the period, the Trust's 30-day SEC yield was 4.55%. The Trust held 228 issues, and the average credit quality of the portfolio was AAA. Call 1-800-225-6292 or visit www.pioneerinvestments.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. We began the year with relatively strong economic growth and a federal funds rate, the rate banks charge for overnight loans, at 4.25%. We ended the period in an environment of slowing economic growth, declining oil and other commodity prices and a Federal funds rate of 5.25%. While the Federal Reserve took no action on interest rates during the last six months of the year, the central bank continued to warn about the potential for an upturn in inflation, as unemployment declined and the equity markets set new records. When the Federal Reserve was raising interest rates during the first six months of the fiscal period, the yield on the 10-year Treasury rose from 4.39% to 5.24% in the January-through-June period. By year-end, the 10-year Treasury yield had settled back to 4.70%. For most of the period, the yield curve was inverted, with yields on longer-term bonds lower than those on shorter-term bonds. (The yield curve shows the relationship between maturity length and yield.) Q. What were the principal strategies used in managing the Portfolio? A. As higher interest rates boosted mortgage rates early in the year, we trimmed our mortgage position in favor of long-term Treasury securities on the belief that if the Federal Reserve went too far with its interest-rate hikes, longer-term Treasuries would rally and outperform shorter-term securities. We also had a significant position in agency securities and TIPS. (The principal on TIPS, or Treasury Inflation Protected Securities, 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 rises in value. The interest-rate payment on TIPS is calculated on the inflated principal.) During the last six months, we took advantage of the volatility in the market. When interest rates rose in July, we extended duration, or a bond's price sensitivity to interest-rate changes, on the belief that rates would move lower later in the year. We reduced our position in Treasuries and TIPS and used the proceeds to purchase agency debentures and mortgage-backed securities. 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 1-800-688-9915 or visit www.pioneerinvestments.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 America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Normally higher rates would be negative for mortgages; but in this instance, valuations were very attractive. We focused on mortgages issued by the Federal National Mortgage Association (Fannie Mae) and the Government National Mortgage Association (Ginnie Mae) and emphasized those that are collateralized by multifamily apartment buildings. Such mortgages have attractive yields and are less vulnerable to prepayment risk than standard mortgage-pools that are collateralized by single-family homes. When selecting mortgages, we favored seasoned collateral that had seen some price appreciation rather than mortgages on newer vintage products that may not see home price appreciation. At the end of the period, mortgage-backed securities accounted for 57.2% of portfolio net assets; Treasury and agency securities accounted for 42.3% of net assets. The portfolio had a 0.5% cash position. (A note about Ginnie Mae securities: Ginnie Maes are backed by the full faith and credit of the U.S. Government.) Q. What contributed most to performance? A. The Portfolio's agency debentures and overweight in mortgage-backed securities had the biggest positive impact on performance. These securities not only enjoyed strong demand from U.S. investors, they were also favored by overseas central banks with significant amounts of cash to invest. Q. What detracted from performance? A. During a time when commodity prices declined, the real estate market softened, and the Federal Reserve maintained credibility as an inflation fighter, investors showed relatively little concern about the prospects for an upturn in inflation. As a result, TIPS were one of the worst performing sectors of the market; and despite our relative underweight in the sector, they held back results. Because the Portfolio's holdings were diversified among Treasury, agency and mortgage-backed securities, its performance fell short of the Lehman Brothers Fixed-Rate Mortgage-Backed Index, which only emphasizes mortgages. Q. What is your outlook for the next few months? A. As we closed 2006, the rate of economic growth had slowed, but the economy continued to expand. While the fixed-income markets appeared to be anticipating a Federal Reserve rate cut in the near term, we viewed this with skepticism. Unemployment is low, the stock market has set new records, and global liquidity is strong. Unless the housing market stumbles dramatically, we will take the Federal Reserve at its word that inflation remains a greater risk than a significant decline in the housing sector. At this time, the Federal Reserve seems more likely to raise rates than lower them, and we have positioned the Portfolio defensively for this situation. Should the Federal Reserve reduce rates, we would be likely to alter the Trust's positioning. 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 12/31/06 - --------------------------------------------------------------------------------
Principal Amount Value COLLATERALIZED MORTGAGE OBLIGATIONS - 8.7% Government - 8.7% $ 1,600,000 Fannie Mae, 4.92%, 7/25/20 $ 1,572,499 1,136,197 Fannie Mae, 6.3%, 4/25/19 1,200,969 197,304 Federal Home Loan Bank, 4.75%, 10/25/10 195,949 101,032 Federal Home Loan Bank, 5.0%, 1/15/16 100,265 171,426 Federal Home Loan Mortgage Corp., 4.5%, 4/15/13 170,146 350,000 Freddie Mac, 5.5%, 7/15/28 349,817 ----------- $ 3,589,645 ----------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $3,613,830) $ 3,589,645 ----------- CORPORATE BONDS - 0.6% Diversified Financials - 0.6% Specialized Finance - 0.6% 250,000 Private Export Funding, 3.375%, 2/15/09 $ 241,968 ----------- TOTAL CORPORATE BONDS (Cost $250,000) $ 241,968 ----------- U.S. GOVERNMENT AGENCY OBLIGATIONS - 88.7% Government - 88.7% 184,975 Fannie Mae, 5.5%, 6/1/23 $ 184,089 250,000 Federal Farm Credit Bank, 3.25%, 6/15/07 247,843 250,000 Federal Farm Credit Bank, 3.375%, 3/16/09 241,449 250,000 Federal Farm Credit Bank, 4.45%, 6/1/15 240,807 400,000 Federal Farm Credit Bank, 4.9%, 3/17/14 388,609 250,000 Federal Farm Credit Bank, 5.0%, 10/23/09 250,024 100,000 Federal Farm Credit Bank, 5.3%, 9/28/15 97,887 250,000 Federal Farm Credit Bank, 5.5%, 2/23/09 249,976 100,000 Federal Farm Credit Bank, 5.88%, 9/8/08 101,282 250,000 Federal Home Loan Bank, 4.0%, 2/12/10 243,008 250,000 Federal Home Loan Bank, 4.25%, 10/10/08 246,751 250,000 Federal Home Loan Bank, 4.25%, 2/16/10 244,912 300,000 Federal Home Loan Bank, 4.43%, 4/7/08 297,356 200,000 Federal Home Loan Bank, 4.5%, 11/15/12 195,254 500,000 Federal Home Loan Bank, 4.75%, 12/10/10 496,269 100,000 Federal Home Loan Bank, 5.375%, 5/18/16 102,716 498,119 Federal Home Loan Mortgage Corp., 5.0%, 1/1/36 - 3/1/36 480,705 417,875 Federal Home Loan Mortgage Corp., 5.5%, 9/1/34 - 12/1/34 413,695 1,908,908 Federal Home Loan Mortgage Corp., 6.0%, 10/1/32 - 5/1/34 1,926,391 463,973 Federal Home Loan Mortgage Corp., 6.5%, 1/1/29 - 7/1/32 474,588 273,828 Federal Home Loan Mortgage Corp., 7.0%, 4/1/30 - 10/1/46 279,319 27,694 Federal Home Loan Mortgage Corp., 7.5%, 8/1/31 28,793 203,900 Federal National Mortgage Association, 4.5%, 4/1/19 196,939 645,115 Federal National Mortgage Association, 5.0%, 3/1/09 - 12/1/35 631,415 2,117,797 Federal National Mortgage Association, 5.5%, 3/1/18 - 12/1/34 2,107,411 1,579,294 Federal National Mortgage Association, 6.0%, 12/1/11 - 7/1/36 1,592,789 250,000 Federal National Mortgage Association, 6.07%, 5/12/16 251,640 1,037,072 Federal National Mortgage Association, 6.5%, 7/1/21 - 7/1/34 1,060,599 182,519 Federal National Mortgage Association, 7.0%, 9/1/18 - 1/1/32 188,385 12,182 Federal National Mortgage Association, 7.5%, 2/1/31 12,685
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 - (Continued) $ 16,367 Federal National Mortgage Association, 9.0%, 4/1/33 $ 17,246 1,408,554 Government National Mortgage Association, 4.5%, 4/15/20 - 5/20/36 1,335,388 2,788,473 Government National Mortgage Association, 5.0%, 7/15/17 - 11/16/46 2,729,136 1,353,753 Government National Mortgage Association, 5.5%, 2/15/19 - 10/15/34 1,351,963 2,993,534 Government National Mortgage Association, 6.0%, 6/20/16 - 7/15/36 3,039,411 1,148,050 Government National Mortgage Association, 6.5%, 4/15/17 - 1/15/34 1,179,466 395,792 Government National Mortgage Association, 7.0%, 1/15/26 - 5/15/32 409,090 81,419 Government National Mortgage Association, 7.5%, 10/15/22 - 1/15/31 84,949 1,763 Government National Mortgage Association, 8.0%, 8/20/25 1,861 87,816 Government National Mortgage Association, I, 6.0%, 2/15/29 89,243 253,269 Government National Mortgage Association II, 5.0%, 12/20/18 249,610 859,781 Government National Mortgage Association II, 5.5%, 7/20/19 - 11/20/34 856,258 303,414 Government National Mortgage Association II, 6.0%, 12/20/18 - 11/20/33 307,209 22,386 Government National Mortgage Association II, 6.5%, 8/20/28 22,951 95,361 Government National Mortgage Association II, 7.0%, 5/20/26 - 1/20/31 98,199 12,000 Tennessee Valley Authority, Floating Rate Note, 6/1/28 (a) 283,200 250,000 Tennessee Valley Authority, 4.75%, 8/1/13 246,197 200,000 U.S. Treasury Bonds, 4.0%, 2/15/14 191,445 2,050,000 U.S. Treasury Bonds, 6.25%, 8/15/23 2,359,583 400,000 U.S. Treasury Bonds, 7.25%, 5/15/16 475,484 207,532 U.S. Treasury Inflation Notes, 1.875%, 7/15/15 198,882 249,855 U.S. Treasury Inflation Notes, 2.5%, 7/15/16 251,748 3,012,229 U.S. Treasury Inflation Notes, 3.375%, 1/15/12 3,144,836 870,000 U.S. Treasury Notes, 4.25%, 11/15/14 843,968 100,000 U.S. Treasury Notes, 4.5%, 2/15/16 98,407 200,000 U.S. Treasury Notes, 5.0%, 2/15/11 202,500 1,150,000 U.S. Treasury Notes, 6.375%, 8/15/27 1,368,410 1,350,000 U.S. Treasury Notes, 6.5%, 2/15/10 1,418,186 ----------- $36,328,412 ----------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $36,573,575) $36,328,412 ----------- TEMPORARY CASH INVESTMENT - 2.2% Repurchase Agreement - 2.2% 900,000 UBS AG, 4.7%, dated 12/29/06, repurchase price of $900,000 plus accrued interest on 1/2/06, collateralized by $931,000 U.S. Treasury Bill, 3.25%, 8/15/08 TOTAL TEMPORARY CASH INVESTMENT $ 900,000 (Cost $900,000) ----------- TOTAL INVESTMENT IN SECURITIES - 100.2% $41,060,025 (Cost $41,337,405) ----------- OTHER ASSETS AND LIABILITIES - (0.2)% $ (114,231) ----------- TOTAL NET ASSETS - 100.0% $40,945,794 ===========
(a) Debt obligation initially issued at one coupon which converts to a higher coupon at a specified date. At December 31, 2006, the rate was 5.49%. The accompanying notes are an integral part of these financial statements. 7 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Year Year 5/1/03 (a) Ended Ended Ended to Class II 12/31/06 12/31/05 12/31/04 12/31/03 Net asset value, beginning of period $ 9.85 $ 10.12 $ 10.37 $10.57 ------- ------- ------- ------ Increase (decrease) from investment operations: Net investment income $ 0.38 $ 0.39 $ 0.41 $ 0.21 Net realized and unrealized loss on investments (0.08) (0.21) (0.11) (0.15) ------- ------- ------- ------ Net increase from investment operations $ 0.30 $ 0.18 $ 0.30 $ 0.06 Distributions to shareowners: Net investment income (0.43) (0.45) (0.55) (0.26) ------- ------- ------- ------ Net decrease in net asset value $ (0.13) $ (0.27) $ (0.25) $(0.20) ------- ------- ------- ------ Net asset value, end of period $ 9.72 $ 9.85 $ 10.12 $10.37 ======= ======= ======= ====== Total return* 3.15% 1.76% 3.04% 2.60%(b) Ratio of net expenses to average net assets 0.91% 1.08% 1.06% 1.01%** Ratio of net investment income to average net assets 3.85% 3.57% 3.29% 2.42%** Portfolio turnover rate 28% 23% 37% 34%** Net assets, end of period (in thousands) $20,149 $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 0.91% 1.08% 1.06% 1.01%** Net investment income 3.85% 3.57% 3.29% 2.42%**
(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. 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 America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (cost $41,337,405) $ 41,060,025 Cash 106,654 Investment securities sold 2,461,520 Fund shares sold 166 Dividends, interest and foreign taxes withheld 330,330 Other 129 ------------ Total assets $ 43,958,824 ------------ LIABILITIES: Payables -- Investment securities purchased $ 2,956,211 Fund shares repurchased 5,141 Due to affiliates 6,472 Accrued expenses 45,206 ------------ Total liabilities $ 3,013,030 ------------ NET ASSETS: Paid-in capital $ 43,232,112 Distributions in excess of net investment income (220,066) Accumulated net realized loss on investments (1,788,872) Net unrealized loss on investments (277,380) ------------ Total net assets $ 40,945,794 ------------ NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 20,796,531 Shares outstanding 2,142,423 ------------ Net asset value per share $ 9.71 Class II: (No par value, unlimited number of shares authorized) Net assets $ 20,149,263 Shares outstanding 2,072,650 ------------ Net asset value per share $ 9.72
The accompanying notes are an integral part of these financial statements. 9 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Interest $1,999,399 ---------- Total investment income $1,999,399 ---------- EXPENSES: Management fees $ 207,751 Transfer agent fees and expenses 3,096 Distribution fees (Class II) 46,808 Administrative reimbursements 9,358 Custodian fees 12,591 Professional fees 28,929 Printing expense 954 Fees and expenses of nonaffiliated trustees 6,153 Miscellaneous 5,394 ---------- Total expenses $ 321,034 ---------- Net expenses $ 321,034 ---------- Net investment income $1,678,365 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss from investments $ (121,816) ---------- Change in net unrealized gain or loss from investments $ (224,710) ---------- Net loss on investments $ (346,526) ---------- Net increase in net assets resulting from operations $1,331,839 ==========
10 The accompanying notes are an integral part of these financial statements. Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 1,678,365 $ 1,818,811 Net realized loss on investments (121,816) (8,670) Change in net unrealized gain or loss on investments (224,710) (945,559) ------------- ------------- Net increase in net assets resulting from operations $ 1,331,839 $ 864,582 ------------- ------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income: Class I $ (1,069,942) $ (1,378,835) Class II (828,428) (792,466) ------------- ------------- Total distributions to shareowners $ (1,898,370) $ (2,171,301) ------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 5,966,828 $ 11,779,535 Reinvestment of distributions 1,899,760 2,174,179 Cost of shares repurchased (13,472,433) (11,661,922) ------------- ------------- Net increase (decrease) in net assets resulting from Fund share transactions $ (5,605,845) $ 2,291,792 ------------- ------------- Net increase (decrease) in net assets $ (6,172,376) $ 985,073 ------------- ------------- NET ASSETS: Beginning of year $ 47,118,170 $ 46,133,097 ------------- ------------- End of year $ 40,945,794 $ 47,118,170 ============= ============= Distributions in excess of net investment income $ (220,066) $ (322,520) ============= =============
The accompanying notes are an integral part of these financial statements. 11 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 the Portfolio is to produce a high level of current income as consistent with preservation of capital. 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 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 year. 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 12 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2006, 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, 2006, the Portfolio had a net capital loss carryforward of $1,703,310, of which the following amounts will expire between 2008 and 2014 if not utilized: $382,424 in 2008, $435,523 in 2011, $171,643 in 2012, $241,325 in 2013 and $472,395 in 2014. The Portfolio elected to defer $81,587 in capital losses recognized between November 1, 2006 and December 31, 2006 to its fiscal year ending December 31, 2007. At December 31, 2006, 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.
- ---------------------------------------------------------------------------------------- Distributions in Excess of Net Accumulated Investment Net Realized Paid-In Portfolio Income Loss Capital - ---------------------------------------------------------------------------------------- Pioneer America Income VCT Portfolio $322,459 $(322,459) $-- ======== ========= === - ----------------------------------------------------------------------------------------
13 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings as of December 31, 2006, on a tax basis.
- -------------------------------------------------------------------------------- 2006 2005 - -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 1,898,370 $2,171,301 ----------------------------------------- Total distributions $ 1,898,370 $2,171,301 ========================================= Distributable Earnings: Undistributed ordinary income $ 12,312 Capital loss carryforward (1,703,310) Post-October Loss Deferred (81,587) Unrealized depreciation (513,733) ---------------- Total $ (2,286,318) ================ - --------------------------------------------------------------------------------
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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. 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 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 14 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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% up to $1 billion and 0.45% on assets over $1 billion 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, 2006, $1,762 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 $4,293 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $417 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, the Portfolio's aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
- ----------------------------------------------------------------------------------------------- Gross Gross Net Tax Cost Appreciation Depreciation Depreciation - ----------------------------------------------------------------------------------------------- America Income Portfolio $41,573,758 $95,315 $(609,048) $(513,733) =========== ======= ========= ========= - -----------------------------------------------------------------------------------------------
6. Portfolio Transactions The cost of purchases and the proceeds from sales of U.S. Government obligations for the year ended December 31, 2006, were $11,466,385 and $17,152,222, respectively. 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- ----------------------------------------------------------------------------------------------- America Income Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ----------------------------------------------------------------------------------------------- CLASS I: Shares sold 110,844 $1,068,537 116,997 $ 1,169,565 Reinvestment of distributions 110,800 1,071,338 138,561 1,381,733 Shares repurchased (698,557) (6,764,324) (836,177) (8,331,104) --------------------------------------------------------------- Net decrease (476,913) $(4,624,449) (580,619) $(5,779,806) =============================================================== CLASS II: Shares sold 504,972 $ 4,898,291 1,061,522 $10,609,970 Reinvestment of distributions 85,535 828,422 79,492 792,446 Shares repurchased (685,050) (6,708,109) (336,194) (3,330,818) --------------------------------------------------------------- Net increase (decrease) (94,543) $ (981,396) 804,820 $ 8,071,598 =============================================================== - -----------------------------------------------------------------------------------------------
15 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 8. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Portfolio's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Portfolio's financial statement disclosures. 16 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 of Pioneer America Income VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, , as of December 31, 2006, 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, 2006, 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 America Income VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2006, 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. Ernst & Young LLP Boston, Massachusetts February 9, 2007 17 Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST (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; (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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. 18 - -------------------------------------------------------------------------------- Pioneer America Income 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 absolute investment performance based upon total return and yield, as well as the Fund's performance relative to the performance of both a peer group considered appropriate by the Independent Trustees for this purpose and the Lehman Brothers Government Bond Index. The Fund's performance, based upon total return, was in the third quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, the third quintile for the three years ended June 30, 2006, the third quintile for the five years ended June 30, 2006 and the fourth quintile for the ten year period ended June 30, 2006. (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 yield of the Fund, before deduction of expenses, relative to the yield index. The Trustees, focusing on three-year total returns, concluded that the performance of the Fund was satisfactory. 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 size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee, based on 2006 data, was in the third quintile relative to the management fees paid by the other funds in that peer group. The Trustees also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 to be in the fifth quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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 19 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 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 20 Pioneer America 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 portfolio's affairs. 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 trust within the meaning of the Ernst & Young LLP 1940 Act are referred to as Interested Trustees. Trustees who are not interested persons of the trust are referred to Principal Underwriter as Independent Trustees. Each of the Trustees serves as a Pioneer Funds Distributor, Inc. trustee of each of the 86 U.S. registered investment portfolios for which Pioneer serves as investment adviser Legal Counsel (the "Pioneer Funds"). The address for all Interested Wilmer Cutler Pickering Hale and Dorr LLP Trustees and all officers of the trust is 60 State Street, Boston, Massachusetts 02109. Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc.
- -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Board, Trustee until a successor trustee and President is elected or earlier retirement or removal. *Mr. Cogan is an Interested Trustee because he is an officer or director of the portfolio's investment adviser and certain of its affiliates. - -------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Deputy Chairman and a Director of Director of ICI Mutual Insurance Company Pioneer Global Asset Management S.p.A. ("PGAM"); Non-Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - -------------------------------------------------------------------------------- 21 Pioneer America Income VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE David R. Bock (63) Trustee Trustee since 2005. Serves 3050 K. Street NW, until a successor trustee Washington, DC 20007 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- Mary K. Bush (58) Trustee Trustee since 2000. Serves 3509 Woodbine Street, until a successor trustee Chevy Chase, MD 20815 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves 1001 Sherbrooke Street West, until a successor trustee Montreal, Quebec, Canada is elected or earlier H3A 1G5 retirement or removal. - -------------------------------------------------------------------------------- Thomas J. Perna (56) Trustee Trustee since 2006. Serves 89 Robbins Avenue, until a successor trustee Berkeley Heights, NJ is elected or earlier 07922 retirement or removal. - -------------------------------------------------------------------------------- Marguerite A. Piret (58) Trustee Trustee since 1995. Serves 200 State Street, 12th until a successor trustee Floor, Boston, MA 02109 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- John Winthrop (70) Trustee Trustee since 2000. Serves One North Adgers Wharf, until a successor trustee Charleston, SC 29401 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- NAME, AGE AND ADDRESS PRINCIPAL OCCUPATION DURING PAST FIVE YEARS David R. Bock (63) Senior Vice President and Chief Financial Officer, I-trax, Inc. (publicly traded 3050 K. Street NW, health care services company) (2001 - present); Managing Partner, Federal Washington, DC 20007 City Capital Advisors (boutique merchant bank) (2002 to 2004); and Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet- based mortgage trading company) (2000 - 2002) - ---------------------------------------------------------------------------------------------------------------- Mary K. Bush (58) President, Bush International (international financial advisory firm) 3509 Woodbine Street, Chevy Chase, MD 20815 - ---------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (59) Founding Director, The Winthrop Group, Inc. (consulting firm); and 1001 Sherbrooke Street West, Desautels Faculty of Management, McGill University Montreal, Quebec, Canada H3A 1G5 - ---------------------------------------------------------------------------------------------------------------- Thomas J. Perna (56) Private investor (2004 - present); and Senior Executive Vice President, The 89 Robbins Avenue, Bank of New York (financial and securities services) (1986 - 2004) Berkeley Heights, NJ 07922 - ---------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (58) President and Chief Executive Officer, Newbury, Piret & Company, Inc. 200 State Street, 12th (investment banking firm) Floor, Boston, MA 02109 - ---------------------------------------------------------------------------------------------------------------- John Winthrop (70) President, John Winthrop & Co., Inc. (private investment firm) One North Adgers Wharf, Charleston, SC 29401 - ---------------------------------------------------------------------------------------------------------------- NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE David R. Bock (63) Director of The Enterprise Social Investment 3050 K. Street NW, Company (privately-held affordable housing Washington, DC 20007 finance company); and Director of New York Mortgage Trust (publicly traded mortgage REIT) - -------------------------------------------------------------------------------- Mary K. Bush (58) Director of Brady Corporation (industrial 3509 Woodbine Street, identification and specialty coated material Chevy Chase, MD 20815 products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - -------------------------------------------------------------------------------- Margaret B.W. Graham (59) None 1001 Sherbrooke Street West, Montreal, Quebec, Canada H3A 1G5 - -------------------------------------------------------------------------------- Thomas J. Perna (56) Director of Quadriserv Inc. (technology 89 Robbins Avenue, products for securities lending industry) Berkeley Heights, NJ 07922 - -------------------------------------------------------------------------------- Marguerite A. Piret (58) Director of New America High Income Fund, 200 State Street, 12th Inc. (closed-end investment company) Floor, Boston, MA 02109 - -------------------------------------------------------------------------------- John Winthrop (70) None One North Adgers Wharf, Charleston, SC 29401 - --------------------------------------------------------------------------------
22 Pioneer America Income VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President discretion of the Board +Mr. Hood resigned as EVP effective January 9, 2007. - -------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the discretion of the Board - -------------------------------------------------------------------------------- Christopher J. Kelley (42) Assistant Since 2003. Serves at the Secretary discretion of the Board - -------------------------------------------------------------------------------- Christopher P. Harvey Assistant Since 2006. Serves at the (45) Secretary discretion of the Board - -------------------------------------------------------------------------------- Vincent Nave (61) Treasurer Since 2000. Serves at the discretion of the Board - -------------------------------------------------------------------------------- Mark E. Bradley (47) Assistant Since 2004. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Since 2000. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- Gary Sullivan (48) Assistant Since 2002. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS Osbert M. Hood (54)+ President and Chief Executive Officer, PIM-USA since May 2003 (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary of PIM-USA; Senior Vice President - Legal of Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------- Christopher J. Kelley (42) Vice President and Senior Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001); and Assistant Secretary of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------- Christopher P. Harvey Partner, Wilmer Cutler Pickering Hale and Dorr LLP; and Assistant Secretary (45) of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------- Vincent Nave (61) Vice President - Fund Accounting, Administration and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------- Mark E. Bradley (47) Deputy Treasurer of Pioneer since 2004; Treasurer and Senior 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 - ------------------------------------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Vice President - Fund Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------- Gary Sullivan (48) Fund Accounting Manager - Fund Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------- NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS OFFICER Osbert M. Hood (54)+ Trustee of certain Pioneer Funds +Mr. Hood resigned as EVP effective January 9, 2007. - ---------------------------------------------------------------------- Dorothy E. Bourassa (58) None - ---------------------------------------------------------------------- Christopher J. Kelley (42) None - ---------------------------------------------------------------------- Christopher P. Harvey None (45) - ---------------------------------------------------------------------- Vincent Nave (61) None - ---------------------------------------------------------------------- Mark E. Bradley (47) None - ---------------------------------------------------------------------- Luis I. Presutti (41) None - ---------------------------------------------------------------------- Gary Sullivan (48) None - ----------------------------------------------------------------------
23 Pioneer America Income VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Katherine Kim Sullivan Assistant Since 2003. Serves at the (33) Treasurer discretion of the Board - -------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Since 2006. Serves at the Compliance discretion of the Board Officer - -------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS Katherine Kim Sullivan Fund Administration Manager - Fund Accounting, Administration and (33) Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ----------------------------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Compliance Officer of Pioneer and all of the Pioneer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ----------------------------------------------------------------------------------------------------- NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS OFFICER Katherine Kim Sullivan None (33) - -------------------------------------------------------------------------------- Terrence J. Cullen (45) None - --------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 24 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 25 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 26 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 27 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 28 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 29 [LOGO] PIONEER Investments(R) Before investing, consider the product's investment objectives, features, risks, charges and expenses and the investment objectives, risks, charges and expenses of the underlying portfolios available in the product. Contact your advisor or Pioneer Investments for a prospectus containing this information. Please read it carefully. Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18673-01-0207 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Core Bond VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2006 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 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 Core Bond VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/06 - -------------------------------------------------------------------------------- [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Portfolio Diversification (As a percentage of total investment in securities) U.S. Government Securities 88.9% U.S. Corporate Bonds 9.0% Collateralized Mortgage Obligations 1.8% Asset Backed Securities 0.3% [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Quality Distribution (As a percentage of total investment in securities) Treasury/Agency 88.1% AAA 0.4% BBB 6.2% BB 1.7% B & Lower 0.8% Commercial Paper 2.8%
Five Largest Holdings (As a percentage of long-term holdings) 1. Government National Mortgage Association, 4.5%, 3/15/20 19.16% 2. U.S. Treasury Notes, 3.625%, 6/30/07 14.47 3. Government National Mortgage Association, 5.0%, 8/15/35 11.37 4. Federal Home Loan Mortgage Corp., 5.0%, 5/1/36 8.52 5. U.S. Treasury Inflation Protected Security, 0.0%, 11/15/13 3.21
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $ 9.82 $ 9.88
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $0.4084 $ - $ -
- -------------------------------------------------------------------------------- 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 Bond Lehman Brothers VCT Portfolio Aggregate Bond Index 7/05 10000 10000 12/05 10103 10083 12/06 10470 10520
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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- Life-of-Class (7/15/05) 2.76% 1 Year 3.64%
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.pioneerinvestments.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 Core Bond 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 Core Bond VCT Portfolio Based on actual returns from July 1, 2006 through December 31, 2006
Share Class II ----------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,046.87 Expenses Paid During Period* $ 4.39
* 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 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 Core Bond VCT Portfolio Based on a hypothetical 5% per year return before expenses, reflecting the period from July 1, 2006 through December 31, 2006
Share Class II ---------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,020.92 Expenses Paid During Period* $ 4.33
* 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 184/365 (to reflect the one-half year period). 3 PIONEER VARIABLE CONTRACTS TRUST Pioneer Core Bond VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/06 - -------------------------------------------------------------------------------- Despite a weak start to the year amid rising interest rates, the domestic bond market delivered generally moderate, positive returns during 2006. Over the first six months, investors were concerned about rising interest rates, increasing oil prices and monetary tightening by the U.S. Federal Reserve. Over the second half of the year, the environment improved as concerns about inflation and high energy prices receded and as the Federal Reserve Board left short-term rates unchanged. In the following interview, Kenneth J. Taubes discusses the factors that influenced the performance of Pioneer Core Bond VCT Portfolio during the 12 months ended December 31, 2006. 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 2006? A. Pioneer Core Bond VCT Portfolio Class II shares generated a total return of 3.64%, at net asset value, for the 12 months ended December 31, 2006. During the same 12 months, the Lehman Brothers Aggregate Bond Index rose 4.25%. The average return of the 39 portfolios in Lipper's corporate debt, A-rated variable annuity category was 4.22%. On December 31, 2006, the 30-day Standardized SEC yield for the Portfolio's Class II shares was 4.46%. Call 1-800-688-9915 or visit www.pioneerinvestments.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 2006? A. During the first half of the year, the Federal Reserve Board raised the key Fed funds rate four times, putting pressure on Treasuries and other high-grade fixed income securities. As the Federal Reserve raised the Fed funds rate to 5.25% from the 4.25% starting point at the beginning of the year, longer-maturity yields of high-grade securities also rose, although not by as much, leading to negative returns for many high-grade parts of the market during the first six months. The situation was different in the lower-rated, high-yield market, which performed well as solid growth in the economy largely offset the effects of the rate hikes. The climate changed markedly from mid-May through mid-July, when the capital markets were worried about inflationary pressures. These concerns were exacerbated by rapidly rising oil prices. Riskier asset classes - including stocks and high-yield bonds - slumped during this two-month period. During the year's second half, as the Federal Reserve Board paused in its tightening policy and left short-term interest rates unchanged, a different environment unfolded. Stabilized short-term interest rates and easing oil prices encouraged investors to believe that inflationary pressures were under control and that the economy could sustain its expansion at a moderate rate. In this environment, high-grade bonds improved in performance as yields across many maturities receded over the final six months of the year. In many cases, the yield curve became inverted - a phenomenon which reverses normal relationships, resulting in higher yields among shorter-maturity securities than among some longer-maturity securities. In general, government securities and higher-rated corporate securities delivered improved performance in the second half of the year. For the year, Treasuries, government agencies, mortgage-backed securities and investment-grade corporates bonds produced positive results, with income overcoming some erosion of prices. Mortgage-backed securities tended to produce the best results in the investment-grade universe. High-yield, lower-rated corporate bonds, however, delivered the strongest performance in the domestic market. 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.pioneerinvestments.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 Core Bond VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Q. What were principal strategies during the year, and how did they affect performance? A. An effective interest-rate strategy supported performance, but the relatively low exposure to lower-rated, high-yield corporate bonds did not help during a year in which high-yield bonds provided the best returns in the domestic bond market. The Portfolio's basic strategy is to focus on the higher-rated parts of the fixed-income universe and to minimize credit risk. At the end of the fiscal year, on December 31, 2006, for example just 2.5% of Portfolio assets were invested in high-yield bonds. The Portfolio retained a high AA+ average credit rating throughout year, with 88.1% of assets invested in U.S. Treasuries or government agency securities. During a period of changing interest-rate trends, our management of duration - which is a measure of a bond's price sensitivity to changes in interest rates - was successful. We maintained a relatively short duration when interest rates were rising in the first half of the year. Beginning in June, we moved to a longer duration, which positioned the Portfolio to benefit when longer-maturity rates began to decline, as they did for the remainder of the year. However, we again shortened duration near the end of the year to protect against the potential of a backup in rates. On December 31, 2006, the Portfolio's effective duration was 4.24 years. Early in the year, we increased our investments in mortgage-backed securities and maintained a higher exposure throughout the year, helping to support performance. At the end of the fiscal year, on December 31, 2006, 52.8% of Portfolio assets were invested in mortgages and other pass-through securities. During the first half of the year, we also maintained a healthy allocation to Treasury Inflation Protected Securities (TIPS), which contributed to performance as inflation expectations increased. We reduced that exposure substantially, beginning in June, which was timely as TIPS began to underperform straight Treasuries and other fixed-rate high-grade securities as yields fell with reduced fears about inflation. Nevertheless, our remaining TIPS holdings did not help in the second half of the year. Among individual holdings that affected results, bonds of Platinum Underwriters, a property-and-casualty re-insurance company, helped performance. The company encountered relatively few storm-related damage claims in 2006 after raising premiums following the severe 2005 hurricane season. Holding back results, however, was our investment in securities of Presidential Life, an insurance company that underperformed the high-yield market. Q. What is your investment outlook? A. Given expectations that the economy will continue to expand, we do not expect the Federal Reserve to lower short-term rates in the near future. As a consequence, we are maintaining a shorter-than-benchmark duration policy to protect against the potential that interest rates might rise. In this environment, we have placed the greatest emphasis on mortgage-backed securities. Continuing with the Portfolio's high-quality focus and avoidance of credit risk, we have maintained a relatively small exposure to corporate bonds, given the overall lack of risk premium available on these securities. 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 Core Bond VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings (unaudited) Value ASSET BACKED SECURITY - 0.3% Utilities - 0.3% Electric Utilities - 0.3% $ 3,960 BB-/Ba2 FPL Energy Wind Funding, 6.876%, 6/27/17 (144A) $ 3,995 ---------- TOTAL ASSET BACKED SECURITY (Cost $4,011) $ 3,995 ---------- COLLATERALIZED MORTGAGE OBLIGATIONS - 2.4% Banks - 1.2% Thrifts & Mortgage Finance - 1.2% 10,978 NR/Aaa ABN Amro Mortgage Corp., 4.75%, 5/25/18 $ 10,741 1,511 AAA/Aaa Honda Auto Receivables Owner, 3.3%, 6/16/08 1,503 2,201 AAA/Aaa Lehman XS Trust., Floating Rate Note, 8/25/36 (a) 2,200 $ 14,444 ---------- Total Banks $ 14,444 ---------- Diversified Financials - 0.6% Diversified Financial Services - 0.6% 7,351 AAA/Aaa CS First Boston Mortgage Security, 5.107%, 9/15/34 $ 7,318 ---------- Total Diversified Financials $ 7,318 ---------- Government - 0.6% 6,824 AAA/Aaa Federal National Mortgage Association, 6.1%, 9/15/18 $ 6,842 ---------- Total Government $ 6,842 ---------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $28,598) $ 28,604 ---------- CORPORATE BONDS - 9.0% Capital Goods - 0.8% Electrical Component & Equipment - 0.4% 4,869 NR/WD Orcal Geothermal, 6.21%, 12/30/20 (144A) $ 4,846 ---------- Trading Companies & Distributors - 0.4% 5,000 BBB- / Baa3 Glencore Funding LLC, 6.0%, 4/15/14 (144A) $ 4,874 ---------- Total Capital Goods $ 9,720 ---------- Consumer Services - 0.6% Casinos & Gaming - 0.1% 2,000 B/Ba3 Station Casinos, Inc., 6.625%, 3/15/18 $ 1,715 ---------- Education Services - 0.5% 5,000 AAA/Aaa President & Fellows of Harvard, 6.3%, 10/1/37 $ 5,349 ---------- Total Consumer Services $ 7,064 ---------- Media - 0.8% Broadcasting & Cable TV - 0.8% 10,000 BBB+/Baa2 Comcast Corp., 5.85%, 11/15/15 $ 10,014 ---------- Total Media $ 10,014 ---------- Retailing - 0.4% Specialty Stores - 0.4% 5,000 BBB-/Baa3 Tanger Factory Outlet Centers, Inc., 6.15%, 11/15/15 $ 5,054 ---------- Total Retailing $ 5,054 ----------
6 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Core Bond VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings (unaudited) Value Insurance - 3.0% Life & Health Insurance - 0.4% $ 5,000 B-/B2 Presidential Life Corp., 7.875%, 2/15/09 $ 4,775 ---------- Multi-Line Insurance - 0.4% 5,000 BB+/Ba1 Hanover Insurance Group, 7.625%, 10/15/25 $ 5,358 ---------- Property & Casualty Insurance - 1.3% 5,000 BBB-/NR Kingsway America, Inc., 7.5%, 2/1/14 $ 5,070 10,000 BBB-/Baa3 Ohio Casualty Corp., 7.3%, 6/15/14 10,676 ---------- $ 15,746 ---------- Reinsurance - 0.9% 10,000 BBB/NA Platinum Underwriters HD, 7.5%, 6/1/17 $ 10,546 ---------- Total Insurance $ 36,425 ---------- Real Estate - 1.7% Real Estate Investment Trusts - 1.7% 10,000 BBB-/Baa3 Health Care, Inc., 6.0%, 11/15/13 $ 9,979 5,000 BBB/Baa2 Hospitality Properties Trust, 5.125%, 2/15/15 4,750 5,000 B+/B1 Trustreet Properties, Inc., 7.5%, 4/1/15 5,400 $ 20,129 ---------- Total Real Estate $ 20,129 ---------- Semiconductors - 0.8% 10,000 BBB-/Baa3 Chartered Semiconductor, 6.375%, 8/3/15 $ 10,030 ---------- Total Semiconductors $ 10,030 ---------- Utilities - 0.8% Electric Utilities - 0.4% 5,000 BBB+/Baa3 Entergy Gulf States, 5.7%, 6/1/15 $ 4,882 ---------- Gas Utilities - 0.4% 5,000 BB/Ba1 Southern Union Co., 7.2%, 11/1/66 $ 4,929 ---------- Total Utilities $ 9,811 ---------- TOTAL CORPORATE BONDS (Cost $107,498) $ 108,247 ----------
The accompanying notes are an integral part of these financial statements. 7 PIONEER VARIABLE CONTRACTS TRUST Pioneer Core Bond VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings (unaudited) Value U.S. GOVERNMENT AGENCY OBLIGATIONS - 88.2% Government - 88.2% $ 153,494 AAA/Aaa Federal Home Loan Mortgage Corp., 5.0%, 12/1/21-5/1/36 $ 148,539 7,785 AAA/Aaa Federal Home Loan Mortgage Corp., 8.048%, 10/1/33 7,952 10,000 AAA/Aaa Federal National Mortgage Association, 5.25%, 2/24/11 9,995 86,980 AAA/Aaa Federal National Mortgage Association, 5.5% , 3/1/36-5/1/36 85,956 19,086 NR/Aaa GMAC Commercial Mortgage Securities, 6.65%, 9/15/35 19,295 237,662 AAA/Aaa Government National Mortgage Association, 4.5%, 3/15/20 230,251 140,493 AAA/Aaa Government National Mortgage Association, 5.0%, 8/15/35 136,650 5,000 AAA/Aaa U.S. Treasury Bonds, 4.625%, 3/31/08 4,979 36,000 AAA/Aaa U.S. Treasury Bonds, 5.25%, 11/15/28 37,752 10,000 AAA/Aaa U.S. Treasury Bonds, 6.25%, 8/15/23 11,510 35,000 AAA/NR U.S. Treasury Inflation Protected Security, 0.0%, 2/15/13 26,399 53,000 AAA/Aaa U.S. Treasury Inflation Protected Security, 0.0%, 11/15/13 38,540 33,205 AAA/Aaa U.S. Treasury Inflation Protected Security, 1.875%, 7/15/15 31,821 5,085 AAA/Aaa U.S. Treasury Inflation Protected Security, 2.0%, 1/15/16 4,909 25,422 AAA/Aaa U.S. Treasury Inflation Protected Security, 2.375%, 4/15/11 25,320 1,123 AAA/Aaa U.S. Treasury Inflation Protected Security, 3.0%, 7/15/12 1,155 5,683 AAA/Aaa U.S. Treasury Inflation Protected Security, 3.375%, 1/15/12 5,934 175,000 AAA/Aaa U.S. Treasury Notes, 3.625%, 6/30/07 173,824 25,000 AAA/Aaa U.S. Treasury Notes, 4.0%, 11/15/12 24,138 25,000 AAA/Aaa U.S. Treasury Notes, 4.625%, 2/29/08 24,895 5,000 AAA/Aaa U.S. Treasury Notes, 5.375%, 2/15/31 5,356 5,000 AAA/Aaa U.S. Treasury Notes, 5.5%, 8/15/28 5,402 ---------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS $1,060,572 ---------- (Cost $1,068,011) $1,060,572 ---------- TOTAL INVESTMENT IN SECURITIES - 99.9% (Cost $1,208,118) $1,201,418 ---------- OTHER ASSETS AND LIABILITIES - 0.1% $ 917 ---------- TOTAL NET ASSETS - 100.0% $1,202,335 ==========
(a) Debt obligation initially issued at one coupon which converts to a higher coupon at a specified date. At December 31, 2006, the rate was 0.00%. 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, 2006, the value of these securities amounted to $13,715 or 1.1% of total net assets. N/R Not rated by either S&P or Moody's. 8 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Core Bond VCT Portfolio - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year 7/15/05 (a) Ended to Class II 12/31/06 12/31/05 Net asset value, beginning of period $ 9.88 $10.00 ------ ------ Increase (decrease) from investment operations: Net investment income $ 0.41 $ 0.16 Net realized and unrealized loss on investments (0.06) (0.12) ------ ------ Net increase in net assets from investment operations $ 0.35 $ 0.04 ------ ------ Distributions to shareowners: Net investment income (0.41) (0.16) ------ ------ Net decrease in net asset value $(0.06) $(0.12) ------ ------ Net asset value, end of period $ 9.82 $ 9.88 ====== ====== Total return* 3.64% 0.42%(b) Ratio of net expenses to average net assets 0.85% 0.85%* * Ratio of net investment income to average net assets 4.19% 3.57%* * Portfolio turnover rate 31% 7%(b) Net assets, end of period (in thousands) $1,202 $ 994 Ratios with no waiver of management fees and assumption of expenses by PIM Net expenses 5.89% 10.10%* * Net investment loss (0.85)% (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. The accompanying notes are an integral part of these financial statements. 9 PIONEER VARIABLE CONTRACTS TRUST Pioneer Core Bond VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (cost $1,208,118) $1,201,418 Cash 35,373 Receivables -- Dividends, interest and foreign taxes withheld 9,723 Other 407 ---------- Total assets $1,246,921 ---------- LIABILITIES: Payables -- Fund shares repurchased $ 16 Dividends 4,024 Due to affiliates 2,992 Due to Pioneer Investment Management, Inc. 6,395 Accrued expenses 31,159 ---------- Total liabilities $ 44,586 ---------- NET ASSETS: Paid-in capital $1,219,978 Distributions in excess of net investment income (199) Accumulated net realized loss on investments (10,744) Net unrealized loss on investments (6,700) ---------- Total net assets $1,202,335 ---------- NET ASSET VALUE PER SHARE: Class II: (No par value, unlimited number of shares authorized) Net assets $1,202,335 Shares outstanding 122,439 ---------- Net asset value per share $ 9.82
10 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Core Bond VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Interest $ 55,474 Income on securities loaned, net 1 --------- Total investment income $ 55,475 --------- EXPENSES: Management fees $ 5,504 Distribution fees (Class II) 2,683 Administrative reimbursements 307 Custodian fees 12,009 Professional fees 28,616 Printing 7,184 Fees and expenses of nonaffiliated trustees 7,456 Miscellaneous 1,047 --------- Total expenses $ 64,806 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (55,450) --------- Net expenses $ 9,356 --------- Net investment income $ 46,119 --------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss from investments $ (10,216) --------- Change in net unrealized gain on investments $ 4,668 --------- Net (loss) on investments $ (5,548) ========= Net increase in net assets resulting from operations $ 40,571 =========
The accompanying notes are an integral part of these financial statements. 11 PIONEER VARIABLE CONTRACTS TRUST Pioneer Core Bond VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
For the period from 7/15/05 Year (Commencement Ended of Operations) 12/31/06 to 12/31/05 FROM OPERATIONS: Net investment income $ 46,119 $ 16,387 Net realized (loss) on investments (10,216) (915) Change in net unrealized gain (loss) on investments 4,668 (11,368) ---------- ---------- Net increase in net assets resulting from operations $ 40,571 $ 4,104 ---------- ---------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income: Class II $ (46,273) $ (16,140) ---------- ---------- Total distributions to shareowners $ (46,273) $ (16,140) ---------- ---------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 213,933 $1,006,348 Reinvestment of distributions 5,432 63 Cost of shares repurchased (5,684) (19) ---------- ---------- Net increase in net assets resulting from Fund share transactions $ 213,681 $1,006,392 ---------- ---------- Net increase in net assets $ 207,979 $ 994,356 NET ASSETS: Beginning of period 994,356 -- ---------- ---------- End of period $1,202,335 $ 994,356 ========== ========== Accumulated undistributed (distributions in excess of) net investment income, end of period $ (199) $ 365 ========== ==========
12 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Core Bond VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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. The Portfolio seeks to provide current income from an investment grade portfolio with due regard to preservation of capital and prudent investment 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. Information regarding 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 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 year. 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. Temporary cash investments are valued at amortized cost. 13 PIONEER VARIABLE CONTRACTS TRUST Pioneer Core Bond VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (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 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. 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, 2006, the Portfolio had a net capital loss carryforward of $10,405, which will expire in 2014 if not utilized. The Portfolio elected to defer $294 in capital losses recognized between November 1, 2006 and December 31, 2006 to its fiscal year ended December 31, 2007. At December 31, 2006, 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 Realized Loss Paid-In Capital - -------------------------------------------------------------------------------- Core Bond Portfolio $ (410) $410 $-- ====== ==== ==== - ---------------------------------------------------------------------------------------
The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis.
- -------------------------------------------------------------------------------- 2006 2005 - -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 46,273 $16,140 -------- ------- Total distributions $ 46,273 $16,140 ======== ======= Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 446 Capital loss carryforward (10,405) Post-October Loss Deferred (294) Unrealized depreciation (7,390) -------- Total $(17,643) ======== - --------------------------------------------------------------------------------
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 14 PIONEER VARIABLE CONTRACTS TRUST Pioneer Core Bond VCT Portfolio - -------------------------------------------------------------------------------- underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. 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 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, 2006, $2 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 $130 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $2,860 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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) - ------------------------------------------------------------------------------------------------------ Pioneer Core Bond VCT Portfolio $1,208,808 $6,929 $(14,319) $(7,390) ========== ====== ========= ======== - -------------------------------------------------------------------------------------------------------
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, 2006, were $69,543 and $20,321, respectively. The cost of purchases and the proceeds from sales of investments in U.S. Government obligations for the year ended December 31, 2006, were $485,313 and $320,076, respectively. 15 PIONEER VARIABLE CONTRACTS TRUST Pioneer Core Bond VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- --------------------------------------------------------------------------------------- Pioneer Core Bond VCT Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - --------------------------------------------------------------------------------------- CLASS II: Shares sold 21,822 $213,933 100,642 $1,006,348 Reinvestment of distributions 557 5,432 7 63 Shares repurchased (587) (5,684) (2) (19) ---------------------------------------------------- Net increase 21,792 $213,681 100,647 $1,006,392 ==================================================== - ---------------------------------------------------------------------------------------
8. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 16 PIONEER VARIABLE CONTRACTS TRUST Pioneer Core Bond VCT Portfolio - -------------------------------------------------------------------------------- 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 of Pioneer Core Bond VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2006, 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 Core Bond VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2006, the results of its operations for the year then ended, and the changes in its net assets, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 9, 2007 17 PIONEER VARIABLE CONTRACTS TRUST Pioneer Core Bond 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: (i) enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 year to date period for the Fund and a peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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. 18 PIONEER VARIABLE CONTRACTS TRUST Pioneer Core Bond VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group considered appropriate by the Independent Trustees for this purpose and the Lehman Brothers Aggregate Bond Index. The Fund's performance, based upon total return, was in the fifth quintile of its Morningstar category peer group for the year to date 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 also considered the yield of the Fund, before deduction of expenses, compared to the yield of the index. The Trustees concluded that the Fund underperformed relative to its peers during the short period since its inception. 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 size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee for the year to date period 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 also considered the Fund's expense ratio for the year to date period and expense ratios for the comparable period of a peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio (after giving effect to the expense limitation) to be in the second quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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, a break point in management fees was not necessary. The Trustees will continue to evaluate annually the appropriateness of break points. 19 PIONEER VARIABLE CONTRACTS TRUST Pioneer Core Bond VCT Portfolio - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- 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 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 20
Pioneer Core Bond 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 portfolio's affairs. 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 trust within the meaning of the 1940 Act are referred to as Ernst & Young LLP Interested Trustees. Trustees who are not interested persons of the trust are referred to as Independent Trustees. Each of the Principal Underwriter Trustees serves as a trustee of each of the 86 U.S. registered Pioneer Funds Distributor, Inc. investment portfolios for which Pioneer serves as investment adviser (the "Pioneer Funds"). The address for all Interested Legal Counsel Trustees and all officers of the trust is 60 State Street, Wilmer Cutler Pickering Hale and Dorr LLP Boston, Massachusetts 02109. Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc.
- -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Board, Trustee until a successor trustee and President is elected or earlier retirement or removal. *Mr. Cogan is an Interested Trustee because he is an officer or director of the portfolio's investment adviser and certain of its affiliates. - -------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS John F. Cogan, Jr. (80)* Deputy Chairman and a Director of Pioneer Global Asset Management S.p.A. ("PGAM"); Non-Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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) NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Director of ICI Mutual Insurance Company
21 Pioneer Core Bond VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE David R. Bock (63) Trustee Trustee since 2005. Serves 3050 K. Street NW, until a successor trustee Washington, DC 20007 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- Mary K. Bush (58) Trustee Trustee since 2000. Serves 3509 Woodbine Street, until a successor trustee Chevy Chase, MD 20815 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves 1001 Sherbrooke Street West, until a successor trustee Montreal, Quebec, Canada is elected or earlier H3A 1G5 retirement or removal. - -------------------------------------------------------------------------------- Thomas J. Perna (56) Trustee Trustee since 2006. Serves 89 Robbins Avenue, until a successor trustee Berkeley Heights, NJ is elected or earlier 07922 retirement or removal. - -------------------------------------------------------------------------------- Marguerite A. Piret (58) Trustee Trustee since 1995. Serves 200 State Street, 12th until a successor trustee Floor, Boston, MA 02109 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- John Winthrop (70) Trustee Trustee since 2000. Serves One North Adgers Wharf, until a successor trustee Charleston, SC 29401 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- NAME, AGE AND ADDRESS PRINCIPAL OCCUPATION DURING PAST FIVE YEARS David R. Bock (63) Senior Vice President and Chief Financial Officer, I-trax, Inc. (publicly traded 3050 K. Street NW, health care services company) (2001 - present); Managing Partner, Federal Washington, DC 20007 City Capital Advisors (boutique merchant bank) (2002 to 2004); and Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet- based mortgage trading company) (2000 - 2002) - ----------------------------------------------------------------------------------------------------------------- Mary K. Bush (58) President, Bush International (international financial advisory firm) 3509 Woodbine Street, Chevy Chase, MD 20815 - ----------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (59) Founding Director, The Winthrop Group, Inc. (consulting firm); and 1001 Sherbrooke Street West, Desautels Faculty of Management, McGill University Montreal, Quebec, Canada H3A 1G5 - ----------------------------------------------------------------------------------------------------------------- Thomas J. Perna (56) Private investor (2004 - present); and Senior Executive Vice President, The 89 Robbins Avenue, Bank of New York (financial and securities services) (1986 - 2004) Berkeley Heights, NJ 07922 - ----------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (58) President and Chief Executive Officer, Newbury, Piret & Company, Inc. 200 State Street, 12th (investment banking firm) Floor, Boston, MA 02109 - ----------------------------------------------------------------------------------------------------------------- John Winthrop (70) President, John Winthrop & Co., Inc. (private investment firm) One North Adgers Wharf, Charleston, SC 29401 - ----------------------------------------------------------------------------------------------------------------- NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE David R. Bock (63) Director of The Enterprise Social Investment 3050 K. Street NW, Company (privately-held affordable housing Washington, DC 20007 finance company); and Director of New York Mortgage Trust (publicly traded mortgage REIT) - -------------------------------------------------------------------------------- Mary K. Bush (58) Director of Brady Corporation (industrial 3509 Woodbine Street, identification and specialty coated material Chevy Chase, MD 20815 products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - -------------------------------------------------------------------------------- Margaret B.W. Graham (59) None 1001 Sherbrooke Street West, Montreal, Quebec, Canada H3A 1G5 - -------------------------------------------------------------------------------- Thomas J. Perna (56) Director of Quadriserv Inc. (technology 89 Robbins Avenue, products for securities lending industry) Berkeley Heights, NJ 07922 - -------------------------------------------------------------------------------- Marguerite A. Piret (58) Director of New America High Income Fund, 200 State Street, 12th Inc. (closed-end investment company) Floor, Boston, MA 02109 - -------------------------------------------------------------------------------- John Winthrop (70) None One North Adgers Wharf, Charleston, SC 29401 - --------------------------------------------------------------------------------
22 Pioneer Core Bond VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President discretion of the Board - -------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the discretion of the Board - -------------------------------------------------------------------------------- Christopher J. Kelley (42) Assistant Since 2003. Serves at the Secretary discretion of the Board - -------------------------------------------------------------------------------- Christopher P. Harvey Assistant Since 2006. Serves at the (45) Secretary discretion of the Board - -------------------------------------------------------------------------------- Vincent Nave (61) Treasurer Since 2000. Serves at the discretion of the Board - -------------------------------------------------------------------------------- Mark E. Bradley (47) Assistant Since 2004. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Since 2000. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- Gary Sullivan (48) Assistant Since 2002. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS Osbert M. Hood (54)+ President and Chief Executive Officer, PIM-USA since May 2003 (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary of PIM-USA; Senior Vice President - Legal of Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------- Christopher J. Kelley (42) Vice President and Senior Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001); and Assistant Secretary of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------- Christopher P. Harvey Partner, Wilmer Cutler Pickering Hale and Dorr LLP; and Assistant Secretary (45) of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------- Vincent Nave (61) Vice President - Fund Accounting, Administration and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------- Mark E. Bradley (47) Deputy Treasurer of Pioneer since 2004; Treasurer and Senior 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 - ------------------------------------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Vice President - Fund Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------- Gary Sullivan (48) Fund Accounting Manager - Fund Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------- NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS OFFICER Osbert M. Hood (54)+ Trustee of certain Pioneer Funds - -------------------------------------------------------------------------------- Dorothy E. Bourassa (58) None - -------------------------------------------------------------------------------- Christopher J. Kelley (42) None - -------------------------------------------------------------------------------- Christopher P. Harvey None (45) - -------------------------------------------------------------------------------- Vincent Nave (61) None - -------------------------------------------------------------------------------- Mark E. Bradley (47) None - -------------------------------------------------------------------------------- Luis I. Presutti (41) None - -------------------------------------------------------------------------------- Gary Sullivan (48) None - --------------------------------------------------------------------------------
23 Pioneer Core Bond VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Katherine Kim Sullivan Assistant Since 2003. Serves at the (33) Treasurer discretion of the Board - -------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Since 2006. Serves at the Compliance discretion of the Board Officer - -------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS Katherine Kim Sullivan Fund Administration Manager - Fund Accounting, Administration and (33) Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - --------------------------------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Compliance Officer of Pioneer and all of the Pioneer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - --------------------------------------------------------------------------------------------------------- NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS OFFICER Katherine Kim Sullivan None (33) - -------------------------------------------------------------------------------- Terrence J. Cullen (45) None - --------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 24 - -------------------------------------------------------------------------------- This page for your notes. 25 - -------------------------------------------------------------------------------- This page for your notes. 26 - -------------------------------------------------------------------------------- This page for your notes. 27 - -------------------------------------------------------------------------------- This page for your notes. 28 - -------------------------------------------------------------------------------- This page for your notes. 29 [LOGO]PIONEER Investments(R) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18684-01-0207 [Logo] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Cullen Value VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2006 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 Cullen Value VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/06 - -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.] U.S. Common Stocks 71.4% Depositary Receipts for International Stocks 16.0% Temporary Cash Investment 10.8% International Common Stocks 1.8%
Sector Distribution (As a percentage of equity holdings) [THE FOLLOWING DATA WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.] Financials 33.3% Consumer Staples 22.6% Industrials 13.9% Health Care 8.3% Telecommunication Services 5.7% Information Technology 5.3% Materials 5.2% Consumer Discretionary 4.1% Energy 1.6%
Five Largest Holdings (As a percentage of equity holdings) 1. Morgan Stanley 3.60% 2. J.P. Morgan Chase & Co. 3.52 3. Regions Financial Corp. 3.50 4. Unilever N.V. 3.47 5. Raytheon Co. 3.44
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $ 12.85 $ 10.99
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $ 0.0209 $ - $ -
- -------------------------------------------------------------------------------- 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. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [THE FOLLOWING DATA WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Pioneer Cullen Date Value VCT Portfolio S&P 500 3/05 $10,000 $10,000 12/05 $11,056 $10,721 12/06 $12,951 $12,413
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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- Life-of-Class (3/18/05) 15.17% 1 Year 17.14%
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.pioneerinvestments.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 Cullen 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 [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, 2006 through December 31, 2006.
Share Class II - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,106.76 Expenses Paid During Period* $ 5.31
* 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, 2006 through December 31, 2006.
Share Class II - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 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 VARIABLE CONTRACTS TRUST Pioneer Cullen Value VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/06 - -------------------------------------------------------------------------------- In the fifth year of a revival of the domestic economy, stock prices advanced during 2006. The general ascent of equity prices was interrupted only in mid-May through mid-July because of concerns about rising interest rates and higher energy prices. In general, however, the expanding economy and rising corporate profitability gave confidence to investors, who bid up stock valuations. In the following interview, James P. Cullen discusses the factors that influenced Pioneer Cullen Value VCT Portfolio's performance during the 12 months ended December 31, 2006. Mr. Cullen, President of Cullen Capital Management LLC, the Portfolio's subadviser, oversees the team responsible for the daily management of the Portfolio. Q. How did the Portfolio perform during 2006? A. Pioneer Cullen Value VCT Portfolio, Class II shares, had a total return of 17.14%, at net asset value, for the twelve months ended December 31, 2006. The Standard & Poor's 500 Index, a benchmark for the broad market, gained 15.78% over that same period. Since inception, the Portfolio had an annualized return of 15.17% vs. 13.15% for the S&P 500. (The S&P 500 Index return is based on the period from March 31, 2005 through December 31, 2006.) Call 1-800-688-9915 or visit www.pioneerinvestments.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 influencing performance during the year? A. The broad market began the year strongly before faltering for two months, starting in mid-May, because of concerns that rising oil prices and higher short-term interest rates might stall the economic recovery. However, when the U.S. Federal Reserve Board left short-term rates stable during the final six months of the year and oil prices started to recede, investors grew more confident in the sustainability of the economic recovery. Company earnings continued to exceed expectations, as corporations maintained their emphasis on cutting costs and improving productivity. In addition, many corporations became increasingly adept at competing in a global economy. We maintained our value-oriented strategy during the year, however, we became somewhat more conservative. We increased our investments in stocks with relatively high dividend yields, and we added to our health-care positions, which are defensive in that they are counter-cyclical. We continue to focus on stocks with relatively low price-to-earnings ratios relative to the overall market where we believe there is a catalyst which will enable these companies to show better than average earnings results over the next few years. We have seen periods in the past when our particular strategy may lag, especially in periods when the broad market advances without interruption and stocks with high price-to-earnings ratios are leading the market. However, we believe that if one applies the value discipline over the long-term, successful investment results will follow. Q. What types of investments most influenced performance for the 12 months? A. BellSouth was a leading performer. The stock price had been depressed, but earnings improved as the company benefited from the earlier acquisition of 40% of Cingular Wireless. The stock got an extra boost when AT&T, which 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.pioneerinvestments.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 Cullen Value VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- owned the other 60% of Cingular, acquired BellSouth at a healthy premium. Hewlett-Packard, a growth stock whose price had been depressed, continued to perform well as it benefited from cost-cutting and the growth of its international businesses. Diageo was one of the leading performers as it continued to benefit from selling its products, like Johnny Walker, in the emerging markets like India and China. In addition, major financial companies Merrill Lynch and J.P. Morgan both reported strong earnings boosted by investment banking in the global markets. New purchases during the year, Morgan Stanley, AIG and Bunge also had strong performance The biggest drags on our performance were our increased exposure to the out-of-favor health-care stocks and our underweighting of energy stocks. These positions especially hurt us in the second half of the year when energy and commodity stocks were the leaders in a strong and somewhat speculative rally and drug stocks were flat. In the health-care sector, our holdings were Pfizer in the U.S, GlaxoSmithKline of the U.K, and Sanofi-Aventis of France. Drug stocks are one of the most oversold groups in the market as the press focuses on the threat of generics and the lack of new drugs in their pipelines. We believe these negatives are in the price of the stocks and any surprise like new drugs, international demand and industry consolidation could have a positive impact on the stocks. Q. What is your investment outlook? A. We believe that the most important aspect of investing is to invest with discipline and invest for the long term. History shows that following these two principles goes a long way towards smoothing the market's short-term volatility. That being said, it would seem that with interest rates at historic low levels and inflation also at modest levels, stocks, while not necessarily cheap, are cheap relative to bonds. Corporations, meanwhile, are in better financial shape than they have been for several years, with large cash reserves on their balance sheets and a renewed determination to compete in the global marketplace. Also, there is a potential demand for stocks due to the huge amount of money in the U.S and globally that moved out of the market during the 3-year bear market and is still sitting in investments that are typically much lower-yielding than stocks. 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 Cullen Value VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 90.2% Energy - 1.5% Integrated Oil & Gas - 1.5% 2,900 ConocoPhillips $ 208,655 ----------- Total Energy $ 208,655 ----------- Materials - 4.7% Construction Materials - 1.7% 7,000 Cemex SA (A.D.R.) $ 237,160 ----------- Diversified Metals & Mining - 1.6% 9,440 Anglo American Plc $ 230,430 ----------- Forest Products - 1.4% 2,800 Weyerhaeuser Co. $ 197,820 ----------- Total Materials $ 665,410 ----------- Capital Goods - 10.2% Aerospace & Defense - 5.6% 8,400 Raytheon Co. $ 443,520 5,600 United Technologies Corp. 350,112 ----------- $ 793,632 ----------- Industrial Conglomerates - 4.6% 5,250 3M Co. $ 409,133 6,700 General Electric Co. 249,307 ----------- $ 658,440 ----------- Total Capital Goods $ 1,452,072 ----------- Transportation - 2.4% Railroads - 2.4% 4,170 Canadian National Railway Co. (a) $ 179,435 3,000 Canadian Pacific Railway, Ltd. (a) 158,280 ----------- $ 337,715 ----------- Total Transportation $ 337,715 ----------- Automobiles & Components - 1.5% Auto Parts & Equipment - 1.5% 3,600 Borg-Warner Automotive, Inc. $ 212,472 ----------- Total Automobiles & Components $ 212,472 ----------- Media - 0.1% Publishing - 0.1% 455 Idearc, Inc.* $ 13,036 ----------- Total Media $ 13,036 ----------- Retailing - 2.1% Home Improvement Retail - 2.1% 7,600 Home Depot, Inc. $ 305,216 ----------- Total Retailing $ 305,216 ----------- Food, Beverage & Tobacco - 17.7% Agricultural Products - 4.1% 5,600 Archer Daniels Midland Co. $ 178,976 5,750 Bunge, Ltd. (a) 416,933 ----------- $ 595,909 -----------
Shares Value Distillers & Vintners - 2.8% 5,000 Diageo Plc (A.D.R.) $ 396,550 ----------- Packaged Foods & Meats - 10.8% 6,700 General Mills, Inc. $ 385,920 10,680 Kraft Foods, Inc. (a) 381,276 3,700 Nestle SA (A.D.R.) 328,582 16,400 Unilever N.V. 446,900 ----------- $ 1,542,678 ----------- Total Food, Beverage & Tobacco $ 2,535,137 ----------- Household & Personal Products - 2.6% Household Products - 2.6% 5,500 Kimberly-Clark Corp. $ 373,725 ----------- Total Household & Personal Products $ 373,725 ----------- Pharmaceuticals & Biotechnology - 7.5% Pharmaceuticals - 7.5% 6,150 GlaxoSmithKline $ 324,474 15,200 Pfizer, Inc. 393,680 7,520 Sanofi-Synthelabo SA (A.D.R.) 347,198 ----------- $ 1,065,352 ----------- Total Pharmaceuticals & Biotechnology $ 1,065,352 ----------- Banks - 6.6% Diversified Banks - 3.4% 3,800 Icici Bank, Ltd.* $ 158,612 5,800 Wachovia Corp. 330,310 ----------- $ 488,922 ----------- Regional Banks - 3.2% 12,050 Regions Financial Corp. (a) $ 450,670 ----------- Total Banks $ 939,592 ----------- Diversified Financials - 15.3% Diversified Capital Markets - 1.8% 4,200 UBS AG $ 253,386 ----------- Investment Banking & Brokerage - 6.1% 4,450 Merrill Lynch & Co., Inc. $ 414,295 5,700 Morgan Stanley 464,151 ----------- $ 878,446 ----------- Diversified Financial Services - 7.3% 7,600 Bank of America Corp. $ 405,764 3,450 Citigroup, Inc. 192,165 9,400 J.P. Morgan Chase & Co. 454,020 ----------- $ 1,051,949 ----------- Total Diversified Financials $ 2,183,781 -----------
6 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Cullen Value VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value Insurance - 8.2% Life & Health Insurance - 3.0% 7,200 MetLife, Inc. $ 424,872 ----------- Multi-Line Insurance - 3.1% 6,150 American International Group, Inc. $ 440,709 ----------- Property & Casualty Insurance - 2.1% 5,800 Chubb Corp. $ 306,878 ----------- Total Insurance $ 1,172,459 ----------- Technology Hardware & Equipment - 4.8% Communications Equipment - 1.7% 12,000 Nokia Corp. (A.D.R.) $ 243,840 ----------- Computer Hardware - 2.2% 7,600 Hewlett-Packard Co. $ 313,044 ----------- Technology Distributors - 0.9% 4,150 Arrow Electronics, Inc.* $ 130,933 ----------- Total Technology Hardware & Equipment $ 687,817 ----------- Telecommunication Services - 5.1% Integrated Telecom Services - 5.1% 8,400 BellSouth Corp. $ 395,724 9,100 Verizon Communications, Inc. 338,883 ----------- $ 734,608 ----------- Total Telecommunication Services $ 734,608 ----------- TOTAL COMMON STOCKS (Cost $11,227,309) $12,887,047 -----------
Shares Value TEMPORARY CASH INVESTMENT - 10.9% Security Lending Collateral - 10.8% 1,557,108 Securities Lending Investment Fund, 5.26% $ 1,557,107 ----------- TOTAL TEMPORARY CASH INVESTMENT (Cost $1,557,107) $ 1,557,107 ----------- TOTAL INVESTMENT IN SECURITIES - 101.1% (Cost $12,784,416) $14,444,154 ----------- OTHER ASSETS AND LIABILITIES - (1.1)% $ (153,691) ----------- TOTAL NET ASSETS - 100.0% $14,290,463 ===========
* Non-Income producing security. (A.D.R.) American Depositary Receipt (a) At December 31, 2006, the following securities were out on loan:
Market Shares Security Value 5,692 Bunge, Ltd. $ 412,727 4,128 Canadian National Railway Co. 177,628 2,970 Canadian Pacific Railway, Ltd. 156,697 10,573 Kraft Foods, Inc. 377,456 10,197 Regions Financial Corp. 381,367 ---------- $1,505,875 ==========
The accompanying notes are an integral part of these financial statements. 7 PIONEER VARIABLE CONTRACTS TRUST Pioneer Cullen Value VCT Portfolio - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year 3/18/05 (a) Ended to Class II 12/31/06 12/31/05 Net asset value, beginning of period $ 10.99 $ 10.00 ------- ------- Increase from investment operations: Net investment income $ 0.12 $ 0.04 Net realized and unrealized gain on investments 1.76 0.95 ------- ------- Net increase from investment operations $ 1.88 $ 0.99 Distributions to shareowners: Net income (0.02) -- ------- -------- Net investment increase in net asset value $ 1.86 $ 0.99 ------- -------- Net asset value, end of period $ 12.85 $ 10.99 ------- -------- Total return* 17.14% 9.90%(b) Ratio of net expenses to average net assets+ 1.00% 1.00%** Ratio of net investment income to average net assets+ 1.70% 1.13%** Portfolio turnover rate 19% 34%(b) Net assets, end of period (in thousands) $14,290 $ 4,523 Ratios assuming no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.68% 5.71%** Net investment income (loss) 1.02% (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 list charges, separate account charges, and sales charges. 8 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Cullen Value VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $1,505,875) (cost $12,784,416) $14,444,154 Cash 1,459,270 Receivables -- Fund shares sold 7,499 Dividends, interest and foreign taxes withheld 18,289 Other 647 ----------- Total assets $15,929,859 ----------- LIABILITIES: Payables -- Investment securities purchased $ 28,361 Fund shares repurchased 7,080 Upon return of securities loaned 1,557,107 Due to affiliates 593 Due to Pioneer Investment Management, Inc. 8,340 Accrued expenses 37,915 ----------- Total liabilities $ 1,639,396 ----------- NET ASSETS: Paid-in capital $12,545,946 Undistributed net investment income 153,992 Accumulated net realized loss on investments (69,213) Net unrealized gain on investments 1,659,738 ----------- Total net assets $14,290,463 ----------- NET ASSET VALUE PER SHARE: Class II: (No par value unlimited number of shares authorized) Net assets $14,290,463 Shares outstanding 1,111,785 ----------- Net asset value per share $ 12.85
The accompanying notes are an integral part of these financial statements. 9 PIONEER VARIABLE CONTRACTS TRUST Pioneer Cullen Value VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $5,734) $ 207,005 Interest 34,210 Income on securities loaned, net 3,143 ---------- Total investment income $ 244,358 ---------- EXPENSES: Management fees $ 63,522 Transfer agent fees and expenses 1,521 Distribution fees (Class II) 22,690 Administrative reimbursements 2,038 Custodian fees 18,361 Professional fees 32,245 Printing 5,541 Fees and expenses of nonaffiliated trustees 5,329 Miscellaneous 836 ---------- Total expenses $ 152,083 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (61,750) ---------- Net expenses $ 90,333 ---------- Net investment income $ 154,025 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss from investments $ (27,536) ---------- Change in net unrealized gain from investments $1,399,521 ---------- Net gain on investments $1,371,985 ---------- Net increase in net assets resulting from operations $1,526,010 ==========
10 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Cullen Value VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
3/18/05 (Commencement Year Ended of Operations) 12/31/06 to 12/31/05 FROM OPERATIONS: Net investment income $ 154,025 $ 17,229 Net realized loss on investments (27,536) (41,677) Change in net unrealized gain on investments 1,399,521 260,217 ------------ ---------- Net increase in net assets resulting from operations $ 1,526,010 $ 235,769 ------------ ---------- DISTRIBUTIONS TO SHAREOWNERS Net investment income: Class II $ (17,546) $ -- ------------ ---------- Total distributions to shareowners $ (17,546) $ -- ------------ ---------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 10,521,711 $4,361,712 Reinvestment of distributions 17,128 -- Cost of shares repurchased (2,279,933) (74,388) ------------ ---------- Net increase in net assets resulting from Fund share transactions $ 8,258,906 $4,287,324 ------------ ---------- Net increase in net assets $ 9,767,370 $4,523,093 NET ASSETS: Beginning of period 4,523,093 -- ------------ ---------- End of period $ 14,290,463 $4,523,093 ============ ========== Undistributed net investment income, end of period $ 153,992 $ 17,513 ============ ==========
The accompanying notes are an integral part of these financial statements. 11 PIONEER VARIABLE CONTRACTS TRUST Pioneer Cullen Value VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 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 Portfolio seeks capital appreciation and, secondarily, it seeks income. 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 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 year. 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 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 12 PIONEER VARIABLE CONTRACTS TRUST Pioneer Cullen Value VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2006, 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, 2006, the Portfolio had a net capital loss carryforward of $66,634 of which the following amounts will expire between 2013 and 2014 if not utilized: $38,265 in 2013 and $28,369 in 2014. The following chart shows the distributions paid during the year ended December 31, 2006 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis. There were no distributions paid during the year ended December 31, 2005.
- -------------------------------------------------------------------------------- 2006 - -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 17,546 ---------- Total distributions $ 17,546 ========== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 153,992 Capital loss carryforward (66,634) Unrealized appreciation 1,657,159 ---------- Total $1,744,517 ========== - --------------------------------------------------------------------------------
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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. Distribution fees are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. 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 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 13 PIONEER VARIABLE CONTRACTS TRUST Pioneer Cullen Value VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, $27 was payable to PIM related to management fees, administrative fees and certain other services, and is included in due to affiliates. Through May 1, 2007, 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 $271 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $295 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $12,786,995 $1,674,559 $ (17,400) $1,657,159 =========== ========== ========= ========== - -----------------------------------------------------------------------------------------------
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, 2006, were $9,001,120 and $1,587,267, respectively. 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- ----------------------------------------------------------------------------------------------- Cullen Value Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ----------------------------------------------------------------------------------------------- CLASS II: Shares sold 892,397 $ 10,521,711 418,641 $4,361,712 Reinvestment of distributions 1,514 17,128 -- -- Shares repurchased (194,177) (2,279,933) (7,130) (74,388) -------------------------------------------------------- Net increase 700,274 $ 8,258,906 411,511 $4,287,324 ======================================================== - -----------------------------------------------------------------------------------------------
14 PIONEER VARIABLE CONTRACTS TRUST Pioneer Cullen Value VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 8. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 15 PIONEER VARIABLE CONTRACTS TRUST Pioneer Cullen 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 Cullen Value VCT Portfolio: We have audited the accompanying statement of assets and liabilities of Pioneer Cullen Value VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2006, by correspondence with the custodian and brokers. 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, 2006, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 9, 2007 16 PIONEER VARIABLE CONTRACTS TRUST Pioneer Cullen 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"), 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 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 investment and compliance staffs 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 fees under the Management Contract and the Sub-advisory Agreement. Among other items, this information included data or analyses of (1) investment performance for the 12 month period ended June 30, 2006 for the Fund and a peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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 Cullen Value 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 and the Sub-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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group and an index considered appropriate by the Independent Trustees for this purpose. The Fund's performance, based upon total return, was in the first quintile of its Morningstar category peer group for the 12 months ended June 30, 2006. (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 performance of the Fund was strong during the short period since its inception. 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 and Sub-adviser responsible for investment operations. Among other things, the Trustees considered the size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee, based on 2006 data, was in the third quintile relative to the management fees paid by the other funds in that 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 they were consistent with other sub-advised funds. The Trustees also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 (after giving effect to the expense limitation) to be in the first quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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 VARIABLE CONTRACTS TRUST Pioneer Cullen Value VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 its 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. In light of the Investment Adviser's and the Sub-adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser and the Sub-adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the Sub-adviser, and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund and the Sub-advisory Agreement, including the fees payable thereunder, were fair and reasonable and that their renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees 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 - -------------------------------------------------------------------------------- Investment Adviser Pioneer Investment Management, Inc. Custodian Brown Brothers Harriman & Co. Independent Registered Public Accounting Firm Ernst & Young LLP Principal Underwriter Pioneer Funds Distributor, Inc. Legal Counsel Wilmer Cutler Pickering Hale and Dorr LLP Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc. Trustees and Officers The trust's Board of Trustees provides broad supervision over the portfolio's affairs. The officers of the trust are responsible for the trust's operations. The trust's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the trust within the meaning of the 1940 Act are referred to as Interested Trustees. Trustees who are not interested persons of the trust are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 86 U.S. registered investment portfolios for which Pioneer serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the trust is 60 State Street, Boston, Massachusetts 02109. - -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Board, Trustee until a successor trustee and President is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Deputy Chairman and a Director of Pioneer Global Director of ICI Mutual Insurance Company Asset Management S.p.A. ("PGAM"); Non-Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - ------------------------------------------------------------------------------------------------------------------------------------
20 Pioneer Cullen Value VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS David R. Bock (63) Trustee Trustee since 2005. Serves Senior Vice President and Chief Financial Officer, 3050 K. Street NW, until a successor trustee I-trax, Inc. (publicly traded health care services Washington, DC 20007 is elected or earlier company) (2001 - present); Managing Partner, retirement or removal. Federal City Capital Advisors (boutique merchant bank) (2002 to 2004); and Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet-based mortgage trading company) (2000 - 2002) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Trustee Trustee since 2000. Serves President, Bush International (international 3509 Woodbine Street, until a successor trustee financial advisory firm) Chevy Chase, MD 20815 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves Founding Director, The Winthrop Group, Inc. 1001 Sherbrooke Street West, until a successor trustee (consulting firm); and Desautels Faculty of Montreal, Quebec, Canada is elected or earlier Management, McGill University H3A 1G5 retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Trustee Trustee since 2006. Serves Private investor (2004 - present); and Senior 89 Robbins Avenue, until a successor trustee Executive Vice President, The Bank of New York Berkeley Heights, NJ is elected or earlier (financial and securities services) (1986 - 2004) 07922 retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Trustee Trustee since 1995. Serves President and Chief Executive Officer, Newbury, 200 State Street, 12th until a successor trustee Piret & Company, Inc. (investment banking firm) Floor, Boston, MA 02109 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) Trustee Trustee since 2000. Serves President, John Winthrop & Co., Inc. (private One North Adgers Wharf, until a successor trustee investment firm) Charleston, SC 29401 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE David R. Bock (63) Director of The Enterprise Social Investment 3050 K. Street NW, Company (privately-held affordable housing Washington, DC 20007 finance company); and Director of New York Mortgage Trust (publicly traded mortgage REIT) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Director of Brady Corporation (industrial 3509 Woodbine Street, identification and specialty coated material Chevy Chase, MD 20815 products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) None 1001 Sherbrooke Street West, Montreal, Quebec, Canada H3A 1G5 - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Director of Quadriserv Inc. (technology 89 Robbins Avenue, products for securities lending industry) Berkeley Heights, NJ 07922 - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Director of New America High Income Fund, 200 State Street, 12th Inc. (closed-end investment company) Floor, Boston, MA 02109 - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) None One North Adgers Wharf, Charleston, SC 29401 - ------------------------------------------------------------------------------------------------------------------------------------
21 Pioneer Cullen Value VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President and Chief Executive Officer, PIM-USA President discretion of the Board since May 2003 (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly-owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the Secretary of PIM-USA; Senior Vice President - discretion of the Board Legal of Pioneer; Secretary/Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Assistant Since 2003. Serves at the Vice President and Senior Counsel of Pioneer since Secretary discretion of the Board July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001); and Assistant Secretary of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey Assistant Since 2006. Serves at the Partner, Wilmer Cutler Pickering Hale and Dorr (45) Secretary discretion of the Board LLP; and Assistant Secretary of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Treasurer Since 2000. Serves at the Vice President - Fund Accounting, Administration discretion of the Board and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Assistant Since 2004. Serves at the Deputy Treasurer of Pioneer since 2004; Treasurer Treasurer discretion of the Board and Senior 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 - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Since 2000. Serves at the Assistant Vice President - Fund Accounting, Treasurer discretion of the Board Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Assistant Since 2002. Serves at the Fund Accounting Manager - Fund Accounting, Treasurer discretion of the Board Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------------------------------ NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS OFFICER Osbert M. Hood (54)+ Trustee of certain Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) None - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) None - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey None (45) - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) None - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) None - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) None - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) None - ------------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Cullen Value VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Katherine Kim Sullivan Assistant Since 2003. Serves at the (33) Treasurer discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Since 2006. Serves at the Compliance discretion of the Board Officer - ------------------------------------------------------------------------------------------------------------------------------------ NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS OFFICER Katherine Kim Sullivan Fund Administration Manager - Fund Accounting, None (33) Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Compliance Officer of Pioneer and all of the None Pioneer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio'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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 26 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 27 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 28 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 29 [LOGO] PIONEER Investments(R) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18678-01-0207 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Emerging Markets VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2006 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 8 Notes to Financial Statements 12 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 12/31/06 - -------------------------------------------------------------------------------- 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 61.7% Depositary Receipts for International Stocks 25.3% U.S. Common Stocks 6.8% Temporary Cash Investment 3.7% International Preferred Stocks 2.5%
Geographical Distribution (As a percentage of equity holdings) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Brazil 15.5% South Korea 13.7% South Africa 13.0% Russia 11.3% People's Republic of China 9.3% Taiwan 8.5% Mexico 3.5% India 3.0% Indonesia 2.8% Turkey 2.4% Hong Kong 2.0% Philippines 1.9% United States 1.8% Poland 1.7% Israel 1.5% Argentina 1.1% Sweden 1.0% Peru 1.0% Singapore 1.0% Kazakhstan 1.0% Other (individually less than 1%) 3.0%
Five Largest Holdings (As a percentage of equity holdings) 1. Petrobras Brasileiro (A.D.R.) 4.02% 2. Gazprom (A.D.R.) 1.92 3. Lukoil Holding (A.D.R.) 1.82 4. Companhia Vale do Rio Doce (A.D.R.) 1.70 5. Hyundai Heavy Industries 1.62
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $ 33.92 $ 27.84
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $ 0.1077 $ - $ 2.7694
- -------------------------------------------------------------------------------- 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 MOUNTAIN CHART IN THE PRINTED MATERIAL]
Pioneer Emerging MSCI Emerging Markets VCT Portfolio Markets Index 10/98 10000 10000 10486 10675 18696 17764 12/00 12271 12326 11367 12034 12/02 11205 11312 17679 17678 12/04 20991 22265 28885 29956 12/06 39141 39718
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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- Life-of-Class (10/30/98) 18.18% 5 Years 28.05% 1 Year 35.51%
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 pioneerinvestments.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 - $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, 2006 through December 31, 2006.
Share Class II ------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,242.98 Expenses Paid During Period* $ 9.89
* 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). 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, 2006 through December 31, 2006.
Share Class II ------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 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 Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/06 - -------------------------------------------------------------------------------- In the following interview, Christopher Smart, Pioneer Emerging Market Portfolio's Portfolio Manager, discusses the factors that influenced performance during the 12 months ended December 31, 2006. Q. How did emerging markets equities perform during the reporting period? A. Emerging markets stocks continued to build on the impressive rally that has been in place since the fourth quarter of 2002. An extremely favorable environment of solid global growth, stable interest rates, a strong appetite for risk among investors, and abundant liquidity in the world financial system have provided a firm foundation for performance. Developments within the asset class itself have been equally positive. Fiscal restraint by emerging market governments has resulted in lower debt, falling interest rates, and, in many cases, budget surpluses. On the corporate level, robust profit growth and the spread of shareholder-friendly management practices continue to be important themes. These developments, in turn, have led to increased confidence and rising participation among overseas investors. Q. How did the Portfolio perform? A. For the 12 months ended December 31, 2006, the Portfolio's Class II shares generated a total return of 35.51% at net asset value. The Portfolio outpaced the 32.59% return of the Morgan Stanley Capital International (MSCI) Emerging Markets Index as well as the 32.65% average return of the 33 portfolios in its Lipper peer group, Emerging Markets Funds. Call 1-800-688-9915 or visit www.pioneerinvestments.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 during the annual period? A. We added value through effective stock selection in China, Russia and South Korea. One of the Portfolio's top-performing individual holdings was a small Chinese gold-mining company, Zijin Mining Group. We initially purchased the stock based on our confidence in its growth prospects, and its growth exceeded even our expectations due to the increase in the gold price and the company's discovery of new reserves in the northern part of China. The stock more than doubled during the year. Also aiding the Portfolio's performance in China was China Life Insurance, the country's largest life insurance provider. Russia's market also performed well, with the rising prices of oil and gas providing a boost to energy companies such as Gazprom, a Portfolio holding. There is more to the Russian growth story than energy, however: the domestic economy is performing well, and this is leading to rising consumption. Key beneficiaries of this trend were the Portfolio's holdings in the cellular communications provider Vimpelcom, whose stock gained nearly 70% for the period, and Oriflame Cosmetics, a Swedish company that gains a large portion of its revenue from independent, door-to-door sales in Russia and the former Soviet republics. South Korea's stock market was a laggard relative to the broader asset class during the past year. Still, we generated outperformance in the country via positions in the shipbuilding companies Samsung Heavy Industries and Hyundai Heavy Industries. Both companies benefited from the booming demand for new ships that can transport oil and liquid natural gas. In a time of strong performance both for the Portfolio and for the asset class as a whole, there were few notable detractors. One factor that hurt our performance relative to the benchmark was a below-benchmark weighting in the utilities sector, which performed very well. Relative performance also suffered somewhat because we did not own shares in China Mobile - the mobile phone giant that we believed would be hurt by rising competition - which gained 75% during the period. Finally, an overweight position in Turkey weighed on performance. Q. What is your broad view regarding the emerging markets? A. While there is still risk in the asset class, we believe the long-term outlook remains favorable due to the continued improvements in its fundamental underpinnings. The rapid improvements in government finances, corporate governance practices, and political stability are all keys to the emerging markets' outperformance in recent years, and we expect that these improvements will continue in the years ahead. In short, we believe the inevitable declines that periodically occur in emerging market stocks should not obscure the positive longer-term story that continues to unfold. 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 pioneerinvestments.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 - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Shares Value PREFERRED STOCKS - 2.5% Materials - 0.5% Steel - 0.5% 15,990 Cia Vale Do Rio Doce* $ 405,180 ----------- Total Materials $ 405,180 ----------- Media - 0.9% Broadcasting & Cable TV - 0.9% 53,380 Net Servicos de Comunicacao SA* $ 606,807 ----------- Total Media $ 606,807 ----------- Banks - 1.1% Diversified Banks - 1.1% 21,330 Banco Itau Holding Financeira $ 773,275 ----------- Total Banks $ 773,275 ----------- TOTAL PREFERRED STOCKS (Cost $711,330) $ 1,785,262 ----------- COMMON STOCKS - 96.6% Energy - 18.9% Integrated Oil & Gas - 13.8% 1,021,600 China Petroleum & Chemical $ 946,203 29,300 Gazprom (A.D.R.) 1,348,717 14,700 Lukoil Holding (A.D.R.)* 1,284,780 5,100 MOL Hungarian Oil & Gas Plc 574,580 30,500 Petrobras Brasileiro (A.D.R.) 2,829,180 748,400 PetroChina Co., Ltd. 1,054,293 23,600 Sasol, Ltd. (A.D.R.) 870,840 11,300 Surgutneftegaz (A.D.R.)*(a) 864,988 ----------- $ 9,773,581 ----------- Oil & Gas Equipment & Services - 2.3% 15,200 TelecomAsia Corp. Public Co., Ltd. $ 758,328 24,500 TMK (G.D.R.) (144A)* 853,335 ----------- $ 1,611,663 ----------- Oil & Gas Exploration & Production - 1.0% 766,500 CNOOC, Ltd. $ 725,442 ----------- Oil & Gas Refining & Marketing - 1.8% 36,700 Polski Koncern Naftowy Orlen SA $ 601,250 12,300 Reliance Industries, Ltd. (G.D.R.) (144A)* 707,250 ----------- $ 1,308,500 ----------- Total Energy $13,419,186 ----------- Materials - 12.1% Construction Materials - 1.4% 884,900 PT Indocement Tunggal Prakarsa Tbk $ 565,761 60,800 Siam Cement Co., Ltd. 432,972 ----------- $ 998,733 ----------- Shares Value Diversified Metals & Mining - 3.6% 10,300 Freeport-McMoRan Copper & Gold, Inc. (Class B) $ 574,019 18,700 KGHM Polska Mie SA* 572,240 4,700 Norilsk Nickel 742,229 763,000 PT Aneka Tambang Tbk 678,712 ----------- $ 2,567,200 ----------- Gold - 3.1% 19,300 Anglogold Ashanti (A.D.R.) (a) $ 908,837 65,500 IAMGOLD Corp. 577,055 1,028,300 Zijin Mining Group Co., Ltd. 716,757 ----------- $ 2,202,649 ----------- Precious Metals & Minerals - 2.3% 7,300 Anglo American Platinum Corp., Ltd. $ 889,132 25,800 Compania de Minas Buenaventura SAA 723,948 ----------- $ 1,613,080 ----------- Steel - 1.7% 45,700 Companhia Vale do Rio Doce (A.D.R.) $ 1,199,625 ----------- Total Materials $ 8,581,287 ----------- Capital Goods - 12.4% Aerospace & Defense - 0.7% 16,400 Elbit Systems, Ltd. $ 529,109 ----------- Construction & Engineering - 5.5% 135,600 Aveng, Ltd. $ 649,500 573,000 China Communications Construction Co., Ltd.* 566,499 891,279 Continental Engineering Corp.* 774,747 183,817 Empressa ICA Sociedad Controladora SA de CV* 694,195 7,200 GS Engineering & Construction Corp.* 640,540 13,240 Kyeryong Construction Industrial Co., Ltd.* 556,799 ----------- $ 3,882,280 ----------- Construction, Farm Machinery & Heavy Trucks - 4.2% 27,000 Daewoo Heavy Industries & Machinery, Ltd. $ 846,309 8,430 Hyundai Heavy Industries* 1,138,479 41,200 Samsung Heavy Industries Co., Ltd.* 990,656 ----------- $ 2,975,444 ----------- Industrial Conglomerates - 2.0% 31,000 Barloworld $ 725,214 62,500 Keppel Corp. 715,487 1 KOC Holding AS* 2 ----------- $ 1,440,703 ----------- Total Capital Goods $ 8,827,536 -----------
The accompanying notes are an integral part of these financial statements. 5 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Shares Value Transportation - 2.2% Marine - 1.1% 520,500 China Shipping Development Co., Ltd.* $ 796,703 ----------- Railroads - 1.1% 74,500 All America Latina Logistica $ 773,614 ----------- Total Transportation $ 1,570,317 ----------- Automobiles & Components - 1.1% Automobile Manufacturers - 1.1% 10,600 Hyundai Motor Co., Ltd.* $ 769,789 ----------- Total Automobiles & Components $ 769,789 ----------- Consumer Durables & Apparel - 3.0% Homebuilding - 2.0% 141,500 Corporacion GEO, SA de CV* $ 708,581 73,040 Cyrela Brazil Realty SA 697,558 ----------- $ 1,406,139 ----------- Housewares & Specialties - 1.0% 25,700 Woongjin Coway Co., Ltd.* $ 711,290 ----------- Total Consumer Durables & Apparel $ 2,117,429 ----------- Consumer Services - 1.0% Hotels, Resorts & Cruise Lines - 1.0% 194,000 Indian Hotels Co. Ltd. $ 675,958 ----------- Total Consumer Services $ 675,958 ----------- Media - 2.5% Broadcasting & Cable TV - 0.9% 102,800 Television Broadcasts, Ltd. $ 628,111 ----------- Movies & Entertainment - 1.0% 29,000 CTC Media, Inc.* $ 696,290 ----------- Publishing - 0.6% 182,616 Hurriyet Gazetecilik ve Matbaacilik AS $ 479,640 ----------- Total Media $ 1,804,041 ----------- Retailing - 4.7% Apparel Retail - 1.9% 111,000 Edgars Consolidated Stores, Ltd. $ 617,386 157,500 Truworths International, Ltd. 717,337 ----------- $ 1,334,723 ----------- Department Stores - 1.8% 5,800 Hyundai Department Store Co., Ltd.* $ 521,400 50,000 Lojas Renner SA* 718,970 ----------- $ 1,240,370 ----------- Homefurnishing Retail - 1.0% 67,000 Ellerine Holdings, Ltd. $ 739,686 ----------- Total Retailing $ 3,314,779 ----------- Shares Value Food & Drug Retailing - 1.5% Food Retail - 0.7% 210,000 President Chain Store Corp. $ 507,181 ----------- Hypermarkets & Supercenters - 0.8% 58,700 Massmart Holdings, Ltd. $ 583,432 ----------- Total Food & Drug Retailing $ 1,090,613 ----------- Food, Beverage & Tobacco - 2.3% Packaged Foods & Meats - 0.8% 4,580 CJ Corp.* $ 549,864 ----------- Soft Drinks - 1.5% 9,100 Fomento Economico Mexicano SA de CV $ 1,053,416 ----------- Total Food, Beverage & Tobacco $ 1,603,280 ----------- Household & Personal Products - 1.9% Personal Products - 1.9% 44,650 Natura Cosmeticos SA $ 630,537 17,700 Oriflame Cosmetics SA 728,926 ----------- $ 1,359,463 ----------- Total Household & Personal Products $ 1,359,463 ----------- Banks - 13.2% Diversified Banks - 13.2% 20,332 Banco Bradesco SA (a) $ 820,396 25,200 Banco do Brasil SA 755,410 118,100 Bank Hapoalim, Ltd. 552,975 264,000 Bumiputra-Commerce Holdings Bhd* 578,629 1,361,900 China Construction Bank* 867,492 12,510 Hana Financial Holdings* 656,089 1,404,000 Industrial & Commercial Bank of China* 869,370 30,600 Kazkommertsbank (144A)* 706,860 12,700 Kookmin Bank (A.D.R.)* 1,024,128 13,100 Shinhan Financial Group Co., Ltd.* 671,273 40,549 Standard Bank Group, Ltd. 546,854 143,295 Turkiye Is Bankasi (Isbank) 652,403 7,562 Uniao de Bancos Brasileiros SA (Unibanco) (G.D.R.) (144A) (a) 702,964 ----------- $ 9,404,843 ----------- Total Banks $ 9,404,843 ----------- Diversified Financials - 1.8% Diversified Financial Services - 1.8% 213,406 FirstRand, Ltd. $ 674,441 629,000 Fubon Group 587,622 ----------- $ 1,262,063 ----------- Total Diversified Financials $ 1,262,063 -----------
6 The accompanying notes are an integral part of these financial statements. Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value Insurance - 3.2% Life & Health Insurance - 1.6% 27,396 Cathay Financial Holding Co., Ltd., (144A) (G.D.R.)* $ 621,889 202,690 Sanlam, Ltd. 532,146 ----------- $ 1,154,035 ----------- Property & Casualty Insurance - 1.6% 141,734 Aksigorta AS $ 532,756 3,200 Samsung Fire & Marine Insurance* 553,648 ----------- $ 1,086,404 ----------- Total Insurance $ 2,240,439 ----------- Real Estate - 2.1% Real Estate Management & Development - 2.1% 2,225,600 Ayala Land, Inc. $ 692,638 57,000 Sistema Hals (G.D.R.) (144A)* 769,500 ----------- $ 1,462,138 ----------- Total Real Estate $ 1,462,138 ----------- Technology Hardware & Equipment - 2.3% Computer Hardware - 1.0% 393,133 Quanta Computer, Inc. $ 709,699 ----------- Electronic Manufacturing Services - 1.3% 131,229 Hon Hai Precision Industry $ 937,129 ----------- Total Technology Hardware & Equipment $ 1,646,828 ----------- Semiconductors - 1.7% 229,382 Taiwan Semiconductor Manufacturing Co. $ 475,680 67,400 Taiwan Semiconductor Manufacturing Co. ( A.D.R.) 736,682 ----------- $ 1,212,362 ----------- Total Semiconductors $ 1,212,362 ----------- Telecommunication Services - 7.7% Integrated Telecommunication Services - 1.0% 618,700 PT Telekomunikasi Indonesia $ 694,821 ----------- Wireless Telecommunication Services - 6.7% 13,100 Mobile Telesystems (A.D.R.) $ 657,489 58,400 MTN Group, Ltd. 704,801 12,800 Philippine Long Distance Telephone Co. 661,232 68,300 Reliance Communications, Ltd.* 727,890 22,400 Sistema JSFC (144A) (G.D.R.)* 716,603 596,000 Taiwan Mobile Co., Ltd. 618,389 9,200 Vimpel-Communications (A.D.R.)* 726,340 ----------- $ 4,812,744 ----------- Total Telecommunication Services $ 5,507,565 ----------- Shares Value Utilities - 1.0% Gas Utilities - 1.0% 1,188,100 Panva Gas Holdings, Ltd.* $ 746,951 ----------- Total Utilities $ 746,951 ----------- TOTAL COMMON STOCKS (Cost $42,873,355) $68,616,867 ----------- TEMPORARY CASH INVESTMENT - 3.8% Security Lending Collateral - 3.8% 2,736,343 Securities Lending Investment Fund, 5.26% $ 2,736,343 ----------- TOTAL TEMPORARY CASH INVESTMENT (Cost $2,736,343) $ 2,736,343 ----------- TOTAL INVESTMENT IN SECURITIES - 102.9% (Cost $46,321,028)(b) $73,138,472 ----------- OTHER ASSETS AND LIABILITIES - (2.9)% $(2,089,658) ----------- TOTAL NET ASSETS - 100.0% $71,048,814 ===========
* 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, 2006, the value of these securities amounted to $5,078,401 or 7.1% of total net assets. (a) At December 31, 2006, the following securities were out on loan:
Shares Security Value 10,029 Anglogold Ashanti (A.D.R.) $ 472,266 17,929 Banco Bradesco SA 723,435 10,363 Surgutneftegaz (A.D.R.)* 793,263 7,387 Uniao de Bancos Brasileiros SA (Unibanco) (G.D.R.) (144A) 686,696 ---------- Total $2,675,660 ==========
(b) Distributions of investments by country of issue, as a percentage of total equity holdings (excluding temporary cash investments) is as follows: Brazil 15.5% South Korea 13.7 South Africa 13.0 Russia 11.3 People's Republic of China 9.3 Taiwan 8.5 Mexico 3.5 India 3.0 Indonesia 2.8 Turkey 2.4 Hong Kong 2.0 Philippines 1.9 United States 1.8 Poland 1.7 Israel 1.5 Argentina 1.1 Sweden 1.0 Peru 1.0 Singapore 1.0 Kazakhstan 1.0 Other (individually less than 1%) 3.0 ----- 100.0% =====
The accompanying notes are an integral part of these financial statements. 7 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Year Year Year Year Ended Ended Ended Ended Ended Class II 12/31/06 12/31/05 12/31/04 12/31/03 12/31/02 Net asset value, beginning of period $ 27.84 $ 20.33 $ 17.26 $ 10.98 $ 11.19 -------- ------- ------- ------- ------- Increase (decrease) from investment operations: Net investment income $ 0.17 $ 0.15 $ 0.16 $ 0.12 $ 0.02 Net realized and unrealized gain (loss) on investments and foreign currency transactions 8.79 7.46 3.04 6.21 (0.17) -------- ------- ------- ------- ------- Net increase (decrease) from investment operations $ 8.96 $ 7.61 $ 3.20 $ 6.33 $ (0.15) Distributions to shareowners: Net investment income (0.11) (0.10) (0.13) (0.05) (0.06) Net realized gain (2.77) - - - - -------- ------- ------- ------- ------- Total Distributions $ (2.88) $ (0.10) $ (0.13) $ (0.05) $ (0.06) -------- ------- ------- ------- ------- Redemption Fee $ 0.00(a) $ - $ - $ - $ - -------- ------- ------- ------- ------- Net increase (decrease) in net asset value $ 6.08 $ 7.51 $ 3.07 $ 6.28 $ (0.21) -------- ------- ------- ------- ------- Net asset value, end of period $ 33.92 $ 27.84 $ 20.33 $ 17.26 $ 10.98 ======== ======= ======= ======= ======= Total return* 35.51% 37.60% 18.73% 57.87% (1.42)% Ratio of net expenses to average net assets+ 1.75% 1.97% 1.99% 1.99% 1.99% Ratio of net investment income to average net assets+ 0.57% 0.70% 0.88% 1.04% 0.28% Portfolio turnover rate 49% 74% 66% 79% 124% Net assets, end of period (in thousands) $ 58,130 $44,026 $30,347 $26,537 $ 8,852 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.75% 1.99% 2.11% 2.65% 3.11% Net investment income (loss) 0.57% 0.68% 0.76% 0.38% (0.84)% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 1.75% 1.97% 1.99% 1.99% 1.99% Net investment income 0.57% 0.70% 0.88% 1.04% 0.28%
(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. 8 The accompanying notes are an integral part of these financial statements. Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $2,675,660) (cost $46,321,028) $ 73,138,472 Cash 650,126 Foreign currencies, at value (cost $906,855) 909,758 Receivables -- Investment securities sold 23,610 Fund shares sold 221,470 Dividends, interest and foreign taxes withheld 145,876 Forward foreign currency settlement contracts, net 539 Other 4,354 ------------ Total assets $ 75,094,205 ------------ LIABILITIES: Payables -- Investment securities purchased $ 803,312 Fund shares repurchased 355,705 Upon return of securities loaned 2,736,343 Reserve for repatriation taxes 46,722 Due to affiliates 12,803 Accrued expenses 90,506 ------------ Total liabilities $ 4,045,391 ------------ NET ASSETS: Paid-in capital $ 34,957,559 Undistributed net investment income 329,117 Accumulated net realized gain on investments 8,990,296 Net unrealized gain on: Investments 26,770,722 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 1,120 ------------ Total net assets $ 71,048,814 ------------ NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 12,918,923 Shares outstanding 377,031 ------------ Net asset value per share $ 34.26 Class II: (No par value, unlimited number of shares authorized) Net assets $ 58,129,891 Shares outstanding 1,713,737 ------------ Net asset value per share $ 33.92
The accompanying notes are an integral part of these financial statements. 9 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $148,416) $ 1,378,567 Interest 24,886 Income on securities loaned, net 9,290 ----------- Total investment income $ 1,412,743 ----------- EXPENSES: Management fees $ 700,827 Transfer agent fees and expenses 3,516 Distribution fees (Class II) 122,261 Administrative reimbursements 13,771 Custodian fees 106,430 Professional fees 39,707 Printing expense 18,546 Fees and expenses of nonaffiliated trustees 7,459 Miscellaneous 22,536 ----------- Total expenses $ 1,035,053 ----------- Net expenses $ 1,035,053 ----------- Net investment income $ 377,690 ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments (net of foreign capital gain taxes of $74,291) $ 9,235,764 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (18,438) ----------- $ 9,217,326 ----------- Change in net unrealized gain or loss from: Investments (including change in reserve for repatriation taxes of $(5,637)) $ 8,718,700 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (2,349) ----------- $ 8,716,351 ----------- Net gain on investments and foreign currency transactions $17,933,677 =========== Net increase in net assets resulting from operations $18,311,367 ===========
10 The accompanying notes are an integral part of these financial statements. Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Ended Year Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 377,690 $ 332,259 Net realized gain on investments 9,217,326 7,305,703 Change in net unrealized gain or loss on investments and foreign currency transactions 8,716,351 7,390,352 ------------- ------------- Net increase in net assets resulting from operations $ 18,311,367 $ 15,028,314 ------------- ------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income: Class I $ (59,203) $ (50,778) Class II (161,771) (161,235) Net realized gain Class I (1,033,768) - Class II (4,159,777) - ------------- ------------- Total distributions to shareowners $ (5,414,519) $ (212,013) ------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 19,444,665 $ 13,210,315 Reinvestment of distributions 5,414,519 210,764 Cost of shares repurchased (21,947,368) (11,986,023) Redemption Fees 8,588 - ------------- ------------- Net increase in net assets resulting from Fund share transactions $ 2,920,404 $ 1,435,056 ------------- ------------- Net increase in net assets $ 15,817,252 $ 16,251,357 ------------- ------------- NET ASSETS: Beginning of year $ 55,231,562 $ 38,980,205 ------------- ------------- End of year $ 71,048,814 $ 55,231,562 ============= ============= Undistributed net investment income, end of year $ 329,117 $ 24,792 ============= =============
The accompanying notes are an integral part of these financial statements. 11 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 the Portfolio is to seek long-term capital growth. 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(es). Please refer to those documents when considering the Portfolio's risks. 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 year. 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. 12 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 Trust 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. 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. No other securities were fair valued at December 31, 2006. 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, if any, 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. (See Note 8) 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, 2006, no such taxes were paid. 13 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, the Portfolio had $46,722 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, 2006, 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 - ----------------------------------------------------------------------------------------------- Emerging Markets Portfolio $147,609 $ (147,609) $-- - -----------------------------------------------------------------------------------------------
The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis. - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------ 2006 2005 - ------------------------------------------------------------------------------------ Distributions paid from: Ordinary Income $ 220,974 $212,013 Long-Term capital gain 5,193,545 -- ----------- -------- $ 5,414,519 $212,013 Return of Capital -- -- ----------- -------- Total distributions $ 5,414,519 $212,013 ========================= Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 761,702 Undistributed long-term gain/(capital loss carryforward) 8,615,087 Unrealized appreciation (depreciation) 26,714,466 ----------- Total $36,091,255 =========== - ------------------------------------------------------------------------------------
For the fiscal year ending December 31, 2006, Emerging Markets Portfolio has elected to pass through foreign tax credits of $217,527. 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 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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. 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 14 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- allocated daily to each class of the shares based on the respective percentage of adjusted net assets at the beginning of the day. Dividends and distributions to shareowners are recorded on the ex-dividend date. Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time, and in the same amount, except that Class I and Class II shares can bear different transfer agent and distribution fees. 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. 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, 2006, $6,893 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 $4,713 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $1,197 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $46,377,865 $26,875,160 $ (114,553) $26,760,607 =========== =========== ========== =========== - --------------------------------------------------------------------------------------------------
15 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, were $29,439,740 and $31,784,098, respectively. 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- ------------------------------------------------------------------------------------------ Emerging Markets Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ------------------------------------------------------------------------------------------ CLASS I: Shares sold 82,866 $ 2,610,759 57,112 $ 1,329,128 Reinvestment of distributions 42,233 1,092,971 2,300 49,529 Redemption Fees - 1,720 - - Shares repurchased (147,008) (4,440,124) (82,002) (1,885,112) -------------------------------------------------------- Net decrease (21,909) $ (734,674) (22,590) $ (506,455) ======================================================== CLASS II: Shares sold 546,340 $16,833,906 530,098 $11,881,187 Reinvestment of distributions 168,481 4,321,548 7,549 161,235 Redemption Fees - 6,868 - - Shares repurchased (582,381) (17,507,244) (449,363) (10,100,911) -------------------------------------------------------- Net increase 132,440 $ 3,655,078 88,284 $ 1,941,511 ======================================================== - ------------------------------------------------------------------------------------------
8. Forward Foreign Currency Contracts During the year ended December 31, 2006, the Portfolio had entered into various contracts that obligate the Portfolio to deliver currencies at specified future dates. At the maturity of a contract, the Portfolio must make delivery of the foreign currency. Alternatively, prior to the settlement date of a portfolio hedge, the Portfolio may close out such contracts by entering into an offsetting hedge contract. Outstanding forward currency settlement contracts as of December 31, 2006 were as follows:
- ----------------------------------------------------------------------------------------------------------------- Settlement Net Portfolio Gross Receivable Date Gross Payable Receivable/(Payable) - ----------------------------------------------------------------------------------------------------------------- Emerging Markets Portfolio (HUF) $67,575 1/3/07 $(67,511) $ 64 Emerging Markets Portfolio (ZAR) $52,502 1/3/07 $(52,027) $475 - -----------------------------------------------------------------------------------------------------------------
9. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 16 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 Shareowners of Pioneer Emerging Markets VCT Portfolio: We have audited the accompanying statement of assets and liabilities of Pioneer Emerging Markets VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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, 2006, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from the 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 Emerging Markets VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2006, 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 Boston, Massachusetts February 9, 2007 17 Pioneer Emerging Markets 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"), 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than 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. 18 Pioneer Emerging Markets 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 objective and regulatory requirements. The Trustees also reviewed the Fund's absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group and an index considered appropriate by the Independent Trustees for this purpose. The Fund's performance, based upon total return, was in the first quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, the second quintile of the peer group for the three years ended June 30, 2006 and the second quintile for the five years ended June 30, 2006. (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, focusing on three-year total returns, concluded that the performance of the Fund was good. 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 size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee for the 12 months ended June 30, 2006 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 also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 to be in the fifth quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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, a break point in management fee was not necessary. The Trustees will continue to evaluate annually the appropriateness of break points. 19 Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 20 - -------------------------------------------------------------------------------- Pioneer Emerging Markets 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 portfolio's affairs. The officers of the trust Custodian are responsible for the trust's operations. The trust's Brown Brothers Harriman & Co. Trustees and officers are listed below, together with their principal occupations during the past five years. Independent Registered Public Accounting Firm Trustees who are interested persons of the trust within Ernst & Young LLP the meaning of the 1940 Act are referred to as Interested Trustees. Trustees who are not interested persons of the Principal Underwriter trust are referred to as Independent Trustees. Each of the Pioneer Funds Distributor, Inc. Trustees serves as a trustee of each of the 86 U.S. registered investment portfolios for which Pioneer serves Legal Counsel as investment adviser (the "Pioneer Funds"). The address Wilmer Cutler Pickering Hale and Dorr LLP for all Interested Trustees and all officers of the trust is 60 State Street, Boston, Massachusetts 02109. Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc.
- -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Chairman of the Trustee since 1994. Deputy Chairman and a Director of Cogan, Jr. (80)* Board, Trustee Serves until a successor Pioneer Global Asset Management S.p.A. and President trustee is elected or ("PGAM"); Non-Executive Chairman and a earlier retirement or Director of Pioneer Investment removal. Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - ------------------------------------------------------------------------------------------------------------------------------------
21 Pioneer Emerging Markets VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE David R. Bock (63) Trustee Trustee since 2005. Serves Senior Vice President and Chief Director of The 3050 K. Street NW, until a successor trustee Financial Officer, I-trax, Inc. Enterprise Social Washington, DC 20007 is elected or earlier (publicly traded health care Investment Company retirement or removal. services company) (2001 - (privately-held present); Managing Partner, affordable housing Federal City Capital Advisors finance company); (boutique merchant bank) (2002 and Director of New to 2004); and Executive Vice York Mortgage Trust President and Chief Financial (publicly traded Officer, Pedestal Inc. mortgage REIT) (internet- based mortgage trading company) (2000 - 2002) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Trustee Trustee since 2000. Serves President, Bush International Director of Brady 3509 Woodbine Street, until a successor trustee (international financial Corporation Chevy Chase, MD 20815 is elected or earlier advisory firm) (industrial retirement or removal. identification and specialty coated material products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street West, until a successor trustee Group, Inc. (consulting firm); Montreal, Quebec, Canada is elected or earlier and Desautels Faculty of H3A 1G5 retirement or removal. Management, McGill University - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Trustee Trustee since 2006. Serves Private investor (2004 - Director of 89 Robbins Avenue, until a successor trustee present); and Senior Executive Quadriserv Inc. Berkeley Heights, NJ is elected or earlier Vice President, The Bank of New (technology products 07922 retirement or removal. York (financial and securities for securities services) (1986 - 2004) lending industry) - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Trustee Trustee since 1995. Serves President and Chief Executive Director of New 200 State Street, 12th until a successor trustee Officer, Newbury, Piret & America High Income Floor, Boston, MA 02109 is elected or earlier Company, Inc. (investment Fund, Inc. retirement or removal. banking firm) (closed-end investment company) - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) Trustee Trustee since 2000. Serves President, John Winthrop & Co., None One North Adgers Wharf, until a successor trustee Inc. (private investment firm) Charleston, SC 29401 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Emerging Markets VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President and Chief Executive Trustee of certain President discretion of the Board Officer, PIM-USA since May 2003 Pioneer Funds (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the Secretary of PIM-USA; Senior None discretion of the Board Vice President - Legal of Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Assistant Since 2003. Serves at the Vice President and Senior None Secretary discretion of the Board Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001); and Assistant Secretary of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey Assistant Since 2006. Serves at the Partner, Wilmer Cutler Pickering None (45) Secretary discretion of the Board Hale and Dorr LLP; and Assistant Secretary of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Treasurer Since 2000. Serves at the Vice President - Fund None discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Assistant Since 2004. Serves at the Deputy Treasurer of Pioneer None Treasurer discretion of the Board since 2004; Treasurer and Senior 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 - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Since 2000. Serves at the Assistant Vice President - Fund None Treasurer discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Assistant Since 2002. Serves at the Fund Accounting Manager - Fund None Treasurer discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------------------------------
23 Pioneer Emerging Markets VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Katherine Kim Sullivan Assistant Since 2003. Serves at the Fund Administration Manager - None (33) Treasurer discretion of the Board Fund Accounting, Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Since 2006. Serves at the Chief Compliance Officer of None Compliance discretion of the Board Pioneer and all of the Pioneer Officer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 24 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 25 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 26 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 27 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 28 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 29 [LOGO] PIONEER Investments(R) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18663-01-0207 [LOGO]PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Income VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2006 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 12/31/06 - -------------------------------------------------------------------------------- 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 93.8% Temporary Cash Investment 5.7% Convertible Preferred Stocks 0.5%
Sector Distribution (As a percentage of equity holdings) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Financials 22.8% Utilities 14.8% Telecommunication Services 10.4% Consumer Staples 9.7% Industrials 9.6% Consumer Discretionary 9.6% Materials 8.0% Health Care 6.3% Energy 6.3% Information Technology 2.5%
Five Largest Holdings (As a percentage of equity holdings) 1. PACCAR, Inc. 3.29% 2. Chevron Corp. 3.05 3. BellSouth Corp. 2.61 4. Washington Mutual, Inc. 2.50 5. Merck & Co., Inc. 2.50
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $ 25.07 $ 21.37
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $ 0.5455 $ - $ 0.3749
- -------------------------------------------------------------------------------- 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 MOUNTAIN CHART IN THE PRINTED MATERIAL]
Russell 1000 Pioneer Equity Value Index Income VCT Portfolio 12/96 10000 10000 13518 13490 12/98 15631 16389 16780 16547 12/00 17957 18944 16953 17590 12/02 14321 14767 18622 18056 12/04 21694 10952 23224 22108 12/06 28390 26999
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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- 10 Years 10.44% 5 Years 8.95% 1 Year 22.12%
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.pioneerinvestments.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, 2006 through December 31, 2006.
Share Class II ------------------------------------------------------------------------- Beginning Account Value On 7/1/06 $ 1,000.00 Ending Account Value On 12/31/06 $ 1,125.84 Expenses Paid During Period* $ 5.04
* Expenses are equal to the Portfolio's annualized expense ratio of 0.94% 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, 2006 through December 31, 2006.
Share Class II ------------------------------------------------------------------------- Beginning Account Value On 7/1/06 $ 1,000.00 Ending Account Value On 12/31/06 $ 1,020.47 Expenses Paid During Period* $ 4.79
* Expenses are equal to the Portfolio's annualized expense ratio of 0.94% 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 12/31/06 - -------------------------------------------------------------------------------- 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, 2006. Q. Please describe the performance of the Portfolio in 2006. A. It was generally a successful year for Pioneer Equity Income VCT Portfolio. The total return for Class II shares of the Portfolio was 22.12% at net asset value, which compared favorably with the 22.19% total return for the Russell 1000 Value Index, an unmanaged index of the broad, value-oriented portion of the market, and the 17.98% average total return for the 61 portfolios in the Lipper Equity Income variable annuity category. Throughout the year, the Portfolio derived its above-average performance from both sector allocations and stock selection. As always, the dividends paid by Portfolio shareholdings provided a meaningful part of the total return. Looking back on stock-market fluctuations during the year, we note that the Russell 1000 Value Index advanced through the first week of May 2006, then suffered more than two months of ragged, generally declining results, and finally, from the middle of July through year end, more or less, resumed its upward path. Indeed the second half of the year witnessed a rather impressive rally in share prices. The spark igniting the rally seemed to be the indications from the Federal Reserve that it would not raise interest rates any more, at least for the time being. Oil prices also fell, and gasoline prices likewise. Despite a softening housing market, consumers were buoyed by historically low unemployment and rising wages. Corporate earnings stayed very strong, and merger-and-acquisition activity put a "floor" under the prices of numerous stocks. Q. Can you discuss areas in the Portfolio of outperformance and underperformance versus the index? A. Our strongest performance contributions versus the Russell 1000 Value Index came from our stock selections in industrials, energy, health care, and telecommunications services, as well as from our overweight in the last sector. Among our holdings in industrials, Gorman-Rupp, a pump maker, and PACCAR, builder of heavy-duty, Class 8 trucks, did especially well. In energy we benefited from our emphasis on the large, integrated international oil and gas producers and avoidance of the more volatile oil-services stocks. Merck was a terrific stock for us in health care, as the company recovered from the shock of Vioxx litigation. BellSouth was a stand-out in telecomm services after receiving a takeover bid from AT&T. The portfolio also benefited from not owning any shares of three market laggards, American International Group, Sprint Nextel, and General Electric. On the negative side, our underweight in Exxon Mobil hurt, though the shares of that behemoth that we did own certainly did very well for us. Timken, a manufacturer of bearings, traded down on concerns about a slowing economy. Cedar Fair, operator of amusement parks, acquired an additional group of parks from Paramount. Though we think that the longer-term story for the company is enhanced by the acquisition, investors focused on the likely short-term dilution of earnings. Q. What changes did you make to the Portfolio over the course of the year? A. We were fairly busy during the year, adding some 19 positions and eliminating 21. Additions included Alcoa and E. I. du Pont de Nemours, a couple of the old "smokestack America" companies that we think are still reasonably priced and have restructuring potential for improved earnings down the road. Du Pont, probably best known for its synthetic fibers, is a global company with customers across many different industries. Alcoa is a major international producer of aluminum, with important assets in all aspects of aluminum making. Another basic-industry stalwart, Weyerhaeuser is one of the largest forest-products companies. CBS and New York Times are a couple of the beaten-down media names that investors have avoided in this age of the internet but that we think hold value. We expanded a bit further into real estate investment trusts by buying General Growth Properties and Liberty Property Trust. Our utility holdings grew to include AGL Resources and Duke Energy; and we also added the telecommunications services stocks Embarq and Windstream. In insurance 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.pioneerinvestments.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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- we initiated positions in Hartford Financial and Lincoln National, which acquired our Jefferson Pilot; and bought Regions Financial, a Birmingham, Alabama-based bank. Microchip Technology gave us an opportunity to invest in the growing microcontroller industry. J. M. Smucker is well known for its jams and jellies, but is also a burgeoning producer of health foods, including natural beverages and peanut butter. Also new to the portfolio were Mine Safety Appliances, supplier of respiratory and other safety gear to miners and other industrial workers; Masco, maker of plumbing and other home improvement and building products; and Idearc, yellow-pages publisher, spun out from our holding Verizon. Stocks besides Jefferson Pilot that we sold as a result of merger offers included Keyspan, Roanoke Electric Steel, and Albertson's. We took significant long-term gains on our sale of T. Rowe Price, which we thought reflected a full valuation. At the other end of the spectrum, we liquidated our shares of Ford common stock after the company indicated issues with its continuing to pay dividends. Our other sales were also a result of our investment analysis and our decision that we had either reached a full valuation on the shares or could more productively invest the money elsewhere. Q. Can you share with us your outlook for 2007? A. We think that the year ahead will be characterized by some of the same cross-currents as we experienced in 2006. One of the debates currently is with respect to the Federal Reserve and when or whether it might reduce interest rates. The Fed has signaled its concern over inflation. At the same time, a slower economy could be helped by lower rates. We do not expect any imminent action by the Fed and do not discount the possibility that the economy will stay strong enough that the Fed does not feel the need to act, at least over the next several months. Another debate has to do with the implications for business of the new Congress in Washington, D. C., where the Democrats now control both the House of Representatives and, if very narrowly, the Senate. We shall be attentive to possible changes in tax and other policy that might alter the environment in which companies do business. Of course neither party is consistently positive or negative for companies across the board, or even in individual industries, but instead each party has its own constituencies and its own agendas. The final and most important piece of the puzzle that is figuring out what 2007 holds in store for us is the rate of corporate earnings growth. Will the pace of earnings slow over the next few quarters, and if so, how will stocks react? An unusual feature about the bull market of the past four years, has been the decline in price-to-earnings multiples as earnings have grown faster than share prices have risen. With that in mind, one could argue that the downside risk for the market is lower than it often is at this stage of a bull market, when multiples are usually comparatively high. We cannot, though, predict where the market will go, and would note that low multiples are no guarantee that prices cannot fall. So we intend to keep with our defensive posture, emphasizing companies we think have the potential to do reasonably well even in a softer economy. As always, we shall devote considerable energy to our research process and learn as much as we can about companies before investing in their stocks. Thank you as ever 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 12/31/06 - --------------------------------------------------------------------------------
Shares Value CONVERTIBLE PREFERRED STOCKS - 0.5% Automobiles & Components - 0.4% Automobile Manufacturers - 0.4% 61,200 Ford Cap Trust, 6.5%, 1/15/32 $ 2,095,488 ------------ Total Automobiles & Components $ 2,095,488 ------------ Pharmaceuticals & Biotechnology - 0.1% Pharmaceuticals - 0.0% 4,255 Schering-Plough Corp., 6.0%, 9/14/07 $ 242,003 ------------ Total Pharmaceuticals & Biotechnology $ 242,003 ------------ TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $2,343,979) $ 2,337,491 ------------ COMMON STOCKS - 97.0% Energy - 6.2% Integrated Oil & Gas - 6.2% 188,649 Chevron Corp. $ 13,871,361 115,922 ConocoPhillips 8,340,588 84,898 Exxon Mobil Corp. 6,505,734 ------------ $ 28,717,683 ------------ Total Energy $ 28,717,683 ------------ Materials - 7.8% Aluminum - 2.0% 312,100 Alcoa, Inc. $ 9,366,121 ------------ Diversified Chemical - 2.2% 209,600 Dow Chemical Co. $ 8,371,424 38,100 E.I. du Pont de Nemours and Co. 1,855,851 ------------ $ 10,227,275 ------------ Diversified Metals & Mining - 0.6% 87,556 Compass Minerals International, Inc. $ 2,763,267 ------------ Forest Products - 1.0% 68,900 Weyerhaeuser Co. $ 4,867,785 ------------ Industrial Gases - 1.1% 71,152 Air Products & Chemicals, Inc. $ 5,000,563 ------------ Specialty Chemicals - 0.9% 146,365 Valspar Corp. $ 4,045,529 ------------ Total Materials $ 36,270,540 ------------ Capital Goods - 8.7% Aerospace & Defense - 1.4% 103,955 United Technologies Corp. $ 6,499,267 ------------ Building Products - 0.5% 78,500 Masco Corp. $ 2,344,795 ------------ Construction & Farm Machinery & Heavy Trucks - 4.0% 38,489 Deere & Co. $ 3,659,149 230,464 PACCAR, Inc. 14,957,114 ------------ $ 18,616,263 ------------
Shares Value Electrical Component & Equipment - 1.7% 183,002 Emerson Electric Co. $ 8,068,558 ------------ Industrial Machinery - 1.1% 37,938 Gorman-Rupp Co. $ 1,402,549 117,902 The Timken Co. 3,440,380 ------------ $ 4,842,929 ------------ Total Capital Goods $ 40,371,812 ------------ Commercial Services & Supplies - 0.7% Office Services & Supplies - 0.7% 94,300 Mine Safety Appliances Co. (a) $ 3,456,095 ------------ Total Commercial Services & Supplies $ 3,456,095 ------------ Automobiles & Components - 1.7% Auto Parts & Equipment - 1.7% 93,560 Johnson Controls, Inc. $ 8,038,675 ------------ Total Automobiles & Components $ 8,038,675 ------------ Consumer Services - 2.0% Leisure Facilities - 1.4% 245,127 Cedar Fair, L.P. $ 6,819,433 ------------ Specialized Consumer Services - 0.6% 201,241 Servicemaster Co. $ 2,638,270 ------------ Total Consumer Services $ 9,457,703 ------------ Media - 3.6% Broadcasting & Cable TV - 0.9% 131,500 CBS Corp. (Class B) $ 4,100,170 ------------ Publishing - 2.7% 12,740 Idearc, Inc.* $ 365,001 113,625 McGraw-Hill Co., Inc. 7,728,773 182,900 New York Times Co. (a) 4,455,444 ------------ $ 12,549,218 ------------ Total Media $ 16,649,388 ------------ Retailing - 1.6% Department Stores - 0.5% 55,242 Federated Department Stores, Inc. $ 2,106,377 ------------ Distributors - 1.1% 111,730 Genuine Parts Co. $ 5,299,354 ------------ Total Retailing $ 7,405,731 ------------ Food, Beverage & Tobacco - 6.8% Packaged Foods & Meats - 6.3% 188,614 Campbell Soup Co. $ 7,335,198 106,131 General Mills, Inc. 6,113,146 187,543 H.J. Heinz Co., Inc. 8,441,310 66,100 Kellogg Co. 3,308,966 81,300 The J.M. Smucker Co. 3,940,611 ------------ $ 29,139,231 ------------
6 The accompanying notes are an integral part of these financial statements. Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value Soft Drinks - 0.5% 38,972 PepsiCo, Inc. $ 2,437,699 ------------ Total Food, Beverage & Tobacco $ 31,576,930 ------------ Household & Personal Products - 2.6% Household Products - 2.6% 70,315 Clorox Co. $ 4,510,707 119,394 Colgate-Palmolive Co. 7,789,265 ------------ $ 12,299,972 ------------ Total Household & Personal Products $ 12,299,972 ------------ Pharmaceuticals & Biotechnology - 6.1% Pharmaceuticals - 6.1% 111,066 Abbott Laboratories $ 5,410,025 96,039 Eli Lilly & Co. 5,003,632 260,932 Merck & Co., Inc. 11,376,635 262,100 Pfizer, Inc. 6,788,390 ------------ $ 28,578,682 ------------ Total Pharmaceuticals & Biotechnology $ 28,578,682 ------------ Banks - 11.7% Diversified Banks - 3.6% 153,101 U.S. Bancorp $ 5,540,725 103,024 Wachovia Corp. 5,867,217 149,874 Wells Fargo & Co. 5,329,519 ------------ $ 16,737,461 ------------ Regional Banks - 5.7% 88,467 First Horizon National Corp. $ 3,696,151 123,911 National City Corp. 4,530,186 87,200 Regions Financial Corp. 3,261,280 102,478 SunTrust Banks, Inc. 8,654,267 191,305 Whitney Holding Corp. 6,240,369 ------------ $ 26,382,253 ------------ Thrifts & Mortgage Finance - 2.4% 250,458 Washington Mutual, Inc. $ 11,393,334 ------------ Total Banks $ 54,513,048 ------------ Diversified Financials - 2.7% Asset Management & Custody Banks - 1.5% 152,899 Eaton Vance Corp. $ 5,047,196 34,424 State Street Corp. 2,321,555 ------------ $ 7,368,751 ------------ Investment Banking & Brokerage - 0.7% 55,113 A.G. Edwards, Inc. $ 3,488,102 ------------ Diversified Financial Services - 0.4% 35,852 Bank of America Corp. $ 1,914,138 ------------ Total Diversified Financials $ 12,770,991 ------------ Insurance - 4.6% Life & Health Insurance - 1.3% 91,791 Lincoln National Corp. $ 6,094,922 ------------
Shares Value Multi-Line Insurance - 0.4% 20,900 Hartford Financial Services Group, Inc. $ 1,950,179 ------------ Property & Casualty Insurance - 2.9% 142,492 Chubb Corp. $ 7,539,252 92,994 Safeco Corp. 5,816,775 ------------ $ 13,356,027 ------------ Total Insurance $ 21,401,128 ------------ Real Estate - 3.2% Diversified Real Estate Investment Trusts - 0.8% 73,500 Liberty Property Trust (a) $ 3,611,790 ------------ Residential Real Estate Investment Trusts - 0.7% 56,454 Archstone-Smith Trust $ 3,286,187 ------------ Retail Real Estate Investment Trusts - 1.7% 61,100 General Growth Pro TLB SC $ 3,191,253 109,500 Kimco Realty Corp. 4,922,025 ------------ $ 8,113,278 ------------ Total Real Estate $ 15,011,255 ------------ Software & Services - 0.9% Data Processing & Outsourced Services - 0.9% 89,997 Automatic Data Processing, Inc. $ 4,432,352 ------------ Total Software & Services $ 4,432,352 ------------ Semiconductors - 1.4% 205,400 Microchip Technology $ 6,716,580 ------------ Total Semiconductors $ 6,716,580 ------------ Telecommunication Services - 10.2% Integrated Telecommunication Services - 9.3% 255,296 AT&T Corp. $ 9,126,832 251,696 BellSouth Corp. 11,857,399 364,179 Citizens Utilities Co. (Class B) 5,233,252 43,100 Embarq Corp. 2,265,336 254,800 Verizon Communications, Inc. 9,488,752 381,853 Windstream Corp. 5,429,950 ------------ $ 43,401,521 ------------ Wireless Telecommunication Services - 0.9% 66,304 Alltel Corp. $ 4,010,066 ------------ Total Telecommunication Services $ 47,411,587 ------------ Utilities - 14.4% Electric Utilities - 3.6% 243,400 Duke Energy Corp. $ 8,083,314 127,711 Great Plains Energy, Inc. (a) 4,061,210 133,158 Southern Co. 4,908,204 ------------ $ 17,052,728 ------------ Gas Utilities - 5.7% 120,100 AGL Resources, Inc. $ 4,673,091 129,470 Atmos Energy Corp. 4,131,388 170,238 Equitable Resources, Inc. 7,107,437 126,481 Questar Corp. 10,504,247 ------------ $ 26,416,163 ------------
The accompanying notes are an integral part of these financial statements. 7 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Shares Value Multi-Utilities - 5.1% 98,272 Ameren Corp. $ 5,280,154 94,780 Consolidated Edison, Inc. 4,556,075 143,415 NSTAR 4,927,739 193,900 PG&E Corp. 9,177,287 ------------- $ 23,941,255 ------------- Total Utilities $ 67,410,146 ------------- TOTAL COMMON STOCKS (Cost $342,169,850) $ 452,490,298 ------------- Principal Amount TEMPORARY CASH INVESTMENTS - 5.9% Repurchase Agreement - 3.2% $14,800,000 UBS AG, 4.7%, dated 12/29/06, repurchase price of $14,800,000 plus accrued interest on 1/2/06, collateralized by $14,873,000 U.S. Treasury Bill, 5.625%, 5/15/08 $ 14,800,000 ------------- Shares Security Lending Collateral - 2.7% 12,775,342 Securities Lending Investment Fund, 5.26% $ 12,775,342 ------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $27,575,342) $ 27,575,342 ------------- TOTAL INVESTMENT IN SECURITIES - 103.4% (Cost $372,089,171) $ 482,403,131 ------------- OTHER ASSETS AND LIABILITIES - (3.4)% $ (15,717,138) ------------- TOTAL NET ASSETS - 100.0% $ 466,685,993 =============
* Non-Income producing security. (a) At December 31, 2006, the following securities were out on loan:
Market Shares Security Value 117,638 Great Plains Energy, Inc. $ 3,740,888 72,765 Liberty Property Trust 3,575,672 19,602 Mine Safety Appliances Co. 718,413 181,071 New York Times Co. 4,410,890 ----------- $12,445,863 ===========
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 12/31/06 12/31/05 12/31/04 12/31/03 12/31/02 Class II Net asset value, beginning of period $ 21.37 $ 20.68 $ 18.19 $ 15.18 $ 18.49 -------- -------- -------- -------- --------- Increase (decrease) from investment operations: Net investment income $ 0.56 $ 0.45 $ 0.36 $ 0.32 $ 0.31 Net realized and unrealized gain (loss) on investments 4.06 0.68 2.53 3.02 (3.25) -------- -------- -------- -------- --------- Net increase (decrease) from investment operations $ 4.62 $ 1.13 $ 2.89 $ 3.34 $ (2.94) Distributions to shareowners: Net investment income (0.55) (0.44) (0.40) (0.33) (0.37) Net realized gain (0.37) -- -- -- -- --------- --------- -------- -------- --------- Net increase (decrease) in net asset value $ 3.70 $ 0.69 $ 2.49 $ 3.01 $ (3.31) --------- --------- -------- -------- --------- Net asset value, end of period $ 25.07 $ 21.37 $ 20.68 $ 18.19 $ 15.18 ========= ========= ======== ======== ========= Total return* 22.12% 5.52% 16.04% 22.27% (16.05)% Ratio of net expenses to average net assets+ 0.94% 0.96% 0.98% 1.02% 1.07% Ratio of net investment income to average net assets+ 2.45% 2.32% 2.16% 2.29% 2.25% Portfolio turnover rate 23% 22% 19% 12% 12% Net assets, end of period (in thousands) $156,004 $127,459 $93,691 $60,355 $ 27,084 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.94% 0.96% 0.98% 1.02% 1.07% Net investment income 2.45% 2.32% 2.16% 2.29% 2.25% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.94% 0.95% 0.98% 1.02% 1.07% Net investment income 2.45% 2.33% 2.16% 2.29% 2.25%
* Assumes initial investment at net asset value at the beginning of each period, reinvestment of all distributions and the complete redemption of the investment at net asset value at the end of each period. + Ratios with no reduction for fees paid indirectly. The accompanying notes are an integral part of these financial statements. 9 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $12,445,863) (cost $372,089,171) $ 482,403,131 Receivables -- Fund shares sold 573,763 Dividends, interest and foreign taxes withheld 1,514,737 Other 6,628 ------------- Total assets $ 484,498,259 ------------- LIABILITIES: Payables -- Investment securities purchased $ 2,373,525 Fund shares repurchased 2,355,737 Upon return of securities loaned 12,775,342 Due to bank 209,745 Due to affiliates 33,384 Accrued expenses 64,533 ------------- Total liabilities $ 17,812,266 ------------- NET ASSETS: Paid-in capital $ 337,540,788 Undistributed net investment income 2,013,430 Accumulated undistributed net realized gain on investments 16,817,815 Net unrealized gain on investments 110,313,960 ------------- Total net assets $ 466,685,993 ------------- NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 310,681,855 Shares outstanding 12,459,720 ------------- Net asset value per share $ 24.93 Class II: (No par value, unlimited number of shares authorized) Net assets $ 156,004,138 Shares outstanding 6,221,782 ------------- Net asset value per share $ 25.07
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 12/31/06 INVESTMENT INCOME: Dividends $12,916,747 Interest 577,281 Income on securities loaned, net 8,550 ----------- Total investment income $13,502,578 ----------- EXPENSES: Management fees $ 2,587,321 Transfer agent fees and expenses 2,971 Distribution fees (Class II) 344,541 Administrative reimbursements 83,552 Custodian fees 44,345 Professional fees 23,299 Fees and expenses of nonaffiliated trustees 6,368 Miscellaneous 14,365 ----------- Total expenses $ 3,106,762 Less fees paid indirectly (12,529) ----------- Net expenses $ 3,094,233 ----------- Net investment income $10,408,345 ----------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain from investments $16,951,704 ----------- Change in net unrealized gain or loss from investments $54,119,461 ----------- Net gain on investments $71,071,165 =========== Net increase in net assets resulting from operations $81,479,510 ===========
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 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 10,408,345 $ 8,063,117 Net realized gain on investments 16,951,704 19,415,048 Change in net unrealized gain or loss on investments 54,119,461 (9,053,445) ------------- ------------- Net increase in net assets resulting from operations $ 81,479,510 $ 18,424,720 ------------- ------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income: Class I $ (6,915,751) $ (5,101,572) Class II (3,233,461) (2,458,044) Net realized gain Class I (4,037,203) -- Class II (2,136,789) -- ------------- ------------- Total distributions to shareowners $ (16,323,204) $ (7,559,616) ------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 90,541,666 $ 96,224,481 Reinvestment of distributions 16,323,202 7,559,617 Cost of shares repurchased (65,042,511) (36,867,650) ------------- ------------- Net increase in net assets resulting from Fund share transactions $ 41,822,357 $ 66,916,448 ------------- ------------- Net increase in net assets $ 106,978,663 $ 77,781,552 ------------- ------------- NET ASSETS: Beginning of year $ 359,707,330 $ 281,925,778 ------------- ------------- End of year $ 466,685,993 $ 359,707,330 ============= ============= Undistributed net investment income, end of year $ 2,013,430 $ 1,751,090 ============= =============
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 12/31/06 - -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer Equity 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 the Portfolio is to seek capital appreciation. 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 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 year. 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 13 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, 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, 2006, 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. The Portfolio elected to defer $126,100 in capital losses recognized between November 1, 2006 and December 31, 2006 to its fiscal year ending December 31, 2007. At December 31, 2006, 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 Realized Loss Paid-In Capital - -------------------------------------------------------------------------------------------------- Pioneer Equity Income VCT Portfolio $3,207 $ (3,207) $-- ====== ======== === - --------------------------------------------------------------------------------------------------
14 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis.
- ------------------------------------------------------------------------------- 2006 2005 - ------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 10,135,801 $7,559,616 Long-Term capital gain 6,187,403 -- ---------------------------- $ 16,323,204 $7,559,616 ---------------------------- Total distributions $ 16,323,204 $7,559,616 ============================ Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 1,104,382 Undistributed long-term gain 15,964,485 Post-October loss deferred (126,100) Unrealized appreciation 112,202,438 ------------ Total $129,145,205 ============ - -------------------------------------------------------------------------------
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 adjustments on preferred stocks. 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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. 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 account of the Portfolio's custodian, or subcustodian. The Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is responsible for determining 15 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, $26,004 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 $4,167 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $3,213 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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) - -------------------------------------------------------------------------------------------------------------- Pioneer Equity Income VCT Portfolio $370,198,483 $113,975,886 $ (1,771,238) $112,204,648 ============ ============ ============ ============ - --------------------------------------------------------------------------------------------------------------
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, 2006, were $124,191,598 and $90,761,661, respectively. 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- -------------------------------------------------------------------------------------------------------- Pioneer Equity Income VCT Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - -------------------------------------------------------------------------------------------------------- CLASS I: Shares sold 2,476,273 $ 57,609,960 2,853,636 $ 59,389,539 Reinvestment of distributions 482,580 10,952,953 242,794 5,101,573 Shares repurchased (1,426,377) (32,667,433) (1,317,139) (27,494,268) ------------------------------------------------------------- Net increase 1,532,476 $ 35,895,480 1,779,291 $ 36,996,844 ============================================================== CLASS II: Shares sold 1,413,782 $ 32,931,706 1,763,038 $ 36,834,942 Reinvestment of distributions 235,823 5,370,249 116,340 2,458,044 Shares repurchased (1,392,117) (32,375,078) (444,619) (9,373,382) ------------------------------------------------------------- Net increase 257,488 $ 5,926,078 1,434,759 $ 29,919,604 ============================================================= - --------------------------------------------------------------------------------------------------------
16 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 8. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 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 of Pioneer Equity Income VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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 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, 2006, 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, 2006, 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 9, 2007 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"), 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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. 19 Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- 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 absolute investment performance based upon total return and yield, as well as the Fund's performance relative to the performance of both a peer group considered appropriate by the Independent Trustees for this purpose and the Russell 1000 Value Index. The Fund's performance, based upon total return, was in the first quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, the first quintile of the peer group for the three years ended June 30, 2006, the second quintile for the five years ended June 30, 2006 and in the first quintile for the ten year period ended June 30, 2006. (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 yield of the Fund, before deduction of expenses, relative to the yield index. The Trustees, focusing on three-year total returns, concluded that the performance of the Fund was strong. 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 size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee for the 12 months ended June 30, 2006 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 also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 to be in the second quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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, 20 Pioneer Equity Income 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 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees 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 Investment Adviser The trust's Board of Trustees provides broad supervision Pioneer Investment Management, Inc. over the portfolio's affairs. The officers of the trust are responsible for the trust's operations. The trust's Trustees Custodian and officers are listed below, together with their principal Brown Brothers Harriman & Co. occupations during the past five years. Trustees who are interested persons of the trust within the meaning of the Independent Registered Public Accounting Firm 1940 Act are referred to as Interested Trustees. Trustees Ernst & Young LLP who are not interested persons of the trust are referred to as Independent Trustees. Each of the Trustees serves as a Principal Underwriter trustee of each of the 86 U.S. registered investment Pioneer Funds Distributor, Inc. portfolios for which Pioneer serves as investment adviser (the "Pioneer Funds"). The address for all Interested Legal Counsel Trustees and all officers of the trust is 60 State Street, Wilmer Cutler Pickering Hale and Dorr LLP Boston, Massachusetts 02109. Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc.
- -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Chairman of the Trustee since 1994. Deputy Chairman and a Director of Pioneer Director of ICI Cogan, Jr. (80)* Board, Trustee Serves until a successor Global Asset Management Cogan, Jr. (80)* Mutual Insurance and President trustee is elected or S.p.A. ("PGAM"); Non-Executive Chairman Company earlier retirement or and a Director of Pioneer Investment removal. Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - ------------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Equity Income VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE David R. Bock (63) Trustee Trustee since 2005. Serves Senior Vice President and Chief Director of The 3050 K. Street NW, until a successor trustee Financial Officer, I-trax, Inc. Enterprise Social Washington, DC 20007 is elected or earlier (publicly traded health care Investment Company retirement or removal. services company) (2001 - (privately-held present); Managing Partner, affordable housing Federal City Capital Advisors finance company); (boutique merchant bank) (2002 and Director of New to 2004); and Executive Vice York Mortgage Trust President and Chief Financial (publicly traded Officer, Pedestal Inc. mortgage REIT) (internet- based mortgage trading company) (2000 - 2002) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Trustee Trustee since 2000. Serves President, Bush International Director of Brady 3509 Woodbine Street, until a successor trustee (international financial Corporation Chevy Chase, MD 20815 is elected or earlier advisory firm) (industrial retirement or removal. identification and specialty coated material products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street West, until a successor trustee Group, Inc. (consulting firm); Montreal, Quebec, Canada is elected or earlier and Desautels Faculty of H3A 1G5 retirement or removal. Management, McGill University - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Trustee Trustee since 2006. Serves Private investor (2004 - Director of 89 Robbins Avenue, until a successor trustee present); and Senior Executive Quadriserv Inc. Berkeley Heights, NJ is elected or earlier Vice President, The Bank of New (technology products 07922 retirement or removal. York (financial and securities for securities services) (1986 - 2004) lending industry) - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Trustee Trustee since 1995. Serves President and Chief Executive Director of New 200 State Street, 12th until a successor trustee Officer, Newbury, Piret & America High Income Floor, Boston, MA 02109 is elected or earlier Company, Inc. (investment Fund, Inc. retirement or removal. banking firm) (closed-end investment company) - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) Trustee Trustee since 2000. Serves President, John Winthrop & Co., None One North Adgers Wharf, until a successor trustee Inc. (private investment firm) Charleston, SC 29401 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------
23 Pioneer Equity Income VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President and Chief Executive Trustee of certain President discretion of the Board Officer, PIM-USA since May 2003 Pioneer Funds (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the Secretary of PIM-USA; Senior None discretion of the Board Vice President - Legal of Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Assistant Since 2003. Serves at the Vice President and Senior None Secretary discretion of the Board Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001); and Assistant Secretary of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey (45) Assistant Since 2006. Serves at the Partner, Wilmer Cutler Pickering None Secretary discretion of the Board Hale and Dorr LLP; and Assistant Secretary of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Treasurer Since 2000. Serves at the Vice President - Fund None discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Assistant Since 2004. Serves at the Deputy Treasurer of Pioneer None Treasurer discretion of the Board since 2004; Treasurer and Senior 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 - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Since 2000. Serves at the Assistant Vice President - Fund None Treasurer discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Assistant Since 2002. Serves at the Fund Accounting Manager - Fund None Treasurer discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------------------------------
24 Pioneer Equity Income VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Katherine Kim Sullivan Assistant Since 2003. Serves at the Fund Administration Manager - None (33) Treasurer discretion of the Board Fund Accounting, Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Since 2006. Serves at the Chief Compliance Officer of None Compliance discretion of the Board Pioneer and all of the Pioneer Officer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 25 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 26 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 27 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 28 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 29 [LOGO]PIONEER Investments(R) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18665-01-0207 [LOGO]PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Opportunity VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2006 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 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 Equity Opportunity VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/06 - -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL.]
U.S. Common Stocks 88.4% Temporary Cash Investment 10.5% Depositary Receipts for International Stocks 1.1%
Sector Distribution (As a percentage of equity holdings) [THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL.]
Financials 27.8% Health Care 18.2% Industrials 14.7% Utilities 12.9% Information Technology 11.3% Materials 10.7% Energy 4.3% Consumer Discretionary 0.1%
Five Largest Holdings (As a percentage of equity holdings) 1 . NRG Energy, Inc. 4.93% 2. General Growth Pro TLB SC 4.61 3. Host Hotels & Resorts, Inc. 4.12 4. Texas Industries, Inc. 3.55 5. Southern Union Co. 3.27
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $ 12.81 $ 10.78
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $ 0.0398 $ - $ -
- -------------------------------------------------------------------------------- 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 TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Pioneer Equity Opportunity VCT Portfolio Russell 2500 Index 3/05 10000 10000 12/05 10955 11161 12/06 13065 12966
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. - -------------------------------------------------------------------------------- Average Annual Total Returns (As of December 31, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- Life-of-Class (3/18/05) 15.08% 1 Year 19.26%
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.pioneerinvestments.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 Equity Opportunity 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 Equity Opportunity VCT Portfolio Based on actual returns from July 1, 2006 through December 31, 2006.
Share Class II - -------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $1,000.00 Ending Account Value on 12/31/06 $1,112.92 Expenses Paid During Period* $ 6.66
* 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, 2006 through December 31, 2006.
Share Class II - -------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $1,000.00 Ending Account Value on 12/31/06 $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 VARIABLE CONTRACTS TRUST Pioneer Equity Opportunity VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/06 - -------------------------------------------------------------------------------- A focus on economically-sensitive sectors helped Pioneer Equity Opportunity VCT Portfolio record impressive returns over the past 12 months ended December 31, 2006. In the following discussion, portfolio manager Margie Patel details the market background and discusses some of the strategies she employed. Q. How did the Portfolio perform over this period? A. For the twelve months ended December 31, 2006, the Portfolio's Class II shares returned 19.26% at net asset value. This result was ahead of both the benchmark, the Russell 2500 Index, which returned 16.17%, and the 12.84% return of the 81 funds in the Lipper Mid-Cap Core Funds category for the period. Call 1-800-688-9915 or visit www.pioneerinvestments.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 for the period and the areas you have been emphasizing. A. Stocks of smaller companies led the market higher during the first part of the Portfolio's fiscal year. Equity markets then surrendered their gains over the summer, as rising interest rates and costly energy threatened to stanch the nation's economic expansion. But a drop in energy prices combined with an interruption in the Federal Reserve's string of interest rates hikes, set off a fall rally that favored higher-quality, larger-capitalization stocks, especially those with attractive or increasing dividends. The Portfolio benefited from both of these trends: We reduced holdings of smaller companies that we felt had risen to - or gone beyond - their fundamental investment value, while increasing exposure to larger companies that appeared to offer exceptional opportunities for growth. Q. Which of your strategies and holdings had a beneficial impact on performance? A. The period's most rewarding strategy was our large commitment to real estate investment trusts (REITs) that are active in the office, shopping center and lodging categories. REIT shares rose dramatically as investors drove up property values, drawn by boosts in lease rates, higher tabs for hotel rooms and reduced inventories of available space. Higher property prices increased the value of assets in REIT portfolios, bringing prospects for improved earnings and increased dividends. Our holdings in the sector rose across the board, and as of the date of this report Equity Office Properties was reviewing acquisition offers and hotel operator MeriStar, had been bought out. In all, six of the Portfolio's positions received bids to be acquired by other companies or taken private during the 2006 calendar year. Our emphasis on economically-sensitive areas, including industrial and basic materials sectors, was another key to the Portfolio's solid returns. Strong earnings drove up shares of chemical manufacturer FMC, while nickel producer Inco was bought by Brazil's CVRD. Strengthening outlays for capital expenditures aided Gardner Denver, whose compressors serve the energy and other sectors. Increased capital expenditures as well as infrastructure rebuilding benefited General Cable. Robust business conditions boosted results at cement maker Texas Industries and at Kennametal, maker of tools for a range of industrial uses. Among utilities, NRG Energy, which owns and operates power plants in several U.S. regions, moved higher, thanks to improving financial measures and anticipated growth in power demand in its areas of service. NRG continues to restructure after emerging from bankruptcy a few years ago. In energy, pipeline operator Kinder Morgan was taken private in a management buyout. And Fisher Scientific, a leading maker of laboratory equipment, was bought by Thermo Electron. 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.pioneerinvestments.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 Equity Opportunity VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Q. Which of your decisions hurt overall performance? A. Disappointments were concentrated among our smaller positions, reducing their overall impact on performance. Utilities cut coal consumption as weather stayed warm and consumers trimmed their thermostat settings. Resulting lower coal prices in the face of continued high production hurt results at Alpha Natural Resources and Foundation Coal. Earnings expectations fell at Louisiana-Pacific when the cooling housing market reduced demand for building products at a time when competitors were increasing supplies by boosting output. Lower operating results pressured shares of chemical company Olin despite strength among basic materials companies. During the reporting period, we eliminated Abitibi Consolidated, a Canadian manufacturer of newsprint and other paper products; shrinking demand for newsprint combined with higher operating costs to depress results. Weak demand and cost pressures also hurt results at Wabash National, a manufacturer of truck trailers. And defense contractor EDO, which supplies bomb release devices and instrumentation, declined after a series of setbacks in contract awards from the Department of Defense. Our underweight stance in the energy sector held back results for much of the period. Q. What is your outlook, and how does the Portfolio reflect that outlook? A. Current conditions suggest that GDP growth will track somewhat below the economy's long-term annual rate of three percent in upcoming months. With that in mind, we anticipate continued, moderate expansion in 2007. Growth could potentially accelerate later in the year as the negative impact of the housing downturn works its way through the economy and begins to taper off. Our positioning continues to emphasize industrial and selected basic materials sectors. In addition, we currently favor certain health-care issues, including some in biotechnology, pharmaceuticals and life science services. We think demand for their products could increase next year, along with an accelerating pace of new drug discoveries. 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 Equity Opportunity VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 101.0% Energy - 4.3% Coal & Consumable Fuels - 0.1% 28 Foundation Coal Holdings, Inc. $ 889 -------- Oil & Gas Exploration & Production - 0.1% 15 Pogo Producing Co. $ 727 -------- Oil & Gas Refining & Marketing - 1.7% 185 Tesoro Petroleum Corp. $ 12,167 -------- Oil & Gas Storage & Transporation - 2.4% 163 Kinder Morgan, Inc. $ 17,237 -------- Total Energy $ 31,020 -------- Materials - 10.9% Commodity Chemicals - 0.1% 24 NOVA Chemicals Corp. $ 670 -------- Construction Materials - 3.6% 402 Texas Industries, Inc. (a) $ 25,820 -------- Diversified Chemical - 2.3% 17 Dow Chemical Co. $ 679 155 FMC Corp. 11,865 259 Olin Corp. 4,279 -------- $ 16,823 -------- Diversified Metals & Mining - 1.8% 226 Freeport-McMoRan Copper & Gold, Inc. (Class B) $ 12,595 -------- Gold - 1.2% 280 Barrick Gold Corp. $ 8,596 -------- Industrial Gases - 0.2% 15 Air Products & Chemicals, Inc. $ 1,054 -------- Specialty Chemicals - 1.7% 200 Arch Chemicals, Inc. $ 6,662 281 RPM, Inc. 5,870 -------- $ 12,532 -------- Total Materials $ 78,090 -------- Capital Goods - 12.0% Aerospace & Defense - 1.3% 35 DRS Technologies, Inc. $ 1,844 300 EDO Corp 7,122 -------- $ 8,966 -------- Building Products - 0.2% 57 Lennox International, Inc. $ 1,745 -------- Construction & Farm Machinery & Heavy Trucks - 0.5% 29 Oshkosh Truck Corp. $ 1,404 152 Wabash National Corp. 2,295 -------- $ 3,699 --------
Shares Value Electrical Component & Equipment - 5.7% 94 AMETEK, Inc. $ 2,993 143 Cooper Industries, Inc. 12,931 56 Franklin Electric Co., Inc. 2,878 506 General Cable Corp.* 22,117 -------- $ 40,919 -------- Industrial Machinery - 4.3% 77 Applied Power, Inc.* $ 3,669 41 Donaldson Co., Inc. 1,423 38 Gardner Denver, Inc.* 1,418 319 ITT Corp. 18,126 85 Kaydon Corp. 3,378 48 Kennametal, Inc. 2,825 -------- $ 30,839 -------- Total Capital Goods $ 86,168 -------- Commercial Services & Supplies - 2.9% Office Services & Supplies - 2.9% 254 Avery Dennison Corp. $ 17,254 97 Brady Corp.* 3,616 -------- $ 20,870 -------- Total Commercial Services & Supplies $ 20,870 -------- Media - 0.1% Advertising - 0.1% 87 The Interpublic Group of Companies, Inc.*(a) $ 1,065 -------- Total Media $ 1,065 -------- Health Care Equipment & Services - 6.9% Health Care Distributors - 0.5% 113 Owens & Minor, Inc. $ 3,534 -------- Health Care Equipment - 1.2% 120 Beckman Coulter, Inc. $ 7,176 67 Steris Corp. 1,686 -------- $ 8,862 -------- Health Care Supplies - 4.5% 209 Gen-Probe, Inc. $ 10,945 83 Haemonetics Corp.* 3,737 448 Inverness Medical Innovations, Inc.* 17,338 -------- $ 32,020 -------- Health Care Technology - 0.7% 194 IMS Health, Inc. $ 5,331 -------- Total Health Care Equipment & Services $ 49,747 --------
6 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Opportunity VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value Pharmaceuticals & Biotechnology - 11.3% Biotechnology - 5.2% 298 BioMarin Pharmaceutical, Inc.* $ 4,884 73 Genentech, Inc.* 5,922 200 Human Genome Sciences, Inc.*(a) 2,488 1,000 Mannkind Corp.*(a) 16,490 392 PDL BioPharma, Inc.* 7,895 -------- $ 37,679 -------- Life Sciences Tools & Services - 6.1% 94 Applera Corp. - Applied Biosystems Group* $ 3,449 104 Bio-Rad Laboratories, Inc.* 8,582 325 Pharmaceutical Product Development, Inc. 10,472 472 Thermo Fisher Scientific, Inc.*(a) 21,377 -------- $ 43,880 -------- Total Pharmaceuticals & Biotechnology $ 81,559 -------- Banks - 3.0% Thrifts & Mortgage Finance - 3.0% 839 Sovereign Bancorp, Inc. $ 21,302 -------- Total Banks $ 21,302 -------- Diversified Financials - 4.4% Asset Management & Custody Banks - 3.4% 154 Mellon Bank Corp. $ 6,491 454 The Bank of New York Co., Inc. 17,874 -------- $ 24,365 -------- Investment Banking & Brokerage - 1.0% 152 Lazard, Ltd.* $ 7,196 -------- Total Diversified Financials $ 31,561 -------- Insurance - 0.5% Multi-Line Insurance - 0.5% 41 Hartford Financial Services Group, Inc. $ 3,826 -------- Total Insurance $ 3,826 -------- Real Estate - 20.2% Diversified Real Estate Investment Trusts - 2.2% 154 Liberty Property Trust (a) $ 7,568 214 Washington Real Estate Investment Trust 8,560 -------- $ 16,128 -------- Office Real Estate Investment Trusts - 3.3% 214 Equity Office Properties Trust (a) $ 10,308 262 Mack-Cali Realty Corp. 13,362 -------- $ 23,670 -------- Real Estate Management & Development - 2.7% 336 Forest City Enterprises, Inc. $ 19,622 --------
Shares Value Retail Real Estate Investment Trusts - 7.8% 100 Federal Realty Investment Trust $ 8,500 641 General Growth Pro TLB SC 33,479 187 Saul Centers, Inc. 10,321 44 The Macerich Co. 3,809 -------- $ 56,109 -------- Specialized Real Estate Investment Trusts - 4.2% 1,220 Host Hotels & Resorts, Inc. $ 29,951 -------- Total Real Estate $145,480 -------- Technology Hardware & Equipment - 7.0% Communications Equipment - 4.2% 409 CommScope, Inc.* $ 12,466 690 KBR, Inc.*(a) 18,050 -------- $ 30,516 -------- Electronic Equipment & Instruments - 2.8% 187 Amphenol Corp. $ 11,609 161 Itron, Inc.* 8,346 -------- $ 19,955 -------- Total Technology Hardware & Equipment $ 50,471 -------- Semiconductors - 4.4% Semiconductor Equipment - 3.4% 567 FEI Co.*(a) $ 14,952 506 Veeco Instruments, Inc.* 9,477 -------- $ 24,429 -------- Semiconductors - 1.0% 249 Texas Instruments, Inc. $ 7,171 -------- Total Semiconductors $ 31,600 -------- Utilities - 13.0% Gas Utilities - 6.1% 100 Questar Corp. $ 8,305 850 Southern Union Co. 23,760 377 Washington Gas Light Co. 12,283 -------- $ 44,348 -------- Independent Power Producer & Energy Traders - 5.0% 640 NRG Energy, Inc.* $ 35,846 -------- Multi-Utilities - 1.9% 203 Public Service Enterprise Group, Inc. $ 13,475 -------- Total Utilities $ 93,669 -------- TOTAL COMMON STOCKS (Cost $640,213) $726,428 --------
The accompanying notes are an integral part of these financial statements. 7 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Opportunity VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Shares Value TEMPORARY CASH INVESTMENT - 12.0% Security Lending Collateral - 12.0% 86,027 Securities Lending Investment Fund, 5.26% $ 86,027 -------- TOTAL TEMPORARY CASH INVESTMENT (Cost $86,027) $ 86,027 -------- TOTAL INVESTMENT IN SECURITIES - 113.0% (Cost $726,240) $812,455 -------- OTHER ASSETS AND LIABILITIES - (13.0)% $(93,209) -------- TOTAL NET ASSETS - 100.0% $719,246 ========
* Non-Income producing security. (A.D.R.) American Depositary Receipt (a) At December 31, 2006, the following securities were out on loan:
Shares Security Market Value 212 Equity Office Properties Trust $10,212 249 FEI Co.* 6,566 198 Human Genome Sciences, Inc.* 2,463 14 The Interpublic Group of Companies, Inc.* 171 99 KBR, Inc. * 2,590 152 Liberty Property Trust 7,469 990 Mannkind Corp.* 16,325 398 Texas Industries, Inc. 25,564 267 Thermo Fisher Scientific, Inc.* 12,092 ------- $83,452 =======
8 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Opportunity VCT Portfolio - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
3/18/05 (a) Year Ended to Class II 12/31/06 12/31/05 Net asset value, beginning of period $ 10.78 $ 10.00 ------- ------- Increase from investment operations: Net investment income $ 0.05 $ 0.07 Net realized and unrealized gain on investments 2.02 0.71 ------- ------- Net increase from investment operations $ 2.07 $ 0.78 Distribution to shareowners: Net investment income $ (0.04) $ -- ------- ------- Net increase in net asset value $ 2.04 $ 0.78 ------- ------- Net asset value, end of period $ 12.81 $ 10.78 ======= ======= Total return* 19.26% 7.80%(b) Ratio of net expense to average net assets+ 1.25% 1.25%** Ratio of net investment income to average net assets+ 0.87% 1.05%** Portfolio turnover rate 57% 3%(b) Net assets, end of period (in thousands) $ 719 $ 314 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 12.50% 38.61%** Net investment loss (10.39)% (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. + 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, and sales charges. The accompanying notes are an integral part of these financial statements. 9 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Opportunity VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $83,452) (cost $726,240) $ 812,455 Cash 28,230 Receivables -- Dividends, interest and foreign taxes withheld 768 Due from Pioneer Investment Management, Inc. 609 Other 456 --------- Total assets $ 842,518 --------- LIABILITIES: Payables -- Fund shares repurchased $ 215 Upon return of securities loaned 86,027 Due to affiliates 281 Accrued expenses 36,787 --------- Total liabilities $ 123,310 --------- NET ASSETS: Paid-in capital $ 608,455 Undistributed net investment income 4,384 Accumulated undistributed net realized gain on investments 20,154 Net unrealized gain on investments 86,215 --------- Total net assets $ 719,208 --------- NET ASSET VALUE PER SHARE: Class II: (No par value, unlimited number of shares authorized) Net assets $ 719,208 Shares outstanding 56,123 --------- Net asset value per share $ 12.81
10 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Opportunity VCT Portfolio - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS - -------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $23) $ 8,927 Interest 1,462 Income on securities loaned, net 32 --------- Total investment income $ 10,421 --------- EXPENSES: Management fees $ 3,697 Transfer agent fees and expenses 1,390 Distribution fees (Class II) 1,232 Administrative reimbursements 99 Custodian fees 11,346 Professional fees 32,147 Printing 5,978 Fees and expenses of nonaffiliated trustees 5,444 Miscellaneous 299 --------- Total expenses $ 61,632 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (55,470) --------- Net expenses $ 6,162 --------- Net investment income $ 4,259 --------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain from investments $ 21,759 --------- Change in net unrealized gain from investments $ 68,337 --------- Net gain on investments $ 90,096 --------- Net increase in net assets resulting from operations $ 94,355 =========
The accompanying notes are an integral part of these financial statements. 11 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Opportunity VCT Portfolio - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
3/18/05 (Commencement Year Ended of Operations) 12/31/06 to 12/31/05 FROM OPERATIONS: Net investment income $ 4,259 $ 2,080 Net realized gain (loss) on investments 21,759 (1,911) Change in net unrealized gain (loss) on investments 68,337 17,878 --------- --------- Net increase in net assets resulting from operations $ 94,355 $ 18,047 --------- --------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income: Class II $ (1,759) $ -- --------- --------- Total distributions to shareowners $ (1,759) $ -- --------- --------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 390,401 $ 339,533 Reinvestment of distributions 963 -- Cost of shares repurchased (78,801) (43,531) --------- --------- Net increase in net assets resulting from Fund share transactions $ 312,563 $ 296,002 --------- --------- Net increase in net assets $ 405,159 $ 314,049 NET ASSETS: Beginning of period 314,049 -- --------- --------- End of period $ 719,208 $ 314,049 --------- --------- Undistributed net investment income, end of period $ 4,384 $ 2,190 --------- ---------
12 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Opportunity VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 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 Portfolio seeks long-term capital growth and secondarily, it seeks income. 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 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 year. 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 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 13 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Opportunity VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, 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. At December 31, 2006, 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 Gain Capital - -------------------------------------------------------------------------------------------- Pioneer Equity Opportunity VCT Portfolio $ (306) $306 $-- ====== ==== === - --------------------------------------------------------------------------------------------
The following chart shows the distributions paid during the fiscal year ended December 31, 2006 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis. There were no distributions paid during the year ended December 31, 2005.
- -------------------------------------------------------------------------------------------- 2006 2005 - -------------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 1,759 -- -------------------- Total distributions $ 1,759 -- ==================== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 6,938 Undistributed long-term gain 17,531 Unrealized appreciation 86,284 -------- Total $110,753 ======== - --------------------------------------------------------------------------------------------
14 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Opportunity VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. 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 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, 2006, $1 was payable to PIM related to management fees, administrative fees and certain other services, and is included in due to affiliates. Through May 1, 2007, 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 $265 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $15 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $726,240 $98,208 $ (12,062) $86,146 ======== ======= ========= ======= - ---------------------------------------------------------------------------------------------------
15 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Opportunity VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, was $571,348 and $284,868, respectively. 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- ------------------------------------------------------------------------------------------------------- Pioneer Equity Opportunity VCT Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ------------------------------------------------------------------------------------------------------- CLASS II: Shares sold 33,707 $390,401 33,266 $339,533 Reinvestment of distributions 87 963 -- Shares repurchased (6,808) (78,801) (4,129) (43,531) ------------------------------------------------------ Net increase 26,986 $312,601 29,137 $296,002 ====================================================== - -------------------------------------------------------------------------------------------------------
8. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 16 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Opportunity VCT Portfolio - -------------------------------------------------------------------------------- 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 of Pioneer Equity Opportunity VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2006, 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 Equity Opportunity VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2006, the results of its operations for the year then ended, and the changes in its net assets, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 9, 2007 17 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"), 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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. 18 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Opportunity VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 absolute investment performance based upon total return and yield, as well as the Fund's performance relative to the performance of both a peer group considered appropriate by the Independent Trustees for this purpose and the Russell 1000 Value Index. The Fund's performance, based upon total return, was in the first quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, the first quintile of the peer group for the three years ended June 30, 2006, the second quintile for the five years ended June 30, 2006 and in the first quintile for the ten year period ended June 30, 2006. (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 yield of the Fund, before deduction of expenses, relative to the yield index. The Trustees, focusing on three-year total returns, concluded that the performance of the Fund was strong. 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 size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee for the 12 months ended June 30, 2006 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 also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 to be in the second quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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, 19 PIONEER VARIABLE CONTRACTS TRUST Pioneer Equity Opportunity VCT Portfolio - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- 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 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 20 Pioneer Equity Opportunity VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS - -------------------------------------------------------------------------------- Investment Adviser Pioneer Investment Management, Inc. Custodian Brown Brothers Harriman & Co. Independent Registered Public Accounting Firm Ernst & Young LLP Principal Underwriter Pioneer Funds Distributor, Inc. Legal Counsel Wilmer Cutler Pickering Hale and Dorr LLP Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc. Trustees and Officers The trust's Board of Trustees provides broad supervision over the portfolio's affairs. The officers of the trust are responsible for the trust's operations. The trust's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the trust within the meaning of the 1940 Act are referred to as Interested Trustees. Trustees who are not interested persons of the trust are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 86 U.S. registered investment portfolios for which Pioneer serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the trust is 60 State Street, Boston, Massachusetts 02109. - -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Board, Trustee until a successor trustee and President is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Deputy Chairman and a Director of Pioneer Global Director of ICI Mutual Insurance Company Asset Management S.p.A. ("PGAM"); Non-Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - ------------------------------------------------------------------------------------------------------------------------------------
21 Pioneer Equity Opportunity VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE David R. Bock (63) Trustee Trustee since 2005. Serves Senior Vice President and Chief Financial Officer, 3050 K. Street NW, until a successor trustee I-trax, Inc. (publicly traded health care services Washington, DC 20007 is elected or earlier company) (2001 - present); Managing Partner, retirement or removal. Federal City Capital Advisors (boutique merchant bank) (2002 to 2004); and Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet- based mortgage trading company) (2000 - 2002) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Trustee Trustee since 2000. Serves President, Bush International (international 3509 Woodbine Street, until a successor trustee financial advisory firm) Chevy Chase, MD 20815 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves Founding Director, The Winthrop Group, Inc. 1001 Sherbrooke Street West, until a successor trustee (consulting firm); and Desautels Faculty of Montreal, Quebec, Canada is elected or earlier Management, McGill University H3A 1G5 retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Trustee Trustee since 2006. Serves Private investor (2004 - present); and Senior 89 Robbins Avenue, until a successor trustee Executive Vice President, The Bank of New York Berkeley Heights, NJ is elected or earlier (financial and securities services) (1986 - 2004) 07922 retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Trustee Trustee since 1995. Serves President and Chief Executive Officer, Newbury, 200 State Street, 12th until a successor trustee Piret & Company, Inc. (investment banking firm) Floor, Boston, MA 02109 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) Trustee Trustee since 2000. Serves President, John Winthrop & Co., Inc. (private One North Adgers Wharf, until a successor trustee investment firm) Charleston, SC 29401 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE David R. Bock (63) Director of The Enterprise Social Investment 3050 K. Street NW, Company (privately-held affordable housing Washington, DC 20007 finance company); and Director of New York Mortgage Trust (publicly traded mortgage REIT) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Director of Brady Corporation (industrial 3509 Woodbine Street, identification and specialty coated material Chevy Chase, MD 20815 products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) None 1001 Sherbrooke Street West, Montreal, Quebec, Canada H3A 1G5 - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Director of Quadriserv Inc. (technology 89 Robbins Avenue, products for securities lending industry) Berkeley Heights, NJ 07922 - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Director of New America High Income Fund, 200 State Street, 12th Inc. (closed-end investment company) Floor, Boston, MA 02109 - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) None One North Adgers Wharf, Charleston, SC 29401 - ------------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Equity Opportunity VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Assistant Since 2003. Serves at the Secretary discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey Assistant Since 2006. Serves at the (45) Secretary discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Treasurer Since 2000. Serves at the discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Assistant Since 2004. Serves at the Treasurer discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Since 2000. Serves at the Treasurer discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Assistant Since 2002. Serves at the Treasurer discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS OFFICER Osbert M. Hood (54)+ President and Chief Executive Officer, PIM-USA Trustee of certain Pioneer Funds since May 2003 (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary of PIM-USA; Senior Vice President - None Legal of Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Vice President and Senior Counsel of Pioneer since None 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 of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey Partner, Wilmer Cutler Pickering Hale and Dorr None (45) LLP; and Assistant Secretary of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Vice President - Fund Accounting, Administration None and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Deputy Treasurer of Pioneer since 2004; Treasurer None and Senior 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 - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Vice President - Fund Accounting, None Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Fund Accounting Manager - Fund Accounting, None Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------------------------------
23 Pioneer Equity Opportunity VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Katherine Kim Sullivan Assistant Since 2003. Serves at the (33) Treasurer discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Since 2006. Serves at the Compliance discretion of the Board Officer - ------------------------------------------------------------------------------------------------------------------------------------ NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS OFFICER Katherine Kim Sullivan Fund Administration Manager - Fund Accounting, None (33) Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Compliance Officer of Pioneer and all of the None Pioneer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 24 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 25 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 26 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 27 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 28 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 29 [LOGO] PIONEER Investments(R) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18680-01-0207 [LOGO]PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Fund VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2006 PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Table of Contents - -------------------------------------------------------------------------------- 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 12/31/06 - -------------------------------------------------------------------------------- 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 93.2% Depositary Receipts for International Stocks 3.6% Temporary Cash Investment 1.9% International Common Stocks 1.3%
Sector Distribution (As a percentage of equity holdings) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Financials 16.8% Industrials 14.1% Information Technology 14.0% Consumer Discretionary 13.4% Health Care 12.9% Consumer Staples 11.2% Energy 8.3% Materials 4.3% Telecommunication Services 4.2% Utilities 0.8%
Five Largest Holdings (As a percentage of equity holdings) 1. Chevron Corp. 2.48% 2. McGraw-Hill Co., Inc. 2.41 3. Norfolk Southern Corp. 2.11 4. Wells Fargo & Co. 1.89 5. Deere & Co. 1.69
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $24.73 $21.49
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $0.2561 $ - $ -
- -------------------------------------------------------------------------------- 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 MOUNTAIN CHART IN THE PRINTED MATERIAL]
Pioneer Fund VCT Portfolio S&P 500 10/97 10000 10000 10545 10642 12/98 13258 13686 15328 16564 12/00 15481 15057 13764 13268 12/02 11114 10337 13719 13300 12/04 15218 14747 16121 15470 12/06 18757 17912
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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- Life-of-Class (10/31/97) 7.10% 5 Years 6.39% 1 Year 16.35%
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.pioneerinvestments.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, 2006 through December 31, 2006.
Share Class II ------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ ,1,107.78 Expenses Paid During Period* $ 5.05
* 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, 2006 through December 31, 2006.
Share Class II ------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 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 12/31/06 - -------------------------------------------------------------------------------- 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, 2006. Q. John, how did Pioneer Fund VCT Portfolio perform during 2006? A. Overall, the Portfolio did well in 2006, versus both its stock-market benchmark and its mutual-fund peer group. However, the performance was stronger on a relative basis in the first half of the year than in the second. For the year as a whole, Class II shares of Pioneer Fund VCT Portfolio showed a total return of 16.35% at net asset value. By comparison, the Standard & Poor's 500, an unmanaged index of the general stock market, rose by 15.78%, and the 224 funds in the Lipper Large-Cap Core category had an average return of 13.31%. In the second half of the year, the Fund returned 10.96%, versus 12.73% for the S&P 500 and 11.56% for the 230 Lipper Large-Cap Core funds. Call 1-800-688-9915 or visit www.pioneerinvestments.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. Despite lagging in the last six months, we were pleased with our positive results for the year, especially in view of our having been cautious about the markets as we went into the year. Corporate earnings held up surprisingly well all year, and we think that that was the main reason for the good equity performance. Underlying the earnings advances was continued economic growth in the United States, accompanied by ongoing productivity improvements by American companies and historically low unemployment numbers. Other positives for the market were a fall-off in energy prices, a decline in the Federal budget deficit, robust merger-and-acquisition activity, and very good growth in many foreign countries, benefiting U.S. multinational companies. There were concerns later in the year about the changing political scene in Washington, the nerve-wracking international issues, the potential effects on consumer spending of the slowdown in housing, and some evidence of inventory build-up in commodities. But when the curtain fell on the year, investors had reason to be happy. Q. Please focus just on the last part of the year and discuss the relative underperformance. A. The underperformance in the last six months of 2006 was primarily attributable to sluggish returns for the Portfolio in consumer staples, financials, and industrials. Hershey trailed its consumer staples sector after lowering its forecasts amidst problems with its Canadian business and excessive retailer inventory. Norfolk Southern, Caterpillar, and Burlington Northern, in our industrials sector, saw some profit-taking in the wake of investor concerns of a slowing economy. In the financials sector, we lost some relative performance by not owning one name, Goldman Sachs, that did extremely well in the period and by lackluster performance from one of our larger and overweighted positions, National City. At the same time, we had positive performance attribution from a number of our holdings across various sectors, including McGraw-Hill and Nordstrom in consumer cyclicals, BellSouth and AT&T in telecommunications services, and PACCAR in industrials. It is sometimes a trade-off between short and long-term results, and we do not expect that each of our holdings will perform well in each time period. In cases of near-term underperformance such as we saw in the cases mentioned, we obviously want to review the long-term investment case closely and be sure it remains intact. If we think that the current difficulties reflect more fundamental issues, of course we need to re-assess our holding of the security. In the cases of Hershey, Norfolk Southern, Caterpillar, and Burlington Northern, we decided that the merits of each outweighed the shortcomings and retained the positions. 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.pioneerinvestments.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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Q. What changes did you make to the Portfolio in the second half of the year? A. Most of our activity in the six months ended December 31, 2006, was on the sell side. We eliminated ten positions and only added four, two of which were spin-offs from existing holdings. We added Wal-Mart Stores, the well-known discount retailer. After watching the stock for several years and noting its listless share price despite rising earnings, we finally thought that the opportunities exceeded the risks. Moderating gasoline prices help its clientele of average working people and mean they may be able to do more shopping. We also initiated a position in Advanced Micro Devices, a semiconductor company that has labored for years in the shadow of the much larger Intel. At last AMD appears to have secured some stable market share, on the back of new and highly competitive product offerings. In thinking about AMD versus Intel (which, by the way, we also own), we are heartened by the Biblical story of David and Goliath, though would note that the story does not always play out as it did in the Bible. Otherwise, we acquired shares of Windstream, a local telephone-service provider, when our holding ALLTEL spun it out, and we likewise received stock in Idearc, a publisher of yellow-page directories, when its parent, Verizon, distributed the equity of that company. Among our sales were three resulting from mergers and acquisitions. Inco, the Canadian nickel miner, was acquired at a large premium over our average cost by CVRD, a Brazilian company. Freescale Semiconductor and Golden West Financial were also acquired at attractive prices relative to what we had paid. We took profits during the period in Gamestop, which was spun out by our holding Barnes & Noble in 2002. Century Tel and Lockheed Martin appeared to us fully valued, and we also parted company with Masco, Yum! Brands, Bristol-Myers Squibb, and Exelon for sundry reasons. Q. Can you share with us your outlook for 2007? A. We think that the year ahead will be characterized by some of the same cross-currents as we experienced in 2006. One of the debates currently is with respect to the Federal Reserve and when or whether it might reduce interest rates. The Fed has signaled its concern over inflation. At the same time, a slower economy could be helped by lower rates. We do not expect any imminent action by the Fed and do not discount the possibility that the economy will stay strong enough that the Fed does not feel the need to act, at least over the next several months. Another debate has to do with the implications for business of the new Congress in Washington, D. C., where the Democrats now control both the House of Representatives and, if very narrowly, the Senate. We shall be attentive to possible changes in tax and other policy that might alter the environment in which companies do business. Of course neither party is consistently positive or negative for companies across the board, or even in individual industries, but instead each party has its own constituencies and its own agendas. The final and most important piece of the puzzle that is figuring out what 2007 holds in store for us is the rate of corporate earnings growth. Will the pace of earnings slow over the next few quarters, and if so, how will stocks react? An unusual feature about the bull market of the past four years has been the decline in price-to-earnings multiples as earnings have grown faster than share prices have risen. With that in mind, one could argue that the downside risk for the market is lower than it often is at this stage of a bull market, when multiples are usually comparatively high. We cannot, though, predict where the market will go, and would note that low multiples are no guarantee that prices cannot fall. So we intend to keep with our defensive posture, emphasizing companies we think have the potential to do reasonably well even in a softer economy. As always, we shall devote considerable energy to our research process and learn as much as we can about companies before investing in their stocks. Thank you as ever 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 12/31/06 - --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 98.0% Energy - 8.1% Integrated Oil & Gas - 6.2% 179,531 Chevron Corp. $ 13,200,914 88,025 ConocoPhillips 6,333,399 114,668 Exxon Mobil Corp. 8,787,009 107,450 Occidental Petroleum Corp. 5,246,784 ------------ $ 33,568,106 ------------ Oil & Gas Equipment & Services - 0.5% 65,062 Weatherford Intl, Inc.* $ 2,718,941 ------------ Oil & Gas Exploration & Production - 1.4% 76,894 Apache Corp. $ 5,114,220 67,515 Pioneer Natural Resources Co. 2,679,670 ------------ $ 7,793,890 ------------ Total Energy $ 44,080,937 ------------ Materials - 4.2% Aluminum - 1.1% 191,026 Alcoa, Inc. $ 5,732,690 ------------ Diversified Chemical - 0.7% 70,100 Dow Chemical Co. $ 2,799,794 26,034 E.I. du Pont de Nemours and Co. 1,268,116 ------------ $ 4,067,910 ------------ Diversified Metals & Mining - 1.2% 122,524 Rio Tinto Plc $ 6,522,710 ------------ Industrial Gases - 0.9% 25,334 Air Products & Chemicals, Inc. $ 1,780,474 53,762 Praxair, Inc. 3,189,699 ------------ $ 4,970,173 ------------ Specialty Chemicals - 0.3% 37,481 Ecolab, Inc. $ 1,694,141 ------------ Total Materials $ 22,987,624 ------------ Capital Goods - 10.0% Aerospace & Defense - 2.5% 86,022 General Dynamics Corp. $ 6,395,736 111,683 United Technologies Corp. 6,982,421 ------------ $ 13,378,157 ------------ Construction & Farm Machinery & Heavy Trucks - 4.4% 99,679 Caterpillar, Inc. $ 6,113,313 94,266 Deere & Co. 8,961,869 136,822 PACCAR, Inc. 8,879,748 ------------ $ 23,954,930 ------------
Shares Value Electrical Component & Equipment - 1.2% 97,280 Emerson Electric Co. $ 4,289,075 36,906 Rockwell International Corp. 2,254,218 ------------ $ 6,543,293 ------------ Industrial Conglomerates - 1.7% 43,600 3M Co. $ 3,397,748 154,654 General Electric Co. 5,754,675 ------------ $ 9,152,423 ------------ Industrial Machinery - 0.2% 16,367 Parker Hannifin Corp. $ 1,258,295 ------------ Total Capital Goods $ 54,287,098 ------------ Transportation - 3.8% Airlines - 0.7% 261,293 Southwest Airlines Co. $ 4,003,009 ------------ Railroads - 3.1% 74,802 Burlington Northern, Inc. $ 5,521,136 222,911 Norfolk Southern Corp. 11,210,194 ------------ $ 16,731,330 ------------ Total Transportation $ 20,734,339 ------------ Automobiles & Components - 2.0% Auto Parts & Equipment - 1.4% 91,445 Johnson Controls, Inc. $ 7,856,954 ------------ Automobile Manufacturers - 0.6% 416,051 Ford Motor Corp. $ 3,124,543 ------------ Total Automobiles & Components $ 10,981,497 ------------ Consumer Durables & Apparel - 0.2% Apparel, Accessories & Luxury Goods - 0.2% 23,883 Liz Claiborne, Inc. $ 1,037,955 ------------ Total Consumer Durables & Apparel $ 1,037,955 ------------ Media - 6.0% Advertising - 0.8% 42,090 Omnicom Group $ 4,400,089 ------------ Movies & Entertainment - 1.0% 162,516 The Walt Disney Co. $ 5,569,423 ------------ Publishing - 4.2% 41,058 Elsevier NV $ 700,087 64,140 Gannett Co. 3,877,904 6,457 Idearc, Inc.* 184,979 125,263 John Wiley & Sons, Inc. 4,818,868 188,438 McGraw-Hill Co., Inc. 12,817,553 ------------ $ 22,399,391 ------------ Total Media $ 32,368,903 ------------
6 The accompanying notes are an integral part of these financial statements. Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value Retailing - 5.0% Department Stores - 2.0% 100,356 Federated Department Stores, Inc. $ 3,826,574 147,889 Nordstrom, Inc. 7,296,843 ------------ $ 11,123,417 ------------ General Merchandise Stores - 1.6% 150,713 Target Corp. $ 8,598,177 ------------ Home Improvement Retail - 0.8% 141,584 Lowe's Companies, Inc. $ 4,410,342 ------------ Specialty Stores - 0.6% 29,018 Barnes & Noble, Inc. $ 1,152,305 69,072 Staples, Inc. 1,844,222 ------------ $ 2,996,527 ------------ Total Retailing $ 27,128,463 ------------ Food & Drug Retailing - 3.6% Drug Retail - 2.1% 75,467 CVS Corp. $ 2,332,685 190,303 Walgreen Co. 8,733,005 ------------ $ 11,065,690 ------------ Food Distributors - 1.1% 161,566 Sysco Corp. $ 5,939,166 ------------ Hypermarkets & Supercenters - 0.4% 19,649 Costco Wholesale Corp. $ 1,038,843 28,800 Wal-Mart Stores, Inc. 1,329,984 ------------ $ 2,368,827 ------------ Total Food & Drug Retailing $ 19,373,683 ------------ Food, Beverage & Tobacco - 5.5% Packaged Foods & Meats - 4.2% 118,941 Campbell Soup Co. $ 4,625,615 76,411 General Mills, Inc. 4,401,274 108,055 H.J. Heinz Co., Inc. 4,863,556 82,795 Hershey Foods Corp. 4,123,191 43,685 Kellogg Co. 2,186,871 162,773 Sara Lee Corp. 2,772,024 ------------ $ 22,972,531 ------------ Soft Drinks - 1.3% 113,124 PepsiCo, Inc. $ 7,075,906 ------------ Total Food, Beverage & Tobacco $ 30,048,437 ------------ Household & Personal Products - 1.8% Household Products - 1.3% 14,255 Clorox Co. $ 914,458 96,982 Colgate-Palmolive Co. 6,327,106 ------------ $ 7,241,564 ------------
Shares Value Personal Products - 0.5% 67,208 Estee Lauder Co. $ 2,743,431 ------------ Total Household & Personal Products $ 9,984,995 ------------ Health Care Equipment & Services - 5.0% Health Care Equipment - 5.0% 71,108 Becton, Dickinson & Co. $ 4,988,226 139,138 Biomet, Inc. 5,742,225 63,800 C. R. Bard, Inc. 5,293,486 75,039 Medtronic, Inc. 4,015,337 104,000 St. Jude Medical, Inc.* 3,802,240 39,300 Zimmer Holdings, Inc.* 3,080,334 ------------ $ 26,921,848 ------------ Total Health Care Equipment & Services $ 26,921,848 ------------ Pharmaceuticals & Biotechnology - 7.7% Biotechnology - 0.7% 53,778 Amgen, Inc.* $ 3,673,575 ------------ Pharmaceuticals - 7.0% 102,710 Abbott Laboratories $ 5,003,004 53,017 Barr Laboratorie, Inc.* 2,657,212 80,039 Eli Lilly & Co. 4,170,032 72,158 Johnson & Johnson 4,763,871 63,788 Merck & Co., Inc. 2,781,157 77,980 Novartis AG (A.D.R.) 4,479,171 204,900 Pfizer, Inc. 5,306,910 36,377 Roche Holdings AG (A.D.R.)* 3,260,325 175,915 Schering-Plough Corp. 4,158,631 44,611 Teva Pharmaceutical Industries, Ltd. 1,386,510 ------------ $ 37,966,823 ------------ Total Pharmaceuticals & Biotechnology $ 41,640,398 ------------ Banks - 8.3% Diversified Banks - 3.8% 235,635 U.S. Bancorp $ 8,527,631 39,577 Wachovia Corp. 2,253,910 281,946 Wells Fargo & Co. 10,026,000 ------------ $ 20,807,541 ------------ Regional Banks - 3.3% 25,377 Compass Bancshares, Inc. $ 1,513,738 83,035 First Horizon National Corp. 3,469,202 170,284 National City Corp. 6,225,583 55,102 SunTrust Banks, Inc. 4,653,364 21,817 Zions BanCorp. 1,798,593 ------------ $ 17,660,480 ------------
The accompanying notes are an integral part of these financial statements. 7 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Shares Value Thrifts & Mortgage Finance - 1.2% 146,301 Washington Mutual, Inc. $ 6,655,232 ------------ Total Banks $ 45,123,253 ------------ Diversified Financials - 5.4% Asset Management & Custody Banks - 1.9% 43,970 Federated Investors, Inc. $ 1,485,307 104,482 State Street Corp. 7,046,266 36,004 T. Rowe Price Associates, Inc. 1,575,895 ------------ $ 10,107,468 ------------ Consumer Finance - 1.2% 112,725 American Express Co. $ 6,839,026 ------------ Investment Banking & Brokerage - 1.0% 58,452 Merrill Lynch & Co., Inc. $ 5,441,881 ------------ Diversified Financial Services - 1.3% 86,529 Bank of America Corp. $ 4,619,783 42,750 Citigroup, Inc. 2,381,175 ------------ $ 7,000,958 ------------ Total Diversified Financials $ 29,389,333 ------------ Insurance - 2.7% Life & Health Insurance - 0.6% 49,100 MetLife, Inc. $ 2,897,391 ------------ Multi-Line Insurance - 0.4% 24,622 Hartford Financial Services Group, Inc. $ 2,297,479 ------------ Property & Casualty Insurance - 1.7% 137,506 Chubb Corp. $ 7,275,442 34,082 Safeco Corp. 2,131,829 ------------ $ 9,407,271 ------------ Total Insurance $ 14,602,141 ------------ Software & Services - 3.9% Application Software - 0.7% 86,186 Adobe Systems, Inc.* $ 3,543,968 ------------ Data Processing & Outsourced Services - 2.2% 181,884 Automatic Data Processing, Inc. $ 8,957,787 25,841 DST Systems, Inc.* 1,618,422 28,113 Fiserv, Inc.* 1,473,683 ------------ $ 12,049,892 ------------ Systems Software - 1.0% 181,275 Microsoft Corp. $ 5,412,872 ------------ Total Software & Services $ 21,006,732 ------------ Technology Hardware & Equipment - 6.8% Communications Equipment - 2.9% 139,000 Cisco Systems, Inc.* $ 3,798,870 313,651 Motorola, Inc. 6,448,665 274,102 Nokia Corp. (A.D.R.) 5,569,753 ------------ $ 15,817,288 ------------
Shares Value Computer Hardware - 2.7% 127,276 Dell, Inc.* $ 3,193,355 176,511 Hewlett-Packard Co. 7,270,488 746,472 Sun Microsystems, Inc.* 4,045,878 ------------ $ 14,509,721 ------------ Computer Storage & Peripherals - 0.3% 134,374 EMC Corp.* $ 1,773,737 ------------ Office Electronics - 0.9% 85,863 Canon, Inc. (A.D.R.) $ 4,858,987 ------------ Total Technology Hardware & Equipment $ 36,959,733 ------------ Semiconductors - 3.1% Semiconductor Equipment - 0.5% 149,770 Applied Materials, Inc. $ 2,763,257 ------------ Semiconductors - 2.6% 124,400 Advanced Micro Devices, Inc.* $ 2,531,540 258,029 Intel Corp. 5,225,087 211,248 Texas Instruments, Inc. 6,083,942 ------------ $ 13,840,569 ------------ Total Semiconductors $ 16,603,826 ------------ Telecommunication Services - 4.1% Integrated Telecommunication Services - 3.8% 235,088 AT&T Corp. $ 8,404,396 141,901 BellSouth Corp. 6,684,956 129,130 Verizon Communications, Inc. 4,808,801 59,603 Windstream Corp. 847,555 ------------ $ 20,745,708 ------------ Wireless Telecommunication Services - 0.3% 23,216 Alltel Corp. $ 1,404,104 ------------ Total Telecommunication Services $ 22,149,812 ------------ Utilities - 0.8% Electric Utilities - 0.4% 56,177 Southern Co. $ 2,070,684 ------------ Multi-Utilities - 0.4% 34,904 Consolidated Edison, Inc. $ 1,677,836 13,700 PG&E Corp. 648,421 ------------ $ 2,326,257 ------------ Total Utilities $ 4,396,941 ------------ TOTAL COMMON STOCKS (Cost $375,951,520) $531,807,948 ------------
8 The accompanying notes are an integral part of these financial statements. Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value TEMPORARY CASH INVESTMENT - 1.9% Repurchase Agreement - 1.9% 10,200,000 UBS AG, 4.7%, dated 12/29/06, repurchase price of $10,200,000 plus accrued interest on 1/2/06, collateralized by $10,549,000 U.S. Treasury Bill, 3.25%, 8/15/08 $ 10,200,000 ------------ TOTAL TEMPORARY CASH INVESTMENT (Cost $10,200,000) $ 10,200,000 ------------ TOTAL INVESTMENT IN SECURITIES - 99.9% (Cost $386,151,520) $542,007,948 ------------ OTHER ASSETS AND LIABILITIES - 0.1% $ 619,448 ------------ TOTAL NET ASSETS - 100.0% $542,627,396 ============
* Non-income producing security (A.D.R.) American Depositary Receipt The accompanying notes are an integral part of these financial statements. 9 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Year Year Year Year Ended Ended Ended Ended Ended Class II 12/31/06 12/31/05 12/31/04 12/31/03 12/31/02 Net asset value, beginning of period $ 21.49 $ 20.51 $ 18.66 $ 15.25 $ 19.05 -------- -------- -------- -------- -------- Increase (decrease) from investment operations: Net investment income $ 0.25 $ 0.20 $ 0.18 $ 0.14 $ 0.13 Net realized and unrealized gain (loss) on investments and foreign currency transactions 3.25 1.01 1.85 3.42 (3.78) -------- -------- -------- -------- -------- Net increase (decrease) from investment operations $ 3.50 $ 1.21 $ 2.03 $ 3.56 $ (3.65) Distributions to shareowners: Net investment income (0.26) (0.23) (0.18) (0.15) (0.15) ------- -------- -------- -------- -------- Net increase (decrease) in net asset value $ 3.24 $ 0.98 $ 1.85 $ 3.41 $ (3.80) -------- -------- -------- -------- -------- Net asset value, end of period $ 24.73 $ 21.49 $ 20.51 $ 18.66 $ 15.25 ======== ======== ======== ======== ======== Total return* 16.35% 5.94% 10.93% 23.44% (19.25)% Ratio of net expenses to average net assets+ 0.95% 0.95% 0.96% 1.00% 1.06% Ratio of net investment income to average net assets+ 1.10% 1.01% 1.00% 0.87% 0.84% Portfolio turnover rate 9% 23% 17% 11% 11% Net assets, end of period (in thousands) $155,710 $116,656 $133,627 $ 87,488 $ 36,218 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.95% 0.95% 0.96% 1.00% 1.06% Net investment income 1.10% 1.01% 1.00% 0.87% 0.84%
* 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 12/31/06 - --------------------------------------------------------------------------------
ASSETS: Investment in securities, at value (cost $386,151,520) $ 542,007,948 Receivables -- Fund shares sold 503,001 Dividends, interest and foreign taxes withheld 1,083,779 Other 34,553 ------------- Total assets $ 543,629,281 ------------- LIABILITIES: Payables -- Fund shares repurchased $ 595,350 Due to bank 286,971 Due to affiliates 35,640 Accrued expenses 83,924 ------------- Total liabilities $ 1,001,885 ------------- NET ASSETS: Paid-in capital $ 406,920,308 Undistributed net investment income 42,393 Accumulated net realized loss on investments (20,191,733) Net unrealized gain on investments 155,856,428 ------------- Total net assets $ 542,627,396 ------------- NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 386,917,044 Shares outstanding 15,604,332 ------------- Net asset value per share $ 24.80 Class II: (No par value, unlimited number of shares authorized) Net assets $ 155,710,352 Shares outstanding 6,296,048 ------------- Net asset value per share $ 24.73
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 12/31/06 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $78,149) $10,133,866 Interest 421,825 ----------- Total investment income $10,555,691 ----------- EXPENSES: Management fees $ 3,350,070 Transfer agent fees and expenses 2,832 Distribution fees (Class II) 341,019 Administrative reimbursements 113,433 Custodian fees 41,352 Professional fees 48,717 Printing 14,920 Fees and expenses of nonaffiliated trustees 8,431 Miscellaneous 21,437 ----------- Total expenses $ 3,942,211 Less fees paid indirectly (5,637) ----------- Net expenses $ 3,936,574 ----------- Net investment income $ 6,619,117 ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $19,969,864 Other assets and liabilities denominated in foreign currencies (20,302) ----------- $19,949,562 ----------- Change in net unrealized gain or loss from investments $52,425,564 ----------- Net gain on investments and foreign currency transactions $72,375,126 =========== Net increase in net assets resulting from operations $78,994,243 ===========
12 The accompanying notes are an integral part of these financial statements. Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 6,619,117 $ 6,406,915 Net realized gain on investments and foreign currency transactions 19,949,562 46,679,070 Change in net unrealized gain (loss) on investments 52,425,564 (23,029,256) -------------- -------------- Net increase in net assets resulting from operations $ 78,994,243 $ 30,056,729 -------------- -------------- DISTRIBUTIONS TO SHAREOWNERS Net investment income: Class I $ (5,053,431) $ (5,374,313) Class II (1,530,263) (1,440,262) -------------- -------------- Total distributions to shareowners $ (6,583,694) $ (6,814,575) -------------- -------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 81,852,880 $ 42,859,167 Shares issued in reorganization -- 53,856,933 Reinvestment of distributions 6,583,693 6,814,325 Cost of shares repurchased (117,849,268) (139,175,447) Redemption in kind -- (75,731,419) -------------- -------------- Net (decrease) in net assets resulting from Fund share transactions $ (29,412,695) $ (111,376,441) -------------- -------------- Net increase (decrease) in net assets $ 42,997,854 $ (88,134,287) NET ASSETS: Beginning of year 499,629,542 587,763,829 -------------- -------------- End of year $ 542,627,396 $ 499,629,542 ============== ============== Undistributed net investment income, end of year $ 42,393 $ 27,272 ============== ==============
The accompanying notes are an integral part of these financial statements. 13 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 the Portfolio is to seek capital appreciation. 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 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 year. 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 14 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2006, 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 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, 2006, the 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, if any, 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, 2006, 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 net realized gain on investment transactions, or from paid-in capital, depending on the type of book/tax differences that may exist. 15 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- Capital loss carryforwards are available to offset future realized capital gains. At December 31, 2006, the Portfolio had a net capital loss carryforward of $19,798,047, of which the following amounts will expire between 2010 and 2011 if not utilized: $6,780,520 in 2010 and $13,017,527 in 2011. At December 31, 2006, 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 Realized Gain Paid-In Capital - -------------------------------------------------------------------------------- Fund Portfolio $ (20,302) $20,302 $-- ========= ======= === - --------------------------------------------------------------------------------
The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings as of December 31, 2006, on a tax basis.
- -------------------------------------------------------------------------------- 2006 2005 - -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 6,583,694 $6,814,575 ------------------------------ Total distributions $ 6,583,694 $6,814,575 ============================== Distributable Earnings: Undistributed ordinary income $ 42,393 Capital loss carryforward (19,798,047) Unrealized appreciation 155,462,742 ------------ Total $135,707,088 ============ - --------------------------------------------------------------------------------
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), $625,557 in commissions on the sale of Portfolio shares for the year ended December 31, 2006. 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 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 16 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2006, $30,145 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 $2,287 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $3,208 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $386,545,206 $164,933,562 $ (9,470,820) $155,462,742 ============ ============ ============ ============ - -----------------------------------------------------------------------------------------
17 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, were $46,027,111 and $86,246,237, respectively. 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- ------------------------------------------------------------------------------------------------------------- Pioneer Fund VCT Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ------------------------------------------------------------------------------------------------------------- CLASS I: Shares sold 1,347,828 $ 31,570,652 580,758 $ 11,975,172 Reinvestment of distributions 218,022 5,053,431 257,653 5,374,312 Shares repurchased (3,732,955) (85,740,891) (5,148,933) (106,238,103) -------------------------------------------------------------- Net increase (decrease) (2,167,105) $ (49,116,808) (4,310,522) $ (88,888,619) ============================================================== CLASS II: Shares sold 2,196,546 $ 50,282,228 1,500,748 $ 30,883,995 Class II shares issued in reorganization -- -- 2,567,061 53,856,933 Reinvestment of distribution 65,905 1,530,262 69,257 1,440,013 Shares repurchased (1,394,115) (32,108,377) (1,597,303) (32,937,344) Redemptions in kind -- -- (3,626,019) (75,731,419) -------------------------------------------------------------- Net increase (decrease) 868,336 $ 19,704,113 (1,086,256) $ (22,487,822) ============================================================== - -------------------------------------------------------------------------------------------------------------
8. Merger Information 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) ========== ========= - --------------------------------------------------------------------------------
18 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 9. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 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 of Pioneer Fund VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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 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, 2006, by correspondence with the custodian and brokers. 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, 2006, 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 9, 2007 20 Pioneer Fund 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"), 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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. 21 Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- 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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group and an index considered appropriate by the Independent Trustees for this purpose. The Fund's performance, based upon total return, was in the first quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, the second quintile of the peer group for the three years ended June 30, 2006 and the second quintile for the five years ended June 30, 2006. (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 noted that the return of the Fund, before deduction of expenses, exceeded the return of its benchmark index for the 12-month period ended June 30, 2006. The Trustees, focusing on three-year total returns, concluded that the performance of the Fund was good. 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 size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee for the 12 months ended June 30, 2006 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 also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 to be in the first quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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. 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 23 Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS - --------------------------------------------------------------------------------
Investment Adviser Trustees and Officers Investment Adviser The trust's Board of Trustees provides broad supervision Pioneer Investment Management, Inc. over the portfolio's affairs. The officers of the trust are responsible for the trust's operations. The trust's Trustees Custodian and officers are listed below, together with their principal Brown Brothers Harriman & Co. occupations during the past five years. Trustees who are interested persons of the trust within the meaning of the Independent Registered Public Accounting Firm 1940 Act are referred to as Interested Trustees. Trustees Ernst & Young LLP who are not interested persons of the trust are referred to as Independent Trustees. Each of the Trustees serves as a Principal Underwriter trustee of each of the 86 U.S. registered investment Pioneer Funds Distributor, Inc. portfolios for which Pioneer serves as investment adviser (the "Pioneer Funds"). The address for all Interested Legal Counsel Trustees and all officers of the trust is 60 State Street, Wilmer Cutler Pickering Hale and Dorr LLP Boston, Massachusetts 02109. Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc.
- -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Chairman of the Trustee since 1994. Serves Deputy Chairman and a Director of Pioneer Director of ICI Cogan, Jr. (80)* Board, Trustee until a successor trustee Global Asset Management S.p.A. ("PGAM"); Mutual Insurance and President is elected or earlier Non-Executive Chairman and a Director of Company retirement or removal. Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - ------------------------------------------------------------------------------------------------------------------------------------
24 Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE David R. Bock (63) Trustee Trustee since 2005. Serves Senior Vice President and Chief Director of The 3050 K. Street NW, until a successor trustee Financial Officer, I-trax, Inc. Enterprise Social Washington, DC 20007 is elected or earlier (publicly traded health care Investment Company retirement or removal. services company) (2001 - (privately-held present); Managing Partner, affordable housing Federal City Capital Advisors finance company); (boutique merchant bank) (2002 and Director of New to 2004); and Executive Vice York Mortgage Trust President and Chief Financial (publicly traded Officer, Pedestal Inc. mortgage REIT) (internet- based mortgage trading company) (2000 - 2002) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Trustee Trustee since 2000. Serves President, Bush International Director of Brady 3509 Woodbine Street, until a successor trustee (international financial Corporation Chevy Chase, MD 20815 is elected or earlier advisory firm) (industrial retirement or removal. identification and specialty coated material products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street West, until a successor trustee Group, Inc. (consulting firm); Montreal, Quebec, Canada is elected or earlier and Desautels Faculty of H3A 1G5 retirement or removal. Management, McGill University - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Trustee Trustee since 2006. Serves Private investor (2004 - Director of 89 Robbins Avenue, until a successor trustee present); and Senior Executive Quadriserv Inc. Berkeley Heights, NJ is elected or earlier Vice President, The Bank of New (technology products 07922 retirement or removal. York (financial and securities for securities services) (1986 - 2004) lending industry) - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Trustee Trustee since 1995. Serves President and Chief Executive Director of New 200 State Street, 12th until a successor trustee Officer, Newbury, Piret & America High Income Floor, Boston, MA 02109 is elected or earlier Company, Inc. (investment Fund, Inc. retirement or removal. banking firm) (closed-end investment company) - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) Trustee Trustee since 2000. Serves President, John Winthrop & Co., None One North Adgers Wharf, until a successor trustee Inc. (private investment firm) Charleston, SC 29401 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------
25 Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President and Chief Executive Trustee of certain President discretion of the Board Officer, PIM-USA since May 2003 Pioneer Funds (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the Secretary of PIM-USA; Senior None discretion of the Board Vice President - Legal of Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Assistant Since 2003. Serves at the Vice President and Senior None Secretary discretion of the Board Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001); and Assistant Secretary of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey (45) Assistant Since 2006. Serves at the Partner, Wilmer Cutler Pickering None Secretary discretion of the Board Hale and Dorr LLP; and Assistant Secretary of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Treasurer Since 2000. Serves at the Vice President - Fund None discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Assistant Since 2004. Serves at the Deputy Treasurer of Pioneer None Treasurer discretion of the Board since 2004; Treasurer and Senior 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 - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Since 2000. Serves at the Assistant Vice President - Fund None Treasurer discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Assistant Since 2002. Serves at the Fund Accounting Manager - Fund None Treasurer discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------------------------------
26 Pioneer Fund VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Katherine Kim Sullivan Assistant Since 2003. Serves at the Fund Administration Manager - None (33) Treasurer discretion of the Board Fund Accounting, Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Since 2006. Serves at the Chief Compliance Officer of None Compliance discretion of the Board Pioneer and all of the Pioneer Officer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio'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) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18660-01-0207 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2006 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 16 Notes to Financial Statements 20 Report of Independent Registered Public Accounting Firm 25 Factors Considered by the Independent Trustees in Approving the Management Contract 26 Trustees, Officers and Service Providers 29
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/06 - -------------------------------------------------------------------------------- Maturity Distribution (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 89.8% Asset Backed Securities 2.8% Temporary Cash Investment 1.9% Foreign Government Bonds 1.4% Senior Secured Loans 1.4% Convertible Corporate Bonds 1.0% Collateralized Mortgage Obligations 0.9% Municipal Bonds 0.6% Warrants 0.2%
Portfolio Diversification (As a percentage of total investment in securities)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] 0-1 year 10.7% 1-3 years 13.8% 3-4 years 13.7% 4-6 years 51.3% 6-8 years 8.7% 8+ years 1.8%
Five Largest Holdings (As a percentage of long-term holdings) 1. NCO Group, Inc., 11.875%, 11/15/14 (144A) 1.86% 2. Petromena AS, 9.75%, 5/24/12 (144A) 1.54 3. Braskem SA, 11.75%, 1/22/14 (144A) 1.27 4. FMG Finance Pty, Ltd., 10.625%, 9/1/16 (144A) 1.18 5. True Move Co., Ltd., 10.75%, 12/16/13 (144A) 1.07
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $ 10.38 $ 10.02
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $ 0.7531 $ 0.0421 $ 0.0037
- -------------------------------------------------------------------------------- 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 MOUNTAIN CHART IN THE PRINTED MATERIAL] ML Global High Yield Pioneer Bond VCT Portfolio and Emerging Markets Plus Index 3/05 10000 10000 12/05 10586 10542 12/06 11856 11909
The ML Global High Yield and 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. - -------------------------------------------------------------------------------- Average Annual Total Returns (As of December 31, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- Life-of-Class (3/18/05) 9.73% 1 Year 12.00%
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.pioneerinvestments.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 Global High Yield 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 Global High Yield VCT Portfolio Based on actual returns from July 1, 2006 through December 31, 2006.
Share Class II - ---------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,081.39 Expenses Paid During Period* $ 5.25
* 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, 2006 through December 31, 2006.
Share Class II - ------------------------------------------------------------ Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 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 VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/06 - -------------------------------------------------------------------------------- The global as well as domestic economy enjoyed strong growth throughout 2006, providing a favorable backdrop for higher-risk fixed income securities. Domestic corporate high-yield bonds and emerging market debt both generated solid returns for the year, despite a temporary slump from mid-May through mid-July, when concerns grew that inflationary pressures might be rising. However, as those concerns receded and the U.S. Federal Reserve Board, beginning in August, paused from its cycle of interest-rate hikes, higher-yielding securities performed well over the second half of the year. In the following discussion, Andrew D. Feltus, leader of the team managing the Pioneer Global High Yield VCT Portfolio, provides an update on the Portfolio, its investment strategies and the investment environment during the 12 months ended December 31, 2006. Q. How did the Portfolio perform during 2006? A. Pioneer Global High Yield VCT Portfolio Class II shares generated a total return of 12.00%, at net asset value, for the 12 months ended December 31, 2006. During the same 12 months, the Merrill Lynch Global High Yield and Emerging Markets Plus Index rose 12.97%. The average return of the 100 portfolios in Lipper's high current yield variable annuity portfolio category was 9.67% for the 12 months. On December 31, 2006, the 30-day Standardized SEC yield for the Portfolio's Class II shares was 6.96%. Call 1-800-688-9915 or visit www.pioneerinvestments.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 2006? A. The continuing global economic expansion provided a generally good environment for high-yield investing. In the United States, the economy grew briskly, corporate profits increased steadily, and the high-yield bond market experienced relatively few defaults. During the first half of the year, the Federal Reserve Board raised the key Fed funds rate four times, putting pressure on Treasuries. However, persistent growth in the economy largely offset the effects of the rate hikes. The favorable backdrop was interrupted from mid-May through mid-July, when the capital markets were worried about inflationary pressures. The concerns were exacerbated by rapidly rising oil prices. Riskier asset classes - including stocks and high-yield bonds - slumped during the two-month period. However, starting in August, the Federal Reserve Board paused in its tightening policy and left short-term interest rates unchanged over the final six months of the year. Stabilized short-term interest rates and easing oil prices encouraged investors to believe that inflationary pressures were under control and that the economy could sustain its expansion at a moderate rate. In that environment, riskier assets - including high-yield bonds - rallied through the end of the year. A very similar story played out for emerging market debt, which performed well for the first four months of the year, then slumped for two months before recovering and rallying in the final six months. Emerging markets generally produced healthy returns, despite investor awareness of political risks in some markets. Over the course of the 12 months, the U.S. dollar weakened in relative value versus most foreign currencies. For example, the dollar lost more than 11% of its value against the euro, as demand for U.S. bonds slackened somewhat, especially in the final months of the year when the European Central Bank raised short-term rates on the continent. 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. Call 800-688-9915 or visit www.pioneerinvestments.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 Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- Q. What were your general strategies during the year? A. In this environment, we overweighted domestic high-yield bonds, while placing less emphasis on emerging market debt and international high-yield bonds denominated in other currencies. In general, we did not think the yield spreads - or yield advantages - of foreign, high-yield bonds justified the additional risks entailed in investing in foreign securities. However, we did find some select opportunities investing in foreign companies that were competitive in the global marketplace. At the end of the fiscal year, on December 31, 2006, 56.8% of Portfolio assets were invested in domestic high-yielding bonds, 27.1% were invested in emerging market debt, and 10.8% were invested in foreign developed country corporate high-yield bonds. Average credit quality of Portfolio holdings was B, and the Portfolio had an effective duration (a measure of a bond's price sensitivity to changes in interest rates) of 4.07 years. Q. What types of investments had the greatest influence on Portfolio performance? A. Several companies decided to buy back their debt during the year for a variety of reasons, giving a nice boost to Portfolio performance. Companies that repurchased their debt as they were being acquired included: Transmontaigne, an energy distribution company; Indonesia's Indo Coal; and Doane Pet care, a pet food company. Companies that retired debt as they issued new stock included: Warner Chilcott, a pharmaceutical corporation; and Altra and Aventine, two firms that develop biofuels. Improving financial results enabled these companies to buy back debt: J. Ray McDermott, an oil field services corporation; Hanger Orthopedic, a developer of orthopedic products; and Dollar Financial, a firm specializing in providing financing to low- and middle-income customers. During the past year, we also held the bonds of two companies that bounced back vigorously after being disappointments earlier: Stratos Global a Canadian-based company that provides satellite communications services; and Cell C, a South African wireless communications company. We did have some disappointing results, however. Our underweighted positions in automotive industry bonds detracted from relative results. Compared to high-yield benchmarks, we had relatively small positions in bonds of General Motors and Ford Motor Credit, both of which recovered during the year after underperforming in 2005. In addition, our positions in the bonds of home building companies detracted from results, even though our holdings were relatively small. Bonds of home builders William Lyons and WCI Communities both underperformed. Q. What is your investment outlook? A. As we enter 2007, we anticipate maintaining an emphasis on domestic, high-yield corporate bonds, which we think should continue to be the beneficiaries of persistent growth in the U.S. economy. Although we expect our principal focus will remain on individual security analysis and selection, rather than sector or industry positioning, we have been emphasizing bonds of companies less subject to economic cyclical trends. We believe high-yield corporate bonds remain attractive so long as default rates are low. We also intend to be cautious in exposing the Portfolio to loss in bond values because of rising interest rates. Any information in this shareholder report regarding market or economic trends or the factors influencing the Portfolio's historical or future performance are statements of the opinion of Portfolio management as of the date of this report. These statements should not be relied upon for any other purposes. Past performance is no guarantee of future results, and there is no guarantee that market forecasts discussed will be realized. 5 PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Principal Amount USD ($) Value CONVERTIBLE CORPORATE BONDS - 0.9% Pharmaceuticals & Biotechnology - 0.2% Pharmaceuticals - 0.2% 30,000 Pharm Resources, 2.875%, 9/30/10 $ 27,863 ----------- Total Pharmaceuticals & Biotechnology $ 27,863 ----------- Software & Services - 0.7% Application Software - 0.4% 50,000 Magma Design Automation, 0%, 5/15/08 $ 45,313 ----------- Systems Software - 0.3% 30,000 Macrovision Corp., 2.625%, 8/15/11 (144A) $ 36,300 ----------- Total Software & Services $ 81,613 ----------- TOTAL CONVERTIBLE CORPORATE BONDS (Cost $100,829) $ 109,476 ----------- ASSET BACKED SECURITIES - 2.7% Transportation - 0.6% Airlines - 0.6% 24,449 American Airlines, Inc., 7.377%, 5/23/19 $ 23,899 12,227 American Airlines, Inc., 7.379%, 5/23/16 11,861 12,992 Continental Airlines, Inc., 8.312%, 4/2/11 13,057 23,360 Continental Airlines, Inc., 8.499%, 5/1/11 23,769 ----------- $ 72,586 ----------- Total Transportation $ 72,586 ----------- Retailing - 0.5% Distributors - 0.5% 60,000 Intcomex, Inc., 11.75%, 1/15/11 $ 59,400 ----------- Total Retailing $ 59,400 ----------- Technology Hardware & Equipment - 0.5% Electronic Manufacturing Services - 0.5% 60,000 CIA Transporte Energia, 8.875%, 12/15/16 (144A) $ 60,150 ----------- Total Technology Hardware & Equipment $ 60,150 ----------- Utilities - 1.1% Electric Utilities - 1.1% 103,453 Ormat Funding Corp., 8.25%, 12/30/20 $ 105,522 19,384 Tenaska Alabama, 7.0%, 6/30/21 (144A) 19,251 ----------- $ 124,773 ----------- Total Utilities $ 124,773 ----------- TOTAL ASSET BACKED SECURITIES (Cost $304,623) $ 316,909 ----------- COLLATERALIZED MORTGAGE OBLIGATIONS - 0.9% Banks - 0.9% Thrifts & Mortgage Finance - 0.9% 40,000 SBA CMBS Trust, 7.825%, 11/15/36 $ 40,080 65,000 T SRA R 2006-1 F, 7.5296%, 10/15/36 (144A) 65,736 ----------- $ 105,816 ----------- Total Banks $ 105,816 ----------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $105,536) $ 105,816 -----------
6 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Principal Amount USD ($) Value CORPORATE BONDS - 85.7% Energy - 12.9% Coal & Consumable Fuels - 0.8% 100,000 Massey Energy Co., 6.875%, 12/15/13 $ 94,000 ----------- Oil & Gas Drilling - 1.6% 100,000 DDI Holding AS, 9.3%, 1/19/12 (144A) $ 104,750 100,000 Norse Energy ASA, 6.5%, 7/14/11 (144A) 79,500 ----------- $ 184,250 ----------- Oil & Gas Equipment & Services - 3.0% 40,000 Complete Production Service, 8.0%, 12/15/16 (144A) $ 41,000 NOK 1,000,000 Petromena AS, 9.75%, 5/24/12 (144A) 168,438 35,000 Pipe Acquisition Finance, 11.604%, 12/15/10 (144A) (b) 35,788 25,000 Semgroup LP, 8.75%, 11/15/15 (144A) 25,125 NOK 500,000 Thule Drilling, 10.0%, 5/10/07 81,820 ----------- $ 352,171 ----------- Oil & Gas Exploration & Production - 5.7% 75,000 Baytex Energy, Ltd., 9.625%, 7/15/10 $ 78,188 15,000 Berry Petroleum Co., 8.25%, 11/1/16 15,019 50,000 Chesapeake Energy Corp., 7.625%, 7/15/13 52,688 35,000 Clayton Williams Energy, 7.75%, 8/1/13 32,288 75,000 Compton Petroleum Corp., 7.625%, 12/1/13 72,375 15,000 Energy Partners, Ltd., 8.75%, 8/1/10 15,413 90,000 Gazprom International SA, 7.201%, 2/1/20 (144A) 95,175 35,000 Harvest Operations Corp., 7.875%, 10/15/11 33,163 60,000 Hilcorp Energy, 9.0%, 6/1/16 (144A) 63,450 15,000 Petroquest Energy, Inc., 10.375%, 5/15/12 15,788 20,000 Pogo Producing Co., 6.875%, 10/1/17 19,100 35,000 Quicksilver Resources, Inc., 7.125%, 4/1/16 34,213 60,000 Range Resources Corp., 7.5%, 5/15/16 61,500 25,000 Stone Energy Corp., 6.75%, 12/15/14 23,875 50,000 Verasun Energy Corp., 9.875%, 12/15/12 53,000 ----------- $ 665,235 ----------- Oil & Gas Storage & Transportation - 1.8% 70,000 Copano Energy LLC, 8.125%, 3/1/16 $ 72,450 60,000 Enterprise Products, 8.375%, 8/1/66 (b) 64,992 50,000 Inergy LP, 8.25%, 3/1/16 52,500 20,000 Targa Resources, Inc., 8.50%, 11/1/13 (144A) 20,150 ----------- $ 210,092 ----------- Total Energy $ 1,505,748 ----------- Materials - 19.2% Aluminum - 1.3% 90,000 Asia Aluminum Holdings, 8.0%, 12/23/11 (144A) $ 89,775 60,000 Indalex Holding, 11.5%, 2/1/14 (144A) 62,700 ----------- $ 152,475 -----------
The accompanying notes are an integral part of these financial statements. 7 PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Principal Amount USD ($) Value Commodity Chemicals - 2.2% 49,000 Georgia Gulf Corp., 10.75%, 10/15/16 (144A) $ 47,040 50,000 Georgia Gulf Corp., 9.5%, 10/15/14 (144A) 48,750 100,000 Invista, 9.25%, 5/1/12 (144A) 107,250 50,000 Tronox Worldwide/Finance, 9.5%, 12/1/12 52,625 ----------- $ 255,665 ----------- Construction Materials - 0.6% 45,000 U.S. Concrete, Inc., 8.375%, 4/1/14 $ 43,988 25,000 U.S. Concrete, Inc., 8.375%, 4/1/14 (144A) 24,438 ----------- $ 68,426 ----------- Diversified Chemical - 5.5% 50,000 Basell Finance Co., 8.1%, 3/15/27 (144A) $ 47,500 20,000 Braskem SA, 11.75%, 1/22/14 25,160 110,000 Braskem SA, 11.75%, 1/22/14 (144A) 138,380 50,000 Crystal US Holdings, Inc., 10.5%, 10/1/14 (b) 43,000 100,000 Hexion Specialty Chemicals, 9.75%, 11/15/14 (144A) 101,375 50,000 Ineos Group Holdings PLC, 7.875%, 2/15/16 (144A) 62,853 50,000 Nell AF Sarl, 8.375%, 8/15/15 (144A) 70,772 40,000 Nova Chemicals Corp., 8.502%, 11/15/13 (b) 40,000 75,000 Phibro Animal Health Corp., 10.0%, 8/1/13 (144A) 77,813 35,000 Phibro Animal Health Corp., 13.0%, 8/1/14 (144A) 35,438 ----------- $ 642,291 ----------- Diversified Metals & Mining - 2.6% 10,000 American Rock Salt Co., LLC, 9.5%, 3/15/14 $ 10,300 120,000 FMG Finance Pty, Ltd., 10.625%, 9/1/16 (144A) 128,700 75,000 PNA Group, Inc., 10.75%, 9/1/16 (144A) 77,531 90,000 Vedenta Resources Plc, 6.625%, 2/22/10 (144A) 88,875 ----------- $ 305,406 ----------- Forest Products - 0.6% 30,000 Ainsworth Lumber, 6.75%, 3/15/14 $ 22,350 30,000 Mandra Foresty, 12.0%, 5/15/13 (144A) 24,000 25,000 Sino Forest Corp., 9.125%, 8/17/11 (144A) 27,031 ----------- $ 73,381 ----------- Metal & Glass Containers - 1.5% 75,000 Impress Metal Pack Holding, 9.25%, 9/15/14 (144A) $ 101,456 60,000 Vitro Envases Norteamerica, 10.75%, 7/23/11 (144A) 65,700 ----------- $ 167,156 ----------- Paper Packaging - 2.1% 100,000 AEP Industries, Inc., 7.875%, 3/15/13 $ 101,000 100,000 Graphic Packaging Co., 9.5%, 8/15/13 105,500 40,000 Graham Packaging Co., 9.875%, 10/15/14 (a) 40,400 ----------- $ 246,900 ----------- Paper Products - 1.3% 110,000 Exopac Holding Corp., 11.25%, 2/1/14 (144A) $ 115,775 30,000 P.H. Glatfelter, 7.125%, 5/1/16 30,150 ----------- $ 145,925 -----------
8 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Principal Amount USD ($) Value Specialty Chemicals - 1.0% 50,000 Kronos International, Inc. 6.5%, 4/15/13 $ 63,678 50,000 LPG International, Inc., 7.25%, 12/20/15 50,250 ----------- $ 113,928 ----------- Steel - 0.5% 20,000 CSN Islands IX Corp., 10.5%, 1/15/15 (144A) $ 23,300 35,000 CSN Islands X Corp., 9.5%, 7/1/49 (144A) 36,400 ----------- $ 59,700 ----------- Total Materials $ 2,231,253 ----------- Capital Goods - 9.5% Aerospace & Defense - 0.5% 60,000 L-3 Communications Corp., 6.375%, 10/15/15 $ 59,400 ----------- Building Products - 1.3% 100,000 Builders Firstsource, Inc., 9.624%, 2/15/12 (b) $ 98,375 50,000 Loma Negra C.I.A.S.A., 7.25%, 3/15/13 (144A) 49,250 ----------- $ 147,625 ----------- Construction & Engineering - 1.7% 50,000 Desarrolladora Homex SA, 7.5%, 9/28/15 $ 51,000 60,000 Dycom Industries, 8.125%, 10/15/15 62,100 NOK 500,000 Sevan Drilling, 0.0%, 12/7/12 81,218 ----------- $ 194,318 ----------- Construction, Farm Machinery & Heavy Trucks - 2.5% 60,000 Accuride Corp., 8.5%, 2/1/15 $ 58,050 70,000 Commercial Vehicle Group, 8.0%, 7/1/13 68,425 75,000 Greenbrier Co., Inc., 8.375%, 5/15/15 76,313 60,000 Stanadyne Corp., 10.0%, 8/15/14 61,650 30,000 Titan Wheel International, Inc., 8.0%, 1/15/12 (144A) 30,188 ----------- $ 294,626 ----------- Electrical Component & Equipment - 0.8% 125,000 Power Contract Financing LLC, 0%, 2/5/10 (144A) $ 99,219 ----------- Industrial Conglomerates - 0.7% 75,000 Industrias Unidas, 11.5%, 11/15/16 (144A) $ 78,750 ----------- Trading Companies & Distributors - 2.0% 25,000 Glencore Funding LLC, 6.0%, 4/15/14 (144A) $ 24,371 40,000 Interline Brands, Inc., 8.125%, 6/15/14 41,100 75,000 Marfrig Overseas, Ltd., 9.625%, 11/16/16 (144A) 74,250 35,000 Mobile Services Group, Inc., 9.75%, 8/1/14 (144A) 36,575 60,000 Noble Group, Ltd., 6.625%, 3/17/15 (144A) 54,502 ----------- $ 230,798 ----------- Total Capital Goods $ 1,104,736 ----------- Commercial Services & Supplies - 5.3% Diversified Commercial Services - 3.0% 20,000 FTI Consulting, 7.625%, 6/15/13 $ 20,650 200,000 NCO Group, Inc., 11.875%, 11/15/14 (144A) 202,500 45,000 Park-Ohio Industries, Inc., 8.375%, 11/15/14 41,963 90,000 United Rentals NA, Inc., 7.75%, 11/15/13 (a) 90,338 ----------- $ 355,451 -----------
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 12/31/06 (continued) - --------------------------------------------------------------------------------
Principal Amount USD ($) Value Environmental & Facilities Services - 1.6% 13,000 Clean Harbors, Inc., 11.25%, 7/15/12 (144A) $ 14,471 65,000 Hydrochem Industrial Service, 9.25%, 2/15/13 (144A) 65,325 76,520 New Reclamation Group, 8.125%, 2/1/13 (144A) 105,531 ----------- $ 185,327 ----------- Office Services & Supplies - 0.7% 75,000 Nutro Products, Inc., 10.75%, 4/15/14 (144A) $ 81,938 ----------- Total Commercial Services & Supplies $ 622,716 ----------- Transportation - 2.5% Airlines - 0.8% 100,000 Gol Finance, 8.75%, 4/29/49 (144A) $ 97,000 ----------- Airport Services - 0.4% 50,000 K&F Acquisition, Inc., 7.75%, 11/15/14 $ 51,500 ----------- Marine - 0.9% 105,000 Stena AB, 7.0%, 12/1/16 $ 99,750 ----------- Railroads - 0.4% 45,000 TFM SA De CV, 9.375%, 5/1/12 $ 48,038 ----------- Total Transportation $ 296,288 ----------- Automobiles & Components - 1.0% Auto Parts & Equipment - 0.3% 45,000 Cooper Standard Auto, 8.375%, 12/15/14 (a) $ 35,438 ----------- Automobile Manufacturers - 0.7% 25,000 Ford Motor Credit Corp., 7.375%, 10/28/09 $ 25,053 25,000 General Motors, 7.25%, 7/3/13 32,540 20,000 General Motors Acceptance Corp., 6.75%, 12/1/14 20,543 ----------- $ 78,136 ----------- Total Automobiles & Components $ 113,574 ----------- Consumer Durables & Apparel - 1.2% Homebuilding - 0.9% 40,000 Urbi Desarrollos Urbanos, 8.5%, 4/19/16 (144A) $ 43,240 10,000 WCI Communities, Inc., 6.625%, 3/15/15 (a) 8,600 15,000 WCI Communities, Inc., 7.875%, 10/1/13 (a) 13,425 50,000 William Lyon Homes, 7.5%, 2/15/14 41,625 ----------- $ 106,890 ----------- Household Appliances - 0.3% 20,000 Tech Olympic U.S.A, Inc., 10.375%, 7/1/12 $ 18,000 20,000 Tech Olympic U.S.A, Inc., 9%, 7/1/10 19,700 ----------- $ 37,700 ----------- Total Consumer Durables & Apparel $ 144,590 -----------
10 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - --------------------------------------------------------------------------------
Principal Amount USD ($) Value Consumer Services - 5.8% Casinos & Gaming - 5.0% 50,000 Codere Finance SA, 8.25%, 6/15/15 (144A) $ 69,782 65,000 Little Traverse Bay Odawa Inn, 10.25%, 2/15/14 (144A) 65,325 50,000 Lottomatica S.p.A, 8.25%, 3/31/66 (144A) 70,046 25,000 Pokagon Gaming Authority, 10.375%, 6/15/14 (144A) 27,375 70,000 San Pasqual Casino, 8.0%, 9/15/13 (144A) 71,925 125,000 Station Casinos, Inc., 6.625%, 3/15/18 107,188 100,000 Tropicana Entertainment, 9.625%, 12/15/14 (144A) 99,500 75,000 Trump Entertainment Resorts, 8.5%, 6/1/15 74,625 ----------- $ 585,766 ----------- Hotels, Resorts & Cruise Lines - 0.2% 20,000 HRP Myrtle Beach, 10.12%, 4/1/12 (144A) (b) $ 20,000 ----------- Specialized Consumer Services - 0.6% 50,000 Tui AG, 5.212%, 12/10/10 (144A) (b) $ 64,668 ----------- Total Consumer Services $ 670,434 ----------- Media - 3.5% Broadcasting & Cable TV - 2.3% 80,000 Cablemas Sa De CV, 9.375%, 11/15/15 (144A) $ 88,000 40,000 CCH I LLC, 11.0%, 10/1/15 41,050 50,000 CCH II LLC, 10.25%, 9/15/10 52,188 75,000 Kabel Deutschland GMBH, 10.625%, 7/1/14 83,156 ----------- $ 264,394 ----------- Movies & Entertainment - 0.7% 85,000 Corp Interamer De Entret, 8.875%, 6/14/15 (144A) $ 84,575 ----------- Publishing - 0.5% 20,772 AAC Group Holding Corp., 12.75%, 10/1/12 $ 22,122 30,000 Sheridan Acquisition Corp., 10.25%, 8/15/11 31,200 ----------- $ 53,322 ----------- Total Media $ 402,291 ----------- Food & Drug Retailing - 0.2% Drug Retail - 0.2% 25,000 Duane Reade, Inc., 9.75%, 8/1/11 (a) $ 23,188 ----------- Total Food & Drug Retailing $ 23,188 ----------- Food, Beverage & Tobacco - 1.7% Agricultural Products - 0.7% 80,000 Cosan SA Industrial, 8.25%, 2/15/49 (144A) $ 78,200 ----------- Brewers - 0.2% 25,000 Argentine Beverages, 7.375%, 3/22/12 (144A) $ 25,688 ----------- Distillers & Vintners - 0.5% 46,200 Belvedere, 7.692%, 4/11/14 $ 57,924 ----------- Packaged Foods & Meats - 0.3% 30,000 Bertin, Ltd., 10.25%, 10/5/16 (144A) $ 31,650 ----------- Total Food, Beverage & Tobacco $ 193,462 ----------- Health Care Equipment & Services - 3.1% Health Care Equipment - 0.4% 50,000 Accellent, Inc., 10.5%, 12/1/13 $ 51,875 -----------
The accompanying notes are an integral part of these financial statements. 11 PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Principal Amount USD ($) Value Health Care Facilities - 1.7% 75,000 Hanger Orthopedic Group., 10.25%, 6/1/14 $ 77,438 50,000 HCA, Inc., 9.625%, 11/15/16 53,750 70,000 Psychiatric Solutions, 7.75%, 7/15/15 69,825 ----------- $ 201,013 ----------- Health Care Supplies - 0.2% 20,000 Medical Services Co., 12.874%, 10/15/11 (b) $ 18,950 ----------- Managed Health Care - 0.8% 90,000 Multiplan, Inc., 10.375% 4/15/16 (144A) $ 89,550 ----------- Total Health Care Equipment & Services $ 361,388 ----------- Pharmaceuticals & Biotechnology - 1.0% Biotechnology - 0.7% 100,000 Angiotech Pharmaceutical, 7.75%, 4/1/14 (144A) $ 87,000 ----------- Pharmaceuticals - 0.3% 32,000 Warner Chilcott Corp., 8.75%, 2/1/15 $ 32,800 ----------- Total Pharmaceuticals & Biotechnology $ 119,800 ----------- Banks - 2.1% Diversified Banks - 2.1% 75,000 ATF Bank JSC, 9.25%, 4/12/12 (144A) $ 75,885 50,000 Hipotecaria Su Casita SA, 8.5%, 10/4/16 (144A) 52,625 40,000 Russian Stand Bank, 7.5%, 10/7/10 (144A) 38,550 80,000 Turanalem Finance BV, 8.5%, 2/10/15 (144A) 82,900 ----------- $ 249,960 ----------- Total Banks $ 249,960 ----------- Diversified Financials - 3.0% Consumer Finance - 0.9% 100,000 Ace Cash Express, Inc., 10.25%, 10/1/14 (144A) $ 101,250 ----------- Investment Banking & Brokerage - 0.7% 75,000 Sistema Finance SA, 10.25%, 4/14/08 $ 78,488 ----------- Specialized Finance - 1.4% 50,000 LOUIS NO1 Plc, 10.0%, 12/1/16 (144A) $ 68,297 100,000 Sally Holdings, 10.5%, 11/15/16 (144A) 102,000 ----------- $ 170,297 ----------- Total Diversified Financials $ 350,035 ----------- Insurance - 0.5% Life & Health Insurance - 0.3% 35,000 Presidential Life Corp., 7.875%, 2/15/09 $ 33,425 ----------- Reinsurance - 0.2% 20,000 Platinum Underwriters Holding, 7.5%, 6/1/17 $ 21,092 ----------- Total Insurance $ 54,517 ----------- Real Estate - 0.8% Real Estate Management & Development - 0.4% 50,000 Greentown China Holding, 9.0%, 11/8/13 (144A) $ 51,500 ----------- Real Estate Investment Trust - 0.4% 40,000 Trustreet Properties, Inc., 7.5%, 4/1/15 $ 43,200 ----------- Total Real Estate $ 94,700 -----------
12 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Principal Amount USD ($) Value Technology Hardware & Equipment - 2.6% Communications Equipment - 1.0% 110,000 Huges Network System, 9.5%, 4/15/14 $ 114,813 ----------- Computer Hardware - 0.6% 75,000 Compucom System, Inc., 12.0%, 11/1/14 (144A) $ 77,250 ----------- Electronic Manufacturing Services - 0.6% 70,000 Sanmina-Sci Corp., 6.75%, 3/1/13 $ 64,400 ----------- Office Electronics - 0.4% 35,000 Xerox Corp., 9.75%, 1/15/09 $ 50,926 ----------- Total Technology Hardware & Equipment $ 307,389 ----------- Semiconductors - 0.8% Semiconductors - 0.8% 55,000 Freescale Semiconductor, 9.244%, 12/14/14 (144A) (b) $ 54,519 35,000 NXP BV, 7.785%, 10/15/14 (144A) 36,181 ----------- $ 90,700 ----------- Total Semiconductors $ 90,700 ----------- Telecommunication Services - 8.3% Integrated Telecommunication Services - 1.6% 108,000 Eschelon Operating Co., 8.375%, 3/15/10 $ 104,220 40,000 Stratos Global Corp., 9.875%, 2/15/13 38,600 42,000 Tele Norte Leste Participacoes , 8.0%, 12/18/13 44,625 ----------- $ 187,445 ----------- Wireless Telecommunication Services - 6.7% 30,000 Broadview Networks Holdings, 11.375%, 9/1/12 (144A) $ 31,275 15,000 Cell C Pty, Ltd., 8.625%, 7/1/12 (144A) 19,836 90,000 Cell C Pty, Ltd., 11.0%, 7/1/15 (144A) 84,375 40,000 Cleveland Unlimited, Inc., 13.61%, 12/15/10 (144A) (b) 43,200 110,000 Cricket Communications I, 9.375%, 11/1/14 (144A) 116,050 100,000 Digicel, Ltd., 9.25%, 9/1/12 (144A) 106,750 60,000 Horizon PCS, Inc., 11.375%, 7/15/12 66,900 30,000 Inmarsat Finance Plc, 10.375%, 11/15/12 (b) 27,638 125,000 Intelsat Intermediate, 9.25%, 2/1/15 95,000 25,000 Mobile Satellite Venture, 0.0%, 4/1/13 (144A) (b) 16,750 50,000 Mobile Telesystems Finance, 8.0%, 1/28/12 52,375 120,000 True Move Co., Ltd., 10.75%, 12/16/13 (144A) 117,300 ----------- $ 777,449 ----------- Total Telecommunication Services $ 964,894 ----------- Utilities - 0.7% Electric Utilities - 0.5% 60,000 Mirant JPSCO Finance, Ltd., 11.0%, 7/6/16 (144A) $ 61,500 ----------- Gas Utilities - 0.2.% 20,000 Southern Union Co., 7.2%, 11/1/66 $ 19,715 ----------- Total Utilities $ 81,215 ----------- TOTAL CORPORATE BONDS (Cost $9,738,727) $ 9,982,878 -----------
The accompanying notes are an integral part of these financial statements. 13 PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Principal Amount USD ($) Value FOREIGN GOVERNMENT BONDS - 1.4% ITL 35,000,000 Banco Nac De Desen Econo, 8.0%, 4/28/10 $ 26,289 COP 90,000 Republic of Colombia, 10.75%, 1/15/13 111,375 COP 40,000,000 Republic of Columbia, 11.75%, 3/1/10 19,197 ----------- $ 156,861 ----------- TOTAL FOREIGN GOVERNMENT BONDS (Cost $149,660) $ 156,861 ----------- MUNICIPAL BOND - 0.6% Muni Utilities - 0.6% 50,000 San Antonio Texas Electric & Gas, 5.65%, 2/1/19 (144A) (b) $ 67,316 ----------- TOTAL MUNICIPAL BOND (Cost $65,726) $ 67,316 ----------- SENIOR SECURED FLOATING RATE LOAN INTERESTS - 1.3%** 99,748 Georgia-Pacific LLC, Term B Loan, 7.356%, 12/20/12 $ 100,330 50,000 Sanmina-SCI Corp., Term Loan, 7.88%, 1/31/08 50,200 ----------- $ 150,530 ----------- TOTAL SENIOR SECURED FLOATING RATE LOAN INTERESTS (Cost $150,533) $ 150,530 ===========
Shares RIGHTS/WARRANTS - 0.2% Energy - 0.2% Oil & Gas Drilling - 0.2% 100,000 Norse Energy Corp.* $ 22,460 ----------- Total Energy $ 22,460 ----------- Materials - 0.0% Forest Products - 0.0% 5 Mandra Forestry-CW13, Exp. 5/15/13* $ -- ----------- Total Materials $ -- ----------- TOTAL RIGHTS/WARRANTS (Cost $10,476) $ 22,460 ----------- TEMPORARY CASH INVESTMENT - 1.8% Security Lending Collateral - 1.8% 208,414 Securities Lending Investment Fund, 5.26% $ 208,414 ----------- TOTAL TEMPORARY CASH INVESTMENT (Cost $208,414) $ 208,414 ----------- TOTAL INVESTMENT IN SECURITIES - 95.5% (Cost $10,834,524) $11,120,660 ----------- OTHER ASSETS AND LIABILITIES - 4.5% $ 525,351 ----------- TOTAL NET ASSETS - 100.0% $11,646,012 ===========
14 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- * 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, 2006, the value of these securities amounted to $5,853,368 or 50.3% of total net assets. (a) At December 31, 2006, the following securities were out on loan:
Principal Amount Security Value $44,550 Cooper Standard Auto, 8.375%, 12/15/14 $ 35,083 24,750 Duane Reade, Inc., 9.75%, 8/1/11 22,956 39,600 Graham Packaging Co., 9.875%, 10/15/14 39,996 89,100 United Rentals NA, Inc., 7.75%, 11/15/13 89,434 400 WCI Communities, Inc., 6.625%, 3/15/15 344 14,850 WCI Communities, Inc., 7.875%, 10/1/13 13,291 -------- Total $201,104 ========
(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. ** Senior secured floating rate loan interests in which the Portfolio invests generally pay interest at rates that are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates are generally (i) the lending rate offered by one or more major European banks, such as LIBOR (London InterBank Offered Rate), (ii) the prime rate offered by one or more major United States banks, (iii) the certificate of deposit or (iv) other base lending rates used by commercial lenders. The rate shown is the coupon rate at period end. (c) Distributions of investments by country of issue, as a percentage of total portfolio holdings (excluding temporary cash investments) is as follows: United States 58.9% Norway 4.9 Brazil 4.4 Mexico 4.2 Canada 3.7 United Kingdom 2.6 Netherlands 2.5 Bermuda 2.4 Luxembourg 2.2 South Africa 1.9 Jamaica 1.5 Cayman Islands 1.5 Germany 1.4 Argentina 1.2 Colombia 1.2 Australia 1.2 Other (individually less than 1%) 4.3 ----- 100.0% =====
NOTE: Principal amounts are denominated in U.S. dollars unless otherwise noted. COP Columbian Peso ITL Italian Lira NOK Norwegian Kroner The accompanying notes are an integral part of these financial statements. 15 PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
3/18/05 (a) Year Ended to Class II 12/31/06 12/31/05 Net asset value, beginning of period $ 10.02 $ 10.00 ------- ------- Increase from investment operations: Net investment income $ 0.77 $ 0.51 Net realized and unrealized gain on investments and foreign currency transactions 0.39 0.01 ------- ------- Net increase from investment operations $ 1.16 $ 0.52 Distributions to shareowners: Net investment income (0.75) (0.50) Net realized gain (0.05) -- ------- -------- Net increase in net asset value $ 0.36 $ 0.02 ------- -------- Net asset value, end of period $ 10.38 $ 10.02 ======= ======= Total return* 12.00% 5.34%(b) Ratio of net expenses to average net assets 1.00% 0.99%** Ratio of net investment income to average net assets 7.56% 6.72%** Portfolio turnover rate 32% 26%(b) Net assets, end of period (in thousands) $11,646 $ 3,632 Ratios with no waiver of management fees and assumption of expenses by PIM: Net expenses 2.22% 5.65%** Net investment income 6.34% 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. 16 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $201,104) $11,120,660 (cost $10,834,524) Cash 414,803 Foreign currencies, at value (cost $135,977) 136,488 Receivables -- Fund shares sold 1,264 Dividends, interest and foreign taxes withheld 239,393 Forward foreign currency portfolio hedge contracts, open -- net 1,653 Other 129 ----------- Total assets $11,914,390 ----------- LIABILITIES: Payables -- Fund shares repurchased $ 1,725 Dividends 4,437 Upon return of securities loaned 208,414 Due to Pioneer Investment Management, Inc. 279 Due to affiliates 382 Accrued expenses 53,141 ----------- Total liabilities $ 268,378 ----------- NET ASSETS: Paid-in capital $11,340,842 Distributions in excess of net investment income (1,653) Accumulated net realized gain on investments 17,706 Net unrealized gain on: Investments 286,136 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 2,981 ----------- Total net assets $11,646,012 ----------- NET ASSET VALUE PER SHARE: Class II: (No par value, unlimited number of shares authorized) Net assets $11,646,012 Shares outstanding 1,121,479 ----------- Net asset value per share $ 10.38
The accompanying notes are an integral part of these financial statements. 17 PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Interest (net of foreign taxes withheld of $222) $ 593,436 Income on securities loaned, net 928 --------- Total investment income $ 594,364 --------- EXPENSES: Management fees $ 45,128 Transfer agent fees and expenses 1,123 Distribution fees 17,319 Administrative reimbursements 1,556 Custodian fees 18,359 Professional fees 38,839 Printing expense 17,188 Fees and expenses of nonaffiliated trustees 6,240 Miscellaneous 8,109 --------- Total expenses $ 153,861 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (84,436) --------- Net expenses $ 69,425 --------- Net investment income $ 524,939 --------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ 83,044 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (22,716) --------- $ 60,328 --------- Change in net unrealized gain from: Investments $ 264,712 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 2,263 --------- $ 266,975 --------- Net gain on investments and foreign currency transactions $ 327,303 --------- Net increase in net assets resulting from operations $ 852,242 =========
18 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
For the period from 3/18/05 (Commencement Year Ended of Operations) 12/31/06 to 12/31/05 FROM OPERATIONS: Net investment income $ 524,939 $ 97,143 Net realized gain (loss) on investments 60,328 (11,404) Change in net unrealized gain (loss) on investments and foreign currency transactions 266,975 22,142 ------------ ---------- Net increase in net assets resulting from operations $ 852,242 $ 107,881 ------------ ---------- DISTRIBUTIONS TO SHAREOWNERS Net investment income: Class II $ (513,188) $ (94,049) Net realized gain Class II (48,176) -- ------------ ---------- Total distributions to shareowners $ (561,364) $ (94,049) ------------ ---------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 9,263,320 $3,610,396 Reinvestment of distributions 505,445 58,955 Cost of shares repurchased (2,045,224) (51,590) ------------ ---------- Net increase in net assets resulting from Fund share transactions $ 7,723,541 $3,617,761 ------------ ---------- Net increase in net assets $ 8,014,419 $3,631,593 NET ASSETS: Beginning of period 3,631,593 -- ------------ ---------- End of period $ 11,646,012 $3,631,593 ============ ========== Distributions in excess of net investment income, end of period $ (1,653) $ (2,312) ============ ==========
The accompanying notes are an integral part of these financial statements. 19 PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 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 Portfolio seeks to maximize total return through a combination of income and capital appreciation. Investing in foreign and/or emerging market 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. Information regarding 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 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 year. 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. The net asset value of 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 value, securities are valued 20 PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- at the last sale price on the principal exchange where they are traded. 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. 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. 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. At December 31, 2006, 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 $ (11,092) $11,092 $-- ========= ======= === - -------------------------------------------------------------------------------
21 PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis.
- -------------------------------------------------------------------------------- 2006 2005 - -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $557,472 $94,049 Long-Term Capital Gain 3,892 -- ------------------------------- $561,364 $94,049 Return of Capital -- -- ------------------------------- Total Distributions $561,364 $94,049 =============================== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 9,696 Undistributed long-term gain 8,010 Unrealized appreciation 287,464 -------- Total $305,170 ======== - --------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the mark-to-market of foreign currency 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, if any, 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. (See Note 8) E. Portfolio Shares The Portfolio records sales and repurchases of its portfolio shares as of trade date. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (Unicredito Italiano), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. Distribution fees are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. 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 22 PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 up to $500 million and 0.60% on assets over $500 million. Through May 1, 2007, 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, 2006, $21 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 $123 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $238 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $10,834,524 $355,223 $ (69,087) $286,136 =========== ======== ========= ======== - ---------------------------------------------------------------------------------------------------
23 PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, were $9,288,876 and $2,126,236, respectively. 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- -------------------------------------------------------------------------------------------------- Global High Yield Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - -------------------------------------------------------------------------------------------------- CLASS II: Shares sold 909,874 $9,263,320 361,651 $3,610,396 Reinvestment of distributions 49,419 505,445 5,886 58,955 Shares repurchased (200,182) (2,045,224) (5,169) (51,590) ----------------------------------------------------------------- Net increase 759,111 $7,723,541 362,368 $3,617,761 ================================================================= - --------------------------------------------------------------------------------------------------
8. Forward Foreign Currency Contracts During the year ended December 31, 2006, the Portfolio had entered into various contracts that obligate the Portfolio to deliver currencies at specified future dates. At the maturity of a contract, the Portfolio must make delivery of the foreign currency. Alternatively, prior to the settlement date of a portfolio hedge, the Portfolio may close out such contracts by entering into an offsetting hedge contract. As of December 31, 2006, open Portfolio hedges were as follows:
- ---------------------------------------------------------------------------------------------------------------- Net Contracts to In Exchange Settlement Unrealized Portfolio Deliver For Date Value Gain (Loss) - ---------------------------------------------------------------------------------------------------------------- Global High Yield Portfolio EUR (170,000) $(226,172) 1/12/07 $(224,519) $1,653 - ----------------------------------------------------------------------------------------------------------------
9. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 24 PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- 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 of Pioneer Global High Yield VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2006, by correspondence with the custodian and brokers. 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 Global High Yield VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2006, the results of its operations for the year then ended and its changes in its net assets and the 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 9, 2007 25 PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 12 months ended June 30, 2006 of the Fund and a peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 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 incurred on a basis other than as 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. 26 PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group considered appropriate by the Independent Trustees for this purpose and the Merrill Lynch Global High Yield & Emerging Markets Index. The Fund's performance, based upon total return, was in the first quintile of its Morningstar category peer group for the 12 months ended June 30, 2006. (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 of the Fund, after deduction of expenses, relative to the yield of the index. The Trustees concluded that the performance of the Fund was strong during the short period since its inception. 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 size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee, based on 2006 data, was in the third quintile relative to the management fees paid by the other funds in that peer group. The Trustees also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 (after giving effect to the expense limitation) to be in the second quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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 breakpoints in the management fees, the Trustees concluded 27 PIONEER VARIABLE CONTRACTS TRUST Pioneer Global High Yield VCT Portfolio - -------------------------------------------------------------------------------- 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 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 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fees payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 28 Pioneer Global High Yield 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 Custodian the portfolio's affairs. The officers of the trust are Brown Brothers Harriman & Co. responsible for the trust's 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 are Ernst & Young LLP interested persons of the trust within the meaning of the 1940 Act are referred to as Interested Trustees. Trustees who are not Principal Underwriter interested persons of the trust are referred to as Independent Pioneer Funds Distributor, Inc. Trustees. Each of the Trustees serves as a trustee of each of the 86 U.S. registered investment portfolios for which Pioneer Legal Counsel serves as investment adviser (the "Pioneer Funds"). The address Wilmer Cutler Pickering Hale and Dorr LLP for all Interested Trustees and all officers of the trust is 60 State Street, Boston, Massachusetts 02109. Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES - ------------------------------------------------------------------------------------------------------------------------------------ POSITIONS HELD LENGTH OF SERVICE OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Deputy Chairman and a Director of Pioneer Director of ICI Board, Trustee Serves until a Global Asset Management S.p.A. ("PGAM"); Mutual Insurance and President successor trustee Non-Executive Chairman and a Director of Company is elected or Pioneer Investment Management USA Inc. earlier retirement ("PIM-USA"); Chairman and a Director of or removal. Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - ------------------------------------------------------------------------------------------------------------------------------------
29 Pioneer Global High Yield VCT Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------ TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES - ------------------------------------------------------------------------------------------------------------------------------------ POSITIONS HELD LENGTH OF SERVICE OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS TRUSTEE David R. Bock (63) Trustee Trustee since 2005. Senior Vice President and Chief Financial Director of The 3050 K. Street NW, Serves until a Officer, I-trax, Inc. (publicly traded Enterprise Social Washington, DC 20007 successor trustee health care services company) (2001 - Investment Company is elected or present); Managing Partner, Federal City (privately-held earlier retirement Capital Advisors (boutique merchant bank) affordable housing or removal. (2002 to 2004); and Executive Vice President finance company); and Chief Financial Officer, Pedestal Inc. and Director of New (internet-based mortgage trading company) York Mortgage Trust (2000 - 2002) (publicly traded mortgage REIT) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Trustee Trustee since 2000. President, Bush International Director of Brady 3509 Woodbine Street, Serves until a (international financial advisory firm) Corporation Chevy Chase, MD 20815 successor trustee (industrial is elected or identification and earlier retirement specialty coated or removal. material products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) Trustee Trustee since 2000. Founding Director, The Winthrop Group, Inc. None 1001 Sherbrooke Serves until a (consulting firm); and Desautels Faculty of Street West, successor trustee Management, McGill University Montreal, Quebec, Canada is elected or H3A 1G5 earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Trustee Trustee since 2006. Private investor (2004 - present); and Director of 89 Robbins Avenue, Serves until a Senior Executive Vice President, The Bank Quadriserv Inc. Berkeley Heights, NJ successor trustee of New York (financial and securities (technology products 07922 is elected or services) (1986 - 2004) for securities earlier retirement lending industry) or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Trustee Trustee since 1995. President and Chief Executive Officer, Director of New 200 State Street, 12th Serves until a Newbury, Piret & Company, Inc. America High Income Floor, Boston, MA 02109 successor trustee (investment banking firm) Fund, Inc. is elected or (closed-end earlier retirement investment company) or removal. - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) Trustee Trustee since 2000. President, John Winthrop & Co., Inc. None One North Adgers Wharf, Serves until a (private investment firm) Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------
30 Pioneer Global High Yield VCT Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------ TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - ------------------------------------------------------------------------------------------------------------------------------------ TRUST OFFICERS - ------------------------------------------------------------------------------------------------------------------------------------ POSITIONS HELD LENGTH OF SERVICE OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS OFFICER Osbert M. Hood (54)+ Executive Vice Since 2003. Serves President and Chief Executive Officer, Trustee of certain President at the discretion PIM-USA since May 2003 (Director since Pioneer Funds of the Board January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since 2000. Serves Secretary of PIM-USA; Senior Vice None at the discretion President - Legal of Pioneer; Secretary/ of the Board Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Assistant Since 2003. Serves Vice President and Senior Counsel of None Secretary at the discretion Pioneer since July 2002; Vice President of the Board and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001); and Assistant Secretary of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey Assistant Since 2006. Serves Partner, Wilmer Cutler Pickering Hale and None (45) Secretary at the discretion Dorr LLP; and Assistant Secretary of all of the Board of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Treasurer Since 2000. Serves Vice President - Fund Accounting, None at the discretion Administration and Controllership Services of the Board of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Assistant Since 2004. Serves Deputy Treasurer of Pioneer since 2004; None Treasurer at the discretion Treasurer and Senior Vice President, CDC of the Board 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 - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Since 2000. Serves Assistant Vice President - Fund None Treasurer at the discretion Accounting, Administration and of the Board Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Assistant Since 2002. Serves Fund Accounting Manager - Fund Accounting, None Treasurer at the discretion Administration and Controllership Services of the Board of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------------------------------
31 Pioneer Global High Yield VCT Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------ TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - ------------------------------------------------------------------------------------------------------------------------------------ TRUST OFFICERS - ------------------------------------------------------------------------------------------------------------------------------------ POSITIONS HELD LENGTH OF SERVICE OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS OFFICER Katherine Kim Sullivan Assistant Since 2003. Serves Fund Administration Manager - Fund None (33) Treasurer at the discretion Accounting, Administration and of the Board Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Since 2006. Serves Chief Compliance Officer of Pioneer and None Compliance at the discretion all of the Pioneer Funds since March 2006; Officer of the Board Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 32 - -------------------------------------------------------------------------------- This page for your notes. 33 - -------------------------------------------------------------------------------- This page for your notes. 34 - -------------------------------------------------------------------------------- This page for your notes. 35 - -------------------------------------------------------------------------------- This page for your notes. 36 - -------------------------------------------------------------------------------- This page for your notes. 37 [LOGO] PIONEER Investments(R) Pioneer Variable Contracts Trust Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18679-01-0207 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Growth Shares VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2006 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 12/31/06 - -------------------------------------------------------------------------------- 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 93.2% Depositary Receipts for International Stocks 4.0% Temporary Cash Investment 2.8%
Sector Distribution (As a percentage of equity holdings) [The following data was represented as a pie chart in the printed material] Information Technology 30.1% Health Care 21.5% Consumer Discretionary 12.5% Industrials 12.3% Consumer Staples 11.0% Financials 7.7% Energy 2.8% Utilities 2.1%
Five Largest Holdings (As a percentage of equity holdings) 1. Microsoft Corp. 6.32% 2. Cisco Systems, Inc. 5.05 3. Altria Group, Inc. 4.26 4. Boston Scientific Corp. 4.03 5. Home Depot, Inc. 3.90
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $ 14.39 $ 13.20
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) 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 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 graph in the printed material]
Pioneer Growth Shares VCT Russell Portfolio 1000 Growth Index 10/97 $10,000 $10,000 12/98 $13,521 $14,622 12/00 $13,472 $15,104 12/02 $ 7,064 $ 8,668 12/04 $ 9,372 $11,955 12/06 $10,543 $13,726
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, 2006) - -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- Life-of-Class (10/31/97) 0.58% 5 Years -0.63% 1 Year 9.02%
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.pioneerinvestments.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, 2006 through December 31, 2006.
Share Class II - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,122.53 Expenses Paid During Period* $ 7.06
* Expenses are equal to the Portfolio's annualized expense ratio of 1.32% 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, 2006 through December 31, 2006.
Share Class II - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,018.55 Expenses Paid During Period* $ 6.72
* Expenses are equal to the Portfolio's annualized expense ratio of 1.32% 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 12/31/06 - -------------------------------------------------------------------------------- ------------------------------------------------------------------------ Note to Shareholders: Andrew Acheson and Timothy Mulrenan, two veteran equity managers, have assumed portfolio management responsibilities for Pioneer Growth Shares VCT Portfolio, effective January 16, 2007. Mr. Acheson has more than 12 years of professional investment experience, seven of them at Pioneer, where his responsibilities have included managing Pioneer Independence Fund and Pioneer Select Equity Fund. He holds an MBA from the Cranfield School of Management, England. Mr. Mulrenan, CFA, has more than 21 years of professional experience, including 10 years at Pioneer, where he is a member of the large-cap growth team. He has managed Pioneer's Concentrated Growth institutional portfolios as well as large-cap equity portfolios of balanced funds. ------------------------------------------------------------------------ Despite a dramatic decline from mid-May through mid-July, the domestic stock market posted strong results in 2006. As equities began recovering in July, large-cap growth companies assumed a leadership role in market performance for the second half of the year, while more cyclical stocks, which had been in favor the previous two years, began to lag. In the following interview, portfolio managers Christopher M. Galizio and Stephen A. Balter discuss the market and the factors that influenced performance during 2006, when they managed the Portfolio. Portfolio managers Andrew Acheson and Timothy Mulrenan, who took responsibility for the Portfolio's management on January 16, 2007, give their views on the outlook. Q. How did the Portfolio perform during the 12 months ended December 31, 2006? A. Pioneer Growth Shares VCT Portfolio's performance improved dramatically in the second half of the year as the stock market finally began recognizing values in the large-cap growth stocks that we emphasize. After trailing the benchmark Russell 1000 Growth Index by more than two full percentage points during the year's first six months, the Portfolio's relative performance improved noticeably beginning in July. The Portfolio's Class II shares generated a total return of 9.02%, at net asset value, for the 12 months. During the same period, the Russell 1000 Growth Index returned 9.07%, while the average performance of the 193 variable annuity portfolios in Lipper's Large Cap Growth category was 6.31%. Call 1-800-688-9915 or visit www.pioneerinvestments.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 primary factors affecting performance during the year? A. Throughout the 12 months, we positioned the Portfolio for a growth environment, emphasizing companies that we believed should be helped by developing long-term trends. These trends included information technology companies whose products and services would be in demand as innovations speeded data transmission, allowed new formats to be transmitted digitally, and boosted corporate productivity generally. The trends also included health care companies that could offer services and products for an aging population. We saw good value in many large-cap companies in these sectors. Conversely, we deemphasized the more cyclical sectors, such as energy and industrials, that had performed well over the previous two years, but now appeared to be richly priced as the 2003-2005 cyclical recovery played out. In the first half of 2006, this positioning did not yield good results, particularly as stock values dropped in the May-July interval. However, when the stock market began to recover in mid-July, the large-cap growth companies that we favored started leading the market, with technology stocks performing particularly well. In addition, many consumer discretionary companies, which had fallen to relatively low prices, outperformed as consumer spending in the face of expectations that a decelerating economy would impact consumption. In general, the secular growth companies that we emphasized led the market's second-half charge. 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 pioneerinvestments.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 Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Q. What types of investments most influenced Portfolio results in 2006? A. Our technology investments performed well, with many of our holdings benefiting from the growing need for more bandwidth on the Internet to allow transmission of more complex digital files, including video. This trend led to strong revenue growth for holdings such as Cisco Systems and Juniper Networks, both of which produce routers and switchers, and for F5 Networks, a smaller company that specializes in sophisticated switches that increase network efficiency. We also had excellent results from our investment in Macrovision. Its software products make it easier to install software and that protect against copyright theft over the Internet. Macrovision's stock alone climbed by more than 50% during 2006. Other outstanding performers included Altria Group, the parent company of both Philip Morris and Kraft Foods. As the risks from tobacco liability lawsuits appeared to decline, Altria announced plans to spin off its Kraft Foods unit --a move welcomed by the stock market. Our investment in General Electric also performed well. We purchased GE at a low stock price at a time when we believed its earnings prospects were improving because of its leadership in many late-cyclical businesses, such as power generation plants and medical imaging. In health care, a stand-out performer was AstraZeneca, a London-based pharmaceutical company that appeared to be inexpensive and which was undergoing a restructuring program that reduced its operating costs substantially while maintaining revenues. We took profits and sold our position in AstraZeneca. Amgen, another health care holding, was a disappointment in 2006, however. This biotechnology company underperformed because of fears about competition in the anemia market from a new drug that was being introduced by Roche. Another investment that detracted from Portfolio performance was Corning, a leading producer of glass for flat-panel televisions and computers. It was affected by intense competition in the flat-panel television market that pressured its revenue growth. Also holding back results was our position in Intel, which faced increased competition from AMD in semiconductors for personal computers. We have sold our Intel holding and retained positions in Amgen and Corning as of December 31, 2006. Q. Andrew and Tim, what is your investment outlook? A. Entering 2007, we think there is a generally favorable environment for large-cap stocks. We think economic growth, which has been decelerating during the latter months of 2006, should start to pick up in the first half of 2007. Factors such as a sluggish housing market, which have weighed on the economy in recent months, should not be as significant a factor in the coming months. While inflation may remain at somewhat elevated levels, we don't think it should pose a serious threat, given the ability of companies to absorb higher costs through improvements in productivity. However, continued inflationary pressures in a period of renewed growth may prompt the Federal Reserve Board to raise short-term interest rates again. Our biggest fear is that the Federal Reserve might over-react to evidence of a pick-up in growth, increasing the chances of a recession. We believe the valuations of most stocks remain reasonable, while large-cap stocks in recent months have begun outperforming small- and mid-cap stocks. We believe large-caps should continue to do well, even in an economic slowdown, as they have tended to have superior competitive positions in their industries and have retained large cash positions on their balance sheets. In addition, larger companies tend to sell more of their products overseas, where their competitive positions may have been strengthened by the recent weakening of the U.S. dollar. Overall, we think large-cap stocks are well positioned to perform well in the coming months. 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 12/31/06 - --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 99.7% Energy - 2.8% Integrated Oil & Gas - 2.8% 8,000 ConocoPhillips $ 575,600 8,000 Repsol SA (A.D.R.) (a) 276,000 ----------- $ 851,600 ----------- Total Energy $ 851,600 ----------- Capital Goods - 12.3% Aerospace & Defense - 3.8% 4,600 L-3 Communications Holdings, Inc. $ 376,188 13,000 United Technologies Corp. 812,760 ----------- $ 1,188,948 ----------- Industrial Conglomerates - 8.5% 9,600 3M Co. $ 748,128 32,100 General Electric Co. 1,194,441 22,100 Tyco International, Ltd. 671,840 ----------- $ 2,614,409 ----------- Total Capital Goods $ 3,803,357 ----------- Consumer Durables & Apparel - 1.6% Footwear - 1.6% 5,000 Nike, Inc. $ 495,150 ----------- Total Consumer Durables & Apparel $ 495,150 ----------- Consumer Services - 1.4% Hotels, Resorts & Cruise Lines - 1.4% 9,000 Carnival Corp. $ 441,450 ----------- Total Consumer Services $ 441,450 ----------- Media - 1.4% Movies & Entertainment - 1.4% 10,750 Viacom, Inc. (Class B)* $ 441,073 ----------- Total Media $ 441,073 ----------- Retailing - 8.0% Apparel Retail - 4.1% 9,800 Abercrombie & Fitch Co. $ 682,374 20,400 TJX Companies, Inc. 581,808 ----------- $ 1,264,182 ----------- Home Improvement Retail - 3.9% 29,900 Home Depot, Inc. $ 1,200,784 ----------- Total Retailing $ 2,464,966 ----------- Food & Drug Retailing - 2.5% Drug Retail - 2.5% 25,100 CVS Corp. $ 775,841 ----------- Total Food & Drug Retailing $ 775,841 ----------- Food, Beverage & Tobacco - 5.1% Soft Drinks - 0.8% 2,200 Fomento Economico Mexicano SA de CV $ 254,672 ----------- Tobacco - 4.3% 15,300 Altria Group, Inc. $ 1,313,046 ----------- Total Food, Beverage & Tobacco $ 1,567,718 ----------- Household & Personal Products - 3.4% Household Products - 3.4% 16,500 Procter & Gamble Co. $ 1,060,455 ----------- Total Household & Personal Products $ 1,060,455 ----------- Health Care Equipment & Services - 9.0% Health Care Equipment - 6.8% 12,000 Biomet, Inc. $ 495,240 72,253 Boston Scientific Corp.* 1,241,307 7,000 Medtronic, Inc. 374,570 ----------- $ 2,111,117 ----------- Health Care Supplies - 1.1% 7,800 Cooper Companies, Inc. (a) $ 347,100 ----------- Managed Health Care - 1.1% 7,600 Aetna, Inc. $ 328,168 ----------- Total Health Care Equipment & Services $ 2,786,385 ----------- Pharmaceuticals & Biotechnology - 12.4% Biotechnology - 4.9% 14,858 Amgen, Inc.* $ 1,014,950 7,800 Gilead Sciences, Inc.* 506,454 ----------- $ 1,521,404 ----------- Pharmaceuticals - 7.5% 15,400 Eli Lilly & Co. $ 802,340 6,600 Johnson & Johnson 435,732 15,392 Par Pharmaceutical Co., Inc.* 344,319 23,404 Teva Pharmaceutical Industries, Ltd. 727,396 ----------- $ 2,309,787 ----------- Total Pharmaceuticals & Biotechnology $ 3,831,191 ----------- Banks - 0.9% Regional Banks - 0.9% 7,900 Hansen Natural Corp.* $ 266,072 ----------- Total Banks $ 266,072 ----------- Diversified Financials - 6.8% Asset Management & Custody Banks - 3.0% 5,400 Franklin Resources, Inc. $ 594,918 3,600 Legg Mason, Inc. 342,180 ----------- $ 937,098 ----------- Consumer Finance - 2.5% 12,600 American Express Co. $ 764,442 -----------
6 The accompanying notes are an integral part of these financial statements. Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value Investment Banking & Brokerage - 1.3% 4,300 Merrill Lynch & Co., Inc. $ 400,330 ----------- Total Diversified Financials $ 2,101,870 ----------- Software & Services - 10.8% Internet Software & Services - 1.2% 14,800 Yahoo!, Inc.* $ 377,992 ----------- Systems Software - 9.6% 35,800 Macrovision Corp.* $ 1,011,708 65,200 Microsoft Corp. 1,946,871 ----------- $ 2,958,579 ----------- Total Software & Services $ 3,336,571 ----------- Technology Hardware & Equipment - 14.6% Communications Equipment - 13.1% 56,850 Cisco Systems, Inc.* $ 1,553,711 37,500 Corning, Inc.* 701,625 6,160 F5 Networks, Inc.* 457,134 32,380 Juniper Networks, Inc.* 613,277 35,300 Motorola, Inc. 725,768 ----------- $ 4,051,515 ----------- Computer Hardware - 1.5% 31,070 Palm, Inc.*(a) $ 437,776 ----------- Total Technology Hardware & Equipment $ 4,489,291 ----------- Semiconductors - 4.7% Semiconductors - 4.7% 13,100 Advanced Micro Devices, Inc.* $ 266,585 7,490 Maxim Integrated Products 229,344 32,700 Texas Instruments, Inc. 941,760 ----------- $ 1,437,689 ----------- Total Semiconductors $ 1,437,689 ----------- Utilities - 2.1% Independent Power Producer & Energy Traders - 2.1% 11,900 TXU Corp. $ 645,099 ----------- Total Utilities $ 645,099 ----------- TOTAL COMMON STOCKS (Cost $28,403,306) $30,795,778 ----------- TEMPORARY CASH INVESTMENT - 2.8% Security Lending Collateral - 2.8% 873,306 Securities Lending Investment Fund, 5.26% $ 873,306 ----------- TOTAL TEMPORARY CASH INVESTMENT (Cost $873,306) $ 873,306 ----------- TOTAL INVESTMENT IN SECURITIES - 102.6% (Cost $29,276,612) $31,669,084 ----------- OTHER ASSETS AND LIABILITIES - (2.6)% $ (795,763) ----------- TOTAL NET ASSETS - 100.0% $30,873,321 ===========
* Non-income producing security. (A.D.R.) American Depositary Receipt (a) At December 31, 2006, the following securities were out on loan:
Shares Security Value 7,722 Cooper Companies, Inc. $343,629 25,314 Palm, Inc.* 356,674 4,338 Repsol SA (A.D.R.) 149,661 -------- Total $849,964 ========
The accompanying notes are an integral part of these financial statements. 7 Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Year Year Year Year Ended Ended Ended Ended Ended Class II 12/31/06 12/31/05 12/31/04 12/31/03 12/31/02 Net asset value, beginning of period $ 13.20 $ 12.87 $ 12.10 $ 9.70 $ 14.94 --------- --------- --------- --------- --------- Increase (decrease) from investment operations: Net investment income (loss) $ (0.01) $ (0.02) $ 0.06 $ (0.02) $ (0.13) Net realized and unrealized gain (loss) on investments 1.20 0.43 0.71 2.42 (5.11) --------- --------- --------- --------- --------- Net increase (decrease) from investment operations $ 1.19 $ 0.41 $ 0.77 $ 2.40 $ (5.24) Distributions to shareowners: Net investment income -- (0.08) -- -- -- --------- --------- --------- --------- --------- Net increase (decrease) in net asset value $ 1.19 $ 0.33 $ 0.77 $ 2.40 $ (5.24) --------- --------- --------- --------- --------- Net asset value, end of period $ 14.39 $ 13.20 $ 12.87 $ 12.10 $ 9.70 ========= ========= ========= ========= ========= Total return* 9.02% 3.19% 6.36% 24.74% (35.07)% Ratio of net expenses to average net assets+ 1.33% 1.24% 1.25% 1.44% 1.63% Ratio of net investment income (loss) to average net assets+ (0.07)% (0.09)% 0.74% (0.40)% (0.64)% Portfolio turnover rate 62% 79% 206% 58% 86% Net assets, end of period (in thousands) $ 7,551 $ 7,096 $ 7,749 $ 3,049 $ 263 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.33% 1.24% 1.26% 1.44% 1.63% Net investment income (loss) (0.07)% (0.09)% 0.73% (0.40)% (0.64)% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 1.32% 1.24% 1.25% 1.44% 1.63% Net investment income (loss) (0.06)% (0.09)% 0.74% (0.40)% (0.64)%
* 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 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $849,964) (cost $29,276,612) $ 31,669,084 Cash 73,028 Receivables -- Investment securities sold 107,200 Dividends 34,919 Other 828 ------------- Total assets $ 31,885,059 ------------- LIABILITIES: Payables -- Investment securities purchased $ 46,310 Fund shares repurchased 23,391 Upon return of securities loaned 873,306 Due to affiliates 6,420 Accrued expenses 62,311 ------------- Total liabilities $ 1,011,738 ------------- NET ASSETS: Paid-in capital $ 63,854,296 Undistributed net investment income 46,959 Accumulated net realized loss on investments (35,420,406) Net unrealized gain on investments 2,392,472 ------------- Total net assets $ 30,873,321 ------------- NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 23,322,308 Shares outstanding 1,597,455 ------------- Net asset value per share $ 14.60 Class II: (No par value, unlimited number of shares authorized) Net assets $ 7,551,013 Shares outstanding 524,813 ------------- Net asset value per share $ 14.39
The accompanying notes are an integral part of these financial statements. 9 Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $1,232) $ 391,915 Interest 6,272 Income on securities loaned, net 1,078 ---------- Total investment income $ 399,265 ---------- EXPENSES: Management fees $ 222,976 Transfer agent fees and expenses 3,221 Distribution fees (Class II) 17,692 Administrative reimbursements 7,150 Custodian fees 27,575 Professional fees 31,154 Printing expense 28,365 Fees and expenses of nonaffiliated trustees 8,356 Miscellaneous 6,623 ---------- Total expenses $ 353,112 Less fees paid indirectly (972) ---------- Net expenses $ 352,140 ---------- Net investment income $ 47,125 ---------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain from investments $1,204,415 ---------- Change in net unrealized gain from investments $1,499,336 ---------- Net gain on investments $2,703,751 ========== Net increase in net assets resulting from operations $2,750,876 ==========
10 The accompanying notes are an integral part of these financial statements. Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 47,125 $ 49,245 Net realized gain on investments 1,204,415 3,211,502 Change in net unrealized gain (loss) on investments 1,499,336 (2,083,627) ------------ ------------ Net increase in net assets resulting from operations $ 2,750,876 $ 1,177,120 ------------ ------------ DISTRIBUTIONS TO SHAREOWNERS Net investment income: Class I $ (49,224) $ (221,887) Class II -- (50,023) ------------ ------------ Total distributions to shareowners $ (49,224) $ (271,910) ------------ ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 1,593,421 $ 2,192,354 Reinvestment of distributions 49,224 271,910 Cost of shares repurchased (7,552,661) (9,337,142) ------------ ------------ Net decrease in net assets resulting from Fund share transactions $ (5,910,016) $ (6,872,878) ------------ ------------ Net decrease in net assets $ (3,208,364) $ (5,967,668) ------------ ------------ NET ASSETS: Beginning of year 34,081,685 40,049,353 ------------ ------------ End of year $ 30,873,321 $ 34,081,685 ============ ============ Undistributed net investment income, end of year $ 46,959 $ 49,058 ============ ============
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 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 the Portfolio is to seek capital appreciation. 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(es). Please refer to those documents when considering the Portfolio's risks. 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 year. 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) 12 Pioneer Growth Shares 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 exchange. At December 31, 2006, 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 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, 2006, Growth Shares Portfolio had a net capital loss carryforward of $35,044,842, of which the following amounts will expire between 2009 and 2011 if not utilized: $8,480,418 in 2009, $19,245,183 in 2010 and $7,319,241 in 2011. The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis.
- ------------------------------------------------------------------------------------------ 2006 2005 - ------------------------------------------------------------------------------------------ Distributions paid from: Ordinary Income $ 49,224 $ 271,910 Long-Term Capital Gain -- -- ------------------------------------ $ 49,224 $ 271,910 Return of Capital -- -- ------------------------------------ Total Distributions $ 49,224 $ 271,910 ------------------------------------ Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 46,959 Undistributed long-term gain/(capital loss carryforward) (35,044,843) Unrealized appreciation (depreciation) 2,016,909 ------------ Total $(32,980,975) ============ - ------------------------------------------------------------------------------------------
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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. Distribution fees for Class II shares are calculated 13 Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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 sub custodian. 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, 2006, $1,841 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 $4,423 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $156 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $29,652,175 $3,556,380 $ (1,539,471) $2,016,909 =========== ========== ============ ========== - ------------------------------------------------------------------------------------------------
14 Pioneer Growth Shares 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, 2006, were $19,738,235 and $25,747,363, respectively. 7. Commission Recapture and Expense Offset Arrangements Effective July 15, 2005, the Portfolio has entered into commission recapture arrangements with brokers with whom PIM places trades on behalf of the Portfolio where they provide services to the Portfolio in addition to trade execution. These services included payments of certain expenses on behalf of the Portfolio. For the year ended December 31, 2006, expenses were reduced by $972 under this agreement. In addition, the Portfolio has entered into certain expense offset arrangements with PIMSS resulting in a reduction in the Portfolio's total expenses due to interest earned on cash held by PIMSS. For the year ended December 31, 2006, the Portfolio's expenses were not reduced under such arrangements. 8. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- ----------------------------------------------------------------------------------------------------- Growth Shares Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ----------------------------------------------------------------------------------------------------- CLASS I: Shares sold 23,372 $ 317,217 34,054 $ 438,600 Reinvestment of distributions 3,819 49,224 17,362 221,887 Shares repurchased (445,513) (6,086,390) (512,773) (6,658,363) -------------------------------------------------------------- Net decrease (418,322) $(5,719,949) (461,357) $(5,997,876) ============================================================== CLASS II: Shares sold 96,505 $ 1,276,204 137,249 $ 1,753,754 Reinvestment of distributions -- -- 3,965 50,023 Shares repurchased (109,182) (1,466,271) (205,695) (2,678,779) -------------------------------------------------------------- Net decrease (12,677) $ (190,067) (64,481) $ (875,002) ============================================================== - -----------------------------------------------------------------------------------------------------
9. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 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 Shareowners of Pioneer Growth Shares VCT Portfolio: We have audited the accompanying statement of assets and liabilities of Pioneer Growth Shares VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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, 2006, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies 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 Growth Shares VCT Portfolios of the Pioneer Variable Contracts Trust at December 31, 2006, 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 9, 2007 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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. 17 Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- 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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group and an index considered appropriate by the Independent Trustees for this purpose. The Fund's performance, based upon total return, was in the fifth quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, the fifth quintile of the peer group for the three years ended June 30, 2006, and the fifth quintile for the five years ended June 30, 2006. (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, focusing on three-year total returns, concluded that the Fund underperformed relative to its peer group. 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 size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee for the 12 months ended June 30, 2006 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 also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 to be in the fourth quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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. 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 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 19 Pioneer Growth Shares 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 portfolio's affairs. 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 trust within the meaning of the 1940 Act are referred to Principal Underwriter as Interested Trustees. Trustees who are not Pioneer Funds Distributor, Inc. interested persons of the trust are referred to as Independent Trustees. Each of the Trustees serves as Legal Counsel a trustee of each of the 86 U.S. registered Wilmer Cutler Pickering Hale and Dorr LLP investment portfolios for which Pioneer serves as investment adviser (the "Pioneer Funds"). The Shareowner Services and Transfer address for all Interested Trustees and all officers Pioneer Investment Management Shareholder Services, Inc. of the trust is 60 State Street, Boston, Massachusetts 02109.
- -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Deputy Chairman and a Director Director of ICI Board, Trustee until a successor trustee of Pioneer Global Asset Mutual Insurance and President is elected or earlier Management S.p.A. ("PGAM"); Company retirement or removal. Non-Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - ------------------------------------------------------------------------------------------------------------------------------------
20 Pioneer Growth Shares VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE David R. Bock (63) Trustee Trustee since 2005. Serves Senior Vice President and Director of The 3050 K. Street NW, until a successor trustee Chief Financial Officer, Enterprise Social Washington, DC 20007 is elected or earlier I-trax, Inc. (publicly traded Investment Company retirement or removal. health care services company) (privately-held (2001 - present); Managing affordable housing Partner, Federal City Capital finance company); and Advisors (boutique merchant Director of New York bank) (2002 to 2004); and Mortgage Trust Executive Vice President and (publicly traded Chief Financial Officer, mortgage REIT) Pedestal Inc. (internet- based mortgage trading company) (2000 - 2002) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Trustee Trustee since 2000. Serves President, Bush International Director of Brady 3509 Woodbine Street, until a successor trustee (international financial Corporation Chevy Chase, MD 20815 is elected or earlier advisory firm) (industrial retirement or removal. identification and specialty coated material products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves Founding Director, The None 1001 Sherbrooke Street West, until a successor trustee Winthrop Group, Inc. Montreal, Quebec, Canada is elected or earlier (consulting firm); and H3A 1G5 retirement or removal. Desautels Faculty of Management, McGill University - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Trustee Trustee since 2006. Serves Private investor (2004 - Director of 89 Robbins Avenue, until a successor trustee present); and Senior Executive Quadriserv Inc. Berkeley Heights, NJ is elected or earlier Vice President, The Bank of (technology products 07922 retirement or removal. New York (financial and for securities securities services) (1986 - lending industry) 2004) - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Trustee Trustee since 1995. Serves President and Chief Executive Director of New 200 State Street, 12th until a successor trustee Officer, Newbury, Piret & America High Income Floor, Boston, MA 02109 is elected or earlier Company, Inc. (investment Fund, Inc. retirement or removal. banking firm) (closed-end investment company) - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) Trustee Trustee since 2000. Serves President, John Winthrop & None One North Adgers Wharf, until a successor trustee Co., Inc. (private investment Charleston, SC 29401 is elected or earlier firm) retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------
21 Pioneer Growth Shares VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President and Chief Executive Trustee of certain President discretion of the Board Officer, PIM-USA since May Pioneer Funds 2003 (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the Secretary of PIM-USA; Senior None discretion of the Board Vice President - Legal of Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Assistant Since 2003. Serves at the Vice President and Senior None Secretary discretion of the Board Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001); and Assistant Secretary of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey (45) Assistant Since 2006. Serves at the Partner, Wilmer Cutler None Secretary discretion of the Board Pickering Hale and Dorr LLP; and Assistant Secretary of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Treasurer Since 2000. Serves at the Vice President - Fund None discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Assistant Since 2004. Serves at the Deputy Treasurer of Pioneer None Treasurer discretion of the Board since 2004; Treasurer and Senior 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 - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Since 2000. Serves at the Assistant Vice President - None Treasurer discretion of the Board Fund Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Assistant Since 2002. Serves at the Fund Accounting Manager - Fund None Treasurer discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Growth Shares VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Katherine Kim Sullivan Assistant Since 2003. Serves at the Fund Administration Manager - None (33) Treasurer discretion of the Board Fund Accounting, Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Since 2006. Serves at the Chief Compliance Officer of None Compliance discretion of the Board Pioneer and all of the Pioneer Officer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio'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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 26 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 27 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 28 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 29 [Logo] PIONEER Investments(R) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18667-01-0207 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2006 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 High Yield VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/06 - -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment in securities) [THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL.] U.S. Corporate Bonds 72.1% U.S. Common Stocks 17.3% Convertible Corporate Bonds 6.3% Convertible Preferred Stocks 3.7% Depositary Receipts for International Stocks 0.5% Temporary Cash Investment 0.1%
Maturity Distribution (As a percentage of total investment in securities) [THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL.] 0-1 year 3.0% 1-3 years 20.2% 3-4 years 32.2% 4-6 years 33.9% 6-8 years 7.2% 8+ years 3.5%
Five Largest Holdings (As a percentage of long-term holdings) 1. Mueller Industries, Inc., 6.0%, 11/1/14 3.88% 2. DRS Technologies, Inc., 6.875%, 11/1/13 3.54 3. Allegheny Energy Supply, 7.8%, 3/15/11 3.11 4. Wesco Distribution, Inc., 7.5%, 10/15/17 3.09 5. Forest City Enterprises, 7.625%, 6/1/15 3.08
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $ 11.01 $ 10.88
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $ 0.5739 $ 0.0731 $ 0.0801
- -------------------------------------------------------------------------------- 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 table was depicted as a line chart in the printed material.]
Pioneer High Yield ML High Yield ML Convertible Bonds VCT Portfolio Master II Index (Speculative Quality) 5/00 10000 10000 10000 10608 8424 9769 12410 7883 10206 12/02 12114 7747 10013 16054 10535 12831 12/04 17300 11867 14226 17594 11485 14615 12/06 19045 13454 16335
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, 2006)
Net Asset Value Life-of-Class (5/1/00) 9.81% 5 Years 8.94% 1 Year 8.25%
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.pioneerinvestments.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 High Yield 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 High Yield VCT Portfolio Based on actual returns from July 1, 2006 through December 31, 2006.
Share Class II - -------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,068.61 Expenses Paid During Period* $ 5.16
* Expenses are equal to the Portfolio's annualized expense ratio of 0.99%% 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, 2006 through December 31, 2006.
Share Class II - -------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,020.21 Expenses Paid During Period* $ 5.04
* Expenses are equal to the Portfolio's annualized expense ratio of 0.99% 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 High Yield VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/06 - -------------------------------------------------------------------------------- Steady U.S. economic growth, low default rates and ample liquidity helped drive strong returns in the high-yield bond market during the 12 months ended December 31, 2006. Portfolio Manager Margaret Patel here elaborates on the backdrop and explains why the Portfolio underperformed its benchmarks. Q. How did the Portfolio perform? A. During the 12 months ended December 31, 2006, the Portfolio's Class II shares had a total return based on net asset value of 8.25%. By comparison, the Merrill Lynch High Yield Master II Index returned 11.77%, the Merrill Lynch Index of Convertible Securities/ Speculative Grade Index returned 17.15%, and the 100 funds underlying Lipper's Variable Annuity High Current Yield Funds Average returned 9.96%. Call 1-800-688-9915 or visit www.pioneerinvestments.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 high-yield market? A. Continued steady economic growth in the U.S., historically low default rates, and abundant liquidity in the capital markets were among the catalysts for a strong 2006 for high-yield bonds. Healthy returns from equities also helped, as the performance of high-yield bonds and convertible securities, like the performance of stocks, is tied to the underlying health of corporate issuers. The positive backdrop encouraged investors to feel more comfortable investing in lower-quality high-yield bonds - particularly those in the automotive and airline sectors - propelling their outperformance of higher-quality alternatives. Q. Why did the Portfolio lag the two Merrill Lynch indexes? A. The Portfolio underperformed the indexes because of our avoidance or underweighting of the top-performing areas of the market mentioned above. Our approach was predicated on our belief that the extra yield offered by lower-quality securities was not enough to compensate the Portfolio for the greater level of risk of potential future bankruptcies or erosion in credit quality inherent in them. Instead, we continued to focus on higher-quality securities, with particular focus on economically sensitive industries, including materials, industrials, and real estate. Q. Which investments performed best during the period? Which disappointed? A. Hotel real estate investment trust (REIT) MeriStar Hospitality was bought by private equity firm, The Blackstone Group, with our holdings of the company's common stock purchased at a premium. The Portfolio also benefited from oil and, gas pipeline operator Kinder Morgan, which is in the process of being bought out by the company's management team. Additionally, investments in Coeur d'Alene Mines and copper and gold produced Freeport McMoRan helped, as steel, copper and gold prices moved higher. Our convertible security holdings in industrial firm Roper Industries rose, reflecting stronger business fundamentals for the firm. Convertible securities of advertising agency Interpublic Group appreciated as a result of a management turnaround, and we benefited from our holdings in the common stock of Vertex Pharmaceuticals, which experienced promising results for the company's new hepatitis drug. Finally, the bonds we held in industrial and farm equipment manufacturer JLG Industries appreciated when Oshkosh Trucking announced its intention to purchase the firm. Detractors included the convertible securities of Millennium Chemical, which depreciated along with the underlying stock price because of concerns about slowing demand, lower prices, and the negative impact of lead paint litigation. Nova Chemical also declined due to lower operating results arising from higher input costs and softer prices for the company's basic commodity products. Paper and forest products manufacturers Abitibi and Bowater fell due to declining demand for newsprint and higher energy costs. Valiant Pharmaceuticals depreciated as a result of the firm's slow pace of new-drug development. The bonds of real estate developer Forest City Enterprises declined because of fears of a slowdown in real estate construction, and coal producer Massey Energy fell due to declining coal prices resulting from a combination of increased production and warmer weather that limited utilities' coal consumption. Q. What is your outlook? A. We anticipate the U.S. economy to remain healthy and default rates to stay relatively low compared to historical averages, driven by solid economic growth and liquidity that has given even the most marginal of borrowers easy access to capital. We believe the Portfolio's emphasis on higher-quality issues should position it well if the market confronts tighter financial conditions, lower liquidity or slower economic growth. Historically, lower-rated credits have been more vulnerable to declines during economic slowdowns or periods of financial stringency, and their future performance remains particularly questionable in the wake of their outperformance during the past 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. 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.pioneerinvestments.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 High Yield VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Shares/ S&P/Moody's Principal Ratings Amount (unaudited) Value CONVERTIBLE PREFERRED STOCKS - 1.9% Materials - 1.3% Diversified Metals & Mining - 1.3% 1,200 NR/NR Freeport-MC Copp, 5.5%, 12/31/49 $ 1,564,950 ------------ Total Materials $ 1,564,950 ------------ Banks - 0.6% Thrifts & Mortgage Finance - 0.6% 14,000 NR/NR Sovereign Cap Trust IV, 4.375%, 3/1/34 $ 693,000 ------------ Total Banks $ 693,000 ------------ TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $1,831,500) $ 2,257,950 ------------ CONVERTIBLE CORPORATE BONDS - 6.0% Materials - 0.6% Gold - 0.6% $ 800,000 B-/NR Coeur D'Alene Mines Corp., 1.25%, 1/15/24 $ 756,000 ------------ Total Materials $ 756,000 ------------ Capital Goods - 1.1% Electrical Component & Equipment - 1.1% 2,000,000 BB-/B1 Roper Industries, Inc., 1.4813%, 1/15/34 $ 1,300,000 ------------ Total Capital Goods $ 1,300,000 ------------ Media - 1.8% Advertising - 1.8% 1,800,000 B/Ba3 Interpublic Group Co., 4.25%, 3/15/23 (144A) $ 2,200,500 ------------ Total Media $ 2,200,500 ------------ Retailing - 0.8% Automotive Retail - 0.8% 1,000,000 B/B2 Sonic Automotive, Inc., 5.25%, 5/7/09 $ 980,000 ------------ Total Retailing $ 980,000 ------------ Health Care Equipment & Services - 0.3% Health Care Equipment - 0.2% 375,000 NR/NR Epix Medical, 3.0%, 6/15/24 (144A) $ 299,063 ------------ Total Health Care Equipment & Services $ 299,063 ------------ Pharmaceuticals & Biotechnology - 0.5% Biotechnology - 0.5% 615,000 NA/NA Mannkind Corp., 3.75%, 12/15/13 $ 644,212 ------------ Total Pharmaceuticals & Biotechnology $ 644,212 ------------ Technology Hardware & Equipment - 0.8% Electronic Equipment & Instruments - 0.8% 1,000,000 NR/NR Veeco Instruments, 4.125%, 12/21/08 $ 970,000 ------------ Total Technology Hardware & Equipment $ 970,000 ------------ TOTAL CONVERTIBLE CORPORATE BONDS (Cost $7,102,208) $ 7,149,775 ------------
The accompanying notes are an integral part of these financial statements. 5 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
S&P/Moody's Ratings Shares (unaudited) Value PREFERRED STOCKS - 1.6% Real Estate - 1.6% Real Estate Management & Development - 1.6% 75,000 Forest City Enterprises, 7.375%, 2/1/34 $ 1,932,750 ------------ TOTAL PREFERRED STOCKS (Cost $1,917,000) $ 1,932,750 ------------ COMMON STOCKS - 17.0% Energy - 1.6% Oil & Gas Exploration & Production - 0.3% 8,110 Pogo Producing Co. $ 392,848 ------------ Oil & Gas Refining & Marketing - 0.5% 7,800 Tesoro Petroleum Corp. $ 513,006 ------------ Oil & Gas Storage & Transportation - 0.8% 7,900 Kinder Morgan, Inc. $ 835,425 ------------ Total Energy $ 1,741,279 ------------ Materials - 3.3% Construction Materials - 0.1% 1,752 Texas Industries, Inc. (a) $ 112,531 ------------ Diversified Chemical - 0.7% 20,000 Dow Chemical Co. $ 798,800 ------------ Diversified Metals & Mining - 0.9% 17,600 Barrick Gold Corp. $ 540,320 10,400 Freeport-McMoRan Copper & Gold, Inc. (Class B) 579,592 ------------ $ 1,119,912 ------------ Industrial Gases - 0.5% 8,200 Air Products & Chemicals, Inc. $ 576,296 ------------ Specialty Chemicals - 1.1% 1,700 Arch Chemicals, Inc. $ 56,627 63,100 RPM, Inc. 1,318,159 ------------ $ 1,374,786 ------------ Total Materials $ 3,982,325 ------------ Capital Goods - 1.9% Electrical Component & Equipment - 1.4% 6,200 Cooper Industries, Inc. $ 560,666 5,200 Franklin Electric Co., Inc. 267,228 19,500 General Cable Corp.* 852,345 ------------ $ 1,680,239 ------------ Industrial Machinery - 0.5% 10,500 ITT Corp. $ 596,610 ------------ Total Capital Goods $ 2,276,849 ------------
6 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
S&P/Moody's Ratings Shares (unaudited) Value Commercial Services & Supplies - 0.5% Office Services & Supplies - 0.5% 9,200 Avery Dennison Corp. $ 624,956 ------------ Total Commercial Services & Supplies $ 624,956 ------------ Health Care Equipment & Services - 0.6% Health Care Equipment - 0.6% 12,550 Beckman Coulter, Inc. $ 750,490 ------------ Total Health Care Equipment & Services $ 750,490 ------------ Pharmaceuticals & Biotechnology - 2.3% Biotechnology - 1.0% 11,900 PDL BioPharma, Inc.* $ 239,666 25,699 Vertex Pharmaceuticals, Inc.* 961,657 ------------ $ 1,201,323 ------------ Life Sciences Tools & Services - 1.3% 5,300 Applera Corp. - Applied Biosystems Group* $ 194,457 15,100 Bio-Rad Laboratories, Inc.* 1,246,052 3,400 Pharmaceutical Product Development, Inc. 109,548 ------------ $ 1,550,057 ------------ Total Pharmaceuticals & Biotechnology $ 2,751,380 ------------ Diversified Financials - 0.2% Investment Banking & Brokerage - 0.2% 4,900 Lazard, Ltd.* $ 231,966 ------------ Total Diversified Financials $ 231,966 ------------ Real Estate - 2.0% Office Real Estate Investment Trusts - 0.0% 1,500 Equity Office Properties Trust (a) $ 72,255 ------------ Retail Real Estate Investment Trusts - 1.0% 22,900 General Growth Pro TLB SC $ 1,196,067 ------------ Specialized Real Estate Investment Trusts - 1.0% 47,600 Host Hotels & Resorts, Inc. $ 1,168,580 ------------ Total Real Estate $ 2,436,902 ------------ Technology Hardware & Equipment - 0.5% Electronic Equipment & Instruments - 0.5% 10,000 Amphenol Corp. $ 620,800 ------------ Total Technology Hardware & Equipment $ 620,800 ------------ Utilities - 4.1% Gas Utilities - 1.8% 6,700 Questar Corp. $ 556,435 47,700 Southern Union Co. 1,333,215 9,600 Washington Gas Light Co. 312,768 ------------ $ 2,202,418 ------------ Independent Power Producer & Energy Traders - 2.0% 42,600 NRG Energy, Inc.* $ 2,386,026 ------------ Multi-Utilities - 0.3% 3,700 Public Service Enterprise Group, Inc. $ 245,606 ------------ Total Utilities $ 4,834,050 ------------ TOTAL COMMON STOCKS (Cost $17,473,371) $ 20,250,997 ------------
The accompanying notes are an integral part of these financial statements. 7 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
S&P/Moody's Principal Ratings Amount (unaudited) Value CORPORATE BONDS - 69.1% Energy - 6.5% Coal & Consumable Fuels - 1.9% $ 2,500,000 B+/B2 Massey Energy Co., 6.875%, 12/15/13 $ 2,350,000 ------------ Oil & Gas Refining & Marketing - 4.5% 1,531,000 B+/B1 Frontier Oil Corp., 6.625%, 10/1/11 $ 1,527,173 2,850,000 BB+/Ba1 Tesoro Corp., 6.25%, 11/1/12 2,835,750 1,000,000 BB+/Ba1 Tesoro Corp., 6.625%, 11/1/15 992,500 ------------ $ 5,355,423 ------------ Total Energy $ 7,705,423 ------------ Materials - 20.4% Aluminum - 1.8% 2,300,000 B/B2 Novelis, Inc., 7.25%, 2/15/15 $ 2,225,250 ------------ Commodity Chemicals - 7.6% 1,750,000 B+/B1 Arco Chemical Co., 9.8%, 2/1/20 $ 2,021,250 2,850,000 B+/B1 Georgia Gulf Corp, 9.5%, 10/15/14 (144A) 2,778,750 2,000,000 BB-/Ba2 Nova Chemicals Corp., 7.4%, 4/1/09 2,025,000 2,500,000 BB-/Ba3 Nova Chemicals Corp., 7.875%, 9/15/25 2,275,000 ------------ $ 9,100,000 ------------ Construction Materials - 1.3% 1,500,000 BB-/Ba3 Texas Industries, Inc, 7.25%, 7/15/13 $ 1,522,500 ------------ Fertilizers & Agricultural Chemicals - 2.2% 2,500,000 B+/Ba2 Scotts Co., 6.625%, 11/15/13 $ 2,618,750 ------------ Metal & Glass Containers - 0.6% 800,000 B/B2 Crown Cork and Seal Co., Inc., 7.375%, 12/15/26 $ 748,000 ------------ Paper Products - 4.3% 2,250,000 B+/B2 Abitibi Consolidated, Inc., 8.55%, 8/1/10 $ 2,137,500 200,000 B+/B2 Abitibi-Consolidated, Inc., 6.0%, 6/20/13 160,000 3,100,000 B+/B2 Bowater, Inc., 6.5%, 6/15/13 2,828,750 ------------ $ 5,126,250 ------------ Specialty Chemicals - 2.5% 2,090,000 B+/B1 Millennium America, Inc., 7.625%, 11/15/26 $ 1,907,125 1,000,000 B+/B1 Millennium America, Inc., 9.25%, 6/15/08 1,032,500 ------------ $ 2,939,625 ------------ Total Materials $ 24,280,375 ------------ Capital Goods - 17.1% Aerospace & Defense - 6.1% 4,000,000 B/B3 DRS Technologies, Inc., 6.875%, 11/1/13 $ 4,030,000 3,150,000 B+/Ba3 Esterline Technology, 7.75%, 6/15/13 3,213,000 ------------ $ 7,243,000 ------------ Construction & Farm Machinery & Heavy Trucks - 0.6% 750,000 B+/B1 Greenbrier Co., Inc., 8.375%, 5/15/15 $ 763,125 ------------ Industrial Machinery - 7.4% 2,500,000 B/B1 Gardner Denver, Inc., 8.0%, 5/1/13 (144A) $ 2,600,000 1,800,000 BB-/Ba3 Manitowoc Co. Inc., 7.125%, 11/1/13 1,818,000 4,750,000 NR/NR Mueller Industries, Inc. 6.0%, 11/1/14 4,423,438 ------------ $ 8,841,438 ------------
8 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
S&P/Moody's Principal Ratings Amount (unaudited) Value Trading Companies & Distributors - 2.9% $ 3,500,000 B/B1 Wesco Distribution, Inc., 7.5%, 10/15/17 $ 3,517,500 ------------ Total Capital Goods $ 20,365,063 ------------ Consumer Durables & Apparel - 0.1% Homebuilding - 0.1% 185,000 BB-/Ba2 Meritage Homes Corp., 6.25%, 3/15/15 $ 175,750 ------------ Total Consumer Durables & Apparel $ 175,750 ------------ Media - 2.0% Advertising - 1.9% 2,300,000 B/Ba3 Interpublic Group, Inc., 7.25%, 8/15/11 $ 2,323,000 ------------ Total Media $ 2,323,000 ------------ Health Care Equipment & Services - 1.3% Health Care Supplies - 1.3% 1,500,000 CCC+/Caa1 Inverness Medical Innovation, 8.75%, 2/15/12 $ 1,560,000 ------------ Total Health Care Equipment & Services $ 1,560,000 ------------ Pharmaceuticals & Biotechnology - 1.6% Pharmaceuticals - 1.6% 2,000,000 B+/Ba3 Valeant Pharmaceuticals, 7.0%, 12/15/11 $ 1,920,000 ------------ Total Pharmaceuticals & Biotechnology $ 1,920,000 ------------ Real Estate - 6.8% Real Estate Management & Development - 2.9% 3,435,000 BB-/Ba3 Forest City Enterprises, 7.625%, 6/1/15 $ 3,503,700 ------------ Real Estate Investment Trusts - 1.7% 1,500,000 BB-/B2 BF Saul Real Estate Investment Trust, 7.5%, 3/1/14 $ 1,524,375 500,000 B/B1 Crescent Real Estate, 9.25%, 4/15/09 513,125 ------------ $ 2,037,500 ------------ Retail Real Estate Investment Trusts - 2.1% 2,500,000 BB+/Ba1 Rouse Co Lp/TRC Co., ISSR, 6.75%, 5/1/13 (144A) $ 2,510,630 ------------ Total Real Estate $ 8,051,830 ------------ Technology Hardware & Equipment - 4.2% Electronic Equipment & Instruments - 2.9% 1,835,000 B+/B1 General Cable Corp., 9.5%, 11/15/10 $ 1,945,100 1,500,000 B/Ba1 Itron, Inc., 7.75%, 5/15/12 1,533,750 ------------ $ 3,478,850 ------------ Technology Distributors - 1.2% 1,600,000 BB+/Baa3 Anixter International Corp., 5.95%, 3/1/15 $ 1,480,000 ------------ Total Technology Hardware & Equipment $ 4,958,850 ------------ Utilities - 9.2% Electric Utilities - 5.0% 3,300,000 BB-/Ba3 Allegheny Energy Supply, 7.8%, 3/15/11 $ 3,539,250 1,000,000 BB-/Ba3 Allegheny Energy Supply, 8.25%, 4/15/12 (144A) 1,097,500 1,300,000 B+/Ba3 CMS Energy Corp., 7.5%, 1/15/09 1,340,625 ------------ $ 5,977,375 ------------ Independent Power Producer & Energy Traders - 1.1% 1,333,000 B-/B1 NRG Energy, Inc., 7.375%, 1/15/17 $ 1,336,333 ------------
The accompanying notes are an integral part of these financial statements. 9 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
S&P/Moody's Principal Ratings Amount (unaudited) Value Multi-Utilities - 3.0% $ 3,000,000 B+/Ba3 CMS Energy Corp. 7.75%, 8/1/10 $ 3,165,000 450,000 B+/Ba3 CMS Energy Corp., 6.875%, 12/15/15 464,624 ------------ $ 3,629,624 ------------ Total Utilities $ 10,943,332 ------------ TOTAL CORPORATE BONDS (Cost $82,684,060) $ 82,283,623 ------------ Shares TEMPORARY CASH INVESTMENT - 0.1% Security Lending Collateral - 0.1% 143,105 Securities Lending Investment Fund, 5.26% $ 143,105 ------------ TOTAL TEMPORARY CASH INVESTMENT (Cost $143,105) $ 143,105 ------------ TOTAL INVESTMENT IN SECURITIES - 95.8% (Cost $111,151,244) $114,018,200 ------------ OTHER ASSETS AND LIABILITIES - 4.2% $ 5,068,186 ------------ TOTAL NET ASSETS - 100.0% $119,086,387 ============
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, 2006, the value of these securities amounted to $11,486,443 or 9.6% of net assets. (a) At December 31, 2005, the following securities were out on loan:
Shares Description Value 1,125 Equity Office Properties Trust $ 54,191 1,314 Texas Industries, Inc. 84,398 -------- $138,589 ========
10 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Year Year Year Year Ended Ended Ended Ended Ended Class II 12/31/06 12/31/05 12/31/04 12/31/03 12/31/02 Net asset value, beginning of period $ 10.88 $ 11.67 $ 11.46 $ 9.28 $ 10.33 ------- ------- ------- ------- ------- Increase (decrease) from investment operations: Net investment income $ 0.57 $ 0.59 $ 0.58 $ 0.76 $ 0.80 Net realized and unrealized gain (loss) on investments 0.28 (0.41) 0.27 2.17 (1.05) ------- ------- ------- ------- ------- Net increase (decrease) from investment operations $ 0.85 $ 0.18 $ 0.85 $ 2.93 $ (0.25) Distributions to shareowners: Net investment income (0.57) (0.58) (0.59) (0.75) (0.80) Net realized gain (0.15) (0.38) (0.05) -- -- ------- ------- ------- ------- ------- Net increase (decrease) in net asset value $ 0.13 $ (0.79) $ 0.21 $ 2.18 $ (1.05) ------- ------- ------- ------- ------- Net asset value, end of period $ 11.01 $ 10.88 $ 11.67 $ 11.46 $ 9.28 ======= ======= ======= ======= ======= Total return* 8.25% 1.70% 7.76% 32.64% (2.42)% Ratio of net expenses to average net assets+ 0.99% 1.02% 1.03% 1.09% 1.82% Ratio of net investment income to average net assets+ 5.27% 5.27% 5.12% 6.33% 8.67% Portfolio turnover rate 28% 37% 42% 48% 42% Net assets, end of period (in thousands) $53,196 $47,169 $51,912 $17,601 $ 228 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.99% 1.02% 1.04% 1.09% 1.82% Net investment income 5.27% 5.27% 5.12% 6.33% 8.67% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.99% 1.02% 1.04% 1.09% 0.97% Net investment income 5.27% 5.27% 5.12% 6.33% 0.01%
* 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 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. 11 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $138,589) (cost $114,018,200 $111,151,244) Cash 2,859,436 Receivables - Fund shares sold 1,010,098 Dividends, interest and foreign taxes withheld 1,420,217 Other 2,532 ------------ Total assets $119,310,483 ------------ LIABILITIES: Payables - Fund shares repurchased $ 21,435 Upon return of securities loaned 143,105 Due to affiliates 11,768 Accrued expenses 47,788 ------------ Total liabilities $ 224,096 ------------ NET ASSETS: Paid-in capital $116,285,176 Undistributed net investment income 11,917 Accumulated net realized loss on investments (77,662) Net unrealized gain on investments 2,866,956 ------------ Total net assets $119,086,387 ------------ NET ASSET VALUE PER SHARE: Class I: (No par value unlimited number of shares authorized) Net assets $ 65,890,481 Shares outstanding 5,982,727 ------------ Net asset value per share $ 11.01 Class II: (No par value unlimited number of shares authorized) Net assets $ 53,195,906 Shares outstanding 4,831,564 ------------ Net asset value per share $ 11.01
12 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $581) $ 462,433 Interest 6,577,109 Income on securities loaned, net 3,501 ---------- Total investment income $7,043,043 ---------- EXPENSES: Management fees $ 732,223 Transfer agent fees and expenses 3,010 Distribution fees (Class II) 120,624 Administrative reimbursements 23,540 Custodian fees 27,714 Professional fees 39,745 Fees and expenses of nonaffiliated trustees 3,723 Miscellaneous 5,855 ---------- Total expenses $ 956,434 ---------- Net expenses $ 956,434 ---------- Net investment income $6,086,609 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss from investments $ (69,615) ---------- Change in net unrealized gain or loss from investments $3,072,205 ---------- Net gain on investments $3,002,590 ========== Net increase in net assets resulting from operations $9,089,199 ==========
The accompanying notes are an integral part of these financial statements. 13 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 6,086,609 $ 6,046,966 Net realized gain (loss) on investments (69,615) 1,530,055 Change in net unrealized gain or loss on investments 3,072,205 (5,535,598) ------------- ------------- Net increase in net assets resulting from operations $ 9,089,199 $ 2,041,423 ------------- ------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income: Class I $ (3,561,448) $ (3,563,099) Class II (2,573,283) (2,466,908) Net realized gain Class I (896,053) (2,147,727) Class II (641,246) (1,587,624) ------------- ------------- Total distributions to shareowners $ (7,672,030) $ (9,765,358) ------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 42,128,260 $ 43,512,782 Reinvestment of distributions 7,664,420 9,721,259 Cost of shares repurchased (42,744,410) (57,690,620) ------------- ------------- Net increase (decrease) in net assets resulting from Fund share transactions $ 7,048,270 $ (4,456,579) ------------- ------------- Net increase (decrease) in net assets $ 8,465,439 $ (12,180,514) NET ASSETS: Beginning of year 110,620,948 122,801,462 ------------- ------------- End of year $ 119,086,387 $ 110,620,948 ============= ============= Undistributed net investment income, end of year $ 11,917 $ 59,865 ============= =============
14 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 the Portfolio is to maximize total return through a combination of income and capital appreciation. Investments in high-yield or lower-rated securities are subject to greater-than-average risk. In addition, the non-diversified Portfolio may have concentrations in certain asset types, which may subject the Portfolio to additional risks. 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 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 year. 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 15 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, 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. 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, if any, 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, 2006, 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 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, 2006, no such taxes were paid. 16 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield 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. The Portfolio elected to defer $4,026 in capital losses recognized between November 1, 2006 and December 31, 2006 to its fiscal year ending December 31, 2007. At December 31, 2006, 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 Realized Loss Paid-In Capital - ----------------------------------------------------------------------------------- High Yield Portfolio $174 $(174) $-- ==== ===== === - -----------------------------------------------------------------------------------
The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis.
- -------------------------------------------------------------- 2006 2005 - -------------------------------------------------------------- Distributions paid from: Ordinary Income $6,868,259 $6,600,658 Long-Term capital gain 803,771 3,164,700 ------------------------------- $7,672,030 $9,765,358 ------------------------------- Total distributions $7,672,030 $9,765,358 =============================== Distributable Earnings: Undistributed ordinary income $ 44,667 Undistributed long-term gain 102,907 Post October loss deferred (4,026) Unrealized appreciation 2,657,663 ------------------------------- Total $2,801,211 =============================== - --------------------------------------------------------------
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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006 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. 17 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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 sub custodian. 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, 2006, $6,496 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 $4,203 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $1,069 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $111,339,168 $4,920,699 $(2,241,667) $2,679,032 ============ ========== =========== ========== - --------------------------------------------------------------------------------------------------
18 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield 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, 2006, were $35,104,931 and $31,290,575, respectively. 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- ------------------------------------------------------------------------------------------------ High Yield Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ------------------------------------------------------------------------------------------------ CLASS I: Shares sold 1,596,995 $17,290,829 1,902,148 $21,181,455 Reinvestment of distributions 413,480 4,450,031 514,993 5,666,754 Shares repurchased (1,859,060) (20,124,873) (2,659,638) (29,739,088) ----------------------------------------------------------------- Net increase (decrease) 151,415 $ 1,615,987 (242,497) $(2,890,879) ================================================================= CLASS II: Shares sold 2,285,628 $24,837,431 2,014,754 $22,331,327 Reinvestment of distributions 298,606 3,214,389 368,486 4,054,505 Shares repurchased (2,087,846) (22,619,537) (2,495,978) (27,951,532) ----------------------------------------------------------------- Net increase (decrease) 496,388 $ 5,432,283 (112,738) $(1,565,700) ================================================================= - ------------------------------------------------------------------------------------------------
8. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 19 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- 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 of Pioneer High Yield VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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, 2006, 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 High Yield VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2006, 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 9, 2007 20 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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. 21 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- 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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group considered appropriate by the Independent Trustees for this purpose and the Merrill Lynch High Yield Master II Index. The Fund's performance, based upon total return, was in the third quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, the fourth quintile of the peer group for the three years ended June 30, 2006 and the first quintile for the five years ended June 30, 2006. (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 of the Fund, before deduction of expenses, relative to the yield of the index. The Trustees, focusing on three-year total returns, concluded that the Fund underperformed relative to its peers. The Trustees noted however that the Fund's performance trend was improving and five-year total returns were strong. 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 size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee for the 12 months ended June 30, 2006 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 also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 to be in the second quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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. 22 PIONEER VARIABLE CONTRACTS TRUST Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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). 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 23 Pioneer High Yield 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 portfolio's affairs. 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 trust within the meaning of the Ernst & Young LLP 1940 Act are referred to as Interested Trustees. Trustees who are not interested persons of the trust are referred to Principal Underwriter as Independent Trustees. Each of the Trustees serves as a Pioneer Funds Distributor, Inc. trustee of each of the 86 U.S. registered investment portfolios for which Pioneer serves as investment adviser Legal Counsel (the "Pioneer Funds"). The address for all Interested Wilmer Cutler Pickering Hale and Dorr LLP Trustees and all officers of the trust is 60 State Street, Boston, Massachusetts 02109. Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES - ------------------------------------------------------------------------------------------------------------------------------------ POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Deputy Chairman and a Director of Director of ICI Board, Trustee until a successor trustee Pioneer Global Asset Management S.p.A. Mutual Insurance and President is elected or earlier ("PGAM"); Non-Executive Chairman and a Company retirement or removal. Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - ------------------------------------------------------------------------------------------------------------------------------------
24 Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES - ------------------------------------------------------------------------------------------------------------------------------------ POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS HELD BY THIS TRUSTEE David R. Bock (63) Trustee Trustee since 2005. Serves Senior Vice President and Chief Director of The 3050 K. Street NW, until a successor trustee Financial Officer, I-trax, Inc. Enterprise Social Washington, DC 20007 is elected or earlier (publicly traded health care Investment Company retirement or removal. services company) (2001 - present); (privately-held Managing Partner, Federal City affordable housing Capital Advisors (boutique merchant finance company); bank) (2002 to 2004); and Executive and Director of New Vice President and Chief Financial York Mortgage Trust Officer, Pedestal Inc. (internet- (publicly traded based mortgage trading company) mortgage REIT) (2000 - 2002) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Trustee Trustee since 2000. Serves President, Bush International Director of Brady 3509 Woodbine Street, until a successor trustee (international financial advisory Corporation Chevy Chase, MD 20815 is elected or earlier firm) (industrial retirement or removal. identification and specialty coated material products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street West, until a successor trustee Group, Inc. (consulting firm); and Montreal, Quebec, Canada is elected or earlier Desautels Faculty of Management, H3A 1G5 retirement or removal. McGill University - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Trustee Trustee since 2006. Serves Private investor (2004 - present); Director of 89 Robbins Avenue, until a successor trustee and Senior Executive Vice President, Quadriserv Inc. Berkeley Heights, NJ is elected or earlier The Bank of New York (financial and (technology products 07922 retirement or removal. securities services) (1986 - 2004) for securities lending industry) - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Trustee Trustee since 1995. Serves President and Chief Executive Director of New 200 State Street, 12th until a successor trustee Officer, Newbury, Piret & Company, America High Income Floor, Boston, MA 02109 is elected or earlier Inc. (investment banking firm) Fund, Inc. retirement or removal. (closed-end investment company) - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) Trustee Trustee since 2000. Serves President, John Winthrop & Co., Inc. None One North Adgers Wharf, until a successor trustee (private investment firm) Charleston, SC 29401 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------
25 Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ TRUST OFFICERS - ------------------------------------------------------------------------------------------------------------------------------------ POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS HELD BY THIS OFFICER Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President and Chief Executive Trustee of certain President discretion of the Board Officer, PIM-USA since May 2003 Pioneer Funds (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the Secretary of PIM-USA; Senior Vice None discretion of the Board President - Legal of Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Assistant Since 2003. Serves at the Vice President and Senior Counsel of None Secretary discretion of the Board Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001); and Assistant Secretary of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey (45) Assistant Since 2006. Serves at the Partner, Wilmer Cutler Pickering None Secretary discretion of the Board Hale and Dorr LLP; and Assistant Secretary of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Treasurer Since 2000. Serves at the Vice President - Fund Accounting, None discretion of the Board Administration and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Assistant Since 2004. Serves at the Deputy Treasurer of Pioneer since None Treasurer discretion of the Board 2004; Treasurer and Senior 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 - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Since 2000. Serves at the Assistant Vice President - Fund None Treasurer discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Assistant Since 2002. Serves at the Fund Accounting Manager - Fund None Treasurer discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------------------------------
26 Pioneer High Yield VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ TRUST OFFICERS - ------------------------------------------------------------------------------------------------------------------------------------ POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS HELD BY THIS OFFICER Katherine Kim Sullivan (33) Assistant Since 2003. Serves at the Fund Administration Manager - Fund None Treasurer discretion of the Board Accounting, Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Since 2006. Serves at the Chief Compliance Officer of Pioneer None Compliance discretion of the Board and all of the Pioneer Funds since Officer March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio'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 Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18662-01-0207 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Asset Allocation Series VCT Portfolios ANNUAL REPORT December 31, 2006 PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Table of Contents - --------------------------------------------------------------------------------
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 22 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 36
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 12/31/06 - -------------------------------------------------------------------------------- Target Asset Allocations [THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL.]
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 9.0 - --------------------------------------------- Short Term Bonds 17.0 - --------------------------------------------- Cash Equivalents 6.0 - ---------------------------------------------
Actual Portfolio Holdings (Based on total portfolio)
- ----------------------------------------------------------------------------------------- U.S. Stocks Pioneer Real Estate 3.12% - ----------------------------------------------------------------------------------------- Pioneer Fund 9.24% Pioneer Growth Opportunities 2.05 - ----------------------------------------------------------------------------------------- Pioneer Research 10.26 International Stocks - ----------------------------------------------------------------------------------------- Pioneer Oak Ridge Large Cap Growth 11.30 Pioneer International Equity 12.37 --------------------------------------- Pioneer Emerging Markets 2.09 - ----------------------------------------------------------------------------------------- Pioneer Value 3.08 Bonds - ----------------------------------------------------------------------------------------- Pioneer Cullen Value 4.11 Pioneer High Yield 6.20 - ----------------------------------------------------------------------------------------- Pioneer Mid Cap Growth 2.05 Pioneer Bond 9.32 - ----------------------------------------------------------------------------------------- Pioneer Mid Cap Value 1.03 Pioneer Short Term Income 18.63 - ----------------------------------------------------------------------------------------- Pioneer Small Cap Value 2.05 Pioneer Government Income 3.10 - -----------------------------------------------------------------------------------------
This list excludes temporary cash and derivative instruments. Portfolio holdings will vary for other periods. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/15/06 Net Asset Value per Share Class I $ 11.62 $ 11.63
12/31/06 12/31/05 Class II $ 11.61 $ 10.63
Distributions per Share Short-Term Long-Term (1/1/06 - 12/31/06) Dividends Capital Gains Capital Gains Class II $ 0.0397 $ - $ 0.0949
- -------------------------------------------------------------------------------- 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 and 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 DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Pioneer Ibbotson Pioneer Ibbotson Lehman Brothers Moderate Allocation Moderate Allocation Aggregate VCT Portfolio - VCT Portfolio - S&P 500 Bond Index Class II Class I* 03/05 10,000 10,000 10,000 10,000 12/05 10,721 10,292 10,683 10,683 12/06 12,413 10,738 11,818 11,828
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 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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value Class I* Class II - -------------------------------------------------------------------------------- Life-of-Class (3/18/05) 9.53% 9.48% 1 Year 10.71 10.62
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. * Performance reflects that of Class II prior to Class I inception date of 12/15/06. Call 800-688-9915 or visit www.pioneerinvestments.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 Ibbotson Growth Allocation VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/06 - -------------------------------------------------------------------------------- Target Asset Allocations [THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL.]
Equity 75% Fixed Income 25
Large Cap Growth Stocks 16.5% - --------------------------------------------- Large Cap Value Stocks 17.5 - --------------------------------------------- Mid/Small Cap Growth Stocks 8.5 - --------------------------------------------- Mid/Small Cap Value Stocks 8.5 - --------------------------------------------- International Stocks 16.0 - --------------------------------------------- Emerging Markets 4.0 - --------------------------------------------- Real Estate (REITs) 4.0 - --------------------------------------------- High Yield Bonds 5.0 - --------------------------------------------- Bonds 7.5 - --------------------------------------------- Short Term Bonds 12.5 - ---------------------------------------------
Actual Portfolio Holdings (Based on total portfolio)
- ----------------------------------------------------------------------------------------- U.S. Stocks Pioneer Growth Opportunities 2.98% - ----------------------------------------------------------------------------------------- Pioneer Fund 9.97% International Stocks - ----------------------------------------------------------------------------------------- Pioneer Research 11.96 Pioneer International Equity 15.00 - ----------------------------------------------------------------------------------------- Pioneer Oak Ridge Large Cap Growth 10.97 Pioneer Emerging Markets 4.01 --------------------------------------- Bonds - ----------------------------------------------------------------------------------------- Pioneer Value 3.99 Pioneer High Yield 3.01 - ----------------------------------------------------------------------------------------- Pioneer Cullen Value 4.99 Pioneer Bond 8.06 - ----------------------------------------------------------------------------------------- Pioneer Mid Cap Growth 3.99 Pioneer Short Term Income 12.07 - ----------------------------------------------------------------------------------------- Pioneer Mid Cap Value 1.99 Pioneer Government Income 1.00 - ----------------------------------------------------------------------------------------- Pioneer Small Cap Value 1.99 - ----------------------------------------------------------------------------------------- Pioneer Real Estate 4.02 - -----------------------------------------------------------------------------------------
This list excludes temporary cash and derivative instruments. Portfolio holdings will vary for other periods. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share (Class II) $ 12.07 $ 10.78
Distributions per Share Short-Term Long-Term (1/1/06 - 12/31/06) Dividends Capital Gains Capital Gains $ 0.0185 $ - $ 0.049
- -------------------------------------------------------------------------------- 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 and 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 DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Pioneer Ibbotson Lehman Brothers Aggressive Allocation Aggregate VCT Portfolio S&P 500 Bond Index 03/05 10,000 10,000 10,000 12/05 10,878 10,721 10,292 12/06 12,256 12,413 10,738
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 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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value Class II - -------------------------------------------------------------------------------- Life-of-Class (3/18/05) 11.48% 1 Year 12.67
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.pioneerinvestments.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. 3 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Aggressive Allocation VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/06 - -------------------------------------------------------------------------------- Target Asset Allocations [THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL.]
Equity 90% Fixed Income 10
Large Cap Growth Stocks 19.0% - --------------------------------------------- Large Cap Value Stocks 19.0 - --------------------------------------------- Mid/Small Cap Growth Stocks 10.5 - --------------------------------------------- Mid/Small Cap Value Stocks 10.5 - --------------------------------------------- International Stocks 21.0 - --------------------------------------------- Emerging Markets 5.0 - --------------------------------------------- Real Estate (REITs) 5.0 - --------------------------------------------- High Yield Bonds 0.0 - --------------------------------------------- Bonds 7.0 - --------------------------------------------- Short Term Bonds 3.0 - ---------------------------------------------
Actual Portfolio Holdings (Based on total portfolio)
- ----------------------------------------------------------------------------------------- U.S. Stocks Pioneer Small Cap Value 2.90% - ----------------------------------------------------------------------------------------- Pioneer Fund 10.84% Pioneer Real Estate 4.95 - ----------------------------------------------------------------------------------------- Pioneer Research 14.78 Pioneer Growth Opportunities 3.87 - ----------------------------------------------------------------------------------------- Pioneer Oak Ridge Large Cap Growth 12.82 International Stocks --------------------------------------- Pioneer International Equity 19.92 - ----------------------------------------------------------------------------------------- Pioneer Value 3.97 Pioneer Emerging Markets 5.21 - ----------------------------------------------------------------------------------------- Pioneer Cullen Value 5.95 Bonds - ----------------------------------------------------------------------------------------- Pioneer Mid Cap Growth 4.05 Pioneer Bond 5.89 - ----------------------------------------------------------------------------------------- Pioneer Mid Cap Value 1.89 Pioneer Short Term Income 2.96 - -----------------------------------------------------------------------------------------
This list excludes temporary cash and derivative instruments. Portfolio holdings will vary for other periods. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share (Class II) $ 12.42 $ 10.98
Distributions per Share Short-Term Long-Term (1/1/06 - 12/31/06) Dividends Capital Gains Capital Gains $ 0.0270 $ - $ 0.1006
- -------------------------------------------------------------------------------- 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 and Lehman Brothers Aggregate Bond Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges.
Pioneer Ibbotson Lehman Brothers Aggressive Allocation Aggregate VCT Portfolio S&P 500 Bond Index 03/05 10,000 10,000 10,000 12/05 11,024 10,721 10,292 12/06 12,616 12,413 10,738
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 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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value Class II - -------------------------------------------------------------------------------- Life-of-Class (3/18/05) 13.62% 1 Year 14.44
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.pioneerinvestments.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 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 [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 Ibbotson Moderate Allocation VCT Portfolio Based on actual returns from July 1, 2006 through December 31, 2006. (Class II only)
Share Class I II - -------------------------------------------------------------------- Beginning Account Value on 7/1/06* $ 1,000.00 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,084.00 $ 1,083.00 Expenses Paid During the Period** $ 4.75 $ 2.11
* The date for Class I beginning account value is 12/15/06, its inception date. ** Expenses are equal to the Portfolio's annualized expense ratio of 0.90% for Class I Shares and 0.40% for Class II Shares, multiplied by the average account value over the period, multiplied by 16/365 and 184/365 (to reflect the commencement of operations for Class I Shares and the one-half year period for Class II Shares, to the year end 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, 2006 through December 31, 2006. (Class II only)
Share Class I II - -------------------------------------------------------------------- Beginning Account Value on 7/1/06* $ 1,000.00 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,020.65 $ 1,023.02 Expenses Paid During the Period** $ 4.60 $ 2.21
* The date for Class I beginning account value is 12/15/06, its inception date. ** Expenses are equal to the Portfolio's annualized expense ratio of 0.90% for Class I Shares and 0.40% for Class II Shares, multiplied by the average account value over the period, multiplied by 16/365 and 184/365 (to reflect the commencement of operations for Class I Shares and the one-half year period for Class II Shares, to the year end period). 5 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Growth Allocation VCT Portfolio - -------------------------------------------------------------------------------- (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 [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 Ibbotson Growth Allocation VCT Portfolio Based on actual returns from July 1, 2006 through December 31, 2006.
Share Class II - -------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,096.30 Expenses Paid During Period* $ 2.05
* Expenses are equal to the Portfolio's annualized expense ratio of 0.39% 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). 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, 2006 through December 31, 2006.
Share Class II - -------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,023.25 Expenses Paid During Period* $ 1.98
* Expenses are equal to the Portfolio's annualized expense ratio of 0.39% for Class II Shares, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 6 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Aggressive 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 Aggressive Allocation VCT Portfolio Based on actual returns from July 1, 2006 through December 31, 2006.
Share Class II - -------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,107.00 Expenses Paid During Period* $ 3.93
* Expenses are equal to the Portfolio's annualized expense ratio of 0.74% 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). 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, 2006 through December 31, 2006.
Share Class II - -------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,021.48 Expenses Paid During Period* $ 3.77
* Expenses are equal to the Portfolio's annualized expense ratio of 0.74% for Class II Shares, 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 12/31/06 - -------------------------------------------------------------------------------- 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 portfolios in the Pioneer Ibbotson Allocation VCT Series for the 12 months ended December 31, 2006. Q. Could you characterize the economic and market backdrop during 2006? A. The first half of the period saw continued solid economic growth. Inflation generally remained moderate, although there were concerns over its direction. The Federal Reserve (the Fed) under its new chairman Bernanke continued to raise short-term rates incrementally. However, the Fed announced a shift from a course of measured rate increases to a data-driven approach to policy. As a result, economists began to focus even more attention than usual on economic releases. The increased uncertainty with respect to future Fed activity and inflation created a more volatile interest rate environment and led to an overall upward trajectory for rates. As the period progressed economic growth showed some signs of moderating, led in particular by a softening in the housing sector. At its August meeting, after 17 consecutive one-quarter percentage point increases in the Fed funds rate, the Fed paused, leaving the benchmark rate at 5.25%. As the year ended, the yield curve was inverted, with short-term rates higher than long-term rates. Interest rates ended the year modestly higher along the yield curve, which show the relationship between fixed-income yields and maturities, with the shorter maturities experiencing slightly larger increases. Since a bond's price moves in the opposite direction of its yield, this meant that bond prices generally fell slightly over the period, although total returns were positive due to the income component. The U.S. equity markets provided strong positive returns for the year, led again by small-cap and value-oriented stocks. International equities provided even stronger returns for the full year. Q. What were the strategic considerations that you applied to the three portfolios in allocating assets? A. For each portfolio, assets have been invested in keeping with their broad asset allocation and specific mutual fund targets. In addition, we have implemented three strategies across all the portfolios. Within the U.S. stock portion of the portfolios, we introduced early in the year a slight overweighting of U.S. large-capitalization stocks relative to small-cap stocks. We did this for a number of reasons. First, although small-cap stocks have historically outperformed large caps over long periods, there is a cyclical aspect to this performance leadership. In addition, small-cap stocks are currently trading at valuations approximately double those for large caps. Finally, if, as many expect, the economy slows as a result of higher interest rates, large-cap stocks may be more resilient. The strategy did not add to returns over the year. However, as the period drew to a close, there were increasing signs that a cycle of large-cap performance leadership might begin. With respect to the other equity categories, exposure remained neutral throughout the period. We have also maintained neutral target weightings in the non-U.S. equity market alternatives, both developed and emerging. A second strategic emphasis is within the bond portion of the portfolios, where we have continued to underweight the long-term bond vehicle, with the difference allocated to the shorter-term fixed-income alternative. While it is difficult to predict the direction for long-term interest rates over the short term, over time we do expect long-term bond yields to trend higher, with corresponding downward pressure on prices of these issues. In addition, short-term rates have become much more attractive given the Fed's raising of the benchmark rate. In view of these factors, we believe the risk/reward profile is more favorable among shorter term issues. 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 continue to underweight REITs (Real Estate Investment Trusts). REITs are traditionally most attractive to investors seeking income return, and the issues benefited from the low interest rates experienced in the recent past. As rates have risen, REIT yields have reached historically low levels relative to Treasury bonds. At the same time, REITs in the aggregate are priced at roughly double the general stock market, as gauged by traditional valuation measures such as price-to-earnings ratio. In addition to appearing fully valued when compared to both bonds and the rest of the stock market, REITs may be vulnerable to higher market interest rate levels, which we expect to lead to continued cooling in the real estate sector. While REITs continued to defy gravity for the period, we are comfortable with our positioning in view of our risk/reward assessment. Q. What factors are you watching most closely as you determine strategy for the Portfolios going forward? A. Overall, our outlook is for a relatively stable economic backdrop. Core inflation continues to run at the upper end of the Fed's comfort zone, and the job market has produced surprisingly solid numbers. These factors suggest that the next movement of the Fed funds rate may be upwards. We anticipate continued weakness in the dollar in view of the U.S. trade, budget and savings deficits. This also implies the likelihood of higher interest rate levels and relatively low returns for bonds. We are evaluating high-yield bonds in particular for possible underweighting in view of credit spreads that are at historical lows. We see nothing to prevent solid U.S. stock market performance in 2007. In view of our outlook for the dollar, however, we are evaluating overseas markets for a possible overweighting as valuations permit. We anticipate further softening in the real estate sector and will be closely watching for any impact that may have on the broader economy. 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. 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 a 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 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 a Portfolio, you should consider all the risks associated with it. Call 800-688-9915 or visit www.pioneerinvestments.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 each 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 12/31/06 - -------------------------------------------------------------------------------- Moderate Allocation The Portfolio's total returns for the annual period ended December 31, 2006, were 10.71% for the Class I shares and 10.62% for Class II shares. The Portfolio targeted an asset allocation of 60% equities, 40% fixed-income during the annual period ended December 31, 2006. Within the equity portion of the Portfolio, Pioneer International Equity Fund was the largest holding at 12.37% of investments at December 31, 2006. Pioneer Oak Ridge Large Cap Growth Fund was the next largest equity holding at 11.30% of investments. Large capitalization holdings were weighted slightly above the target at the end of the period, reflecting management's view that these stocks were more attractive than their smaller cap counterparts. 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 18.63%, while a longer duration bond fund, Pioneer Bond Fund represented 9.32% of investments. Growth Allocation The Portfolio's total return for the annual period ended December 31, 2006, was 12.67% for Class II shares. The Portfolio targeted an asset allocation of 75% equities, 25% fixed-income during the period. Within the equity portion of the Portfolio, Pioneer International Equity Fund was the largest holding at 15.00% of investments on December 31, 2006. The largest domestic equity allocation was to Pioneer Research Fund (11.96%) followed by the Pioneer Oak Ridge Large Cap Growth Fund (10.97%). Large capitalization holdings were weighted slightly above target at the end of the period, reflecting management's view that these stocks were more attractive than their smaller cap counterparts. 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 12.07% of investments, while a longer duration bond fund, Pioneer Bond Fund represented 8.06% of investments. Aggressive Allocation The Portfolio's total return for the annual period ended December 31, 2006, was 14.44% for Class II shares. The Portfolio targeted an asset allocation of 90% equities, 10% fixed-income during the period. Within the equity portion of the Portfolio, Pioneer International Equity Fund was the largest holding at 19.92% of investments on December 31, 2006. The largest domestic equity allocation was to Pioneer Research Fund (14.78%) followed by the Pioneer Oak Ridge Large Cap Growth Fund (12.82%). Large capitalization holdings were weighted slightly above target at the end of the period, reflecting management's view that these stocks were more attractive than their smaller cap counterparts. Within the fixed-income portion of the Portfolio, the largest holding at the end of the period was in a longer duration bond fund, Pioneer Bond Fund, at 5.89% of investments, while a shorter duration bond fund, Pioneer Short Term Income Fund represented 2.96% of investments. Call 1-800-688-9915 or visit www.pioneerinvestments.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. 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 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 a Portfolio, you should consider all the risks associated with it. Call 800-688-9915 or visit www.pioneerinvestments.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 each 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 12/31/06 - --------------------------------------------------------------------------------
Shares Value MUTUAL FUNDS - 97.0% PIONEER FUNDS - 97.0% 1,231,821 Pioneer Bond Fund Class Y $ 11,123,339 ------------ 244,624 Pioneer Cullen Value Fund Class Y 4,907,153 ------------ 77,035 Pioneer Emerging Markets Fund Class Y 2,492,846 ------------ 228,551 Pioneer Fund Class Y 11,022,994 ------------ 395,370 Pioneer Government Income Fund Class Y 3,696,710 ------------ 83,987 Pioneer Growth Opportunities Fund Class Y 2,439,821 ------------ 684,645 Pioneer High Yield Fund Class Y 7,394,171 ------------ 566,603 Pioneer International Equity Fund Class Y 14,760,016 ------------ 158,357 Pioneer Mid-Cap Growth Fund Class Y 2,448,204 ------------ 51,678 Pioneer Mid-Cap Value Fund Class Y 1,224,250 ------------ 973,465 Pioneer Oak Ridge Large Cap Growth Fund Class Y 13,482,494 ------------ 112,703 Pioneer Real Estate Shares Fund Class Y 3,722,582 ------------ 1,082,536 Pioneer Research Fund Class Y 12,243,484 ------------ 2,272,622 Pioneer Short Term Income Fund Class Y 22,226,246 ------------ 74,804 Pioneer Small Cap Value Fund Class Y 2,446,099 ------------ 215,449 Pioneer Value Fund Class Y 3,677,707 ------------ TOTAL INVESTMENTS IN SECURITIES - 97.0% (Cost $116,975,432)(a) $119,308,116 ------------ OTHER ASSETS AND LIABILITIES - 3.0% 3,681,378 ------------ TOTAL NET ASSETS - 100.0% $122,989,494 ------------
(a) At December 31, 2006, the net unrealized gain on investments based on cost for federal tax purposes of $117,049,414 was as follows:
Aggregate gross unrealized gain for all investments in which there is an excess of value over tax cost $2,648,379 Aggregate gross unrealized loss for all investments in which there is an excess of tax cost over value (389,677) ---------- Net unrealized gain $2,258,702 ----------
Purchases and sales of securities (excluding temporary cash investments) for the year ended December 31, 2006 aggregated $98,745,403 and $601,782, 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 12/31/06 - --------------------------------------------------------------------------------
Shares Value MUTUAL FUNDS - 99.7% PIONEER FUNDS - 99.7% 1,323,652 Pioneer Bond Fund Class Y $ 11,952,576 ------------ 369,093 Pioneer Cullen Value Fund Class Y 7,403,998 ------------ 183,846 Pioneer Emerging Markets Fund Class Y 5,949,265 ------------ 306,644 Pioneer Fund Class Y 14,789,451 ------------ 159,278 Pioneer Government Income Fund Class Y 1,489,247 ------------ 152,108 Pioneer Growth Opportunities Fund Class Y 4,418,731 ------------ 413,670 Pioneer High Yield Fund Class Y 4,467,636 ------------ 854,324 Pioneer International Equity Fund Class Y 22,255,145 ------------ 382,499 Pioneer Mid-Cap Growth Fund Class Y 5,913,434 ------------ 124,822 Pioneer Mid-Cap Value Fund Class Y 2,957,034 ------------ 1,175,087 Pioneer Oak Ridge Large Cap Growth Fund Class Y 16,274,960 ------------ 180,441 Pioneer Real Estate Shares Fund Class Y 5,959,963 ------------ 1,568,335 Pioneer Research Fund Class Y 17,737,864 ------------ 1,830,712 Pioneer Short Term Income Fund Class Y 17,904,360 ------------ 90,255 Pioneer Small Cap Value Fund Class Y 2,951,325 ------------ 346,787 Pioneer Value Fund Class Y 5,919,653 ------------ TOTAL INVESTMENTS IN SECURITIES - 99.7% (Cost $144,806,241)(a) $148,344,642 ------------ OTHER ASSETS AND LIABILITIES - 0.3% 439,513 ------------ TOTAL NET ASSETS - 100.0% $148,784,155 ------------
(a) At December 31, 2006, the net unrealized gain on investments based on cost for federal tax purposes of $144,847,355 was as follows:
Aggregate gross unrealized gain for all investments in which there is an excess of value over tax cost $4,429,928 Aggregate gross unrealized loss for all investments in which there is an excess of tax cost over value (932,641) ---------- Net unrealized gain $3,497,287 ----------
Purchases and sales of securities (excluding temporary cash investments) for the year ended December 31, 2006 aggregated $131,998,391 and $240,420, 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 12/31/06 - --------------------------------------------------------------------------------
Shares Value MUTUAL FUNDS - 100.4% PIONEER FUNDS - 100.4% 69,901 Pioneer Bond Fund Class Y $ 631,213 ----------- 31,797 Pioneer Cullen Value Fund Class Y 637,844 ----------- 17,250 Pioneer Emerging Markets Fund Class Y 558,205 ----------- 24,075 Pioneer Fund Class Y 1,161,142 ----------- 14,292 Pioneer Growth Opportunities Fund Class Y 415,168 ----------- 81,923 Pioneer International Equity Fund Class Y 2,134,106 ----------- 28,070 Pioneer Mid-Cap Growth Fund Class Y 433,964 ----------- 8,532 Pioneer Mid-Cap Value Fund Class Y 202,127 ----------- 99,162 Pioneer Oak Ridge Large Cap Growth Fund Class Y 1,373,391 ----------- 16,055 Pioneer Real Estate Shares Fund Class Y 530,310 ----------- 140,048 Pioneer Research Fund Class Y 1,583,945 ----------- 32,389 Pioneer Short Term Income Class Y 316,769 ----------- 9,505 Pioneer Small Cap Value Fund Class Y 310,813 ----------- 24,886 Pioneer Value Fund Class Y 424,804 ----------- TOTAL INVESTMENTS IN SECURITIES - 100.4% (Cost $10,147,057)(a) $10,713,801 ----------- OTHER ASSETS AND LIABILITIES - (0.4%) (42,101) ----------- TOTAL NET ASSETS - 100.0% $10,671,700 -----------
(a) At December 31, 2006, the net unrealized gain on investments based on cost for federal tax purposes of $10,161,719 was as follows: Aggregate gross unrealized gain for all investments in which there is an excess of value over tax cost $636,784 Aggregate gross unrealized loss for all investments in which there is an excess of tax cost over value (84,702) -------- Net unrealized gain $552,082 --------
Purchases and sales of securities (excluding temporary cash investments) for the year ended December 31, 2006 aggregated $7,611,942 and $497,392, 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 12/15/06 (a) to 12/31/06 ------------------ Moderate Allocation VCT Portfolio Class I Net asset value, beginning of period $ 11.63 --------- Increase (decrease) from investment operations: Net investment income (b) $ 0.05 Net realized and unrealized gain (loss) on investments (0.06) --------- Net increase (decrease) from investment operations $ (0.01) --------- Distributions to shareowners: Net investment income -- Net realized gain -- --------- Total distributions to shareowners -- --------- Net increase (decrease) in net asset value $ (0.01) --------- Net asset value, end of period $ 11.62 --------- Total return* (0.09)% (c) Ratio of net expenses to average net assets+ 0.90%** Ratio of net investment income to average net assets+ 9.80%** Portfolio turnover rate 1% (c) Net assets, end of period (in thousands) $ 25,009 Ratios with no waivers of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.90%** Net investment income 9.80%**
(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, the complete redemption of the investment at net asset value at the end of each period. ** Annualized. + In addition to the expenses which the Fund bears directly, the Fund indirectly bears pro rata shares of the expenses of the funds in which the Fund invests. Because each of the underlying funds bears its own varying expense levels and because the Fund may own differing proportions of each fund at different times, the amount of expenses incurred indirectly by the Fund will vary from time to time. 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) Year Ended to 12/31/06 12/31/05 ------------ ------------------ Moderate Allocation VCT Portfolio Class II Class II Net asset value, beginning of period $ 10.63 $ 10.00 ------- -------- Increase (decrease) from investment operations: Net investment income (b) $ 0.24 $ 0.15 Net realized and unrealized gain on investments 0.87 0.48 ------- -------- Net increase (decrease) from investment operations $ 1.11 $ 0.63 ------- -------- Distributions to shareowners: Net investment income $ (0.04) -- Net realized gain ( 0.09) -- ------- -------- Total distributions to shareowners $ (0.13) -- ------- -------- Net increase (decrease) in net asset value $ 0.98 $ 0.63 ------- --------- Net asset value, end of period $ 11.61 $ 10.63 ------- --------- Total return* 10.62% 6.30% (c) Ratio of net expenses to average net assets+ 0.46% 0.74%** Ratio of net investment income to average net assets+ 2.24% 1.73%** Portfolio turnover rate 1% 27% (c) Net assets, end of period (in thousands) $97,980 $20,067 Ratios with no waivers of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.60% 1.42%** Net investment income 2.10% 1.05%**
(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, the complete redemption of the investment at net asset value at the end of each period. ** Annualized. + In addition to the expenses which the Fund bears directly, the Fund indirectly bears pro rata shares of the expenses of the funds in which the Fund invests. Because each of the underlying funds bears its own varying expense levels and because the Fund may own differing proportions of each fund at different times, the amount of expenses incurred indirectly by the Fund will vary from time to time. 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) Year Ended to 12/31/06 12/31/05 ------------ ------------------ Growth Allocation VCT Portfolio Class II Class II Net asset value, beginning of period $ 10.78 $ 10.00 -------- -------- Increase from investment operations: Net investment income (b) $ 0.22 $ 0.11 Net realized and unrealized gain on investments 1.14 0.67 -------- -------- Net increase from investment operations $ 1.36 $ 0.78 -------- -------- Distributions to shareowners: Net investment income $ (0.02) -- Net realized gain (0.05) -- --------- -------- Total distributions to shareowners $ (0.07) -- --------- -------- Net increase in net asset value $ 1.29 $ 0.78 --------- -------- Net asset value, end of period $ 12.07 $ 10.78 --------- -------- Total return* 12.67% 7.80% (c) Ratio of net expenses to average net assets+ 0.43% 0.74%** Ratio of net investment income to average net assets+ 2.00% 1.34%** Portfolio turnover rate 0% 20% (c) Net assets, end of period (in thousands) $148,784 $ 13,245 Ratios with no waivers of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.53% 1.74%** Net investment income 1.90% 0.34%**
(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, the complete redemption of the investment at net asset value at the end of each period. ** Annualized. + In addition to the expenses which the Fund bears directly, the Fund indirectly bears pro rata shares of the expenses of the funds in which the Fund invests. Because each of the underlying funds bears its own varying expense levels and because the Fund may own differing proportions of each fund at different times, the amount of expenses incurred indirectly by the Fund will vary from time to time. 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 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
For the period 3/18/05 (a) Year Ended to 12/31/06 12/31/05 ------------ ------------------ Aggressive Allocation VCT Portfolio Class II Class II Net asset value, beginning of period $ 10.98 $ 10.00 ------- ------- Increase from investment operations: Net investment income (b) $ 0.09 $ 0.08 Net realized and unrealized gain on investments 1.48 0.90 ------- ------- Net increase from investment operations $ 1.57 $ 0.98 ------- ------- Distributions to shareowners: Net investment income (0.03) -- Net realized gain (0.10) -- ------- ------- Total distributions to shareowners (0.13) -- ------- ------- Net increase in net asset value $ 1.44 $ 0.98 ------- ------- Net asset value, end of period $ 12.42 $ 10.98 ------- ------- Total return* 14.44% 9.80% (c) Ratio of net expenses to average net assets+ 0.74% 0.74%** Ratio of net investment income to average net assets+ 0.79% 0.90%** Portfolio turnover rate 7% 17% (c) Net assets, end of period (in thousands) $10,672 $ 3,077 Ratios with no waivers of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.40% 5.94%** Net investment income (loss) 0.13% (4.30)%**
(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, the complete redemption of the investment at net asset value at the end of each period. ** Annualized. + In addition to the expenses which the Fund bears directly, the Fund indirectly bears pro rata shares of the expenses of the funds in which the Fund invests. Because each of the underlying funds bears its own varying expense levels and because the Fund may own differing proportions of each fund at different times, the amount of expenses incurred indirectly by the Fund will vary from time to time. 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. 16 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Asset Allocation Series VCT Portfolios - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES 12/31/06 - --------------------------------------------------------------------------------
Moderate Growth Aggressive Allocation Allocation Allocation VCT Portfolio VCT Portfolio VCT Portfolio ASSETS: Investments in securities of affiliated issuers, at value (at cost $116,975,432, $144,806,241 and $10,147,057, respectively) $ 119,308,116 $ 148,344,642 $ 10,713,801 Cash 4,697,312 3,925,798 36,725 Receivables for: Due from Pioneer Investment Management, Inc. 29,541 18,634 -- Capital stock sold 137,196 469,041 2,600 Other assets 17,406 10,780 729 ------------- ------------- ------------ Total assets $ 124,189,571 $ 152,768,895 $ 10,753,855 ------------- ------------- ------------ LIABILITIES: Payables for: Funds purchased $ 1,037,258 $ 3,895,323 $ 35,726 Capital stock redeemed 25,430 -- 2,068 Due to affiliates 50,846 48,245 5,505 Accrued expenses and other liabilities 86,543 41,172 38,856 ------------- ------------- ------------ Total liabilities $ 1,200,077 $ 3,984,740 $ 82,155 ------------- ------------- ------------ NET ASSETS: Paid-in capital $ 117,358,647 $ 139,142,079 $ 9,603,481 Undistributed net investment income 1,517,835 2,175,311 149,667 Accumulated net realized gain on investments 1,780,328 3,928,364 351,808 Net unrealized gain on investments 2,332,684 3,538,401 566,744 ------------- ------------- ------------ Total net assets $ 122,989,494 $ 148,784,155 $ 10,671,700 ------------- ------------- ------------ NET ASSET VALUE PER SHARE: (No par value, unlimited number of shares authorized) Net Assets of Class I Shares $ 25,009,033 -- -- Net Assets of Class II Shares $ 97,980,461 $ 148,784,155 $ 10,671,700 ------------- ------------- ------------ Class I Shares outstanding 2,152,744 -- -- Class II Shares outstanding 8,437,547 12,331,830 859,550 ------------- ------------- ------------ Net Asset Value--Class I Shares $ 11.62 $ -- $ -- Net Asset Value--Class II Shares $ 11.61 $ 12.07 $ 12.42
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 OPERATIONS - -------------------------------------------------------------------------------- For the Year Ended 12/31/06
Moderate Growth Aggressive Allocation Allocation Allocation VCT Portfolio VCT Portfolio VCT Portfolio INVESTMENT INCOME: Dividend income from securities of affiliated issuers $1,181,636 $1,436,534 $ 105,142 Interest 149,049 91,731 5,334 ---------- ---------- --------- Total investment income $1,330,685 $1,528,265 $ 110,476 ---------- ---------- --------- EXPENSES: Management fees 59,862 81,618 9,380 Transfer agent fees Class I 1,502 -- -- Class II 2,346 1,250 1,644 Distribution fees 112,370 156,958 18,038 Administrative fees 21,934 24,862 15,138 Custodian fees 31,582 27,647 16,035 Professional fees 40,536 30,936 31,986 Printing fees 3,235 2,458 734 Fees and expenses of nonaffiliated trustees 7,712 7,730 8,141 ---------- ---------- --------- Total expenses $ 281,079 $ 333,459 $ 101,096 ---------- ---------- --------- Less management fees waived and expenses reimbursed by Pioneer Investment Management, Inc. (66,149) (62,313) (47,702) ---------- ---------- --------- Net expenses $ 214,930 $ 271,146 $ 53,394 ---------- ---------- --------- Net investment income $1,115,755 $1,257,119 $ 57,082 ---------- ---------- --------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on: Investment transactions $ (7,544) $ 3,306 $ (7,306) Foreign currency transactions (1,190) -- -- Realized gain distributions from investment company shares 2,255,353 4,884,944 463,335 Change in net unrealized gain on investments 2,117,464 3,285,142 479,989 ---------- ---------- --------- Net gain on investments $4,364,083 $8,173,392 $ 936,018 ---------- ---------- --------- Net increase in net assets resulting from operations $5,479,838 $9,430,511 $ 993,100 ---------- ---------- ---------
18 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Asset Allocation Series VCT Portfolios - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Moderate Allocation VCT Portfolio --------------------------------------- Year Ended March 18, 2005* to December 31, 2006 December 31, 2005 FROM OPERATIONS: Net investment income $ 1,115,755 $ 99,539 Net realized gain (loss) on investment and foreign currency transactions 2,246,619 293,310 Change in net unrealized gain on investments 2,117,464 215,220 ------------ ----------- Net increase in net assets resulting from operations 5,479,838 608,069 ------------ ----------- DISTRIBUTIONS TO SHAREOWNERS: From net investment income Class I -- -- Class II (135,015) -- From net capital gains Class I -- -- Class II (322,743) -- ------------ ----------- Total distributions to shareowners (457,758) -- ------------ ----------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 58,814,207 $20,272,067 Reinvestment of distributions 456,412 -- Cost of shares repurchased (3,267,460) (913,070) Shares issued in reorganization 41,897,189 -- ------------ ----------- Net increase in net assets resulting from fund share transactions $ 97,900,348 $19,358,997 ------------ ----------- Net increase in net assets $102,922,428 $19,967,066 NET ASSETS: Beginning of period $ 20,067,066 $ 100,000 ------------ ----------- End of period $122,989,494 $20,067,066 ------------ ----------- Undistributed net investment income $ 1,517,835 $ 134,872 ------------ -----------
* 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 - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Growth Allocation Aggressive Allocation VCT Portfolio VCT Portfolio -------------------------------------- ------------------------------------- Year Ended March 18, 2005* to Year Ended March 18, 2005* to December 31, 2006 December 31, 2005 December 31, 2006 December 31, 2005 FROM OPERATIONS: Net investment income $ 1,257,119 $ 55,335 $ 57,082 $ 9,138 Net realized gain on investment and foreign currency transactions 4,888,250 219,398 456,029 63,857 Change in net unrealized gain on investments 3,285,142 253,259 479,989 86,755 ------------ ----------- ----------- ---------- Net increase in net assets resulting from operations 9,430,511 527,992 993,100 159,750 ------------ ----------- ----------- ---------- DISTRIBUTIONS TO SHAREOWNERS: From net investment income (86,886) -- (17,942) -- From net capital gains (230,130) -- (66,851) -- ------------ ----------- ----------- ---------- Total distributions to shareowners (317,016) -- (84,793) -- ------------ ----------- ----------- ---------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $126,966,120 $13,118,169 $ 7,192,804 $2,893,199 Reinvestment of distributions 316,340 -- 67,517 -- Cost of shares repurchased (856,413) (501,548) (574,177) (75,700) ------------ ----------- ----------- ---------- Net increase in net assets resulting from fund share transactions $126,426,047 $12,616,621 $ 6,686,144 $2,817,499 ------------ ----------- ----------- ---------- Net increase in net assets $135,539,542 $13,144,613 $ 7,594,451 $2,977,249 NET ASSETS: Beginning of period $ 13,244,613 $ 100,000 $ 3,077,249 $ 100,000 ------------ ----------- ----------- ---------- End of period $148,784,155 $13,244,613 $10,671,700 $3,077,249 ------------ ----------- ----------- ---------- Undistributed net investment income $ 2,175,311 $ 86,495 $ 149,667 $ 17,928 ------------ ----------- ----------- ----------
* Commencement of operations. 20 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Asset Allocation Series VCT Portfolios - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Moderate Allocation VCT Portfolio --------------------------------------------------------------- Year Ended March 18, 2005** to December 31, 2006 December 31, 2005 Shares Amount Shares Amount Class I* Shares sold 1,323 $ 35,685 -- $ -- Reinvestment of distributions -- -- -- -- Less shares repurchased (18,243) (211,943) -- -- Shares issued in reorganization 2,169,664 25,227,196 -- -- --------- ------------ --------- ----------- Net increase 2,152,744 $ 25,050,938 -- $ -- --------- ------------ --------- ----------- Class II Shares sold 5,352,931 $ 58,778,522 1,965,325 $20,272,067 Reinvestment of distributions 43,468 456,412 Less shares repurchased (280,072) (3,055,517) (87,815) (913,070) Shares issued in reorganization 1,433,710 16,669,993 -- -- --------- ------------ --------- ----------- Net increase 6,550,037 $ 72,849,410 1,877,510 $19,358,997 --------- ------------ --------- -----------
Growth Allocation VCT Portfolio ----------------------------------------------------------------- Year Ended March 18, 2005** to December 31, 2006 December 31, 2005 Shares Amount Shares Amount Class II Shares sold 11,150,218 $126,966,120 1,266,361 $13,118,169 Reinvestment of distributions 29,454 316,340 -- -- Less shares repurchased (76,188) (856,413) (48,015) (501,548) ---------- ------------ --------- ----------- Net increase 11,103,484 $126,426,047 1,218,346 $12,616,621 ---------- ------------ --------- -----------
Aggressive Allocation VCT Portfolio ---------------------------------------------------------- Year Ended March 18, 2005** to December 31, 2006 December 31, 2005 Shares Amount Shares Amount Class II Shares sold 621,382 $7,192,804 277,535 $2,893,199 Reinvestment of distributions 7,669 67,517 Less shares repurchased (49,800) (574,177) (7,236) (75,700) ------- ---------- ------- ---------- Net increase 579,251 $6,686,144 270,299 $2,817,499 ------- ---------- ------- ----------
* Commencement of operations for Class I on December 15, 2006. ** Commencement of operations. The accompanying notes are an integral part of these financial statements. 21 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Asset Allocation Series VCT Portfolios - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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 statutory 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 four separate portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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 (Aggressive Allocation Portfolio) (Class II shares only) Pioneer Ibbotson Moderate Allocation VCT Portfolio (shares only) Pioneer Ibbotson Growth Allocation VCT Portfolio (Growth Allocation Portfolio) 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. Some of the underlying funds 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. 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. 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 (NYSE) is 22 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Asset Allocation Series VCT Portfolios - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 the 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 shareowners. 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. At December 31, 2006, 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 Portfolio Income (Loss) Realized Gain/(Loss) Paid-In Capital - ----------------------------------------------------------------------------------------------- Moderate Allocation Portfolio $1,517,835 $1,780,328 $-- Growth Allocation Portfolio 2,175,311 3,928,364 -- Aggressive Allocation Portfolio 149,667 351,808 -- - -----------------------------------------------------------------------------------------------
The tax character of distributions paid during the period ended December 31, 2006 was as follows:
- ------------------------------------------------------------------------------ Ordinary Long-Term Portfolio Income Capital Gains Total - ------------------------------------------------------------------------------ Moderate Allocation Portfolio $135,015 $322,743 $457,758 Growth Allocation Portfolio 86,886 230,130 317,016 Aggressive Allocation Portfolio 17,942 66,851 84,793 - ------------------------------------------------------------------------------
There were no distributions paid for the period ended December 31, 2005. The following shows the components of distributable earnings on a federal income tax basis for the period ended December 31, 2006:
- ----------------------------------------------------------------------------------------- Undistributed Undistributed Net Unrealized Ordinary Long-Term Appreciation Portfolio Income Capital Gains (Depreciation) - ----------------------------------------------------------------------------------------- Moderate Allocation Portfolio $1,520,221 $1,851,924 $2,258,702 Growth Allocation Portfolio 2,178,547 3,966,242 3,497,287 Aggressive Allocation Portfolio 149,667 366,470 552,082 - -----------------------------------------------------------------------------------------
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), $625,557 in commissions on the sale of Trust shares for the fiscal year ended December 31, 2006. 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. 23 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Asset Allocation Series VCT Portfolios - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 2. Management Agreement Pioneer Investment Management, Inc. (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:
- --------------------------------------------------------------------- Management Fee as a Percentage of each Fund's Average Fund Daily Net Assets - --------------------------------------------------------------------- Moderate Allocation Portfolio 0.13% Growth Allocation Portfolio 0.13% Aggressive Allocation 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, 2006, the following fees were payable to PIM relating to management & administration fees and certain other services and are included in due to affiliates:
- ----------------------------------------------- Fund Amount - ----------------------------------------------- Moderate Allocation Portfolio $ 25,168 Growth Allocation Portfolio $ 17,851 Aggressive Allocation Portfolio $ 3,059 - -----------------------------------------------
From January 1, 2006 through July 31, 2006, 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 Class II expenses to the following annual expense limitations:
- ----------------------------------------------- Fund Class II - ----------------------------------------------- Moderate Allocation Portfolio 0.74% Growth Allocation Portfolio 0.74% Aggressive Allocation Portfolio 0.74% - -----------------------------------------------
Effective August 1, 2006, PIM has further agreed to not impose all or a portion of its management fees and assumed other operating expenses of the Portfolios to the extent necessary to limit Class II expenses to the following annual expense limitations:
- ----------------------------------------------- Fund Class II - ----------------------------------------------- Moderate Allocation Portfolio 0.39% Growth Allocation Portfolio 0.38% Aggressive Allocation Portfolio 0.74% - -----------------------------------------------
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, 2006:
- ----------------------------------------------- Fund Amount - ----------------------------------------------- Moderate Allocation Portfolio $ 4,854 Growth Allocation Portfolio $ 137 Aggressive Allocation Portfolio $ 137 - -----------------------------------------------
24 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Asset Allocation Series VCT Portfolios - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2006, the following fees were payable to PFD relating to service fees and are included in due to affiliates:
- ----------------------------------------------- Fund Amount - ----------------------------------------------- Moderate Allocation Portfolio $ 20,824 Growth Allocation Portfolio $ 30,257 Aggressive Allocation Portfolio $ 2,309 - -----------------------------------------------
5. Merger Information On December 14, 2006, beneficial owners of Pioneer Balanced VCT Portfolio approved a proposed Agreement and Plan of Reorganization that provided for the merger listed below. This tax-free reorganization was accomplished on December 15, 2006, by exchanging all of Pioneer Balanced VCT Portfolio's Class I and Class II net assets for Pioneer Ibbotson Moderate Allocation VCT Portfolio's shares, based on Pioneer Ibbotson Moderate Allocation VCT Portfolio's Class II shares' ending net asset value. The following charts show the details of the reorganization as of that closing date ("Closing Date"):
- ------------------------------------------------------------------------------------------------------------- Pioneer Ibbotson Pioneer Ibbotson Moderate Allocation Pioneer Balanced VCT Moderate Allocation VCT Portfolio Portfolio VCT Portfolio (Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization) - ------------------------------------------------------------------------------------------------------------- Net Assets Class I $25,227,196 $ 25,227,196 Class II $78,949,308 $16,669,993 $ 95,619,301 ---------------------------------------------------------------------- Total Net Assets $78,949,308 $41,897,189 $120,846,497 ---------------------------------------------------------------------- Shares Outstanding Class I 1,729,211 2,169,664 Class II 6,790,066 1,145,659 8,223,776 Shares Issued in Reorganization Class I 2,169,664 Class II 1,433,710 - -------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------- Accumulated Gain/ Unrealized Depreciation (Loss) on on Closing Date Closing Date ------------------------- ------------------ Pioneer Balanced VCT Portfolio $-- $-- --- --- - -----------------------------------------------------------------------------------
ADDITIONAL INFORMATION (unaudited) For the fiscal year ended December 31, 2006, certain dividends paid by the Portfolios may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act (the Act) of 2003. The Funds designated up to the maximum amount of such dividends allowable under the Act, as taxed at a maximum rate of 15%. Complete information was computed and reported in conjunction with your 2006 Form 1099-DIV. The qualifying percentage of ordinary income dividends for the purposes of the corporate dividends received deduction was:
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Moderate Allocation Portfolio 12.69% Growth Allocation Portfolio 16.87% Aggressive Allocation Portfolio 21.36% - -------------------------------------------------------------------------------
25 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 of Pioneer Ibbotson Moderate Allocation VCT Portfolio, Pioneer Ibbotson Growth Allocation VCT Portfolio and Pioneer Ibbotson Aggressive Allocation VCT Portfolio, (collectively the "Portfolios," three of the portfolios constituting the Pioneer Variable Contracts Trust), including the schedules of investments, as of December 31, 2006, 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 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, 2006, 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, 2006, the results of their operations for the year then ended, the changes in their net assets and the 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 9, 2007 26 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, 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 Ibbotson Associates Advisors, Inc. (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 is 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 Interested 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 and/or officers of 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index approved by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 12 month period ended June 30, 2006 for the Fund and a peer group of funds selected on the basis of criteria determined by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria determined 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 on the basis of criteria determined 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 in providing services to 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 by the Funds 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 incurred on a basis other than as a percentage of net assets. 27 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Moderate Allocation VCT Portfolio - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- 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 the performance of both a peer group and an index approved by the Independent Trustees for this purpose. The Fund's performance, based upon total return, was in the second quintile of its Morningstar category peer group for the 12 months ended June 30, 2006. (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 activities of the Investment Adviser in monitoring the investment and compliance operations of the Sub-adviser. The Trustees concluded that the performance of the Fund was good. 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 size, 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 or its affiliates under other contracts, such as transfer agency and administration, as well as the Investment Adviser's 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 its Morningstar category peer group. The Fund's management fee for the 12 months ended June 30, 2006 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 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 they were consistent with other sub-advised funds. The Trustees also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria determined by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 to be in the fifth quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. The Trustees concluded that the 28 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Moderate Allocation VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 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. In light of the Investment Adviser's and Sub-adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser and the Sub-adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the Sub-adviser, and the fees charged by other funds in Fund' s relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fees payable thereunder, and the Sub-advisory Agreement, were fair and reasonable and voted to approve the continuation of the Management Contract and the Sub-advisory Agreement for another year. 29 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, 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 Ibbotson Associates Advisors, Inc. (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 is 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 Interested 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 and/or officers of 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index approved by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 Fund since inception and a peer group of funds selected on the basis of criteria determined by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria determined 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 on the basis of criteria determined 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 in providing services to 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 by the Funds 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 incurred on a basis other than as a percentage of net assets. 30 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Growth Allocation VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 the performance of both a peer group and an index approved 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 Fund's performance, based upon total return, was in the first quintile of its Morningstar category peer group for the 12 months ended June 30, 2006. (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 noted that the return of the Fund, gross of expenses, exceeded the return of the Fund's benchmark index for the 12 month period ended June 30, 2006. The Trustees concluded that the performance of the Fund was strong. 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 size, 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 or its affiliates under other contracts, such as transfer agency and administration, as well as the Investment Adviser's 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 its Morningstar category peer group. The Fund's management fee for the 12 months ended June 30, 2006 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 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 they were consistent with other sub-advised funds. The Trustees also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria determined by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 3006 to be in the fifth quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 31 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Growth Allocation VCT Portfolio - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- Investment Adviser's profit margins in comparison with the limited industry data available. 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 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. In light of the Investment Adviser's and Sub-adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser and the Sub-adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the Sub-adviser, and the fees charged by other funds in Fund' s relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fees payable thereunder, and the Sub-advisory Agreement, were fair and reasonable and voted to approve the continuation of the Management Contract and the Sub-advisory Agreement for another year. 32 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Aggressive Allocation VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 Ibbotson Associates Advisors, Inc. (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 is 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 Interested 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 and/or officers of 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index approved by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 12 month period ended June 30, 2006 for the Fund and a peer group of funds selected on the basis of criteria determined by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria determined 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 on the basis of criteria determined 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 in providing services to 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 by the Funds 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 incurred on a basis other than as a percentage of net assets. 33 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Aggressive Allocation VCT Portfolio - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- 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 the performance of both a peer group and an index approved by the Independent Trustees for this purpose. The Fund's performance, based upon total return, was in the first quintile of its Morningstar category peer group for the 12 months ended June 30, 2006. (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 activities of the Investment Adviser in monitoring the investment and compliance operations of the Sub-adviser. In addition, the Trustees noted that the return of the Fund, gross of expenses, exceeded the return of the Fund's benchmark index for the 12-month period ended June 30, 2006. The Trustees concluded that the performance of the Fund was strong. 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 size, 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 or its affiliates under other contracts, such as transfer agency and administration, as well as the Investment Adviser's 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 its Morningstar category peer group. The Fund's management fee for the 12 months ended June 30, 2006 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 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 they were consistent with other sub-advised funds. The Trustees also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria determined by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 (after giving effect to the expense limitation) to be in the fifth quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 34 PIONEER VARIABLE CONTRACTS TRUST Pioneer Ibbotson Aggressive Allocation VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Investment Adviser's profit margins in comparison with the limited industry data available. 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 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. In light of the Investment Adviser's and Sub-adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser and the Sub-adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the Sub-adviser, and the fees charged by other funds in Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fees payable thereunder (taking into account the expense limitation), and the Sub-advisory Agreement, were fair and reasonable and voted to approve the continuation of the Management Contract and the Sub-advisory Agreement for another year. 35 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 Custodian over the portfolio's affairs. The officers of the trust are Brown Brothers Harriman & Co. responsible for the trust's 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 are Ernst & Young LLP interested persons of the trust within the meaning of the 1940 Act are referred to as Interested Trustees. Trustees Principal Underwriter who are not interested persons of the trust are referred to Pioneer Funds Distributor, Inc. as Independent Trustees. Each of the Trustees serves as a trustee of each of the 86 U.S. registered investment Legal Counsel portfolios for which Pioneer serves as investment adviser Wilmer Cutler Pickering Hale and Dorr LLP (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the trust is 60 State Street, Shareowner Services and Transfer Boston, Massachusetts 02109. Pioneer Investment Management Shareholder Services, Inc.
- -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. Chairman of the Trustee since 1994. Deputy Chairman and a Director of Director of ICI Mutual (80)* Board, Trustee Serves until a Pioneer Global Asset Management Insurance Company and President successor trustee is S.p.A. ("PGAM"); Non-Executive elected or earlier Chairman and a Director of Pioneer retirement or Investment Management USA Inc. removal. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - -----------------------------------------------------------------------------------------------------------------------------------
36 Pioneer Ibbotson Asset Allocation Series VCT Portfolios - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS HELD BY THIS TRUSTEE David R. Bock (63) Trustee Trustee since 2005. Senior Vice President and Chief Director of The 3050 K. Street NW, Serves until a Financial Officer, I-trax, Inc. Enterprise Social Washington, DC 20007 successor trustee is (publicly traded health care Investment Company elected or earlier services company) (2001 - present); (privately-held retirement or Managing Partner, Federal City affordable housing removal. Capital Advisors (boutique merchant finance company); bank) (2002 to 2004); and Executive and Director of New Vice President and Chief Financial York Mortgage Trust Officer, Pedestal Inc. (internet- (publicly traded based mortgage trading company) mortgage REIT) (2000 - 2002) - ----------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (58) Trustee Trustee since 2000. President, Bush International Director of Brady 3509 Woodbine Street, Serves until a (international financial advisory Corporation Chevy Chase, MD 20815 successor trustee is firm) (industrial elected or earlier identification and retirement or specialty coated removal. material products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ----------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (59) Trustee Trustee since 2000. Founding Director, The Winthrop None 1001 Sherbrooke Street West, Serves until a Group, Inc. (consulting firm); and Montreal, Quebec, Canada successor trustee is Desautels Faculty of Management, H3A 1G5 elected or earlier McGill University retirement or removal. - ----------------------------------------------------------------------------------------------------------------------------------- Thomas J. Perna (56) Trustee Trustee since 2006. Private investor (2004 - present); Director of 89 Robbins Avenue, Serves until a and Senior Executive Vice Quadriserv Inc. Berkeley Heights, NJ successor trustee is President, The Bank of New York (technology products 07922 elected or earlier (financial and securities services) for securities retirement or (1986 - 2004) lending industry) removal. - ----------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (58) Trustee Trustee since 1995. President and Chief Executive Director of New 200 State Street, 12th Serves until a Officer, Newbury, Piret & Company, America High Income Floor, Boston, MA 02109 successor trustee is Inc. (investment banking firm) Fund, Inc. elected or earlier (closed-end retirement or investment company) removal. - ----------------------------------------------------------------------------------------------------------------------------------- John Winthrop (70) Trustee Trustee since 2000. President, John Winthrop & Co., None One North Adgers Wharf, Serves until a Inc. (private investment firm) Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. - -----------------------------------------------------------------------------------------------------------------------------------
37 Pioneer Ibbotson Asset Allocation Series VCT Portfolios - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (54)+ Executive Vice Since 2003. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer Funds the Board (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since 2000. Serves Secretary of PIM-USA; Senior Vice None at the discretion of President - Legal of Pioneer; the Board Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Kelley (42) Assistant Since 2003. Serves Vice President and Senior Counsel None Secretary at the discretion of of Pioneer since July 2002; Vice the Board 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 of the Pioneer Funds since September 2003 - ----------------------------------------------------------------------------------------------------------------------------------- Christopher P. Harvey Assistant Since 2006. Serves Partner, Wilmer Cutler Pickering None (45) Secretary at the discretion of Hale and Dorr LLP; and Assistant the Board Secretary of all of the Pioneer Funds since July 2006. - ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (61) Treasurer Since 2000. Serves Vice President - Fund Accounting, None at the discretion of Administration and Controllership the Board Services of Pioneer; and Treasurer of all of the Pioneer Funds - ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (47) Assistant Since 2004. Serves Deputy Treasurer of Pioneer since None Treasurer at the discretion of 2004; Treasurer and Senior Vice the Board 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 - ----------------------------------------------------------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Since 2000. Serves Assistant Vice President - Fund None Treasurer at the discretion of Accounting, Administration and the Board Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ----------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (48) Assistant Since 2002. Serves Fund Accounting Manager - Fund None Treasurer at the discretion of Accounting, Administration and the Board Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - -----------------------------------------------------------------------------------------------------------------------------------
38 Pioneer Ibbotson Asset Allocation Series VCT Portfolios - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS BY THIS OFFICER Katherine Kim Sullivan Assistant Since 2003. Serves Fund Administration Manager - Fund None (33) Treasurer at the discretion of Accounting, Administration and the Board Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ----------------------------------------------------------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Since 2006. Serves Chief Compliance Officer of Pioneer None Compliance at the discretion of and all of the Pioneer Funds since Officer the Board March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ----------------------------------------------------------------------------------------------------------------------------------- The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients.
39 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 40 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 41 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 42 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 43 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 44 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 45 [LOGO] PIONEER Investments(R) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18685-01-0207 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer International Value VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2006 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 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 12/31/06 - -------------------------------------------------------------------------------- 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 86.6% Depositary Receipts for International Stocks 7.4% U.S. Common Stocks 3.2% International Preferred Stocks 1.8% Temporary Cash Investment 1.0%
Geographical Distribution (As a percentage of equity holdings) [The following data was represented as a pie chart in the printed material] Japan 28.9% United Kingdom 13.5% France 8.5% Switzerland 7.3% Germany 6.9% Brazil 3.4% Other (individually less than 1%) 3.4% South Korea 3.3% Australia 3.0% Russia 3.0% Italy 2.7% Singapore 2.4% Turkey 1.6% Ireland 1.5% Belgium 1.5% Sweden 1.4% United States 1.3% South Africa 1.1% Taiwan 1.1% Netherlands 1.1% Austria 1.1% Mexico 1.0% Spain 1.0%
Five Largest Holdings (As a percentage of equity holdings) 1. Toyota Motor Co. 2.45% 2. Royal Bank of Scotland Group Plc 2.37 3. CS Group 2.30 4. JFE Holdings, Inc. 1.97 5. BNP Paribas SA 1.91
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $ 16.66 $ 13.63
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $ 0.0409 $ - $ -
- -------------------------------------------------------------------------------- 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 graph in the printed material]
Pioneer MSCI All International Country World Value VCT ex. U.S. Date Portfolio Index 12/96 10,000 10,000 12/98 10,087 11,680 12/00 11,230 12,983 12/02 7,387 8,919 12/04 11,345 15,306 12/06 16,021 22,793
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, 2006) - -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- 10 Years 4.83% 5 Years 13.40% 1 Year 22.59%
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.pioneerinvestments.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, 2006 through December 31, 2006.
Share Class II - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,136.46 Expenses Paid During Period* $ 9.10
* Expenses are equal to the Portfolio's annualized expense ratio of 1.69% 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, 2006 through December 31, 2006.
Share Class II - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,014.62 Expenses Paid During Period* $ 8.59
* Expenses are equal to the Portfolio's annualized expense ratio of 1.69% 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 12/31/06 - -------------------------------------------------------------------------------- International stocks delivered strong returns during the fiscal year, led in large measure by stocks in Europe and the emerging markets. In the following interview, portfolio manager Christopher Smart discusses the factors that affected performance during the reporting period. Q. How did the Portfolio perform during the year ended December 31, 2006? A. For the fourth straight year, the Portfolio achieved strong double-digit returns. Class II shares had a total return of 22.59% at net asset value for the 12-month period. An overweight position in emerging markets and financial stocks in Europe contributed significantly to this return. However, the Portfolio trailed the 24.35% average return for the 133 International Large-Cap Core funds in its Lipper category. The Portfolio also lagged the 27.16% return for the Morgan Stanley Capital International (MSCI) All Country World Index (excluding the United States) for the same period; however, the performance of the benchmark does not reflect any management fees or transaction expenses. Call 1-800-688-9915 or visit www.pioneerinvestments.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 major factors that contributed to performance? A. The fiscal year proved to be a good time to be invested in European stock markets. Diversified financial stocks were standout performers. BNP Paribas (France) continued to deliver good results on growing sales across its diverse distribution platforms, while U.K.-based Barclays Bank benefited from the success of its domestic retail banking arm, which experienced increased revenue from both its savings account and mortgage financing businesses. In the utility sector, the German electricity provider RWE profited from strong demand for electricity domestically and a more favorable pricing environment. Q. The emerging markets had a setback last spring but resumed their rally. Are you still optimistic about this sector? A. Very much so. Investments in Russia, South Korea and China were very rewarding. Mobile Telesystems, a provider of wireless telecommunications services, gained new users across Russia and beyond its borders in Ukraine and Kazakhstan. Hyundai Heavy Industries, one of the world's largest shipbuilders, was a prime beneficiary of surging global demand, and this Korean company has a three-year order book for most of its ships. China Life Insurance climbed 129% for the period. But given the dramatic appreciation in this stock, which has become overvalued in our opinion, we sold the position to lock in gains. Q. What investments detracted from performance? A. Investments in Turkey suffered last May when global inflationary concerns sparked a more cautious outlook and a brief flight to quality. While most emerging markets investments began to recover when inflation fears abated, Turkish stocks continued to decline in response to the government's rising - -------------------------------------------------------------------------------- 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 1-800-688-9915 or visit www.pioneerinvestments.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 International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- current account deficit, climbing interest rates and a weakening currency. A slight overweight in Turkey relative to its benchmark also hurt the Portfolio's performance. Although the Japanese market rose 12% for the year, the Portfolio's particular mix of stocks produced a combined return of 17%. This was gratifying, except for the fact that even that performance failed to keep pace with the benchmark and our decision to overweight the country also lowered returns. Nevertheless, we continue to see good potential for growth in Japan, given the improvement in domestic spending. Q. Did you make any noteworthy changes to the portfolio during the year? A. We did make some adjustments in the struggling telecommunications service sector in Europe. Wireless provider Vodafone Group (United Kingdom) and telecommunications provider France Telecom both produced disappointing results before we sold them. The industry faces a variety of challenges, including intense competition and high costs of investing in quickly-changing technologies. Q. After a multi-year rally in international stocks, are you still confident about the sector? A. Yes, we remain upbeat for the foreseeable future. Global growth remains fairly robust - particularly in the emerging markets, where we believe the risks associated with these investments are lower than at any other time in their recent history. We do not think these markets will be immune from economic cycles, but we believe their overall growth should be better than the more developed countries. In the developed markets of Europe and Japan, where the majority of the Portfolio's holdings are, we think stock prices remain attractive, and economic growth shows signs of improvement. We believe the chief risks for international stock investing remain a global economic slowdown and rising interest rates. However, while we think the outlook is still favorable for international stocks, we intend to keep a sharp eye on valuations to ensure that prices remain reasonable relative to earnings prospects. 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 International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Shares Value PREFERRED STOCKS - 1.8% Automobiles & Components - 0.5% Automobile Manufacturers - 0.5% 245 Porsche AG $ 311,536 ----------- Total Automobiles & Components $ 311,536 ----------- Utilities - 1.3% Multi-Utilities - 1.3% 7,912 RWE AG - Non-Voting $ 750,570 ----------- Total Utilities $ 750,570 ----------- TOTAL PREFERRED STOCKS (Cost $1,170,287) $ 1,062,106 ----------- COMMON STOCKS - 95.5% Energy - 8.8% Integrated Oil & Gas - 7.0% 12,728 Gazprom (A.D.R.) $ 585,886 6,130 Lukoil Holding (A.D.R.)* 535,762 6,361 Petrobras Brasileiro (A.D.R.) 590,046 15,475 Repsol SA 534,141 27,900 Royal Dutch Shell Plc 983,858 10,809 Total SA 779,252 ----------- $ 4,008,945 ----------- Oil & Gas Equipment & Services - 0.4% 3,812 Technip $ 261,513 ----------- Oil & Gas Exploration & Production - 1.4% 550,630 CNOOC, Ltd. $ 521,136 9,700 Norsk Hydro AS* 298,103 ----------- $ 819,239 ----------- Total Energy $ 5,089,697 ----------- Materials - 8.8% Commodity Chemicals - 1.0% 85,200 Asahi Kasei Corp.* $ 558,372 ----------- Construction Materials - 1.8% 3,781 CRH Plc $ 157,013 7,432 Holcim, Ltd. 679,055 1,313 Lafarge 195,212 ----------- $ 1,031,280 ----------- Diversified Metals & Mining - 2.5% 30,722 Broken Hill Proprietary Co., Ltd. $ 611,036 8,770 Freeport-McMoRan Copper & Gold, Inc. (Class B) 488,752 6,358 Rio Tinto Plc 337,914 ----------- $ 1,437,702 ----------- Steel - 3.5% 28,241 Companhia Vale do Rio Doce (A.D.R.) $ 741,326 17,600 Hitachi Metals, Ltd. 187,600 21,600 JFE Holdings, Inc. 1,106,924 ----------- $ 2,035,850 ----------- Total Materials $ 5,063,204 ----------- Capital Goods - 12.2% Building Products - 1.4% 33,000 Asahi Glass Co., Ltd. $ 396,662 4,750 Compagnie de Saint Gobain 398,829 ----------- $ 795,491 ----------- Construction & Farm Machinery & Heavy Trucks - 1.7% 15,770 Daewoo Heavy Industries & Machinery, Ltd. $ 494,307 3,700 Hyundai Heavy Industries* 499,688 ----------- $ 993,995 ----------- Electrical Component & Equipment - 0.4% 2,166 Schneider Electric SA $ 239,514 ----------- Heavy Electrical Equipment - 1.5% 94,200 Mitsubishi Electric Corp. $ 860,663 ----------- Industrial Conglomerates - 4.0% 42,000 Hutchinson Whampoa, Ltd. $ 425,418 62,800 Keppel Corp. 718,922 115,870 KOC Holding AS* 446,152 7,293 Siemens 727,210 ----------- $ 2,317,702 ----------- Industrial Machinery - 1.3% 17,338 AB SKF $ 318,625 31,320 Nabtesco Corp. 392,999 ----------- $ 711,624 ----------- Trading Companies & Distributors - 1.9% 43,100 Mitsubishi Corp.* $ 808,716 11,655 Wolseley 280,410 ----------- $ 1,089,126 ----------- Total Capital Goods $ 7,008,115 ----------- Commercial Services & Supplies - 0.2% Office Services & Supplies - 0.2% 6,200 Buhrmann NV $ 92,094 ----------- Total Commercial Services & Supplies $ 92,094 ----------- Transportation - 1.4% Air Freight & Couriers - 0.8% 1,325 Panalpina Welttransport Holding AG $ 180,599 6,727 TNT NV 289,343 ----------- $ 469,942 -----------
6 The accompanying notes are an integral part of these financial statements. Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value Railroads - 0.6% 49 East Japan Railway Co. $ 326,712 ----------- Total Transportation $ 796,654 ----------- Automobiles & Components - 4.6% Auto Parts & Equipment - 1.0% 14,895 Denso Corp. $ 591,391 ----------- Automobile Manufacturers - 3.1% 6,087 Hyundai Motor Co., Ltd.* $ 442,048 21,000 Toyota Motor Co. 1,377,138 ----------- $ 1,819,186 ----------- Tires & Rubber - 0.4% 1,977 Continental AG $ 229,784 ----------- Total Automobiles & Components $ 2,640,361 ----------- Consumer Durables & Apparel - 3.6% Apparel, Accessories & Luxury Goods - 0.3% 3,131 Adidas-Salomon AG $ 155,859 ----------- Consumer Electronics - 1.8% 39,000 Matsushita Electric Industrial Co., Ltd. $ 784,195 5,700 TomTom NV* 246,018 ----------- $ 1,030,213 ----------- Homebuilding - 0.8% 15,575 Persimmon Plc. $ 465,355 ----------- Leisure Products - 0.3% 6,000 Sega Sammy Holdings, Inc. $ 161,989 ----------- Photographic Products - 0.4% 10,400 Agfa Gevaert NV* $ 265,582 ----------- Total Consumer Durables & Apparel $ 2,078,998 ----------- Consumer Services - 0.6% Casinos & Gaming - 0.2% 3,938 Opap SA $ 152,127 ----------- Hotels, Resorts & Cruise Lines - 0.4% 4,510 Carnival Corp. $ 221,216 ----------- Total Consumer Services $ 373,343 ----------- Media - 1.0% Broadcasting & Cable TV - 0.4% 20,695 Mediaset S.p.A $ 245,449 ----------- Movies & Entertainment - 0.6% 8,315 Vivendi SA $ 323,790 ----------- Total Media $ 569,239 ----------- Retailing - 2.9% Apparel Retail - 1.1% 140,674 Truworths International, Ltd. $ 640,702 ----------- Department Stores - 1.8% 1,100 Pinault-Printemps Redoute* $ 164,264 62,740 Takashimaya Co., Ltd.* 887,535 ----------- $ 1,051,799 ----------- Total Retailing $ 1,692,501 ----------- Food & Drug Retailing - 0.5% Drug Retail - 0.5% 18,700 Alliance Boots Plc $ 305,261 ----------- Total Food & Drug Retailing $ 305,261 ----------- Food, Beverage & Tobacco - 4.1% Brewers - 0.7% 18,350 South African Breweries Plc $ 421,086 ----------- Distillers & Vintners - 0.8% 25,400 C&C Group Plc $ 449,413 ----------- Packaged Foods & Meats - 0.9% 1,413 Nestle SA (Registered Shares) $ 500,971 ----------- Soft Drinks - 1.0% 4,944 Fomento Economico Mexicano SA de C.V. $ 572,317 ----------- Tobacco - 0.7% 15,530 British American Tobacco Plc $ 434,515 ----------- Total Food, Beverage & Tobacco $ 2,378,302 ----------- Household & Personal Products - 1.5% Household Products - 0.3% 3,768 Reckitt Benckiser Plc $ 172,218 ----------- Personal Products - 1.2% 22,170 Kose Corp. $ 669,255 ----------- Total Household & Personal Products $ 841,473 ----------- Health Care Equipment & Services - 0.7% Health Care Equipment - 0.5% 2,130 Synthes, Inc. $ 253,840 ----------- Health Care Services - 0.2% 989 Fresenius Medical Care AG $ 131,382 ----------- Total Health Care Equipment & Services $ 385,222 ----------- Pharmaceuticals & Biotechnology - 4.6% Pharmaceuticals - 4.6% 9,887 Astrazeneca Plc $ 530,508 20,300 Daiichi Sankyo Co., Ltd. 634,419 5,194 Roche Holdings AG 929,087 2,751 Shire Pharmaceuticals Group Plc (A.D.R.) 169,902 5,558 UCB SA 380,983 ----------- $ 2,644,899 ----------- Total Pharmaceuticals & Biotechnology $ 2,644,899 -----------
The accompanying notes are an integral part of these financial statements. 7 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Shares Value Banks - 16.4% Diversified Banks - 16.4% 69,021 Banca Intesa S.p.A. $ 531,446 55,500 Barclays Plc 790,534 9,890 BNP Paribas SA 1,074,015 16,596 Commonwealth Bank of Australia 646,534 13,947 Depfa Bank Plc 250,286 40,900 Development Bank of Singapore, Ltd. 602,505 7,100 Dexia* 194,364 5,170 Kookmin Bank (A.D.R.)* 416,909 -- Mitsubishi UFJ Financial Group, Inc. 1,244 140 Mizuho Financial Group, Inc.* 1,001,147 34,193 Royal Bank of Scotland Group Plc 1,329,329 3,947 Societe Generale 667,653 49 Sumitomo Mitsui Financial Group, Inc. 499,761 97,806 Turkiye Is Bankasi (Isbank) 445,297 6,136 Uniao de Bancos Brasileiros S.A. (Unibanco) (G.D.R.) (144A) (b) 570,403 22,942 Westpac Banking Corp. 437,605 ----------- $ 9,459,032 ----------- Total Banks $ 9,459,032 ----------- Diversified Financials - 4.1% Asset Management & Custody Banks - 0.3% 17,177 Man Group Plc $ 175,765 ----------- Diversified Capital Markets - 3.0% 18,547 CS Group $ 1,293,717 3,320 Deutsche Bank AG 443,696 ----------- $ 1,737,413 ----------- Investment Banking & Brokerage - 0.8% 24,200 Nomura Securities Co., Ltd. $ 457,766 ----------- Total Diversified Financials $ 2,370,944 ----------- Insurance - 3.8% Multi-Line Insurance - 3.0% 32,797 Aviva Plc $ 528,658 16,581 AXA 668,428 1,942 Zurich Financial Services 520,880 ----------- $ 1,717,966 ----------- Property & Casualty Insurance - 0.8% 41,840 Mitsui Sumitomo Insurance Co. $ 458,317 ----------- Total Insurance $ 2,176,283 ----------- Real Estate - 1.5% Real Estate Management & Development - 1.5% 35,681 Mitsui Fudosan Co.* $ 872,495 ----------- Total Real Estate $ 872,495 ----------- Software & Services - 0.3% Application Software - 0.3% 2,900 Sap AG $ 153,985 ----------- Total Software & Services $ 153,985 ----------- Technology Hardware & Equipment - 3.2% Communications Equipment - 0.8% 115,966 Ericsson LM $ 467,353 ----------- Electronic Equipment & Instruments - 1.0% 7,377 Nidec Corp. $ 571,331 ----------- Office Electronics - 1.4% 14,418 Canon, Inc. $ 816,396 ----------- Total Technology Hardware & Equipment $ 1,855,080 ----------- Semiconductors - 2.7% Semiconductor Equipment - 1.6% 11,594 Tokyo Electron, Ltd. $ 915,424 ----------- Semiconductors - 1.1% 45,365 Hon Hai Precision Industry, (G.D.R)* $ 638,853 ----------- Total Semiconductors $ 1,554,277 ----------- Telecommunication Services - 5.8% Alternative Carriers - 2.4% 12,800 Fastweb $ 728,433 88,280 Inmarsat Plc 657,476 ----------- $ 1,385,909 ----------- Integrated Telecommunication Services - 2.4% 126 Nippon Telegraph & Telephone Corp. $ 622,515 23,148 Telekom Austria AG 619,481 19,881 Telekomunikacja Polska SA 167,869 ----------- $ 1,409,865 ----------- Wireless Telecommunication Services - 1.0% 11,427 Mobile Telesystems (A.D.R.) $ 573,521 ----------- Total Telecommunication Services $ 3,369,295 ----------- Utilities - 2.3% Electric Utilities - 2.3% 11,500 Chubu Electric Power Co., Inc. $ 343,408 7,071 E.On AG 959,126 ----------- $ 1,302,534 ----------- Total Utilities $ 1,302,534 ----------- TOTAL COMMON STOCKS (Cost $46,981,250) $55,073,288 ===========
8 The accompanying notes are an integral part of these financial statements. Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value TEMPORARY CASH INVESTMENT - 1.0% Security Lending Collateral - 1.0% 584,348 Securities Lending Investment Fund, 5.26% $ 584,348 ----------- TOTAL TEMPORARY CASH INVESTMENT (Cost $584,348) $ 584,348 ----------- TOTAL INVESTMENT IN SECURITIES - 98.4% (Cost $48,735,885) (a) $56,719,742 ----------- OTHER ASSETS AND LIABILITIES - 1.6% $ 931,349 ----------- TOTAL NET ASSETS - 100.0% $57,651,091 ===========
* 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, 2006, the value of these securities amounted to $570,403 or 1.0% 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 28.9% United Kingdom 13.5% France 8.5% Switzerland 7.3% Germany 6.9% Brazil 3.4% South Korea 3.3% Australia 3.0% Russia 3.0% Italy 2.7% Singapore 2.4% Turkey 1.6% Ireland 1.5% Belgium 1.5% Sweden 1.4% United States 1.3% South Africa 1.1% Taiwan 1.1% Netherlands 1.1% Austrialia 1.1% Mexico 1.0% Spain 1.0% Other (individually less than 1%) 3.4% ----- 100.0% =====
(b) At December 31, 2006, the following security was out on loan:
Shares Security Value 6,068 Uniao de Bancos Brasileiros S.A. (Unibanco) (G.D.R.) (144A) $564,081 -------- $564,081 ========
The accompanying notes are an integral part of these financial statements. 9 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Year Year Ended Ended Ended 5/1/03 (a) to Class II 12/31/06 12/31/05 12/31/04 12/31/03 Net asset value, beginning of period $ 13.63 $ 11.84 $ 10.04 $ 7.76 ---------- --------- --------- --------- Increase from investment operations: Net investment income (loss) $ 0.00(c) $ 0.04 $ (0.02) $ 0.05 Net realized and unrealized gain on investments and foreign currency transactions 3.07 1.76 1.86 2.29 ---------- --------- --------- --------- Net increase from investment operations $ 3.07 $ 1.80 $ 1.84 $ 2.34 Distributions to shareowners: Net investment income (0.04) (0.01) (0.04) (0.06) ---------- --------- --------- --------- Net increase in net asset value $ 3.03 $ 1.79 $ 1.80 $ 2.28 ---------- --------- --------- --------- Net asset value, end of period $ 16.66 $ 13.63 $ 11.84 $ 10.04 ========== ========= ========= ========= Total return* 22.59% 15.19% 18.42% 30.31%(b) Ratio of net expenses to average net assets+ 1.69% 1.84% 2.13% 2.02%** Ratio of net investment income (loss) to average net assets+ 0.38% 0.36% (0.11)% (0.81)%** Portfolio turnover rate 153% 108% 129% 99%(b) Net assets, end of period (in thousands) $ 25,605 $ 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 1.69% 1.84% 2.13% 2.02%** Net investment income (loss) 0.38% 0.36% (0.11)% (0.81)%**
(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 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 expenses risk charges, separate account charges, and sales charges. 10 The accompanying notes are an integral part of these financial statements. Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $564,081) (cost $48,735,885) $ 56,719,742 Cash 1,827,837 Foreign currencies, at value (cost $101) 101 Receivables -- Investment securities sold 188,792 Fund shares sold 43,806 Dividends, interest and foreign taxes withheld 52,821 Other 2,524 ------------ Total assets $ 58,835,623 ------------ LIABILITIES: Payables -- Investment securities purchased $ 287,262 Fund shares repurchased 150,665 Upon return of securities loaned 584,348 Forward foreign currency portfolio hedge contracts, open -- net 451 Due to affiliates 9,975 Accrued expenses 151,831 ------------ Total liabilities $ 1,184,532 ------------ NET ASSETS: Paid-in capital $ 52,872,762 Undistributed net investment income 217,885 Accumulated net realized loss on investments (3,428,334) Net unrealized gain on: Investments 7,983,857 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 4,921 ------------ Total net assets $ 57,651,091 ------------ NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 32,045,993 Shares outstanding 1,910,832 ------------ Net asset value per share $ 16.77 Class II: (No par value, unlimited number of shares authorized) Net assets $ 25,605,098 Shares outstanding 1,536,750 ------------ Net asset value per share $ 16.66
The accompanying notes are an integral part of these financial statements. 11 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS 12/31/06 - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $73,530) $ 615,866 Interest 22,003 Income on securities loaned, net 14,974 ----------- Total investment income $ 652,843 ----------- EXPENSES: Management fees $ 255,471 Transfer agent fees and expenses 2,897 Distribution fees (Class II) 20,538 Administrative reimbursements 6,768 Custodian fees 77,984 Professional fees 38,297 Printing expenses 16,310 Fees and expenses of nonaffiliated trustees 5,852 Miscellaneous 18,178 ----------- Total expenses $ 442,295 ----------- Net expenses $ 442,295 ----------- Net investment income $ 210,548 ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain from: Investments $ 9,571,942 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 7,472 ----------- $ 9,579,414 ----------- Change in net unrealized gain or (loss) from: Investments $(3,663,013) Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 5,415 ----------- $(3,657,598) ----------- Net gain on investments and foreign currency transactions $ 5,921,816 ----------- Net increase in net assets resulting from operations $ 6,132,364 -----------
12 The accompanying notes are an integral part of these financial statements. Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 210,548 $ 163,925 Net realized gain on investments 9,579,414 4,186,631 Change in net unrealized (loss) on investments and foreign currency transactions (3,657,598) (617,934) ------------ ------------ Net increase in net assets resulting from operations $ 6,132,364 $ 3,732,622 ------------ ------------ DISTRIBUTIONS TO SHAREOWNERS: Net investment income: Class I $ (100,558) $ (31,154) Class II (20,184) (3,084) ------------ ------------ Total distributions to shareowners $ (120,742) $ (34,238) ------------ ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 5,815,627 $ 3,244,454 Shares issued in reorganization 25,497,152 -- Reinvestment of distributions 120,741 34,238 Cost of shares repurchased (6,695,775) (7,067,685) ------------ ------------ Net increase (decrease) in net assets resulting from Fund share transactions $ 24,737,745 $ (3,788,993) ------------ ------------ Net increase (decrease) in net assets $ 30,749,367 $ (90,609) NET ASSETS: Beginning of year $ 26,901,724 $ 26,992,333 ------------ ------------ End of year $ 57,651,091 $ 26,901,724 ============ ============ Undistributed net investment income $ 217,885 $ 120,607 ------------ ------------
The accompanying notes are an integral part of these financial statements. 13 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies The Pioneer International 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 the VCT Portfolio is to seek long-term capital growth. 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 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 year. 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 14 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2006, there were no fair valued securities except as noted below. Temporary cash investments are valued at amortized cost. 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, if any, 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, 2006, the Portfolio had no outstanding portfolio hedges. As of December 31, 2006, the Portfolio's gross forward currency settlement contracts receivable and payable were $287,262 and $287,713, respectively, resulting in a net payable of $451. 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. 15 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, 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, 2006, 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, 2006, the Portfolio had a net capital loss carryforward of $3,939,983, of which the following amounts will expire between 2010 and 2011 if not utilized: $1,808,985 in 2010 and $2,130,998 in 2011. At December 31, 2006, 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 Realized Loss Paid-In Capital - ------------------------------------------------------------------------------------------------------------ Pioneer International Value VCT Portfolio $ 7,472 $ (7,472) $ -- ======== ======== ======= - ------------------------------------------------------------------------------------------------------------
The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings as of December 31, 2006, on a tax basis.
- -------------------------------------------------------------------------------------------------------- 2006 2005 - -------------------------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 120,742 $ 34,238 ----------- ----------- Total distributions $ 120,742 $ 34,238 =========== =========== Distributable Earnings: Undistributed ordinary income $ 217,434 Capital loss carryforward (669,903) Capital loss carryforward from International Value VCT Portfolio (limited) (3,939,983) Unrealized appreciation 7,830,975 ----------- Total $ 4,778,329 =========== - --------------------------------------------------------------------------------------------------------
16 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- For the fiscal year ending December 31, 2006, International Value Portfolio has elected to pass through foreign tax credits of $58,636. The difference between book-basis and tax-basis unrealized appreciation is attributable to the tax deferral of losses on wash sales 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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. 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 sub custodian. 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 0.85% up to $500 million and 0.75% on assets over $500 million. 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, 2006, $4,145 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 $5,305 in transfer agent fees payable to PIMSS at December 31, 2006. 17 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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 $525 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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) - ---------------------------------------------------------------------------------------------------------------------- Pioneer International Value VCT Portfolio $48,894,138 $8,083,695 $(258,091) $7,825,604 =========== ========== ========= ========== - ----------------------------------------------------------------------------------------------------------------------
6. Portfolio Transactions The cost of purchases and the proceeds from sales of investments other than U.S. Government obligations and temporary cash investments for the year ended December 31, 2006, were $47,012,489 and $48,643,695, respectively. 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- ---------------------------------------------------------------------------------------------------------- Pioneer International Value VCT Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ---------------------------------------------------------------------------------------------------------- CLASS I: Shares sold 103,410 $ 1,561,977 48,222 $ 576,930 Shares issued in reorganization 604,476 10,064,511 -- -- Reinvestment of distributions 7,188 100,557 2,721 31,154 Shares repurchased (348,668) (5,239,852) (430,261) (5,229,863) ----------------------------------------------------------- Net increase (decrease) 366,406 $ 6,487,193 (379,318) $(4,621,779) =========================================================== CLASS II: Shares sold 282,201 $ 4,253,650 218,007 $ 2,667,524 Shares issued in reorganization 933,050 15,432,641 -- -- Reinvestment of distributions 1,451 20,184 270 3,084 Shares repurchased (100,055) (1,455,923) (147,285) (1,837,822) ----------------------------------------------------------- Net increase 1,116,647 $18,250,552 70,992 $ 832,786 =========================================================== - ----------------------------------------------------------------------------------------------------------
8. Merger Information On December 14, 2006, beneficial owners of Pioneer Europe VCT Portfolio approved a proposed Agreement and Plan of Reorganization that provided for the merger listed below. This tax-free reorganization was accomplished on December 15, 2006, by exchanging all of Pioneer Europe VCT Portfolio's Class I and Class II net assets for Pioneer International Value VCT Portfolio's shares, based on Pioneer International Value VCT Portfolio's Class I and Class II shares' ending net asset value, respectively. The following charts show the details of the reorganization as of that closing date ("Closing Date"): 18 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------- Pioneer International Pioneer Europe Pioneer International Value VCT Portfolio VCT Portfolio Value VCT Portfolio (Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization) - ---------------------------------------------------------------------------------------------------------------- Net Assets Class I $21,992,184 $10,064,511 $32,056,695 Class II 9,736,352 15,432,641 25,168,993 ----------- ----------- ----------- Total Net Assets $31,728,536 $25,497,152 $57,225,688 =========== =========== =========== Shares Outstanding Class I 1,321,228 695,710 1,925,704 Class II 588,712 1,086,039 1,521,761 Shares Issued in Reorganization Class I 604,476 Class II 933,050 - ----------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Accumulated Unrealized Appreciation Gain/(Loss) on on Closing Date Closing Date - -------------------------------------------------------------------------------- Pioneer Europe VCT Portfolio $6,114,583 $(3,144,553) ========== =========== - --------------------------------------------------------------------------------
9. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 19 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 of Pioneer International Value VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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, 2006, 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, 2006, 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 9, 2007 20 PIONEER VARIABLE CONTRACTS TRUST Pioneer International 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"), 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 break points in the management fee, reasonable growth expectations for the Fund and certain of the Fund's expenses that are incurred on a basis other than as 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. 21 Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- 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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group and an index considered appropriate by the Independent Trustees for this purpose. The Fund's performance, based upon total return, was in the first quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, the third quintile of the peer group for the three years ended June 30, 2006, the second quintile for the five years ended June 30, 2006 and the fifth quintile for the ten year period ended June 30, 2006. (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 noted that the return of the Fund, before deduction of expenses, exceeded the return of the Fund's benchmark index for the 12-month period ended June 30, 2006. The Trustees, focusing on three-year total returns, concluded that the performance of the Fund was satisfactory. 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 size, 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee, based on 2006 data, 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 also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 to be in the fifth quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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 22 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 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 23 Pioneer International Value 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 portfolio's affairs. 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 trust within the meaning of the 1940 Act are referred to Principal Underwriter as Interested Trustees. Trustees who are not Pioneer Funds Distributor, Inc. interested persons of the trust are referred to as Independent Trustees. Each of the Trustees serves as Legal Counsel a trustee of each of the 86 U.S. registered Wilmer Cutler Pickering Hale and Dorr LLP investment portfolios for which Pioneer serves as investment adviser (the "Pioneer Funds"). The Shareowner Services and Transfer address for all Interested Trustees and all officers Pioneer Investment Management Shareholder Services, Inc. of the trust is 60 State Street, Boston, Massachusetts 02109.
- -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Deputy Chairman and a Director Director of ICI Mutual Board, Trustee until a successor trustee of Pioneer Global Asset Insurance Company and President is elected or earlier Management S.p.A. ("PGAM"); retirement or removal. Non-Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - ------------------------------------------------------------------------------------------------------------------------------------
24 Pioneer International Value VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE David R. Bock (63) Trustee Trustee since 2005. Serves Senior Vice President and Director of The 3050 K. Street NW, until a successor trustee Chief Financial Officer, Enterprise Social Washington, DC 20007 is elected or earlier I-trax, Inc. (publicly traded Investment Company retirement or removal. health care services company) (privately-held (2001 - present); Managing affordable housing Partner, Federal City Capital finance company); and Advisors (boutique merchant Director of New York bank) (2002 to 2004); and Mortgage Trust Executive Vice President and (publicly traded Chief Financial Officer, mortgage REIT) Pedestal Inc. (internet-based mortgage trading company) (2000 - 2002) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Trustee Trustee since 2000. Serves President, Bush International Director of Brady 3509 Woodbine Street, until a successor trustee (international financial Corporation Chevy Chase, MD 20815 is elected or earlier advisory firm) (industrial retirement or removal. identification and specialty coated material products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves Founding Director, The None 1001 Sherbrooke Street until a successor trustee Winthrop Group, Inc. West, Montreal, Quebec, is elected or earlier (consulting firm); and Canada H3A 1G5 retirement or removal. Desautels Faculty of Management, McGill University - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Trustee Trustee since 2006. Serves Private investor (2004 - Director of 89 Robbins Avenue, until a successor trustee present); and Senior Executive Quadriserv Inc. Berkeley Heights, NJ is elected or earlier Vice President, The Bank of (technology products 07922 retirement or removal. New York (financial and for securities securities services) (1986 - lending industry) 2004) - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Trustee Trustee since 1995. Serves President and Chief Executive Director of New 200 State Street, 12th until a successor trustee Officer, Newbury, Piret & America High Income Floor, Boston, MA 02109 is elected or earlier Company, Inc. (investment Fund, Inc. retirement or removal. banking firm) (closed-end investment company) - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) Trustee Trustee since 2000. Serves President, John Winthrop & None One North Adgers Wharf, until a successor trustee Co., Inc. (private investment Charleston, SC 29401 is elected or earlier firm) retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------
25 Pioneer International Value VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President and Chief Executive Trustee of certain President discretion of the Board Officer, PIM-USA since May Pioneer Funds 2003 (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the Secretary of PIM-USA; Senior None discretion of the Board Vice President - Legal of Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Assistant Since 2003. Serves at the Vice President and Senior None Secretary discretion of the Board Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001); and Assistant Secretary of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey (45) Assistant Since 2006. Serves at the Partner, Wilmer Cutler None Secretary discretion of the Board Pickering Hale and Dorr LLP; and Assistant Secretary of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Treasurer Since 2000. Serves at the Vice President - Fund None discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Assistant Since 2004. Serves at the Deputy Treasurer of Pioneer None Treasurer discretion of the Board since 2004; Treasurer and Senior 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 - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Since 2000. Serves at the Assistant Vice President - None Treasurer discretion of the Board Fund Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Assistant Since 2002. Serves at the Fund Accounting Manager - Fund None Treasurer discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------------------------------
26 Pioneer International Value VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Katherine Kim Sullivan Assistant Since 2003. Serves at the Fund Administration Manager - None (33) Treasurer discretion of the Board Fund Accounting, Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Since 2006. Serves at the Chief Compliance Officer of None Compliance discretion of the Board Pioneer and all of the Pioneer Officer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio'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) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18671-01-0207 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Mid Cap Value VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2006 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 5 Financial Statements 8 Notes to Financial Statements 12 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 Mid Cap Value VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/06 - -------------------------------------------------------------------------------- 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 97.5% Temporary Cash Investment 2.5%
Sector Distribution (As a percentage of equity holdings) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Financials 24.1% Consumer Discretionary 14.8% Information Technology 11.6% Utilities 10.8% Consumer Staples 9.4% Industrials 8.6% Materials 7.0% Health Care 6.8% Energy 5.7% Telecommunication Services 1.2%
Five Largest Holdings (As a percentage of equity holdings) 1. UNUM Corp. 2.47% 2. NCR Corp. 2.39 3. Ball Corp. 2.20 4. Air Products & Chemicals, Inc. 2.14 5. The Interpublic Group of Companies, Inc. 2.14
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $20.24 $24.72
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $ - $1.8961 $4.7000
- -------------------------------------------------------------------------------- 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 MOUNTAIN CHART IN THE PRINTED MATERIAL]
Russell Mid-Cap Value Index Pioneer Mid Cap Value VCT Portfolio 12/96 10000 10000 12438 13437 12/98 11916 14120 13438 14104 12/00 15808 16810 16792 17200 12/02 14881 15542 20400 21458 12/04 24841 26544 26739 29902 12/06 30020 35947
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, 2006)
Net Asset Value 10 Years 11.62% 5 Years 12.32% 1 Year 12.27%
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.pioneerinvestments.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 Mid Cap 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 [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, 2006 through December 31, 2006.
Share Class II - --------------------------------------------- -------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,110.92 Expenses Paid During Period* $ 5.11
* 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 Mid Cap Value VCT Portfolio Based on a hypothetical 5% per year return before expenses, reflecting the period from July 1, 2006 through December 31, 2006.
Share Class II - --------------------------------------------- -------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 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 VARIABLE CONTRACTS TRUST Pioneer Mid Cap Value VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/06 - -------------------------------------------------------------------------------- Domestic stock prices trended up through most of 2006, as the market ascent was interrupted only during a slump from mid-May through mid-July, when fears of higher interest rates and rising energy prices took hold. However in the final half of the year, investors grew more confident about stocks as energy prices receded and the Federal Reserve Board kept short-term interest rate levels stable. Earlier in the year, many lower-quality and more volatile stocks tended to outperform. In the latter part of the year, the rally was more broad-based. In the following discussion, Rod Wright, portfolio manager of Pioneer Mid Cap Value VCT Portfolio, provides an update on the Portfolio, its investment strategies, and the factors that influenced performance during the 12 months ended December 31, 2006. Q. How did the Portfolio perform in 2006? A. The Portfolio trailed the mid-cap value sector and the overall market during the year. Pioneer Mid Cap Value VCT Portfolio (Class II shares) had a total return of 12.27%, at net asset value, for the 12 months ending December 31, 2006. During the same year, the Russell Midcap Value Index rose by 20.22%, while the Standard & Poor's 500 Index gained 15.78%. The average return of the 65 portfolios in Lipper's Mid-Cap Value Funds category was 14.39%. Call 1-800-688-9915 or visit www.pioneerinvestments.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 performance during the year? A. The Portfolio struggled in the early months, when the stock market surged, led by the types of stocks that we tend to avoid. In the final six months of the year, our lack of exposure to real estate investment trusts hurt, as did some of our stock selections in the insurance industry. We declined to invest in real estate investment trusts because they appeared to be richly priced, but they nevertheless rallied in late 2006, helped in part by some high-profile buyouts by private equity funds. No one financial holding hurt significantly, but several of our insurance holdings, including UNUM and Genworth, trailed the market. Overall, while the Portfolio had good absolute performance, the companies in which we invest were out of favor. Our investment discipline emphasizes companies that we believe are higher quality - companies that generally have these characteristics: o High returns on equity and invested capital; o Good growth and profit records; o Solid balance sheets; o Strong managements; and o Solid positions in their markets. Q. What were some of the investments that most affected performance? A. A number of our holdings did perform very well in 2006. We had particularly strong results from U.S. Tobacco; telecommunications equipment company Tellabs; grocery chain Safeway; motorcycle producer Harley Davidson; farm equipment company Deere; consumer staples company International Flavors and Fragrances; and Laboratory Corporation of America, a leader in DNA testing services. In addition, two of our technology holdings were acquired by larger companies: Freescale Semiconductor and Symbol Technology, a producer of scanning equipment. We sold our positions in Tellabs and Deere during the period. Holdings that had disappointing results included on-line travel service Expedia; coal miner Massey Energy, which declined as energy prices dipped in the second half of the year; Boston Scientific, the medical device company that has underperformed since its acquisition of Guidant, another cardiac device company; and Palm, which produces hand-held communications and computing devices. Q. What is your investment outlook? A. We remain confident in our long-term strategy and invest only in those companies that meet our quality criteria. We retain our belief that if we keep to our discipline, the higher-quality companies that we favor should outperform. As we enter 2007, we have some optimism about the stock market. The economy appears to be strong, corporate earnings are growing, while energy prices and short-term interest rates have stabilized. We believe that these factors should have a dominant influence on the economy and stock performance, despite pockets of concern, such as the weak housing market. Overall, we think the solid economic picture should help stock market performance. 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 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.pioneerinvestments.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 Mid Cap Value VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 99.1% Energy - 5.7% Coal & Consumable Fuels - 1.2% 199,110 Massey Energy Co. $ 4,625,325 ------------ Integrated Oil & Gas - 1.0% 81,310 Hess Corp. $ 4,030,537 ------------ Oil & Gas Equipment & Services - 0.7% 63,752 Weatherford Intl, Inc.* $ 2,664,196 ------------ Oil & Gas Exploration & Production - 2.1% 88,300 Plains Exploration & Product* $ 4,196,899 111,900 Southwestern Energy Co.* 3,922,095 ------------ $ 8,118,994 ------------ Oil & Gas Refining & Marketing - 0.7% 44,304 Tesoro Petroleum Corp. $ 2,913,874 ------------ Total Energy $ 22,352,926 ------------ Materials - 7.0% Diversified Metals & Mining - 1.0% 66,500 Freeport-McMoRan Copper & Gold, Inc. (Class B) $ 3,706,045 ------------ Industrial Gases - 2.1% 118,682 Air Products & Chemicals, Inc. $ 8,340,971 ------------ Metal & Glass Containers - 2.2% 196,436 Ball Corp. $ 8,564,610 ------------ Specialty Chemicals - 1.7% 138,110 International Flavor & Fragrances, Inc. $ 6,789,488 ------------ Total Materials $ 27,401,114 ------------ Capital Goods - 4.2% Electrical Component & Equipment - 1.4% 118,400 Thomas & Betts Corp.* $ 5,597,952 ------------ Industrial Conglomerates - 1.3% 162,710 Tyco International, Ltd. $ 4,946,384 ------------ Trading Companies & Distributors - 1.5% 87,446 W.W. Grainger, Inc. $ 6,115,973 ------------ Total Capital Goods $ 16,660,309 ------------ Commercial Services & Supplies - 3.4% Diversified Commercial Services - 1.6% 158,100 Equifax, Inc. $ 6,418,860 ------------ Environmental & Facilities Services - 1.8% 171,773 Republic Services, Inc. $ 6,986,008 ------------ Total Commercial Services & Supplies $ 13,404,868 ------------
Shares Value Transportation - 0.9% Railroads - 0.9% 104,100 CSX Corp. $ 3,584,163 ------------ Total Transportation $ 3,584,163 ------------ Automobiles & Components - 0.9% Auto Parts & Equipment - 0.9% 62,700 Borg-Warner Automotive, Inc. $ 3,700,554 ------------ Total Automobiles & Components $ 3,700,554 ------------ Consumer Durables & Apparel - 2.2% Consumer Electronics - 0.9% 37,000 Harman International Industries, Inc. $ 3,696,670 ------------ Housewares & Specialties - 1.3% 59,000 Fortune Brands, Inc. $ 5,038,010 ------------ Total Consumer Durables & Apparel $ 8,734,680 ------------ Consumer Services - 4.3% Casinos & Gaming - 1.7% 81,210 Harrah's Entertainment, Inc. $ 6,717,691 ------------ Education Services - 1.1% 114,500 Apollo Group, Inc.* $ 4,462,065 ------------ Hotels, Resorts & Cruise Lines - 1.5% 120,100 Carnival Corp. $ 5,890,905 ------------ Total Consumer Services $ 17,070,661 ------------ Media - 5.7% Advertising - 2.1% 679,080 The Interpublic Group of Companies, Inc.* $ 8,311,939 ------------ Broadcasting & Cable TV - 2.6% 214,422 Clear Channel Communications, Inc. $ 7,620,558 92,315 Entercom Communications Corp. 2,601,437 ------------ $ 10,221,995 ------------ Publishing - 1.0% 66,200 Gannett Co. $ 4,002,452 ------------ Total Media $ 22,536,386 ------------ Retailing - 1.5% Department Stores - 1.5% 73,800 J.C. Penney Co., Inc. $ 5,709,168 ------------ Total Retailing $ 5,709,168 ------------ Food & Drug Retailing - 3.1% Food Retail - 3.1% 264,900 Kroger Co. $ 6,111,243 177,508 Safeway, Inc. 6,134,676 ------------ $ 12,245,919 ------------ Total Food & Drug Retailing $ 12,245,919 ------------
The accompanying notes are an integral part of these financial statements. 5 PIONEER VARIABLE CONTRACTS TRUST Pioneer Mid Cap Value VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Shares Value Food, Beverage & Tobacco - 5.1% Brewers - 1.1% 59,331 Molson Coors Brewing Co. (Class B) $ 4,535,262 ------------ Packaged Foods & Meats - 1.4% 106,000 William Wrigley Jr. Co. $ 5,482,320 ------------ Tobacco - 2.6% 67,000 Loews Corp. -- Carolina Group* $ 4,336,240 98,110 UST, Inc. 5,710,002 ------------ $ 10,046,242 ------------ Total Food, Beverage & Tobacco $ 20,063,824 ------------ Household & Personal Products - 1.1% Personal Products - 1.1% 134,400 Avon Products, Inc. $ 4,440,576 ------------ Total Household & Personal Products $ 4,440,576 ------------ Health Care Equipment & Services - 6.8% Health Care Equipment - 1.0% 237,410 Boston Scientific Corp.* $ 4,078,704 ------------ Health Care Services - 1.5% 77,662 Laboratory Corp. of America Holdings* $ 5,705,827 ------------ Health Care Supplies - 1.3% 118,500 Cooper Companies, Inc. $ 5,273,250 ------------ Managed Health Care - 3.0% 92,600 AETNA, Inc. $ 3,998,468 57,714 CIGNA Corp. 7,593,431 ------------ $ 11,591,899 ------------ Total Health Care Equipment & Services $ 26,649,680 ------------ Banks - 8.5% Regional Banks - 6.0% 134,125 KeyCorp $ 5,100,774 110,510 Marshall & Ilsley Corp. 5,316,636 67,610 PNC Bank Corp. 5,005,844 141,810 TCF Financial Corp. 3,888,430 52,200 Zions BanCorp. 4,303,368 ------------ $ 23,615,052 ------------ Thrifts & Mortgage Finance - 2.5% 376,721 Hudson City Bancorp, Inc. $ 5,228,887 96,599 The PMI Group, Inc. 4,556,575 ------------ $ 9,785,462 ------------ Total Banks $ 33,400,514 ------------
Shares Value Diversified Financials - 5.0% Asset Management & Custody Banks - 3.2% 177,314 Federated Investors, Inc. $ 5,989,667 70,000 Legg Mason, Inc. 6,653,500 ------------ $ 12,643,167 ------------ Investment Banking & Brokerage - 1.8% 314,600 E*TRADE Financial Corp.* $ 7,053,332 ------------ Total Diversified Financials $ 19,696,499 ------------ Insurance - 7.5% Insurance Brokers - 0.7% 77,610 Aon Corp. $ 2,742,737 ------------ Life & Health Insurance - 2.5% 462,411 UNUM Corp. $ 9,608,901 ------------ Multi-Line Insurance - 0.9% 103,828 Genworth Financial, Inc. $ 3,551,956 ------------ Property & Casualty Insurance - 2.4% 55,500 Ambac Financial Group, Inc. $ 4,943,385 163,000 Progressive Corp. 3,947,860 943 White Mountains Insurance Group, Ltd. 546,402 ------------ $ 9,437,647 ------------ Reinsurance - 1.0% 131,292 Platinum Underwriter Holdings, Ltd. $ 4,062,174 ------------ Total Insurance $ 29,403,415 ------------ Real Estate - 2.7% Industrial Real Estate Investment Trusts - 0.9% 58,500 ProLogis Trust $ 3,555,045 ------------ Mortgage Real Estate Investment Trusts - 0.9% 241,410 Annaly Capital Management, Inc. $ 3,358,013 ------------ Specialized Real Estate Investment Trusts - 0.9% 145,010 Host Hotels & Resorts, Inc. $ 3,559,996 ------------ Total Real Estate $ 10,473,054 ------------ Software & Services - 2.7% Data Processing & Outsourced Services - 1.3% 194,100 First Data Corp. $ 4,953,432 ------------ Systems Software - 1.4% 269,900 Symantec Corp.* $ 5,627,415 ------------ Total Software & Services $ 10,580,847 ------------ Technology Hardware & Equipment - 6.7% Communications Equipment - 2.3% 296,220 Juniper Networks, Inc.* $ 5,610,407 124,700 KBR, Inc.* 3,262,152 ------------ $ 8,872,559 ------------
6 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Mid Cap Value VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value Computer Hardware - 3.1% 217,610 NCR Corp.* $ 9,305,004 211,110 Palm, Inc.* 2,974,540 ------------ $ 12,279,544 ------------ Office Electronics - 1.3% 296,719 Xerox Corp.* $ 5,029,387 ------------ Total Technology Hardware & Equipment $ 26,181,490 ------------ Semiconductors - 2.1% 222,500 Advanced Micro Devices, Inc.* $ 4,527,875 164,500 National Semiconductor Corp. 3,734,150 ------------ $ 8,262,025 ------------ Total Semiconductors $ 8,262,025 ------------ Telecommunication Services - 1.2% Wireless Telecommunication Services - 1.2% 244,200 Sprint Nextel Corp. $ 4,612,938 ------------ Total Telecommunication Services $ 4,612,938 ------------ Utilities - 10.7% Electric Utilities - 5.4% 62,900 American Electric Power Co., Inc. $ 2,678,282 167,081 Edison International 7,598,844 94,210 Firstenergy Corp. 5,680,863 149,400 PPL Corp. 5,354,496 ------------ $ 21,312,485 ------------ Gas Utilities - 1.7% 81,000 Questar Corp. $ 6,727,050 ------------ Independent Power Producer & Energy Traders - 1.7% 118,266 NRG Energy, Inc.* $ 6,624,079 ------------ Multi-Utilities - 1.9% 120,784 NSTAR $ 4,150,138 49,700 Public Service Enterprise Group, Inc. 3,299,086 ------------ $ 7,449,224 ------------ Total Utilities $ 42,112,838 ------------ TOTAL COMMON STOCKS (Cost $348,201,177) $389,278,448 ------------
Principal Amount Value TEMPORARY CASH INVESTMENT - 2.5% Repurchase Agreement - 2.5% $10,000,000 UBS AG, 4.7%, dated 12/29/06, repurchase price of $10,000,000 plus accrued interest on 1/2/06, collateralized by $10,049,000 U.S. Treasury Bill, 5.625%, 5/15/08 $ 10,000,000 ------------ TOTAL TEMPORARY CASH INVESTMENT (Cost $10,000,000) $ 10,000,000 ------------ TOTAL INVESTMENT IN SECURITIES - 101.7% (Cost $358,201,177) $399,278,448 ------------ OTHER ASSETS AND LIABILITIES - (1.7)% $ (6,581,115) ------------ TOTAL NET ASSETS - 100.0% $392,697,333 ============
* Non-income producing security. The accompanying notes are an integral part of these financial statements. 7 PIONEER VARIABLE CONTRACTS TRUST Pioneer Mid Cap Value VCT Portfolio - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Year Year Year Year Ended Ended Ended Ended Ended Class II 12/31/06 12/31/05 12/31/04 12/31/03 12/31/02 Net asset value, beginning of period $ 24.72 $ 24.44 $ 20.32 $ 14.86 $ 17.28 -------- ------- -------- -------- -------- Increase (decrease) from investment operations: Net investment income $ 0.07 $ 0.35 $ 0.01 $ 0.06 $ 0.04 Net realized and unrealized gain (loss) on investments 2.05 1.47 4.38 5.44 (1.96) -------- ------- -------- -------- -------- Net increase (decrease) from investment operations $ 2.12 $ 1.82 $ 4.39 $ 5.50 $ (1.92) Distributions to shareowners: Net investment income - (0.05) (0.06) (0.04) (0.04) Net realized gain (6.60) (1.49) (0.21) - (0.46) -------- ------- -------- -------- -------- Net increase (decrease) in net asset value $ (4.48) $ 0.28 $ 4.12 $ 5.46 $ (2.42) -------- ------- -------- -------- -------- Net asset value, end of period $ 20.24 $ 24.72 $ 24.44 $ 20.32 $ 14.86 ======== ======= ======== ======== ======== Total return* 12.27% 7.64% 21.77% 37.09% (11.38)% Ratio of net expenses to average net assets+ 0.96% 0.95% 0.97% 1.00% 1.07% Ratio of net investment income to average net assets+ 0.63% 0.25% 0.29% 0.60% 0.24% Portfolio turnover rate 104% 42% 55% 52% 68% Net assets, end of period (in thousands) $100,696 $88,217 $536,837 $211,120 $ 61,038 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.96% 0.95% 0.97% 1.00% 1.07% Net investment income 0.63% 0.25% 0.29% 0.60% 0.24% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.96% 0.95% 0.97% 1.00% 1.07% Net investment income 0.63% 0.25% 0.29% 0.60% 0.24%
* 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 finiancial 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 sale charges. 8 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Mid Cap Value VCT Portfolio - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (cost $358,201,177) $ 399,278,448 Receivables - Investment securities sold 368,305 Fund shares sold 224,247 Dividends, interest and foreign taxes withheld 407,175 Other 6,618 ------------- Total assets $ 400,284,793 ------------- LIABILITIES: Payables - Investment securities purchased $ 5,047,088 Fund shares repurchased 2,355,044 Due to bank 64,539 Due to affiliates 28,403 Accrued expenses 92,386 ------------- Total liabilities $ 7,587,460 ------------- NET ASSETS: Paid-in capital $ 307,374,870 Undistributed net investment income 3,078,676 Accumulated net realized gain on investments 41,166,516 Net unrealized gain on investments 41,077,271 ------------- Total net assets $ 392,697,333 ------------- Net Asset Value Per Share: Class I: (No par value, unlimited number of shares authorized) Net assets $ 292,001,408 Shares outstanding 14,371,145 ------------- Net asset value per share $ 20.32 Class II: (No par value, unlimited number of shares authorized) Net assets $ 100,695,925 Shares outstanding 4,974,295 ------------- Net asset value per share $ 20.24
The accompanying notes are an integral part of these financial statements. 9 PIONEER VARIABLE CONTRACTS TRUST Pioneer Mid Cap Value VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS 12/31/06 - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $5,322) $ 5,481,920 Interest 494,961 ------------ Total investment income $ 5,976,881 ------------ EXPENSES: Management fees $ 2,452,157 Transfer agent fees and expenses 2,970 Distribution fees (Class II) 235,194 Administrative reimbursements 83,636 Custodian fees 57,320 Professional fees 43,067 Fees and expenses of nonaffiliated trustees 5,971 Miscellaneous 29,629 ------------ Total expenses $ 2,909,944 Less fees paid indirectly (12,204) ------------ Net expenses $ 2,897,740 ------------ Net investment income $ 3,079,141 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain from Investments $ 46,179,846 ------------ Change in net unrealized gain or loss from Investments $ (4,780,082) ------------ Net gain on investments $ 41,399,764 ------------ Net increase in net assets resulting from operations $ 44,478,905 ============
10 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Mid Cap Value VCT Portfolio - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 3,079,141 $ 2,876,590 Net realized gain on investments 46,179,846 146,233,723 Change in net unrealized gain or loss on investments (4,780,082) (98,298,212) ------------- -------------- Net increase in net assets resulting from operations $ 44,478,905 $ 50,812,101 ------------- -------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income: Class I $ (2,875,197) $ (980,182) Class II - (1,186,576) Net realized gain Class I (71,620,431) (18,901,870) Class II (24,935,216) (33,992,323) ------------- -------------- Total distributions to shareowners $ (99,430,844) $ (55,060,951) ------------- -------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 47,649,108 $ 138,080,446 Reinvestment of distributions 99,430,844 55,060,951 Cost of shares repurchased (76,484,657) (163,603,573) Redemption in kind - (488,210,933) ------------- -------------- Net increase (decrease) in net assets resulting from Fund share transactions $ 70,595,295 $ (458,673,109) ------------- -------------- Net increase (decrease) in net assets $ 15,643,356 $ (462,921,959) NET ASSETS: Beginning of year 377,053,977 839,975,936 ------------- -------------- End of year $ 392,697,333 $ 377,053,977 ============= ============== Undistributed net investment income, end of year $ 3,078,676 $ 2,874,732 ============= ==============
The accompanying notes are an integral part of these financial statements. 11 PIONEER VARIABLE CONTRACTS TRUST Pioneer Mid Cap Value VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 the Portfolio is to seek capital appreciation. 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 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 year. 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 VARIABLE CONTRACTS TRUST Pioneer Mid Cap Value VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2006, 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 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, 2006, the 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, if any, 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, 2006, the Portfolio had no outstanding portfolio or settlement hedges. 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 investment transactions, or from paid-in capital, depending on the type of book/tax differences that may exist. 13 PIONEER VARIABLE CONTRACTS TRUST Pioneer Mid Cap Value VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- Capital loss carryforwards are available to offset future realized capital gains. At December 31, 2006, the Portfolio had a net capital loss carryforward of $1,738,582 which will expire in 2010 if not utilized. The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis.
- -------------------------------------------------------------------------------- 2006 2005 - -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $30,630,865 $ 6,510,571 Long-Term capital gain 68,799,978 48,550,380 ----------------------------- $99,430,843 $55,060,951 Return of Capital - - ----------------------------- Total distributions $99,430,843 $55,060,951 ============================ Distributable Earnings (Accumulated Losses): Undistributed ordinary income $10,059,518 Undistributed long-term gain 37,275,348 Capital loss carryforward (1,738,582) Unrealized appreciation (depreciation) 39,726,179 ----------- Total $85,322,463 ===========
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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. 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 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 14 PIONEER VARIABLE CONTRACTS TRUST Pioneer Mid Cap Value VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2006, $22,155 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 $4,169 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $2,079 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $359,552,268 $48,073,184 $(8,347,004) $39,726,180 ============ =========== =========== =========== - --------------------------------------------------------------------------------------------------
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, 2006, were $383,220,373 and $402,802,696, respectively. 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- ----------------------------------------------------------------------------------------------------- Mid Cap Value Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ----------------------------------------------------------------------------------------------------- CLASS I: Shares sold 1,049,089 $ 22,445,647 2,037,703 $ 50,295,966 Reinvestment of distributions 4,182,798 74,495,628 821,233 19,882,052 Shares repurchased (2,414,244) (53,000,695) (2,727,151) (66,908,971) Redemptions in kind -- -- (868,079) (21,000,610) --------------------------------------------------------------- Net increase (decrease) 2,817,643 $ 43,940,580 (736,294) $ (17,731,563) ================================================================ CLASS II: Shares sold 1,146,480 $ 25,203,461 3,599,252 $ 87,784,480 Reinvestment of distributions 1,403,220 24,935,216 1,468,235 35,178,899 Shares repurchased (1,144,450) (23,483,962) (3,965,242) (96,694,602) Redemptions in kind -- -- (19,499,464) (467,210,323) --------------------------------------------------------------- Net increase (decrease) 1,405,250 $ 26,654,715 (18,397,219) $ (440,941,546) ================================================================ - -----------------------------------------------------------------------------------------------------
15 PIONEER VARIABLE CONTRACTS TRUST Pioneer Mid Cap Value VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 8. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 16 PIONEER VARIABLE CONTRACTS TRUST Pioneer Mid Cap 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 Mid Cap Value VCT Portfolio: We have audited the accompanying statement of assets and liabilities of Pioneer Mid Cap Value VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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 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, 2006, by correspondence with the custodian and brokers or 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, 2006, 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 9, 2007 17 PIONEER VARIABLE CONTRACTS TRUST Pioneer Mid Cap 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"), 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 these contracts: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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, five and ten year periods ended June 30, 2006 for the Fund and a peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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. 18 PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- Pioneer Mid Cap Value 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. The Trustees also reviewed the Fund's absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group and an index considered appropriate by the Independent Trustees for this purpose. The Fund's performance, based upon total return, was in the fifth quintile of its Morningstar category peer group for the 12-months ended June 30, 2006, the third quintile of the peer group for the three years ended June 30, 2006, in the third quintile for the five year period ended June 30, 2006 and in the fourth quintile for the ten year period ended June 30, 2006. (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, focusing on three-year total returns, concluded that the performance of the Fund was satisfactory. 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 size, 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 has 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee for the 12 months ended June 30, 2006 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 also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 to be in the second quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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 VARIABLE CONTRACTS TRUST Pioneer Mid Cap Value VCT Portfolio - -------------------------------------------------------------------------------- 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 the Investment Adviser and the Fund's shareholders. 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 20 Pioneer Mid Cap Value 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 Custodian the portfolio's affairs. The officers of the trust are Brown Brothers Harriman & Co. responsible for the trust's 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 are Ernst & Young LLP interested persons of the trust within the meaning of the 1940 Act are referred to as Interested Trustees. Trustees who are not Principal Underwriter interested persons of the trust are referred to as Independent Pioneer Funds Distributor, Inc. Trustees. Each of the Trustees serves as a trustee of each of the 86 U.S. registered investment portfolios for which Pioneer Legal Counsel serves as investment adviser (the "Pioneer Funds"). The address Wilmer Cutler Pickering Hale and Dorr LLP for all Interested Trustees and all officers of the trust is 60 State Street, Boston, Massachusetts 02109. Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES - ------------------------------------------------------------------------------------------------------------------------------------ POSITIONS HELD LENGTH OF SERVICE OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Deputy Chairman and a Director of Pioneer Director of ICI Board, Trustee Serves until a Global Asset Management S.p.A. ("PGAM"); Mutual Insurance and President successor trustee Non-Executive Chairman and a Director of Company is elected or Pioneer Investment Management USA Inc. earlier retirement ("PIM-USA"); Chairman and a Director of or removal. Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - ------------------------------------------------------------------------------------------------------------------------------------
21 Pioneer Mid Cap Value VCT Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------ TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES - ------------------------------------------------------------------------------------------------------------------------------------ POSITIONS HELD LENGTH OF SERVICE OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS TRUSTEE David R. Bock (63) Trustee Trustee since 2005. Senior Vice President and Chief Financial Director of The 3050 K. Street NW, Serves until a Officer, I-trax, Inc. (publicly traded Enterprise Social Washington, DC 20007 successor trustee is health care services company) (2001 - Investment Company elected or earlier present); Managing Partner, Federal City (privately-held retirement or Capital Advisors (boutique merchant bank) affordable housing removal. (2002 to 2004); and Executive Vice finance company); President and Chief Financial Officer, and Director of New Pedestal Inc. (internet- based mortgage York Mortgage Trust trading company) (2000 - 2002) (publicly traded mortgage REIT) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Trustee Trustee since 2000. President, Bush International Director of Brady 3509 Woodbine Street, Serves until a (international financial advisory firm) Corporation Chevy Chase, MD 20815 successor trustee (industrial is elected or identification and earlier retirement specialty coated or removal. material products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) Trustee Trustee since 2000. Founding Director, The Winthrop Group, Inc. None 1001 Sherbrooke Serves until a (consulting firm); and Desautels Faculty of Street West, successor trustee Management, McGill University Montreal, Quebec, Canada is elected or H3A 1G5 earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Trustee Trustee since 2006. Private investor (2004 - present); and Director of 89 Robbins Avenue, Serves until a Senior Executive Vice President, The Bank Quadriserv Inc. Berkeley Heights, NJ successor trustee of New York (financial and securities (technology products 07922 is elected or services) (1986 - 2004) for securities earlier retirement lending industry) or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Trustee Trustee since 1995. President and Chief Executive Officer, Director of New 200 State Street, 12th Serves until a Newbury, Piret & Company, Inc. America High Income Floor, Boston, MA 02109 successor trustee (investment banking firm) Fund, Inc. is elected or (closed-end earlier retirement investment company) or removal. - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) Trustee Trustee since 2000. President, John Winthrop & Co., Inc. None One North Adgers Wharf, Serves until a (private investment firm) Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Mid Cap Value VCT Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------ TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - ------------------------------------------------------------------------------------------------------------------------------------ TRUST OFFICERS - ------------------------------------------------------------------------------------------------------------------------------------ POSITIONS HELD LENGTH OF SERVICE OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS OFFICER Osbert M. Hood (54)+ Executive Vice Since 2003. Serves President and Chief Executive Officer, Trustee of certain President at the discretion PIM-USA since May 2003 (Director since Pioneer Funds of the Board January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since 2000. Serves Secretary of PIM-USA; Senior Vice President None at the discretion - Legal of Pioneer; Secretary/ Clerk of of the Board most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Assistant Since 2003. Serves Vice President and Senior Counsel of None Secretary at the discretion Pioneer since July 2002; Vice President and of the Board 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 of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey Assistant Since 2006. Serves Partner, Wilmer Cutler Pickering Hale and None (45) Secretary at the discretion Dorr LLP; and Assistant Secretary of all of of the Board the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Treasurer Since 2000. Serves Vice President - Fund Accounting, None at the discretion Administration and Controllership Services of the Board of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Assistant Since 2004. Serves Deputy Treasurer of Pioneer since 2004; None Treasurer at the discretion Treasurer and Senior Vice President, CDC of the Board 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 - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Since 2000. Serves Assistant Vice President - Fund Accounting, None Treasurer at the discretion Administration and Controllership Services of the Board of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Assistant Since 2002. Serves Fund Accounting Manager - Fund Accounting, None Treasurer at the discretion Administration and Controllership Services of the Board of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------------------------------
23 Pioneer Mid Cap Value VCT Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------ TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - ------------------------------------------------------------------------------------------------------------------------------------ TRUST OFFICERS - ------------------------------------------------------------------------------------------------------------------------------------ POSITIONS HELD LENGTH OF SERVICE OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS OFFICER Katherine Kim Sullivan Assistant Since 2003. Serves Fund Administration Manager - Fund None (33) Treasurer at the discretion Accounting, Administration and of the Board Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Since 2006. Serves Chief Compliance Officer of Pioneer and all None Compliance at the discretion of the Pioneer Funds since March 2006; Vice Officer of the Board President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 24 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 25 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 26 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 27 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 28 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 29 [LOGO] PIONEER Investments(R) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18664-01-0207 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2006 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 17 Factors Considered by the Independent Trustees in Approving the Management Contract 18 Trustees, Officers and Service Providers 21
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 12/31/06 - -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Depositary Receipts for International Stocks 2.0% U.S. Common Stocks 98.0%
THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution (As a percentage of equity holdings) Information Technology 28.3% Consumer Discretionary 19.3% Health Care 17.6% Industrials 12.8% Financials 9.1% Consumer Staples 7.0% Energy 4.2% Materials 1.7%
Five Largest Holdings (As a percentage of equity holdings) 1. Cognizant Tech Solutions Corp. 3.96% 2. Microsoft Corp. 3.83 3. General Electric Co. 3.83 4. Staples, Inc. 3.33 5. Marriott International, Inc. 2.94
The Portfolio is actively managed and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $12.13 $11.98
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $0.0036 $0.00 $0.1652
- -------------------------------------------------------------------------------- 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 and the 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 Oak Ridge Russell 1000 S&P 500 Large Cap Growth Growth Index VCT Portfolio 3/04 10000 10000 10000 12/04 10851 10547 10903 12/05 11739 11102 11438 12/06 12066 12110 13243
The Russell 1000 Growth Index measures the performance of large-cap U.S. growth stocks. The S&P 500 Index is a commonly used measure of the broad U.S. stock market. 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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- Life-of-Class (3/15/04) 7.78% 1 Year 2.79%
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.pioneerinvestments.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 Oak Ridge Large 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 Oak Ridge Large Cap Growth VCT Portfolio Based on actual returns from July 1, 2006 through December 31, 2006.
Share Class II - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $1,000.00 Ending Account Value on 12/31/06 $1,074.42 Expenses Paid During Period* $ 4.97
* 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, 2006 through December 31, 2006.
Share Class II - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $1,000.00 Ending Account Value on 12/31/06 $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 12/31/06 - -------------------------------------------------------------------------------- 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 12 months ended December 31, 2006. Q. How did the market and the Portfolio perform during the annual reporting period? A. The U.S. stock market performed very well during the past year, as a combination of steady economic growth, outstanding corporate profit results, and a high level of merger and acquisition activity helped equities overcome the headwinds of a weak housing market and rising energy prices. While the market's strong performance during the period provided a positive backdrop for the Portfolio, a less favorable development was the continued underperformance of large-cap growth stocks. During the past year, value stocks, small-caps, and lower-quality companies all outpaced the types of stocks in which the Portfolio was invested. In this environment, the Portfolios's Class II shares returned 2.79% at net asset value, trailing the 9.07% and 15.78% returns of its benchmarks - the Russell 1000 Growth Index and the S&P 500 Index, respectively. The Portfolio's return also lagged the 6.31% average return of the 193 funds in its Lipper peer group, Large-Cap Growth Funds. Although the Portfolio underperformed during the past year, we remain confident in our long-term approach, which seeks to identify fast-growing, reasonably valued companies that we believe have the potential to perform well over a multi-year period. Call 1-800-688-9915 or visit www.pioneerinvestments.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. Why did the Portfolio underperform? A. The primary reason why the Portfolio's performance lagged was the poor relative performance of its holdings within the health-care sector. During the past year the Portfolio's underweight in large-cap pharmaceuticals - which had been helpful to performance in recent years - proved to be a drag on returns in light of the sector's outperformance. In addition, the Portfolio's long-term holdings in Amgen and Genentech, both of which have added greatly to returns since our original purchases, underperformed in relation to the broader health-care sector. Despite the events of the past year, we continue to favor faster growing health-care companies over large-cap pharmaceuticals stocks. As an illustration, the pharmaceutical giant Merck - the best performer among large-cap health care stocks during the past 12 months - is expected to deliver earnings growth of about 2% in 2007.(1) Notably, the bulk of this growth is from stock buybacks (which increase earnings per share) rather than top-line revenue growth. At the same time, Genentech's earnings were expected to grow by nearly 50% in 2006 and at an annualized rate of approximately 30% in the coming five years, while Amgen's earnings are expected to rise by 15% annually over the same period. Despite the superior revenue and earnings growth of these two companies, investors looked elsewhere for opportunities in 2006. In our view, however, investing in faster-growing companies such as these will pay off in the long run. Also hurting the Portfolio's performance within health care was its position in Teva Pharmaceuticals, the Israel-based manufacturer of generic drugs. The large pharmaceutical companies have been more aggressive in defending drugs that are coming off patent, and that has led to greater uncertainty for Teva's earnings outlook. We elected to sell the position in the fourth calendar quarter of 2006, locking in profits from our original purchase in the second quarter of 2004. (1) Source: First Call. Earnings estimates stated represent the consensus estimate of industry analysis as of November 30, 2006. 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.pioneerinvestments.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. Were there any other sectors in which underperformance was notable? A. The financial sector, which also made up a large weighting within the Portfolio, was another source of difficulty. As was the case with health care, the primary cause of underperformance was a holding that has been successful over the long term, but did not perform well in 2006: Legg Mason. The company acquired Citigroup's asset management division earlier in 2006, and the purchase proved more difficult to digest than we had expected. We have since eliminated Legg Mason from the portfolio, booking profits from our original purchase. The only other notable detractors within financials were Sallie Mae and Aflac, but a number of stocks dragged down the Portfolio's relative returns by posting flat performance in a rising market. Q. What other elements of the Portfolio's positioning helped and hurt performance? A. The technology sector included several winners for the Portfolio. Cognizant Technology Solutions, a U.S.-based technology services firm with a predominantly India-based labor force, performed very well during the past year due to the continued trend of U.S. and European companies outsourcing elements of their businesses to Asia. Also helping performance were holdings in Oracle, Google, and Cisco Systems. On the negative side, Qualcomm stood out as a detractor due to its ongoing patent dispute with Nokia. We continued to hold Qualcomm in the Portfolio, believing the company's long-term growth story remains intact despite the recent weakness in its stock price. Looking ahead to 2007, we continue to see opportunity in technology. Many corporations are flush with cash, and we believe they will continue to spend it in areas, like technology, where they can receive a more rapid return on their investment. The Portfolio also held a number of strong performers in the consumer-discretionary sector, including Marriott, Coach, and Staples. The industrial sector also was home to two notable winners in Danaher and Federal Express. Q. What is your outlook for growth stocks? A. Since the performance of the "growth" and "value" investment styles has been measured, there has never been a period in which one has outperformed the other to the extent that value has outpaced growth in recent years. The reasons for this phenomenon are many. Growth companies generally deployed capital inefficiently during the late 1990s, and the memory of the losses incurred during the subsequent bear market remains fresh in many investors' minds. More recently, the scandals related to corporations' practices in granting stock options has had a disproportionate impact on the growth asset class. Market psychology has also played a part, as momentum investors have been more inclined to chase winning stocks in traditional "value" sectors such as materials, energy, and industrials, rather than in "growth" sectors such as technology and health care. We believe these factors, taken together, have helped create opportunities to invest in fast-growing companies at extremely attractive levels. Growth stocks are currently very inexpensively valued, on a historical basis, relative to value stocks. This means that significantly higher earnings growth may be available at almost no valuation premium. For investors who focus on individual stock selection, as we do, opportunities appear to be plentiful. We believe our steady, bottom-up approach to investing will hold the Portfolio in good stead in this environment. Any information in this shareholder report regarding market or economic trends or the factors influencing the Portfolio's historical or future performance are statements of the opinion of Portfolio management as of the date of this report. These statements should not be relied upon for any other purposes. Past performance is no guarantee of future results, and there is no guarantee that market forecasts discussed will be realized. 5 PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 94.4% Energy - 4.0% Oil & Gas Equipment & Services - 1.8% 8,070 Schlumberger, Ltd. $ 509,701 ----------- Oil & Gas Exploration & Production - 2.2% 12,785 XTO Energy, Inc. $ 601,534 ----------- Total Energy $ 1,111,235 ----------- Materials - 1.6% Specialty Chemicals - 1.6% 9,930 Ecolab, Inc. $ 448,836 ----------- Total Materials $ 448,836 ----------- Capital Goods - 10.3% Aerospace & Defense - 4.4% 7,660 Precision Castparts Corp. $ 599,625 9,815 United Technologies Corp. 613,634 ----------- $ 1,213,259 ----------- Industrial Conglomerates - 3.6% 26,875 General Electric Co. $ 1,000,019 ----------- Industrial Machinery - 2.3% 8,675 Danaher Corp. $ 628,417 ----------- Total Capital Goods $ 2,841,695 ----------- Transportation - 1.8% Air Freight & Couriers - 1.8% 4,720 FedEx Corp. $ 512,686 ----------- Total Transportation $ 512,686 ----------- Consumer Durables & Apparel - 2.5% Apparel, Accessories & Luxury Goods - 2.5% 16,445 Coach, Inc.* $ 706,477 ----------- Total Consumer Durables & Apparel $ 706,477 ----------- Consumer Services - 4.9% Casinos & Gaming - 2.1% 6,960 Harrah's Entertainment, Inc. $ 575,731 ----------- Hotels, Resorts & Cruise Lines - 2.8% 16,100 Marriott International, Inc. $ 768,292 ----------- Total Consumer Services $ 1,344,023 ----------- Media - 4.0% Broadcasting & Cable TV - 2.0% 13,005 Comcast Corp.* $ 550,502 ----------- Movies & Entertainment - 2.0% 25,970 News Corp., Inc.* $ 557,836 ----------- Total Media $ 1,108,338 ----------- Retailing - 6.8% Computer & Electronics Retail - 1.7% 9,725 Best Buy Co., Inc. $ 478,373 -----------
Shares Value General Merchandise Stores - 1.9% 9,340 Target Corp. $ 532,847 ----------- Specialty Stores - 3.2% 32,572 Staples, Inc. $ 869,671 ----------- Total Retailing $ 1,880,891 ----------- Food & Drug Retailing - 2.0% Drug Retail - 2.0% 11,895 Walgreen Co. $ 545,862 ----------- Total Food & Drug Retailing $ 545,862 ----------- Food, Beverage & Tobacco - 2.1% Soft Drinks - 2.1% 9,235 PepsiCo, Inc. $ 577,649 ----------- Total Food, Beverage & Tobacco $ 577,649 ----------- Household & Personal Products - 2.5% Household Products - 2.5% 11,000 Procter & Gamble Co. $ 706,970 ----------- Total Household & Personal Products $ 706,970 ----------- Health Care Equipment & Services - 7.4% Health Care Equipment - 5.1% 9,310 Medtronic, Inc. $ 498,178 8,200 Varian Medical Systems, Inc.* 390,074 6,825 Zimmer Holdings, Inc.* 534,944 ----------- $ 1,423,196 ----------- Health Care Services - 2.3% 11,190 Caremark Rx, Inc. $ 639,061 ----------- Total Health Care Equipment & Services $ 2,062,257 ----------- Pharmaceuticals & Biotechnology - 9.2% Biotechnology - 4.2% 6,160 Amgen, Inc.* $ 420,790 8,985 Genentech, Inc.* 728,953 ----------- $ 1,149,743 ----------- Pharmaceuticals - 5.0% 10,980 Abbott Laboratories $ 534,836 2,670 Allergan, Inc.* 319,706 9,310 Novartis AG (A.D.R.) 534,766 ----------- $ 1,389,308 ----------- Total Pharmaceuticals & Biotechnology $ 2,539,051 ----------- Banks - 2.6% Diversified Banks - 2.6% 19,600 U.S. Bancorp $ 709,324 ----------- Total Banks $ 709,324 -----------
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 Diversified Financials - 4.1% Consumer Finance - 1.9% 8,805 American Express Co. $ 534,199 ----------- Investment Banking & Brokerage - 2.2% 30,610 Charles Schwab Corp. $ 591,997 ----------- Total Diversified Financials $ 1,126,196 ----------- Insurance - 1.9% Life & Health Insurance - 1.9% 11,605 Aflac, Inc. $ 533,830 ----------- Total Insurance $ 533,830 ----------- Software & Services - 15.5% Data Processing & Outsourced Services - 3.0% 6,800 Iron Mountain, Inc.* $ 281,112 14,105 Paychex, Inc. 557,712 ----------- $ 838,824 ----------- Internet Software & Services - 2.7% 1,599 Google, Inc.* $ 736,308 ----------- IT Consulting & Other Services - 3.7% 13,425 Cognizant Tech Solutions Corp.* $ 1,035,873 ----------- Systems Software - 6.1% 33,560 Microsoft Corp. $ 1,002,101 39,755 Oracle Corp.* 681,401 ----------- $ 1,683,502 ----------- Total Software & Services $ 4,294,507 -----------
Shares Value Technology Hardware & Equipment - 7.5% Communications Equipment - 6.4% 25,630 Cisco Systems, Inc.* $ 700,468 19,840 Corning, Inc.* 371,206 18,405 Qualcomm, Inc. 695,525 ----------- $ 1,767,199 ----------- Computer Hardware - 1.1% 3,715 Apple Computer, Inc.* $ 315,181 ----------- Total Technology Hardware & Equipment $ 2,082,380 ----------- Semiconductors - 3.7% Semiconductors - 3.7% 14,930 Microchip Technology $ 488,211 18,140 Texas Instruments, Inc. 522,432 ----------- $ 1,010,643 ----------- Total Semiconductors $ 1,010,643 ----------- TOTAL COMMON STOCKS (Cost $23,000,296) $26,142,850 ----------- TOTAL INVESTMENT IN SECURITIES - 94.4% (Cost $23,000,296) $26,142,850 ----------- OTHER ASSETS AND LIABILITIES - 5.6% $ 1,539,667 ----------- TOTAL NET ASSETS - 100.0% $27,682,517 ===========
* Non-income producing security. (A.D.R.) American Depositary Receipt 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 - --------------------------------------------------------------------------------
3/15/04 (a) Year Ended Year Ended to CLASS II 12/31/06 12/31/05 12/31/04 Net asset value, beginning of period $ 11.98 $ 11.09 $10.00 ------- ------- ------ Increase (decrease) from investment operations: Net investment income (loss) $ 0.02 $ (0.01) $ 0.03 Net realized and unrealized gain on investments 0.30 0.92 1.06 ------- ------- ------ Net increase from investment operations $ 0.32 $ 0.91 $ 1.09 Distributions to shareowners: Net investment income 0.00(c) (0.02) - Net realized gain (0.17) - - ------- ------- ------ Net increase in net asset value $ 0.15 $ 0.89 $ 1.09 ------- ------- ------ Net asset value, end of period $ 12.13 $ 11.98 $11.09 ------- ------- ------ Total return* 2.79% 8.18% 10.90%(b) Ratio of net expenses to average net assets 0.95% 0.95% 0.95%** Ratio of net investment income to average net assets 0.21% 0.08% 0.79%** Portfolio turnover rate 52% 131% 21% Net assets, end of period (in thousands) $27,683 $25,908 $4,397 Ratios with no waiver of management fees and assumption of expenses by PIM: Net expenses 1.37% 1.93% 6.22%** Net investment loss (0.21)% (0.90)% (4.48)%**
(a) The Portfolio commenced operations on March 15, 2004. (b) Not annualized. (c) Amount rounds to less than one cent per share. * Assumes initial investment at net asset value at the beginning of each period, reinvestment of all distributions, 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 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (cost $23,000,296) $26,142,850 Cash 1,166,965 Receivables -- Investment securities sold 429,757 Fund shares sold 19,339 Dividends, interest and foreign taxes withheld 27,746 Due from Pioneer Investment Management, Inc. 1,799 Other 1,365 ----------- Total assets $27,789,821 ----------- LIABILITIES: Payables -- Fund shares repurchased $ 7,921 Due to affiliates 745 Accrued expenses 98,638 ----------- Total liabilities $ 107,304 ----------- NET ASSETS: Paid-in capital $24,440,227 Undistributed net investment income 54,574 Accumulated net realized gain on investments 45,162 Net unrealized gain on: Investments 3,142,554 ----------- Total net assets $27,682,517 ----------- NET ASSET VALUE PER SHARE: Class II: (No par value, unlimited number of shares authorized) Net assets $27,682,517 Shares outstanding 2,281,446 ----------- Net asset value per share $ 12.13
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 12/31/06 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $380) $ 238,376 Interest 61,917 Income on securities loaned, net 344 --------- Total investment income $ 300,637 --------- EXPENSES: Management fees $ 194,189 Transfer agent fees and expenses 1,069 Distribution fees 64,729 Administrative reimbursements 5,829 Custodian fees 17,433 Professional fees 60,473 Printing expense 3,584 Fees and expenses of nonaffiliated trustees 5,366 Miscellaneous 2,432 --------- Total expenses $ 355,104 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (109,132) --------- Net expenses $ 245,972 --------- Net investment income $ 54,665 --------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain from: Investments $ 435,916 --------- Change in net unrealized gain from: Investments $ 192,584 --------- Net gain on investments 628,500 ========= Net increase in net assets resulting from operations $ 683,165 =========
10 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 CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 54,665 $ 7,863 Net realized gain on investments 435,916 432,428 Change in net unrealized gain on investments 192,584 703,415 ----------- ----------- Net increase in net assets resulting from operations $ 683,165 $ 1,143,706 ----------- ----------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income: Class II (7,919) (10,689) Net realized gain Class II (363,377) - ----------- ----------- Total distributions to shareowners $ (371,296) $ (10,689) ----------- ----------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 4,789,041 $ 6,123,375 Shares issued in reorganizations 1,892,764 15,272,045 Reinvestment of distributions 371,296 10,533 Cost of shares repurchased (5,590,461) (1,027,637) ----------- ----------- Net increase in net assets resulting from Fund share transactions $ 1,462,640 $20,378,316 ----------- ----------- Net increase in net assets $ 1,774,509 $21,511,333 NET ASSETS: Beginning of year 25,908,008 4,396,675 ----------- ----------- End of year $27,682,517 $25,908,008 =========== =========== Undistributed net investment income, end of year $ 54,574 $ 7,828 =========== ===========
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 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 seeks capital appreciation. Information regarding 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 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 year. 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 price on the primary exchange where the security is traded no longer accurately reflects the value of the 12 PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- security as of the close of the NYSE. At December 31, 2006, 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 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 fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis. - --------------------------------------------------------------------------
- ------------------------------------------------------------------------------------ 2006 2005 - ------------------------------------------------------------------------------------ Distributions paid from: Ordinary Income $ 7,919 $10,689 Long-Term capital gain 363,377 - ---------- ------- Total distributions $ 371,296 $10,689 ========== ======= Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 54,574 Undistributed long-term gain/(capital loss carryforward) 111,543 Unrealized appreciation (depreciation) 3,076,173 ---------- Total $3,242,290 ========== - ------------------------------------------------------------------------------------
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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. Distribution fees for Class II shares are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. 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 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 13 PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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. 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. 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. Through May 1, 2007, 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, 2006, $51 is 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 $123 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $571 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $23,066,677 $3,350,344 $(274,171) $3,076,173 - ------------------------------------------------------------------------------------------------------------
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, 2006, were $12,695,272 and $13,831,246, respectively. 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- -------------------------------------------------------------------------------------------------- Oak Ridge Large Cap Growth Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - -------------------------------------------------------------------------------------------------- CLASS II: Shares sold 408,255 $4,789,041 550,434 $ 6,123,375 Shares issued in reorganization 154,260 1,892,764 1,303,076 15,272,045 Reinvestment of distributions 33,420 371,296 957 10,533 Shares repurchased (476,773) (5,590,461) (88,477) (1,027,637) -------------------------------------------------------- Net increase 119,162 $1,462,640 1,765,990 $20,378,316 ========================================================
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 - -----------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------- Realized Unrealized Appreciation Gain/(Loss) on on Closing Date Closing Date - --------------------------------------------------------------------------------- AmSouth VIF Capital Growth $1,590,957 $(409,691) ========== ========== - ---------------------------------------------------------------------------------
In addition, On December 14, 2006, beneficial owners of Pioneer AmPac Growth VCT Portfolio approved a proposed Agreement and Plan of Reorganization that provided for the merger listed below. This tax-free reorganization was accomplished on December 15, 2006, by exchanging all of Pioneer AmPac Growth VCT Portfolio's Class II net assets for Pioneer Oak Ridge Large Cap Growth VCT Portfolio's shares, based on Pioneer Oak Ridge Large Cap Growth VCT Portfolio's Class II shares' ending net asset value, respectively. The following charts show the details of the reorganization as of that closing date ("Closing Date"): 15 PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------- Pioneer Oak Ridge Pioneer Oak Ridge Large Cap Growth Pioneer AmPac Large Cap Growth VCT Portfolio Growth VCT Portfolio VCT Portfolio (Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization) - ------------------------------------------------------------------------------------------------------------- Net Assets Class II $26,329,442 $1,892,764 $28,222,206 ----------- ---------- ----------- Shares Outstanding Class II 2,145,222 163,721 2,299,482 ----------- ---------- ----------- Shares Issued in Reorganization Class II 154,260 - -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Realized Unrealized Appreciation Gain/(Loss) on on Closing Date Closing Date - -------------------------------------------------------------------------------- Pioneer AmPac Growth VCT Portfolio $308,182 $(847) ======== ===== - --------------------------------------------------------------------------------
9. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 16 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 the Shareowners of Pioneer Oak Ridge Large Cap Growth VCT Portfolio: We have audited the accompanying statement of assets and liabilities of Pioneer Oak Ridge Large Cap Growth VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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 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, 2006, 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 Oak Ridge Large Cap Growth VCT Portfolio of the Pioneer Variable Contracts Trust as of December 31, 2006, 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 periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 9, 2007 17 PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio - -------------------------------------------------------------------------------- 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 investment and compliance staffs 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 fees under the Management Contract and the Sub-advisory Agreement. Among other items, this information included data or analyses of (1) investment performance for one year period for the Fund and a peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as a percentage of net assets. 18 PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 and the Sub-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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group and an index considered appropriate by the Independent Trustees for this purpose. The Fund's performance, based upon total return, was in the fourth quintile of its Morningstar category peer group for the 12 months ended June 30, 2006. (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 Fund underperformed relative to its peer group during the short period since its inception. 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 and Sub-adviser responsible for investment operations. Among other things, the Trustees considered the size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee, based on 2006 data, 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 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 they were consistent with other sub-advised funds. The Trustees also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 (after giving effect to the expense limitation) to be in first quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 19 PIONEER VARIABLE CONTRACTS TRUST Pioneer Oak Ridge Large Cap Growth VCT Portfolio - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- Investment Adviser's profit margins in comparison with the limited industry data available. 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 shareholders. 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 its 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. In light of the Investment Adviser's and Sub-adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser and the Sub-adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the Sub-adviser, and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund and the Sub-advisory Agreement, including the fees payable thereunder, were fair and reasonable and that their renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract and the Sub-advisory Agreement for another year. 20 - -------------------------------------------------------------------------------- Pioneer Oak Ridge Large Cap Growth VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS - -------------------------------------------------------------------------------- Investment Adviser Trustees and Officers The trust's Board of Pioneer Investment Management, Inc. Trustees provides broad supervision over the portfolio's affairs. The officers of the trust are responsible for the trust's operations. The Custodian trust's Trustees and officers are listed below, Brown Brothers Harriman & Co. together with their principal occupations during the past five years. Trustees who are interested persons of the trust within the meaning of the Independent Registered 1940 Act are referred to as Interested Trustees. Public Accounting Firm Trustees who are not interested persons of the Ernst & Young LLP trust are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 86 U.S. registered investment portfolios Principal Underwriter for which Pioneer serves as investment adviser Pioneer Funds Distributor, Inc. (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the trust is 60 State Street, Boston, Massachusetts 02109. Legal Counsel Wilmer Cutler Pickering Hale and Dorr LLP Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc.
- --------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------------------------------------- POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Board, Trustee until a successor trustee and President is elected or earlier retirement or removal. - --------------------------------------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Deputy Chairman and a Director of Pioneer Director of ICI Mutual Global Asset Management S.p.A. ("PGAM"); Insurance Company Non-Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investmentadviser and certain of its affiliates. - ---------------------------------------------------------------------------------------------------------------
21 Pioneer Oak Ridge Large Cap Growth VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE David R. Bock (63) Trustee Trustee since 2005. Serves 3050 K. Street NW, until a successor trustee Washington, DC 20007 is elected or earlier retirement or removal. - --------------------------------------------------------------------------------------------------------- Mary K. Bush (58) Trustee Trustee since 2000. Serves 3509 Woodbine Street, until a successor trustee Chevy Chase, MD 20815 is elected or earlier retirement or removal. - --------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves 1001 Sherbrooke Street West, until a successor trustee Montreal, Quebec, Canada is elected or earlier H3A 1G5 retirement or removal. - --------------------------------------------------------------------------------------------------------- Thomas J. Perna (56) Trustee Trustee since 2006. Serves 89 Robbins Avenue, until a successor trustee Berkeley Heights, NJ is elected or earlier 07922 retirement or removal. - --------------------------------------------------------------------------------------------------------- Marguerite A. Piret (58) Trustee Trustee since 1995. Serves 200 State Street, 12th until a successor trustee Floor, Boston, MA 02109 is elected or earlier retirement or removal. - --------------------------------------------------------------------------------------------------------- John Winthrop (70) Trustee Trustee since 2000. Serves One North Adgers Wharf, until a successor trustee Charleston, SC 29401 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------
NAME, AGE AND ADDRESS PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE David R. Bock (63) Senior Vice President and Chief Financial Director of The Enterprise Social Investment 3050 K. Street NW, Officer, I-trax, Inc. (publicly traded health Company (privately-held affordable housing Washington, DC 20007 care services company) (2001 - present); finance company); and Director of New York Managing Partner, Federal City Capital Mortgage Trust (publicly traded mortgage Advisors (boutique merchant bank) (2002 to REIT) 2004); and Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet- based mortgage trading company) (2000 - 2002) Mary K. Bush (58) President, Bush International (international Director of Brady Corporation (industrial 3509 Woodbine Street, financial advisory firm) identification and specialty coated material Chevy Chase, MD 20815 products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) Margaret B.W. Graham (59) Founding Director, The Winthrop Group, Inc. None 1001 Sherbrooke Street West, (consulting firm); and Desautels Faculty of Montreal, Quebec, Canada Management, McGill University H3A 1G5 Thomas J. Perna (56) Private investor (2004 - present); and Senior Director of Quadriserv Inc. (technology 89 Robbins Avenue, Executive Vice President, The Bank of New products for securities lending industry) Berkeley Heights, NJ York (financial and securities services) 07922 (1986 - 2004) Marguerite A. Piret (58) President and Chief Executive Officer, Director of New America High Income Fund, 200 State Street, 12th Newbury, Piret & Company, Inc. (investment Inc. (closed-end investment company) Floor, Boston, MA 02109 banking firm) John Winthrop (70) President, John Winthrop & Co., Inc. (private None One North Adgers Wharf, investment firm) Charleston, SC 29401
22 Pioneer Oak Ridge Large Cap Growth VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President discretion of the Board +Mr. Hood resigned as EVP effective January 9, 2007. - --------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the discretion of the Board - --------------------------------------------------------------------------------------------------------- Christopher J. Kelley (42) Assistant Since 2003. Serves at the Secretary discretion of the Board - --------------------------------------------------------------------------------------------------------- Christopher P. Harvey (45) Assistant Since 2006. Serves at the Secretary discretion of the Board - --------------------------------------------------------------------------------------------------------- Vincent Nave (61) Treasurer Since 2000. Serves at the discretion of the Board - --------------------------------------------------------------------------------------------------------- Mark E. Bradley (47) Assistant Since 2004. Serves at the Treasurer discretion of the Board - --------------------------------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Since 2000. Serves at the Treasurer discretion of the Board - --------------------------------------------------------------------------------------------------------- Gary Sullivan (48) Assistant Since 2002. Serves at the Treasurer discretion of the Board - ---------------------------------------------------------------------------------------------------------
NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS OFFICER Osbert M. Hood (54)+ President and Chief Executive Officer, Trustee of certain Pioneer Funds PIM-USA since May 2003 (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary of PIM-USA; Senior Vice President - None Legal of Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------------- Christopher J. Kelley (42) Vice President and Senior Counsel of Pioneer None 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 of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------- Christopher P. Harvey (45) Partner, Wilmer Cutler Pickering Hale and None Dorr LLP; and Assistant Secretary of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------------- Vincent Nave (61) Vice President - Fund Accounting, None Administration and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (47) Deputy Treasurer of Pioneer since 2004; None Treasurer and Senior 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 - ------------------------------------------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Vice President - Fund Accounting, None Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------- Gary Sullivan (48) Fund Accounting Manager - Fund Accounting, None Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - -------------------------------------------------------------------------------------------------------------------
23 Pioneer Oak Ridge Large Cap Growth VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Katherine Kim Sullivan Assistant Since 2003. Serves at the (33) Treasurer discretion of the Board - -------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Since 2006. Serves at the Compliance discretion of the Board Officer - -------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS OFFICER Katherine Kim Sullivan Fund Administration Manager - Fund None (33) Accounting, Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Compliance Officer of Pioneer and None all of the Pioneer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - -------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 24 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 25 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 26 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 27 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 28 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 29 [LOGO] PIONEER Investments(R) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18675-01-0207 [LOGO]PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Real Estate Shares VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2006 PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- Table of Contents - -------------------------------------------------------------------------------- Pioneer Real Estate Shares VCT Portfolio Portfolio and Performance Update 2 Comparing Ongoing Portfolio Expenses 3 Portfolio Management Discussion 4 Schedule of Investments 6 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered 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 12/31/06 - -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA IS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL] U.S. Common Stocks 81.5% Temporary Cash Investment 18.5%
Sector Distribution (As a percentage of equity holdings) [THE FOLLOWING DATA IS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL] Office 19.2% Apartment 18.5% Regional Mall 14.7% Industrial 12.5% Shopping Center 11.7% Hotel 8.6% Storage 5.8% Diversified 4.8% Health Care 2.7% Triple-Net Lease 1.5%
Five Largest Holdings (As a percentage of equity holdings) 1. Simon DeBartolo Group, Inc. 8.17% 2. Boston Properties, Inc. 5.62 3. Equity Residential Property Trust 4.82 4. ProLogis Trust 4.59 5. Public Storage, Inc. 4.52
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $32.96 $26.09
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $0.3108 $0.0033 $1.8783
- -------------------------------------------------------------------------------- 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 IS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Real Estate Wilshire Real Shares VCT Portfolio Estate Securities Index 12/96 $10,000 $10,000 $12,086 $11,976 12/98 $ 9,796 $ 9,889 $ 9,364 $ 9,575 12/00 $12,077 $12,516 $12,986 $13,823 12/02 $13,281 $14,191 $17,858 $19,452 12/04 $24,178 $26,224 $27,770 $29,912 12/06 $37,901 $40,645
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, 2006)
- -------------------------------------------- Net Asset Value - -------------------------------------------- 10 Years 14.25% 5 Years 23.89% 1 Year 36.48%
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.pioneerinvestments.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 [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 Real Estate Shares VCT Portfolio Based on actual returns from July 1, 2006 through December 31, 2006.
Share Class II - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $1,000.00 Ending Account Value on 12/31/06 $1,190.30 Expenses Paid During Period* $ 6.40
* Expenses are equal to the Portfolio's annualized expense ratio of 1.16% 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, 2006 through December 31, 2006.
Share Class II - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $1,000.00 Ending Account Value on 12/31/06 $1,019.36 Expenses Paid During Period* $ 5.90
* Expenses are equal to the Portfolio's annualized expense ratio of 1.16% 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 12/31/06 - -------------------------------------------------------------------------------- A combination of strong underlying property fundamentals, steady economic growth and a continued strong investor appetite for real estate propelled the public real estate securities market to another year of stellar performance in 2006. In the following interview, Matthew Troxell of AEW Capital Management, L.P. discusses the factors that contributed to this strong performance as well as his outlook for the coming months. Q: How did the Portfolio perform for the fiscal year ended December 31, 2006? A: For the year ended December 31, 2006, Class II shares generated a total return of 36.48% at net asset value. In comparison, the Wilshire Real Estate Securities Index posted a return of 35.88% for the same period. The average return for the 53 real estate funds tracked by Lipper Inc., the Portfolio's peer group, was 35.60%. Given the rather solid economic backdrop in 2006, the property fundamentals across all the property sectors improved - giving breath and depth to the rally in real estate stocks. However, we think effective stock picking, particularly in the regional mall, hotel and apartment sectors, contributed to the Portfolio's strong performance. Call 1-800-688-9915 or visit www.pioneerinvestments.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 investments contributed to the Fund's strong performance? A: On an absolute basis, the Fund's top individual contributors to performance for the year included office REIT Boston Properties, Inc., mall REIT Simon Property Group Inc. and apartment company AvalonBay Communities Inc. These companies, which the Fund holds as overweight positions relative to its benchmark, posted lofty returns of 63.5%, 37.0% and 49.7%, respectively, for the year. Boston Properties Inc., the Fund's top overall contributor to performance, posted solid operating results during the period as strong demand for the company's high-quality office properties in core markets has continued to stimulate investor demand for the stock. Simon Property Group, the largest REIT in North America, also continued its strong performance run during the past year, primarily due to increased sales and strong leasing initiatives across its regional mall portfolio. AvalonBay Communities, Inc. has benefited from one of the industry's largest development pipelines and its focus on owning properties in high barrier-to-entry markets. Q: Are you concerned that REITs and other real estate investments have become overvalued? A: Given the positive transformation that has taken place in the real estate industry over the last decade, we don't think that you can draw a straight line and compare the prices of real estate stocks today with those five or ten years ago. On that basis alone, stocks will look expensive, but this may not tell the whole story. 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.pioneerinvestments.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 Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- We see several encouraging factors that appear to be exerting a stabilizing influence on REIT pricing. First, the sector's strong performance has much to do with its overall health, which has helped it to weather economic downturns more efficiently than it did in the past. Secondly, supply/demand dynamics across the various property types are in general the healthiest that we've seen in some time. And with the cost of building materials so high today - from labor to energy to raw materials - developers have more of an incentive to work with existing inventory, effectively slowing the pace of new construction. With supply moderating, property types are experiencing strong rent growth and higher occupancy levels. On the demand side, both individual and institutional investors have been diversifying into real estate investments in increasing numbers. Strong demand from private equity investors in particular, including U.S. tax-exempt institutions, high net worth individuals and foreign investors, has helped to support prices on the upside. Q: What is your outlook? A: We think that the positive factors underlying the strength of the real estate market in 2006 will continue into fiscal 2007. However, since real estate stocks are not a homogenous group, a more uneven pattern of performance may eventually emerge across the various sub sectors as the pace of economic growth changes course. We believe that in all likelihood, performance returns may eventually approach more sustainable levels that are more in line with historical averages, probably averaging in the five to ten percent range annually over the next five years. Our investment process will continue to focus on securities selection within each property sector, with the goal of identifying real estate equity securities that we believe are mispriced relative to their peers and, thus, represent the greatest relative value and strongest price appreciation potential, as well as lower downside risk. We believe our disciplined approach to stock selection will serve to foster consistency of income and growth over time. 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 Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 98.1% Consumer Services - 3.7% Hotels, Resorts & Cruise Lines - 3.7% 74,000 Hilton Hotels Corp. (a) $ 2,582,600 30,000 Starwood Hotels & Resorts 1,875,000 ------------- $ 4,457,600 ------------- Total Consumer Services $ 4,457,600 ------------- Real Estate - 93.8% Diversified Real Estate Investment Trusts - 8.8% 77,000 Liberty Property Trust (a) $ 3,783,780 18,000 PS Business Parks, Inc. 1,272,780 52,700 Spirit Finance Corp. 657,169 39,500 Vornado Realty Trust 4,799,250 ------------- $ 10,512,979 ------------- Industrial Real Estate Investment Trusts - 7.5% 33,800 AMB Property Corp. $ 1,981,018 72,200 DCT Industrial Trust, Inc. 851,960 27,000 First Potomac Realty Trust 785,970 88,700 ProLogis Trust 5,390,299 ------------- $ 9,009,247 ------------- Mortgage Real Estate Investment Trusts - 0.9% 23,500 iStar Financial, Inc. $ 1,123,770 ------------- Office Real Estate Investment Trusts - 16.3% 28,000 BioMed Property Trust, Inc. $ 800,800 59,000 Boston Properties, Inc. 6,600,920 70,000 Brandywine Realty Trust 2,327,500 29,000 Corporate Office Properties (a) 1,463,630 14,500 Digital Realty Trust, Inc. 496,335 15,800 Duke Realty Investments, Inc. 646,220 44,500 Equity Office Properties Trust (a) 2,143,565 51,000 Highwoods Properties, Inc. 2,078,760 106,000 HRPT Properties Trust 1,309,100 21,500 Kilroy Realty Corp. 1,677,000 ------------- $ 19,543,830 ------------- Real Estate Management & Development - 3.8% 114,200 Brookfield Properties Corp. $ 4,491,486 ------------- Residential Real Estate Investment Trusts - 18.2% 23,600 Apartment Investment & Management Co. $ 1,322,072 75,200 Archstone-Smith Trust 4,377,392 40,000 AvalonBay Communities, Inc. (a) 5,202,000 36,000 Camden Property Trust 2,658,600 111,700 Equity Residential Property Trust 5,668,775 13,900 Home Properties, Inc. (a) 823,853 54,500 United Dominion Realty Trust (a) 1,732,555 ------------- $ 21,785,247 ------------- Retail Real Estate Investment Trusts - 25.9% 21,000 Cedar Shopping Centers, Inc.* $ 334,110 74,700 Developers Diversifies Realty Corp. (a) 4,702,365 35,000 Federal Realty Investment Trust 2,975,000 60,000 General Growth Properties, Inc. 3,133,800 47,200 Kimco Realty Corp. 2,121,640 26,600 Kite Realty Group Trust 495,292 41,000 Regency Centers Corp. 3,204,970 94,800 Simon DeBartolo Group, Inc. 9,602,292 36,000 Taubman Centers, Inc. 1,830,960 30,800 The Macerich Co. 2,666,356 ------------- $ 31,066,785 ------------- Specialized Real Estate Investment Trusts - 12.4% 37,000 Ashford Hospitality Trust $ 460,650 66,800 Extra Space Storage, Inc. 1,219,768 11,000 Healthcare Realty Trust, Inc. (a) 434,940 12,000 Hospitality Properties Trust 570,360 188,000 Host Hotels & Resorts, Inc. (a) 4,615,400 65,500 Nationwide Health Properties, Inc. (a) 1,979,410 54,500 Public Storage, Inc. (a) 5,313,750 12,200 U-Store-It Trust 250,710 ------------- $ 14,844,988 ------------- Total Real Estate $ 112,378,332 ------------- Telecommunication Services - 0.6% Integrated Telecommunication Services - 0.6% 18,900 Health Care Properties Invest, Inc.* $ 695,898 ------------- Total Telecommunication Services $ 695,898 ------------- TOTAL COMMON STOCKS (Cost $58,706,553) $ 117,531,830 ------------- TEMPORARY CASH INVESTMENT - 22.3% Security Lending Collateral - 22.3% 26,706,744 Securities Lending Investment Fund, 5.26% $ 26,706,744 ------------- TOTAL TEMPORARY CASH INVESTMENT (Cost $26,706,744) $ 26,706,744 ------------- TOTAL INVESTMENT IN SECURITIES - 120.4% (Cost $85,413,297) $ 144,238,574 ------------- OTHER ASSETS AND LIABILITIES - (20.4)% $ (24,466,580) ------------- TOTAL NET ASSETS - 100.0% $ 119,771,995 =============
* Non-income producing security. (a) At December 31, 2006, the following securities were out on loan:
Shares Security Value 35,000 AvalonBay Communities, Inc. 4,551,750 26,235 Corporate Office Properties 1,324,080 69,300 Developers Diversifies Realty Corp. 4,362,435 44,055 Equity Office Properties Trust 2,122,129 10,890 Healthcare Realty Trust, Inc. 430,591 73,260 Hilton Hotels Corp. 2,556,774 13,761 Home Properties, Inc. 815,614 130,000 Host Hotels & Resorts, Inc. 3,191,500 76,230 Liberty Property Trust 3,745,942 11,700 Nationwide Health Properties, Inc. 353,574 9,000 Public Storage, Inc. 877,500 53,955 United Dominion Realty Trust 1,715,229 ----------- Total $26,047,118 ===========
6 The accompanying notes are an integral part of these financial statements. Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Class II 12/31/06 12/31/05 12/31/04 12/31/03 12/31/02 Net asset value, beginning of period $ 26.09 $ 24.26 $ 18.55 $ 14.45 $ 14.75 ------- ------- ------- ------- -------- Increase from investment operations: Net investment income $ 0.36 $ 0.36 $ 0.44 $ 0.68 $ 0.55 Net realized and unrealized gain (loss) on investments 8.70 3.11 6.00 4.18 (0.20) ------- ------- ------- ------- ------- Net increase from investment operations $ 9.06 $ 3.47 $ 6.44 $ 4.86 $ 0.35 Distributions to shareowners: Net investment income (0.31) (0.33) (0.40) (0.56) (0.65) Net realized gain (1.88) (1.31) (0.33) - - Tax Return of Capital - - - (0.20) - ------- ------- ------- ------- -------- Net increase (decrease) in net asset value $ 6.87 $ 1.83 $ 5.71 $ 4.10 $ (0.30) ------- ------- ------- ------- -------- Net asset value, end of period $ 32.96 $ 26.09 $ 24.26 $ 18.55 $ 14.45 ======= ======= ======= ======= ======== Total return* 36.48% 14.86% 35.39% 34.45% 2.28% Ratio of net expenses to average net assets+ 1.16% 1.18% 1.23% 1.28% 1.32% Ratio of net investment income to average net assets+ 1.22% 1.46% 2.20% 4.26% 4.21% Portfolio turnover rate 18% 12% 35% 20% 29% Net assets, end of period (in thousands) $85,175 $67,383 $61,799 $39,892 $ 31,985
* 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. 7 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $26,047,118) (cost $144,238,574 $85,413,297) Cash 1,499,464 Receivables - Investment securities sold 220,010 Fund shares sold 20,401 Dividends, interest and foreign taxes withheld 768,789 Other 1,931 ------------ Total assets $146,749,169 ------------ LIABILITIES: Payables - Investment securities purchased $ 170,822 Fund shares repurchased 15,220 Upon return of securities loaned 26,706,744 Due to affiliates 13,986 Accrued expenses 70,402 ------------ Total liabilities $ 26,977,174 ------------ NET ASSETS: Paid-in capital $ 51,019,057 Undistributed net investment income 296,814 Accumulated net realized gain on investments 9,630,847 Net unrealized gain on: Investments 58,825,277 ------------ Total net assets $119,771,995 ------------ NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $ 34,597,020 Shares outstanding 1,047,925 ------------ Net asset value per share $ 33.01 Class II: (No par value, unlimited number of shares authorized) Net assets $ 85,174,975 Shares outstanding 2,584,309 ------------ Net asset value per share $ 32.96
8 The accompanying notes are an integral part of these financial statements. Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $12,336) $ 2,478,217 Interest 59,988 Income on securities loaned, net 21,309 ----------- Total investment income $ 2,559,514 ----------- EXPENSES: Management fees $ 864,301 Transfer agent fees and expenses 2,721 Distribution fees (Class II) 187,632 Administrative reimbursements 26,043 Custodian fees 18,352 Professional fees 40,768 Printing expenses 18,582 Fees and expenses of nonaffiliated trustees 4,443 Miscellaneous 6,642 ----------- Total expenses $ 1,169,484 ----------- Net investment income $ 1,390,030 ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain from: Investments $11,231,265 ----------- Change in net unrealized gain from investments $20,961,544 ----------- Net gain on investments $32,192,809 =========== Net increase in net assets resulting from operations $33,582,839 ===========
The accompanying notes are an integral part of these financial statements. 9 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 1,390,030 $ 1,488,954 Net realized gain on investments 11,231,265 6,859,537 Change in net unrealized gain or loss on investments 20,961,544 5,415,473 ------------ ------------ Net increase in net assets resulting from operations $ 33,582,839 $ 13,763,964 ------------ ------------ DISTRIBUTIONS TO SHAREOWNERS Net investment income: Class I $ (424,329) $ (513,835) Class II (782,250) (868,561) Net realized gain Class I (2,014,498) (1,720,481) Class II (4,599,374) (3,467,765) ------------ ------------ Total distributions to shareowners $ (7,820,451) $ (6,570,642) ------------ ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 12,816,525 $ 14,850,583 Reinvestment of distributions 7,820,451 6,570,642 Cost of shares repurchased (26,096,623) (27,391,461) ------------ ------------ Net decrease in net assets resulting from Fund share transactions $ (5,459,647) $ (5,970,236) ------------ ------------ Net increase in net assets $ 20,302,741 $ 1,223,086 NET ASSETS: Beginning of year 99,469,254 98,246,168 ------------ ------------ End of year $119,771,995 $ 99,469,254 ============ ============ Undistributed net investment income, end of year $ 296,814 $ 211,528 ============ ============
10 The accompanying notes are an integral part of these financial statements. Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 the Portfolio is to pursue long-term capital growth, with current income as a secondary objective. Because the 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(es). Please refer to those documents when considering the Portfolio's risks. 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 year. 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: 11 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (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. 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, 2006, 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, if any, 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. 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. 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. At December 31, 2006, 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 - ------------------------------------------------------------------------------------------------ Real Estate Shares Portfolio $(98,165) $79,454 $18,711 ======== ======= ======= - ------------------------------------------------------------------------------------------------
12 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis.
- -------------------------------------------------------------------------------- 2006 2005 - -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 1,218,324 $1,584,389 Long-Term capital gain 6,602,127 4,986,253 -------------------------------- 7,820,451 6,570,642 Return of Capital - - -------------------------------- Total distributions $ 7,820,451 $6,570,642 ================================ Distributable Earnings (Accumulated Losses): Undistributed long-term gain $ 9,813,003 REIT Dividend Payable 296,814 Unrealized appreciation 58,643,121 ----------- Total $68,752,938 ----------- - --------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation is primarily attributable to the tax deferral of losses on wash sales. 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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. 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. 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 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. 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 13 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, $8,075 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 $4,167 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $1,744 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $85,595,453 $58,678,633 $(35,512) $58,643,121 =========== =========== ========= =========== - -------------------------------------------------------------------------------------------
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, 2006, were $19,608,088 and $30,962,587, respectively. 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- ------------------------------------------------------------------------------------------- Real Estate Shares Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ------------------------------------------------------------------------------------------- CLASS I: Shares sold 84,036 $ 2,506,439 57,099 $ 1,401,143 Reinvestment of distributions 87,715 2,438,826 91,076 2,234,316 Shares repurchased (351,719) (10,297,594) (420,029) (10,198,782) ----------------------------------------------------------- Net decrease (179,968) $ (5,352,329) (271,854) $ (6,563,323) =========================================================== CLASS II: Shares sold 347,079 $ 10,310,086 558,332 $ 13,449,440 Reinvestment of distributions 194,162 5,381,625 176,725 4,336,326 Shares repurchased (540,124) (15,799,029) (699,655) (17,192,679) ----------------------------------------------------------- Net increase (decrease) 1,117 $ (107,318) 35,402 $ 593,087 =========================================================== - -------------------------------------------------------------------------------------------
14 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 8. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 15 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 of Pioneer Real Estate Shares VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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, 2006, 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 Real Estate Shares VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2006, 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 9, 2007 16 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 investment and compliance staffs 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 fees 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as a percentage of net assets. 17 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- 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 and the Sub-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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group and an index considered appropriate by the Independent Trustees for this purpose. The Fund's performance, based upon total return, was in the second quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, the second quintile of the peer group for the three years ended June 30, 2006, the second quintile for the five years ended June 30, 2006 and the third quintile for the ten year period ended June 30, 2006. (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, focusing on three-year total returns, concluded that the performance of the Fund was good. 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 and Sub-adviser responsible for investment operations. Among other things, the Trustees considered the size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee for the 12 months ended June 30, 2006 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 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 they were consistent with other sub-advised funds. The Trustees also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 to be in the third quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 18 Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Adviser's profit margins in comparison with the limited industry data available. 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. 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 its 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. In light of the Investment Adviser's and Sub-adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser and the Sub-adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the Sub-adviser, and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund and the Sub-advisory Agreement, including the fees payable thereunder, were fair and reasonable and that their renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract and the Sub-advisory Agreement for another year. 19 Pioneer Real Estate Shares 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 portfolio's affairs. 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 trust within the meaning of the Ernst & Young LLP 1940 Act are referred to as Interested Trustees. Trustees who are not interested persons of the trust are referred to Principal Underwriter as Independent Trustees. Each of the Trustees serves as a Pioneer Funds Distributor, Inc. trustee of each of the 86 U.S. registered investment portfolios for which Pioneer serves as investment adviser Legal Counsel (the "Pioneer Funds"). The address for all Interested Wilmer Cutler Pickering Hale and Dorr LLP Trustees and all officers of the trust is 60 State Street, Boston, Massachusetts 02109. Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc.
- -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Deputy Chairman and a Director of Director of ICI Mutual Board, Trustee until a successor trustee Pioneer Global Asset Management Insurance Company and President is elected or earlier S.p.A. ("PGAM"); Non-Executive retirement or removal. Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - ------------------------------------------------------------------------------------------------------------------------------------
20 Pioneer Real Estate Shares VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS HELD BY THIS TRUSTEE David R. Bock (63) Trustee Trustee since 2005. Serves Senior Vice President and Chief Director of The 3050 K. Street NW, until a successor trustee Financial Officer, I-trax, Inc. Enterprise Social Washington, DC 20007 is elected or earlier (publicly traded health care Investment Company retirement or removal. services company) (2001 - present); (privately-held Managing Partner, Federal City affordable housing Capital Advisors (boutique merchant finance company); and bank) (2002 to 2004); and Executive Director of New York Vice President and Chief Financial Mortgage Trust (publicly Officer, Pedestal Inc. (internet- traded mortgage REIT) based mortgage trading company) (2000 - 2002) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Trustee Trustee since 2000. Serves President, Bush International Director of Brady 3509 Woodbine Street, until a successor trustee (international financial advisory Corporation (industrial Chevy Chase, MD 20815 is elected or earlier firm) identification and retirement or removal. specialty coated material products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until a successor trustee Group, Inc. (consulting firm); and West, Montreal, Quebec, is elected or earlier Desautels Faculty of Management, Canada H3A 1G5 retirement or removal. McGill University - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Trustee Trustee since 2006. Serves Private investor (2004 - present); Director of Quadriserv 89 Robbins Avenue, until a successor trustee and Senior Executive Vice Inc. (technology products Berkeley Heights, NJ is elected or earlier President, The Bank of New York for securities lending 07922 retirement or removal. (financial and securities services) industry) (1986 - 2004) - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Trustee Trustee since 1995. Serves President and Chief Executive Director of New America 200 State Street, 12th until a successor trustee Officer, Newbury, Piret & Company, High Income Fund, Inc. Floor, Boston, MA 02109 is elected or earlier Inc. (investment banking firm) (closed-end investment retirement or removal. company) - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) Trustee Trustee since 2000. Serves President, John Winthrop & Co., None One North Adgers Wharf, until a successor trustee Inc. (private investment firm) Charleston, SC 29401 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------
21 Pioneer Real Estate Shares VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS HELD BY THIS OFFICER Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President and Chief Executive Trustee of certain President discretion of the Board Officer, PIM-USA since May 2003 Pioneer Funds (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the Secretary of PIM-USA; Senior Vice None discretion of the Board President - Legal of Pioneer; Secretary/Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Assistant Since 2003. Serves at the Vice President and Senior Counsel None Secretary discretion of the Board of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001); and Assistant Secretary of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey (45) Assistant Since 2006. Serves at the Partner, Wilmer Cutler Pickering None Secretary discretion of the Board Hale and Dorr LLP; and Assistant Secretary of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Treasurer Since 2000. Serves at the Vice President - Fund Accounting, None discretion of the Board Administration and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Assistant Since 2004. Serves at the Deputy Treasurer of Pioneer since None Treasurer discretion of the Board 2004; Treasurer and Senior 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 - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Since 2000. Serves at the Assistant Vice President - Fund None Treasurer discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Assistant Since 2002. Serves at the Fund Accounting Manager - Fund None Treasurer discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Real Estate Shares VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS HELD BY THIS OFFICER Katherine Kim Sullivan Assistant Since 2003. Serves at the Fund Administration Manager - Fund None (33) Treasurer discretion of the Board Accounting, Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Since 2006. Serves at the Chief Compliance Officer of Pioneer None Compliance discretion of the Board and all of the Pioneer Funds since Officer March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio'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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 26 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 27 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 28 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 29 [LOGO]PIONEER Investments(R) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18661-01-0207 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2006 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 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/06 - -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [The following table was depicted as a pie chart in the printed material.]
U.S. Common Stocks 78.2% Temporary Cash Investment 17.9% Depositary Receipts for International Stocks 1.9% Exchange Traded Fund 0.8% International Common Stocks 0.8% Preferred Stocks 0.4%
Sector Distribution (As a percentage of equity holdings) [The following table was depicted as a pie chart in the printed material.]
Financials 24.6% Information Technology 18.9% Industrials 15.6% Consumer Discretionary 11.7% Health Care 11.2% Energy 6.4% Consumer Staples 5.1% Materials 3.0% Utilities 2.0% Telecommunication Services 1.5%
Five Largest Holdings (As a percentage of equity holdings) 1. Apollo Investment Corp. 2.04% 2. Deerfield Triarc Capital Corp. 1.98 3. Assured Guaranty, Ltd. 1.77 4. Insight Enterprises, Inc. 1.76 5. Cross Country Healthcares, Inc. 1.65
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $ 17.76 $ 16.07
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $ 0.0003 $ 0.1027 $ 0.4162
- -------------------------------------------------------------------------------- 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 and 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 table was depicted as a line chart in the printed material.]
Pioneer Small Cap Value VCT Russell 2000 Russell 2000 Portfolio Index Value Index 11/01 10,000 10,000 10,000 10,572 10,617 10,612 12/02 8,955 8,442 9,400 12,088 12,432 13,726 12/04 14,492 14,711 16,780 16,101 15,380 17,570 12/06 18,378 18,205 21,695
The Russell 2000 Value Index measures the performance of U.S. small-cap value stocks. The Russell 2000 Index measures the performance of U.S. small-cap stocks. The Russell 2000 Value Index is now the Portfolio's secondary benchmark 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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- Life-of-Class (11/8/01) 13.16% 5 Years 11.69% 1 Year 14.14%
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.pioneerinvestments.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 Small Cap 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 [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, 2006 through December 31, 2006.
Share Class II - ------------------------------------------------------------------ Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,083.54 Expenses Paid During Period* $ 6.35
* Expenses are equal to the Portfolio's annualized expense ratio of 1.21% 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, 2006 through December 31, 2006.
Share Class II - ------------------------------------------------------------------ Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,019.11 Expenses Paid During Period* $ 6.16
* Expenses are equal to the Portfolio's annualized expense ratio of 1.21% 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 Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/06 - -------------------------------------------------------------------------------- Since November 1, 2006, day-to-day management of Pioneer Small Cap Value VCT Portfolio has been the responsibility of Peter Wiley and Scott Zilora. Mr. Wiley, a vice president, joined Pioneer in 2006 from Trove Partners, LLC, where he was a director and portfolio manager. Mr. Zilora, a vice president, joined Pioneer in 1996 as an equity analyst. In the following pages, they detail the Portfolio's recent results and offer their outlook for small-cap stocks in the year ahead. Q. How did the Portfolio perform over this period? A. For the twelve months ended December 31, 2006, Class II shares of Pioneer Small Cap Value VCT Portfolio returned 14.14% at net asset value. This result trailed the 18.37% return of the Russell 2000 Index, the Fund's primary benchmark, as well as the 23.48% return of the Russell 2000 Value Index, the Fund's secondary benchmark. The Portfolio's return also lagged the 17.31% average return of the 37 Lipper Small-Cap Value Funds for the same period. Call 1-800-688-9915 or visit www.pioneerinvestments.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 this period. A. Positive economic expectations that fueled a vigorous spring rally yielded to pessimism by summer, causing the market to surrender all of its earlier gains and a bit more. Investor concerns included high energy prices, especially for gasoline, that appeared likely to pinch off consumer spending and thus slow the economy. At the same time, rising interest rates were increasing borrowing costs, and the housing bubble appeared ready to burst. Housing deflation shook homeowners, who had grown accustomed to steady rises in the value of their homes and their perceived wealth. But these fears soon eased. Gasoline and oil prices receded and the housing market appears to have flattened. In addition, the Federal Reserve Board's decision to interrupt its long string of interest rates hikes supported the idea of a soft economic landing, as opposed to the recession that sometimes follows a period of strong expansion. November's election passed without notable market impact on financial markets, and by period's end, Wall Street's overall tone had grown more positive. Q. Which of the Portfolio's sector exposures or holdings helped performance? A. The portfolio benefited from a series of moderate gains in health care as well as from being underweight in the sector. Avoiding the underperforming consumer discretionary sector also aided returns. Technitrol, which produces electronic components and assemblies, boosted earnings while advancing strategic priorities that include a review of product offerings, well-targeted acquisitions, and increasing revenue through margin expansion and price increases. Alaska Communications, a rural telecommunications company, delivered unexpectedly high earnings and an attractive dividend as it enjoyed solid growth in wireless services. Favorable trends in managed Medicaid benefits have significantly aided Amerigroup, an HMO serving beneficiaries of Medicaid and other public programs. Amerigroup 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. 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.pioneerinvestments.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 Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- has added to its roster of state Medicaid programs, tightened cost controls, and kept claims expenses within expectations. Watson Wyatt provides human resources and other business consulting services. Favorable economic conditions have brought increased consulting activity and good earnings growth. And RentWay, a rent-to-buy retailer, was acquired by Rent-A-Center in a friendly merger of competitors. Q. What detracted from results? A. In the first and third quarter of the year, in particular, the Portfolio's deep value strategy was not in favor, and this proved to be a detractor from performance. More specifically, exposure to energy stocks amid declining oil and gas prices was another factor in the Portfolio's underperformance relative to its benchmark. Adverse stock selection in technology was another. Delays in defense programs and weak semiconductor orders caused Mercury Computer Systems to revise earnings expectations downward. Black Box suffered revenue shortfalls in its voice and data product lines. Borland Software continued to revamp its strategy under a new CEO, creating a period of uncertainty. And Avid Technology's earnings remained under pressure from problems associated with attempts to integrate a 2005 acquisition. We continued to hold these companies as we move ahead with our review of Portfolio holdings. Q. What will be your approach to managing the Portfolio? A. We do not expect to make wholesale changes in the Portfolio; instead, our approach will be gradual and cautious, and based on an analysis of each holding. We are taking a fresh look at each stock in terms of its risk and reward potential. We are also reviewing the size of each position in order to avoid overexposure to a single company. That assessment may lead us to pare back stocks that have appreciated beyond our standard of what the Portfolio's maximum commitment to any one issue should be. In that way, we hope to manage the overall risk and return attributes of the portfolio effectively. Q. What is your outlook for the upcoming year? A. We believe small-cap stocks will continue to outperform larger-capitalization issues in 2007. Now that energy prices have backed down and fears of further interest rates hikes are abating, there appears to be more potential for growth among smaller companies. Stable or declining rates should allow small-cap companies to expand earnings without fear of rising borrowing costs. Smaller companies also tend to be more economically sensitive, and so the moderating economic expansion that we anticipate could make the next year one in which careful, bottom-up stock selection is especially important. We do not expect a repeat of recent years when stocks rose broadly. Rather, good analysis will be the key to finding pockets of value and potentially rewarding opportunities. 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 Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Shares Value PREFERRED STOCKS - 0.4% Insurance - 0.4% Multi-Line Insurance - 0.4% 18,640 Quanta Capital Holdings, 10.25%, 12/1/49 $ 345,772 ----------- Total Insurance $ 345,772 ----------- TOTAL PREFERRED STOCKS (Cost $466,000) $ 345,772 ----------- COMMON STOCKS - 86.7% Energy - 5.6% Coal & Consumable Fuels - 0.4% 16,887 Massey Energy Co. $ 392,285 ----------- Oil & Gas Drilling - 0.2% 5,974 Todco $ 204,132 ----------- Oil & Gas Equipment & Services - 2.7% 34,435 Dresser-Rand Group, Inc.* $ 842,624 21,628 Gulfmark Offshore, Inc.* 809,103 52,111 Key Energy Services, Inc.* 815,537 ----------- $ 2,467,264 ----------- Oil & Gas Exploration & Production - 2.3% 18,326 Forest Oil Corp.* $ 598,894 8,617 Penn Virginia Corp. 603,535 21,180 Riata Energy, Inc. (144A)* 381,240 13,890 Southwestern Energy Co.* 486,845 ----------- $ 2,070,514 ----------- Total Energy $ 5,134,195 ----------- Materials - 2.6% Gold - 1.7% 26,978 Goldcorp, Inc. $ 767,254 93,526 IAMGOLD Corp. 823,964 ----------- $ 1,591,218 ----------- Paper Products - 0.3% 35,340 Domtar, Inc. (a) $ 298,270 ----------- Specialty Chemicals - 0.4% 33,101 Chemtura Corp. $ 318,763 ----------- Steel - 0.2% 18,243 NN, Inc. $ 226,760 ----------- Total Materials $ 2,435,011 ----------- Capital Goods - 7.1% Building Products - 0.1% 5,397 Goodman Global, Inc.* $ 92,828 ----------- Construction & Engineering - 0.5% 17,841 Insituform Technologies, Inc.* $ 461,368 -----------
Shares Value Construction, Farm Machinery & Heavy Trucks - 3.1% 34,561 Commercial Vehicle Group, Inc.* $ 753,430 34,652 Federal Signal Corp. 555,818 3,071 Joy Global, Inc. 148,452 2,531 Nacco Industries, Inc. 345,735 34,601 Wabtec Corp. 1,051,178 ----------- $ 2,854,613 ----------- Electrical Component & Equipment - 2.2% 47,100 C&D Technologies, Inc. (a) $ 223,254 92,267 Graftech International, Ltd.* 638,488 152,024 Power-One, Inc.* 1,106,735 ----------- $ 1,968,477 ----------- Industrial Conglomerates - 0.4% 30,300 Cardiome Pharma Corp.* $ 337,845 ----------- Industrial Machinery - 0.5% 9,147 Flowserve Corp.* $ 461,649 ----------- Trading Companies & Distributors - 0.3% 11,567 Applied Industrial Technologies, Inc. $ 304,328 ----------- Total Capital Goods $ 6,481,108 ----------- Commercial Services & Supplies - 2.9% Diversified Commercial Services - 0.7% 16,384 School Specialty, Inc.* $ 614,236 ----------- Human Resource & Employment Services - 2.2% 21,949 Korn/Ferry International* $ 503,949 38,330 On Assignment, Inc.* 450,378 23,438 Watson Wyatt Worldwide, Inc. 1,058,226 ----------- $ 2,012,553 ----------- Total Commercial Services & Supplies $ 2,626,789 ----------- Transportation - 3.7% Air Freight & Couriers - 1.0% 14,251 Forward Air Corp. $ 412,281 17,344 Pacer International, Inc. 516,331 ----------- $ 928,612 ----------- Marine - 1.3% 4,569 Dryships, Inc. (a) $ 82,288 21,826 Excel Maritime Carriers, Ltd.* 318,878 10,732 Genco Shipping & Trading, Ltd. 299,852 40,205 Quintana Maritime, Ltd. (a) 443,059 ----------- $ 1,144,077 ----------- Railroads - 0.7% 24,891 Genesee & Wyoming, Inc.* $ 652,891 ----------- Trucking - 0.7% 10,190 Dollar Thrifty Automotive Group* $ 464,766 8,501 Universal Truckload Services, Inc.* 201,899 ----------- $ 666,665 ----------- Total Transportation $ 3,392,245 -----------
6 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value Automobiles & Components - 1.0% Tires & Rubber - 1.0% 64,750 Cooper Tire & Rubber (a) $ 925,925 ----------- Total Automobiles & Components $ 925,925 ----------- Consumer Durables & Apparel - 3.1% Apparel, Accessories & Luxury Goods - 0.9% 15,500 Phillips-Van Heusen $ 777,635 ----------- Footwear - 1.3% 17,500 Skechers U.S.A.* $ 582,925 22,200 Wolverine World Wide, Inc. 633,144 ----------- $ 1,216,069 ----------- Housewares & Specialties - 0.9% 23,141 Jarden Corp.*(a) $ 805,075 ----------- Total Consumer Durables & Apparel $ 2,798,779 ----------- Consumer Services - 2.8% Casinos & Gaming - 1.2% 36,700 Scientific Games Corp.* $ 1,109,441 ----------- Hotels, Resorts & Cruise Lines - 0.4% 11,900 Ambassadors Group, Inc. $ 361,165 ----------- Restaurants - 1.2% 30,575 AFC Enterprises, Inc.* $ 540,260 16,600 Rare Hospitality International, Inc.* 546,638 ----------- $ 1,086,898 ----------- Total Consumer Services $ 2,557,504 ----------- Media - 0.6% Advertising - 0.6% 114,600 Harris Interactive Inc.* $ 577,584 ----------- Total Media $ 577,584 ----------- Retailing - 2.8% Apparel Retail - 2.8% 31,300 Bebe Stores, Inc. $ 619,427 45,700 New York & Co., Inc.* 597,756 23,549 Stage Stores, Inc. 715,654 26,900 The Dress Barn, Inc.* 627,577 ----------- $ 2,560,414 ----------- Total Retailing $ 2,560,414 ----------- Food & Drug Retailing - 0.5% Food Retail - 0.5% 22,900 Alimentation Couche-Tard, Inc. $ 500,633 ----------- Total Food & Drug Retailing $ 500,633 ----------- Food, Beverage & Tobacco - 0.6% Packaged Foods & Meats - 0.6% 27,260 B & G Foods, Inc. $ 545,745 ----------- Total Food, Beverage & Tobacco $ 545,745 -----------
Shares Value Household & Personal Products - 3.3% Household Products - 0.8% 15,500 Central Garden & Pet Co.* $ 750,510 ----------- Personal Products - 2.5% 40,900 Elizabeth Arden* $ 779,145 19,295 Herbalife, Ltd.* 774,887 38,012 Nu Skin Enterprises, Inc. 692,959 1,510 Reliv International, Inc. 13,107 ----------- $ 2,260,098 ----------- Total Household & Personal Products $ 3,010,608 ----------- Health Care Equipment & Services - 8.0% Health Care Equipment - 1.0% 16,818 Analogic Corp. $ 944,163 ----------- Health Care Facilities - 0.6% 8,750 Lifepoint Hospitals, Inc.* $ 294,875 6,865 Triad Hospitals, Inc.* 287,163 ----------- $ 582,038 ----------- Health Care Services - 3.9% 17,797 Chemed Corp. $ 658,133 60,862 Cross Country Healthcares, Inc.* 1,328,009 15,808 Pediatrix Medical Group, Inc.* 773,011 31,249 Providence Service Corp.*(a) 785,287 ----------- $ 3,544,440 ----------- Health Care Supplies - 1.1% 61,120 Merit Medical Systems, Inc.* $ 968,141 ----------- Managed Health Care - 1.4% 35,250 AMERIGROUP Corp.* $ 1,265,123 ----------- Total Health Care Equipment & Services $ 7,303,905 ----------- Pharmaceuticals & Biotechnology - 1.9% Biotechnology - 1.3% 31,400 Array Biopharma, Inc.* $ 405,688 5,625 Cubist Pharmaceuticals, Inc.*(a) 101,869 16,500 Regeneron Pharmaceuticals, Inc.* 331,155 8,800 Vertex Pharmaceuticals, Inc.* 329,296 ----------- $ 1,168,008 ----------- Life Sciences Tools & Services - 0.6% 8,900 Advanced Magnetics, Inc.* $ 531,508 ----------- Total Pharmaceuticals & Biotechnology $ 1,699,516 -----------
The accompanying notes are an integral part of these financial statements. 7 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Shares Value Banks - 5.3% Regional Banks - 4.5% 15,483 Alliance Bankshares Corp.* $ 242,309 18,950 Cadence Financial Corp.* 410,647 48,365 Cardinal Financial Corp. 495,741 10,045 City National Corp. 715,204 22,900 Hansen Natural Corp.*(a) 771,272 3,209 Signature Bank* 99,415 27,508 Southwest Bancorp, Inc. 766,373 16,152 Sterling Bancshares, Inc. 210,299 18,909 Texas Capital Bancshares, Inc.* 375,911 ----------- $ 4,087,171 ----------- Thrifts & Mortgage Finance - 0.8% 31,088 BankAtlantic Bancorp, Inc. $ 429,325 17,004 Provident Financial Services, Inc. 308,283 ----------- $ 737,608 ----------- Total Banks $ 4,824,779 ----------- Diversified Financials - 5.3% Asset Management & Custody Banks - 1.8% 73,160 Apollo Investment Corp. $ 1,638,784 ----------- Consumer Finance - 2.1% 15,097 Advanta Corp. $ 601,012 17,671 Advanta Corp. (Class B) 770,986 11,736 Cash America International, Inc. 550,418 ----------- $ 1,922,416 ----------- Investment Banking & Brokerage - 0.7% 9,505 A.G. Edwards, Inc. $ 601,571 ----------- Multi-Sector Holding - 0.6% 34,050 Compass Diversified Trust $ 583,958 ----------- Specialized Finance - 0.1% 4,026 Nasdaq Stock Market, Inc.* $ 123,961 ----------- Total Diversified Financials $ 4,870,690 ----------- Insurance - 6.0% Life & Health Insurance - 0.4% 29,718 American Equity Investment Life Holding $ 387,226 ----------- Multi-Line Insurance - 0.3% 130,114 Quanta Capital Holdings* $ 279,745 ----------- Property & Casualty Insurance - 2.1% 53,534 Assured Guaranty, Ltd. $ 1,424,004 3,700 Ohio Casualty Corp. 110,297 6,528 Selective Insurance Group, Inc. 373,989 ----------- $ 1,908,290 -----------
Shares Value Reinsurance - 3.2% 38,025 IPC Holdings, Ltd. $ 1,195,886 16,466 Max Re Capital, Ltd. 408,686 21,688 Platinum Underwriter Holdings, Ltd. 671,027 41,717 Ram Holdings, Ltd.* 596,136 ----------- $ 2,871,735 ----------- Total Insurance $ 5,446,996 ----------- Real Estate - 3.8% Mortgage Real Estate Investment Trusts - 2.3% 41,035 Annaly Capital Management, Inc. $ 570,797 93,841 Deerfield Triarc Capital Corp. 1,588,728 ----------- $ 2,159,525 ----------- Office Real Estate Investment Trusts - 1.2% 37,895 BioMed Property Trust, Inc. $ 1,083,797 ----------- Retail Real Estate Investment Trusts - 0.3% 19,736 Feldman Mall Properties, Inc. $ 246,700 ----------- Total Real Estate $ 3,490,022 ----------- Software & Services - 6.8% Application Software - 4.5% 91,402 Aspen Technology, Inc.* $ 1,007,250 46,449 Bottomline Technologies, Inc.* 531,841 23,941 Corel Corp.* 323,204 52,413 Sonic Solutions*(a) 854,332 20,629 SPSS, Inc.* 620,314 84,189 TIBCO Software, Inc.* 794,744 ----------- $ 4,131,685 ----------- IT Consulting & Other Services - 1.1% 39,893 Gartner Group, Inc.* $ 789,482 13,155 NCI, Inc.* 201,140 ----------- $ 990,622 ----------- Systems Software - 1.2% 111,728 Borland Software Corp.* $ 607,800 18,172 Sybase, Inc.* 448,848 ----------- $ 1,056,648 ----------- Total Software & Services $ 6,178,955 ----------- Technology Hardware & Equipment - 9.0% Communications Equipment - 2.7% 10,858 Black Box Corp. $ 455,927 38,324 Dycom Industries, Inc.* 809,403 132,383 Symmetricom, Inc.* 1,180,856 ----------- $ 2,446,186 ----------- Computer Hardware - 1.7% 34,261 Avid Technology, Inc.*(a) $ 1,276,565 144,936 Concurrent Computer Corp.* 262,334 ----------- $ 1,538,899 -----------
8 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value Computer Storage & Peripherals - 0.7% 23,714 Electronics for Imaging, Inc.* $ 630,318 ----------- Electronic Equipment & Instruments - 1.0% 4,344 Electro Scientific Industrials* $ 87,488 18,490 Planar Systems, Inc.* 178,798 25,962 Technitrol, Inc. 620,232 ----------- $ 886,518 ----------- Electronic Manufacturing Services - 1.4% 35,289 Mercury Computer Systems, Inc.* $ 471,461 60,725 Smart Modular Technologies (WWH), Inc.* 817,359 ----------- $ 1,288,820 ----------- Technology Distributors - 1.5% 74,806 Insight Enterprises, Inc.* $ 1,411,589 ----------- Total Technology Hardware & Equipment $ 8,202,330 ----------- Semiconductors - 0.9% Semiconductor Equipment - 0.3% 23,213 Brooks Automation, Inc.* $ 334,267 ----------- Semiconductors - 0.6% 80,844 Lattice Semiconductor Corp.* $ 523,869 ----------- Total Semiconductors $ 858,136 ----------- Telecommunication Services - 1.3% Integrated Telecommunication Services - 1.3% 80,733 Alaska Communications Systems Group, Inc. $ 1,226,334 ----------- Total Telecommunication Services $ 1,226,334 ----------- Utilities - 1.8% Gas Utilities - 1.8% 26,598 AGL Resources, Inc. $ 1,034,928 12,206 Energen Corp. 572,950 ----------- $ 1,607,878 ----------- Total Utilities $ 1,607,878 ----------- TOTAL COMMON STOCKS (Cost $69,200,973) $79,256,081 ----------- EXCHANGE TRADED FUNDS - 0.9% 3,177 Russell 2000 Exchange Traded Fund (a) $ 247,901 3,345 Russell 2000 Growth Exchange Traded Fund 263,486 3,620 Russell 2000 Value Exchange Traded Fund (a) 289,745 ----------- $ 801,132 ----------- TOTAL EXCHANGE TRADED FUNDS (Cost $621,348) $ 801,132 -----------
Principal Amount Value TEMPORARY CASH INVESTMENTS - 19.1% Repurchase Agreement - 11.8% $10,800,000 UBS Warburg, Inc., 4.7%, dated 12/29/06, repurchase price of $10,800,000 plus accrued interest on 1/2/07 collateralized by $10,853,000 U.S. Treasury Bill, 5.625%, 5/15/08 $10,800,000 ----------- Shares Security Lending Collateral - 7.3% 6,700,960 Securities Lending Investment Fund, 5.26% $ 6,700,960 ----------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $17,500,960) $17,500,960 ----------- TOTAL INVESTMENT IN SECURITIES - 107.1% (Cost $87,789,281) $97,903,945 ----------- OTHER ASSETS AND LIABILITIES - (7.1)% $(6,508,155) ----------- TOTAL NET ASSETS - 100.0% $91,395,790 -----------
* 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, 2006, the value of these securities amounted to $381,240 or 0.4% of total net assets. (a) At December 31, 2006, the following securities were out on loan:
Shares Security Value 33,918 Avid Technology, Inc.* $ 1,263,785 46,629 C&D Technologies, Inc. 221,021 64,102 Cooper Tire & Rubber 916,659 5,569 Cubist Pharmaceuticals, Inc.* 100,855 34,942 Domtar, Inc. 294,910 4,522 Dryships, Inc. 81,441 19,998 Hansen Natural Corp.* 673,533 20,633 Jarden Corp.* 717,822 30,845 Providence Service Corp.* 775,135 39,739 Quintana Maritime. Ltd. 437,924 3,059 Russell 2000 Exchange Traded Fund 238,694 3,556 Russell 2000 Value Exchange Traded Fund 284,622 29,317 Sonic Solutions* 477,867 ----------- Total $ 6,484,268 -----------
The accompanying notes are an integral part of these financial statements. 9 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
Year Year Year 5/1/03 (a) Ended Ended Ended to Class II 12/31/06 12/31/05 12/31/04 12/31/03 Net asset value, beginning of period $ 16.07 $ 14.95 $ 12.47 $ 9.11 -------- ------- ------- ------- Increase (decrease) from investment operations: Net investment income (loss) $ 0.07 $ 0.02 $ (0.03) $ -- Net realized and unrealized gain on investments, futures contracts and foreign currency transactions 2.14 1.59 2.51 3.36 -------- ------- ------- -------- Net increase from investment operations $ 2.21 $ 1.61 $ 2.48 $ 3.36 Distributions to shareowners: Net investment income (0.00)(c) -- -- -- Net realized gain (0.52) (0.49) -- -- -------- ------- ------- -------- Net increase in net asset value $ 1.69 $ 1.12 $ 2.48 $ 3.36 -------- ------- ------- -------- Net asset value, end of period $ 17.76 $ 16.07 $ 14.95 $ 12.47 -------- ------- ------- -------- Total return* 14.14% 11.10% 19.89% 36.88%(b) Ratio of net expenses to average net assets+ 1.21% 1.39% 1.54% 1.58%* * Ratio of net investment income (loss) to average net assets+ 0.58% 0.16% (0.41)% (0.15)%** Portfolio turnover rate 78% 38% 36% 74% Net assets, end of period (in thousands) $ 35,726 $21,700 $10,845 $ 2,760 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.21% 1.39% 1.59% 2.65%* * Net investment income (loss) 0.58% 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 1.21% 1.39% 1.54% 1.58%* * Net investment income (loss) 0.58% 0.16% (0.41)% (0.15)%**
(a) Class II shares were first publicly offered on May 1, 2003. (b) Not annualized. (c) Amount rounds to less than one cent per share. * Assumes initial investment at net asset value at the beginning of each period, reinvestment of all distributions and the complete redemption of the investment at the net asset value at the end of each period. ** Annualized. + Ratios with no reduction for fee 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 VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $6,484,268) (cost $87,789,281) $97,903,945 Receivables -- Investment securities sold 651,638 Fund shares sold 101,652 Dividends, interest and foreign taxes withheld 126,371 Other 9,512 ----------- Total assets $98,793,118 ----------- LIABILITIES: Payables -- Investment securities purchased $ 78,076 Fund shares repurchased 305,333 Upon return of securities loaned 6,700,960 Variation margin 79,300 Due to bank 84,431 Due to affiliates 7,838 Accrued expenses 141,390 ----------- Total liabilities $ 7,397,328 ----------- NET ASSETS: Paid-in capital $61,214,027 Undistributed net investment income 567,692 Accumulated net realized gain on investments 19,571,576 Net unrealized gain (loss) on: Investments 10,114,664 Futures contracts (72,169) ----------- Total net assets $91,395,790 ----------- NET ASSET VALUE PER SHARE: Class I: (No par value, unlimited number of shares authorized) Net assets $55,669,901 Shares outstanding 3,107,085 ----------- Net asset value per share $ 17.92 Class II: (No par value, unlimited number of shares authorized) Net assets $35,725,889 Shares outstanding 2,011,414 ----------- Net asset value per share $ 17.76
The accompanying notes are an integral part of these financial statements. 11 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $1,158) $ 935,589 Interest 311,412 Income on securities loaned, net 45,624 ------------- Total investment income $ 1,292,625 ------------- EXPENSES: Management fees $ 536,724 Transfer agent fees and expenses 2,974 Distribution fees (Class II) 74,174 Administrative reimbursements 6,693 Custodian fees 53,883 Professional fees 46,456 Printing expense 20,794 Fees and expenses of nonaffiliated trustees 3,943 Miscellaneous 3,941 ------------- Total expenses $ 749,582 Less fees paid indirectly (4,322) ------------- Net expenses $ 745,260 ------------- Net investment income $ 547,365 ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ 19,476,657 Redemption in kind 2,170,275 Futures contracts 228,269 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 3,557 ------------- $ 21,878,758 ------------- Change in net unrealized gain or loss from: Investments $ (12,238,362) Futures contracts (54,441) ------------- $ (12,292,803) ------------- Net gain on investments, futures contracts and foreign currency transactions $ 9,585,955 ------------- Net increase in net assets resulting from operations $ 10,133,320 -------------
12 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 547,365 $ 92,250 Net realized gain on investments 21,878,758 3,025,018 Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions (12,292,803) 1,010,721 ------------- ------------ Net increase in net assets resulting from operations $ 10,133,320 $ 4,127,989 ------------- ------------ DISTRIBUTIONS TO SHAREOWNERS: Net investment income: Class I $ (73,422) $ -- Class II (580) -- Net realized gain Class I (1,788,652) (593,880) Class II (1,003,743) (497,417) ------------- ------------ Total distributions to shareowners $ (2,866,397) $ (1,091,297) ------------- ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 22,676,670 $ 20,346,152 Shares issued in reorganization 51,400,124 -- Redemption in kind (11,792,154) -- Reinvestment of distributions 2,866,396 -- Cost of shares repurchased (23,276,376) (9,966,656) ------------- ------------ Net increase in net assets resulting from Fund share transactions $ 41,874,660 $ 10,379,496 ------------- ------------ Net increase in net assets $ 49,141,583 $ 13,416,188 ------------- ------------ NET ASSETS: Beginning of year $ 42,254,207 $ 28,838,019 ------------- ------------ End of year $ 91,395,790 $ 42,254,207 ------------- ------------ Undistributed net investment income, end of year $ 567,692 $ 94,683 ------------- ------------
The accompanying notes are an integral part of these financial statements. 13 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 the Portfolio is to seek capital appreciation. 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(es). Please refer to those documents when considering the Portfolio's risks. 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 year. 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 are valued at their fair values as determined by, or under the direction of, the Board of Trustees. 14 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2006, 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. 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, 2006, 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 26 March '07 $10,333,700 $(72,169) - ---------------------------------------------------------------------------------------------------------------
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, if any, 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. 15 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, 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 - ----------------------------------------------------------------------------------- Small Cap Value Portfolio $(24,127) $(2,112,239) $2,136,366 ======== =========== ========== - -----------------------------------------------------------------------------------
The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis.
- ---------------------------------------------------------------------------------------- 2006 2005 - ---------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 626,668 $ -- Long-Term Capital Gain 2,239,729 1,091,297 -------------------------- $ 2,866,397 $1,091,297 Return of Capital -- -- -------------------------- Total Distributions $ 2,866,397 $1,091,297 ========================== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 1,693,319 Undistributed long-term gain/(Capital loss carryforward) 18,430,339 Unrealized appreciation (depreciation) 10,058,105 ----------- Total $30,181,763 =========== - ----------------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation is primarily attributable to the tax deferral of losses on wash sales, tax basis adjustments on Real Estate Investment Trust (REIT) holdings, exchange traded funds and open future contracts. 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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. 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. 16 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 0.75% 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, 2006, $5,858 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 $1,242 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $738 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $87,845,840 $12,007,784 $(1,949,679) $10,058,105 =========== =========== =========== =========== - -----------------------------------------------------------------------------------------------------
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, 2006, were $52,507,516 and $75,006,993, respectively. 7. Commission Recapture and Expense Offset Arrangements Effective July 15, 2005, the Portfolio has entered into commission recapture arrangements with brokers with whom PIM places trades on behalf of the Portfolio where they provide services to the Portfolio in addition to trade execution. These services included payments of certain expenses on behalf of the Portfolio. For the year ended 17 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- December 31, 2006, expenses were reduced by $4,322 under this agreement. In addition, the Portfolio has entered into certain expense offset arrangements with PIMSS resulting in a reduction in the Portfolio's total expenses due to interest earned on cash held by PIMSS. For the year ended December 31, 2006, the Portfolio's expenses were not reduced under such arrangements. 8. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- ------------------------------------------------------------------------------------------------------- Small Cap Value Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ------------------------------------------------------------------------------------------------------- CLASS I: Shares sold 431,363 $ 7,373,050 571,103 $ 8,553,972 Shares issued in reorganizations 2,861,983 48,796,816 -- -- Redemption in kind (654,874) (11,792,154) -- -- Reinvestment of distributions 116,744 1,862,073 40,427 589,019 Shares repurchased (917,774) (15,465,902) (539,585) (8,145,222) ------------------------------------------------------------- Net increase 1,837,442 $ 30,773,883 71,945 $ 997,769 ============================================================= CLASS II: Shares sold 904,223 $ 15,303,620 712,018 $ 10,705,770 Shares issued in reorganizations 153,951 2,603,308 -- -- Reinvestment of distributions 63,445 1,004,323 34,350 497,391 Shares repurchased (460,455) (7,810,474) (121,596) (1,821,434) ------------------------------------------------------------- Net increase 661,164 $ 11,100,777 624,772 $ 9,381,727 ============================================================= - -------------------------------------------------------------------------------------------------------
9. Merger Information On May 23, 2006, beneficial owners of Pioneer Small Company VCT Portfolio and Pioneer Small Cap Value II VCT Portfolio approved a proposed Agreement and Plan of Reorganization that provided for the merger listed below. This tax-free reorganization was accomplished on May 24, 2006, by exchanging all of Pioneer Small Company VCT Portfolio's Class I and Class II net assets and Pioneer Small Cap Value II VCT Portfolio's Class I net assets for Pioneer Small Cap Value VCT Portfolio's shares, based on Pioneer Small Cap Value VCT Portfolio's Class I and Class II shares' ending net asset value, respectively. The following charts show the details of the reorganization as of that closing date ("Closing Date"):
- ------------------------------------------------------------------------------------------------------------------------------------ Pioneer Small Pioneer Small Pioneer Small Pioneer Small Cap Value Company Cap Value II Cap Value VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio (Pre-Reorganization) (Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization) - ------------------------------------------------------------------------------------------------------------------------------------ Net Assets Class I $11,665,357 $3,024,465 $45,772,351 $60,462,173 Class II 30,138,805 2,603,308 -- 32,742,113 ------------------------------------------------------------------------------------------- Total Net Assets $41,804,162 $5,627,773 $45,772,351 $93,204,286 =========================================================================================== Shares Outstanding Class I 684,211 247,234 2,521,638 3,546,194 Class II 1,782,074 215,447 -- 1,936,025 Shares Issued in Reorganization Class I 2,861,983 Class II 153,951 - ------------------------------------------------------------------------------------------------------------------------------------
18 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------- Unrealized Appreciation Accumulated Gain/(Loss) on Closing Date on Closing Date - ----------------------------------------------------------------------------------------------------- Pioneer Small Company VCT Portfolio $ 1,554,529 $ 1,706 Pioneer Small Cap Value II VCT Portfolio 14,635,856 (85,337) ------------------------------------------------------ Total $16,190,385 $ (83,631) ====================================================== - -----------------------------------------------------------------------------------------------------
10. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 19 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap 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 Small Cap Value VCT Portfolio: We have audited the accompanying statement of assets and liabilities of Pioneer Small Cap Value VCT Portfolio (including the former Pioneer Small Cap Value II VCT Portfolio and Pioneer Small Company VCT Portfolio, which merged with this fund), one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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, 2006, by correspondence with the custodian and brokers. 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, 2006, 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 9, 2007 20 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap 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"), 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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. 21 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- 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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group and an index considered appropriate by the Independent Trustees for this purpose. The Fund's performance, based upon total return, was in the second quintile of its Morningstar category peer group for the 12 months ended June 30, 2006 and the second quintile of the peer group for the three years ended June 30, 2006. (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 noted that the return of the Fund, before deduction of fees, exceeded the return of the Fund's benchmark index for the 12-month period ended June 30, 2006 The Trustees, focusing on three-year total returns, concluded that the performance of the Fund was good. 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 size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee for the 12 months ended June 30, 2006 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 also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 (after giving effect to the expense limitation) to be in the third quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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 22 PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- break point in the management fee was not necessary. 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, 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 23 - -------------------------------------------------------------------------------- Pioneer Small Cap Value VCT Portfolio TRUSTEES, OFFICERS AND SERVICE PROVIDERS - -------------------------------------------------------------------------------- Investment Adviser Pioneer Investment Management, Inc. Custodian Brown Brothers Harriman & Co. Independent Registered Public Accounting Firm Ernst & Young LLP Principal Underwriter Pioneer Funds Distributor, Inc. Legal Counsel Wilmer Cutler Pickering Hale and Dorr LLP Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc. Trustees and Officers The trust's Board of Trustees provides broad supervision over the portfolio's affairs. The officers of the trust are responsible for the trust's operations. The trust's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the trust within the meaning of the 1940 Act are referred to as Interested Trustees. Trustees who are not interested persons of the trust are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 86 U.S. registered investment portfolios for which Pioneer serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the trust is 60 State Street, Boston, Massachusetts 02109. - -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Board, Trustee until a successor trustee and President is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Deputy Chairman and a Director of Pioneer Global Director of ICI Mutual Insurance Company Asset Management S.p.A. ("PGAM"); Non-Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - ------------------------------------------------------------------------------------------------------------------------------------
24 Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS David R. Bock (63) Trustee Trustee since 2005. Serves Senior Vice President and Chief Financial Officer, 3050 K. Street NW, until a successor trustee I-trax, Inc. (publicly traded health care services Washington, DC 20007 is elected or earlier company) (2001 - present); Managing Partner, Federal retirement or removal. City Capital Advisors (boutique merchant bank) (2002 to 2004); and Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet- based mortgage trading company) (2000 - 2002) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Trustee Trustee since 2000. Serves President, Bush International (international 3509 Woodbine Street, until a successor trustee financial advisory firm) Chevy Chase, MD 20815 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves Founding Director, The Winthrop Group, Inc. 1001 Sherbrooke Street West until a successor trustee (consulting firm); and Desautels Faculty of Montreal, Quebec, Canada is elected or earlier Management, McGill University H3A 1G5 retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Trustee Trustee since 2006. Serves Private investor (2004 - present); and Senior 89 Robbins Avenue, until a successor trustee Executive Vice President, The Bank of New York Berkeley Heights, NJ is elected or earlier (financial and securities services) (1986 - 2004) 07922 retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Trustee Trustee since 1995. Serves President and Chief Executive Officer, Newbury, 200 State Street, 12th until a successor trustee Piret & Company, Inc. (investment banking firm) Floor, Boston, MA 02109 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) Trustee Trustee since 2000. Serves President, John Winthrop & Co., Inc. (private One North Adgers Wharf, until a successor trustee investment firm) Charleston, SC 29401 is elected or earlier retirement or removal. - ------------------------------------------------------------------------------------------------------------------------------------ NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE David R. Bock (63) Director of The Enterprise Social Investment 3050 K. Street NW, Company (privately-held affordable housing Washington, DC 20007 finance company); and Director of New York Mortgage Trust (publicly traded mortgage REIT) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Director of Brady Corporation (industrial 3509 Woodbine Street, identification and specialty coated material Chevy Chase, MD 20815 products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) None 1001 Sherbrooke Street West, Montreal, Quebec, Canada H3A 1G5 - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Director of Quadriserv Inc. (technology 89 Robbins Avenue, products for securities lending industry) Berkeley Heights, NJ 07922 - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Director of New America High Income Fund, 200 State Street, 12th Inc. (closed-end investment company) Floor, Boston, MA 02109 - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) None One North Adgers Wharf, Charleston, SC 29401 - ------------------------------------------------------------------------------------------------------------------------------------
25 Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Assistant Since 2003. Serves at the Secretary discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey Assistant Since 2006. Serves at the (45) Secretary discretion of the Board Vincent Nave (61) Treasurer Since 2000. Serves at the discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Assistant Since 2004. Serves at the Treasurer discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Since 2000. Serves at the Treasurer discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Assistant Since 2002. Serves at the Treasurer discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS OFFICER Osbert M. Hood (54)+ President and Chief Executive Officer, PIM-USA since Trustee of certain Pioneer Funds May 2003 (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary of PIM-USA; Senior Vice President - Legal None of Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley (42) Vice President and Senior Counsel of Pioneer since None 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 of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey Partner, Wilmer Cutler Pickering Hale and Dorr LLP; None (45) and Assistant Secretary of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Vice President - Fund Accounting, Administration and None Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Deputy Treasurer of Pioneer since 2004; Treasurer None and Senior 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 - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Vice President - Fund Accounting, None Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Fund Accounting Manager - Fund Accounting, None Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------------------------------
26 Pioneer Small Cap Value VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Katherine Kim Sullivan Assistant Since 2003. Serves at the (33) Treasurer discretion of the Board - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Since 2006. Serves at the Compliance discretion of the Board Officer - ------------------------------------------------------------------------------------------------------------------------------------ NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY THIS OFFICER Katherine Kim Sullivan Fund Administration Manager - Fund Accounting, None (33) Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Compliance Officer of Pioneer and all of the None Pioneer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio'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) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18669-01-0207 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Small and Mid Cap Growth VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2006 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
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 12/31/06 - -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING DATA IS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL] U.S. Common Stocks 92.1% Despositary Receipts for International Stocks 4.2% Temporary Cash Investment 3.7%
Sector Distribution (As a percentage of equity holdings) [THE FOLLOWING DATA IS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL] Information Technology 25.2% Consumer Discretionary 21.6% Health Care 18.8% Industrials 11.4% Financials 11.0% Energy 6.1% Materials 3.0% Consumer Staples 2.9%
Five Largest Holdings (As a percentage of equity holdings) 1. WPP Group Plc 4.30% 2. Fiserv, Inc. 3.84 3. Micros Systems, Inc. 3.75 4. Mettler-Toledo International, Inc. 3.72 5. Microchip Technology 3.59
The Portfolio is actively managed and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $ 12.26 $ 11.37
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) 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 IS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Small and Mid Russell 2500 Cap Growth VCT Portfolio Growth Index 3/04 $10,000 $10,000 12/04 $10,752 $10,861 12/05 $11,246 $11,749 12/06 $12,127 $13,190
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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- Life-of-Class (3/15/04) 7.56% 1 Year 7.83%
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 pioneerinvestments.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, 2006 through December 31, 2006.
Share Class II - ------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,051.49 Expenses Paid During Period* $ 5.17
* 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, 2006 through December 31, 2006.
Share Class II - ------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 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 12/31/06 - -------------------------------------------------------------------------------- Investors in high-quality, domestic growth stocks faced a challenging environment during 2006, as strategies that took the greatest investment risk tended to reap the highest rewards. Although most stock market indexes made impressive gains during the 12 months ended December 31, 2006, the stocks of companies with more consistent earnings did not fully participate in the gains. In the following interview, L. Roy Papp and Rosellen Papp, members of the management team of L. Roy Papp & Associates, LLP, which is responsible for the management of Pioneer Small and Mid Cap Growth VCT Portfolio, discuss the factors that influenced performance during the 12 months ended December 31, 2006. Q. How did the Portfolio perform during 2006? A. The Portfolio's emphasis on smaller-growth companies was not rewarded, especially during the market rally in the second half of the year. Pioneer Small and Mid Cap Growth VCT Portfolio (Class II shares) had a total return of 7.83%, at net asset value, for the 12 months ended December 31, 2006. During the same year, the Russell 2500 Growth Index rose by 12.26%. The average return of the 144 funds in Lipper's Mid-Cap Growth category was 8.66% during 2006. Call 1-800-688-9915 or visit www.pioneerinvestments.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 performance for the period? A. The Portfolio performed relatively well in the first six months of the year, in line with the Russell benchmark. However, in the robust rally in the final half of 2006, many of the top performers tended to be the types of companies with less consistent earnings that we avoid. The year did not favor our investment strategy, which focuses on stable-growth companies that have superior long-term earnings potential and that tend to be more defensive in nature. To illustrate the dominant trend in the stock market during 2006, the best-performing stock in the Dow Jones Industrial Average was General Motors, as investors speculated that the giant auto company would be able to avoid bankruptcy. However, this is not the kind of stock that we would typically own, as General Motors has been losing money and market share in a highly cyclical business. We tend to avoid corporations in cyclical industries, preferring strong companies with solid balance sheets and the ability to grow their profits steadily. We look for companies that are the beneficiaries of long-term secular growth trends. For example, we like information technology companies, whose products are helping to drive productivity increases, and we like health-care and financial services companies whose products and services are in demand as our population ages and the baby boomer generation reaches their 60s. In addition, we favor those corporations that are the beneficiaries of the globalization of commerce. When we find good companies, we tend to wait until their price is attractive enough to invest, as we do not want to overpay. We made several adjustments to the Portfolio's holdings during 2006. We established positions in: specialty retailer Coach; operator of NASCAR auto racing tracks, International Speedway; and industrials companies ITT and Gardner Denver. Although we ended the year underweighted in the energy sector, we did add investments in oil services companies Cameron International (formerly Cooper Cameron) and TETRA Technologies and in gas and oil exploration and production companies Chesapeake Energy and Pioneer Natural Resources. We sold our positions in two semiconductor equipment companies, KLA-Tencor and Novellus, when we saw delays in the semiconductor cycle. We also sold our investments in: Plantronics, a producer of high technology audio equipment that had more volatile earnings, and Simpson Manufacturing, a housing materials company; and sports vehicle manufacturer Polaris, which was affected by high energy prices. 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 pioneerinvestments.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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Q. What were some of the investments that most affected results? A. Two consumer discretionary stocks that performed well were Brinker International, operator of several restaurant chains, including Chili's, and Coach, the specialty retailer specializing in luxury goods. Technology investment Trimble Navigation also helped performance based upon the success of its global positioning product used by the commercial building industry. DeVry, which operates a chain of adult education and vocational training schools, also did well. In the health-care sector, several stocks performed well, including: ResMed, which develops products to treat sleep disorders; Stryker, a manufacturer of orthopedic products; and C.R. Bard, which develops products for vascular, urological and oncology treatments. Some health-care investments had disappointing results, however, including Express-Scripts and Medco, two pharmacy benefits managers. We have reduced our positions in both companies. Techne, which produces laboratory materials for the biotechnology industry, also underperformed, but we have maintained our position because of the company's longer-term outlook. Financial services company Federated Investors was hurt by low interest rates, which affected its money market-related business, but we retain confidence in it for the longer run. Cintas, which provides uniform and laundry service, was hurt by high energy prices which increased both its transportation and cleaning costs. Among our technology investments, disappointments included Linear Technology, Microchip Technology, and semiconductor equipment companies Microchip and KLA-Tencor and Novellus. Q. What is your investment outlook? A. We believe the economy should do well in the coming months. Corporations are entering the new year with very strong balance sheets and growing earnings, while the investment backdrop is supported by relatively low unemployment and strong flows of tax receipts to governments. However, we believe that economic growth is likely to be less robust than we have seen in the past two years. In this environment, we believe the types of stocks that we emphasize should do well, as they tend to have more durable and consistent earnings growth. 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 12/31/06 - --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 97.7% Energy - 6.0% Oil & Gas Equipment & Services - 3.7% 1,200 Cameron International Corp.* $ 63,660 1,100 FMC Technologies, Inc.* 67,793 2,600 TETRA Technologies, Inc.*(a) 66,508 ---------- $ 197,961 ---------- Oil & Gas Exploration & Production - 2.3% 1,900 Chesapeake Energy Corp. (a) $ 55,195 1,600 Pioneer Natural Resources Co. 63,504 ---------- $ 118,699 ---------- Total Energy $ 316,660 ---------- Materials - 2.9% Specialty Chemicals - 2.9% 2,000 Sigma-Aldrich Corp. $ 155,440 ---------- Total Materials $ 155,440 ---------- Capital Goods - 3.3% Industrial Machinery - 3.3% 2,100 Gardner Denver, Inc.* $ 78,351 1,700 ITT Corp. 96,594 ---------- $ 174,945 ---------- Total Capital Goods $ 174,945 ---------- Commercial Services & Supplies - 4.9% Diversified Commercial Services - 4.9% 2,750 ChoicePoint, Inc.* $ 108,295 3,898 Cintas Corp. 154,790 ---------- $ 263,085 ---------- Total Commercial Services & Supplies $ 263,085 ---------- Transportation - 2.9% Air Freight & Couriers - 2.9% 3,800 Expeditors International of Washington, Inc. $ 153,900 ---------- Total Transportation $ 153,900 ---------- Consumer Durables & Apparel - 3.2% Apparel, Accessories & Luxury Goods - 3.2% 4,000 Coach, Inc.* $ 171,840 ---------- Total Consumer Durables & Apparel $ 171,840 ---------- Consumer Services - 6.7% Education Services - 1.8% 3,500 DeVry, Inc. $ 98,000 ---------- Leisure Facilities - 2.3% 2,400 International Speedway Corp. $ 122,496 ---------- Restaurants - 2.6% 4,500 Brinker International, Inc. $ 135,720 ---------- Total Consumer Services $ 356,216 ---------- Media - 7.7% Advertising - 7.7% 6,700 Harte -Hanks, Inc. $ 185,657 3,300 WPP Group Plc 223,541 ---------- $ 409,198 ---------- Total Media $ 409,198 ---------- Retailing - 3.5% Automotive Retail - 3.5% 5,800 O'Reilly Automotive, Inc.* $ 185,948 ---------- Total Retailing $ 185,948 ---------- Household & Personal Products - 2.8% Household Products - 2.8% 2,300 Clorox Co. $ 147,545 ---------- Total Household & Personal Products $ 147,545 ---------- Health Care Equipment & Services - 13.4% Health Care Equipment - 8.0% 2,000 C. R. Bard, Inc. $ 165,940 2,600 ResMed, Inc.* 127,972 2,400 Stryker Corp. 132,264 ---------- $ 426,176 ---------- Health Care Services - 2.4% 1,300 Express Scripts, Inc.* $ 93,080 600 Medco Health Solutions, Inc.* 32,064 ---------- $ 125,144 ---------- Health Care Supplies - 3.0% 5,400 Dentsply International, Inc. $ 161,190 ---------- Total Health Care Equipment & Services $ 712,510 ---------- Pharmaceuticals & Biotechnology - 5.0% Life Sciences Tools & Services - 5.0% 5,500 Molecular Devices Corp.* $ 115,885 2,700 Techne Corp.* 149,715 ---------- $ 265,600 ---------- Total Pharmaceuticals & Biotechnology $ 265,600 ---------- Banks - 3.4% Regional Banks - 3.4% 10,200 UCBH Holdings, Inc. $ 179,112 ---------- Total Banks $ 179,112 ---------- Diversified Financials - 7.4% Asset Management & Custody Banks - 7.4% 5,200 Federated Investors, Inc. $ 175,656 2,000 Investors Financial Services Corp. (a) 85,340 3,000 T. Rowe Price Associates, Inc. 131,310 ---------- $ 392,306 ---------- Total Diversified Financials $ 392,306 ----------
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 Software & Services - 11.5% Application Software - 2.7% 3,500 Adobe Systems, Inc.* $ 143,920 ---------- Data Processing & Outsourced Services - 5.1% 1,200 DST Systems, Inc.* $ 75,156 3,800 Fiserv, Inc.* 199,196 ---------- $ 274,352 ---------- Systems Software - 3.7% 3,700 Micros Systems, Inc.* $ 194,990 ---------- Total Software & Services $ 613,262 ---------- Technology Hardware & Equipment - 7.1% Electronic Equipment & Instruments - 3.6% 2,450 Mettler-Toledo International, Inc.* $ 193,183 ---------- Electronic Manufacturing Services - 3.5% 2,300 Molex, Inc. $ 63,710 2,400 Trimble Navigation, Ltd.* 121,752 ---------- $ 185,462 ---------- Total Technology Hardware & Equipment $ 378,645 ---------- Semiconductors - 6.0% Semiconductors - 6.0% 4,300 Linear Technology Corp. $ 130,376 5,700 Microchip Technology 186,390 ---------- $ 316,766 ---------- Total Semiconductors $ 316,766 ---------- TOTAL COMMON STOCKS (Cost $4,376,078) $5,192,978 ---------- TEMPORARY CASH INVESTMENT - 3.8% Security Lending Collateral - 3.8% 201,465 Securities Lending Investment Fund, 5.26% $ 201,465 ---------- TOTAL TEMPORARY CASH INVESTMENT (Cost $201,465) $ 201,465 ---------- TOTAL INVESTMENT IN SECURITIES - 101.5% (Cost $4,577,543) $5,394,443 ---------- OTHER ASSETS AND LIABILITIES - (1.5)% $ (80,286) ---------- TOTAL NET ASSETS - 100.0% $5,314,157 ==========
* Non-income producing security. (a) At December 31, 2006, the following securities were out on loan:
Shares Security Value 1,584 Chesapeake Energy Corp. $ 46,015 1,980 Investors Financial Services Corp. 84,487 2,475 TETRA Technologies, Inc.* 63,311 -------- Total $193,813 ========
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 Year 3/15/04 (a) Ended Ended to Class II 12/31/06 12/31/05 12/31/04 Net asset value, beginning of period $ 11.37 $ 10.87 $ 10.00 ------- ------- ------- Increase (decrease) from investment operations: Net investment loss $ (0.03) $ (0.03) $ (0.02) Net realized and unrealized gain on investments 0.92 0.53 0.89 ------- ------- ------- Net increase from investment operations $ 0.89 $ 0.50 $ 0.87 ------- ------- ------- Net increase in net asset value $ 0.89 $ 0.50 $ 0.87 ------- ------- ------- Net asset value, end of period $ 12.26 $ 11.37 $ 10.87 ======= ======= ======= Total return* 7.83% 4.60% 8.70%(b) Ratio of net expenses to average net assets+ 1.00% 1.00% 1.00%** Ratio of net investment loss to average net assets+ (0.26)% (0.36)% (0.51)%** Portfolio turnover rate 32% 13% 44%(b) Net assets, end of period (in thousands) $ 5,314 $ 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 2.36% 3.25% 7.50%** Net investment loss (1.62)% (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% 1.00%** Net investment loss (0.26)% (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 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $193,813) (cost $5,394,443 $4,577,543) Cash 164,330 Receivables -- Dividends 2,209 Due from Pioneer Investment Management, Inc. 3,417 Other 990 ---------- Total assets $5,565,389 ---------- LIABILITIES: Payables -- Fund shares repurchased $ 1,744 Upon return of securities loaned 201,465 Due to affiliates 366 Accrued expenses 47,657 ---------- Total liabilities $ 251,232 ---------- NET ASSETS: Paid-in capital $4,610,241 Accumulated net realized loss on investments (112,984) Net unrealized gain on investments 816,900 ---------- Total net assets $5,314,157 ---------- NET ASSET VALUE PER SHARE: Class II: (No par value, unlimited number of shares authorized) Net assets $5,314,157 Shares outstanding 433,459 ---------- Net asset value per share $ 12.26
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 12/31/06 INVESTMENT INCOME: Dividends $ 31,907 Interest 4,955 Income on securities loaned 268 --------- Total investment income $ 37,130 --------- EXPENSES: Management fees $ 37,755 Transfer agent fees and expenses 1,486 Distribution fees 12,585 Administrative reimbursements 1,124 Custodian fees 15,650 Professional fees 35,850 Printing expense 7,440 Fees and expenses of nonaffiliated trustees 6,575 Miscellaneous 175 --------- Total expenses $ 118,640 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (68,300) --------- Net expenses $ 50,340 --------- Net investment loss $ (13,210) --------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss from: Investments $ (3,614) --------- Change in net unrealized gain from: Investments $ 392,530 --------- Net gain on investments $ 388,916 ========= Net increase in net assets resulting from operations $ 375,706 =========
10 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 CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Ended Year Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment loss $ (13,210) $ (13,587) Net realized loss on investments (3,614) (56,634) Change in net unrealized gain on investments 392,530 279,248 ---------- ---------- Net increase in net assets resulting from operations $ 375,706 $ 209,027 ---------- ---------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $1,169,162 $2,273,067 Cost of shares repurchased (833,078) (458,251) ---------- ---------- Net increase in net assets resulting from Fund share transactions $ 336,084 $1,814,816 ---------- ---------- Net increase in net assets $ 711,790 $2,023,843 NET ASSETS: Beginning of year 4,602,367 2,578,524 ---------- ---------- End of year $5,314,157 $4,602,367 ========== ========== Accumulated net investment income, end of period $ -- $ -- ========== ==========
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 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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. 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(es). Please refer to those documents when considering the Portfolio's risks 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 year. 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, 12 Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2006, 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. 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, 2006, Small and Mid Cap Growth Portfolio had a net capital loss carryforward of $95,205, of which the following amounts will expire between 2012 and 2013 if not utilized: $25,641 in 2012 and $39,905 in 2013. At December 31, 2006, 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 Investment Income Net Realized Paid-In Portfolio (Loss) Gain (Loss) Capital - -------------------------------------------------------------------------------- Small & Mid Cap Growth Portfolio $13,210 $-- $(13,210) ======= === ======== - --------------------------------------------------------------------------------
The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis. There were no distributions paid during the years ended December 31, 2006 and December 31, 2005.
- -------------------------------------------------------------------------------- 2006 - -------------------------------------------------------------------------------- Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ -- Capital loss carryforward (95,205) Unrealized appreciation 799,121 --------- Total $ 703,916 ========= - --------------------------------------------------------------------------------
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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. Distribution fees are calculated based on the average daily net asset values attributable to Class II shares of the Portfolio. Dividends and distributions are recorded on the ex-dividend date. 13 Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (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 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, 2007, 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, 2006, $10 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 $246 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $110 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $4,595,322 $874,983 $(75,862) $799,121 ========== ======== ========= ========= - ----------------------------------------------------------------------------------------------
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, 2006, were $1,792,931 and $1,570,877, respectively. 14 Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- ---------------------------------------------------------------------------------------- Small & Mid Cap Growth Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ---------------------------------------------------------------------------------------- CLASS II: Shares sold 99,299 $1,169,162 209,164 $2,273,067 Shares repurchased (70,487) (833,078) (41,774) (458,251) ------- ---------- ------- ---------- Net increase 28,812 $ 336,084 167,390 $1,814,816 ======= ========== ======= ========== - ----------------------------------------------------------------------------------------
8. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 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 the Shareowners of Pioneer Small and Mid Cap Growth VCT Portfolio: We have audited the accompanying statement of assets and liabilities of Pioneer Small and Mid Cap Growth VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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, 2006, by correspondence with the custodian and brokers. 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 and Mid Cap Growth VCT Portfolio of the Pioneer Variable Contracts Trust at December 31, 2006, 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 9, 2007 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 investment and compliance staffs 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 fees 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 ended June 30, 2006 of the Fund and a peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Fund 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 incurred on a basis other than as 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 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 and Sub-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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group and an index considered appropriate by the Independent Trustees for this purpose. The Fund's performance, based upon total return, was in the fourth quintile of its Morningstar category peer group for the 12 months ended June 30, 2006. (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 fund underperformed its peer group of funds during the short period since its inception. 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 and Sub-adviser responsible for investment operations. Among other things, the Trustees considered the size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee, based on 2006 data, 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 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 they were consistent with other sub-advised funds. The Trustees also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 (after giving effect to the expense limitation) to be in the first quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available 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 Small and Mid Cap Growth 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. 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 shareholders. 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 its 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. In light of the Investment Adviser's and Sub-adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser and the Sub-adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the Sub-adviser, and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund and the Sub-advisory Agreement, including the fees payable thereunder, were fair and reasonable and that their renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees 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 - -------------------------------------------------------------------------------- Investment Adviser Trustees and Officers Pioneer Investment Management, Inc. The trust's Board of Trustees provides broad supervision over the portfolio's affairs. 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 trust within the meaning of the Ernst & Young LLP 1940 Act are referred to as Interested Trustees. Trustees who are not interested persons of the trust are referred to Principal Underwriter as Independent Trustees. Each of the Trustees serves as a Pioneer Funds Distributor, Inc. trustee of each of the 86 U.S. registered investment portfolios for which Pioneer serves as investment adviser Legal Counsel (the "Pioneer Funds"). The address for all Interested Wilmer Cutler Pickering Hale and Dorr LLP Trustees and all officers of the trust is 60 State Street, Boston, Massachusetts 02109. Shareowner Services and Transfer Pioneer Investment Management Shareholder Services, Inc.
- -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Deputy Chairman and a Director of Director of ICI Mutual Board, Trustee until a successor trustee Pioneer Global Asset Management Insurance Company and President is elected or earlier S.p.A. ("PGAM"); Non-Executive retirement or removal. Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - ------------------------------------------------------------------------------------------------------------------------------------
20 Pioneer Small and Mid Cap Growth VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock (63) Trustee Trustee since 2005. Serves Senior Vice President and Chief Director of The 3050 K. Street NW, until a successor trustee Financial Officer, I-trax, Inc. Enterprise Social Washington, DC 20007 is elected or earlier (publicly traded health care Investment Company retirement or removal. services company) (2001 - present); (privately-held Managing Partner, Federal City affordable housing Capital Advisors (boutique merchant finance company); and bank) (2002 to 2004); and Executive Director of New York Vice President and Chief Financial Mortgage Trust (publicly Officer, Pedestal Inc. (internet- traded mortgage REIT) based mortgage trading company) (2000 - 2002) - ------------------------------------------------------------------------------------------------------------------------------------ Mary K. Bush (58) Trustee Trustee since 2000. Serves President, Bush International Director of Brady 3509 Woodbine Street, until a successor trustee (international financial advisory Corporation (industrial Chevy Chase, MD 20815 is elected or earlier firm) identification and retirement or removal. specialty coated material products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ------------------------------------------------------------------------------------------------------------------------------------ Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves Founding Director, The Winthrop None 1001 Sherbrooke Street until a successor trustee Group, Inc. (consulting firm); and West, Montreal, Quebec, is elected or earlier Desautels Faculty of Management, Canada H3A 1G5 retirement or removal. McGill University - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. Perna (56) Trustee Trustee since 2006. Serves Private investor (2004 - present); Director of Quadriserv 89 Robbins Avenue, until a successor trustee and Senior Executive Vice Inc. (technology products Berkeley Heights, NJ is elected or earlier President, The Bank of New York for securities lending 07922 retirement or removal. (financial and securities services) industry) (1986 - 2004) - ------------------------------------------------------------------------------------------------------------------------------------ Marguerite A. Piret (58) Trustee Trustee since 1995. Serves President and Chief Executive Director of New America 200 State Street, 12th until a successor trustee Officer, Newbury, Piret & Company, High Income Fund, Inc. Floor, Boston, MA 02109 is elected or earlier Inc. (investment banking firm) (closed-end investment retirement or removal. company) - ------------------------------------------------------------------------------------------------------------------------------------ John Winthrop (70) Trustee Trustee since 2000. Serves President, John Winthrop & Co., None One North Adgers Wharf, until a successor trustee Inc. (private investment firm) Charleston, SC 29401 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 LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President and Chief Executive Trustee of certain President discretion of the Board Officer, PIM-USA since May 2003 Pioneer Funds (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ------------------------------------------------------------------------------------------------------------------------------------ Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the Secretary of PIM-USA; Senior Vice None discretion of the Board President - Legal of Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------------------------------ Christopher J. Kelley Assistant Since 2003. Serves at the Vice President and Senior Counsel None (42) Secretary discretion of the Board of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001); and Assistant Secretary of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Christopher P. Harvey Assistant Since 2006. Serves at the Partner, Wilmer Cutler Pickering None (45) Secretary discretion of the Board Hale and Dorr LLP; and Assistant Secretary of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------------------------------ Vincent Nave (61) Treasurer Since 2000. Serves at the Vice President - Fund Accounting, None discretion of the Board Administration and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Mark E. Bradley (47) Assistant Since 2004. Serves at the Deputy Treasurer of Pioneer since None Treasurer discretion of the Board 2004; Treasurer and Senior 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 - ------------------------------------------------------------------------------------------------------------------------------------ Luis I. Presutti (41) Assistant Since 2000. Serves at the Assistant Vice President - Fund None Treasurer discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------------------------------ Gary Sullivan (48) Assistant Since 2002. Serves at the Fund Accounting Manager - Fund None Treasurer discretion of the Board Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Small and Mid Cap Growth VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS BY THIS OFFICER Katherine Kim Sullivan Assistant Since 2003. Serves at the Fund Administration Manager - Fund None (33) Treasurer discretion of the Board Accounting, Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Terrence J. Cullen (45) Chief Since 2006. Serves at the Chief Compliance Officer of Pioneer None Compliance discretion of the Board and all of the Pioneer Funds since Officer March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio'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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 26 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 27 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 28 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 29 [LOGO]PIONEER Investments(R) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18674-01-0207 [Logo] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2006 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 6 Financial Statements 15 Notes to Financial Statements 19 Report of Independent Registered Public Accounting Firm 24 Factors Considered by the Independent Trustees in Approving the Management Contract 25 Trustees, Officers and Service Providers 28
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO UPDATE 12/31/06 - -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [The following is represented by a pie chart in the printed material.] U.S. Government Securities 48.5% U.S. Corporate Bonds 37.9% Foreign Government Bonds 6.2% Asset Backed Securities 3.4% Municipal Bonds 1.2% Senior Secured Loans 1.1% Collateralized Mortgage Obligations 1.0% Temporary Cash Investment 0.7%
Maturity Distribution (As a percentage of total investment portfolio) [The following is represented by a pie chart in the printed material.] 0-1 years 15.9% 1-3 years 10.5% 3-4 years 24.3% 4-6 years 32.3% 6-8 years 8.8% 8+ years 8.2%
Five Largest Holdings (As a percentage of long-term holdings) 1. U.S. Treasury Inflation Protected Security, 3.5%, 1/15/11 2.09% 2. U.S. Treasury Notes, 5.0%, 2/15/11 2.05 3. U.S. Treasury Inflation Notes, 1.875%, 7/15/15 2.01 4. U.S. Treasury Notes, 5.5%, 8/15/28 1.77 5. U.S. Treasury Bonds, 5.25%, 11/15/28 1.70
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $ 10.80 $ 10.76
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $ 0.5558 $ 0.0270 $ 0.0254
- -------------------------------------------------------------------------------- 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.
Pioneer Lehman Strategic Brothers U.S. Income Universal Index 7/99 10000 10000 10060 10136 12/00 10488 11233 11184 12142 12/02 12352 13337 14937 14113 12/04 16423 14814 16832 15216 12/06 17882 15973
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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- Life-of-Class (7/29/99) 8.14% 5 Years 9.84% 1 Year 6.24%
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.pioneerinvestments.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 Strategic Income 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 Strategic Income VCT Portfolio Based on actual returns from July 1, 2006 through December 31, 2006.
Share Class II - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,050.22 Expenses Paid During Period* $ 5.53
* Expenses are equal to the Portfolio's annualized expense ratio of 1.07% 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, 2006 through December 31, 2006.
Share Class II - -------------------------------------------------------------------------------- Beginning Account Value on 7/1/06 $ 1,000.00 Ending Account Value on 12/31/06 $ 1,019.81 Expenses Paid During Period* $ 5.45
* Expenses are equal to the Portfolio's annualized expense ratio of 1.07% 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 Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT DISCUSSION 12/31/06 - -------------------------------------------------------------------------------- Riskier asset classes tended to deliver the handsomest investment rewards in 2006, a year in which economies grew and corporate profits rose throughout the world. The only slump in the performance of riskier fixed-income sectors - including domestic high-yield bonds and emerging market debt - occurred during a two-month period, beginning in mid-May. Overall, though, investors showed a willingness to take on credit risk, and lower-rated bonds outperformed government bonds and other high-grade securities. The following is an interview with Kenneth J. Taubes, who discusses the performance of Pioneer Strategic Income VCT Portfolio during the fiscal year ended December 31, 2006. 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 2006? A. Pioneer Strategic Income VCT Portfolio Class II shares generated a total return of 6.24%, at net asset value, for the 12 months ended December 31, 2006. During the same 12 months, the Lehman Brothers U.S. Universal Bond Index returned 4.97% and the average return of the 50 portfolios in Lipper's general bond variable annuity portfolio category was 6.07%. On December 31, 2006, the 30-day Standardized SEC yield for the Portfolio's Class II shares was 4.78%. Call 1-800-688-9915 or visit www.pioneerinvestments.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 2006? A. Over the course of the year, the domestic high-yield bond market delivered the strongest results among the major fixed-income sectors, followed by emerging market bonds. Government securities and other high-grade bonds tended to trail the higher-risk classes. The only exception to this general trend occurred during a two-month stretch, starting in mid-May, when concerns about rising inflationary pressures and the interest-rate hikes by the U.S. Federal Reserve led to a general decline of riskier assets, including high-yield corporates and emerging market debt. Over the final six months of the year, however, confidence returned as the Federal Reserve left rates unchanged and inflation pressures appeared to ease as oil prices receded. Confidence in the durability of the global economic expansion returned. Emerging market bonds then provided the best returns in the fixed-income assets, followed by domestic high-yield bonds. High-grade investments trailed during the final six months, although they generally still provided positive results. Q. What were your principal strategies during the year, and how did they affect performance? A. The Portfolio performed well during the year, helped by its exposure to high-yielding securities, including domestic high-yield bonds, international high yield bonds and emerging market debt. Moreover, our positions in investments denominated in foreign currencies also helped, notably our holdings denominated in the Swedish kroner and the euro. Only our exposure to the Japanese yen detracted from results. In addition, our duration management was successful. (Duration is a measure of a bond's price sensitivity to changes in interest rates.) We maintained a relatively short duration when interest rates were rising in the first half of the year. Beginning in June, we moved to a longer duration, which positioned the Portfolio to benefit when longer-maturity rates began to decline. During the first half of the year, we allocated about 10% of 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 1-800-688-9915 or visit www.pioneerinvestments.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 Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- assets to Treasury Inflation Protected Securities (TIPS), which contributed to performance as interest rates were rising. Although we reduced that positioning during the second half of the year, our investments in TIPS during the final six months did not help as they underperformed straight Treasuries as well as mortgage-backed securities. Q. What were some of the investments that most affected performance? A. We had solid, positive contributions from a number of holdings. The debt of Norwegian oil services company Aker Kvaerner, for example, appreciated as oil drilling activity around the world increased. Rising iron ore prices, spurred by increased demand from emerging markets, led to strong results from our investments in bonds of CVRD of Brazil, one of the world's largest iron ore-mining corporation. Bonds of Platinum Underwriters, a property-and-casualty re-insurance company, appreciated when the company encountered relatively few storm-related claims in 2006, after raising premiums following the severe 2005 hurricane season. Trustreet Properties, a real estate investment trust, contributed as its bonds were bought back when the company was acquired. Securities issued by Ford Motor Credit appreciated during the year, after declining in 2005, as investors realized the company was not about to file for bankruptcy protection. Disappointments included bonds of Angiotech company, a producer of medical devices including stents for the treatment of clogged arteries. These bonds lost value early in the year amid concerns about the effects of drug-coated stents. The bonds recovered some of their value late in the year, however, as concerns waned with a favorable finding by the FDA. Ainsworth Lumber, a Canadian-based building materials company, was hurt by weakness in the U.S. housing market and the rising Canadian dollar. Also holding back results was the investment in securities of Stratos Global, a Canadian-based provider of satellite communications services. Q. What is your investment outlook? A. As we enter 2007, we believe the environment looks favorable for our strategic income strategy, which emphasizes diversification in the fixed-income markets. The global economic picture is encouraging, and there is ample liquidity in the capital markets, even though some central banks are tightening their monetary policies. Given our expectations for continuing global growth, we do not expect the Federal Reserve to lower short-term rates in the near future. As a consequence, we are maintaining a shorter-than-benchmark duration policy to protect against the potential that interest rates might rise. We also have reduced the Portfolio's exposure to foreign currencies, as we do not see much further weakening in the relative value of the U.S. dollar in the immediate future. Unfortunately, we believe that a generally favorable outlook is reflected in current bond prices, and so opportunities to take advantage of mispriced securities may be limited. 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 Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value ASSET BACKED SECURITIES - 3.1% Energy - 0.2% Oil & Gas Equipment & Services - 0.2% 135,000 A-/A1 Nakilat, Inc., 6.267%, 12/31/33 (144A) $ 133,755 ----------- Total Energy $ 133,755 ----------- Banks - 0.5% Thrifts & Mortgage Finance - 0.5% 309,509 A-/Baa1 Taganka Car Loan Finance Plc, 6.35%, 11/14/13 (144A) (b) $ 309,508 ----------- Total Banks $ 309,508 ----------- Diversified Financials - 0.9% Consumer Finance - 0.0% DKK 18,055 AAA/Aaa Realkredit Danmark, 7.0%, 10/1/32 $ 3,427 ----------- Diversified Financial Services - 0.9% 216,117 BB-/Ba2 Caithness Coso Fund Corp., 6.263%, 6/15/14 (144A) $ 210,712 174,902 BBB+/Baa2 PF Export Receivable Master Trust, 6.436%, 6/1/15 (144A) 178,400 229,240 BBB/Baa2 Power Receivables Finance, 6.29%, 1/1/12 (144A) 230,494 ----------- $ 619,606 ----------- Total Diversified Financials $ 623,033 ----------- Utilities - 1.0% Electric Utilities - 1.0% 209,880 BB-/Ba2 FPL Energy Wind Funding, 6.876%, 6/27/17 (144A) $ 211,716 376,193 NR/NR Ormat Funding Corp., 8.25%, 12/30/20 383,717 53,307 BB-/Ba2 Tenaska Alabama, 7.0%, 6/30/21 (144A) 52,942 ----------- $ 648,375 ----------- Total Utilities $ 648,375 ----------- Government - 0.5% 303,599 BB+/Ba2 Republic of Columbia, 9.75%, 4/9/11 $ 329,405 ----------- Total Government $ 329,405 ----------- TOTAL ASSET BACKED SECURITIES (Cost $2,041,493) $ 2,044,076 ----------- COLLATERALIZED MORTGAGE OBLIGATIONS - 0.9% Banks - 0.6% Thrifts & Mortgage Finance - 0.6% 110,000 NR/Ba2 SBA CMBS Trust, 6.904%, 11/15/36 $ 110,317 265,000 AAA/Ba2 T SRA R 2006-1 F, 7.5296%, 10/15/36 (144A) 268,002 ----------- $ 378,319 ----------- Total Banks $ 378,319 ----------- Diversified Financials - 0.3% Diversified Financial Services - 0.3% 80,000 NR/Ba1 Global Signal, 7.036%, 2/15/36 (144A) $ 81,388 155,000 NR/Ba2 Tower 2004-2A F, 6.376%, 12/15/14 149,909 ----------- $ 231,297 ----------- Total Diversified Financials $ 231,297 ----------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $610,000) $ 609,616 -----------
6 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value CORPORATE BONDS - 33.7% Energy - 4.4% Coal & Consumable Fuels - 0.4% 250,000 B+/Ba3 Adaro Finance BV, 8.5%, 12/8/10 (144A) $ 256,250 ----------- Oil & Gas Drilling - 0.6% 300,000 NR/NR DDI Holdings AS, 9.3%, 1/19/12 (144A) $ 314,250 ----------- 75,000 NA/NA DDI Holdings AS, 9.3%, 4/23/12 (144A) 78,563 ----------- $ 392,813 ----------- Oil & Gas Equipment & Services - 0.5% 110,000 A+/Aa3 Nakilat, Inc., 6.067%, 12/31/33 (144A) $ 109,168 500,000 NR/NR Petromena AS, 9.75%, 5/24/12 (144A) 84,226 150,000 NR/B1 Semgroup LP, 8.75%, 11/15/15 (144A) 150,750 ----------- $ 344,144 ----------- Oil & Gas Exploration & Production - 2.6% 210,000 B-/B3 Baytex Energy, Ltd., 9.625%, 7/15/10 $ 218,925 260,000 B-/B3 Clayton Williams Energy, 7.75%, 8/1/13 239,850 245,000 B/B2 Compton Petroleum Corp., 7.625%, 12/1/13 236,425 355,000 BBB+/NR Gazprom International SA, 7.201%, 2/1/20 (144A) 375,408 170,000 B-/B3 Harvest Operations Corp., 7.875%, 10/15/11 161,075 ITL 275,000,000 BBB-/Baa1 Petroleos Mexicanos, 7.375%, 8/13/07 190,775 115,000 CCC+/Caa2 Petroquest Energy, Inc., 10.375%, 5/15/12 121,038 200,000 B/B1 Quicksilver Resources, Inc., 7.125%, 4/1/16 195,500 45,000 BB+/Ba2 Southern Star Central Corp., 6.75%, 3/1/16 44,888 ----------- $ 1,783,884 ----------- Oil & Gas Storage & Transportation - 0.3% 30,000 B/B2 Copano Energy LLC, 8.125%, 3/1/16 $ 31,050 75,000 B/B1 Inergy LP, 8.25%, 3/1/16 78,750 85,000 B-/B3 Targa Resources, Inc., 8.50%, 11/1/13 (144A) 85,638 ----------- $ 195,438 ----------- Total Energy $ 2,972,529 ----------- Materials - 6.3% Aluminum - 0.9% 95,000 B-/B3e Aleris International, Inc., 9.0%, 12/15/14 (144A) $ 95,475 370,000 BB-/B1 Asia Aluminum Holdings, 8.0%, 12/23/11 (144A) 369,075 140,000 B/B2 Novelis, Inc., 7.25%, 2/15/15 135,450 ----------- $ 600,000 ----------- Commodity Chemicals - 1.1% 110,000 B+/B1 Arco Chemical Co., 9.8%, 2/1/20 $ 127,050 285,000 B+/B1 Georgia Gulf Corp., 9.5%, 10/15/14 (144A) 277,875 300,000 B+/Ba3 Invista, 9.25%, 5/1/12 (144A) 321,750 ----------- $ 726,675 ----------- Construction Materials - 0.3% 220,000 B-/B2 U.S. Concrete, Inc., 8.375%, 4/1/14 $ 215,050 -----------
The accompanying notes are an integral part of these financial statements. 7 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Diversified Chemical - 1.4% 130,000 B-/B2 Basell Finance Co., 8.1%, 3/15/27 (144A) $ 123,500 350,000 B/B3 Crystal US Holdings, Inc., 10.5%, 10/1/14 (b) 301,000 100,000 B-/B2 Ineos Group Holdings PLC, 7.875%, 2/15/16 (144A) 125,706 EURO 145,000 B-/B2 Nell AF Sarl, 8.375%, 8/15/15 (144A) 205,238 160,000 B-/B2 Phibro Animal Health Corp., 10.0, 8/1/13 (144A) 166,000 ----------- $ 921,444 ----------- Diversified Metals & Mining - 1.5% 70,000 B-/Caa1 American Rock Salt Co., LLC, 9.5%, 3/15/14 $ 72,100 105,000 BB-/Ba3 FMG Finance Pty, Ltd., 10.625%, 9/1/16 (144A) 112,613 100,000 BBB/Baa3 Vale Overseas, Ltd., 6.25%, 1/11/16 100,972 400,000 BBB/Baa3 Vale Overseas, Ltd., 8.25%, 1/17/34 473,817 230,000 BB/Ba1 Vedenta Resources Plc, 6.625%, 2/22/10 (144A) 227,125 ----------- $ 986,627 ----------- Forest Products - 0.3% 305,000 B/B2 Ainsworth Lumber, 6.75%, 3/15/14 $ 231,800 ----------- Paper Packaging - 0.2% 110,000 CCC+/Caa1 Graham Packaging Co., 9.875%, 10/15/14 (a) $ 111,100 ----------- Paper Products - 0.4% 100,000 B+/B2 Abitibi-Consolidated, Inc., 6.0%, 6/20/13 $ 80,000 200,000 B+/B2 Bowater, Inc., 6.5%, 6/15/13 182,500 ----------- $ 262,500 ----------- Specialty Chemicals - 0.2% 150,000 BB+/NA LPG International, Inc., 7.25%, 12/20/15 $ 150,750 ----------- Total Materials $ 4,205,946 ----------- Capital Goods - 3.1% Aerospace & Defense - 0.1% 75,000 BB+/Ba3 L-3 Communications Corp., 6.375%, 10/15/15 $ 74,250 ----------- Building Products - 0.5% 325,000 B/B2 Builders Firstsource, Inc., 9.624%, 2/15/12 (b) $ 319,719 ----------- Construction & Engineering - 0.3% 160,000 B+/Ba3 Dycom Industries, 8.125%, 10/15/15 $ 165,600 ----------- Construction, Farm Machinery & Heavy Trucks - 0.7% 130,000 B+/B1 Commercial Vehicle Group, 8.0%, 7/1/13 $ 127,075 270,000 B+/B1 Greenbrier Co., Inc., 8.375%, 5/15/15 274,725 65,000 B/B3 Titan Wheel International, Inc., 8.0%, 1/15/12 (144A) 65,406 ----------- $ 467,206 ----------- Electrical Component & Equipment - 0.2% 200,000 NR/NR Power Contract Financing LLC, 0.0%, 2/5/10 (144A) (b) $ 158,750 ----------- Industrial Machinery - 0.2% 150,000 B/B1 Gardner Denver, Inc., 8.0%, 5/1/13 (144A) $ 156,000 ----------- Trading Companies & Distributors - 1.1% 325,000 BBB-/Baa3 Glencore Funding LLC, 6.0%, 4/15/14 (144A) $ 316,820 435,000 BB+/Ba1 Noble Group, Ltd., 6.625%, 3/17/15 (144A) 395,137 ----------- $ 711,957 ----------- Total Capital Goods $ 2,053,482 -----------
8 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Commercial Services & Supplies - 1.9% Diversified Commercial Services - 1.3% 130,000 B+/Ba2 FTI Consulting, 7.625%, 6/15/13 $ 134,225 500,000 B-/B3 NCO Group, Inc., 10.244%, 11/15/13 (144A) (b) 496,250 240,000 B-/B3 Park-Ohio Industries, Inc., 8.375%, 11/15/14 223,800 ----------- $ 854,275 ----------- Environmental & Facilities Services - 0.5% 80,000 B+/Ba3 Clean Harbors, Inc., 11.25%, 7/15/12 (144A) $ 89,050 240,000 CCC+/B3 Hydrochem Industrial Service, 9.25%, 2/15/13 (144A) 241,200 ----------- $ 330,250 ----------- Office Services & Supplies - 0.1% 90,000 CCC/B3 Nutro Products, Inc., 9.4%, 10/15/13 (144A) (b) $ 93,150 ----------- Total Commercial Services & Supplies $ 1,277,675 ----------- Transportation - 0.6% Marine - 0.5% 185,000 BB+/NR CMA CGM SA, 7.25%, 2/1/13 (144A) $ 180,375 125,000 BB-/Ba3 Stena AB, 7.0%, 12/1/16 118,750 40,000 B-/B3 Trailer Bridge, Inc., 9.25%, 11/15/11 41,250 ----------- $ 340,375 ----------- Railroads - 0.1% 70,000 B-/B3 TFM SA De CV, 9.375%, 5/1/12 $ 74,725 ----------- Total Transportation $ 415,100 ----------- Consumer Durables & Apparel - 1.3% Footwear - 0.2% 153,000 BB-/B1 Brown Shoe Co., Inc., 8.75%, 5/1/12 $ 161,415 ----------- Homebuilding - 1.1% 95,000 BBB-/BBB- C10 Capital SPV, Ltd., 6.722%, 12/31/49 (b) $ 95,228 238,000 BB-/Ba2 Meritage Homes Corp., 6.25%, 3/15/15 226,100 130,000 BB/Ba3 Urbi Desarrollos Urbanos, 8.5%, 4/19/16 (144A) 140,530 150,000 B+/B3 WCI Communities, Inc., 6.625%, 3/15/15 (a) 129,000 150,000 B/B3 WCI Communities, Inc., 7.875%, 10/1/13 (a) 134,250 ----------- $ 725,108 ----------- Total Consumer Durables & Apparel $ 886,523 ----------- Consumer Services - 1.5% Casinos & Gaming - 1.4% 200,000 AAA/Aaa Lottomatica S.p.A, 8.25%, 3/31/66 (144A) $ 280,183 225,000 B/Ba3 Station Casinos, Inc., 6.625%, 3/15/18 192,938 250,000 CCC+/B3 Tropicana Entertainment, 9.625%, 12/15/14 (144A) 248,750 245,000 B-/Caa1 Trump Entertainment Resorts, 8.5%, 6/1/15 243,775 ----------- $ 965,646 ----------- Specialized Consumer Services - 0.1% 50,000 BB-/B1 Service Corporation International, 7.625%, 10/1/18 $ 53,000 ----------- Total Consumer Services $ 1,018,646 ----------- Media - 1.5% Broadcasting & Cable TV - 0.8% 250,000 BB+/Ba2 C&M Finance, Ltd., 8.1%, 2/1/16 (144A) $ 256,875 210,000 B-/B2 Kabel Deutschland GMBH, 10.625%, 7/1/14 232,838 ----------- $ 489,713 -----------
The accompanying notes are an integral part of these financial statements. 9 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Movies & Entertainment - 0.4% 285,000 B+/Ba2 Corp Interamer De Entret, 8.875%, 6/14/15 (144A) $ 283,575 ----------- Publishing - 0.3% 200,000 B/B2 Sheridan Acquisition Corp., 10.25%, 8/15/11 $ 208,000 ----------- Total Media $ 981,288 ----------- Retailing - 0.2% Automotive Retail - 0.2% 115,000 BB+/Ba2 Autonation, Inc., 7.0%, 4/15/14 $ 115,863 ----------- Total Retailing $ 115,863 ----------- Food, Beverage & Tobacco - 0.7% Brewers - 0.7% 142,000 NR/NR Argentine Beverages, 7.375%, 3/22/12 (144A) $ 145,905 220,000 BBB/Baa1 Cia Brasileira de Bebida, 8.75%, 9/15/13 256,300 80,000 BBB/Baa1 Cia Brasileira de Bebida, 10.5%, 12/15/11 96,800 ----------- $ 499,005 ----------- Total Food, Beverage & Tobacco $ 499,005 ----------- Health Care Equipment & Services - 0.4% Health Care Facilities - 0.1% 65,000 BB-/B2 HCA, Inc., 9.625%, 11/15/16 $ 69,875 ----------- Health Care Services - 0.3% 165,000 CCC+/B3 Rural/Metro Corp., 9.875%, 3/15/15 $ 171,600 ----------- Total Health Care Equipment & Services $ 241,475 ----------- Pharmaceuticals & Biotechnology - 0.6% Biotechnology - 0.4% 350,000 B-/B2 Angiotech Pharmaceutical, 7.75%, 4/1/14 (144A) $ 304,500 ----------- Pharmaceuticals - 0.2% 116,000 B-/Caa1 Warner Chilcott Corp., 8.75%, 2/1/15 $ 118,900 ----------- Total Pharmaceuticals & Biotechnology $ 423,400 ----------- Banks - 1.6% Diversified Banks - 1.6% 160,000 B/Ba1 ATF Bank JSC, 9.25%, 4/12/12 (144A) $ 161,888 135,000 BB+/Baa1 Kazkommerts International BV, 8.0%, 11/3/15 140,400 150,000 B+/Ba2 Russian Stand Bank, 7.5%, 10/7/10 (144A) 144,563 200,000 NA/NA Sibacademfinance Plc, 9.0%, 5/12/09 (144A) 203,120 240,000 BB+/Baa2 TNK-BP Finance SA, 7.5%, 7/18/16 (144A) 255,300 175,000 BB/Baa1 Turanalem Finance BV, 8.5%, 2/10/15 (144A) 181,344 ----------- $ 1,086,615 ----------- Total Banks $ 1,086,615 ----------- Diversified Financials - 1.9% Consumer Finance - 0.8% 235,000 B/B1 Ford Motor Credit Co., 5.7%, 1/15/10 $ 225,272 35,000 B/B1 Ford Motor Credit Co., 5.8%, 1/12/09 34,365 320,000 A/A2 SLM Corp., 4.0%, 7/25/14 (b) 293,971 ----------- $ 553,608 -----------
10 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Specialized Finance - 1.1% 320,000 NA/Baa3 Alfa Div Pymt Rights Fin, 7.247%, 12/15/11 (144A) (b) $ 319,968 210,000 B-/B2e Louis No1 Plc, 8.5%, 12/1/14 (144A) 281,998 120,000 CCC+/B2 Sally Holdings, 9.25%, 11/15/14 (144A) 122,250 ----------- $ 724,216 ----------- Total Diversified Financials $ 1,277,824 ----------- Insurance - 2.5% Life & Health Insurance - 0.4% 300,000 B-/B2 Presidential Life Corp., 7.875%, 2/15/09 $ 286,500 ----------- Multi-Line Insurance - 0.5% 300,000 BB+/Ba1 Hanover Insurance Group, 7.625%, 10/15/25 $ 321,503 ----------- Property & Casualty Insurance - 1.0% 285,000 BBB-/NR Kingsway America, Inc., 7.5%, 2/1/14 $ 289,008 350,000 BBB-/Baa3 Ohio Casualty Corp., 7.3%, 6/15/14 373,662 ----------- $ 662,670 ----------- Reinsurance - 0.6% 365,000 BBB/NA Platinum Underwriters Holding, 7.5%, 6/1/17 $ 384,920 ----------- Total Insurance $ 1,655,593 ----------- Real Estate - 1.2% Real Estate Management & Development - 0.2% 125,000 BB-/Ba3 Forest City Enterprises, 7.625%, 6/1/15 $ 127,500 ----------- Real Estate Investment Trusts - 1.0% 120,000 BB-/B2 BF Saul Real Estate Investment Trust, 7.5%, 3/1/14 $ 121,950 95,000 B/B1 Crescent Real Estate, 9.25%, 4/15/09 97,494 340,000 B+/B1 Trustreet Properties, Inc., 7.5%, 4/1/15 367,200 120,000 BB+/Ba2 Ventas Realty Capital Corp., 7.125%, 6/1/15 (144A) 126,000 ----------- $ 712,644 ----------- Total Real Estate $ 840,144 ----------- Technology Hardware & Equipment - 0.4% Technology Distributors - 0.4% 311,000 BB+/Baa3 Anixter International Corp., 5.95%, 3/1/15 $ 287,675 ----------- Total Technology Hardware & Equipment $ 287,675 ----------- Semiconductors - 0.4% 175,000 BBB-/Baa3 Chartered Semiconductor, 6.375%, 8/3/15 $ 175,527 65,000 BB+/Ba2 NXP BV, 7.785%, 10/15/14 (144A) 67,194 ----------- $ 242,721 ----------- Total Semiconductors $ 242,721 ----------- Telecommunication Services - 1.9% Integrated Telecommunication Services - 0.6% 140,000 B-/B3 Eschelon Operating Co., 8.375%, 3/15/10 $ 135,100 210,000 CCC+/B3 Stratos Global Corp., 9.875%, 2/15/13 202,650 63,000 NR/Baa3 Tele Norte Leste Participacoes, 8.0%, 12/18/13 66,938 ----------- $ 404,688 -----------
The accompanying notes are an integral part of these financial statements. 11 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value Wireless Telecommunication Services - 1.3% 260,000 NR/B3 Digicel, Ltd., 9.25%, 9/1/12 (144A) $ 277,550 240,000 B/B3 Intelsat Intermediate, 9.25%, 2/1/15 182,400 115,000 BB-/Ba3 Mobile Telesystems Finance, 8.375%, 10/14/10 (144A) 121,613 290,000 B/B2 True Move Co., Ltd., 10.75%, 12/16/13 (144A) 283,475 ----------- $ 865,038 ----------- Total Telecommunication Services $ 1,269,726 ----------- Utilities - 1.3% Electric Utilities - 1.1% 292,133 NR/Ba1 Juniper Generation, 6.79%, 12/31/14 (144A) $ 282,665 250,000 BBB-/Baa3 Kiowa Power Partners LLC, 5.737%, 3/30/21 (144A) 242,030 190,000 BB-/Ba3 MSW Energy Holdings, 7.375%, 9/1/10 193,800 ----------- $ 718,495 ----------- Gas Utilities - 0.2% 125,000 BB/Ba1 Southern Union Co., 7.2%, 11/1/66 $ 123,220 ----------- Total Utilities $ 841,715 ----------- TOTAL CORPORATE BONDS (Cost $22,155,237) $22,592,945 ----------- U.S. GOVERNMENT & AGENCY OBLIGATIONS - 43.1% 1,443,765 Federal Home Loan Mortgage Corp., 4.5%, 4/1/20 - 4/1/35 $ 1,385,752 516,788 Federal Home Loan Mortgage Corp., 5.0%, 5/1/34 - 6/1/36 498,695 1,096,586 Federal Home Loan Mortgage Corp., 5.5%, 10/1/16 - 1/1/35 1,086,403 1,206,958 Federal Home Loan Mortgage Corp., 6.0%, 6/1/17 - 6/1/35 1,218,320 1,186,665 Federal National Mortgage Association, 4.5%, 5/1/20 - 9/1/35 1,124,971 1,834,336 Federal National Mortgage Association, 5.0%, 10/1/20 - 4/1/36 1,787,315 1,852,198 Federal National Mortgage Association, 5.5%, 3/1/18 - 5/1/36 1,833,536 603,284 Federal National Mortgage Association, 6.0%, 7/1/17 - 1/1/34 608,692 800,000 Federal National Mortgage Association, 6.375%, 8/15/07 630,826 12,811 Federal National Mortgage Association, 6.5%, 10/1/31 - 7/1/31 13,117 985 Federal National Mortgage Association, 7.0%, 9/1/29 1,016 1,204,385 Government National Mortgage Association, 4.5%, 9/15/33 - 3/15/36 1,138,145 602,922 Government National Mortgage Association, 5.0%, 12/15/34 - 4/15/35 586,535 2,843,919 Government National Mortgage Association, 5.5%, 10/15/19 - 11/15/36 2,833,571 1,849,747 Government National Mortgage Association, 6.0%, 8/15/16 - 3/15/36 1,878,730 188,627 Government National Mortgage Association, 6.5%, 3/15/29 - 1/15/34 193,711 809 Government National Mortgage Association, 7.0%, 3/15/31 836 8,855 Government National Mortgage Association, 7.5%, 5/15/23 9,146 2,127 Government National Mortgage Association I, 7.0%, 3/15/31 2,198 113,348 Government National Mortgage Association II, 5.5%, 3/20/34 112,590 211,692 Government National Mortgage Association II, 6.0%, 11/20/33 214,321 625,000 U.S. Treasury Bonds, 4.375%, 12/15/10 617,798 960,000 U.S. Treasury Bonds, 5.25%, 11/15/28 1,006,725 720,000 U.S. Treasury Bonds, 6.25%, 8/15/23 828,732 1,240,004 U.S. Treasury Inflation Notes, 1.875%, 7/15/15 1,188,320 315,245 U.S. Treasury Inflation Notes, 2.0%, 1/15/16 304,384 599,652 U.S. Treasury Inflation Notes, 2.5%, 7/15/16 604,196 841,920 U.S. Treasury Inflation Notes, 3.0%, 7/15/12 866,422 153,453 U.S. Treasury Inflation Protected Security, 3.375%, 1/15/12 160,209 1,188,662 U.S. Treasury Inflation Protected Security, 3.5%, 1/15/11 1,237,416 1,445,000 U.S. Treasury Notes, 4.25%, 1/15/11 - 8/15/15 1,409,683
12 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Principal S&P/Moody's Amount Ratings USD ($) (unaudited) Value U.S. Government & Agency Obligations (Cont.) 600,000 U.S. Treasury Notes, 4.625%, 11/15/09 $ 598,125 265,000 U.S. Treasury Notes, 4.875%, 2/15/12 267,422 1,200,000 U.S. Treasury Notes, 5.0%, 2/15/11 1,215,000 970,000 U.S. Treasury Notes, 5.5%, 8/15/28 1,047,903 520,000 U.S. Treasury Strip, 0.0%, 11/15/13 378,132 ----------- $28,888,893 ----------- TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $28,934,646) $28,888,893 ----------- FOREIGN GOVERNMENT BONDS - 5.5% ITL 195,000,000 B+/B2 Banco Nac De Desen Econo, 8.0%, 4/28/10 $ 146,468 SEK 3,445,000 AAA/Aaa Government of Sweden, 5.25%, 3/15/11 530,689 SEK 2,955,000 NR/NR Government of Sweden, 5.5%, 10/8/12 468,114 SEK 2,150,000 NR/NR Government of Sweden, 8.0%, 8/15/07 322,688 NOK 1,320,000 AAA/Aaa Norwegian Government, 6.0%, 5/16/11 225,082 NOK 1,500,000 AAA/Aaa Norwegian Government, 5.5%, 5/15/09 246,667 NOK 3,410,000 AAA/Aaa Norwegian Government, 6.75%, 1/15/07 547,609 AUD 532,000 AAA/Aaa Ontario Province, 5.5%, 4/23/13 400,134 AUD 207,000 AAA/Aaa Queensland Treasury, 6.0%, 8/14/13 161,889 335,000 AAA/Aaa United Kingdom Treasury, 4.75%, 6/7/10 648,994 ----------- $ 3,698,334 ----------- TOTAL FOREIGN GOVERNMENT BONDS (Cost $3,340,706) $ 3,698,334 ----------- MUNICIPAL BONDS - 1.0% Muni Airport - 0.5% 50,000 B/CAA1 New Jersey Economic Development Authority, 6.25%, 9/15/29 $ 51,591 175,000 B/CAA1 New Jersey Economic Development Authority Special Facility Revenue, 7.0%, 11/15/30 187,227 100,000 NR/NR Wayne Charter County SPL, 6.75%, 12/1/15 81,479 ----------- $ 320,297 ----------- Muni Tobacco - 0.4% 90,000 BBB/Baa3 Golden State Tobacco Securitization, 6.75%, 6/1/39 $ 103,043 105,000 BBB/Baa3 Tobacco Settlement Authority Washington, 6.625%, 6/1/32 117,482 60,000 BBB/Baa3 Tobacco Settlement Financing Corp., 7.0%, 6/1/41 69,573 ----------- $ 290,098 ----------- Muni Utilities - 0.1% 60,000 AAA/Aaa San Antonio Texas Electric & Gas, 5.65%, 2/1/19 (144A) (b) $ 80,779 ----------- TOTAL MUNICIPAL BONDS (Cost $565,128) $ 691,174 ----------- SENIOR SECURED FLOATING RATE LOAN INTERESTS - 1.0%** 100,000 BB/Ba2 Banta Corp., Term Loan, 7.11%, 11/20/13 $ 100,250 100,000 B/B2 Freescale Semiconductor, Inc., Term Loan, 7.369%, 12/2/13 100,500 249,370 B/Ba3 Georgia-Pacific LLC, Term B Loan, 7.356%, 12/20/12 250,825 200,000 BB-/Ba2 Sanmina-SCI Corp., Term Loan, 7.88%, 1/31/08 200,800 ----------- $ 652,375 ----------- TOTAL SENIOR SECURED FLOATING RATE LOAN INTERESTS (Cost $651,586) $ 652,375 -----------
The accompanying notes are an integral part of these financial statements. 13 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 (continued) - --------------------------------------------------------------------------------
Shares Value RIGHTS/WARRANTS - 0.0% Transportation - 0.0% Railroads - 0.0% 210 Atlantic Express Transportation, Exp. 4/15/08* $ 420 ----------- Total Transportation $ 420 ----------- TOTAL RIGHTS/WARRANTS (Cost $0) $ 420 ----------- TEMPORARY CASH INVESTMENT - 0.6% Security Lending Collateral - 0.6% 386,291 Securities Lending Investment Fund, 5.26% $ 386,291 ----------- TOTAL TEMPORARY CASH INVESTMENT (Cost $386,291) $ 386,291 ----------- TOTAL INVESTMENT IN SECURITIES - 88.9% (Cost $58,685,087) $59,564,124 ----------- OTHER ASSETS AND LIABILITIES - 11.1% $ 7,476,455 ----------- TOTAL NET ASSETS - 100.0% $67,040,580 ===========
* 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, 2006, the value of these securities amounted to $12,159,720 or 18.1% of total net assets. NR Not rated by either S&P or Moody's. (a) At December 31, 2006, the following securities were out on loan:
Principal Amount Security Value $ 108,900 Graham Packaging Co., 9.875%, 10/15/14 $109,989 147,500 WCI Communities, Inc., 6.625%, 3/15/15 126,850 148,500 WCI Communities, Inc., 7.875%, 10/1/13 132,908 -------- Total $369,747 ========
(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. ** Senior secured floating rate loan interests in which the Portfolio invests generally pay interest at rates that are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates are generally (i) the lending rate offered by one or more major European banks, such as LIBOR (London InterBank Offered Rate), (ii) the prime rate offered by one or more major United States banks, (iii) the certificate of deposit or (iv) other base lending rates used by commercial lenders. The rate shown is the coupon rate at period end. NOTE: Principal amounts are denominated in U.S. dollars unless otherwise noted. EURO Euro ITL Italian Lira DKK Danish Kroner SEK Swedish Krona NOK Norwegian Kroner AUD Australian Dollar 14 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
5/1/03 (a) Year Ended Year Ended Year Ended to Class II 12/31/06 12/31/05 12/31/04 12/31/03 Net asset value, beginning of period $ 10.76 $ 11.26 $ 11.01 $ 10.41 ------- -------- ------- ------- Increase (decrease) from investment operations: Net investment income $ 0.51 $ 0.55 $ 0.55 $ 0.41 Net realized and unrealized gain (loss) on investments and foreign currency transactions 0.14 (0.28) 0.49 0.62 ------- -------- ------- -------- Net increase from investment operations $ 0.65 $ 0.27 $ 1.04 $ 1.03 Distributions to shareowners: Net investment income (0.56) (0.61) (0.63) (0.43) Net realized gain (0.05) (0.16) (0.16) - ------- -------- ------- ------- Net increase (decrease) in net asset value $ 0.04 $ (0.50) $ 0.25 $ 0.60 ------- -------- ------- ------- Net asset value, end of period $ 10.80 $ 10.76 $ 11.26 $ 11.01 ======= ======== ======= ======= Total return* 6.24% 2.49% 9.95% 10.90%(b) Ratio of net expenses to average net assets+ 1.07% 1.14% 1.29% 1.49%** Ratio of net investment income to average net assets+ 4.88% 5.30% 5.49% 5.08%** Portfolio turnover rate 44% 46% 53% 68% Net assets, end of period (in thousands) $48,052 $ 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 1.07% 1.14% 1.29% 1.49%** Net investment income 4.88% 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 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. The accompanying notes are an integral part of these financial statements. 15 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - -------------------------------------------------------------------------------- ASSETS: Investment in securities, at value (including securities loaned of $369,747) (cost $58,685,087) $59,564,124 Cash 5,319,033 Foreign currencies, at value (cost $1,943,616) 1,947,762 Receivables -- Investment securities sold 262 Fund shares sold 6,338 Dividends, interest and foreign taxes withheld 844,736 Other 2,200 ----------- Total assets $67,684,455 ----------- LIABILITIES: Payables -- Fund shares repurchased $ 158,240 Upon return of securities loaned 386,291 Forward foreign currency portfolio hedge contracts, open -- net 33,812 Due to affiliates 9,046 Accrued expenses 56,486 ----------- Total liabilities $ 643,875 ----------- NET ASSETS: Paid-in capital $65,251,460 Undistributed net investment income 547,679 Accumulated net realized gain on investments 387,017 Net unrealized gain (loss) on: Investments 879,037 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (24,613) ----------- Total net assets $67,040,580 ----------- Net Asset Value Per Share: Class I: (No par value, unlimited number of shares authorized) Net assets $18,988,611 Shares outstanding 1,757,406 ----------- Net asset value per share $ 10.80 Class II: (No par value, unlimited number of shares authorized) Net assets $48,051,969 Shares outstanding 4,447,457 ----------- Net asset value per share $ 10.80
16 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Interest $3,727,194 Income on securities loaned, net 1,426 ---------- Total investment income $3,728,620 ---------- EXPENSES: Management fees $ 407,128 Transfer agent fees and expenses 3,171 Distribution fees (Class II) 107,745 Administrative reimbursements 14,120 Custodian fees 26,343 Professional fees 32,454 Printing expense 6,854 Fees and expenses of nonaffiliated trustees 4,856 Miscellaneous 21,764 ---------- Total expenses $ 624,435 ---------- Net investment income $3,104,185 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ 833,425 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (63,960) ---------- $ 769,465 ---------- Change in net unrealized gain (loss) from: Investments $ 62,046 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (34,271) ---------- $ 27,775 ---------- Net gain on investments and foreign currency transactions $ 797,240 ========== Net increase in net assets resulting from operations $3,901,425 ==========
The accompanying notes are an integral part of these financial statements. 17 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 3,104,185 $ 2,985,351 Net realized gain on investments 769,465 511,506 Change in net unrealized gain (loss) on investments and foreign currency transactions 27,775 (2,035,611) ------------- ------------ Net increase in net assets resulting from operations $ 3,901,425 $ 1,461,246 ------------- ------------ DISTRIBUTIONS TO SHAREOWNERS: Net investment income: Class I $ (1,059,142) $ (1,227,712) Class II (2,235,620) (1,916,310) Net realized gain Class I (95,758) (308,227) Class II (211,483) (487,951) ------------- ------------ Total distributions to shareowners $ (3,602,003) $ (3,940,200) ------------- ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 13,951,457 $ 19,663,891 Reinvestment of distributions 3,570,906 3,902,297 Cost of shares repurchased (11,488,616) (6,220,715) ------------- ------------ Net increase in net assets resulting from Fund share transactions $ 6,033,747 $ 17,345,473 ------------- ------------ Net increase in net assets $ 6,333,169 $ 14,866,519 ------------- ------------ NET ASSETS: Beginning of year $ 60,707,411 $ 45,840,892 ------------- ------------ End of year $ 67,040,580 $ 60,707,411 ============= ============ Undistributed net investment income, end of year $ 547,679 $ 397,503 ============= ============
18 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 the Portfolio is to produce a high level of current income. 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(es). Please refer to those documents when considering the Portfolio's risks. 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 year. 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. 19 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, 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. 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, if any, 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, 2006, 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 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. 20 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- At December 31, 2006, 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 Investment Income Net Realized Paid-In Portfolio (Loss) Gain (Loss) Capital - -------------------------------------------------------------------------------- Strategic Income Portfolio $340,753 $(340,753) $-- ======== ========= === - --------------------------------------------------------------------------------
The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings (accumulated losses) as of December 31, 2006, on a tax basis.
2006 2005 - ------------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $3,453,073 $3,166,871 Long-Term capital gain 148,930 773,329 ---------- ---------- $3,602,003 $3,940,200 Return of Capital -- -- ---------- ---------- Total distributions $3,602,003 $3,940,200 ========== ========== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 623,950 Undistributed long-term gain/(capital loss carryforward) 287,651 Unrealized appreciation (depreciation) 877,519 ---------- Total $1,789,120 ========== - -------------------------------------------------------------------------------------
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 the 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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. 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. 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 21 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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. 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, 2006, $3,696 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 $4,367 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $983 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $58,695,804 $1,590,789 $(722,469) $868,320 =========== ========== ========= ======== - --------------------------------------------------------------------------------------------------
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, 2006, were $11,407,145 and $15,470,095, respectively. The cost of purchases and the proceeds from sales of U.S. Government obligations were $15,195,943 and $10,344,108, respectively. 22 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
Strategic Income Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ----------------------------------------------------------------------------------------- CLASS I: Shares sold 232,122 $ 2,485,261 299,475 $ 3,285,765 Reinvestment of distributions 105,161 1,123,803 136,735 1,498,145 Shares repurchased (500,163) (5,370,642) (364,351) (3,995,330) -------------------------------------------------------- Net increase (decrease) (162,880) $(1,761,578) 71,859 $ 788,580 ======================================================== CLASS II: Shares sold 1,068,521 $11,466,196 1,483,721 $16,378,126 Reinvestment of distributions 229,026 2,447,103 219,709 2,404,152 Shares repurchased (571,426) (6,117,974) (204,670) (2,225,385) -------------------------------------------------------- Net increase 726,121 $ 7,795,325 1,498,760 $16,556,893 ========================================================
8. Forward Foreign Currency Contracts During the year ended December 31, 2006, the Portfolio had entered into various contracts that obligate the Portfolio to deliver currencies at specified future dates. At the maturity of a contract, the Portfolio must make delivery of the foreign currency. Alternatively, prior to the settlement date of a portfolio hedge, the Portfolio may close out such contracts by entering into an offsetting hedge contract. As of December 31, 2006, 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 (925,000) $(714,266) 2/6/07 $(729,813) $(15,547) Strategic Income Portfolio EUR (400,000) (532,170) 1/12/07 (528,280) 3,890 Strategic Income Portfolio EUR (570,000) (760,511) 1/8/07 (752,633) 7,878 Strategic Income Portfolio GBP (335,000) (654,918) 1/16/07 (656,307) (1,389) Strategic Income Portfolio JPY 214,030,000 1,837,626 2/13/07 1,808,982 (28,644)
9. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 23 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - -------------------------------------------------------------------------------- To the Board of Trustees of Pioneer Variable Contracts Trust and the Shareowners of Pioneer Strategic Income VCT Portfolio: We have audited the accompanying statement of assets and liabilities of Pioneer Strategic Income VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments, as of December 31, 2006, 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, 2006, by correspondence with the custodian and brokers. 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, 2006, 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 periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 9, 2007 24 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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. 25 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- 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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of both a peer group considered appropriate by the Independent Trustees for this purpose and the Lehman Brothers Universal Bond Index. The Fund's performance, based upon total return, was in the second quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, the first quintile of the peer group for the three years ended June 30, 2006 and the first quintile for the five years ended June 30, 2006. (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.) Trustees also considered the yield of the Fund, before deduction of expenses, relative to the yield of the index. The Trustees, focusing on three-year total returns, concluded that the performance of the Fund was strong. 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 size, education and experience of the Investment Adviser's investment staff. 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. The Fund's management fee, based on 2006 data, 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 also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 to be in the fourth quintile, according to data for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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 the management fee are not necessary at this time. The Trustees will continue to evaluate annually the appropriateness of break points. 26 PIONEER VARIABLE CONTRACTS TRUST Pioneer Strategic Income 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 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 27 Pioneer Strategic 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 portfolio's affairs. 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 trust within the meaning of the Ernst & Young LLP 1940 Act are referred to as Interested Trustees. Trustees who are not interested persons of the trust are referred to Principal Underwriter as Independent Trustees. Each of the Trustees serves as a Pioneer Funds Distributor, Inc. trustee of Independent Registered Public Accounting Firm each of the 86 U.S. registered investment portfolios for Legal Counsel which Pioneer serves as investment adviser (the "Pioneer Wilmer Cutler Pickering Hale and Dorr LLP Funds"). The address for all Interested Trustees and all officers of the trust is 60 State Street, Boston, Shareowner Services and Transfer Massachusetts 02109. Pioneer Investment Management Shareholder Services, Inc.
- -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE John F. Cogan, Jr. (80)* Chairman of the Trustee since 1994. Serves Board, Trustee until a successor trustee and President is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS John F. Cogan, Jr. (80)* Deputy Chairman and a Director of Pioneer Global Asset Management S.p.A. ("PGAM"); Non-Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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) - --------------------------------------------------------------------------------------------------------- NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE John F. Cogan, Jr. (80)* Director of ICI Mutual Insurance Company *Mr. Cogan is an Interested Trustee because he is an officer or director of the portfolio's investment adviser and certain of its affiliates. - --------------------------------------------------------------------------------
28 Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE David R. Bock (63) Trustee Trustee since 2005. Serves 3050 K. Street NW, until a successor trustee Washington, DC 20007 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- Mary K. Bush (58) Trustee Trustee since 2000. Serves 3509 Woodbine Street, until a successor trustee Chevy Chase, MD 20815 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- Margaret B.W. Graham (59) Trustee Trustee since 2000. Serves 1001 Sherbrooke Street West, until a successor trustee Montreal, Quebec, Canada is elected or earlier H3A 1G5 retirement or removal. - -------------------------------------------------------------------------------- Thomas J. Perna (56) Trustee Trustee since 2006. Serves 89 Robbins Avenue, until a successor trustee Berkeley Heights, NJ is elected or earlier 07922 retirement or removal. - -------------------------------------------------------------------------------- Marguerite A. Piret (58) Trustee Trustee since 1995. Serves 200 State Street, 12th until a successor trustee Floor, Boston, MA 02109 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- John Winthrop (70) Trustee Trustee since 2000. Serves One North Adgers Wharf, until a successor trustee Charleston, SC 29401 is elected or earlier retirement or removal. - -------------------------------------------------------------------------------- NAME, AGE AND ADDRESS PRINCIPAL OCCUPATION DURING PAST FIVE YEARS David R. Bock (63) Senior Vice President and Chief Financial Officer, I-trax, Inc. (publicly traded 3050 K. Street NW, health care services company) (2001 - present); Managing Partner, Federal Washington, DC 20007 City Capital Advisors (boutique merchant bank) (2002 to 2004); and Executive Vice President and Chief Financial Officer, Pedestal Inc. (internet- based mortgage trading company) (2000 - 2002) - --------------------------------------------------------------------------------------------------------------- Mary K. Bush (58) President, Bush International (international financial advisory firm) 3509 Woodbine Street, Chevy Chase, MD 20815 - --------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (59) Founding Director, The Winthrop Group, Inc. (consulting firm); and 1001 Sherbrooke Street West, Desautels Faculty of Management, McGill University Montreal, Quebec, Canada H3A 1G5 - --------------------------------------------------------------------------------------------------------------- Thomas J. Perna (56) Private investor (2004 - present); and Senior Executive Vice President, The 89 Robbins Avenue, Bank of New York (financial and securities services) (1986 - 2004) Berkeley Heights, NJ 07922 - --------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (58) President and Chief Executive Officer, Newbury, Piret & Company, Inc. 200 State Street, 12th (investment banking firm) Floor, Boston, MA 02109 - --------------------------------------------------------------------------------------------------------------- John Winthrop (70) President, John Winthrop & Co., Inc. (private investment firm) One North Adgers Wharf, Charleston, SC 29401 - --------------------------------------------------------------------------------------------------------------- NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS HELD BY THIS TRUSTEE David R. Bock (63) Director of The Enterprise Social Investment 3050 K. Street NW, Company (privately-held affordable housing Washington, DC 20007 finance company); and Director of New York Mortgage Trust (publicly traded mortgage REIT) - -------------------------------------------------------------------------------- Mary K. Bush (58) Director of Brady Corporation (industrial 3509 Woodbine Street, identification and specialty coated material Chevy Chase, MD 20815 products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - -------------------------------------------------------------------------------- Margaret B.W. Graham (59) None 1001 Sherbrooke Street West, Montreal, Quebec, Canada H3A 1G5 - -------------------------------------------------------------------------------- Thomas J. Perna (56) Director of Quadriserv Inc. (technology 89 Robbins Avenue, products for securities lending industry) Berkeley Heights, NJ 07922 - -------------------------------------------------------------------------------- Marguerite A. Piret (58) Director of New America High Income Fund, 200 State Street, 12th Inc. (closed-end investment company) Floor, Boston, MA 02109 - -------------------------------------------------------------------------------- John Winthrop (70) None One North Adgers Wharf, Charleston, SC 29401 - --------------------------------------------------------------------------------
29 Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Osbert M. Hood (54)+ Executive Vice Since 2003. Serves at the President discretion of the Board - -------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since 2000. Serves at the discretion of the Board - -------------------------------------------------------------------------------- Christopher J. Kelley (42) Assistant Since 2003. Serves at the Secretary discretion of the Board - -------------------------------------------------------------------------------- Christopher P. Harvey (45) Assistant Since 2006. Serves at the Secretary discretion of the Board - -------------------------------------------------------------------------------- Vincent Nave (61) Treasurer Since 2000. Serves at the discretion of the Board - -------------------------------------------------------------------------------- Mark E. Bradley (47) Assistant Since 2004. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Since 2000. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- Gary Sullivan (48) Assistant Since 2002. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS Osbert M. Hood (54)+ President and Chief Executive Officer, PIM-USA since May 2003 (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly- owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 - ------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary of PIM-USA; Senior Vice President - Legal of Pioneer; Secretary/ Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ------------------------------------------------------------------------------------------------------------- Christopher J. Kelley (42) Vice President and Senior Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001); and Assistant Secretary of all of the Pioneer Funds since September 2003 - ------------------------------------------------------------------------------------------------------------- Christopher P. Harvey (45) Partner, Wilmer Cutler Pickering Hale and Dorr LLP; and Assistant Secretary of all of the Pioneer Funds since July 2006. - ------------------------------------------------------------------------------------------------------------- Vincent Nave (61) Vice President - Fund Accounting, Administration and Controllership Services of Pioneer; and Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------- Mark E. Bradley (47) Deputy Treasurer of Pioneer since 2004; Treasurer and Senior 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 - ------------------------------------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Vice President - Fund Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ------------------------------------------------------------------------------------------------------------- Gary Sullivan (48) Fund Accounting Manager - Fund Accounting, Administration and Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - ------------------------------------------------------------------------------------------------------------- NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS OFFICER Osbert M. Hood (54)+ Trustee of certain Pioneer Funds +Mr. Hood resigned as EVP effective January 9, 2007. - -------------------------------------------------------------------------------- Dorothy E. Bourassa (58) None - -------------------------------------------------------------------------------- Christopher J. Kelley (42) None - -------------------------------------------------------------------------------- Christopher P. Harvey (45) None - -------------------------------------------------------------------------------- Vincent Nave (61) None - -------------------------------------------------------------------------------- Mark E. Bradley (47) None - -------------------------------------------------------------------------------- Luis I. Presutti (41) None - -------------------------------------------------------------------------------- Gary Sullivan (48) None - --------------------------------------------------------------------------------
30 Pioneer Strategic Income VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE NAME AND AGE WITH THE TRUST AND TERM OF OFFICE Katherine Kim Sullivan (33) Assistant Since 2003. Serves at the Treasurer discretion of the Board - -------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Since 2006. Serves at the Compliance discretion of the Board Officer - -------------------------------------------------------------------------------- NAME AND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS Katherine Kim Sullivan (33) Fund Administration Manager - Fund Accounting, Administration and Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - -------------------------------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Compliance Officer of Pioneer and all of the Pioneer Funds since March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - -------------------------------------------------------------------------------------------------------- NAME AND AGE OTHER DIRECTORSHIPS HELD BY THIS OFFICER Katherine Kim Sullivan (33) None - -------------------------------------------------------------------------------- Terrence J. Cullen (45) None - --------------------------------------------------------------------------------
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients. 31 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 32 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 33 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 34 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 35 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 36 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 37 [Logo] PIONEER Investments(R) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18677-01-0207 [LOGO] PIONEER Investments(R) PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio -- Class II Shares ANNUAL REPORT December 31, 2006 PIONEER VARIABLE CONTRACTS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Table of Contents - --------------------------------------------------------------------------------
Pioneer 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 17 Factors Considered by the Independent Trustees in Approving the Management Contract 18 Trustees, Officers and Service Providers 21
This report is authorized for distribution only when preceded or accompanied by a prospectus for the Portfolio being offered. 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 12/31/06 - -------------------------------------------------------------------------------- Portfolio Diversification (As a percentage of total investment portfolio) [THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL.]
U.S. Common Stocks 96.5% Depositary Receipts for International Stocks 1.9% International Common Stocks 1.6%
Sector Distribution (As a percentage of equity holdings) [THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL.]
Financials 28.7% Health Care 16.6% Consumer Staples 14.0% Energy 10.4% Information Technology 7.3% Industrials 7.1% Telecommunication Services 5.7% Utilities 4.7% Consumer Discretionary 3.2% Materials 2.3%
Five Largest Holdings (As a percentage of equity holdings)
1. Allstate Corp. 4.97% 2. American International Group, Inc. 4.48 3. Schering-Plough Corp. 4.44 4. ConocoPhillips 4.16 5. Altria Group, Inc. 4.13
The Portfolio is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any security listed. - -------------------------------------------------------------------------------- PERFORMANCE UPDATE 12/31/06 - -------------------------------------------------------------------------------- Prices and Distributions
12/31/06 12/31/05 Net Asset Value per Share $15.08 $13.92
Net Distributions per Share Investment Short-Term Long-Term (1/1/06 - 12/31/06) Income Capital Gains Capital Gains $0.0317 $ - $0.7902
- -------------------------------------------------------------------------------- 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 TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Pioneer Value Russell 1000 VCT Portfolio Value Index 05/03 10,000 10,000 12/03 11,633 11,800 12/04 12,959 13,747 12/05 13,564 14,716 12/06 15,604 17,990
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, 2006)
- -------------------------------------------------------------------------------- Net Asset Value - -------------------------------------------------------------------------------- Life-of-Class (5/1/03) 13.96% 1 Year 15.04%
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.pioneerinvestments.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, 2006 through December 31, 2006.
Share Class II - -------------------------------------------------------- Beginning Account Value on 7/1/06 $1,000.00 Ending Account Value on 12/31/06 $1,109.57 Expenses Paid During Period* $ 5.96
* Expenses are equal to the Portfolio's annualized expense ratio of 1.12% 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, 2006 through December 31, 2006.
Share Class II - -------------------------------------------------------- Beginning Account Value on 7/1/06 $1,000.00 Ending Account Value on 12/31/06 $1,019.56 Expenses Paid During Period* $ 5.70
* Expenses are equal to the Portfolio's annualized expense ratio of 1.12% 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 12/31/06 - -------------------------------------------------------------------------------- In the following interview, Aaron Clark, Pioneer Value VCT Portfolio's Manager, discusses the factors that influenced performance during the 12 months ended December 31, 2006. Q. How did the Portfolio perform during 2006? A. For the 12 months ended December 31, 2006, the Portfolio's Class II shares rose 15.04% at net asset value. The Portfolio underperformed the 22.25% return of the Russell 1000 Value Index as well as the 19.01% average return of the 98 portfolios in its Lipper peer group, Large-Cap Value Funds. Call 1-800-688-9915 or visit www.pioneerinvestments.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. The Portfolio produced a strong absolute return yet underperformed its benchmark. What was the cause of this? A. The past 12 months was a period of strong performance for the broader U.S. stock market, largely as a result of the continued environment of steady economic growth and robust corporate earnings. Value stocks performed particularly well, as traditional value-oriented sectors such as financials, basic materials, industrials and utilities all outperformed the broader market. While this backdrop was positive for the Portfolio, three misses in individual stocks resulted in underperformance. Most notably, the Portfolio did not hold a position in ExxonMobil, which outperformed the broader energy sector on the strength of its record earnings. Since the stock comprises over 6% of the benchmark during the reporting period, our decision not to own its shares had an outsized impact on the Portfolio's relative performance. Also detracting from returns were the Portfolio's holdings in Dow Chemical, which declined on concerns about slower earnings; and Tyco International, whose shares fell sharply in January after the company missed earnings expectations. Dow has been eliminated from the Portfolio, but we continued to hold a position in Tyco during the reporting period. Our approach is to use fundamental research to build a portfolio of stocks whose prices do not fully reflect what we believe is the intrinsic value of the underlying companies. One outcome of this approach is that the Portfolio tends to be focused in about 40-60 stocks in which we hold the highest level of conviction. Therefore, two or three underperforming positions can weigh on short-term relative performance, as was the case during the past year. Nevertheless, we believe that our focus on investing in undervalued companies will stand the Portfolio in good stead over time. Q. What were some holdings that helped performance? A. The largest individual contributor was cable provider Comcast. The stock was the Portfolio's largest overweight relative to the benchmark earlier in the year, but its substantial rally from its April level of about $26 to the low $40s by year-end caused its shares to move closer to what we saw as their fair value. We therefore reduced the Portfolio's weighting in Comcast, but we continued to hold a reduced position at the close of the year. Also boosting performance were the Portfolio's holdings in two financial stocks - Allstate and Merrill Lynch. We believed Allstate was very undervalued at the time of our original purchase, and this view has been borne out as the stock has performed well on the strength of profit margins and positive changes in the auto insurance industry. Believing the stock remains undervalued, we continued to hold it in the Portfolio. Merrill Lynch, meanwhile, was boosted by the positive capital markets backdrop and the apparent success of the restructuring efforts it has undertaken in recent years. 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.pioneerinvestments.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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Q. What notable changes did you make to the Portfolio throughout the reporting period? A. We elected to take profits in a number of energy stocks whose market values had risen near, or in some cases above, what we believed was their intrinsic value. While we redeployed some of the proceeds of these sales within energy, we also moved some money into other areas where we found more attractive values; namely health care and technology. In the former, our research showed a number of large-cap pharmaceutical stocks to be significantly undervalued, prompting us to purchase shares in Schering-Plough, Bristol Myers, Merck and Wyeth. As of the date of this report, the Portfolio's weighting in health care was now substantially above that of the index, reflecting the large number of individual opportunities we found in this area. We also invested in a number of technology companies with high levels of free cash flow: Nokia, Motorola, IBM and Hewlett-Packard. Another purchase of note was Freescale Semiconductor, which subsequently was taken over by a private equity consortium at a premium approximately 40% above our average purchase price. Q. What is your overall view on the value segment of the market at present? A. Although value stocks have outperformed their growth counterparts for quite some time, there are still a wealth of opportunities to invest in high-quality, undervalued individual companies. In addition, the ongoing strength of the U.S. economy, together with the growing likelihood that the Federal Reserve is nearly finished with its long series of interest rate increases, continue to offer support for the market as a whole. We believe this environment will continue to provide fertile ground in which to employ our bottom-up approach to individual stock selection. 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 Value VCT Portfolio - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS 12/31/06 - --------------------------------------------------------------------------------
Shares Value COMMON STOCKS - 96.8% Energy - 10.0% Integrated Oil & Gas - 10.0% 31,600 Chevron Corp. $ 2,323,548 38,076 ConocoPhillips 2,739,568 19,100 USX-Marathon Group, Inc. 1,766,750 ----------- $ 6,829,866 ----------- Total Energy $ 6,829,866 ----------- Materials - 2.3% Diversified Metals & Mining - 1.7% 21,107 Freeport-McMoRan Copper & Gold, Inc. (Class B) $ 1,176,293 ----------- Gold - 0.6% 8,000 Newmont Mining Corp. $ 361,200 ----------- Total Materials $ 1,537,493 ----------- Capital Goods - 6.1% Industrial Conglomerates - 6.1% 19,300 3M Co. $ 1,504,049 38,000 General Electric Co. 1,413,980 40,363 Tyco International, Ltd. 1,227,035 ----------- $ 4,145,064 ----------- Total Capital Goods $ 4,145,064 ----------- Transportation - 0.8% Railroads - 0.8% 10,900 Norfolk Southern Corp. $ 548,161 ----------- Total Transportation $ 548,161 ----------- Retailing - 3.1% Home Improvement Retail - 2.3% 39,200 Home Depot, Inc. $ 1,574,272 ----------- Internet Retail - 0.8% 26,600 Expedia, Inc.* $ 558,068 ----------- Total Retailing $ 2,132,340 ----------- Food & Drug Retailing - 3.1% Food Retail - 1.1% 33,500 Kroger Co. $ 772,845 ----------- Hypermarkets & Supercenters - 2.0% 28,570 Wal-Mart Stores, Inc. $ 1,319,363 ----------- Total Food & Drug Retailing $ 2,092,208 ----------- Food, Beverage & Tobacco - 7.0% Packaged Foods & Meats - 3.0% 12,600 Campbell Soup Co. $ 490,014 26,400 General Mills, Inc. 1,520,640 ----------- $ 2,010,654 ----------- Tobacco - 4.0% 31,750 Altria Group, Inc. $ 2,724,785 ----------- Total Food, Beverage & Tobacco $ 4,735,439 -----------
Shares Value Household & Personal Products - 3.5% Household Products - 2.8% 27,600 Kimberly-Clark Corp. $ 1,875,420 ----------- Personal Products - 0.7% 15,200 Avon Products, Inc. $ 502,208 ----------- Total Household & Personal Products $ 2,377,628 ----------- Health Care Equipment & Services - 1.6% Health Care Equipment - 1.2% 48,400 Boston Scientific Corp.* $ 831,512 ----------- Managed Health Care - 0.4% 6,600 Aetna, Inc. $ 284,988 ----------- Total Health Care Equipment & Services $ 1,116,500 ----------- Pharmaceuticals & Biotechnology - 14.4% Pharmaceuticals - 14.4% 97,820 Bristol-Myers Squibb Co. $ 2,574,622 52,000 Merck & Co., Inc. 2,267,200 56,000 Pfizer, Inc. 1,450,400 123,970 Schering-Plough Corp. 2,930,651 11,700 Wyeth 595,764 ----------- $ 9,818,637 ----------- Total Pharmaceuticals & Biotechnology $ 9,818,637 ----------- Banks - 6.8% Diversified Banks - 3.5% 42,280 Wachovia Corp. $ 2,407,846 ----------- Thrifts & Mortgage Finance - 3.3% 11,500 Freddie Mac $ 780,850 31,618 Washington Mutual, Inc. 1,438,303 ----------- $ 2,219,153 ----------- Total Banks $ 4,626,999 ----------- Diversified Financials - 9.7% Asset Management & Custody Banks - 1.5% 90,000 Amvescap Plc $ 1,048,859 ----------- Investment Banking & Brokerage - 2.4% 17,220 Merrill Lynch & Co., Inc. $ 1,603,182 ----------- Diversified Financial Services - 5.8% 34,524 Bank of America Corp. $ 1,843,236 38,434 Citigroup, Inc. 2,140,774 ----------- $ 3,984,010 ----------- Total Diversified Financials $ 6,636,051 ----------- Insurance - 11.3% Life & Health Insurance - 2.1% 69,695 UNUM Corp. $ 1,448,262 ----------- Multi-Line Insurance - 4.4% 41,258 American International Group, Inc. $ 2,956,548 -----------
6 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Shares Value Property & Casualty Insurance - 4.8% 50,309 Allstate Corp. $ 3,275,619 ----------- Total Insurance $ 7,680,429 ----------- Technology Hardware & Equipment - 7.1% Communications Equipment - 2.7% 27,800 Motorola, Inc. $ 571,568 61,148 Nokia Corp. (A.D.R.) 1,242,527 ----------- $ 1,814,095 ----------- Computer Hardware - 4.4% 34,200 Dell, Inc.* $ 858,078 29,600 Hewlett-Packard Co. 1,219,224 9,600 IBM Corp. 932,640 ----------- $ 3,009,942 ----------- Total Technology Hardware & Equipment $ 4,824,037 ----------- Telecommunication Services - 5.5% Integrated Telecommunication Services - 5.5% 25,800 BellSouth Corp. $ 1,215,439 67,800 Verizon Communications, Inc. 2,524,872 ----------- $ 3,740,311 ----------- Total Telecommunication Services $ 3,740,311 -----------
Shares Value Utilities - 4.5% Electric Utilities - 3.9% 24,590 Edison International $ 1,118,353 25,790 Firstenergy Corp. 1,555,137 ----------- $ 2,673,490 ----------- Independent Power Producer & Energy Traders - 0.6% 7,730 TXU Corp. $ 419,043 ----------- Total Utilities $ 3,092,533 ----------- (Cost $58,082,778) $65,933,696 ----------- TOTAL INVESTMENT IN SECURITIES - 96.8% (Cost $58,082,778) $65,933,696 ----------- OTHER ASSETS AND LIABILITIES - 3.2% $ 2,160,095 ----------- TOTAL NET ASSETS - 100.0% $68,093,791 ===========
(A.D.R.) American Depositary Receipt * Non-income producing security The accompanying notes are an integral part of these financial statements. 7 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended 5/1/03 (a) to Class II 12/31/06 12/31/05 12/31/04 12/31/03 Net asset value, beginning of period $ 13.92 $ 13.40 $ 12.04 $10.00 ------- ------- ------- ------ Increase from investment operations: Net investment income $ 0.21 $ 0.02 $ 0.02 $ 0.01 Net realized and unrealized gain on investments and foreign currency transactions 1.77 0.60 1.36 2.03 ------- ------- ------- ------ Net increase from investment operations $ 1.98 $ 0.62 $ 1.38 $ 2.04 Distributions to shareowners: Net investment income (0.03) (0.01) (0.01) - Net realized gain (0.79) (0.09) (0.01) - ------- ------- ------- ------ Net increase in net asset value $ 1.16 $ 0.52 $ 1.36 $ 2.04 ------- ------- ------- ------ Net asset value, end of period $ 15.08 $ 13.92 $ 13.40 $12.04 ======= ======= ======= ====== Total return* 15.04% 4.67% 11.40% 20.40% Ratio of net expenses to average net assets+ 1.12% 1.34% 1.50% 1.50%** Ratio of net investment income to average net assets+ 1.38% 0.63% 0.27% 0.27%** Portfolio turnover rate 96% 208% 52% 24% Net assets, end of period (in thousands) $68,094 $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 1.12% 1.43% 3.61% 10.93%** Net investment income (loss) 1.38% 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 1.12% 1.34% 1.50% 1.50%** Net investment income 1.38% 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 expenses 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 Value VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES 12/31/06 - --------------------------------------------------------------------------------
ASSETS: Investment in securities, at value (cost $58,082,778) $65,933,696 Cash 2,186,795 Receivables - Dividends, interest and foreign taxes withheld 116,120 Other 1,797 ----------- Total assets $68,238,408 ----------- LIABILITIES: Payables - Fund shares repurchased $ 76,738 Due to affiliates 6,164 Accrued expenses 61,715 ----------- Total liabilities $ 144,617 ----------- NET ASSETS: Paid-in capital $60,372,690 Undistributed net investment income 921,952 Accumulated net realized loss on investments (1,051,769) Net unrealized gain on investments 7,850,918 ----------- Total net assets $68,093,791 ----------- NET ASSET VALUE PER SHARE: Class II: (No par value, unlimited number of shares authorized) Net assets $68,093,791 Shares outstanding 4,514,324 ----------- Net asset value per share $ 15.08
The accompanying notes are an integral part of these financial statements. 9 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended 12/31/06 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $4,212) $1,601,077 Interest 108,594 ---------- Total investment income $1,709,671 ---------- EXPENSES: Management fees $ 511,538 Transfer agent fees and expenses 1,300 Distribution fees (Class II) 170,507 Administrative reimbursements 15,372 Custodian fees 11,994 Professional fees 34,275 Printing 9,287 Fees and expenses of nonaffiliated trustees 5,355 Miscellaneous 6,072 ---------- Total expenses $ 765,700 ---------- Net expenses $ 765,700 ---------- Net investment income $ 943,971 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, OPTIONS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $6,618,454 Written options closed/expired 140,889 Other assets and liabilities denominated in foreign currencies (21,932) ---------- $6,737,411 ---------- Change in net unrealized gain or (loss) from: Investments $1,924,056 Other assets and liabilities denominated in foreign currencies 4 ---------- $1,924,060 ---------- Net gain on investments, options and foreign currency transactions $8,661,471 ========== Net increase in net assets resulting from operations $9,605,442 ==========
10 The accompanying notes are an integral part of these financial statements. PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Year Ended Ended 12/31/06 12/31/05 FROM OPERATIONS: Net investment income $ 943,971 $ 143,759 Net realized gain on investments, options and foreign currency transactions 6,737,411 3,979,230 Change in net unrealized gain or (loss) on investments and foreign currency transactions 1,924,060 (2,014,683) ------------- ------------ Net increase in net assets resulting from operations $ 9,605,442 $ 2,108,306 ------------- ------------ DISTRIBUTIONS TO SHAREOWNERS Net investment income: Class II $ (145,013) $ (12,530) Net realized gain Class II (3,614,807) (94,867) ------------- ------------ Total distributions to shareowners $ (3,759,820) $ (107,397) ------------- ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 3,513,464 $ 4,536,146 Shares issued in reorganization - 56,877,053 Reinvestment of distributions 3,759,820 104,862 Cost of shares repurchased (16,161,055) (3,262,015) ------------- ------------ Net increase (decrease) in net assets resulting from Fund share transactions $ (8,887,771) $ 58,256,046 ------------- ------------ Net increase (decrease) in net assets $ (3,042,149) $ 60,256,955 NET ASSETS: Beginning of year 71,135,940 10,878,985 ------------- ------------ End of year $ 68,093,791 $ 71,135,940 ============= ============ Undistributed net investment income, end of year $ 921,952 $ 144,926 ============= ============
The accompanying notes are an integral part of these financial statements. 11 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 - -------------------------------------------------------------------------------- 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-four separate diversified portfolios, twelve 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 International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value 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 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 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 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) 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 Portfolio seeks reasonable income and capital growth. 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 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 year. 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 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 12 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2006, 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, if any, 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, 2006, 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, 2006, the Portfolio had a net capital loss carryforward of $5,325,505, of which the following amounts will expire between 2009 and 2010 if not utilized: $2,659,000 in 2009 and $2,666,505 in 2010. At December 31, 2006, 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 Capital - -------------------------------------------------------------------------------- Value Portfolio $(21,932) $21,932 $- ======== ======= == - --------------------------------------------------------------------------------
13 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- The following chart shows the distributions paid during the fiscal years ended December 31, 2006 and December 31, 2005 and the components of distributable earnings as of December 31, 2006, on a tax basis.
- -------------------------------------------------------------------------------- 2006 2005 - -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income $ 145,013 $ 20,216 Long-Term capital gain 3,614,807 87,181 ------------------------------------ Total distributions $3,759,820 $ 107,397 ==================================== Distributable Earnings (Accumulated Losses): Undistributed ordinary income $ 921,952 Undistributed long-term gain 4,506,896 Capital loss carryforward from AmSouth (5,325,505) Unrealized appreciation (depreciation) 7,617,758 ------------------------------------ Total $7,721,101 ==================================== - --------------------------------------------------------------------------------
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), $625,557 in commissions on the sale of Trust shares for the year ended December 31, 2006. 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. H. Option Writing When the Portfolio writes an option, an amount equal to the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from written options that expire unexercised are treated by the Portfolio on the expiration date as a realized gain from investments. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain or if the premium is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security currency in determining whether the Portfolio has realized a gain or loss. The Portfolio as writer of an option bears the market risk of an unfavorable change in the price of the security underlying the written option. 14 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Transactions in written options for the year ended December 31, 2006 are summarized as follows:
- -------------------------------------------------------------------------------- Option Written - -------------------------------------------------------------------------------- Number of Aggregate Contracts Face Value - -------------------------------------------------------------------------------- Options outstanding at beginning of year - $ - Options opened 145 44,664 Options exercised (145) (44,664) --------------------------------- Options outstanding at end of year - $ - ================================= - --------------------------------------------------------------------------------
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, 2006, $4,347 was payable to PIM related to management fees, administrative fees and certain other services, and is included in due to affiliates. Through May 1, 2007, 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 1.30% 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 $410 in transfer agent fees payable to PIMSS at December 31, 2006. 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 $1,407 payable to PFD at December 31, 2006. 5. Aggregate Unrealized Appreciation and Depreciation At December 31, 2006, 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 $58,315,938 $7,844,774 $(227,016) $7,617,758 =========== ========== ========= ========== - ---------------------------------------------------------------------------------------
15 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 12/31/06 (continued) - -------------------------------------------------------------------------------- 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, 2006, were $63,565,141 and $76,899,606, respectively. 7. Capital Shares At December 31, 2006, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows for the years ended December 31, 2006 and December 31, 2005:
- ---------------------------------------------------------------------------------------------------- Value Portfolio '06 Shares '06 Amount '05 Shares '05 Amount - ---------------------------------------------------------------------------------------------------- CLASS II: Shares sold 255,454 $ 3,513,464 338,599 $ 4,536,146 Shares issued in reorganization -- -- 4,188,296 56,877,053 Reinvestment of distributions 283,332 3,759,820 7,796 104,862 Shares repurchased (1,134,886) (16,161,055) (236,328) (3,262,015) --------------------------------------------------------------- Net increase (decrease) (596,100) $(8,887,771) 4,298,363 $58,256,046 =============================================================== - ----------------------------------------------------------------------------------------------------
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 Portfolio 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) ========== =========== - --------------------------------------------------------------------------------
9. New Pronouncements On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust's tax returns to determine whether the tax positions have a "more-likely-than-not" probability of being sustained by the applicable tax authority. Tax positions deemed to not meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the reporting period in which they are realized. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of no later than June 29, 2007. At this time, management is evaluating the implications of FIN 48 and any impact in the financial statements has not yet been determined. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 16 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 of Pioneer Value VCT Portfolio, one of the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), including the schedule of investments as of December 31, 2006, 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, 2006, 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, 2006, 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 9, 2007 17 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio - -------------------------------------------------------------------------------- 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: (i) will enable the Fund to receive quality investment advisory services at a fee deemed reasonable; and (ii) is 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 Interested 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 and/or officers of 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 also 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 information on (i) the investment performance of the Fund, a peer group of funds as classified by Morningstar, Inc., an independent evaluation service ("Morningstar") and an index considered appropriate by the Independent Trustees for this purpose, (ii) sales and redemption activity 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 and (viii) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. 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 and three year periods for the Fund and a peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose, (2) management and other fees incurred by a peer group of funds selected on the basis of criteria considered appropriate 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 on the basis of criteria considered appropriate 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 in providing services to 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 by the Funds 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 incurred on a basis other than as 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. 18 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 absolute investment performance based upon total return, as well as the Fund's performance relative to the performance of a peer group considered appropriate by the Independent Trustees for this purpose. The Fund's performance, based upon total return, was in the fourth quintile of its Morningstar category peer group for the 12 months ended June 30, 2006, and the fifth quintile of the peer group for the three years ended June 30, 2006. (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, focusing on three-year total returns, concluded that the Fund underperformed relative to its peers. 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 size, 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 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 or its affiliates under other contracts, as well as the Investment Adviser's supervision of third party service providers. Based on these considerations, the Trustees concluded that the nature, quality 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 its Morningstar category peer group. Although the Fund's management fee for the 12 months ended June 30, 2006 was in the fifth quintile relative to the management fees paid by the other funds in that peer group for the comparable period, at the request of the Trustees, the Investment Adviser agreed to reduce the Fund's management fee by 0.05%, which would be within the third quintile of that peer group. The Trustees also considered the Fund's expense ratio for the 12 months ended June 30, 2006 and expense ratios for the comparable period of the peer group of funds selected on the basis of criteria considered appropriate by the Independent Trustees for this purpose using data provided by Strategic Insight Mutual Fund Research and Consulting, LLC, an independent third party. The Trustees found the Fund's expense ratio for the 12 months ended June 30, 2006 (after giving effect to the expense limitation) to be in the fifth quintile, according to data prepared for the applicable 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 a review of the Investment Adviser's methodology in allocating certain of its costs to the management of each Fund, as well as 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 industry data available. 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 19 PIONEER VARIABLE CONTRACTS TRUST Pioneer Value VCT Portfolio - -------------------------------------------------------------------------------- FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT CONTRACT (continued) - -------------------------------------------------------------------------------- break point in the management fee was not necessary. 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. In light of the Investment Adviser's overall performance, the Trustees considered it appropriate to continue to retain the management services of the Investment Adviser. Based on their review of the overall nature and quality of services provided by the Investment Adviser and the fees charged by other funds in the Fund's relevant peer group, and taking into account all material factors deemed relevant by the Trustees as well as the advice of independent counsel, the Trustees concluded that the Management Contract with the Fund, including the fee payable thereunder, was fair and reasonable and that its renewal was in the best interests of the Fund and its shareowners. Accordingly, the Trustees voted to approve the continuation of the Management Contract for another year. 20 Pioneer Value 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 Custodian over the portfolio's affairs. The officers of the trust are Brown Brothers Harriman & Co. responsible for the trust's 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 are Ernst & Young LLP interested persons of the trust within the meaning of the 1940 Act are referred to as Interested Trustees. Trustees Principal Underwriter who are not interested persons of the trust are referred to Pioneer Funds Distributor, Inc. as Independent Trustees. Each of the Trustees serves as a trustee of each of the 86 U.S. registered investment Legal Counsel portfolios for which Pioneer serves as investment adviser Wilmer Cutler Pickering Hale and Dorr LLP (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the trust is 60 State Street, Shareowner Services and Transfer Boston, Massachusetts 02109. Pioneer Investment Management Shareholder Services, Inc.
- -------------------------------------------------------------------------------- INTERESTED TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. Chairman of the Trustee since 1994. Deputy Chairman and a Director of Director of ICI Mutual (80)* Board, Trustee Serves until a Pioneer Global Asset Management Insurance Company and President successor trustee is S.p.A. ("PGAM"); Non-Executive elected or earlier Chairman and a Director of Pioneer retirement or Investment Management USA Inc. removal. ("PIM-USA"); Chairman and a Director of Pioneer; Chairman and Director of Pioneer Institutional Asset Management, Inc. (since 2006); 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) (until June 2006); 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") (until May 2006); 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 the portfolio's investment adviser and certain of its affiliates. - -----------------------------------------------------------------------------------------------------------------------------------
21 Pioneer Value VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME, AGE AND ADDRESS WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS BY THIS TRUSTEE David R. Bock (63) Trustee Trustee since 2005. Senior Vice President and Chief Director of The 3050 K. Street NW, Serves until a Financial Officer, I-trax, Inc. Enterprise Social Washington, DC 20007 successor trustee is (publicly traded health care Investment Company elected or earlier services company) (2001 - present); (privately-held retirement or Managing Partner, Federal City affordable housing removal. Capital Advisors (boutique merchant finance company); and bank) (2002 to 2004); and Executive Director of New York Vice President and Chief Financial Mortgage Trust (publicly Officer, Pedestal Inc. (internet- traded mortgage REIT) based mortgage trading company) (2000 - 2002) - ----------------------------------------------------------------------------------------------------------------------------------- Mary K. Bush (58) Trustee Trustee since 2000. President, Bush International Director of Brady 3509 Woodbine Street, Serves until a (international financial advisory Corporation Chevy Chase, MD 20815 successor trustee is firm) (industrial elected or earlier identification and retirement or specialty coated removal. material products manufacturer); Director of Briggs & Stratton Co. (engine manufacturer); Director of Mortgage Guaranty Insurance Corporation; and Director of UAL Corporation (airline holding company) - ----------------------------------------------------------------------------------------------------------------------------------- Margaret B.W. Graham (59) Trustee Trustee since 2000. Founding Director, The Winthrop None 1001 Sherbrooke Street West, Serves until a Group, Inc. (consulting firm); and Montreal, Quebec, Canada successor trustee is Desautels Faculty of Management, H3A 1G5 elected or earlier McGill University retirement or removal. - ----------------------------------------------------------------------------------------------------------------------------------- Thomas J. Perna (56) Trustee Trustee since 2006. Private investor (2004 - present); Director of 89 Robbins Avenue, Serves until a and Senior Executive Vice Quadriserv Inc. Berkeley Heights, NJ successor trustee is President, The Bank of New York (technology products 07922 elected or earlier (financial and securities services) for securities retirement or (1986 - 2004) lending industry) removal. - ----------------------------------------------------------------------------------------------------------------------------------- Marguerite A. Piret (58) Trustee Trustee since 1995. President and Chief Executive Director of New America 200 State Street, 12th Serves until a Officer, Newbury, Piret & Company, High Income Fund, Inc. Floor, Boston, MA 02109 successor trustee is Inc. (investment banking firm) (closed-end investment elected or earlier company) retirement or removal. - ----------------------------------------------------------------------------------------------------------------------------------- John Winthrop (70) Trustee Trustee since 2000. President, John Winthrop & Co., None One North Adgers Wharf, Serves until a Inc. (private investment firm) Charleston, SC 29401 successor trustee is elected or earlier retirement or removal. - -----------------------------------------------------------------------------------------------------------------------------------
22 Pioneer Value VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS BY THIS OFFICER Osbert M. Hood (54)+ Executive Vice Since 2003. Serves President and Chief Executive Trustee of certain President at the discretion of Officer, PIM-USA since May 2003 Pioneer Funds the Board (Director since January 2001; Executive Vice President and Chief Operating Officer from November 2000 - May 2003); Director of PGAM since June 2003; President and Director of Pioneer since May 2003; President and Director of Pioneer Institutional Asset Management, Inc. since February 2006; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Director of PFD since May 2006; Director of Oak Ridge Investments, LLC (a registered investment adviser in which PIM-USA owns a minority interest) since January 2005; Director of Vanderbilt Capital Advisors, LLC (an institutional investment adviser wholly-owned by PIM-USA) since June 2006; and Executive Vice President of all of the Pioneer Funds since June 2003 +Mr. Hood resigned as EVP effective January 9, 2007. - ----------------------------------------------------------------------------------------------------------------------------------- Dorothy E. Bourassa (58) Secretary Since 2000. Serves Secretary of PIM-USA; Senior Vice None at the discretion of President - Legal of Pioneer; the Board Secretary/Clerk of most of PIM-USA's subsidiaries; and Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003) - ----------------------------------------------------------------------------------------------------------------------------------- Christopher J. Kelley (42) Assistant Since 2003. Serves Vice President and Senior Counsel None Secretary at the discretion of of Pioneer since July 2002; Vice the Board 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 of the Pioneer Funds since September 2003 - ----------------------------------------------------------------------------------------------------------------------------------- Christopher P. Harvey (45) Assistant Since 2006. Serves Partner, Wilmer Cutler Pickering None Secretary at the discretion of Hale and Dorr LLP; and Assistant the Board Secretary of all of the Pioneer Funds since July 2006. - ----------------------------------------------------------------------------------------------------------------------------------- Vincent Nave (61) Treasurer Since 2000. Serves Vice President - Fund Accounting, None at the discretion of Administration and Controllership the Board Services of Pioneer; and Treasurer of all of the Pioneer Funds - ----------------------------------------------------------------------------------------------------------------------------------- Mark E. Bradley (47) Assistant Since 2004. Serves Deputy Treasurer of Pioneer since None Treasurer at the discretion of 2004; Treasurer and Senior Vice the Board 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 - ----------------------------------------------------------------------------------------------------------------------------------- Luis I. Presutti (41) Assistant Since 2000. Serves Assistant Vice President - Fund None Treasurer at the discretion of Accounting, Administration and the Board Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds - ----------------------------------------------------------------------------------------------------------------------------------- Gary Sullivan (48) Assistant Since 2002. Serves Fund Accounting Manager - Fund None Treasurer at the discretion of Accounting, Administration and the Board Controllership Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 - -----------------------------------------------------------------------------------------------------------------------------------
23 Pioneer Value VCT Portfolio - -------------------------------------------------------------------------------- TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRUST OFFICERS - --------------------------------------------------------------------------------
POSITIONS HELD LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE TRUST AND TERM OF OFFICE PAST FIVE YEARS BY THIS OFFICER Katherine Kim Sullivan Assistant Since 2003. Serves Fund Administration Manager - Fund None (33) Treasurer at the discretion of Accounting, Administration and the Board Controllership 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 Controllership Services (Fund Accounting Manager from August 1999 to May 2002); and Assistant Treasurer of all of the Pioneer Funds since September 2003 - ----------------------------------------------------------------------------------------------------------------------------------- Terrence J. Cullen (45) Chief Since 2006. Serves Chief Compliance Officer of Pioneer None Compliance at the discretion of and all of the Pioneer Funds since Officer the Board March 2006; Vice President and Senior Counsel of Pioneer since September 2004; and Senior Vice President and Counsel, State Street Research & Management Company (February 1998 to September 2004) - ----------------------------------------------------------------------------------------------------------------------------------- The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking groups in Italy. Pioneer, the portfolio's investment adviser, provides investment management and financial services to mutual funds, institutional and other clients.
24 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 25 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 26 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 27 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 28 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This page for your notes. 29 [LOGO] PIONEER Investments(R) Proxy Voting Policies and Procedures of the Portfolio are available without charge, upon request, by calling our toll free number (1-800-225-6292). Information regarding how the Portfolio voted proxies relating to Portfolio securities during the most recent 12-month period ended June 30 is publicly available to shareowners at www.pioneerinvestments.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 18670-01-0207 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 $696,652 in 2006 and $759,150 in 2005 for the Trust's 27 portfolios and 28 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, 2006 and 2005. (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 $202,909 in 2006 and $190,400 in 2005. (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 year ended December 31, 2006 and 2005. (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, 2006 and 2005, 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 $202,909 in 2006 and $190,400 in 2005. (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 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. N/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 control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. The registrant's principal executive officer and principal financial officer, however, voluntarily are reporting the following information: In August of 2006 the registrant's investment adviser enhanced its internal procedures for reporting performance information required to be included in prospectuses. Those enhancements involved additional internal controls over the appropriateness of performance data generated for this purpose. Such enhancements were made following an internal review which identified prospectuses relating to certain classes of shares of a limited number of registrants where, inadvertently, performance information not reflecting the deduction of applicable sales charges was included. Those prospectuses were revised, and the revised prospectuses were distributed to shareholders. 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 26, 2007 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 26, 2007 By (Signature and Title)* /s/ Vincent Nave Vincent Nave, Treasurer Date February 26, 2007 * Print the name and title of each signing officer under his or her signature. EX-99 2 cert.txt CERTIFICATIONS -------------- I, John F. Cogan, Jr., certify that: 1. I have reviewed this report on Form N-CSR of Pioneer Variable Contracts Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. February 26, 2007 /s/ John F. Cogan, Jr. John F. Cogan, Jr. President CERTIFICATIONS -------------- I, Vincent Nave, certify that: 1. I have reviewed this report on Form N-CSR of Pioneer Variable Contracts Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 26, 2007 /s/ Vincent Nave Vincent Nave Treasurer SECTION 906 CERTIFICATION Pursuant to 18 U.S.C. ss. 1350, the undersigned officer of Pioneer Variable Contracts Trust (the "Fund"), hereby certifies, to the best of his knowledge, that the Fund's Report on Form N-CSR for the period ended November 30, 2006 (the "Report") fully complies with the requirements of Section 13 (a) or 15 (d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: February 26, 2007 /s/ John F. Cogan, Jr. John F. Cogan, Jr. President This certification is being furnished solely pursuant to 18 U.S.C. ss. 1350 and is not being filed as part of the Report or a separate disclosure document. A signed original of this written statement required by section 906 has been provided to the Fund and will be retained by the Fund and furnished to the SEC or its staff upon request. SECTION 906 CERTIFICATION Pursuant to 18 U.S.C. ss. 1350, the undersigned officer of Pioneer Variable Contracts Trust (the "Fund"), hereby certifies, to the best of his knowledge, that the Fund's Report on Form N-CSR for the period ended November 30, 2006 (the "Report") fully complies with the requirements of Section 13 (a) or 15 (d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: February 26, 2007 /s/ Vincent Nave Vincent Nave Treasurer This certification is being furnished solely pursuant to 18 U.S.C. ss. 1350 and is not being filed as part of the Report or a separate disclosure document. A signed original of this written statement required by section 906 has been provided to the Fund and will be retained by the Fund and furnished to the SEC or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----