OMB APPROVAL
OMB Number: 3235-0570
Expires: September 30, 2007
Estimated average burden
hours per response.....19.4
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-08786
Pioneer Variable Contracts Trust
(Exact name of registrant as specified in charter)
60 State Street, Boston, MA 02109
(Address of principal executive offices) (ZIP code)
Dorothy E. Bourassa, Pioneer Investment Management, Inc.,
60 State Street, Boston, MA 02109
(Name and address of agent for service)
Registrant's telephone number, including area code: (617) 742-7825
Date of fiscal year end: December 31
Date of reporting period: January 1, 2005 through December 31, 2005
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO SHAREOWNERS.
[LOGO]
PIONEER
Investments(R)
PIONEER
VARIABLE
CONTRACTS
TRUST
Pioneer Variable Contracts Trust -- Class I Shares
Pioneer Emerging Markets VCT Portfolio
Pioneer Europe VCT Portfolio
Pioneer International Value VCT Portfolio
Pioneer Small Cap Value VCT Portfolio
Pioneer Small Company VCT Portfolio
Pioneer Mid Cap Value VCT Portfolio
Pioneer Growth Shares VCT Portfolio
Pioneer Real Estate Shares VCT Portfolio
Pioneer Fund VCT Portfolio
ANNUAL REPORT
December 31, 2005
Pioneer Equity Income VCT Portfolio
Pioneer Balanced VCT Portfolio
Pioneer High Yield VCT Portfolio
Pioneer Strategic Income VCT Portfolio
Pioneer America Income VCT Portfolio
Pioneer Money Market VCT Portfolio
Drowning in Paper? Go Paperless! Go Electronic!
We now offer electronic access to your variable annuity prospectuses and annual
and semi-annual reports. It takes only minutes to enroll. Simply visit:
www.e-z-delivery.com. Make sure that you have your Client I.D. handy (from the
upper left corner on your Quarterly Statements). You need to enter it when you
enroll.
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table of Contents
Letter to Shareowners 1
Comparing Ongoing Portfolio Expenses 2
Pioneer Emerging Markets VCT Portfolio
Portfolio and Performance Update 4
Portfolio Management Discussion 5
Pioneer Europe VCT Portfolio
Portfolio and Performance Update 6
Portfolio Management Discussion 7
Pioneer International Value VCT Portfolio
Portfolio and Performance Update 8
Portfolio Management Discussion 9
Pioneer Small Cap Value VCT Portfolio
Portfolio and Performance Update 10
Portfolio Management Discussion 11
Pioneer Small Company VCT Portfolio
Portfolio and Performance Update 13
Portfolio Management Discussion 14
Pioneer Mid Cap Value VCT Portfolio
Portfolio and Performance Update 15
Portfolio Management Discussion 16
Pioneer Growth Shares VCT Portfolio
Portfolio and Performance Update 18
Portfolio Management Discussion 19
Pioneer Real Estate Shares VCT Portfolio
Portfolio and Performance Update 21
Portfolio Management Discussion 22
Pioneer Fund VCT Portfolio
Portfolio and Performance Update 23
Portfolio Management Discussion 24
Pioneer Equity Income VCT Portfolio
Portfolio and Performance Update 26
Portfolio Management Discussion 27
Pioneer Balanced VCT Portfolio
Portfolio and Performance Update 29
Portfolio Management Discussion 30
Pioneer High Yield VCT Portfolio
Portfolio and Performance Update 32
Portfolio Management Discussion 33
Pioneer Strategic Income VCT Portfolio
Portfolio and Performance Update 34
Portfolio Management Discussion 35
Pioneer America Income VCT Portfolio
Portfolio and Performance Update 37
Portfolio Management Discussion 38
Pioneer Money Market VCT Portfolio
Portfolio and Performance Update 39
Schedules of Investments
Pioneer Emerging Markets VCT Portfolio 40
Pioneer Europe VCT Portfolio 44
Pioneer International Value VCT Portfolio 46
Pioneer Small Cap Value VCT Portfolio 50
Pioneer Small Company VCT Portfolio 54
Pioneer Mid Cap Value VCT Portfolio 58
Pioneer Growth Shares VCT Portfolio 61
Pioneer Real Estate Shares VCT Portfolio 63
Pioneer Fund VCT Portfolio 64
Pioneer Equity Income VCT Portfolio 68
Pioneer Balanced VCT Portfolio 71
Pioneer High Yield VCT Portfolio 78
Pioneer Strategic Income VCT Portfolio 84
Pioneer America Income VCT Portfolio 95
Pioneer Money Market VCT Portfolio 100
Financial Statements 102
Notes to Financial Statements 126
Report of Independent Registered Public Accounting Firm 144
Factors Considered by the Independent Trustees in Approving the Management Contract 145
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
LETTER TO SHAREOWNERS 12/31/05
- --------------------------------------------------------------------------------
Dear Shareowner,
As 2005 came to a close, U.S. investors looked back on a year of major
challenges, though without much change in the market indices. The war in Iraq
continued, oil prices soared, then dropped, while short-term interest rates
ratcheted steadily higher and intermediate and long-term rates stayed about the
same. Natural disasters also threatened economic expansion. Still, the economy
moved forward as corporate earnings grew. The hope of a growing economy was not
reflected by the small gains or losses in the major U.S. market indices. Among
capitalization ranges, midcap issues made the most headway. Bond prices held
firm and yields remained low, perhaps a sign that the Federal Reserve Board's
interest rate hikes would temper the inflationary pressures induced by a
growing economy.
Among the nagging issues facing the U.S. economy in 2006 is the potential
impact of high energy prices on consumer spending and corporate profits. Also
unknown at this time is whether the Federal Reserve Board will continue to
raise interest rates under its new chairman, Ben Bernanke, who stated his top
priority will be to maintain continuity.
Rising interest rates and improving business conditions made U.S. holdings more
attractive to foreign investors, helping to strengthen the dollar versus the
euro and other key currencies. Investors in many foreign markets enjoyed
stellar returns. Double-digit gains were widespread in Europe, Asia and Latin
America. Even the long-dormant Japanese economy began to stir, while emerging
markets, especially those rich in natural resources, fed global economic
growth.
The disparity of returns among countries and sectors underscores the importance
for investors to maintain a well-diversified portfolio. We believe this may be
a good time for investors to review their holdings with their advisor and
determine if they reflect the wide range of opportunities that exist across
many asset classes, as last year's results make clear.
Investing for income with Pioneer
Adding one or more of Pioneer's income-oriented funds to your investment
program may help improve your portfolio's overall balance. As a premier
provider of fixed-income investments, Pioneer offers you a broad selection of
actively managed bond funds to help meet a variety of investment needs. Pioneer
also offers income-oriented equity funds, each managed using a value-oriented,
total return investment philosophy that seeks enhanced return potential and
lower volatility through active diversification. Your financial advisor can
help you select among Pioneer's fixed-income choices.
Respectfully,
/s/ Osbert M. Hood
Osbert M. Hood
President
Pioneer Investment Management, Inc.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Portfolios' historical or future performance are
statements of the opinion of portfolio management as of the date of this
report. These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
Before investing, consider the Portfolio's investment objectives, risks, charges
and expenses. Contact your advisor or Pioneer Investments for a prospectus
containing this information. Read it carefully.
1
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a beneficial owner of one or more Portfolios, you incur two types of costs:
(1) transactions costs, including sales charges (loads) at the time of purchase
and redemption fees upon redemption of your shares, and (2) ongoing costs
including management fees and other Portfolio expenses.
The examples below are based on investment of $1,000 at the beginning of the
period and held for the entire period (July 1, 2005 - December 31, 2005). These
examples are intended to help you understand your ongoing costs (in dollars),
of investing in a Portfolio and to compare these costs to investing in other
variable annuity portfolios.
Actual Expenses
The first line of the table below for each Portfolio provides information about
the actual account values and actual expenses. You may use the information in
the line, together with amount you invested, to estimate the expenses that you
paid over the period. Simply divide you account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.6), then multiple the result by
the number in the first line for a Portfolio under the heading entitled
"Expenses Paid During Period" to estimate the expenses you paid on your account
during the period.
Hypothetical Example for Comparison Purposes
The second line of the table below for each Portfolio provides information
about hypothetical account values and hypothetical expenses based on the
Portfolio's actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Portfolio's actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in each Portfolio. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other variable annuities.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs only and will not
help you determine the relative total costs of owning different variable
annuities. In addition, if these transaction costs were included, your costs
would have been higher.
Class I Shares
------------------------------------------------------
Beginning Ending
Account Account Expenses Paid
Value Value During Period
7/1/05 12/31/05 (7/1/05 - 12/31/05)
- ------------------------------------------------------------------------------------------------------
Pioneer Emerging Markets VCT Portfolio
Actual $ 1,000.00 $ 1,308.33 $ 10.18
Hypothetical $ 1,000.00 $ 1,016.38 $ 8.89
Pioneer Europe VCT Portfolio
Actual $ 1,000.00 $ 1,095.95 $ 7.92
Hypothetical $ 1,000.00 $ 1,017.64 $ 7.63
Pioneer International Value VCT Portfolio
Actual $ 1,000.00 $ 1,201.58 $ 8.49
Hypothetical $ 1,000.00 $ 1,017.49 $ 7.78
Pioneer Small Cap Value VCT Portfolio
Actual $ 1,000.00 $ 1,095.50 $ 6.07
Hypothetical $ 1,000.00 $ 1,019.41 $ 5.85
Pioneer Small Company VCT Portfolio
Actual $ 1,000.00 $ 1,049.60 $ 6.46
Hypothetical $ 1,000.00 $ 1,018.90 $ 6.36
Pioneer Mid Cap Value VCT Portfolio
Actual $ 1,000.00 $ 1,034.32 $ 3.63
Hypothetical $ 1,000.00 $ 1,021.57 $ 3.61
Pioneer Growth Shares VCT Portfolio
Actual $ 1,000.00 $ 1,058.51 $ 4.98
Hypothetical $ 1,000.00 $ 1,020.37 $ 4.89
2
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class I Shares
------------------------------------------------------
Beginning Ending
Account Account Expenses Paid
Value Value During Period
7/1/05 12/31/05 (7/1/05 - 12/31/05)
- -----------------------------------------------------------------------------------------------------
Pioneer Real Estate Shares VCT Portfolio
Actual $ 1,000.00 $ 1,077.39 $ 4.92
Hypothetical $ 1,000.00 $ 1,020.47 $ 4.79
Pioneer Fund VCT Portfolio
Actual $ 1,000.00 $ 1,068.97 $ 3.65
Hypothetical $ 1,000.00 $ 1,021.68 $ 3.57
Pioneer Equity Income VCT Portfolio
Actual $ 1,000.00 $ 1,036.88 $ 3.65
Hypothetical $ 1,000.00 $ 1,021.63 $ 3.62
Pioneer Balanced VCT Portfolio
Actual $ 1,000.00 $ 1,040.07 $ 4.73
Hypothetical $ 1,000.00 $ 1,020.57 $ 4.69
Pioneer High Yield VCT Portfolio
Actual $ 1,000.00 $ 1,026.79 $ 3.91
Hypothetical $ 1,000.00 $ 1,021.21 $ 3.90
Pioneer Strategic Income VCT Portfolio
Actual $ 1,000.00 $ 1,010.52 $ 4.51
Hypothetical $ 1,000.00 $ 1,020.72 $ 4.53
Pioneer America Income VCT Portfolio
Actual $ 1,000.00 $ 1,000.78 $ 4.14
Hypothetical $ 1,000.00 $ 1,021.07 $ 4.18
Pioneer Money Market VCT Portfolio
Actual $ 1,000.00 $ 1,014.96 $ 3.71
Hypothetical $ 1,000.00 $ 1,021.53 $ 3.72
(a) reflecting a 5% return per year before expenses
Expenses are equal to the annualized expense ratio of a Portfolio's Class I
shares (as indicated in the table below), multiplied by 184/365 (to reflect the
one-half year period.)
Annualized
Expense Ratio
- ---------------------------------------------------------------
Pioneer Emerging Markets VCT Portfolio 1.75%
Pioneer Europe VCT Portfolio 1.50%
Pioneer International Value VCT Portfolio 1.53%
Pioneer Small Cap Value VCT Portfolio 1.15%
Pioneer Small Company VCT Portfolio 1.25%
Pioneer Mid Cap Value VCT Portfolio 0.71%
Pioneer Growth Shares VCT Portfolio 0.96%
Pioneer Real Estate Shares VCT Portfolio 0.94%
Pioneer Fund VCT Portfolio 0.70%
Pioneer Equity Income VCT Portfolio 0.71%
Pioneer Balanced VCT Portfolio 0.92%
Pioneer High Yield VCT Portfolio 0.77%
Pioneer Strategic Income VCT Portfolio 0.89%
Pioneer America Income VCT Portfolio 0.82%
Pioneer Money Market VCT Portfolio 0.73%
3
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
International Common Stocks 64.0%
Depositary Receipts for International Stocks 22.9%
Temporary Cash Investment 5.7%
U.S. Common Stocks 4.9%
International Preferred Stocks 2.5%
Geographical Distribution Portfolio
(As a percentage of equity holdings)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
South Korea 22.1%
Brazil 17.8%
South Africa 10.0%
Taiwan 9.6%
Russia 6.4%
People's Republic of China 4.9%
India 4.7%
Turkey 4.6%
Thailand 3.7%
Israel 3.1%
Mexico 2.8%
Indonesia 1.7%
Malaysia 1.3%
Poland 1.2%
Hong Kong 1.0%
Philippines 1.0%
Other (individually less than 1%) 4.1%
Five Largest Holdings
(As a percentage of equity holdings)
1. Petrobras Brasileiro
(A.D.R.) 3.96%
2. Companhia Vale do Rio
Doce (A.D.R.) 2.21
3. Hyundai Motor Co., Ltd. 2.17
4. Samsung Electronics 2.04
5. Anglo American Platinum
Corp. 1.88
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 28.09 $ 20.48
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.1249 $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Emerging Markets VCT Portfolio at net asset value, compared to that of the
Morgan Stanley Capital International (MSCI) Emerging Markets Index. Portfolio
returns are based on net asset value and do not reflect any applicable
insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Date Pioneer Emerging
Markets VCT MSCI Emerging
Portfolio Markets Index
- ---------------------------------------------------
10/1998 $10,000 $10,000
- ---------------------------------------------------
$10,490 $10,675
- ---------------------------------------------------
12/1999 $18,750 $17,764
- ---------------------------------------------------
$12,337 $12,326
- ---------------------------------------------------
12/2001 $11,450 $12,034
- ---------------------------------------------------
$11,312 $11,312
- ---------------------------------------------------
12/2003 $17,893 $17,678
- ---------------------------------------------------
$21,292 $22,265
- ---------------------------------------------------
12/2005 $29,374 $29,956
- ---------------------------------------------------
The Morgan Stanley Capital International (MSCI) Emerging Markets Index measures
the performance of emerging market stocks. Index returns are calculated
monthly, assume reinvestment of dividends and, unlike Portfolio returns, do not
reflect any fees, expenses or sales charges. You cannot invest directly in the
Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Life-of-Class 16.22%
(10/30/98)
5 Years 18.95%
1 Year 37.95%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
In the following interview, Christopher Smart, the Portfolio Manager of Pioneer
Emerging Market VCT Portfolio, discusses the factors that influenced
performance during the 12 months ended December 31, 2005.
Q. Emerging markets equities performed well during the reporting period. What
factors underpinned this powerful upward move?
A. The rally in emerging markets stocks during the past twelve months follows
four years of outperformance for the asset class relative to the developed
markets. In our view, three key factors have contributed to this outcome.
First, economic growth in emerging markets has been much stronger than that
of the developed markets. This has been the result of both rising value of
commodities exports, as well as increasing domestic consumption by an
emerging middle class. Second, valuations have been well below those of the
developed market stocks, and remain so even after several years of
outperformance. Third, the risk of investing in the emerging markets is
much lower than it was even as recently as the late 1990s. Both
corporations and countries have paid down their debts and rebuilt their
balance sheets, putting the asset class on a much healthier footing to
withstand external shocks. Taken together, those factors have led to
significant outperformance for emerging markets stocks: for the five-year
period ended December 31, the average annual return of the MSCI Emerging
Markets Index was 19.44%, well ahead of the 4.55% annual return of the MSCI
EAFE Index.
Q. How did the Portfolio perform?
A. For the 12 months ended December 31, 2005, the Portfolio's Class I shares
had a total return of 37.95% at net asset value. We are pleased to report
that the Portfolio outpaced the 34.54% return of the Morgan Stanley Capital
International (MSCI) Emerging Markets Index during the period.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q. What factors helped and hurt the Portfolio's performance?
A. The most significant contributions came from the Portfolio's positions in
South Korea, Brazil and South Africa. In South Korea, our stocks produced
an aggregate return well ahead of the benchmark. Our positions in
shipbuilding stocks such as Samsung Heavy Industries and Hyundai Heavy
Industries delivered particularly strong returns, as the rising demand for
new ships led to improved pricing power and a three-year order backlog for
companies in the sector. South Korean stocks positioned to benefit from the
recovery in the domestic economy, such as Kookmin Bank and Hyundai Motor,
also did well.
Like South Korea, Brazil has benefited from the release of pent-up consumer
demand. With inflation low and interest rates beginning to decline, the
demand for credit has expanded. The result has been improving bottom lines
for the nation's banks, including the portfolio's holding in Banco Itau.
Another strong performer was our position in Net Servicos, a cable
television provider that is expanding into high speed internet and telephone
services in Brazil's major cities.
The South African economy also has been improving, due in part to the
government's substantial outlays for infrastructure projects such as roads
and ports. A key beneficiary of this trend was Aveng, a construction company
that also has holdings in steel and cement. Another top contributor was
Anglo Platinum, which benefited as the price of platinum surged to nearly US
$1000 per ounce.
There were few significant detractors during the past year. The Fund's
underweight in Russian oil stocks was a slight negative for relative
performance. Our belief was that Russian energy companies would earn less
money than their global peers due to the government's taxation policies, but
investors largely ignored this issue. An underweight in Mexico also had a
small negative impact on relative performance.
Q. What is your broad view regarding emerging markets equities?
A. Despite nearly five years of outperformance by emerging markets stocks, we
believe that the elements underpinning the recent gains remain in place:
economic growth remains strong, valuations are attractive and debt levels
remain low. As a higher-risk asset class, emerging markets naturally will
be more vulnerable in the event of rapidly rising global interest rates or
heightened risk aversion among investors. However, we believe that the
combination of stronger balance sheets and better economic management will
help guard against the dangers of global economic turbulence.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
A Word About Risk:
Investing in foreign and/or emerging markets securities involves risks relating
to interest rates, currency exchange rates, economic, and political conditions.
At times, the Portfolio's investments may represent industries or industry
sectors that are interrelated or have common risks, making it more susceptible
to any economic, political, or regulatory developments or other risks affecting
those industries and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
5
Pioneer Europe VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
International Common Stocks 95.4%
International Preferred Stocks 2.6%
U.S. Common Stocks 2.0%
Geographical Distribution
(As a percentage of equity holdings)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
United Kingdom 26.4%
France 25.1%
Germany 14.5%
Switzerland 13.9%
Netherlands 6.1%
Ireland 5.4%
Spain 3.5%
Italy 3.1%
Panama 2.0%
Five Largest Holdings
(As a percentage of equity holdings)
1. Royal Bank of Scotland
Group Plc 5.14%
2. BP Amoco Plc 4.94
3. BNP Paribas SA 4.47
4. TNT Post Group N.V. 4.34
5. CS Group 4.23
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 11.42 $ 10.64
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.0703 $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Europe VCT Portfolio at net asset value, compared to that of the Morgan Stanley
Capital International (MSCI) Europe Index. Portfolio returns are based on net
asset value and do not reflect any applicable insurance fees or surrender
charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer MSCI
Europe VCT Europe
Date Portfolio Index
- ---------------------------------------------------
10/1998 $10,000 $10,000
- ---------------------------------------------------
$10,600 $10,998
- ---------------------------------------------------
12/1999 $13,618 $12,783
- ---------------------------------------------------
$11,104 $11,742
- ---------------------------------------------------
12/2001 $8,587 $9,436
- ---------------------------------------------------
$6,955 $7,729
- ---------------------------------------------------
12/2003 $9,269 $10,754
- ---------------------------------------------------
$10,982 $13,054
- ---------------------------------------------------
12/2005 $11,866 $14,351
- ---------------------------------------------------
The Morgan Stanley Capital International (MSCI) Europe Index measures the
performance of stocks in European developed markets. Index returns are
calculated monthly, assume reinvestment of dividends and, unlike Portfolio
returns, do not reflect any fees, expenses or sales charges. You cannot invest
directly in the Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Life-of-Class 2.42%
(10/30/98)
5 Years 1.34%
1 Year 8.05%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
6
Pioneer Europe VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
European stocks posted strong positive returns in 2005, supported by solid
company earnings growth and an improving economic backdrop. In the discussion
below, Andrew Arbuthnott, who is responsible for the day-to-day management of
Pioneer Europe VCT Portfolio, discusses the factors that influenced the
Portfolio's performance over the year.
Q. How did the Portfolio perform?
A. For the 12 months ended December 31, 2005, Class I shares returned 8.05% at
net asset value. In comparison, our benchmark, the Morgan Stanley Capital
International (MSCI) Europe Index, posted a return of 9.42%. Returns for
the Portfolio and the Index reflect the negative impact for U.S. investors
with holdings denominated in euros due to the euro's decline over the year
versus the dollar. Nevertheless, European equity returns were strong both
in absolute terms and relative to U.S. domestic equity indices.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q. What factors influenced the Portfolio's relative performance?
A. The Portfolio's underperformance relative to the benchmark was largely the
result of our exposure to the telecommunications and automobile sectors. We
were overweight in the telecommunications sector, which underperformed in
2005. France Telecom was the key detractor as the market worried about the
impact of new technologies such as internet telephone calls (VOIP) on its
revenue growth potential. In autos, the market reacted negatively to
Porsche's decision to purchase a 20% stake in Volkswagen, although in our
opinion the investment should not undermine the underlying profitability of
Porsche. Disappointing results from Peugeot also held back overall returns,
while Michelin underperformed amid sluggish sales of truck tires.
Q. Which positions were positive contributors to the Portfolio's performance?
A. Our overweight position in diversified financials was the leading positive
contributor for the Portfolio in 2005. The sector saw strong relative
performance driven by generally supportive operating conditions, and our
stock selection within the sector outperformed as well. In particular,
holdings in Credit Suisse, Deutsche Bank and UBS rose on very solid
quarterly results throughout the year. We were also overweight in capital
goods, which outperformed the broader market in 2005, but our stock
selection was particularly robust within the sector. Siemens outperformed
as it continued to restructure under the guidance of its new CEO, moving to
concentrate on its more profitable industrial business and away from
communication equipment and IT services. ACS (a Spanish construction
company) strengthened on good financial results and robust order levels,
while Schneider Electric performed well on optimism for increased returns
to shareholders. Finally, we were overweighted in pharmaceuticals
throughout the year. Our positions in AstraZeneca and Roche outperformed,
and we continue to view both as attractive on the basis of strong new drug
pipelines.
Q. Would you discuss the Portfolio's overall approach?
A. Mid-way through the year, the Portfolio moved to a concentrated equity
approach. As a result, the Portfolio now holds around 30 stocks, comprising
our strongest investment ideas. We believe this shift will help maximize
the benefits of our bottom-up stock selection process - while at the same
time continuing to allow us to construct a diversified, multi-cap
portfolio. Despite the Portfolio's higher degree of concentration under its
new investment approach, our goal is for its overall level of volatility to
remain broadly comparable to that of its benchmark. This is due to our
consistent application of a rigorous investment process, through which we
aim to achieve a deep understanding of our holdings. The goal is to find
those securities with upside potential that we believe have the possibility
to also offer limited downside risk.
Q. What is your outlook?
A. Our outlook is positive for the European equity markets in 2006. Thanks to
strong earnings growth, valuations remain attractive versus fixed income,
and European equities continue to offer solid dividend yields. From a
global perspective, the macroeconomic environment remains favourable to the
equity markets, with positive growth expected to continue. Following years
of successful cost cutting and restructuring, corporate earnings growth is
likely to slow in 2006; however, we feel that valuations have taken this
into account. Equity markets may also continue to benefit from share
buy-backs and merger and acquisition activity. While we are positive on the
market, we would be surprised if equity returns in 2006 were as high as
those in 2005. In terms of our currency outlook, the euro may gain against
the dollar during 2006, if the focus of investors moves back to the large
U.S. trade and current account deficits.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
A Word About Risk:
Investing in foreign and/or emerging markets securities involves risks relating
to interest rates, currency exchange rates, economic, and political conditions.
The Portfolio may invest a substantial amount of its assets in issuers located
in a limited number of countries and therefore is susceptible to adverse
economic, political or regulatory developments affecting those countries. The
Portfolio invests in a limited number of securities and, as a result, the
Portfolio's performance may be more volatile than the performance of other
portfolios holding more securities. At times, the Portfolio's investments may
represent industries or industry sectors that are interrelated or have common
risks, making it more susceptible to any economic, political, or regulatory
developments or other risks affecting those industries and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
7
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
International Common Stocks 87.3%
Depositary Receipts for International Stocks 6.0%
U.S. Common Stocks 4.8%
Temporary Cash Investment 1.3%
International Preferred Stocks 0.6%
Geographical Distribution
(As a percentage of equity holdings)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Japan 28.0%
United Kingdom 14.8%
France 10.8%
Switerland 9.5%
Germany 5.8%
South Korea 4.7%
Brazil 3.3%
Spain 3.0%
Netherlands 3.0%
United States 2.1%
Sweden 1.9%
Russia 1.8%
Australia 1.5%
People's Republic of China 1.4%
Ireland 1.0%
Singapore 1.0%
Other (individually less than 1%) 6.4%
Five Largest Holdings
(As a percentage of equity holdings)
1. Total SA 2.45%
2. Roche Holdings AG 1.97
3. CS Group 1.86
4. Repsol SA 1.67
5. Sumitomo Mitsui Financial
Group, Inc. 1.67
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 13.71 $ 11.88
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.0178 $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
International Value VCT Portfolio at net asset value, compared to that of the
Morgan Stanley Capital International (MSCI) All Country World (ex. U.S.) Index.
Portfolio returns are based on net asset value and do not reflect any
applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer
International
Value VCT MSCI AC Wld
Date Portfolio (ex. U.S)Index
- -------------------------------------------------
12/1995 $10,000 $10,000
- -------------------------------------------------
$10,854 $10,668
- -------------------------------------------------
12/1997 $11,383 $10,886
- -------------------------------------------------
$11,004 $12,459
- -------------------------------------------------
12/1999 $15,888 $16,310
- -------------------------------------------------
$12,313 $13,850
- -------------------------------------------------
12/2001 $9,389 $11,150
- -------------------------------------------------
$8,139 $9,514
- -------------------------------------------------
12/2003 $10,586 $13,454
- -------------------------------------------------
$12,567 $16,327
- -------------------------------------------------
12/2005 $14,526 $19,121
- ------------------------------------------------
The Morgan Stanley Capital International (MSCI) All Country World (ex. U.S.)
Index measures the performance of developed and emerging market stock markets.
Index returns are calculated monthly, assume reinvestment of dividends and,
unlike Portfolio returns, do not reflect any fees, expenses or sales charges.
You cannot invest directly in the Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
10 Years 3.80%
5 Years 3.36%
1 Year 15.58%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
8
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
International markets rallied considerably in the second half of Pioneer
International Value VCT Portfolio's fiscal year. Investments in emerging
markets and Japan were particularly rewarding, contributing strongly to its
double-digit returns for the 12-months ended December 31, 2005. In the
following interview, lead portfolio manager Christopher Smart discusses the
factors that influenced this performance.
Q. How did the Portfolio perform for fiscal year?
A. For the 12 months ended December 31, 2005, Class I shares rose 15.58% at net
asset value. The Portfolio lagged the 16.53% return of the Morgan Stanley
Capital International (MSCI) All Country World (ex. U.S.) Index excluding
the United States. We attribute the underperformance to a handful of stocks
in Europe and Japan. Perhaps the biggest disappointment was Vodafone, a
sizable holding in the portfolio, which fell sharply in response to the
company's announcement of lower-than-expected profitability over the next
several years due to increased competition.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q. Emerging markets stocks rose sharply during the Portfolio's fiscal year.
What contributed to those dramatic returns?
A. In our view, three main factors contributed to the outcome. First, economic
growth in emerging markets has been much stronger than that of the
developed markets, with countries such as Russia, China and Turkey
expanding between 5% and 10% per year. Second, valuations have been much
lower than those of the developed market stocks, and they remain so even
after several years of outperformance. Third, the risk of investing in
emerging markets is much lower than it was even as recently as the late
1990s. Both corporations and countries have paid down their debts and
rebuilt their balance sheets, putting the asset class on a much healthier
footing to withstand external shocks.
Q. Could you mention some of the holdings that capture this growth potential in
emerging markets?
A. Certainly. With inflation low and interest rates beginning to decline in
Brazil, pent-up consumer spending is increasing the demand for credit. The
Portfolio's investments in Unibanco, the country's largest retail bank,
were very rewarding. In South Korea, the Portfolio's holdings that are
positioned to benefit from the recovery in the domestic economy also did
well. In recent years, high levels of consumer debt contributed to slower
growth and reduced earnings for companies in the financial and retail
sectors. With the problem now largely resolved, bank stocks - such as Fund
holding Kookmin Bank - have recovered nicely.
Q. Why did investments in Japan contribute so favorably to performance?
A. Effective stock selection and a resurging stock market contributed to strong
returns from Japanese stocks. An improving economy is raising consumer
confidence and giving companies an incentive to build new factories and
infrastructure. In addition, the recent reelection of Prime Minister
Koizumi brought more of his reformist allies into the legislature, which
should help expedite his privatization efforts. Two of the Fund's
investments - the department store chain Takashimaya and commercial and
residential builder Shimizu - made strong gains.
Q. How did investments in the more mature markets of Europe fare?
A. Investment returns from stocks across Europe were less dramatic than those
outside the region, but still contributed positively to performance
overall. Economic growth across Europe is modest, but business confidence
is strong and valuations are attractive on a stock-by-stock basis. Stat Oil
(Norway) and Repsol (Spain) are profiting from higher oil prices, but also
represent good value relative to the rest of their competitors. In the
pharmaceutical sector, Roche Holdings (Switzerland), which produces the flu
vaccine Tamiflu, and AstraZeneca (United Kingdom) appreciated considerably.
Q. What holdings detracted from performance?
A. Royal Bank of Scotland Group, like many of the portfolio's U.K. bank stocks,
underperformed as a result of rising interest rates and slower loan growth.
Television broadcaster Mediaset suffered in response to Italy's slowing
economy and the shrinking demand for advertising. Finally, computer
integration consulting services provider OBIC (Japan) struggled - as did
the software services sector in general.
Q. What is your outlook for international equities in 2006?
A. We remain positive in our outlook for international equity markets. We are
watching for inflationary signs that could cause interest rates to rise
quickly, but so far we see none. Rising oil prices are a concern, but we
think that the declining costs of exports and technology coming from Asia
and other developing countries have offset these pressures to a large
extent. Given our expectations for a moderate pace of global growth in
2006, we will continue to focus on high-quality markets and stocks that
offer attractive valuations and good prospects for appreciation.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
A Word About Risk:
Investing in foreign and/or emerging markets securities involves risks relating
to interest rates, currency exchange rates, economic, and political conditions.
The Portfolio may invest a substantial amount of its assets in issuers located
in a limited number of countries and therefore is susceptible to adverse
economic, political or regulatory developments affecting those countries. At
times, the Portfolio's investments may represent industries or industry sectors
that are interrelated or have common risks, making it more susceptible to any
economic, political, or regulatory developments or other risks affecting those
industries and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
9
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 77.6%
Temporary Cash Investments 15.5%
International Common Stocks 2.5%
Depositary Receipts for International Stocks 2.5%
Exchange Traded Fund 1.9%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution
(As a percentage of equity holdings)
Financials 28.7%
Industrials 18.6%
Information Technology 16.3%
Energy 13.9%
Health Care 6.6%
Consumer Discretionary 6.3%
Consumer Staples 3.3%
Materials 3.3%
Utilities 2.0%
Telecommunication Services 1.0%
Five Largest Holdings
(As a percentage of equity holdings)
1. Southwestern Energy Co. 2.47%
2. Avid Technology, Inc. 1.90
3. Insight Enterprises, Inc. 1.81
4. Sterling Bancshares, Inc. 1.61
5. On Assignment, Inc. 1.45
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 16.19 $ 15.02
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ - $ - $ 0.4861
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Small Cap Value VCT Portfolio at net asset value, compared to that of the
Russell 2000 Value Index. Portfolio returns are based on net asset value and do
not reflect any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Date Pioneer Russell
Small Cap 2000
Value VCT Value
Portfolio Index
11/01 10000 10000
- ---------------------------------------
10574 10612
- ---------------------------------------
8979 9400
- ---------------------------------------
12/03 12160 13726
- ---------------------------------------
14611 16780
- ---------------------------------------
12/05 16275 17570
- ---------------------------------------
The Russell 2000 Value Index measures the performance of U.S. small-cap value
stocks. Index returns are calculated monthly, assume reinvestment of dividends
and, unlike Portfolio returns, do not reflect any fees, expenses or sales
charges. You cannot invest directly in the Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Life-of-Class 13.22%
(11/8/01)
1 Year 11.39%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
10
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
Continued adherence to established disciplines enabled Pioneer Small Cap Value
VCT Portfolio to outperform its benchmark index over this period. In the
following discussion, portfolio manager David Adams and assistant portfolio
manager John McPherson review the economic background and describe some of the
decisions that aided performance.
Q. How did the Portfolio perform over this period?
A. For the twelve months ended December 31, 2005, Class I shares of the
Portfolio returned 11.39% at net asset value. The results comfortably
outdistanced the 4.71% return on the Russell 2000 Value Index, the
benchmark over the same period.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q. Please describe the investment background over the past year and how it
affected small-cap stocks.
A. It was a year in which small-caps outpaced large, value and growth were
essentially in line, and stocks of better-quality companies trumped
lower-quality issues. Rising energy prices and shifting views on the
economy, the dollar, and interest rates kept equity markets in a narrow
range.
Solid earnings growth gave smaller-company stocks renewed impetus after
large caps briefly outperformed early in the year. The Portfolio's positive
results validated our longstanding investment thesis that, despite higher
interest rates and record energy prices, the healthy economy would enable
well-managed small companies to boost operating results.
Q. Which of your investment decisions had the most favorable impact on results?
A. Our bottom-up stock selection process led us to overweight energy stocks for
some time. The resulting overweight stance compared with the benchmark was
an important contributor to the period's strong results, as prices for oil
and natural gas reached record levels. We were also overweight and
outperformed the benchmark in health care. Successful stock selection
allowed the Portfolio to better the index's results among financial issues
despite our underweight position. Results were also favorable in the
information technology sector, where the Portfolio's exposure was about
equal to the benchmark's.
Southwestern Energy, an independent oil and gas producer operating in
Arkansas and Oklahoma, was one of the period's top performers, thanks to
continued strong financial performance and the possibility that a new gas
field may yield massive reserves. We have been taking profits in this
long-term holding, bearing out our patient approach.
In energy services, TODCO, which operates drilling rigs in the Gulf of
Mexico, benefited when competitors sought better conditions elsewhere. That
shrank the number of available rigs just prior to a surge in demand for
natural gas that allowed TODCO to hike its billing rates. Similarly, the
demand for Gulfmark Offshore's supply boats rose as worldwide energy demand
stimulated North Sea drilling activity.
In health care, shares of Kendle International rose due to healthy demand
for laboratory services tied to the search for new drug compounds.
We took partial profits in shares of NASDAQ Stock Market, the period's
biggest financial sector gainer. NASDAQ has successfully leveraged its core
trading business by offering a series of new products and services to its
customers as the investment business continues to become more electronically
based. Apollo Investment, which provides financing for mid-sized businesses,
recorded a gain thanks to its solid underwriting capabilities, savvy
management and strong network of funding sources. And our patience was
rewarded when municipal bond insurer Assured Guaranty saw its credit rating
strengthen, providing better entree to business opportunities.
In technology, SPSS, makers of analytical software for researchers, enjoyed
an uptick in results thanks to better planning and new initiatives. Video
specialist Avid Technology continued to ride the move from film-based,
analog editing to digital formats in TV newsrooms and elsewhere. Avid is
also poised to benefit as high-definition broadcasts become the television
norm.
A Word About Risk:
Investments in small companies may offer the potential for higher returns, but
are also subject to greater short-term price fluctuations than larger, more
established companies. The Portfolio invests in REIT securities, the value of
which can fall for a variety of reasons, such as declines in rental income,
fluctuating interest rates, poor property management, environmental
liabilities, uninsured damage, increased competition, or changes in real estate
tax laws. At times, the Portfolio's investments may represent industries or
industry sectors that are interrelated or have common risks, making it more
susceptible to any economic, political, or regulatory developments or other
risks affecting those industries and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
11
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 (continued)
- --------------------------------------------------------------------------------
Q. Which of your choices held back results?
A. AMERIGROUP, a Medicaid HMO and for some time a successful holding, shocked
the investment community by revisiting earlier financial results, citing
unexpectedly high costs for patient care. Specialty insurer Quanta Capital
Holdings, a recent entrant to the business, suffered a terrible sequence of
hurricane losses over the past two years. New management and revised
business practices encouraged us to add to this holding when prices fell.
Montreal-based Domtar suffered from the slowing demand that has plagued the
paper industry. Strength in the Canadian dollar also reduced the exchange
value of U.S. assets. Retailer Hancock Fabrics is trying to reinvigorate
sales at its home decor and sewing outlets after a series of problems,
including the lack of up-to-date inventory systems and damaged relationships
with store managers. Shares fell further when the company eliminated its
dividend. A new infrastructure and merchandising approach encourage us to
maintain this small position.
Q. What is your outlook for the economy and how have you positioned the
Portfolio?
A. We think that good stocks bought at prices that appear reasonable should do
well in the moderate-growth environment that we foresee. Compelling ideas
continue to emerge in the technology arena, where we have increased the
Portfolio's exposure. We are also adding some financial stocks while
scaling back others. On the other hand, we are not finding good value among
consumer-discretionary issues, a sector that could feel pressure if
households reduce spending in the face of big energy bills and rising
interest rates. Persistent demand and high prices make us comfortable with
our current large exposure to energy stocks; we would view any sharp
decline in this sector as an opportunity. Finally, we will continue to
employ our proven discipline in an effort to ferret out superior
opportunities, and take profits as valuations approach our targets.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
12
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 85.0%
Temporary Cash Investment 10.0%
Depositary Receipts for International Stocks 2.6%
International Common Stocks 1.6%
Exchange Traded Fund 0.8%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution
(As a percentage of equity holdings)
Industrials 19.5%
Financials 18.9%
Health Care 15.4%
Information Technology 14.3%
Consumer Discretionary 10.4%
Energy 9.2%
Materials 5.6%
Consumer Staples 3.0%
Utilities 2.9%
Telecommunication Services 0.8%
Five Largest Holdings
(As a percentage of equity holdings)
1. Swift Transportation Co., Inc. 1.47%
2. Cerner Corp. 1.45
3. Stage Stores, Inc. 1.39
4. Skechers U.S.A. 1.32
5. Cubist Pharmaceuticals,
Inc. 1.26
The Portfolio is actively managed, and current holdings may be different.
- -------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- -------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 11.85 $ 12.97
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ - $ - $ 1.2777
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Small Company VCT Portfolio at net asset value, compared to that of the Russell
2000 Index. Portfolio returns are based on net asset value and do not reflect
any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
- ---------------------------------------
Pioneer
Small
Company Russell
VCT 2000
Date Portfolio Index
- ---------------------------------------
1/2001 $10,000 $10,000
- ---------------------------------------
$10,498 $9,741
- ---------------------------------------
$8,739 $7,746
- ---------------------------------------
12/2003 $10,951 $11,406
- ---------------------------------------
$12,415 $13,497
- ---------------------------------------
12/2005 $12,636 $14,112
- ---------------------------------------
Index comparison begins 1/31/01. The Russell 2000 Index measures U.S. small-cap
stocks. Index returns are calculated monthly, assume reinvestment of dividends
and, unlike Portfolio returns do not reflect any fees, expenses or sales
charges. You cannot invest directly in the Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- -------------------------------------------------------------------------------
Net Asset Value
- -------------------------------------------------------------------------------
Life-of-Class 5.78%
(1/19/01)
1 Year 1.78%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
13
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- -------------------------------------------------------------------------------
Co-managers Diego Franzin and Michael Rega describe conditions in the
small-company universe for 2005, and the stocks that affected the Portfolio's
performance.
Q. How did Pioneer Small Company VCT Portfolio perform over this period?
A. For the twelve months ended December 31, 2005, Class I shares of the
Portfolio returned 1.78% at net asset value. The result trailed the
Portfolio's benchmark, the Russell 2000 Index, which returned 4.55% over
the same period.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q. Please describe the background for small-company stocks over this period.
A. Whether - or when - escalating energy prices and higher interest rates might
cause consumers to retrench was a major investor preoccupation in 2005. A
fall-off in consumer spending, which represents the bulk of U.S. economic
activity, could signal trouble for the ongoing economic expansion. In fact,
a slide in energy prices following post-hurricane peaks boosted consumer
confidence and spending levels stayed healthy. Through the year, value and
growth stocks vied for small-cap leadership, with value holding an edge at
year's end.
Q. Which stocks or sectors affected Portfolio performance?
A. Energy was the year's top sector. High prices for oil and gas stimulated
drilling activity, boosting earnings for NSS Services, which manufactures
seamless piping used in oil wells. Forest Oil, a North American oil and gas
exploration company, also rose.
In health care, strength in Cubist Pharmaceuticals reflected rising sales of
Cubicin, a drug whose effectiveness is making it the treatment of choice for
hospital-based staph infections. Sales of Cerner's software, which lets
medical professionals view x-rays and lab results on their computers, also
grew. Hospitals are increasingly adopting systems that provide current
patient data at the point of care. We took losses in generic drug maker Able
Laboratories when failure to follow standardized lab procedures led to
inventory recalls and cessation of manufacturing. We are still holding
Seralogicals despite slowing sales of its culture media and other laboratory
products at a time of payroll expansion.
Among consumer discretionary issues, Guess?, makers of jeans and other
casual wear for children, teens and adults, benefited from skilled
management and successful execution of its business plan. But teen retailer
Aeropostale stumbled. Poor product choices led to markdowns that ate into
profit margins, and a new store concept failed to gain traction. We also
took losses in Rewards Network when discount dining programs saw shrinking
membership and investors lost confidence. Elsewhere, we took profits in
Administaff, whose human resources services found growing acceptance among
smaller companies lacking staff to deal with regulatory requirements.
Boston Communications Group, one of our holdings in the telecommunications
services sector, provides a product that allows consumers to purchase
pre-paid wireless service. The company learned in May that the technology
used to provide the service was in violation of a patent held by a
competitor. This news led to a decline in the company's stock price. We sold
the stock after the announcement, and in hindsight this was the right move
as the stock price continued to fall further. Connetics, a specialty
pharmaceutical company declined after receiving a Non-Approvable letter from
the FDA for one of its products in development. We think the market
over-reacted to this news, and we believe that the company's past history of
developing well received products, as well as their aggressive sales force
provide what we see as a solid foundation for growth.
Q. What is your outlook for the months ahead?
A. We think high energy prices will persist and that the Federal Reserve Board
will hike rates a bit more. With little clear consensus on the economy's
direction, however, stock selections may be more important than sector
weightings in the period ahead. Our goal is to maintain a well-diversified
portfolio that limits exposure to any one security, basing our selections
on a combination of quantitative and fundamental analysis. Using that
process, we believe prospects for many health care companies are better
than current valuations might imply. In the volatile technology sector, we
favor companies whose products can bolster business efficiency. An eventual
end to rate hikes could revitalize housing stocks for a time, but we cut
exposure to that sector in 2005 and remain wary of it for now.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
A Word About Risk:
Investments in small companies may offer the potential for higher returns, but
are also subject to greater short-term price fluctuations than larger, more
established companies. The Portfolio invests in REIT securities, the value of
which can fall for a variety of reasons, such as declines in rental income,
fluctuating interest rates, poor property management, environmental
liabilities, uninsured damage, increased competition, or changes in real estate
tax laws. Investing in foreign and/or emerging markets securities involves
risks relating to interest rates, currency exchange rates, economic, and
political conditions. At times, the Portfolio's investments may represent
industries or industry sectors that are interrelated or have common risks,
making it more susceptible to any economic, political, or regulatory
developments or other risks affecting those industries and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
14
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 97.3%
Temporary Cash Investment 1.9%
Depositary Receipts for International Stocks 0.8%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution
(As a percentage of equity holdings)
Financials 23.7%
Consumer Discretionary 13.2%
Information Technology 10.3%
Health Care 10.2%
Industrials 9.9%
Materials 8.8%
Consumer Staples 8.1%
Utilities 7.8%
Energy 6.7%
Telecommunication Services 1.3%
Five Largest Holdings
(As a percentage of equity holdings)
1. Foot Locker, Inc. 2.16%
2. Symbol Technologies, Inc. 2.14
3. Federated Investors, Inc. 2.06
4. W.W. Grainger, Inc. 2.03
5. Republic Services, Inc. 2.00
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 25.00 $ 24.67
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.0771 $ 0.1221 $ 1.3647
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Mid Cap Value VCT Portfolio at net asset value, compared to that of the Russell
Midcap Value Index. Portfolio returns are based on net asset value and do not
reflect any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Date Pioneer Mid Cap
Value VCT Russell MidCap
Portfolio Value Index
- --------------------------------------
12/1995 $10,000 $10,000
- --------------------------------------
$11,503 $12,026
- --------------------------------------
12/1997 $14,343 $16,159
- --------------------------------------
$13,776 $16,981
- --------------------------------------
12/1999 $15,574 $16,962
- --------------------------------------
$18,378 $20,215
- --------------------------------------
12/2001 $19,570 $20,685
- --------------------------------------
$17,376 $18,690
- --------------------------------------
12/2003 $23,888 $25,805
- --------------------------------------
$29,172 $31,922
- --------------------------------------
12/2005 $31,472 $35,960
- --------------------------------------
The Russell Midcap Value Index measures the performance of U.S. mid-cap value
stocks. Index returns are calculated monthly, assume reinvestment of dividends
and, unlike Portfolio returns, do not reflect any fees, expenses or sales
charges. You cannot invest directly in any Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
10 Years 12.15%
5 Years 11.36%
1 Year 7.88%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
15
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
The equity markets exhibited considerable volatility during 2005. Stock
valuations moved up and down without any clear direction for most of the period
before finishing strongly in the final two months of the year on evidence that
the economic recovery was persisting and that corporate profits were continuing
to improve. In the following discussion, Rod Wright, the leader of the team
that manages Pioneer Mid Cap Value VCT Portfolio, provides an update on the
Portfolio and his investment strategies during 2005.
Q. How did the Portfolio perform?
A. Class I shares of Pioneer Mid Cap Value VCT Portfolio had a total return of
7.88% at net asset value during the 12 months ended December 31, 2005.
During the same period, the Standard & Poor's 500 Index returned 4.91%,
while the Russell Midcap Value Index returned 12.65%.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q. What were the principal factors that affected Portfolio performance?
A. The Portfolio's relative performance improved substantially in the final two
months of 2005 as many of the individual stocks that we had favored during
the year finally started to produce good results. Our strategy is to manage
the Portfolio by emphasizing individual security selection rather than
sector weightings based on macro-economic forecasts. We emphasize
better-quality companies with reasonable prices that have potential
catalysts for improved results and better-than-average long-term business
prospects. Our tactical objective is to outperform the overall market, as
reflected by the S&P 500, while seeking superior-long-term results.
Overall, our stock selection was good in most sectors during 2005, with our
holdings in the information technology, industrials, financials and
consumer staples sectors performing particularly well. However, our
selection in the consumer discretionary sector was far less successful, and
we also lagged in the energy, basic materials and health care sectors.
Q. What were some of the investments that helped support Portfolio performance?
A. During a year in which corporate merger-and-acquisition activity picked up,
three holdings that received attractive acquisition proposals were major
contributors: IVAX, a generic pharmaceutical company which is in the
process of being taken over by Teva, another generic manufacturer, at a
premium to its stock valuation; SunGard Data Systems, which provides
software and information technology systems to large enterprises, and was
acquired by a group of private equity investors; and Scientific-Atlanta,
producer of television set-top systems for cable television users, which is
being acquired by Cisco Systems.
Within the energy sector, investments that helped significantly included:
Devon, an exploration and production company; Transocean, a deep-water
drilling corporation; and Occidental Petroleum, an integrated refining,
marketing and distribution company.
Among other stocks that had a positive influence on returns were Imation,
which produces tapes for communications networks, and Triad Hospitals, which
operates hospitals and surgery centers in 15 states; and Xerox, the office
equipment company.
Q. What were some of the investments that detracted from results?
A. Our holdings in the consumer discretionary sector had the greatest
detrimental impact on results. The sector in general was affected by both
higher energy costs, which squeezed the budgets of some consumers, and by
investor concerns that high personal debt loads would lead to a downturn in
consumer spending patterns. However, our biggest disappointments also were
affected by their own issues.
The share price of Interpublic Group, which operates a large group of
advertising and marketing agencies, plummeted in the midst of an SEC
investigation of its accounting practices and the resignations of the
company's chief executive and chief financial officers. Another
consumer-related holding that disappointed was Blockbuster. Its movie rental
business received a stiff challenge from on-line competitors at the same
time that revenues from its core business slowed because of a weak schedule
of new films and a change in policy to eliminate late fees. A third
disappointment was Foot Locker, the chain of athletic footwear stores. It
had disappointing earnings because of intense price competition in the
United Kingdom and France.
Outside the consumer area, a noteworthy disappointment was Tenet Health
Care, a hospital chain whose holdings included several hospitals in
Louisiana that were heavily damaged by Hurricane Katrina. Besides reacting
to the physical damage to the hospitals and the loss of revenues, investors
worried about the impact of investigations into how hospitals treated
patients in the days after the onslaught of the hurricane. In addition, the
market was disappointed by the chief financial officer's decision to leave
for an attractive position at the company where he worked prior to Tenet.
A Word About Risk:
Investments in mid-sized companies may offer the potential for higher returns,
but are also subject to greater short-term price fluctuations than larger, more
established companies. Investing in foreign and/or emerging markets securities
involves risks relating to interest rates, currency exchange rates, economic,
and political conditions. At times, the Portfolio's investments may represent
industries or industry sectors that are interrelated or have common risks,
making it more susceptible to any economic, political, or regulatory
developments or other risks affecting those industries and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
16
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Q. What is your investment outlook?
A. As we enter the new year, investors continue to be concerned about the two
overriding issues that held back stock market returns in 2005: rising
short-term interest rates and higher energy prices. However, several
factors are positive - including persistent growth in corporate earnings
helped by a backdrop of rising Gross Domestic Product (GDP), and low
inflation. We are watching for evidence that consumer spending may slacken.
Given these issues, we have adopted a conservative approach in investing,
judging investment opportunities on a stock-by-stock basis and particularly
trying to avoid those companies that are vulnerable to the effects of higher
interest rates.
We believe the Portfolio is well positioned for the investment environment
with positions in quality companies selling at reasonable prices.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
17
Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 94.8%
Depositary Receipts for International Stocks 5.2%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution
(As a percentage of equity holdings)
Information Technology 29.5%
Health Care 23.7%
Consumer Discretionary 13.1%
Consumer Staples 12.4%
Industrials 11.8%
Financials 5.7%
Energy 1.5%
Telecommunication Services 1.2%
Materials 1.1%
Five Largest Holdings
(As a percentage of equity holdings)
1. Microsoft Corp. 5.96%
2. Cisco Systems, Inc. 4.20
3. Intel Corp. 4.14
4. Dell, Inc. 3.90
5. Amgen, Inc. 3.71
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 13.39 $ 13.04
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.0994 $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Growth Shares VCT Portfolio at net asset value, compared to that of the Russell
1000 Growth Index. Portfolio returns are based on net asset value and do not
reflect any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
- ----------------------------------------
Pioneer Growth
Shares VCT Russell 1000
Date Portfolio Growth Index
- ----------------------------------------
10/1997 $10,000 $10,000
- ----------------------------------------
$10,227 $10,542
- ----------------------------------------
$13,561 $14,622
- ----------------------------------------
12/1999 $14,637 $19,470
- ----------------------------------------
$13,484 $15,104
- ----------------------------------------
12/2001 $10,962 $12,019
- ----------------------------------------
$7,157 $8,668
- ----------------------------------------
12/2003 $8,971 $11,247
- ----------------------------------------
$9,573 $11,955
- ----------------------------------------
12/2005 $9,906 $12,584
- ----------------------------------------
The Russell 1000 Growth Index measures the performance of large-cap U.S. growth
stocks. Index returns are calculated monthly, assume reinvestment of dividends
and, unlike Portfolio returns, do not reflect any fees, expenses or sales
charges. You cannot invest directly in the Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Life-of-Class -0.12%
(10/31/97)
5 Years -5.98%
1 Year 3.48%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
18
Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
The nation's economy and corporate profits both grew steadily throughout 2005,
which normally would have provided a favorable backdrop for equity investments.
The economy proved resilient in the face of a number of issues, including
hurricane damage in the Gulf Coast, sharply rising energy costs and the
continued efforts of the Federal Reserve Board to raise short-term interest
rates. The Fed raised the fed funds rate eight different times during the
calendar year. These issues weighed on the minds of many investors, while
stocks on average appreciated only modestly. In the following interview,
Christopher M. Galizio and Stephen A. Balter, co-managers of Pioneer Growth
Shares VCT Portfolio, discuss the markets and the factors that affected
performance.
Q. How did the Portfolio perform?
A. Pioneer Growth Shares VCT Portfolio (Class I shares) had a total return of
3.48% at net asset value during the 12 months ended December 31, 2005.
During the same period, the Russell 1000 Growth Index returned 5.26%.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q. What were the principal factors that affected Portfolio performance?
A. In 2005, we were well into the economic recovery in the United States, and
we positioned the Fund with an emphasis on growth companies in sectors such
as health care and information technology. For much of the year, we had
less emphasis on the more cyclical sectors, such as energy, industrials and
basic materials, although we did have a strong position in basic materials
early in the year. While the Portfolio achieved positive results, it
trailed its benchmark, primarily because of stock selection rather than
sector positioning. However, the de-emphasis of energy stocks also
detracted from results during a period in which the energy sector was by
far the strongest performing part of the market.
The major story in the stock market during 2005 was the effect of the
dramatic increases in commodity prices, which helped lift valuations in the
energy and basic materials sectors, both of which tend to be populated
predominately with value stocks. This was a major factor in the performance
advantage that value stocks enjoyed over growth stocks for most of the year.
We believe, however, that the strong price appreciation of value stocks in
recent years has resulted in a situation in which growth companies now offer
superior relative value in relation to their long-term prospects.
Q. What were some of the individual investments that helped performance?
A. Our stock selection was good in the consumer area, both in the consumer
discretionary and consumer staples sectors. Among our staples holdings,
Altria Group was a stand-out performance. Shares of Altria, the parent
company of Philip Morris, rose on continued consistent earnings and several
court victories that appeared to reduce its exposure to tobacco liability
lawsuits. Femsa, the Mexican-based soft drink bottler that also owns the
Dos Equis beer brand, was another staples holding that performed very well.
Its share price has risen by 70% since our initial investment in 2004.
Within our consumer discretionary holdings, stocks that did particularly
well included athletic footwear company Reebok and retailers Lowe's and
Best Buy. Reebok was acquired by Addidas at a substantial premium to its
stock price. Home improvements store Lowe's showed strong earnings growth
throughout the year, while electronics retailer Best Buy benefited from a
restructuring that placed more emphasis on expert service both before and
after the sale. We have taken profits and sold our positions in both Lowe's
and Reebok.
Our strategy in health care also helped. We avoided the largest
pharmaceutical companies, focusing on smaller companies, including some
mid-cap firms - with greater growth prospects. Two of our more successful
positions were generic pharmaceutical companies. IVAX, which had a strong
new product pipeline, received an attractive acquisition offer from a larger
competitor, Teva. Endo Pharmaceuticals, which specializes in pain
medications and therapies, obtained the rights to a generic version of
Oxycontin and also has developed a new patch to treat chronic pain.
In information technology, two investments that supported performance were
Qualcomm and Texas Instruments, both of which are positioned to benefit from
advances in wireless communications. A new generation of wireless phones is
to be based on Qualcomm's latest CDMA technology, for which the company has
licensing rights, while Texas Instruments stands to benefit from its
increasing focus on producing more specialized - and more profitable -
semiconductors.
A Word About Risk:
Investing in foreign and/or emerging markets securities involves risks relating
to interest rates, currency exchange rates, economic, and political conditions.
The Portfolio invests in REIT securities, the value of which can fall for a
variety of reasons, such as declines in rental income, fluctuating interest
rates, poor property management, environmental liabilities, uninsured damage,
increased competition, or changes in real estate tax laws. At times, the
Portfolio's investments may represent industries or industry sectors that are
interrelated or have common risks, making it more susceptible to any economic,
political, or regulatory developments or other risks affecting those industries
and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
19
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Growth Shares VCT Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 (continued)
- --------------------------------------------------------------------------------
Q. What were some of the investments that held back results?
A. Avaya, a producer of telecommunications equipment for large enterprises, was
a major disappointment, although its stock price did recover somewhat in
the second half of the year. It was caught in the gap between the decline
of an old technology and the acceptance of a new technology. While sales of
its traditional phone systems slowed, revenues from its new system, based
on voice-over-Internet technology, were slower than had been anticipated.
However, we have retained our position because of what we believe is the
strong potential of the new Avaya system.
Two other disappointments in the information technology sector were Symantec
and Dell. Symantec, a leader in supplying security and anti-virus software
for computer systems, reported disappointing earnings in the face of more
intense price competition, including for systems providing security for wide
networks. Dell's competitive price advantage over other personal computer
manufacturers shrank somewhat during the year, and revenue growth was slower
than had been anticipated. We continue to think both Symantec and Dell offer
interesting opportunities. We have retained our investment in Symantec and
have added to our position in Dell because of its attractive stock price.
Among our consumer holdings, one disappointment was Avon Products. Sale of
its beauty products in emerging markets, including China, grew more slowly
than had been anticipated. However, the stock has been trading at a very low
valuation, and we continue to hold the position.
Q. What is your investment outlook?
A. We think stocks have the potential to produce positive returns, close to
long-term averages in 2006, but performance leadership should change in
favor of the secular growth stocks that we have emphasized. We expect
corporate earnings to continue to grow during the new year, although growth
may be at a slower rate than in 2005.
We think energy prices finally have begun to stabilize, although at
relatively high levels. The impacts of higher energy costs will be felt in
the economy, but probably not too dramatically. We already have started to
see the effects of higher energy prices on lower-income consumers whose
spending budgets have been squeezed.
We continue to favor secular growth sectors, including information
technology and health care. In information technology, we have positioned
the Portfolio to benefit from new technologies, especially in communications
technology. Longer-term demographic trends - including the aging of the baby
boomer generation - should continue to offer opportunities in health care.
The companies that should benefit will include those offering new products
and devices and those that can benefit from cost-containment programs,
including generic drug manufacturers.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
20
Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 84.9%
Temporary Cash Investment 15.1%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution
(As a percentage of equity holdings)
Office 19.6%
Apartment 18.5%
Industrial 14.6%
Regional Mall 13.8%
Shopping Center 12.7%
Hotel 10.2%
Self Storage 4.4%
Diversified 4.2%
Triple-Net Lease 1.2%
Manufactured Homes 0.4%
Health Care 0.4%
Five Largest Holdings
(As a percentage of equity holdings)
1. Simon Property Group, Inc. 7.09%
2. ProLogis Trust 6.04
3. Boston Properties, Inc. 5.51
4. AvalonBay Communities, Inc. 4.99
5. Equity Residential
Property Trust 4.26
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 26.13 $ 24.30
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.3941 $ 0.0513 $ 1.2587
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Real Estate Shares VCT Portfolio at net asset value, compared to that of the
Wilshire Real Estate Securities Index. Portfolio returns are based on net asset
value and do not reflect applicable insurance fees and surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
- -------------------------------------------
Date Pioneer Wilshire Real
Real Estate Estate
Shares VCT Securities
Portfolio Index
- -------------------------------------------
12/1995 $10,000 $10,000
- -------------------------------------------
$13,573 $13,687
- -------------------------------------------
12/1997 $16,446 $16,397
- -------------------------------------------
$13,364 $13,540
- -------------------------------------------
12/1999 $12,806 $13,108
- -------------------------------------------
$16,585 $17,137
- -------------------------------------------
12/2001 $17,879 $18,928
- -------------------------------------------
$18,332 $19,417
- -------------------------------------------
12/2003 $24,702 $26,615
- -------------------------------------------
$33,530 $35,879
- -------------------------------------------
12/2005 $38,605 $40,924
- -------------------------------------------
The Wilshire Real Estate Securities Index is a market-capitalization weighted
measure of the performance of real estate investment trusts (equity and hybrid)
and real estate operating companies. Index returns are calculated monthly,
assume reinvestment of dividends and, unlike Portfolio returns, do not reflect
any fees, expenses or sales charges. You cannot invest directly in the Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
10 Years 14.46%
5 Years 18.41%
1 Year 15.13%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
21
Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
Real estate stocks produced strong returns for 2005 - outperforming the broader
stock market for the sixth year in a row. While this achievement is gratifying,
the real estate market also experienced above-average volatility and
variability across the different property types comprising this asset class. As
Matthew Troxell of AEW Capital Management, L.P. (the Portfolio's subadviser)
explains in the following interview, maintaining competitive relative
performance in 2006 will depend on astute stock picking.
Q. How did Pioneer Real Estate Shares VCT Portfolio perform during fiscal 2005?
A. Class I shares posted a total return of 15.13% at net asset value for the 12
months ended December 31, 2005. The performance surpassed the 14.06% return
for the Wilshire Real Estate Securities Index. We attribute the
outperformance to successful stock selection, particularly the Portfolio's
investments in AvalonBay Communities in the apartment sector and Simon
DeBartolo Group in the regional mall sector.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q. What contributed to the increased volatility in the real estate sector?
A. We think the volatility was due in large part to the mixed signals by
investors. On one hand, we saw institutions and private investors willing
to pay more for real estate investments - suggesting that they perceived
the assets to be undervalued. On the other hand, public investors were not
big buyers of the assets because they thought they were overvalued and too
expensive. Despite the seesaw effect of the two opposing views, many
investors believe that the fundamentals of these property types - with the
possible exception of the office sector - are improving and the underlying
assets are underpriced. Hence the 14% return for the benchmark.
Q. Could you comment on the underlying fundamentals of the various property
types that the Portfolio is invested in?
A. Certainly. The regional mall real estate investment trusts (REITs) were a
strong contributor to performance for the fiscal year given their relative
outperformance and considerable weighting in the Portfolio. Healthy
consumer spending supported strong operating results at the property level.
The Portfolio holds mall REITs with high-quality tenants that represent
some of the most recognized and financially solid retailers.
The fundamentals are rapidly improving in the multi-family sector, which
contributed favorably to your Portfolio's results. The impact of these
holdings was magnified by the fact that the Portfolio holds a greater
weighting in the sector than the benchmark. The apartment sector has
remained resilient due to strong economic growth and the resulting
improvement in employment. Should interest rates continue to rise, pinching
potential homeowners out of buying condominiums, presumably more people
would be willing to rent - boosting demand for apartments.
Perhaps the most surprising performance came from the lodging sector, which
we think experienced the best improvement in fundamentals of any property
type during 2005. Hotels saw strong room rate growth and occupancy growth -
two measures of profitability. However, despite the improved profitability
at the corporate level, the lodging sector as a property type still lagged
most sectors of the real estate market as well as the benchmark. We think
that the lodging sector represents good investment value because prices do
not reflect the rapidly improving fundamentals. We think that investor fears
of low non-business demand and rising energy prices are overblown. We
believe prospects for the lodging sector are promising in the foreseeable
future.
We limited the Portfolio's exposure to the office sector during the year
because the fundamentals are improving more slowly than other property
types. The lag is due to the inability of office REITs to reprice as a
result of their longer lease terms, which typically run five to 10 years.
While the longer lease terms can provide protection in a declining market,
office REITs do not tend to respond as quickly to changing market conditions
as other property types with shorter lease terms. Despite our decision to
underweight this sector, the holdings in the office sector performed better
than the benchmark's investments in the same sector.
Q. After a multi-year rally, are you still optimistic about the performance of
real estate stocks looking ahead?
A. Yes. We remain cautiously upbeat in our outlook. We do not expect real
estate stocks to repeat the dramatic returns of recent years, but we would
not be surprised to see these investments earn competitive returns relative
to the rest of the equity markets given their underlying fundamentals.
Astute stock picking will be as important as ever, as we assess the growth
prospects and price valuations of the holdings in your portfolio relative
to the rest of the real estate market.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
A Word About Risk:
The Portfolio invests in REIT securities, the value of which can fall for a
variety of reasons, such as declines in rental income, fluctuating interest
rates, poor property management, environmental liabilities, uninsured damage,
increased competition, or changes in real estate tax laws. At times, the
Portfolio's investments may represent industries or industry sectors that are
interrelated or have common risks, making it more susceptible to any economic,
political, or regulatory developments or other risks affecting those industries
and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
22
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Fund VCT Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 94.1%
Depositary Receipts for International Stocks 3.6%
International Common Stocks 2.3%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution
(As a percentage of equity holdings)
Financials 17.6%
Consumer Discretionary 15.3%
Information Technology 13.2%
Industrials 13.0%
Health Care 11.5%
Consumer Staples 10.2%
Energy 7.0%
Materials 7.0%
Telecommunication Services 3.7%
Utilities 1.5%
Five Largest Holdings
(As a percentage of equity holdings)
1. Rio Tinto Plc 2.19%
2. ChevronTexaco Corp. 2.04
3. United Technologies Corp. 2.04
4. Norfolk Southern Corp. 2.00
5. Target Corp. 1.96
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 21.55 $ 20.57
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.2796 $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Fund VCT Portfolio at net asset value, compared to that of the Standard &
Poor's (S&P) 500 Index. Portfolio returns are based on net asset value and do
not reflect any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer
Date Fund VCT
Portfolio S&P 500
- ---------------------------------------
10/1997 $10,000 $10,000
- ---------------------------------------
$10,550 $10,642
- ---------------------------------------
$13,296 $13,686
- ---------------------------------------
12/1999 $15,411 $16,564
- ---------------------------------------
$15,600 $15,057
- ---------------------------------------
12/2001 $13,908 $13,268
- ---------------------------------------
$11,261 $10,337
- ---------------------------------------
12/2003 $13,936 $13,300
- ---------------------------------------
$15,504 $14,747
- ---------------------------------------
12/2005 $16,462 $15,470
- ---------------------------------------
The Standard & Poor's 500 Stock Index (the S&P 500) is a commonly used measure
of the broad U.S. stock market. Index returns assume reinvestment of dividends
and, unlike Portfolio returns, do not reflect any fees, expenses or sales
charges. Portfolio returns are based on net asset value and do not reflect any
annuity-related costs. You cannot invest directly in the Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Life-of-Class 6.29%
(10/31/97)
5 Years 1.08%
1 Year 6.17%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
23
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
In the following discussion, portfolio manager John Carey discusses the
performance of Pioneer Fund VCT Portfolio, as well as the investment
environment over the twelve-month period ended December 31, 2005.
Q. Please describe the investment environment in 2005, particularly the second
half, and the performance of Pioneer Fund VCT Portfolio.
A. After a listless first half for the stock market, the second half of 2005
saw gains. For the year 2005 as a whole, the Standard & Poor's 500 Index,
an unmanaged index of the general stock market, showed a total return of
4.91%. We were pleased that Class I shares of Pioneer Fund VCT Portfolio
did better, with a total return for the year of 6.17% at net asset value.
All of the increase took place in the final six months, indeed much of it
in the last couple of months, of the year. For those six months ended
December 31, Class I shares of Pioneer Fund VCT Portfolio increased by
6.90% at net asset value, versus an increase of 5.76% for the S&P 500.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
As we discussed in our June 30 letter, investors responded to the high
prices for oil and natural gas early in the year by piling into everything
related to energy, including utilities. We noted, though, that changes were
occurring beneath the surface and that other sectors appeared to be emerging
as better values. That came to pass particularly in the fourth quarter, when
energy and utilities were the two worst performing sectors of the S&P 500,
both showing declines versus an index rising overall. Being somewhat
underweight in those two sectors was helpful to the Portfolio's performance
in the fourth quarter, as was our being overweight in the still strongly
performing materials sector. Otherwise our good stock selection in both
health care and industrials contributed positively. For the second six
months of 2005, our investments in those same three sectors, materials,
health care, and industrials, also provided the positive difference in our
performance. Especially big contributors among individual stocks over the
six months were Rio Tinto and Phelps Dodge in materials, Barr
Pharmaceuticals in health care, and Norfolk Southern and Burlington Northern
Santa Fe in industrials.
Our weakest second half performance was in consumer staples, where our
holdings in Hershey and Sysco both declined. Within the energy sector, our
de-emphasis of the energy equipment-and-services industry detracted, as that
industry had superior returns to those of its sector.
With regard again to the investing environment in general in the second
half, there were shifts underway as investors diversified their portfolios.
High growth situations seemed especially to attract investors, as
exemplified by the stunning upward move in the share price of Google, a
stock we have not owned, from what we thought were already quite elevated
levels in terms of price to earnings and sales. However, the persistently
high energy and other commodity prices, as well as projections for increased
capital spending in capacity-constrained industries, continued to provide
firm support for the so-called "old economy." So it has been something of a
bifurcated market and one in which one treads with care. It does seem,
though, that an underlying "theme" to investor behavior has been a powerful
attraction to potential for above-average earnings growth, whether from high
tech or low tech. We take that as our cue to maintain our focus on companies
with compelling fundamentals regardless of industry or sector.
Q. Did you make changes to the Portfolio in the second half? Please discuss.
A. We saw a fair amount of merger-and-acquisition activity in our own
portfolio, and we made our customary changes based on our views of relative
valuations. Taken together, the trades in the second half resulted in the
addition of fifteen positions and the deletion of fifteen. Sector by
sector, starting with energy, we took profits on Schlumberger, thinking
that the price reflected our estimate of earnings potential. In materials,
we added Dow Chemical, which has impressed us with its improved operations,
and realized gains on Phelps Dodge and Newmont Mining. Allegheny
Technologies, a stainless-steel producer that has returned to significant
profitability in the past year and a half, was a second new entry in
materials. In industrials, Masco, manufacturer of plumbing supplies and
other home-improvement products, 3M, world leader in adhesives, and Parker
Hannifin, major supplier of fluid-control systems and components, were new.
Consumer discretionary saw the addition of Yum Brands, former restaurant
division of Pepsico and operator of Pizza Hut, Taco Bell, and Kentucky
Fried Chicken, among other popular chains. Also new was Federated
Department Stores, received in exchange for part of our former holding May
Department Stores, which Federated acquired for cash and stock.
Disappointment with earnings progress led to our sale of Family Dollar
Stores.
A Word About Risk:
At times, the Portfolio's investments may represent industries or industry
sectors that are interrelated or have common risks, making it more susceptible
to any economic, political, or regulatory developments or other risks affecting
those industries and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
24
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We added three holdings to health care: C. R. Bard and St. Jude Medical,
both leaders in medical devices, and Pfizer, which seemed to us to have
declined to a price representing good value. We took profits in Guidant
following its receipt of a premium acquisition offer from Johnson & Johnson,
and we sold Mylan Laboratories, which no longer appeared to us to have a
clear path to growth. Financials saw our addition of Compass Bancshares,
based in Birmingham, Alabama, and Golden West Financial, headquartered in
Oakland, California. Both banks have the combination of competitive return
on assets and return on equity that we seek, as well as reasonable share
prices. We took profits in our long-term holding Bank of New York, and we
sold Montpelier Re Holdings, judging that weather-related losses had
seriously impaired its reinsurance business. Finally, Ameriprise Financial,
investment services, came into the portfolio as a spin-out from our holding
American Express.
Information technology witnessed the acquisition for cash of SunGard Data
Systems. VERITAS Software was also acquired, it by another company we also
owned, Symantec. Following the acquisition, discouraged by the prospects for
the combined venture, we liquidated all of our shares of Symantec, including
the new shares we had received for VERITAS. We also exited Diebold and
Computer Sciences, long-term disappointments with respect to earnings
growth. While selling those technology positions, we added Cisco Systems,
dominant supplier of routers and switches for the internet. After years of
"correction" in its share price, Cisco at last sold at a price-to-earnings
ratio we regarded as justified. Growth prospects, while more moderate than
in the past, still exceed those of many other companies.
Lastly, in utilities, we sold, at a large percentage gain, our position in
Aqua America, which we thought adequately priced, and purchased shares of
PG&E (Pacific Gas and Electric), a recovering California utility with a
growing dividend yield.
Q. What is your outlook for 2006?
A. Our outlook for 2006 is cautious. We think that the moderate expectations
for economic growth can be met, and we also look for higher earnings and
dividends. The broad consensus estimate of roughly 3.5% real GDP growth
looks reasonable to us, and we likewise think that 6-8% earnings growth for
the S&P 500 is doable. However, we are starting to see powerful headwinds
in the form of higher short-term interest rates, stubbornly high oil and
natural gas prices, and a slowing housing market. We also watch
international events out of the corner of our eye, and we remember that
there are U.S. congressional elections this fall. Finally, as was certainly
impressed on us in 2005, the weather and other natural disasters can throw
quite a wrench in the works. The result of all those crosscurrents could be
a more volatile market than we've seen in a while. We believe that another
result might be defensive positioning by investors. Certainly the higher
yields on money-market and other short-term debt instruments are already
providing tougher competition for stocks. Our emphasis in this environment
will be on stocks with good earnings and dividend support. If it is a
softer economy that lies ahead, the companies less vulnerable to large
earnings declines may prove better bets.
Thank you as always for your support.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
25
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 96.2%
Temporary Cash Investments 3.3%
Convertible Preferred Stocks 0.5%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution
(As a percentage of equity holdings)
Financials 26.4%
Utilities 14.8%
Industrials 10.8%
Consumer Discretionary 9.1%
Health Care 8.7%
Telecommunication Services 8.5%
Consumer Staples 7.9%
Materials 7.2%
Energy 5.6%
Information Technology 1.0%
Five Largest Holdings
(As a percentage of equity holdings)
1. PACCAR, Inc. 3.67%
2. Questar Corp. 3.22
3. Washington Mutual, Inc. 3.11
4. T. Rowe Price Associates, Inc. 2.88
5. Merck & Co., Inc. 2.37
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 21.25 $ 20.58
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.4957 $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Equity Income VCT Portfolio at net asset value, compared to that of the Russell
1000 Value Index. Portfolio returns are based on net asset value and do not
reflect any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Date Pioneer
Equity
Income
VCT Russell 1000
Portfolio Value Index
- ----------------------------------------
12/1995 $10,000 $10,000
- ----------------------------------------
$11,519 $12,164
- ----------------------------------------
12/1997 $15,577 $16,444
- ----------------------------------------
$18,973 $19,014
- ----------------------------------------
12/1999 $19,203 $20,411
- ----------------------------------------
$22,054 $21,843
- ----------------------------------------
12/2001 $20,517 $20,622
- ----------------------------------------
$17,272 $17,421
- ----------------------------------------
12/2003 $21,177 $22,652
- ----------------------------------------
$24,646 $26,389
- ----------------------------------------
12/2005 $26,055 $28,250
- ----------------------------------------
The Russell 1000 Value Index measures the performance of large-cap U.S. value
stocks. Index returns assume reinvestment of dividends and, unlike Portfolio
returns, do not reflect any fees, expenses or sales charges. Portfolio returns
are based on net asset value and do not reflect any annuity-related costs. You
cannot invest directly in any Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
10 Years 10.05%
5 Years 3.39%
1 Year 5.72%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
26
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
In the following discussion, portfolio manager John Carey discusses the
performance of Pioneer Equity Income VCT Portfolio, as well as the investment
environment over the twelve-month period ended December 31, 2005.
Q. Please discuss the performance of the portfolio versus its benchmark, the
Russell 1000 Value index.
A. For the year ended December 31, 2005, Class I shares of Pioneer Equity
Income VCT Portfolio showed a total return of 5.72% at net asset value. By
comparison, the Russell 1000 Value Index, an unmanaged index of the general
stock market replicating to an extent the universe of stocks in which value
and income-oriented funds often invest, rose 7.05%.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Throughout the year, our overweight in the strongly performing utilities
sector helped results, while our underweight in the top-performing energy
sector, as well as our de-emphasis of the above-average performing energy
equipment-and-services industry within the energy sector, hurt. Late in the
year, our underweight in the recovering financials sector was also a
negative. On the whole, it was a year of shifting tides, with investors
first concerned about higher energy and other commodity prices and the
implications for inflation and interest rates, and later expectant of a halt
to rate increases as inflationary pressures appeared to ebb. The fourth
quarter rally in the financial sector reflected that change of thinking. We
would note, however, that the course of economic events is never entirely
predictable. Certainly there remain some very different views among
economists about the direction of interest rates and everything else. Our
focus will remain on finding stocks that we think have good prospects for
earnings and dividend growth over the next two to three years regardless of
sector.
Q. Please discuss changes you made to the portfolio during the year.
A. In all, we added some eighteen positions to the portfolio and liquidated
sixteen. The effects of the changes, which we made on the basis of the
attractiveness to us of individual stocks, were to increase portfolio
weightings in consumer staples, health care, financials, and
telecommunications services and to decrease weightings in energy,
industrials, consumer discretionary, information technology, and utilities.
The weighting in materials stayed about the same. Some of the changes in
weightings were augmented by stock-market fluctuations.
Financials saw the most new entries. We thought that the prices of two of
the biggest financial-services companies, Citigroup and Bank of America,
represented particularly good value and that the dividend yields were also
compelling. Enlarging our exposure to life insurance, we purchased Jefferson
Pilot, slated to be merged into Lincoln National. PNC Financial is a
successful regional bank with majority ownership of a growing
asset-management business. Whitney Holdings, a New Orleans-based bank,
traded down after Hurricane Katrina devastated its home city, but we felt
that the bank had adequate resources and management experience to prosper as
the area recovered. Finally, we invested in two REITs, Archstone-Smith Trust
and Kimco Realty. Archstone operates apartments, and Kimco is involved with
shopping centers.
Our other new purchases covered a variety of sectors. Dow Chemical and Olin
(materials) are chemical producers with good prospects for better earnings
over the next year or two with improved operating efficiencies. Citizens
Communications (telecommunications services) is a high-dividend-yielding
telecomm company based in Stamford, Connecticut. Pfizer (health care) and
Coca-Cola (consumer staples) were examples of blue-chip names fallen from
investor favor and selling at low prices relative to their historical price
ranges. Albertson's (consumer staples) is a grocery-store and drugstore
company with potential for realizing higher shareholder value through
restructuring. PG&E (Pacific Gas and Electric; utilities) is a recovering
California utility with a growing dividend yield. Deere (industrials) is the
premier manufacturer of farm equipment, and Genuine Parts (consumer
discretionary) occupies the same top spot in the auto-parts distribution
business. Hewlett-Packard (information technology) seems to have turned the
corner and resumed its growth under new management. Finally, we received
Federated Department Stores (consumer discretionary) in exchange for part of
our position in May Department Stores (consumer discretionary), which
Federated acquired for a combination of stock and cash.
Deletions included, in addition to May, a number of stocks that we felt were
fully valued. In that category were Motorola, American Electric Power, FPL
Group, Constellation Energy, Aqua America, Occidental Petroleum, Boeing,
General Dynamics, Simon Property, and Microsoft. Due to a more mixed view on
their prospects, we sold Du Pont, General Motors, Diebold, International
Business Machines, and the Gap 5.75% convertible debenture.
A Word About Risk:
The Portfolio invests in REIT securities, the value of which can fall for a
variety of reasons, such as declines in rental income, fluctuating interest
rates, poor property management, environmental liabilities, uninsured damage,
increased competition, or changes in real estate tax laws. At times, the
Portfolio's investments may represent industries or industry sectors that are
interrelated or have common risks, making it more susceptible to any economic,
political, or regulatory developments or other risks affecting those industries
and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
27
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 (continued)
- --------------------------------------------------------------------------------
Q. What is your outlook for 2006?
A. Our outlook for 2006 is cautious. We think that the moderate expectations
for economic growth can be met, and we also look for higher earnings and
dividends. The broad consensus estimate of roughly 3.5% real GDP growth
looks reasonable to us, and we likewise think that 6-8% earnings growth for
the S&P 500 is doable. However, we are starting to see powerful headwinds
in the form of higher short-term interest rates, stubbornly high oil and
natural gas prices, and a slowing housing market. We also watch
international events out of the corner of our eye, and we remember that
there are U.S. congressional elections this fall. Finally, as was certainly
impressed on us in 2005, the weather and other natural disasters can throw
quite a wrench in the works. The result of all those crosscurrents could be
a more volatile market than we have seen in a while. We believe that
another result might be defensive positioning by investors. Certainly the
higher yields on money-market and other short-term debt instruments are
already providing tougher competition for stocks. Our emphasis in this
environment will be on stocks with good earnings and dividend support. If
it is a softer economy that lies ahead, the companies less vulnerable to
large earnings declines may prove better bets.
Thank you as always for your support.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
28
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 64.0%
U.S. Government Agency Obligations 23.8%
U.S. Corporate Bonds 9.7%
Depositary Receipts for International Stocks 1.5%
Asset Backed Securities 0.6%
Collateralized Mortgage Obligations 0.4%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution
(As a percentage of long-term holdings)
Government Obligations 23.9%
Financials 13.3%
Information Technology 11.6%
Health Care 11.3%
Consumer Staples 10.3%
Consumer Discretionary 8.3%
Industrials 7.4%
Materials 5.9%
Energy 5.5%
Telecommunication Services 2.0%
Utilities 0.5%
Five Largest Holdings
(As a percentage of long-term holdings)
1. Berkshire Hathaway, Inc.
(Class B) 3.43%
2. Microsoft Corp. 3.27
3. PepsiCo, Inc. 3.17
4. First Data Corp. 3.16
5. Northrop Grumman Corp. 3.15
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 14.71 $ 14.40
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.2713 $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Balanced VCT Portfolio at net asset value, compared to that of the Standard &
Poor's (S&P) 500 Index and the Lehman Brothers Aggregate Bond Index. Portfolio
returns are based on net asset value and do not reflect any applicable
insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Lehman
Balanced Brothers
VCT Aggregate S&P 500
Portfolio Bond Index
Date
- ---------------------------------------------------
12/1995 $10,000 $10,000 $10,000
- ---------------------------------------------------
$11,426 $10,363 $12,295
- ---------------------------------------------------
12/1997 $13,385 $11,364 $16,395
- ---------------------------------------------------
$13,793 $12,351 $21,084
- ---------------------------------------------------
12/1999 $14,142 $12,249 $25,518
- ---------------------------------------------------
$14,913 $13,673 $23,196
- ---------------------------------------------------
12/2001 $14,576 $14,828 $20,441
- ---------------------------------------------------
$13,080 $16,348 $15,925
- ---------------------------------------------------
12/2003 $15,266 $17,019 $20,490
- ---------------------------------------------------
$15,997 $17,758 $22,718
- ---------------------------------------------------
12/2005 $16,649 $18,189 $23,833
- ---------------------------------------------------
The Standard & Poor's 500 Stock Index (the S&P 500) is a commonly used measure
of the broad U.S. stock market. The Lehman Brothers Aggregate Bond Index is a
measure of the U.S. bond market. Index returns assume reinvestment of dividends
and, unlike Portfolio returns, do not reflect any fees, expenses or sales
charges. Portfolio returns are based on net asset value and do not reflect any
annuity-related costs. You cannot invest directly in any Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
10 Years 5.23%
5 Years 2.23%
1 Year 4.08%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
29
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
The nation's economy grew persistently throughout 2005, producing strong
earnings growth and healthier corporate balance sheets. The economy proved
resilient to the effects of a variety of challenges, from hurricane damage in
the Gulf Coast to sharply rising energy and commodity prices. To head off the
possibility that inflationary pressures would build up as the economy grew, the
U.S. Federal Reserve continued to tighten monetary policy. The Fed raised the
Fed Funds rate eight different times during the calendar year. In the following
interview, Timothy Mulrenan, who is responsible for the equity portfolio of
Pioneer Balanced VCT Portfolio, and Richard Schlanger, who is responsible for
the Portfolio's fixed-income investments, discuss the markets and the factors
that affected performance.
Q. How did the Portfolio perform, and what were the principal factors that
affected Portfolio performance?
A. Class I shares of Pioneer Balanced VCT Portfolio returned 4.08% at net asset
value during the 12 months ended December 31, 2005. In comparison, the
Standard & Poor's 500 Index and the Lehman Brothers Aggregate Bond Index
returned 4.91% and 2.43%, respectively, over the same period.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Throughout the 12 months, we overweighted equities, with a target allocation
of about 64% of Portfolio assets versus a 60% normal allocation. We invested
the remaining 36% of assets in fixed income securities. We placed this
emphasis on stocks because of the favorable earnings environment and our
view that stocks were likely to produce positive returns during the year. At
the same time, we were not sure how far the Federal Reserve Board intended
to push short-term interest rates, and we believed bonds, in general, were
fully valued in the market.
The equity market did have a positive year, buoyed by positive earnings -
profits of S&P 500 companies grew approximately 13%. Despite rising
short-term interest rates and higher commodity prices, long-term interest
rates were essentially unchanged over the 12 months. Other factors giving
support to stock valuations included many stock buyback programs, initiated
by corporations with more cash on their balance sheets, and increasing
merger-and-acquisition activity. Despite all these positive factors, stock
performance was held back by a number of concerns, including fears that
higher short-term interest rates and high energy costs might undermine
future corporate profitability.
The major development in the fixed-income market was the dramatic flattening
of the yield curve - which reflects the difference in yields between
short-term and long-term securities. Normally, the yield curve steepens -
yield differences become greater - the greater the difference in maturity
between short- and long-term securities. However, the yield curve became so
flat that it actually partially inverted by the end of the year, a highly
unusual phenomenon in which 10-year yields actually became slightly lower
than two-year yields. Despite the efforts of the Federal Reserve to raise
short-term rates, long-term rates tended to fall or remain stable because of
strong demand for U.S. Treasuries by international bond investors.
Q. What areas in the equity and fixed income market performed better than
others?
A. In the equity market, mid-cap stocks did better than either small- or
large-cap stocks, continuing a multi-year run for medium-sized companies.
The value style of investing slightly outperformed the growth style, but
the growth style performed somewhat better in the final two months of the
year. Driven by the dramatic increases in oil and natural gas prices,
energy stocks were by far the performance leaders in the equity market. On
average, energy stocks rose by 30%. Utilities also performed relatively
well, while consumer discretionary stocks - especially in the automotive
and media industries - lagged.
In the fixed-income market, long-term investments outperformed short- and
intermediate-term investments. With a backdrop of rising profits, investment
grade and high-yield corporate bonds tended to do well. The notable
exception was among a few fallen angels whose financial problems led to
credit rating downgrades. Two highly visible examples were General Motors
and Ford, both of which were downgraded from investment grade to high yield.
Among governments, Treasuries outperformed mortgages, with long-term
Treasuries doing especially well.
A Word About Risk:
When interest rates rise, the prices of fixed income securities in the
Portfolio will generally fall. Conversely, when interest rates fall the prices
of fixed income securities in the Portfolio will generally rise. Investments in
the Portfolio are subject to possible loss due to the financial failure of
underlying securities and their inability to meet their debt obligations.
Prepayment risk is the chance that mortgage-backed bonds will be paid off early
if falling interest rates prompt homeowners to refinance their mortgages.
Forced to reinvest the unanticipated proceeds at lower interest rates, the
Portfolio would experience a decline in income and lose the opportunity for
additional price appreciation associated with falling interest rates. The
Portfolio invests in REIT securities, the value of which can fall for a variety
of reasons, such as declines in rental income, fluctuating interest rates, poor
property management, environmental liabilities, uninsured damage, increased
competition, or changes in real estate tax laws. Investing in foreign and/or
emerging markets securities involves risks relating to interest rates, currency
exchange rates, economic, and political conditions. The Portfolio may invest in
mortgage-backed securities, which during times of fluctuating interest rates
may increase or decrease more than other fixed-income securities.
Mortgage-Backed securities are also subject to pre-payments. At times, the
Portfolio's investments may represent industries or industry sectors that are
interrelated or have common risks, making it more susceptible to any economic,
political, or regulatory developments or other risks affecting those industries
and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
30
Pioneer Balanced Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Q. What equity investments had the greatest influence on performance?
A. Our overweight position in energy stocks for most of the year and our stock
selection within the energy sector helped boost performance. Two standout
selections were National Oilwell Varco, a leading provider of oil field
equipment, and ENSCO International, a prominent offshore contract driller.
National Oilwell Varco's stock price rose substantially, driven by robust
earnings, favorable pricing and a growing backlog of orders. We trimmed the
position and took profits during the year. ENSCO's stock price appreciated
by about 40% as the day rates for its oil rigs surged against a backdrop of
growing demand and a tight supply of the drilling platforms. By the end of
the year, we had taken some profits, but still hold ENSCO, and moved to a
slight underweight position in energy.
Our investments in health care also did well. Shares of generic
pharmaceutical manufacturer IVAX doubled. The company was helped by both an
impressive pipeline of new drugs approaching market and an acquisition offer
from a competitor. Amgen, a major biotechnology firm, benefited from strong
revenue gains across all its product lines and its own promising pipeline of
new products under development, including prospective drugs for treatment of
cancer and arthritis.
Among the more disappointing positions was our investment in Symantec, a
leading software security firm. Its stock price declined after the company
in the second half of the year announced earnings that failed to meet
expectations. Investors also became concerned about price competition in the
software security industry and the possibility of new competition from
Microsoft. The U.K.-based telecommunications services giant Vodafone also
declined as its profit margins came under pressure because of difficulties
in operations in Japan and in Europe. Also detracting from results was our
investment in Family Dollar, a low-price retailer. Lower-income consumers,
who make up a substantial part of Family Dollar's customer base, were
particularly hard hit by rising energy prices. We eliminated our positions
in Symantec and in Family Dollar.
Q. What fixed-income investments had the greatest influence on performance?
A. Our positioning on the yield curve did not help. In a period in which
short-term interest rates were rising and longer-term rates were relatively
stable, the best positioning would have been a bar-belled approach. That
would place greater emphasis both on short-term securities - to take
advantage of rising yields - and on long-term securities to take advantage
of their high yields and price stability. However, we pursued a
bulleted-approach with investments throughout the yield curve - including
in the intermediate-term securities which tended to underperform other
parts of the market. Also holding back results was our investment in bonds
of auto parts manufacturer Delphi, which filed for bankruptcy protection
during the year. We had liquidated our position in Delphi prior to their
bankruptcy filing.
During the year, as yields in many part of the market rose, we extended
duration - a measure of sensitivity to interest rate changes. Duration on
December 31, 2005, was 4.67 years, compared to 4.13 years six months
earlier. Average credit quality remained at AA-, although we did reduce our
exposure to high-yield securities. We also cut our mortgage position, while
raising our allocation to Treasuries and agencies. Mortgages, however, still
represented the largest sector weighting.
Q. What is your investment outlook?
A. We expect positive performance in the equity market in an environment of
rising profits and strengthening balance sheets. We believe two key factors
should influence the equity markets in 2006: the continued revival of
corporate capital spending, which already grew by 20% during 2005 and the
emergence of a performance edge by growth stocks, which have underperformed
value stocks for several years. As we enter a new year, value stocks have
reached price levels on a par with growth stocks, and we believe growth
stocks should begin to outperform because of their greater earnings growth
potential.
Given this view, we have added to our positions in companies that can
benefit from increasing capital spending, with investments in industrials,
telecommunications equipment and information technology companies. We also
have reduced our exposure to consumer discretionary stocks, although we
continue to emphasize consumer staples with their more consistent earnings.
For the fixed-income market, we anticipate that the Federal Reserve will
move cautiously because of concerns about high debt levels of consumers. We
believe the Fed may raise short-term rates two or three times more, with the
fed funds rate leveling off in the range of 4.75% to 5.00%. Historically,
the Fed has begun lowering rates four to six months after the end of its
rate-hike cycles, and we believe this may occur again late in 2006. If that
occurs, we expect the short-end and the intermediate parts of the yield
curve to outperform the long-end, and we would position the portfolio
accordingly. Because of the tightening labor supply and high energy costs,
we are carefully watching inflation trends and are prepared to become more
defensive. We already have established a position in Treasury Inflation
Protective Securities (TIPS) to guard against the impact of higher
inflation.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
31
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment in securities)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Corporate Bonds 77.8%
Convertible Corporate Bonds 9.5%
U.S. Common Stocks 7.1%
Convertible Preferred Stocks 3.5%
Temporary Cash Investment 2.1%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Maturity Distribution
(As a percentage of total investment in securities)
0-1 years 0.8%
1-3 years 19.3%
3-4 years 19.7%
4-6 years 40.3%
6-8 years 14.2%
8+ years 5.7%
Five Largest Holdings
(As a percentage of long-term holdings)
1. Mueller Industries, Inc.,
6.0%, 11/1/14 4.83%
2. Novelis, Inc., 7.25%,
2/15/15 3.48
3. Allegheny Energy Supply,
7.8%, 3/15/11 3.25
4. Valeant Pharmaceuticals,
7.0%, 12/15/11 3.02
5. Gardner Denver, Inc.,
8.0%, 5/1/13 (144A) 2.94
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 10.88 $ 11.67
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.6128 $ 0.0579 $ 0.3211
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
High Yield VCT Portfolio at net asset value, compared to that of Merrill Lynch
(ML) High Yield Master II Index and of the ML Index of Convertible Bonds
(Speculative Quality). Portfolio returns are based on net asset value and do
not reflect any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
ML Convertible
Pioneer ML High Yield Bonds
High Yield Master II (Speculative
Date VCT Portfolio Index Quality) Index
- ------------------------------------------------------------
5/2000 $10,000 $10,000 $10,000
- ------------------------------------------------------------
$10,623 $9,769 $8,424
- ------------------------------------------------------------
12/2001 $12,387 $10,206 $7,883
- ------------------------------------------------------------
$12,211 $10,013 $7,747
- ------------------------------------------------------------
12/2003 $16,214 $12,831 $10,535
- ------------------------------------------------------------
$17,517 $14,226 $11,867
- ------------------------------------------------------------
12/2005 $17,856 $14,615 $11,485
- ------------------------------------------------------------
Index comparisons begin on 4/30/00. The ML High Yield Master II Index is a
commonly accepted measure of the performance of high yield securities. The ML
Index of Convertible Bonds (speculative quality) is a commonly accepted measure
of the performance of speculative grade convertible bond securities. Index
returns assume reinvestment of dividends and, unlike Portfolio returns, do not
reflect any fees, expenses or sales charges. You cannot invest directly in any
Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Life-of-Class 10.38%
(5/1/00)
5 Years 10.95%
1 Year 1.95%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
32
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
During the 12 months ended December 31, 2005, high-yield bonds offered modestly
positive returns, generated mainly by interest income. In the interview below,
Portfolio Manager Margaret Patel describes the factors that drove the
high-yield market and explains the Portfolio's underperformance of its
benchmark.
Q. How did the Portfolio perform?
A. During the 12 months ended December 31, 2005, the Portfolio's Class I shares
had a total return based on net asset value of 1.95%. By comparison, the
Merrill Lynch High Yield Master II Index returned 2.74%. On December 31,
2005, the SEC standardized 30-day yield for Class I shares was 5.67%.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q. What factors drove the performance of the high-yield market during 2005?
A. The economy continued to grow, which helped keep the yield spread - or yield
advantage offered by high-yield bonds over comparable Treasuries -
relatively narrow and below historical averages. Returns for the high-yield
market were modestly positive, with the regular coupon payments provided by
the securities offset by lower bond prices. Those bond price declines
resulted from generally rising interest rates in both the Treasury and
high-yield markets. Defaults declined during the period and approached the
historical low of less than 2% seen in 1997. A major event in the market
occurred in May, when the credit ratings of Ford and General Motors were
downgraded to below investment grade. There was some short-term volatility
caused by the moves, as investors pondered the effect that the large influx
of Ford and GM debt might have on the market. Overall, however, the market
absorbed the transfer with no major disruptions.
Q. Why did the Portfolio lag the Merrill Lynch High Yield Master II Index?
A. While investments in convertible bonds - a cornerstone of our approach for
some time - historically have helped the Portfolio's relative performance,
they underperformed conventional high-yield issues, particularly from the
beginning of 2005 through April. The low volatility experienced by the
convertible bonds' underlying stocks worked to compress the premium
investors were willing to pay for convertibles. In addition, many
convertible bonds offer relatively low coupons and are generally of shorter
maturity, two attributes that resulted in negative price performance as the
Federal Reserve Board steadily raised short-term interest rates during the
period. However, convertible bonds performed better during the second half
of the period as stock prices improved and equity market volatility
increased.
Q. Which investments performed best during the fiscal year? Which disappointed?
A. The convertible securities of Roper Industries (1.30% of the Portfolio at
the end of the period), which makes industrial controls and fluid handling
equipment, enjoyed price appreciation due to improving demand. The
biotechnology firm holding, IVAX, benefited from better operating results
and its acquisition by Teva Pharmaceuticals scheduled to be close by the
end of January 2006. Our convertible bonds held in Vertex Pharmaceuticals
(0.72%) increased substantially with the underlying stock price, due to
advances in the company's drug pipeline and the achievement of several
strategic partnerships. And copper and gold producer Freeport-McMoRan
(1.29%) was an outstanding winner, as it benefited from higher metals
prices. Disappointments included Epix Medical (0.21%), which manufacturers
contrast agents for the treatment of vascular diseases. Epix declined
because its products required more clinical testing. Auto parts retailer
Pep Boys (1.87%) fell as the company's turnaround took longer than
expected. Interpublic Group (1.98%), a large advertising agency, saw the
value of its common stock and associated convertible bonds decline due to
concerns about management changes and the firm's delay in releasing
required compliance information. Finally, Valiant Pharmaceuticals (2.97%)
dropped because of an uncertain outlook for its products and the relatively
slow pace of the company's new-drug development.
Q. What is your outlook?
A. We are optimistic about the health of the economy and the corporate
high-yield market. If the economy continues to grow faster than the
historical long-term average - as the Fed gradually moves interest rates
higher - high-yield bonds could continue to produce moderately positive
results and coupon income. The major credit rating agencies predict modest
increases in defaults going forward, but still well below the historical
average of about 4.75%. In addition, we believe the Fund is well positioned
- through its holdings in convertible bonds, convertible preferred
securities and common stock - to offer shareholders the opportunity for
capital appreciation, should stocks participate in the continued economic
advance that we expect.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
A Word About Risk:
Investments in high-yield or lower-rated securities are subject to
greater-than-average risk. When interest rates rise, the prices of fixed-income
securities in the Portfolio will generally fall. Conversely, when interest
rates fall the prices of fixed income securities in the Portfolio will
generally rise. Investments in the Portfolio are subject to possible loss due
to the financial failure of underlying securities and their inability to meet
their debt obligations. Prepayment risk is the chance that mortgage-backed
bonds will be paid off early if falling interest rates prompt homeowners to
refinance their mortgages. Forced to reinvest the unanticipated proceeds at
lower interest rates, the Portfolio would experience a decline in income and
lose the opportunity for additional price appreciation associated with falling
interest rates. At times, the Portfolio's investments may represent industries
or industry sectors that are interrelated or have common risks, making it more
susceptible to any economic, political, or regulatory developments or other
risks affecting those industries and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
33
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Corporate Bonds 45.0%
U.S. Government Securities 41.3%
Foreign Government Bonds 7.9%
Asset Backed Securities 2.9%
Municipal Bonds 1.0%
Temporary Cash Investment 0.9%
Collateralized Mortgage Obligations 0.7%
Convertible Corporate Bonds 0.3%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Maturity Distribution
(As a percentage of total investment portfolio)
0-1 year 7.6%
1-3 years 15.3%
3-4 years 15.8%
4-6 years 39.9%
6-8 years 14.3%
8+ years 7.1%
Five Largest Holdings
(As a percentage of long-term holdings)
1. U.S. Treasury Inflation
Protected Security,
3.5%, 1/15/11 6.54%
2. U.S. Treasury Bonds,
5.25%, 11/15/28 2.54
3. U.S. Treasury Strip,
0.0%, 11/15/13 2.21
4. U.S. Treasury Inflation
Protected Security,
3.0%, 7/15/12 1.53
5. Federal Home Loan Mortgage
Corp., 4.5%, 4/1/20 1.44
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 10.76 $ 11.26
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.6400 $ 0.0045 $ 0.1523
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Strategic Income VCT Portfolio at net asset value, compared to that of the
Lehman Brothers U.S. Universal Index. Portfolio returns are based on net asset
value and do not reflect any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer
Strategic Lehman
Income U.S.
VCT Universal
Date Portfolio Index
- ---------------------------------------
7/1999 $10,000 $10,000
- ---------------------------------------
$10,070 $10,136
- ---------------------------------------
$10,525 $11,234
- ---------------------------------------
12/2001 $11,252 $12,144
- ---------------------------------------
$12,458 $13,338
- ---------------------------------------
12/2003 $15,104 $14,117
- ---------------------------------------
$16,651 $14,817
- ---------------------------------------
12/2005 $17,108 $15,219
- ---------------------------------------
Index comparison begins July 31, 1999. The Lehman Brothers U.S. Universal Index
is the union of the U.S. Aggregate Index, the U.S. High Yield Corporate Index,
the 144A Index, the Eurodollar Index, the Emerging Markets Index, the non-ERISA
portion of the CMBS Index and the CMBS High Yield Index. Municipal debt,
private placements and non-dollar-denominated issues are excluded from the
Index. Index returns are calculated monthly, assume reinvestment of dividends
and, unlike Portfolio returns, do not reflect any fees, expenses or sales
charges. You cannot invest directly in the Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Life-of-Class 8.72%
(7/29/99)
5 Years 10.20%
1 Year 2.74%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
34
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
Most sectors in the fixed income market produced positive, if modest, results
during 2005. The most noteworthy exception to this overall trend was in
emerging market debt, which outperformed other parts of the global bond markets
as the strong worldwide growth persisted. Within the U.S., rising interest
rates for bonds of most maturities caused some price erosion, although not
enough to erase the positive benefits of income produced by bonds. In the
following interview, Kenneth J. Taubes discusses the factors that influenced
the Strategic Income Portfolio's performance during the 12 months. Mr. Taubes,
Director of Pioneer's Fixed Income Group, oversees the team responsible for the
daily management of the Portfolio.
Q: How did the Portfolio perform during the 12 months ended December 31, 2005?
A: The Portfolio performed modestly above its benchmark. Strategic Income
Portfolio Class I Shares had a total return of 2.74% at net asset value for
the year. During the same 12 months, the benchmark Lehman U.S. Universal
Bond Index returned 2.61%. The Portfolio also continued to deliver a
competitive stream of income. On December 31, 2005, the SEC standardized
30-day yield for Class I shares was 4.69%.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q: How would you describe the overall investment environment during the year?
A: Against a backdrop of persistent economic growth, the Federal Reserve Board
continued to tighten monetary policy in the United States. The central bank
raised the key fed funds rate eight different times during the period as
the rate rose from 2.25% to 4.25% by the end of 2005. While the rate hikes
were widely expected, they nevertheless had an impact on the financial
markets. Yields on securities of most maturities rose, and prices declined.
That particularly affected short to intermediate treasury securities. The
principal exception was the 30-year Treasury bond, where the yields
actually declined. Over the year, the difference between the yields of
shorter- and longer-term securities grew smaller, which means the yield
curve flattened. At year's end, the yield curve had inverted in some
places. This phenomenon, when interest rates of shorter maturity securities
become higher than some longer maturity securities, is a reversal of the
usual relationships and has been associated with a relatively restrictive
Federal Reserve monetary policy. Because of the flattening yield curve,
fixed income portfolio performance was heavily influenced by the
distribution of maturities of the securities held in the portfolio.
Intermediate term bonds--those in the middle of the yield curve--tended to
perform relatively poorly. Corporate bonds delivered modestly positive
results, with both investment grade and high yield producing similar
results on a total return basis. The primary difference was that high yield
bonds tended to lose more principal, although the higher income of those
lower-rated securities made up the difference on a total return basis.
Mortgages generally outperformed corporate bonds as well as Treasuries, as
they offered relatively good yield with less principal loss than other
sectors.
High yield corporate bonds from developed nations, in local currencies,
outperformed U.S. high yield debt, but returns were eroded by the strength
of the dollar. Helped by a yield advantage of U.S. short-term securities
over comparable maturity debt, primarily from Japan and European countries,
the U.S. dollar appreciated more than 10% against major foreign currencies
during 2005.
Emerging market securities were by far the best-performing part of the fixed
income market. Benchmarks for emerging market debt were about 12% for the
year, as the continuing global economic strength raised commodity prices,
including oil and other basic materials, supporting the economies of many
developing nations.
Q: What types of investments most influenced Portfolio performance?
A: We continued to maintain a well-diversified portfolio and our investments in
emerging market debt had a substantial positive impact on results. We
typically had about 12% of Portfolio assets invested in developing nation
securities. They were a primary contributor to results. We also had a
healthy allocation to investment-grade corporate and government bonds
denominated in major foreign currencies. They accounted for about 11% of
Portfolio assets at year-end. While those securities outperformed
comparable U.S. debt in their local currencies, the effect of the
strengthening of the U.S. dollar held back the final results to the
Portfolio. However, we did hedge part of our foreign currency exposure,
partially easing the effects of the dollar's appreciation on Portfolio
performance.
A Word About Risk:
When interest rates rise, the prices of fixed-income securities in the
Portfolio will generally fall. Conversely, when interest rates fall the prices
of fixed-income securities in the Portfolio will generally rise. Investments in
the Portfolio are subject to possible loss due to the financial failure of
underlying securities and their inability to meet their debt obligations.
Prepayment risk is the chance that mortgage-backed bonds will be paid off early
if falling interest rates prompt homeowners to refinance their mortgages.
Forced to reinvest the unanticipated proceeds at lower interest rates, the
Portfolio would experience a decline in income and lose the opportunity for
additional price appreciation associated with falling interest rates. The
securities issued by U.S. Government sponsored entities (i.e., FNMA, Freddie
Mac) are neither guaranteed nor issued by the U.S. Government. The Portfolio
may invest in mortgage-backed securities, which during times of fluctuating
interest rates may increase or decrease more than other fixed-income
securities. Mortgage-Backed securities are also subject to pre-payments.
Investments in high yield or lower-rated securities are subject to
greater-than-average risk. Investing in foreign and/or emerging markets
securities involves risks relating to interest rates, currency exchange rates,
economic, and political conditions. At times, the Portfolio's investments may
represent industries or industry sectors that are interrelated or have common
risks, making it more susceptible to any economic, political, or regulatory
developments or other risks affecting those industries and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
35
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05 (continued)
- --------------------------------------------------------------------------------
Within the U.S., we tended to focus on securities with a yield advantage. In
investing in government debt, we favored mortgages over Treasuries, and that
helped performance. On December 31, 2005, approximately 22.3% of Portfolio
assets were invested in mortgage-backed securities, 18.2% invested in
Treasuries, with a growing allocation to Treasury Inflation-Protected
Securities (TIPS) that tended to perform well. In addition, we were well
positioned on the yield curve, with a greater emphasis on higher-yielding,
longer-maturity bonds that outperformed intermediates. Although we upgraded
overall credit quality during the year and reduced our investment in
domestic high-yield corporate bonds, we still maintained a healthy
allocation to this sector, which comprised about 25.5% of Portfolio assets
on December 31, 2005, compared to 29.3% one year earlier.
Overall, average credit quality stood at A- at the end of 2005. Effective
duration -- a measure of sensitivity to changes in interest rates -- was
4.72 years on December 31, 2005, while the average maturity of Portfolio
holdings was 6.75 years.
Individual contributors to performance included bonds issued by:
UnumProvident, a major disability insurer that is undergoing a successful
restructuring; J. Ray McDermott, an oil and gas drilling company; and VALE
Overseas, the Brazilian company which is the world's largest iron ore mine
operator and which announced a tender offer for part of its high-yield debt.
While we underweighted bonds of the poor-performing automotive industry
within our domestic portfolio, we did own bonds issued by Delphi, the major
auto components company that filed for bankruptcy protection. We have sold
that position. However, we have retained a position in another disappointing
investment, bonds of Northwest Airlines, which also filed for bankruptcy
during 2005.
Q: What is your investment outlook?
A: We expect to continue to upgrade the overall credit quality of our Portfolio
while keeping it well-diversified to take advantage of opportunities
throughout the world. Overall, economic growth may continue, but values of
debt securities could be less attractive than last year.
The continued dynamic expansion of the economy in China should drive the
growth of emerging markets throughout the globe as well as in Asia, which
could also be affected by recovery in Japan. This could be felt most in
countries rich in commodities such as iron, copper, nickel and oil. However,
emerging market bonds do not offer compelling values, as their prices
already reflect an optimistic outlook. Interest rates offered by foreign,
high-yield corporate bonds also are not as attractive as they were earlier
in light of their strong performance in local currencies over the year.
However, we think the U.S. dollar may begin to weaken again against foreign
currencies as other countries begin to raise their rates higher than the
U.S. Federal Reserve.
Within the U.S., we expect that the pace of economic growth may slow in
2006, but the economy should continue to expand. The Federal Reserve Board
may continue to raise short-term rates in the early part of the year, but we
do not anticipate that monetary policy will become so restrictive as to push
the economy into recession.
At a time when spreads -- the differences between yields -- are narrow
between yields of fixed income securities of different credit quality, we
expect to continue to upgrade overall credit quality. For one thing,
increased corporate merger-and-acquisition activity poses a potential threat
to holders of investment grade corporate bonds, as many merger deals benefit
shareholders more than bondholders. We anticipate maintaining an emphasis on
mortgage-backed securities over corporate bonds, which offer only slightly
less yield than investment grade corporate bonds, but without the risk of
merger-and-acquisition. Within our Treasury holdings, we expect to continue
to focus on TIPS (Treasury Inflation-Protected Securities). The easing of
global monetary policies over the past several years has potentially
provided an environment for inflation to pick-up.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
36
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Government Securities 93.4%
U.S. Government Agency Obligations 6.1%
U.S. Corporate Bonds 0.5%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Maturity Distribution
(As a percentage of total investment portfolio)
0-1 year 2.5%
1-3 years 38.7%
3-4 years 27.8%
4-6 years 16.2%
6-8 years 6.8%
8+ years 8.0%
Five Largest Holdings
(As a percentage of long-term holdings)
1. U.S. Treasury Notes,
6.5%, 2/15/10 10.01%
2. U.S. Treasury Inflation
Protected Securities,
3.375%, 1/15/12 7.81
3. U.S. Treasury Bonds,
6.25%, 8/15/23 5.54
4. U.S. Treasury Notes,
6.375%, 8/15/27 2.47
5. U.S. Treasury Notes,
4.25%, 11/15/14 1.85
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 9.84 $ 10.11
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.4702 $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
America Income VCT Portfolio at net asset value, compared to that of the Lehman
Brothers Fixed-Rate Mortgage-Backed Securities Index and of Lehman Brothers
Government Bond Index. Portfolio returns are based on net asset value and do
not reflect any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Lehman Lehman
America Brothers Brothers
Income VCT Government Fixed-Rate
Date Portfolio Bond Index Mortgage Index
- ---------------------------------------------------
12/1995 $10,000 $10,000 $10,000
- ---------------------------------------------------
$10,130 $10,406 $10,535
- ---------------------------------------------------
12/1997 $10,985 $11,210 $11,535
- ---------------------------------------------------
$11,880 $12,161 $12,338
- ---------------------------------------------------
12/1999 $11,581 $12,220 $12,567
- ---------------------------------------------------
$12,943 $13,500 $13,969
- ---------------------------------------------------
12/2001 $13,786 $14,636 $15,118
- ---------------------------------------------------
$15,208 $16,047 $16,440
- ---------------------------------------------------
12/2003 $15,484 $16,414 $16,944
- ---------------------------------------------------
$16,013 $16,797 $17,741
- ---------------------------------------------------
12/2005 $16,336 $17,080 $18,205
- ---------------------------------------------------
The Lehman Brothers Government Bond Index measures the performance of the U.S.
government bond market. The Lehman Brothers Fixed-Rate Mortgage Index measures
the performance of the government and mortgage securities markets. Index
returns are calculated monthly, assume reinvestment of dividends and, unlike
Portfolio returns, do not reflect any fees, expenses or sales charges. You
cannot invest directly in any Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
10 Years 5.03%
5 Years 4.77%
1 Year 2.02%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
37
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
In a year marked by hurricanes, high energy prices, concerns about accelerating
inflation and rising short-term interest rates, shareholders in Pioneer America
Income Trust VCT Portfolio earned a positive return on their investment. In the
interview below, Richard Schlanger, a member of the Pioneer fixed-income team,
discusses the factors that affected the fixed-income market and the Trust over
the past 12 months.
Q. How did the Trust perform during the period?
A. For the 12-month period ended December 31, 2005, Class I shares of Pioneer
America Income Trust VCT Portfolio produced a total return of 2.02% at net
asset value. The Trust underperformed its benchmark, the Lehman Brothers
Government Bond Index, which returned 2.65% for the same period. It also
fell short of the 2.61% return provided by the Lehman Brothers Fixed-Rate
Mortgage-Backed Index. At the end of the period, the 30-day SEC yield for
Class I shares was 3.67. The Trust had 229 issues and the average quality
of the portfolio was AAA.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q. What was the investment environment like during the period?
A. Economic growth was relatively strong, and productivity remained high. In
this environment, the Federal Reserve continued to reverse its
accommodative monetary policy and raised interest rates eight times during
the year, each time by a quarter point. At the end of 2005, the federal
funds target rate was 4.25%, up from 2.25% in January 2005. (The federal
funds rate is the rate banks charge for overnight loans.) Since June 2004,
the Fed has hiked interest rates 13 times, taking the federal funds rate
from a 40-year low of 1.00% to the current 4.25%. The net effect of the
Fed's actions was a flattening of the yield curve, where short-term yields
and longer-term yields were approximately the same. On December 30, 2005,
the yield curve inverted slightly, with longer-term yields falling below
short-term yields. (The yield curve shows the relationship between bond
yields and maturity lengths.)
During the year, government bonds benefited from an influx of money from
both foreign and domestic investors. While long-term yields on U.S.
Treasuries were relatively low, they were among the highest of the developed
countries and attractive to overseas investors. The performance of
government bonds was also enhanced by a flight to quality. At a time when
long-term yields declined and the debt of General Motors and Ford was
downgraded by credit rating agencies, domestic investors saw little
advantage to taking on risk. As a result, they moved into the relative
safety of government securities.
Q. What strategies did you use in managing the Trust?
A. As interest rates rose, we extended duration, or sensitivity to
interest-rate changes, by reducing exposure to mortgage securities and
adding to positions in Treasury issues and in Treasury Inflation Protected
Securities (TIPS). TIPS are securities whose principal is tied to the
consumer price index, a monthly indicator that measures the price inflation
of a representative basket of goods and services. When inflation
accelerates, the principal on TIPS increases in value. The interest-rate
payment on TIPS is calculated on the inflated principal. While inflation
was not a problem in 2005, we are concerned about the potential for it to
pick up. Oil prices are over $60 a barrel, the price of gold is at a
25-year high and the unemployment rate fell below 5%. These factors and
others could lead to an upturn in inflation. At the end of the period,
54.8% of the portfolio was in mortgage pass-through securities issued by
the Government National Mortgage Association (Ginnie Mae), 44.4% was in
Treasury issues, TIPS and agency securities issued by the Federal National
Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Association
(Freddie Mac), the Federal Home Loan Bank, and the Federal Farm Credit
Bank. About .80% of the portfolio was in cash.
Q. What detracted from performance?
A. Our positioning on the yield curve held back return. Throughout the 12
months, we maintained a bulleted strategy, which means we invested in bonds
across the maturity spectrum, with the biggest concentration in the
intermediate-term range of two-years to ten-years. While our short-term and
long-term bonds did well, our intermediate-term bonds detracted from
performance. In hindsight, it would have been more advantageous to have had
a barbelled configuration, overweighting the short and long ends of the
yield curve and holding relatively few intermediate-term bonds.
Q. What contributed to performance?
A. Mortgages issued by Ginnie Mae outperformed those issued by Fannie Mae and
Freddie Mac, two agencies that had been in the headlines because of
accounting problems. During the second half of 2005, yields on 10-year
Treasuries traded in a relatively narrow range of roughly 3.90% to a high
of roughly 4.68%. As 10-year Treasuries declined in price and rose in
yield, we extended duration. This aided results because 10-year Treasuries
closed the year at 4.40%, down from their highs. A longer duration usually
benefits a portfolio when yields decline. The performance of TIPS also
helped boost the Trust's return.
Q. What is your outlook?
A. In general we are positive in looking ahead. While we believe the inverted
yield curve may be indicating some moderating in economic growth, we do not
think it is signaling recession. When the Fed began raising interest rates,
the federal funds rate was extremely low at 1.00%. We think that the
current 4.25% level is not restrictive, especially with an inflation rate
of roughly 2.0% to 2.5%. While we think the consumer may cut back on
spending, it is likely that business will pick up the slack. An increase in
capital spending on the part of corporations may be enough to keep the
economy growing at a respectable rate. The Fed may be in the late stages of
its rate-raising cycle. Should the Fed ease rates somewhat, we believe
intermediate-term securities will outperform longer-term securities. We are
well-positioned should this occur. As we move into 2006, we believe the
Trust should continue to provide a relatively safe haven for investors who
want to avoid the risk associated with the more volatile areas of the
fixed-income market and with equities.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
A Word About Risk:
When interest rates rise, the prices of fixed-income securities in the
Portfolio will generally fall. Conversely, when interest rates fall the prices
of fixed-income securities in the Portfolio will generally rise. Prepayment
risk is the chance that mortgage-backed bonds will be paid off early if falling
interest rates prompt homeowners to refinance their mortgages. Forced to
reinvest the unanticipated proceeds at lower interest rates, the Portfolio
would experience a decline in income and lose the opportunity for additional
price appreciation associated with falling interest rates. The Portfolio may
invest in mortgage-backed securities, which during times of fluctuating
interest rates may increase or decrease more than other fixed--income
securities. Mortgage-backed securities are also subject to pre-payments.
Government guarantees apply to the underlying securities only and not to the
prices and yields of the portfolio. At times, the Portfolio's investments may
represent industries or industry sectors that are interrelated or have common
risks, making it more susceptible to any economic, political, or regulatory
developments or other risks affecting those industries and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
38
Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO AND PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
As the U.S. economy grew persistently throughout 2005, the U.S. Federal Reserve
continued to act aggressively to prevent any acceleration of inflationary
pressures by raising short-term rates. The Fed hiked the influential Fed Funds
rate eight different times during the year, each time by one-quarter of one
percent (25 basis points), to end the year at 4.25%. As a consequence, yields
of shorter-term securities, including money market instruments, also rose.
Pioneer Money Market VCT Portfolio currently invests exclusively in
high-quality money market instruments issued by the U.S. government and
domestic corporations and banks. All issues have the highest ratings from the
two nationally recognized ratings organizations: A1 by Standard & Poor's
Investors Services and P1 by Moody's Investor Services. (Ratings apply to
underlying securities, not Portfolio shares.)
In the following discussion, Andrew D. Feltus reviews the investment
environment and the strategies that affected Pioneer Money Market VCT Portfolio
over the 12 months ended December 31, 2005. Mr. Feltus is a member of Pioneer's
Fixed Income Group, which is responsible for the daily management of the
Portfolio.
Q. How did the Portfolio perform during 2005?
A. For the 12 months ended December 31, 2005, Class I shares of Pioneer Money
Market VCT Portfolio had a total return of 2.47% at net asset value. On
December 31, 2005, the Portfolio's seven-day effective yield for Class A
shares was 3.43%. Net asset value of Portfolio shares remained stable at
$1.00 throughout the year.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q. What were the principal factors that influenced Portfolio performance?
A. Despite intermittent worries about its health, the U.S. economy grew briskly
throughout the year. In response to the steady growth, the Federal Reserve
continued its policy of tightening monetary policy by hiking rates eight
different times in 2005. The Fed Funds rate ended the year at 4.25%, or 325
basis points higher than the 1.00% level when the Fed started its rate hike
cycle in June 2004. Rising energy and commodity prices and the weakening of
the U.S. dollar in relation to major foreign currencies all were factors
that encouraged the Fed to raise rates and head off any significant
increase in general inflationary pressures. As the year ended, the Fed
began to hint that it might be nearing the end of its rate increases,
although at least one further hike was anticipated in 2006.
The higher rates constituted good news to money market fund investors, as
yields at the end of the year were significantly higher than they were 12
months and 18 months earlier. In light of the steady increases in short-term
rates, we reduced the Portfolio's average maturity and duration so that we
could take advantage of opportunities to invest at higher rates as they
became available. The average maturity of the Portfolio's investments at the
end of 2005 was just 54.5 days. We maintained our policy of investing in
only very high-quality securities and we had no credit problems during the
year.
Q. What is your investment outlook?
A. As we enter 2006, the Federal Reserve appears to be closer to the end of its
cycle of interest rate hikes than the beginning. We certainly don't expect
that the Fed will be as aggressive in the next year as it has been for the
past 18 months. As we get further into 2006 and it is evident that the
Federal Reserve is acting more cautiously, we will expect to increase the
Portfolio's overall duration somewhat with an eye toward adding more yield
to the portfolio. We expect to continue to invest in only very high-quality
securities.
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 1.00 $ 1.00
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.025 $ - $ -
A Word About Risk:
Although the Portfolio seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the Portfolio.
Portfolio shares are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency.
Investing in foreign and/or emerging markets securities involves risks relating
to interest rates, currency exchange rates, economic, and political conditions.
At times, the Portfolio's investments may represent industries or industry
sectors that are interrelated or have common risks, making it more susceptible
to any economic, political, or regulatory developments or other risks affecting
those industries and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
- ---------------------
Average Annual Total Returns
(As of December 31, 2005)
- ---------------------------------
Net Asset Value
- ---------------------------------
10 Years 3.20%
5 Years 1.65%
1 Year 2.47%
All total returns shown assume reinvestment of distributions at net asset
value.
* Portfolio performance does not reflect any variable contract fees, expenses
or sales charges. If they had been included, performance would have been
lower.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Portfolio's historical or future performance are
statements of the opinion of Portfolio management as of the date of this
report. These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
39
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
PREFERRED STOCKS - 3.3%
Materials - 0.6%
Steel - 0.6%
239,300 Caemi Mineracao E Metalurgia SA $ 348,977
-----------
Total Materials $ 348,977
-----------
Capital Goods - 0.1%
Industrial Conglomerates - 0.1%
3,445 LG Corp. $ 72,264
-----------
Total Capital Goods $ 72,264
-----------
Media - 0.8%
Broadcasting & Cable TV - 0.8%
963,400 Net Servicos de Comunicacao SA* $ 440,849
-----------
Total Media $ 440,849
-----------
Banks - 1.1%
Diversified Banks - 1.1%
23,930 Banco Itau Holding Financeira $ 576,170
-----------
Total Banks $ 576,170
-----------
Telecommunication Services - 0.7%
Integrated Telecommunication Services - 0.7%
22,801 Tele Norte Leste Participacoes (A.D.R.) $ 408,594
-----------
Total Telecommunication Services $ 408,594
-----------
TOTAL PREFERRED STOCKS
(Cost $1,198,560) $ 1,846,854
-----------
COMMON STOCKS - 95.8%
Energy - 15.5%
Coal & Consumable Fuels - 0.4%
313,200 Yanzhou Coal Mining $ 200,234
-----------
Integrated Oil & Gas - 11.7%
485,600 China Petroleum & Chemicals $ 241,987
13,800 Gazprom (A.D.R.)* 1,002,266
16,000 Lukoil Holding (A.D.R.) 948,800
3,400 Mol Magyar Olaj 318,093
33,700 Petrobras Brasileiro (A.D.R.) 2,169,269
540,000 PetroChina Co., Ltd. 442,593
48,500 PTT Public Co., Ltd. 267,179
9,000 Repsol SA (A.D.R.) 264,690
14,500 Surgutneftegaz (A.D.R.)(a) 794,033
-----------
$ 6,448,910
-----------
Oil & Gas Equipment & Services - 0.7%
3,500 TelecomAsia Corp. $ 400,750
-----------
Oil & Gas Exploration & Production - 0.7%
584,000 Cnooc, Ltd. $ 396,487
-----------
Oil & Gas Refining & Marketing - 1.7%
19,800 Polski Koncern Naftowy Orlen SA $ 382,426
14,300 Reliance Industries, Ltd. (144A) 562,133
-----------
$ 944,559
-----------
Shares Value
Oil & Gas Storage & Transportation - 0.3%
11,718 Ultrapar Participacoes SA $ 162,868
-----------
Total Energy $ 8,553,808
-----------
Materials - 11.8%
Construction Materials - 2.6%
7,450 Asia Cement Co., Ltd. $ 294,603
3,530 Hanil Cement Co., Ltd. 254,162
954,000 Indocement Tunggal Prakarsa Tbk* 343,542
721,100 Lafarge Malayan Cement Berhad 117,139
66,100 Siam City Cement Co., Ltd. 425,961
-----------
$ 1,435,407
-----------
Diversified Metals & Mining - 1.2%
899,000 Aneka Tambang Tbk $ 325,928
6,000 Freeport-McMoRan Copper & Gold, Inc.
(Class B) 322,800
-----------
$ 648,728
-----------
Fertilizers & Agricultural Chemicals - 0.4%
44,000 Makhteshim-Agan Industries, Ltd. $ 253,067
-----------
Gold - 2.7%
14,500 Anglogold Ashanti, Ltd. (A.D.R.)(a) $ 715,285
36,100 IAMGOLD Corp. 282,302
1,070,000 Zijin Mining Group Co., Ltd. 471,789
-----------
$ 1,469,376
-----------
Precious Metals & Minerals - 2.7%
14,200 Anglo American Platinum Corp. $ 1,029,162
15,900 Compania de Minas Buenaventura SA 449,970
-----------
$ 1,479,132
-----------
Steel - 2.2%
33,300 Companhia Vale do Rio Doce (A.D.R.) $ 1,207,125
-----------
Total Materials $ 6,492,835
-----------
Capital Goods - 11.9%
Aerospace & Defense - 0.4%
9,100 Elbit Systems, Ltd. $ 221,793
-----------
Building Products - 0.5%
73,900 Trakya Cam Sanayii AS $ 287,390
-----------
Construction & Engineering - 4.8%
134,200 Aveng, Ltd. $ 380,422
1,003,020 Continental Engineering Corp. 396,090
4,369 Daelim Industrial Co. 309,809
99,017 Empressa ICA Sociedad Controladora
SA de CV* 242,425
8,300 GS Engineering & Construction Corp. 435,538
15,440 Kyeryong Construction Industrial Co., Ltd. 460,057
10,900 Larsen & Toubro, Ltd. 447,161
-----------
$ 2,671,502
-----------
40 The accompanying notes are an integral part of these financial statements.
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Construction, Farm Machinery &
Heavy Trucks - 3.3%
21,400 Daewoo Heavy Industries &
Machinery, Ltd. $ 580,403
8,030 Hyundai Heavy Industries 610,950
36,500 Samsung Heavy Industries Co., Ltd. 636,792
-----------
$ 1,828,145
-----------
Heavy Electrical Equipment - 0.8%
13,600 Bharat Heavy Electricals (Demat Shares) $ 419,729
-----------
Industrial Conglomerates - 0.8%
45,075 KOC Holding AS $ 211,827
6,825 LG Corp. 211,832
-----------
$ 423,659
-----------
Industrial Machinery - 1.3%
27,900 Doosan Heavy Industries &
Construction Co. $ 498,650
389,000 Yungtay Engineering Co., Ltd. 249,252
-----------
$ 747,902
-----------
Total Capital Goods $ 6,600,120
-----------
Transportation - 1.9%
Airlines - 0.8%
15,100 Gol-Linhas Aereas Inteligentes SA $ 428,919
-----------
Marine - 1.1%
466,000 China Shipping Development Co., Ltd. $ 341,704
103,200 Malaysia International Shipping Bhd. 270,379
-----------
$ 612,083
-----------
Total Transportation $ 1,041,002
-----------
Automobiles & Components - 2.8%
Automobile Manufacturers - 2.8%
12,400 Hyundai Motor Co., Ltd. $ 1,188,614
47,700 Ssangyong Motor Co.* 382,259
-----------
$ 1,570,873
-----------
Total Automobiles & Components $ 1,570,873
-----------
Consumer Durables & Apparel - 1.5%
Homebuilding - 0.8%
34,320 Cyrela Brazil Realty SA $ 469,675
-----------
Household Appliances - 0.7%
53,240 Arcelik AS $ 370,748
-----------
Total Consumer Durables & Apparel $ 840,423
-----------
Consumer Services - 0.8%
Hotels, Resorts & Cruise Lines - 0.8%
21,300 Indian Hotels Co., Ltd.* $ 469,193
-----------
Total Consumer Services $ 469,193
-----------
Shares Value
Media - 2.5%
Broadcasting & Cable TV - 1.4%
459,000 BEC World Public Co., Ltd. $ 151,042
4,947 Grupo Televisa SA (A.D.R.) 398,234
47,000 Television Broadcasts, Ltd. 250,384
-----------
$ 799,660
-----------
Publishing - 1.0%
144,116 Hurriyet Gazetecilik ve Matbaacilik AS $ 565,869
-----------
Total Media $ 1,365,529
-----------
Retailing - 3.2%
Apparel Retail - 0.8%
121,200 Truworths International, Ltd. $ 460,420
-----------
Department Stores - 1.0%
6,300 Hyundai Department Store Co., Ltd. $ 530,896
-----------
General Merchandise Stores - 0.7%
11,900 Lojas Renner SA* $ 381,637
-----------
Homefurnishing Retail - 0.7%
38,200 Ellerine Holdings, Ltd. $ 374,772
-----------
Total Retailing $ 1,747,725
-----------
Food & Drug Retailing - 2.8%
Food Retail - 0.7%
199,000 President Chain Store Corp. $ 417,371
-----------
Hypermarkets & Supercenters - 2.1%
13,100 Brasil Distr Pao Acu (A.D.R.)(a) $ 430,990
34,200 Massmart Holdings, Ltd. 279,752
1,000 Shinsegae Co., Ltd. 437,014
-----------
$ 1,147,756
-----------
Total Food & Drug Retailing $ 1,565,127
-----------
Food, Beverage & Tobacco - 3.6%
Brewers - 0.5%
8,850 Efes Breweries International (144A)
(G.D.R.)* $ 250,013
-----------
Packaged Foods & Meats - 1.5%
5,480 CJ Corp. $ 564,792
12,300 Tiger Brands, Ltd. 283,163
-----------
$ 847,955
-----------
Soft Drinks - 1.6%
12,200 Fomento Economico Mexicano SA de CV $ 884,622
-----------
Total Food, Beverage & Tobacco $ 1,982,590
-----------
The accompanying notes are an integral part of these financial statements.
41
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
Household & Personal Products - 1.0%
Personal Products - 1.0%
6,150 Natura Cosmeticos SA $ 270,849
9,100 Oriflame Cosmetics SA 262,183
-----------
$ 533,032
-----------
Total Household &
Personal Products $ 533,032
-----------
Pharmaceuticals & Biotechnology - 0.6%
Pharmaceuticals - 0.6%
9,500 PT Tempo Scan Pacific $ 5,438
7,700 Teva Pharmaceutical Industries, Ltd.
(A.D.R.)(a) 331,177
-----------
$ 336,615
-----------
Total Pharmaceuticals &
Biotechnology $ 336,615
-----------
Banks - 11.8%
Diversified Banks - 11.8%
22,932 Banco Bradesco SA(a) $ 668,468
25,000 Banco do Brasil SA 451,182
88,300 Bangkok Bank, Ltd. 247,719
133,900 Bank Hapoalim, Ltd. 619,981
18,563 Bank of Baroda 99,485
206,500 Bumiputra-Commerce Holdings Bhd. 311,370
149,906 FirstRand, Ltd. 443,418
155,300 Kasikornbank (Class F) 284,096
1,900 Kookmin Bank 142,582
12,000 Kookmin Bank (A.D.R.)(a) 896,520
966,400 Krung Thai Bank Public Co., Ltd. 259,120
221,500 Metropolitan Bank & Trust Co. 133,623
769,500 PT Bank Central Asia Tbk 265,489
28,249 Standard Bank Group, Ltd. 338,484
13,600 State Bank of India 274,114
47,825 Turkiye Is Bankasi (Isbank) 413,959
10,562 Uniao de Bancos Brasileiros SA 671,426
(Unibanco) (G.D.R.) (144A) -----------
$ 6,521,036
-----------
Total Banks $ 6,521,036
-----------
Diversified Financials - 3.4%
Investment Banking & Brokerage - 1.1%
10,400 Samsung Securities Co., Ltd. $ 632,279
-----------
Multi-Sector Holding - 0.7%
18,600 Remgro, Ltd. $ 358,968
-----------
Diversified Financial Services - 1.6%
418,000 Fubon Group $ 359,023
11,110 Hana Financial Holdings* 509,461
-----------
$ 868,484
-----------
Total Diversified Financials $ 1,859,731
-----------
Shares Value
Insurance - 4.7%
Life & Health Insurance - 2.6%
20,500 Cathay Financial Holding Co., Ltd.
(144A) (G.D.R.) $ 377,200
334,000 China Life Insurance Co., Ltd.* 294,804
145,000 Ping An Insurance Company of China, Ltd. 268,038
194,490 Sanlam, Ltd. 467,239
-----------
$ 1,407,281
-----------
Property & Casualty Insurance - 2.1%
85,567 Aksigorta AS $ 653,018
4,100 Samsung Fire & Marine Insurance 517,299
-----------
$ 1,170,317
-----------
Total Insurance $ 2,577,598
-----------
Real Estate - 0.3%
Real Estate Management & Development - 0.3%
1,095,400 SM Prime Holdings $ 163,077
-----------
Total Real Estate $ 163,077
-----------
Software & Services - 0.6%
IT Consulting & Other Services - 0.6%
4,732 Infosys Technologies, Ltd. $ 315,555
-----------
Total Software & Services $ 315,555
-----------
Technology Hardware & Equipment - 3.7%
Computer Hardware - 1.2%
134,240 ACER Sertek, Inc. $ 335,294
228,900 Quanta Computer, Inc. 322,726
-----------
$ 658,020
-----------
Computer Storage & Peripherals - 1.2%
90,000 Asustek Computer, Inc. $ 275,861
320,800 LITE-ON IT Corp. 414,291
-----------
$ 690,152
-----------
Electronic Manufacturing Services - 1.3%
127,158 Hon Hai Precision Industry $ 696,819
-----------
Total Technology Hardware &
Equipment $ 2,044,991
-----------
Semiconductors - 3.4%
Semiconductors - 3.4%
1,730 Samsung Electronics $ 1,118,098
239,704 Taiwan Semiconductor Manufacturing Co. 453,839
31,499 Taiwan Semiconductor Manufacturing Co. 312,155
(A.D.R.) -----------
$ 1,884,092
-----------
Total Semiconductors $ 1,884,092
-----------
42 The accompanying notes are an integral part of these financial statements.
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Telecommunication Services - 5.9%
Integrated Telecommunication Services - 1.6%
8,900 Brasil Telecom Participacoes SA $ 332,415
7,700 Philippine Long Distance Telephone Co. 263,891
36,100 Telekomunikacja Polska SA 259,951
-----------
$ 856,257
-----------
Wireless Telecommunication Services - 4.3%
13,200 Korea Telecom Freetel Co. $ 321,226
9,900 Mobile Telesystems (A.D.R.) 346,500
33,400 MTN Group, Ltd. 328,287
29,100 Partner Communications Co., Ltd. 244,706
381,700 Shinawatra Computer Co., Plc 393,098
448,000 Taiwan Mobile Co., Ltd. 390,920
8,900 Vimpel-Communications (A.D.R.)* 393,647
-----------
$ 2,418,384
-----------
Total Telecommunication Services $ 3,274,641
-----------
Utilities - 2.1%
Electric Utilities - 0.6%
9,000 Cemig SA (A.D.R.) (a) $ 331,740
-----------
Gas Utilities - 1.5%
593,000 Panva Gas Holdings, Ltd.* $ 315,435
4,100 Samchully Co., Ltd. 488,329
-----------
$ 803,764
-----------
Total Utilities $ 1,135,504
-----------
TOTAL COMMON STOCKS
(Cost $35,426,515) $52,875,097
-----------
RIGHTS/WARRANTS - 0.0%
Commercial Services & Supplies - 0.0%
Diversified Commercial Services - 0.0%
1,580 Bidvest Group, Ltd., Exp 12/8/06* $ 7,506
-----------
Total Commercial
Services & Supplies $ 7,506
-----------
TOAL RIGHTS/WARRANTS
(Cost $0) $ 7,506
-----------
TEMPORARY CASH INVESTMENTS - 6.0%
Security Lending Collateral - 6.0%
3,324,063 Securities Lending Investment
Fund, 4.24% $ 3,324,063
-----------
TOTAL TEMPORARY CASH
INVESTMENTS
(Cost $3,324,063) $ 3,324,063
-----------
TOTAL INVESTMENT
IN SECURITIES - 105.1%
(Cost $39,949,138) (b) $58,053,520
-----------
OTHER ASSETS
AND LIABILITIES - (5.1)% $(2,821,958)
-----------
TOTAL NET ASSETS - 100.0% $55,231,562
===========
(A.D.R.) American Depositary Receipt
(G.D.R.) Global Depositary Receipt
* Non-income producing security.
144A Security is exempt from registration under Rule 144A of the Securities
Act of 1933. Such securities may be resold normally to qualified
institutional buyers in a transaction exempt from registration. At
December 31, 2005, the value of these securities amounted to $1,860,
772 or 3.4% of total net assets.
(a) At December 31, 2005, the following securities were out on loan:
SharesSecurity Value
13,690 Anglogold Ashanti, Ltd. (A.D.R.) $ 675,328
21,646 Banco Bradesco SA 630,981
12,445 Brasil Distr Pao Acu (A.D.R.) 409,441
8,470 Cemig SA (A.D.R.) 312,204
2,060 Kookmin Bank (A.D.R.) 153,903
14,440 Surgutneftegaz (A.D.R.) 790,747
6,569 Teva Pharmaceutical Industries,
Ltd. (A.D.R.) 282,533
----------
Total $3,255,137
==========
(b) Distributions of investments by country of issue, as a percentage of
total equity holdings (excluding temporary cash investments) is as
follows:
South Korea 22.1%
Brazil 17.8
South Africa 10.0
Taiwan 9.6
Russia 6.4
People's Republic of China 4.9
India 4.7
Turkey 4.6
Thailand 3.7
Israel 3.1
Mexico 2.8
Indonesia 1.7
Malaysia 1.3
Poland 1.2
Hong Kong 1.0
Philippines 1.0
Other (individually less than 1%) 4.1
-----
100.0%
======
The accompanying notes are an integral part of these financial statements. 43
Pioneer Europe VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
PREFERRED STOCK - 2.5%
Automobiles & Components - 2.5%
Automobile Manufacturers - 2.5%
658 Porsche AG $ 472,253
-----------
TOTAL PREFERRED STOCK
(Cost $411,979) $ 472,253
-----------
COMMON STOCK - 95.7%
Energy - 11.3%
Integrated Oil & Gas - 11.3%
84,652 BP Amoco Plc $ 906,190
20,168 Eni SpA 562,124
21,728 Repsol SA Regd 637,257
-----------
$ 2,105,571
-----------
Total Energy $ 2,105,571
-----------
Materials - 11.3%
Construction Materials - 6.5%
21,189 CRH Plc $ 622,955
6,584 Lafarge Br 591,985
-----------
$ 1,214,940
-----------
Diversified Metals & Mining - 2.3%
9,195 Rio Tinto Plc $ 419,761
-----------
Fertilizers & Agricultural Chemicals - 2.5%
3,784 Syngenta AG* $ 470,580
-----------
Total Materials $ 2,105,281
-----------
Capital Goods - 6.9%
Building Products - 3.3%
10,367 Compagnie de Saint Gobain $ 616,276
-----------
Industrial Conglomerates - 3.6%
7,900 Siemens $ 676,639
-----------
Total Capital Goods $ 1,292,915
-----------
Transportation - 4.3%
Air Freight & Couriers - 4.3%
25,504 TNT NV $ 796,613
-----------
Total Transportation $ 796,613
-----------
Automobiles & Components - 7.2%
Automobile Manufacturers - 2.1%
6,723 PSA Peugeot Citroen $ 386,670
-----------
Tires & Rubber - 5.1%
5,301 Continental AG $ 469,809
8,850 Compagnie Generale des
Etablissements Michelin 496,738
-----------
$ 966,547
-----------
Total Automobiles & Components $ 1,353,217
-----------
Shares Value
Consumer Durables & Apparel - 4.9%
Apparel, Accessories & Luxury Goods - 2.7%
2,680 Adidas-Salomon AG $ 506,979
-----------
Homebuilding - 2.2%
18,968 Persimmon Plc $ 408,382
-----------
Total Consumer Durables & Apparel $ 915,361
-----------
Consumer Services - 2.0%
Hotels, Resorts & Cruise Lines - 2.0%
6,812 Carnival Corp. $ 364,238
-----------
Total Consumer Services $ 364,238
-----------
Media - 4.6%
Advertising - 2.9%
49,530 WPP Group PLC $ 534,710
-----------
Publishing - 1.7%
16,053 Wolters Kluwer NV* $ 324,399
-----------
Total Media $ 859,109
-----------
Food & Drug Retailing - 3.6%
Drug Retail - 1.6%
28,832 Boots Co. Plc $ 300,838
-----------
Hypermarkets & Supercenters - 2.0%
7,774 Carrefour Supermarch* $ 364,098
-----------
Total Food & Drug Retailing $ 664,936
-----------
Pharmaceuticals & Biotechnology - 6.3%
Pharmaceuticals - 6.3%
10,691 Astrazeneca Plc $ 520,925
4,402 Roche Holdings AG 660,619
-----------
$ 1,181,544
-----------
Total Pharmaceuticals &
Biotechnology $ 1,181,544
-----------
Banks - 19.1%
Diversified Banks - 19.1%
17,413 Allied Irish Banks Plc $ 372,627
67,587 Barclays Plc 710,074
10,136 BNP Paribas SA 819,802
31,220 Royal Bank of Scotland Group Plc 942,651
5,931 Societe Generale 729,206
-----------
$ 3,574,360
-----------
Total Banks $ 3,574,360
-----------
Diversified Financials - 10.5%
Diversified Capital Markets - 10.5%
15,233 CS Group $ 776,072
5,549 Deutsche Bank AG 537,725
6,793 UBS AG 646,399
-----------
$ 1,960,196
-----------
Total Diversified Financials $ 1,960,196
-----------
44 The accompanying notes are an integral part of these financial statements.
Pioneer Europe VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Telecommunication Services - 3.7%
Integrated Telecommunication Services - 3.2%
24,070 France Telecom SA $ 597,774
-----------
Wireless Telecommunication Services - 0.5%
42,393 Vodafone Group Plc $ 92,034
-----------
Total Telecommunication Services $ 689,808
-----------
TOTAL COMMON STOCK
(Cost $15,365,193) $17,863,149
-----------
TOTAL INVESTMENT IN
SECURITIES - 98.2%
(Cost $15,777,172)(a) $18,335,402
-----------
OTHER ASSETS
AND LIABILITIES - 1.8% $ 336,302
-----------
TOTAL NET ASSETS - 100.0% $18,671,704
===========
* Non-income producing security
(a) Distributions of investments by country of issue, as a percentage of
total equity holdings (excluding temporary cash investments) is as
follows:
United Kingdom 26.4%
France 25.1
Germany 14.5
Switzerland 13.9
Netherlands 6.1
Ireland 5.4
Spain 3.5
Italy 3.1
Panama 2.0
-----
100.0%
=======
The accompanying notes are an integral part of these financial statements. 45
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
PREFERRED STOCK - 0.6%
Utilities - 0.6%
Multi-Utilities - 0.6%
2,400 RWE AG - Non-Voting $ 154,366
-----------
TOTAL PREFERRED STOCK
(Cost $139,965) $ 154,366
-----------
COMMON STOCKS - 99.7%
Energy - 9.3%
Integrated Oil & Gas - 7.8%
28,910 BP Amoco Plc $ 309,478
2,100 Gazprom (A.D.R.)* 152,519
3,300 Lukoil Holding (A.D.R.) 195,690
3,700 Petrobras Brasileiro (A.D.R.) 238,169
15,400 Repsol SA 451,664
3,400 Statoil SA 78,079
2,630 Total SA 661,524
-----------
$ 2,087,123
-----------
Oil & Gas Equipment & Services - 0.8%
4,900 Saipem S.p.A. $ 80,361
2,160 Technip 130,947
-----------
$ 211,308
-----------
Oil & Gas Exploration & Production - 0.7%
284,000 CNOOC, Ltd. $ 192,812
-----------
Total Energy $ 2,491,243
-----------
Materials - 8.4%
Construction Materials - 1.6%
8,800 CRH Plc $ 258,607
2,600 Holcim, Ltd. 176,954
-----------
$ 435,561
-----------
Diversified Chemical - 0.4%
1,400 BASF India, Ltd. $ 107,187
-----------
Diversified Metals & Mining - 3.3%
17,002 Broken Hill Proprietary Co., Ltd. $ 284,341
6,750 Freeport-McMoRan Copper & Gold, Inc.
(Class B) 363,150
5,490 Rio Tinto Plc 250,624
-----------
$ 898,115
-----------
Fertilizers & Agricultural Chemicals - 0.7%
1,400 Syngenta AG* $ 174,105
-----------
Specialty Chemicals - 0.8%
4,300 Shin-Etsu Chemical Co., Ltd. $ 227,017
-----------
Steel - 1.5%
7,300 Companhia Vale do Rio Doce (A.D.R.) $ 264,625
13,200 Hitachi Metals, Ltd. 143,482
-----------
$ 408,107
-----------
Total Materials $ 2,250,092
-----------
Shares Value
Capital Goods - 12.3%
Building Products - 2.2%
23,000 Asahi Glass Co., Ltd. $ 294,160
2,600 Compagnie de Saint Gobain 154,560
3,200 Wienerberger AG 127,349
-----------
$ 576,069
-----------
Construction & Farm Machinery &
Heavy Trucks - 3.2%
13,700 Daewoo Heavy Industries &
Machinery, Ltd. $ 371,566
3,900 Hyundai Heavy Industries 296,725
12,000 Komatsu, Ltd. 200,750
-----------
$ 869,041
-----------
Heavy Electrical Equipment - 1.3%
50,000 Mitsubishi Electric Corp. $ 357,293
-----------
Industrial Conglomerates - 1.3%
1 KOC Holding AS $ 4
4,190 Siemens 358,876
-----------
$ 358,880
-----------
Industrial Machinery - 2.3%
8,600 Atlas Copco AB $ 191,468
2,600 Fanuc, Ltd. 222,519
16,000 Nabtesco Corp. 208,060
-----------
$ 622,047
-----------
Trading Companies & Distributors - 2.0%
20,800 Mitsui & Co., Ltd. $ 268,837
21,000 Sumitomo Corp. 270,103
-----------
$ 538,940
-----------
Total Capital Goods $ 3,322,270
-----------
Transportation - 2.8%
Air Freight & Couriers - 0.5%
4,800 TNT Post Group NV $ 149,927
-----------
Airport Services - 0.9%
22,100 BAA Plc $ 238,752
-----------
Railroads - 1.4%
55 East Japan Railway Co. $ 376,950
-----------
Total Transportation $ 765,629
-----------
Automobiles & Components - 4.8%
Auto Parts & Equipment - 1.0%
7,900 Denso Corp. $ 274,760
-----------
Automobile Manufacturers - 2.5%
2,700 Hyundai Motor Co., Ltd. $ 258,811
8,000 Toyota Motor Co. 418,246
-----------
$ 677,057
-----------
46 The accompanying notes are an integral part of these financial statements.
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Tires & Rubber - 1.3%
3,200 Compagnie Generale des
Etablissements Michelin $ 179,612
1,800 Continental AG 159,528
-----------
$ 339,140
-----------
Total Automobiles & Components $ 1,290,957
-----------
Consumer Durables & Apparel - 3.2%
Apparel, Accessories & Luxury Goods - 0.6%
650 Adidas-Salomon AG $ 122,961
3,385 Burberry Group Plc 24,787
-----------
$ 147,748
-----------
Consumer Electronics - 2.0%
8,200 Philips Electronics NV $ 254,658
6,900 Sony Corp. 281,540
-----------
$ 536,198
-----------
Footwear - 0.3%
300 Puma AG Rudolf Dassler Sport $ 87,496
-----------
Homebuilding - 0.3%
4,200 Persimmon Plc $ 90,426
-----------
Total Consumer Durables & Apparel $ 861,868
-----------
Consumer Services - 1.2%
Casinos & Gaming - 0.4%
3,300 Opap SA* $ 113,554
-----------
Hotels, Resorts & Cruise Lines - 0.8%
4,100 Carnival Corp. $ 219,227
-----------
Total Consumer Services $ 332,781
-----------
Media - 2.0%
Advertising - 0.7%
16,600 WPP Group Plc $ 179,208
-----------
Broadcasting & Cable TV - 0.8%
2,700 Grupo Televisa SA (A.D.R.) $ 217,350
-----------
Movies & Entertainment - 0.5%
4,500 Vivendi Universal $ 141,304
-----------
Total Media $ 537,862
-----------
Retailing - 2.2%
Apparel Retail - 0.6%
42,300 Truworths International, Ltd. $ 160,691
-----------
Catalog Retail - 0.6%
9,546 GUS Plc $ 169,174
-----------
Department Stores - 1.0%
15,700 Takashimaya Co., Ltd. $ 252,567
-----------
Total Retailing $ 582,432
-----------
Shares Value
Food & Drug Retailing - 3.0%
Food Retail - 0.9%
39,600 Tesco Plc $ 224,951
-----------
Hypermarkets & Supercenters - 2.1%
12,200 Aeon Co., Ltd. $ 311,771
4,000 Brasil Distr Pao Acu (A.D.R.) 131,600
300 Shinsegae Co., Ltd. 131,104
-----------
$ 574,475
-----------
Total Food & Drug Retailing $ 799,426
-----------
Food, Beverage & Tobacco - 2.1%
Packaged Foods & Meats - 2.1%
1,200 Nestle SA $ 358,118
13,000 Toyo Suisan Kaisha, Ltd. 209,437
-----------
$ 567,555
-----------
Total Food. Beverage & Tobacco $ 567,555
-----------
Health Care Equipment & Services - 0.8%
Health Care Equipment - 0.8%
1,900 Synthes, Inc. $ 213,215
-----------
Total Health Care Equipment &
Services $ 213,215
-----------
Pharmaceuticals & Biotechnology - 7.8%
Pharmaceuticals - 7.8%
5,800 Astellas Pharma, Inc. $ 224,865
7,032 AstraZeneca Plc 342,638
12,700 Daiichi Sankyo Co., Ltd.* 244,731
7,890 GlaxoSmithKline Plc 198,661
3,300 Novartis 173,197
3,538 Roche Holdings AG 530,957
1,400 Schering AG 93,727
5,500 Shire Pharmaceuticals Group Plc (A.D.R.) 213,345
1,400 UCB S.A. 65,715
-----------
$ 2,087,836
-----------
Total Pharmaceuticals &
Biotechnology $ 2,087,836
-----------
The accompanying notes are an integral part of these financial statements. 47
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- -------------------------------------------------------------------------------
Shares Value
Banks - 15.6%
Diversified Banks - 15.6%
14,700 Banco Bilbao Vizcaya Argentaria, SA $ 262,198
2,100 Banco Itau SA* 50,442
38,925 Barclays Plc 408,949
4,700 BNP Paribas SA 380,137
4,100 Commonwealth Bank of Australia 128,582
4,745 Credit Agricole SA 149,411
27,800 Development Bank of Singapore, Ltd. 275,764
18,200 HSBC Holding Plc 291,960
2,800 Kookmin Bank (A.D.R.) (b) 209,188
30 Mitsubishi UFJ Financial Group, Inc. 410,927
12,720 Royal Bank of Scotland Group Plc 384,065
3,019 Societe Generale 371,181
42 Sumitomo Mitsui Financial Group, Inc. 449,609
27,240 Turkiye Is Bankasi (Isbank) 235,782
3,100 Uniao de Bancos Brasileiros S.A.
(Unibanco) (G.D.R.) (144A) 197,067
-----------
$ 4,205,262
-----------
Total Banks $ 4,205,262
-----------
Diversified Financials - 5.9%
Asset Management & Custody Banks - 0.4%
1,300 Julius Baer Holding $ 92,034
-----------
Diversified Capital Markets - 3.4%
9,830 CS Group $ 500,808
1,400 Deutsche Bank AG 135,667
2,850 UBS AG 271,196
-----------
$ 907,671
-----------
Investment Banking & Brokerage - 0.6%
15,000 Daiwa Securities Group, Inc. $ 171,916
-----------
Diversified Financial Services - 1.5%
11,900 ING Groep N.V. $ 412,517
-----------
Total Diversified Financials $ 1,584,138
-----------
Insurance - 4.8%
Life & Health Insurance - 0.7%
4,900 China Life Insurance Co. (A.D.R.)*(b) $ 172,872
-----------
Multi-Line Insurance - 3.2%
18,100 Aviva Plc $ 218,548
10,900 AXA 352,059
1,380 Zurich Financial Services* 294,209
-----------
$ 864,816
-----------
Property & Casualty Insurance - 0.9%
19,500 Mitsui Sumitomo Insurance Co. $ 241,125
-----------
Total Insurance $ 1,278,813
-----------
Shares Value
Real Estate - 1.3%
Real Estate Management & Development - 1.3%
16,900 Mitsui Fudosan Co. $ 345,038
-----------
Total Real Estate $ 345,038
-----------
Software & Services - 1.2%
IT Consulting & Other Services - 1.2%
2,000 Nomura Research Institute, Ltd. $ 244,613
1,200 Atos Origin* 78,987
-----------
$ 323,600
-----------
Total Software & Services $ 323,600
-----------
Technology Hardware & Equipment - 3.3%
Communications Equipment - 1.1%
91,400 Ericsson LM $ 313,985
-----------
Computer Hardware - 1.1%
48,000 Toshiba Corp. $ 288,960
-----------
Office Electronics - 1.1%
5,000 Canon, Inc. $ 293,802
-----------
Total Technology Hardware &
Equipment $ 896,747
-----------
Semiconductors - 0.8%
19,500 Hon Hai Precision Industry (G.D.R.) $ 222,323
-----------
Total Semiconductors $ 222,323
-----------
Telecommunication Services - 4.4%
Integrated Telecommunication Services - 2.3%
13,000 France Telecom SA $ 322,853
6,923 Telefonica SA 104,117
5,000 Telekom Austria AG 112,210
10,500 Telekomunikacja Polska SA 75,609
-----------
$ 614,789
-----------
Wireless Telecommunication Services - 2.1%
115 NTT Mobile Communications, Inc. $ 175,974
4,000 Mobile Telesystems (A.D.R.) 140,000
112,411 Vodafone Group Plc 244,040
-----------
$ 560,014
-----------
Total Telecommunication Services $ 1,174,803
-----------
Utilities - 2.5%
Electric Utilities - 1.2%
3,333 E.On AG $ 344,756
-----------
Gas Utilities - 0.5%
31,000 Tokyo Gas Co., Ltd. $ 137,729
-----------
Multi-Utilities - 0.7%
20,446 National Grid Plc $ 199,152
-----------
Total Utilities $ 681,637
-----------
48 The accompanying notes are an integral part of these financial statements.
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
TOTAL COMMON STOCKS
(Cost $21,297,641) $26,815,527
-----------
TEMPORARY CASH INVESTMENT - 1.4%
Security Lending Collateral - 1.4%
372,684 Securities Lending Collateral Fund, 4.24% $ 372,684
-----------
TOTAL TEMPORARY CASH
INVESTMENT
(Cost $372,684) $ 372,684
-----------
TOTAL INVESTMENT IN
SECURITIES - 101.7%
(Cost $21,810,290)(a) $27,342,577
-----------
OTHER ASSETS
AND LIABILITIES - (1.7)% $ (440,853)
-----------
TOTAL NET ASSETS - 100.0% $26,901,724
===========
* Non-income producing security
(A.D.R.) American Depositary Receipt
(G.D.R.) Global Depositary Receipt
144A Security is exempt from registration under Rule 144A of the Securities
Act of 1933. Such securities may be resold normally to qualified
institutional buyers in a transaction exempt from registration. At
December 31, 2005, the value of these securities amounted to $197,067
or 0.7% of net assets.
(a) Distributions of investments by country of issue, as percentage of
total equity holdings (excluding temporary cash investments) is as
follows:
Japan 30.6%
France 16.3%
United Kingdom 15.9%
Switzerland 7.9%
Germany 5.4%
Spain 4.9%
Italy 4.2%
Netherlands 3.6%
South Korea 1.5
Ireland 1.5
Turkey 1.3
Brazil 1.1
Belgium 1.0
Australia 1.0
Other (individually less than 1%) 3.8
-----
100.0%
======
(b) At December 31, 2005, the following securities were out on loan:
Shares Security Market Value
4,580 China Life Insurance Co. (A.D.R.)* $161,582
2,660 Kookmin Bank (A.D.R.) 198,729
--------
Total $360,311
========
The accompanying notes are an integral part of these financial statements. 49
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
COMMON STOCKS - 88.8%
Energy - 12.6%
Coal & Consumable Fuels - 1.5%
8,100 Alpha Natural Resources, Inc.* $ 155,601
12,164 Massey Energy Co.(a) 460,651
-----------
$ 616,252
-----------
Integrated Oil & Gas - 0.5%
10,700 CNX Gas Corp. (144A)* $ 222,025
-----------
Oil & Gas Drilling - 2.4%
7,500 Bronco Drilling Co., Inc.* $ 172,575
11,775 Todco 448,157
7,019 Unit Corp.* 386,256
-----------
$ 1,006,988
-----------
Oil & Gas Equipment & Services - 2.7%
15,325 Gulfmark Offshore, Inc.* $ 453,927
32,661 Key Energy Services, Inc.* 439,944
6,440 Maverick Tube Corp.*(a) 256,698
-----------
$ 1,150,569
-----------
Oil & Gas Exploration & Production - 5.3%
5,075 Forest Oil Corp.* $ 231,268
7,200 Penn Virginia Corp. 413,280
17,500 Riata Energy, Inc. (144A)* 266,875
16,900 Rosetta Resources, Inc. (144A)* 304,200
26,346 Southwestern Energy Co.* 946,875
2,145 Swift Energy Co.* 96,675
-----------
$ 2,259,173
-----------
Oil & Gas Storage & Transportation - 0.2%
3,050 Arlington Tankers, Ltd. $ 66,338
-----------
Total Energy $ 5,321,345
-----------
Materials - 3.0%
Gold - 1.3%
34,450 Cambior, Inc.* $ 96,460
8,950 Glamis Gold, Ltd.* 245,946
29,700 IAMGOLD Corp. 232,254
-----------
$ 574,660
-----------
Paper Products - 0.4%
27,793 Domtar, Inc. $ 160,644
-----------
Specialty Chemicals - 0.3%
9,281 Chemtura Corp. $ 117,869
-----------
Steel - 1.0%
4,350 Carpenter Technology $ 306,545
9,571 NN, Inc. 101,453
-----------
$ 407,998
-----------
Total Materials $ 1,261,171
-----------
Shares Value
Capital Goods - 8.1%
Aerospace & Defense - 0.2%
6,633 NCI, Inc.* $ 91,071
-----------
Construction & Engineering - 0.9%
19,900 Insituform Technologies, Inc.* $ 385,463
-----------
Construction, Farm Machinery &
Heavy Trucks - 3.6%
13,400 Commercial Vehicle Group, Inc.* $ 251,652
12,720 Federal Signal Corp. 190,927
8,670 Joy Global, Inc. 346,800
2,344 Nacco Industries, Inc. 274,600
17,725 Wabtec Corp. 476,803
-----------
$ 1,540,782
-----------
Electrical Component & Equipment - 1.9%
13,700 C&D Technologies, Inc. $ 104,394
56,468 Graftech International, Ltd.*(a) 351,231
56,979 Power-One, Inc.* 343,014
-----------
$ 798,639
-----------
Industrial Machinery - 1.0%
10,775 Flowserve Corp.* $ 426,259
-----------
Trading Companies & Distributors - 0.5%
5,879 Applied Industrial Technologies, Inc. $ 198,064
-----------
Total Capital Goods $ 3,440,278
-----------
Commercial Services & Supplies - 4.5%
Diversified Commercial Services - 2.0%
25,385 Cornell Companies, Inc.* $ 350,821
4,700 Corrections Corporation of America* 211,359
35 Profit Recovery Group International* 21
7,823 School Specialty, Inc.* 285,070
-----------
$ 847,271
-----------
Human Resource & Employment Services - 2.5%
9,345 Korn/Ferry International* $ 174,658
51,175 On Assignment, Inc.* 558,319
11,700 Watson Wyatt Worldwide, Inc. 326,430
-----------
$ 1,059,407
-----------
Total Commercial Services &
Supplies $ 1,906,678
-----------
Transportation - 4.2%
Air Freight & Couriers - 0.8%
5,175 Forward Air Corp. $ 189,664
5,500 Pacer International, Inc. 143,330
-----------
$ 332,994
-----------
50 The accompanying notes are an integral part of these financial statements.
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Marine - 1.4%
5,800 Dryships, Inc.(a) $ 70,875
6,400 Eagle Bulk Shipping, Inc. 101,888
11,050 Excel Maritime Carriers, Ltd.* 126,523
5,450 Genco Shipping & Trading, Ltd. 95,048
18,900 Quintana Maritime, Ltd. 192,402
-----------
$ 586,736
-----------
Railroads - 1.0%
11,918 Genesee & Wyoming, Inc.* $ 446,925
-----------
Trucking - 1.0%
4,793 Dollar Thrifty Automotive Group* $ 172,882
10,750 Universal Truckload Services, Inc.* 247,250
-----------
$ 420,132
-----------
Total Transportation $ 1,786,787
-----------
Automobiles & Components - 0.4%
Tires & Rubber - 0.4%
10,900 Cooper Tire & Rubber* $ 166,988
-----------
Total Automobiles & Components $ 166,988
-----------
Consumer Durables & Apparel - 0.6%
Housewares & Specialties - 0.6%
8,505 Jarden Corp.*(a) $ 256,426
-----------
Total Consumer Durables & Apparel $ 256,426
-----------
Consumer Services - 0.8%
Casinos & Gaming - 0.4%
12,375 Alliance Gaming Corp.*(a) $ 161,123
-----------
Restaurants - 0.4%
11,719 O'Charley's, Inc.* $ 181,762
-----------
Total Consumer Services $ 342,885
-----------
Retailing - 3.9%
Apparel Retail - 0.4%
6,280 Stage Stores, Inc. $ 187,018
-----------
Catalog Retail - 1.7%
35,425 Insight Enterprises, Inc.* $ 694,684
-----------
Computer & Electronics Retail - 0.3%
21,650 Tweeter Home Entertainment Group, Inc.* $ 123,838
-----------
General Merchandise Stores - 0.6%
15,525 Fred's, Inc.(a) $ 252,592
-----------
Specialty Stores - 0.9%
28,582 Hancock Fabrics, Inc.(a) $ 116,329
41,355 Rent-Way, Inc.* 264,258
-----------
$ 380,587
-----------
Total Retailing $ 1,638,719
-----------
Shares Value
Food, Beverage & Tobacco - 1.2%
Agricultural Products - 0.6%
11,258 Fresh Del Monte Produce, Inc. (a) $ 256,345
-----------
Packaged Foods & Meats - 0.6%
18,175 B & G Foods, Inc. $ 263,901
-----------
Total Food, Beverage & Tobacco $ 520,246
-----------
Household & Personal Products - 1.8%
Personal Products - 1.8%
4,400 Herbalife, Ltd.* $ 143,088
5,875 NBTY, Inc.* 95,469
29,629 Nu Skin Enterprises, Inc. 520,876
-----------
$ 759,433
-----------
Total Household & Personal
Products $ 759,433
-----------
Health Care Equipment & Services - 5.8%
Health Care Equipment - 1.0%
9,100 Analogic Corp. $ 435,435
-----------
Health Care Facilities - 0.3%
3,358 Triad Hospitals, Inc.* $ 131,734
-----------
Health Care Services - 3.4%
7,106 Chemed Corp. $ 353,026
24,225 Cross Country Healthcares, Inc.* 430,721
3,527 Pediatrix Medical Group, Inc.* 312,386
12,350 Providence Service Corp.* 355,557
-----------
$ 1,451,690
-----------
Health Care Supplies - 0.4%
13,700 Merit Medical Systems, Inc.* $ 166,318
-----------
Managed Health Care - 0.7%
14,420 AMERIGROUP Corp.* $ 280,613
-----------
Total Health Care Equipment &
Services $ 2,465,790
-----------
Pharmaceuticals & Biotechnology - 0.2%
Biotechnology - 0.2%
2,455 Kendle International, Inc.* $ 63,192
-----------
Total Pharmaceuticals &
Biotechnology $ 63,192
-----------
Banks - 6.7%
Regional Banks - 4.9%
7,875 Alliance Bankshares Corp.* $ 126,079
33,550 Cardinal Financial Corp. 369,050
4,700 City National Corp. 340,468
5,650 Signature Bank* 158,596
3,100 Southwest Bancorp, Inc.* 62,000
40,100 Sterling Bancshares, Inc. 619,144
17,225 Texas Capital Bancshares, Inc.* 386,012
-----------
$ 2,061,349
-----------
The accompanying notes are an integral part of these financial statements. 51
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
Thrifts & Mortgage Finance - 1.8%
16,505 BankAtlantic Bancorp, Inc. $ 231,070
5,150 BankUnited Financial Corp.(a) 136,833
11,550 First Niagara Financial Group, Inc. 167,129
13,550 Provident Financial Services, Inc. 250,811
-----------
$ 785,843
-----------
Total Banks $ 2,847,192
-----------
Diversified Financials - 7.3%
Asset Management & Custody Banks - 1.2%
28,385 Apollo Investment Corp. $ 508,943
-----------
Consumer Finance - 2.5%
8,575 Advanta Corp. $ 258,365
9,203 Advanta Corp. (Class B) 298,545
10,025 Cash America International, Inc. 232,480
7,900 The First Marblehead Corp.(a) 259,594
-----------
$ 1,048,984
-----------
Investment Banking & Brokerage - 2.4%
7,550 A.G. Edwards, Inc. $ 353,793
12,600 OptionsXpress Holdings, Inc.(a) 309,330
9,175 Piper Jaffray Co's.* 370,670
-----------
$ 1,033,793
-----------
Specialized Finance - 1.2%
7,143 Financial Federal Corp. $ 317,506
5,075 Nasdaq Stock Market, Inc.* 178,539
-----------
$ 496,045
-----------
Total Diversified Financials $ 3,087,765
-----------
Insurance - 6.4%
Life & Health Insurance - 0.2%
6,600 American Equity Investment Life Holding* $ 86,130
-----------
Multi-Line Insurance - 1.4%
66,775 Quanta Capital Holdings (144A)* $ 340,553
10,200 Quanta Capital Holdings* 260,100
-----------
$ 600,653
-----------
Property & Casualty Insurance - 1.9%
21,575 Assured Guaranty, Ltd. $ 547,789
4,525 National Interstate Corp. 86,292
3,075 Selective Insurance Group, Inc. 163,283
-----------
$ 797,364
-----------
Reinsurance - 2.9%
18,126 IPC Holdings, Ltd. $ 496,290
11,700 Max Re Capital, Ltd. 303,846
8,500 Odyssey Re Holdings Corp.(a) 213,180
6,125 Platinum Underwriter Holdings, Ltd. 190,304
-----------
$ 1,203,620
-----------
Total Insurance $ 2,687,767
-----------
Shares Value
Real Estate - 3.6%
Real Estate Management & Development - 1.0%
32,300 Deerfield Triarc Capital Corp. $ 442,510
-----------
Real Estate Investment Trusts - 2.6%
15,913 BioMed Property Trust, Inc. $ 388,277
13,000 Capital Trust, Inc. 380,640
26,350 Feldman Mall Properties, Inc. 316,464
-----------
$ 1,085,381
-----------
Total Real Estate $ 1,527,891
-----------
Software & Services - 6.6%
Application Software - 3.5%
57,000 Aspen Technology, Inc.* $ 447,450
16,570 Bottomline Technologies, Inc.* 182,601
11,500 Sonic Solutions* 173,765
14,054 SPSS, Inc.* 434,690
34,200 TIBCO Software, Inc.* 255,474
-----------
$ 1,493,980
-----------
Data Processing & Outsourced Services - 0.7%
5,925 Intrado, Inc.* $ 136,394
19,742 Pegusus Systems, Inc.*(a) 177,086
-----------
$ 313,480
-----------
IT Consulting & Other Services - 0.4%
12,275 Gartner Group, Inc.* $ 158,348
-----------
Systems Software - 2.0%
56,450 Borland Software Corp.* $ 368,619
12,725 Internet Security Systems, Inc.* 266,589
8,575 Sybase, Inc.* 187,450
-----------
$ 822,658
-----------
Total Software & Services $ 2,788,466
-----------
Technology Hardware & Equipment - 7.5%
Communications Equipment - 2.8%
10,425 Black Box Corp. $ 493,937
13,250 Dycom Industries, Inc.* 291,500
1 Powerwave Technologies, Inc.* 13
46,500 Symmetricom, Inc.* 393,853
-----------
$ 1,179,303
-----------
Computer Hardware - 1.7%
13,300 Avid Technology, Inc.* $ 728,308
-----------
Computer Storage & Peripherals - 0.4%
6,160 Electronics for Imaging, Inc.* $ 163,918
-----------
Electronic Equipment & Instruments - 2.1%
17,600 Electro Scientific Industrials* $ 425,040
16,900 Planar Systems, Inc.*(a) 141,453
18,175 Technitrol, Inc. 310,793
-----------
$ 877,286
-----------
52 The accompanying notes are an integral part of these financial statements.
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Electronic Manufacturing Services - 0.5%
10,300 Mercury Computer Systems, Inc.* $ 212,489
-----------
Total Technology Hardware &
Equipment $ 3,161,304
-----------
Semiconductors - 0.8%
Semiconductor Equipment - 0.4%
11,000 Brooks Automation, Inc.* $ 137,830
-----------
Semiconductors - 0.4%
41,350 Lattice Semiconductor Corp.* $ 178,632
-----------
Total Semiconductors $ 316,462
-----------
Telecommunication Services - 1.0%
Integrated Telecommunication Services - 1.0%
40,200 Alaska Communications Systems
Group, Inc. $ 408,432
-----------
Total Telecommunication Services $ 408,432
-----------
Utilities - 1.8%
Gas Utilities - 1.8%
7,975 AGL Resources, Inc. $ 277,607
5,750 Energen Corp. 208,840
8,005 People's Energy Corp. 280,735
-----------
$ 767,182
-----------
Total Utilities $ 767,182
-----------
TOTAL COMMON STOCKS
(Cost $31,436,831) $37,522,399
-----------
EXCHANGE TRADED FUNDS - 2.1%
4,500 Russell 2000 Exchange Traded Fund (a) $ 300,105
4,500 Russell 2000 Growth Exchange
Traded Fund (a) 313,335
3,875 Russell 2000 Value Exchange
Traded Fund (a) 255,789
-----------
$ 869,229
-----------
TOTAL EXCHANGE TRADED FUNDS
(Cost $792,156) $ 869,229
-----------
Principal
Amount Value
TEMPORARY CASH INVESTMENTS - 16.6%
Repurchase Agreement - 7.5%
$ 3,200,000 UBS Warburg, Inc., 3.25%, dated
12/30/05, repurchase price of
$3,200,000 plus accrued interest on
1/3/06 collateralized by $3,336,000
U.S. Treasury Bill, 4.36%, 6/29/06 $ 3,200,000
-----------
Shares
Security Lending Collateral - 9.1%
3,838,966 Securities Lending Investment
Fund, 4.24% $ 3,838,966
-----------
TOTAL TEMPORARY CASH
INVESTMENTS
(Cost $7,038,966) $ 7,038,966
-----------
TOTAL INVESTMENT
IN SECURITIES - 107.5%
(Cost $39,267,953) $45,430,594
-----------
OTHER ASSETS
AND LIABILITIES - (7.5)% $(3,176,387)
-----------
TOTAL NET ASSETS - 100.0% $42,254,207
===========
* Non-income producing security.
144A Security is exempt from registration under Rule 144A of the Securities
Act of 1933. Such securities may be resold normally to qualified
institutional buyers in a transaction exempt from registration. At
December 31, 2005, the value of these securities amounted to $1,133,653
or 2.7% of total net assets.
(a) At December 31, 2005, the following securities were out on loan:
Shares Security Value
11,756 Alliance Gaming Corp.* $ 153,063
129 BankUnited Financial Corp. 3,428
5,460 Dryships, Inc. 66,721
10,720 The First Marblehead Corp. 352,259
14,749 Fred's, Inc. 239,966
8,260 Fresh Del Monte Produce, Inc. 188,080
25,380 Graftech International, Ltd.* 157,864
27,153 Hancock Fabrics, Inc. 110,513
8,080 Jarden Corp.* 243,612
11,556 Massey Energy Co. 437,626
6,118 Maverick Tube Corp.* 243,863
8,075 Odyssey Re Holdings Corp. 202,521
11,878 OptionsXpress Holdings, Inc. 291,605
14,301 Pegusus Systems, Inc.* 128,280
10,830 Planar Systems, Inc.* 90,647
4,225 Russell 2000 Exchange Traded Fund 281,765
4,275 Russell 2000 Growth Exchange
Traded Fund 297,668
3,276 Russell 2000 Value Exchange
Traded Fund 216,249
----------
Total $3,705,730
==========
The accompanying notes are an integral part of these financial statements. 53
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
COMMON STOCK - 96.5%
Energy - 8.8%
Oil & Gas Equipment & Services - 4.9%
4,400 Gulfmark Offshore, Inc.* $ 130,328
2,900 Lone Star Technologies, Inc.* 149,814
3,500 Maverick Tube Corp.*(a) 139,510
3,200 NS Group, Inc.* 133,792
3,100 Offshore Logistics, Inc.* 90,520
-----------
$ 643,964
-----------
Oil & Gas Exploration & Production - 3.4%
2,425 Forest Oil Corp.* $ 110,507
2,900 Swift Energy Co.* 130,703
2,100 Stone Energy Corp.* 95,613
2,000 Houston Exploration Co.* 105,600
-----------
$ 442,423
-----------
Oil & Gas Storage & Transportation - 0.5%
1,300 Overseas Shipholding Group, Inc. $ 65,507
-----------
Total Energy $ 1,151,894
-----------
Materials - 5.4%
Aluminum - 0.9%
4,500 Century Aluminum Co.* $ 117,945
-----------
Construction Materials - 1.0%
2,950 Mega Bloks, Inc. (144A)* $ 70,068
1,200 Texas Industries, Inc. 59,808
-----------
$ 129,876
-----------
Diversified Chemical - 0.8%
2,100 FMC Corp.* $ 111,657
-----------
Diversified Metals & Mining - 0.6%
4,900 Brush Engineered Materials, Inc.* $ 77,910
-----------
Specialty Chemicals - 1.2%
2,800 H.B. Fuller Co. $ 89,796
9,700 PolyOne Corp.* 62,371
-----------
$ 152,167
-----------
Steel - 0.9%
1,600 Carpenter Technology $ 112,752
-----------
Total Materials $ 702,307
-----------
Capital Goods - 10.8%
Aerospace & Defense - 1.5%
5,600 Hexcel Corp.* $ 101,080
7,300 Orbital Sciences Corp.* 93,732
-----------
$ 194,812
-----------
Shares Value
Construction & Farm Machinery &
Heavy Trucks - 5.5%
4,500 AGCO Corp.* $ 74,565
6,700 Commercial Vehicle Group, Inc.* 125,826
5,100 Federal Signal Corp. 76,551
800 Nacco Industries, Inc. 93,720
2,000 Terex Corp.* 118,800
2,400 The Toro Co. 105,048
4,400 Wabtec Corp. 118,360
-----------
$ 712,870
-----------
Electrical Component & Equipment - 1.1%
23,700 Power-One, Inc.* $ 142,674
-----------
Industrial Machinery - 2.7%
3,200 Albany International Corp. $ 115,712
3,100 Flowserve Corp.* 122,636
2,175 Kennametal, Inc. 111,012
-----------
$ 349,360
-----------
Total Capital Goods $ 1,399,716
-----------
Commercial Services & Supplies - 3.9%
Commercial Printing - 1.4%
1,800 Consolidated Graphics, Inc.* $ 85,212
2,575 John H. Harland Co. 96,820
-----------
$ 182,032
-----------
Diversified Commercial Services - 0.8%
2,301 The Brinks Co. $ 110,241
-----------
Human Resource & Employment Services - 1.7%
3,200 Administaff, Inc.(a) $ 134,560
4,400 Korn/Ferry International* 82,236
-----------
$ 216,796
-----------
Total Commercial Services &
Supplies $ 509,069
-----------
Transportation - 4.2%
Air Freight & Couriers - 0.4%
2,100 Pacer International, Inc. $ 54,726
-----------
Railroads - 1.6%
3,400 Genesee & Wyoming, Inc.* $ 127,500
6,900 RailAmerica, Inc.* 75,831
-----------
$ 203,331
-----------
Trucking - 2.2%
2,300 Arkansas Best Corp.(a) $ 100,464
9,100 Swift Transportation Co., Inc.* 184,730
-----------
$ 285,194
-----------
Total Transportation $ 543,251
-----------
54 The accompanying notes are an integral part of these financial statements.
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Automobiles & Components - 0.8%
Auto Parts & Equipment - 0.8%
5,400 Aftermarket Technology Corp.* $ 104,976
-----------
Total Automobiles & Components $ 104,976
-----------
Consumer Durables & Apparel - 3.5%
Footwear - 2.2%
10,800 Skechers U.S.A.* $ 165,456
5,450 Wolverine World Wide, Inc. 122,407
-----------
$ 287,863
-----------
Housewares & Specialties - 1.2%
3,000 American Greetings Corp.(a) $ 65,910
3,375 Yankee Candle Co. 86,400
-----------
$ 152,310
-----------
Leisure Products - 0.1%
625 Mega Blocks* $ 14,845
-----------
Total Consumer Durables & Apparel $ 455,018
-----------
Consumer Services - 2.2%
Casinos & Gaming - 0.8%
3,900 Scientific Games Corp.* $ 106,392
-----------
Restaurants - 1.4%
5,000 O'Charley's, Inc.* $ 77,550
3,400 Rare Hospitality International, Inc.* 103,326
-----------
$ 180,876
-----------
Total Consumer Services $ 287,268
-----------
Media - 0.9%
Advertising - 0.9%
1,800 R.H. Donnelley Corp.* $ 110,916
-----------
Total Media $ 110,916
-----------
Retailing - 2.7%
Apparel Retail - 2.7%
7,100 Charming Shoppes, Inc.* $ 93,720
2,300 Guess?, Inc.* 81,880
5,850 Stage Stores, Inc. 174,213
-----------
$ 349,813
-----------
Total Retailing $ 349,813
-----------
Food, Beverage & Tobacco - 1.4%
Packaged Foods & Meats - 1.4%
2,400 Lancaster Colony Corp. $ 88,920
2,139 The J.M. Smucker Co. 94,116
-----------
$ 183,036
-----------
Total Food, Beverage & Tobacco $ 183,036
-----------
Household & Personal Products - 1.5%
Household Products - 0.8%
2,300 Central Garden & Pet Co.* $ 105,662
-----------
Shares Value
Personal Products - 0.7%
5,050 Nu Skin Enterprises, Inc. $ 88,779
-----------
Total Household & Personal
Products $ 194,441
-----------
Health Care Equipment & Services - 11.1%
Health Care Equipment - 0.8%
4,300 Steris Corp. $ 107,586
-----------
Health Care Facilities - 3.0%
2,500 Kindred Healthcare, Inc.* $ 64,400
2,500 Lifepoint Hospitals, Inc.* 93,750
3,804 Sunrise Senior Living, Inc.*(a) 128,233
2,100 Universal Health Services, Inc. (Class B) 98,154
-----------
$ 384,537
-----------
Health Care Services - 4.9%
2,000 Cerner Corp.*(a) $ 181,820
1,200 Chemed Corp. 59,616
9,000 eResearch Technology, Inc.*(a) 135,900
3,900 Lifeline Systems, Inc.* 142,584
1,325 Pediatrix Medical Group, Inc.* 117,355
-----------
$ 637,275
-----------
Health Care Supplies - 1.3%
1,975 Haemonetics Corp.* $ 96,499
5,800 Merit Medical Systems, Inc.* 70,412
-----------
$ 166,911
-----------
Managed Health Care - 1.1%
3,500 Amerigroup Corp.* $ 68,110
1,356 Coventry Health Care, Inc* 77,238
-----------
$ 145,348
-----------
Total Health Care Equipment &
Services $ 1,441,657
-----------
Pharmaceuticals & Biotechnology - 3.8%
Biotechnology - 3.2%
7,425 Cubist Pharmaceuticals, Inc.* $ 157,781
7,300 InterMune, Inc.*(a) 122,640
7,100 Serologicals Corp.*(a) 140,154
-----------
$ 420,575
-----------
Pharmaceuticals - 0.6%
5,100 Connetics Corp.* $ 73,695
-----------
Total Pharmaceuticals &
Biotechnology $ 494,270
-----------
Banks - 7.1%
Regional Banks - 2.4%
4,700 Community Bank System, Inc. $ 105,985
3,200 Provident Bankshares Corp. 108,064
4,400 Susquehanna Bancshares, Inc. 104,192
-----------
$ 318,241
-----------
The accompanying notes are an integral part of these financial statements. 55
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
Thrifts & Mortgage Finance - 4.7%
4,300 BankAtlantic Bancorp, Inc. $ 60,200
3,100 BankUnited Financial Corp.(a) 82,367
5,000 Commercial Capital Bankcorp, Inc. 85,600
4,500 Charter Municipal Mortgage
Acceptance Co. 95,310
6,800 First Niagara Financial Group, Inc. 98,396
4,800 Provident Financial Services, Inc. 88,848
2,125 Webster Financial Corp. 99,663
-----------
$ 610,384
-----------
Total Banks $ 928,625
-----------
Diversified Financials - 1.8%
Asset Management & Custody Banks - 0.8%
6,078 Apollo Investment Corp. $ 108,979
-----------
Consumer Finance - 1.0%
4,078 Advanta Corp. (Class B) $ 132,290
-----------
Total Diversified Financials $ 241,269
-----------
Insurance - 3.9%
Life & Health Insurance - 0.3%
3,000 American Equity Investment Life Holding* $ 39,150
-----------
Property & Casualty Insurance - 1.9%
5,600 Assured Guaranty, Ltd. $ 142,184
2,900 Infinity Property & Casualty Corp. 107,909
-----------
$ 250,093
-----------
Reinsurance - 1.7%
4,800 IPC Holdings, Ltd. $ 131,424
3,400 Max Re Capital, Ltd. 88,298
-----------
$ 219,722
-----------
Total Insurance $ 508,965
-----------
Real Estate - 5.4%
Real Estate Management & Development - 0.8%
7,000 Deerfield Triarc Capital Corp. $ 95,900
-----------
Real Estate Investment Trusts - 4.6%
8,500 Anworth Mortgage Asset Corp. $ 62,050
4,577 BioMed Property Trust, Inc. 111,679
2,550 Capital Trust, Inc. 74,664
2,800 Heritage Property Investment Trust(a) 93,520
10,000 MFA Mortgage Investments, Inc. 57,000
2,800 Newcastle Investment Corp. 69,580
1,600 Redwood Trust, Inc.(a) 66,016
5,900 Saxon Capital, Inc. 66,847
-----------
$ 601,356
-----------
Total Real Estate $ 697,256
-----------
Shares Value
Software & Services - 7.3%
Application Software - 4.0%
16,600 Parametric Technology Co.* $ 101,260
8,500 Sonic Solutions* 128,435
5,000 SPSS, Inc.* 154,650
10,400 TIBCO Software, Inc.* 77,688
2,300 Net 1 UEPS Technologies, Inc.* 66,355
-----------
$ 528,388
-----------
Data Processing & Outsourced Services - 0.6%
5,700 The BISYS Group, Inc.* $ 79,857
-----------
Internet Software & Services - 1.1%
7,000 Earthlink, Inc.*(a) $ 77,770
12,300 Skillsoft PLC* 67,650
-----------
$ 145,420
-----------
IT Consulting & Other Services - 1.0%
9,900 Gartner Group, Inc.* $ 127,710
-----------
Systems Software - 0.6%
3,500 Internet Security Systems, Inc* $ 73,325
-----------
Total Software & Services $ 954,700
-----------
Technology Hardware & Equipment - 4.7%
Communications Equipment - 2.8%
6,300 AudioCodes, Ltd.* $ 69,930
2,800 Black Box Corp. 132,664
4,800 CommScope, Inc.* 96,624
7,700 Packeteer, Inc.* 59,829
-----------
$ 359,047
-----------
Electronic Equipment & Instruments - 1.3%
7,575 Aeroflex, Inc.* $ 81,431
5,400 Technitrol, Inc. 92,340
-----------
$ 173,771
-----------
Technology Distributors - 0.6%
4,400 Agilysys, Inc. $ 80,168
-----------
Total Technology Hardware &
Equipment $ 612,986
-----------
Semiconductors - 1.8%
Semiconductor Equipment - 0.5%
2,500 ADE Corp.* $ 60,150
-----------
Semiconductors - 1.3%
22,000 Lattice Semiconductor Corp.* $ 95,040
500 PortalPlayer, Inc.* 14,160
3,300 Semtech Corp.* 60,258
-----------
$ 169,458
-----------
Total Semiconductors $ 229,608
-----------
56 The accompanying notes are an integral part of these financial statements.
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Telecommunication Services - 0.7%
Integrated Telecommunication Services - 0.7%
9,400 Alaska Communications Systems
Group, Inc. $ 95,504
-----------
Total Telecommunication Services $ 95,504
-----------
Utilities - 2.8%
Electric Utilities - 0.7%
3,100 IDACORP, Inc. $ 90,830
-----------
Gas Utilities - 1.3%
4,600 Atmos Energy Corp. $ 120,336
1,500 People's Energy Corp. 52,605
-----------
$ 172,941
-----------
Multi-Utilities - 0.8%
2,100 CH Energy Group, Inc. $ 96,389
-----------
Total Utilities $ 360,160
-----------
TOTAL COMMON STOCKS
(Cost $11,616,160) $12,556,705
-----------
TEMPORARY CASH INVESTMENT - 10.7%
Security Lending Collateral - 10.7%
1,399,038 Securities Lending Investment
Fund, 4.24% $ 1,399,038
-----------
TOTAL TEMPORARY CASH
INVESTMENT
(Cost $1,399,038) $ 1,399,038
-----------
TOTAL INVESTMENT
IN SECURITIES - 107.2%
(Cost $13,015,198) $13,955,743
-----------
OTHER ASSETS
AND LIABILITIES - (7.2)% $ (939,304)
-----------
TOTAL NET ASSETS - 100.0% $13,016,439
===========
* Non-income producing security
144A Security is exempt from registration under Rule 144A of the Securities
Act of 1933. Such securities may be resold normally to qualified
institutional buyers in a transaction exempt from registration. At
December 31, 2005, the value of these securities amounted to $70,068 or
0.5% of net assets.
(a) At December 31, 2005, the following securities were out on loan:
Shares Security Market Value
3,040 Administaff, Inc. $ 127,832
2,850 American Greetings Corp. 62,615
2,185 Arkansas Best Corp. 95,441
2,945 BankUnited Financial Corp. 78,249
1,900 Cerner Corp.* 172,729
6,650 Earthlink, Inc.* 73,882
8,550 eResearch Technology, Inc.* 129,105
2,660 Heritage Property Investment Trust 88,844
6,935 InterMune, Inc.* 116,508
3,325 Maverick Tube Corp.* 132,535
1,520 Redwood Trust, Inc. 62,715
4,370 Serologicals Corp.* 86,264
3,614 Sunrise Senior Living, Inc.* 121,828
----------
Total $1,348,547
==========
The accompanying notes are an integral part of these financial statements. 57
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
COMMON STOCKS - 97.5%
Energy - 6.5%
Integrated Oil & Gas - 1.2%
54,709 Occidental Petroleum Corp. $ 4,370,155
------------
Oil & Gas Drilling - 1.9%
49,417 ENSCO International, Inc. $ 2,191,644
30,185 Nabors Industries, Inc.* 2,286,514
38,054 Transocean Offshore Inc.* 2,651,983
------------
$ 7,130,141
------------
Oil & Gas Equipment & Services - 0.6%
62,552 Weatherford International, Inc.* $ 2,264,382
------------
Oil & Gas Exploration & Production - 2.0%
44,700 Apache Corp. $ 3,062,844
74,583 Devon Energy Corp. 4,664,421
------------
$ 7,727,265
------------
Oil & Gas Refining & Marketing - 0.8%
49,004 Tesoro Petroleum Corp. $ 3,016,196
------------
Total Energy $ 24,508,139
------------
Materials - 8.5%
Aluminum - 0.7%
128,762 Novelis, Inc. $ 2,689,838
------------
Diversified Chemical - 2.4%
104,959 Ashland, Inc. $ 6,077,126
52,892 PPG Industries, Inc. 3,062,447
------------
$ 9,139,573
------------
Diversified Metals & Mining - 0.9%
65,617 Freeport-McMoRan Copper & Gold, Inc.
(Class B) $ 3,530,195
------------
Industrial Gases - 1.9%
121,072 Air Products & Chemicals, Inc. $ 7,166,252
------------
Metal & Glass Containers - 1.8%
169,126 Ball Corp. $ 6,717,685
------------
Specialty Chemicals - 0.8%
88,600 International Flavor & Fragrances, Inc. $ 2,968,100
------------
Total Materials $ 32,211,643
------------
Capital Goods - 4.7%
Building Products - 1.1%
107,688 American Standard Companies, Inc. $ 4,302,136
------------
Construction & Farm Machinery &
Heavy Trucks - 1.6%
90,236 Deere & Co. $ 6,145,974
------------
Trading Companies & Distributors - 2.0%
104,736 W.W. Grainger, Inc. $ 7,446,730
------------
Total Capital Goods $ 17,894,840
------------
Shares Value
Commercial Services & Supplies - 4.1%
Commercial Printing - 1.1%
117,383 R.R. Donnelley & Sons Company $ 4,015,672
------------
Diversified Commercial Services - 1.0%
59,311 The Dun & Bradstreet Corp.* $ 3,971,465
------------
Environmental & Facilities Services - 2.0%
196,163 Republic Services, Inc. $ 7,365,921
------------
Total Commercial Services &
Supplies $ 15,353,058
------------
Transportation - 0.8%
Railroads - 0.8%
39,220 Canadian National Railway Co. $ 3,137,208
------------
Total Transportation $ 3,137,208
------------
Consumer Durables & Apparel - 1.6%
Apparel, Accessories & Luxury Goods - 0.6%
65,399 Liz Claiborne, Inc. $ 2,342,592
------------
Photographic Products - 1.0%
153,473 Eastman Kodak Co. $ 3,591,268
------------
Total Consumer Durables & Apparel $ 5,933,860
------------
Consumer Services - 2.3%
Casinos & Gaming - 1.0%
52,800 Harrah's Entertainment Inc.* $ 3,764,112
------------
Hotels, Resorts & Cruise Lines - 1.3%
105,169 Royal Caribbean Cruises, Ltd. $ 4,738,915
------------
Total Consumer Services $ 8,503,027
------------
Media - 4.3%
Advertising - 1.6%
602,480 The Interpublic Group of Companies, Inc.* $ 5,813,932
------------
Broadcasting & Cable TV - 2.4%
139,602 Clear Channel Communications, Inc. $ 4,390,483
153,915 Entercom Communications Corp.* 4,566,658
------------
$ 8,957,141
------------
Movies & Entertainment - 0.3%
17,450 CCE Spinco, Inc.* $ 228,598
55,602 Regal Entertainment Group 1,057,550
------------
$ 1,286,148
------------
Total Media $ 16,057,221
------------
Retailing - 4.8%
Apparel Retail - 2.1%
335,943 Foot Locker, Inc. $ 7,924,895
------------
Department Stores - 1.2%
68,861 Federated Department Stores, Inc. $ 4,567,550
------------
58 The accompanying notes are an integral part of these financial statements.
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Internet Retail - 1.5%
235,308 Expedia, Inc.* $ 5,637,980
------------
Total Retailing $ 18,130,425
------------
Food & Drug Retailing - 4.4%
Drug Retail - 0.9%
137,150 CVS Corp. $ 3,623,503
------------
Food Retail - 1.9%
301,888 Safeway, Inc. $ 7,142,670
------------
Hypermarkets & Supercenters - 1.6%
203,373 BJ'S Wholesale Club, Inc.* $ 6,011,706
------------
Total Food & Drug Retailing $ 16,777,879
------------
Food, Beverage & Tobacco - 3.5%
Brewers - 1.4%
78,521 Molson Coors Brewing Co. (Class B) $ 5,260,122
------------
Packaged Foods & Meats - 0.9%
99,025 H.J. Heinz Co., Inc. $ 3,339,123
------------
Tobacco - 1.2%
108,700 UST, Inc.* $ 4,438,221
------------
Total Food, Beverage & Tobacco $ 13,037,466
------------
Health Care Equipment & Services - 7.7%
Health Care Distributors - 0.5%
39,279 McKesson Corp. $ 2,026,404
------------
Health Care Equipment - 1.4%
223,800 Boston Scientific Corp.* $ 5,480,862
------------
Health Care Facilities - 1.8%
511,379 Tenet Healthcare Corp.* $ 3,917,163
69,324 Triad Hospitals, Inc.* 2,719,581
------------
$ 6,636,744
------------
Health Care Services - 2.6%
99,752 Laboratory Corp. of America Holdings* $ 5,371,645
174,900 IMS Health, Inc. 4,358,508
------------
$ 9,730,153
------------
Managed Health Care - 1.4%
46,104 CIGNA Corp. $ 5,149,817
------------
Total Health Care Equipment &
Services $ 29,023,980
------------
Pharmaceuticals & Biotechnology - 2.2%
Pharmaceuticals - 2.2%
254,423 Perrigo Co. $ 3,793,447
118,356 Shire Pharmaceuticals Group Plc (A.D.R.) 4,591,029
------------
$ 8,384,476
------------
Total Pharmaceuticals &
Biotechnology $ 8,384,476
------------
Shares Value
Banks - 7.5%
Regional Banks - 5.0%
55,456 City National Corp. $ 4,017,233
138,015 Key Corp. 4,544,834
79,900 Marshall & Ilsley Corp. 3,438,896
124,594 North Fork Bancorporation, Inc. 3,408,892
45,365 Zions Bancorporation 3,427,779
------------
$ 18,837,634
------------
Thrifts & Mortgage Finance - 2.5%
203,001 Hudson City Bancorp, Inc. $ 2,460,372
170,089 The PMI Group, Inc. 6,985,555
------------
$ 9,445,927
------------
Total Banks $ 28,283,561
------------
Diversified Financials - 6.4%
Asset Management & Custody Banks - 3.9%
204,104 Federated Investors, Inc.* $ 7,560,012
205,849 Mellon Bank Corp. 7,050,328
------------
$ 14,610,340
------------
Investment Banking & Brokerage - 2.5%
72,884 A.G. Edwards, Inc. $ 3,415,344
51,391 Bear Stearns Companies Inc. 5,937,202
------------
$ 9,352,546
------------
Total Diversified Financials $ 23,962,886
------------
Insurance - 9.2%
Insurance Brokers - 2.4%
138,300 Marsh & McLennan Co., Inc. $ 4,392,408
122,846 Willis Group Holdings, Ltd. 4,537,931
------------
$ 8,930,339
------------
Life & Health Insurance - 1.6%
263,381 UNUM Corp. $ 5,991,918
------------
Multi-Line Insurance - 2.1%
108,160 Assurant, Inc. $ 4,703,878
92,400 Genworth Financial, Inc. 3,195,192
------------
$ 7,899,070
------------
Property & Casualty Insurance - 2.1%
79,183 Safeco Corp. $ 4,473,840
6,598 White Mountains Insurance Group, Ltd. 3,685,313
------------
$ 8,159,153
------------
Reinsurance - 1.0%
121,292 Platinum Underwriter Holdings Corp. $ 3,768,542
------------
Total Insurance $ 34,749,022
------------
Software & Services - 1.5%
Data Processing & Outsourced Services - 1.5%
401,162 The BISYS Group, Inc.* $ 5,620,280
------------
Total Software & Services $ 5,620,280
------------
The accompanying notes are an integral part of these financial statements. 59
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
Technology Hardware & Equipment - 8.6%
Communications Equipment - 2.0%
79,159 Scientific-Atlanta, Inc. $ 3,409,378
370,949 Tellabs, Inc.* 4,043,344
------------
$ 7,452,722
------------
Computer Hardware - 1.4%
154,000 NCR Corp.* $ 5,226,760
------------
Computer Storage & Peripherals - 1.3%
105,471 Imation Corp. $ 4,859,049
------------
Electronic Equipment & Instruments - 2.1%
612,970 Symbol Technologies, Inc. $ 7,858,275
------------
Office Electronics - 1.8%
470,879 Xerox Corp.* $ 6,898,377
------------
Total Technology Hardware &
Equipment $ 32,295,183
------------
Telecommunication Services - 1.3%
Integrated Telecommunication Services - 1.3%
877,113 Cincinnati Bell, Inc.* $ 3,078,667
59,046 Century Telephone Enterprises, Inc. 1,957,965
------------
$ 5,036,632
------------
Total Telecommunication Services $ 5,036,632
------------
Utilities - 7.6%
Electric Utilities - 2.3%
98,300 Allegheny Energy, Inc.* $ 3,111,195
121,871 Edison Intl. 5,314,794
3,240 Entergy Corp. 222,426
------------
$ 8,648,415
------------
Independent Power Producer &
Energy Traders - 2.8%
95,237 Constellation Energy Group $ 5,485,651
103,656 NRG Energy, Inc.* 4,884,271
------------
$ 10,369,922
------------
Multi-Utilities - 2.5%
144,474 NSTAR $ 4,146,404
146,361 PG&E Corp. 5,432,920
------------
$ 9,579,324
------------
Total Utilities $ 28,597,661
------------
TOTAL COMMON STOCKS
(Cost $321,641,094) $367,498,447
------------
Principal
Amount Value
TEMPORARY CASH INVESTMENT - 1.9%
Repurchase Agreement - 1.9%
$ 7,000,000 UBS Warburg, Inc., 3.25% dated
12/31/05, repurchase price of
$7,000,000 plus accrued interest on
1/3/06 collateralized by $7,297,000
U.S. Treasury Bill, 4.2%, 6/29/06 $ 7,000,000
------------
TOTAL TEMPORARY CASH
INVESTMENT
(Cost $7,000,000) $ 7,000,000
------------
TOTAL INVESTMENT
IN SECURITIES - 99.4%
(Cost $328,641,094) $374,498,447
------------
OTHER ASSETS
AND LIABILITIES - 0.6% $ 2,555,530
------------
TOTAL NET ASSETS - 100.0% $377,053,977
============
* Non-income producing security
(A.D.R.) American Depositary Receipt
60 The accompanying notes are an integral part of these financial statements.
Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
COMMON STOCKS - 100.2%
Energy - 1.5%
Integrated Oil & Gas - 1.5%
2,600 Occidental Petroleum Corp. $ 207,688
10,000 Repsol SA (A.D.R.) 294,100
-----------
$ 501,788
-----------
Total Energy $ 501,788
-----------
Materials - 1.1%
Diversified Chemical - 1.1%
8,700 Dow Chemical Co. $ 381,234
-----------
Total Materials $ 381,234
-----------
Capital Goods - 11.1%
Aerospace & Defense - 3.0%
3,400 L-3 Communications Holdings, Inc. $ 252,790
13,500 United Technologies Corp. 754,785
-----------
$ 1,007,575
-----------
Building Products - 1.8%
15,600 American Standard Companies, Inc. $ 623,220
-----------
Construction, Farm Machinery &
Heavy Trucks - 1.6%
8,000 Deere & Co. $ 544,880
-----------
Industrial Conglomerates - 3.6%
6,800 3M Co. $ 527,000
24,200 Tyco International, Ltd. 698,412
-----------
$ 1,225,412
-----------
Industrial Machinery - 1.1%
4,300 Illinois Tool Works, Inc. (a) $ 378,357
-----------
Total Capital Goods $ 3,779,444
-----------
Commercial Services & Supplies - 0.7%
Diversified Commercial Services - 0.7%
3,500 The Dun & Bradstreet Corp.* $ 234,360
-----------
Total Commercial Services &
Supplies $ 234,360
-----------
Consumer Durables & Apparel - 1.7%
Apparel, Accessories & Luxury Goods - 0.8%
7,200 Liz Claiborne, Inc. $ 257,904
-----------
Housewares & Specialties - 0.9%
4,000 Fortune Brands, Inc.* $ 312,080
-----------
Total Consumer Durables & Apparel $ 569,984
-----------
Consumer Services - 1.4%
Education Services - 0.7%
7,479 Career Education Corp.* $ 252,192
-----------
Hotels, Resorts & Cruise Lines - 0.7%
4,400 Carnival Corp. $ 235,268
-----------
Total Consumer Services $ 487,460
-----------
Shares Value
Media - 4.2%
Advertising - 0.8%
3,200 Omnicom Group $ 272,416
-----------
Broadcasting & Cable TV - 3.4%
95,700 Liberty Media Corp.* 753,159
12,500 Viacom, Inc. (Class B) 407,500
-----------
$ 1,160,659
-----------
Total Media $ 1,433,075
-----------
Retailing - 5.8%
Apparel Retail - 2.7%
4,500 Abercrombie & Fitch Co. $ 293,310
27,200 TJX Companies, Inc. 631,856
-----------
$ 925,166
-----------
Home Improvement Retail - 3.1%
26,000 Home Depot, Inc. $ 1,052,480
-----------
Total Retailing $ 1,977,646
-----------
Food & Drug Retailing - 2.2%
Drug Retail - 2.2%
28,800 CVS Corp. $ 760,896
-----------
Total Food & Drug Retailing $ 760,896
-----------
Food, Beverage & Tobacco - 5.1%
Soft Drinks - 1.5%
6,900 Fomento Economico Mexicano SA de CV $ 500,319
-----------
Tobacco - 3.6%
16,600 Altria Group, Inc. $ 1,240,352
-----------
Total Food, Beverage & Tobacco $ 1,740,671
-----------
Household & Personal Products - 5.1%
Household Products - 3.4%
19,700 Procter & Gamble Co. $ 1,140,236
-----------
Personal Products - 1.7%
20,600 Avon Products, Inc. $ 588,130
-----------
Total Household & Personal
Products $ 1,728,366
-----------
Health Care Equipment & Services - 10.4%
Health Care Distributors - 2.1%
10,400 Cardinal Health, Inc. $ 715,000
-----------
Health Care Equipment - 6.3%
14,600 Biomet, Inc. $ 533,922
32,800 Boston Scientific Corp.* 803,272
12,330 Guidant Corp. 798,368
-----------
$ 2,135,562
-----------
Health Care Services - 0.8%
11,800 IMS Health, Inc. $ 294,056
-----------
The accompanying notes are an integral part of these financial statements. 61
Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
Health Care Supplies - 1.2%
7,800 Cooper Companies, Inc. $ 400,140
-----------
Total Health Care Equipment &
Services $ 3,544,758
-----------
Pharmaceuticals & Biotechnology - 13.4%
Biotechnology - 4.8%
16,058 Amgen, Inc.* $ 1,266,334
6,800 Gilead Sciences, Inc.* 357,884
-----------
$ 1,624,218
-----------
Pharmaceuticals - 8.6%
11,800 Astrazeneca Plc (A.D.R.) $ 573,480
21,700 IVAX Corp.* 679,861
20,000 Johnson & Johnson 1,202,000
15,092 Par Pharmaceutical Co., Inc.*(a) 472,983
-----------
$ 2,928,324
-----------
Total Pharmaceuticals &
Biotechnology $ 4,552,542
-----------
Banks - 0.9%
Diversified Banks - 0.9%
5,900 Wachovia Corp. $ 311,874
-----------
Total Banks $ 311,874
-----------
Diversified Financials - 2.3%
Diversified Financial Services - 2.3%
16,400 Citigroup, Inc. $ 795,892
-----------
Total Diversified Financials $ 795,892
-----------
Insurance - 2.5%
Multi-Line Insurance - 2.5%
12,300 American International Group, Inc. $ 839,229
-----------
Total Insurance $ 839,229
-----------
Software & Services - 13.8%
IT Consulting & Other Services - 1.0%
12,100 Accenture, Ltd. $ 349,327
-----------
Systems Software - 12.8%
39,100 Macrovision Corp.* $ 654,143
77,800 Microsoft Corp. 2,034,470
72,900 Oracle Corp.* 890,109
43,700 Symantec Corp.* 764,750
-----------
$ 4,343,472
-----------
Total Software & Services $ 4,692,799
-----------
Technology Hardware & Equipment - 11.7%
Communications Equipment - 7.8%
48,000 Avaya, Inc.* $ 512,160
83,800 Cisco Systems, Inc.* 1,434,656
16,300 Qualcomm, Inc. 702,204
-----------
$ 2,649,020
-----------
Shares Value
Computer Hardware - 3.9%
44,400 Dell, Inc.* $ 1,331,556
-----------
Total Technology Hardware &
Equipment $ 3,980,576
-----------
Semiconductors - 4.1%
Semiconductors - 4.1%
56,700 Intel Corp. $ 1,415,231
-----------
Total Semiconductors $ 1,415,231
-----------
Telecommunication Services - 1.2%
Wireless Telecommunication Services - 1.2%
19,400 Vodafone Group Plc (A.D.R.) $ 416,518
-----------
Total Telecommunication Services $ 416,518
-----------
TOTAL COMMON STOCKS
(Cost $33,251,207) $34,144,343
-----------
TEMPORARY CASH INVESTMENT - 2.4%
Security Lending Collateral - 2.4%
836,722 Securities Lending Investment
Fund, 4.24% $ 836,722
-----------
TOTAL TEMPORARY CASH
INVESTMENT
(Cost $836,722) $ 836,722
-----------
TOTAL INVESTMENT
IN SECURITIES - 102.6%
(Cost $34,087,929) $34,981,065
-----------
OTHER ASSETS
AND LIABILITIES - (2.6)% $ (899,380)
-----------
TOTAL NET ASSETS - 100.0% $34,081,685
===========
* Non-income producing security.
(A.D.R.) American Depositary Receipt.
(a) At December 31, 2005, the following securities were out on loan:
Shares Security Value
4,035 Illinois Tool Works, Inc. $355,040
14,337 Par Pharmaceutical Co., Inc.* 449,322
--------
Total $804,362
========
62 The accompanying notes are an integral part of these financial statements.
Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
COMMON STOCKS - 98.8%
Consumer Services - 5.7%
Hotels, Resorts & Cruise Lines - 5.7%
84,300 Hilton Hotels Corp. $ 2,032,473
57,000 Starwood Hotels & Resorts 3,640,020
------------
$ 5,672,493
------------
Total Consumer Services $ 5,672,493
------------
Real Estate - 93.1%
Real Estate Management & Development - 3.6%
122,000 Brookfield Properties Corp. $ 3,589,240
------------
Real Estate Investment Trusts - 89.5%
43,700 AMB Property Corp. (a) $ 2,148,729
31,000 Apartment Investment & Management Co. 1,173,970
95,000 Archstone Communities Trust 3,979,550
9,000 Arden Realty Group, Inc. 403,470
55,000 AvalonBay Communities, Inc. 4,908,750
32,500 BioMed Property Trust, Inc. 793,000
73,000 Boston Properties, Inc. 5,411,490
40,300 Brandywine Realty Trust 1,124,773
45,000 Camden Property Trust 2,606,400
16,000 Carramerica Realty Corp. 554,080
26,500 Corporate Office Properties 941,810
68,900 Developers Diversifies Realty Corp. 3,239,678
35,000 Duke Realty Investments, Inc. 1,169,000
8,000 Equity Lifestyle Properties, Inc. 356,000
46,000 Equity Office Properties Trust 1,395,180
107,000 Equity Residential Property Trust 4,185,840
24,300 Extra Space Storage, Inc.* 374,220
35,000 Federal Realty Investment Trust 2,122,750
15,800 First Potomac Realty Trust 420,280
68,000 General Growth Properties, Inc. (a) 3,195,320
13,500 Healthcare Realty Trust, Inc. 449,145
52,600 Highwoods Properties, Inc. 1,496,470
14,500 Hospitality Properties Trust 581,450
176,800 Host Marriott Corp. (a) 3,350,360
24,500 iStar Financial, Inc. 873,425
12,000 Kilroy Realty Corp. 742,800
67,000 Kimco Realty Corp. (a) 2,149,360
40,900 Kite Realty Group Trust 632,723
84,000 Liberty Property Trust 3,599,400
9,200 The Macerich Co. 617,688
12,500 Mills Corp. 524,250
Shares Value
30,200 Pan Pacific Retail Properties, Inc. $ 2,020,078
45,500 Prentiss Properties Trust 1,850,940
127,000 ProLogis Trust 5,933,440
22,000 PS Business Par, Inc. 1,082,400
44,000 Public Storage, Inc. 2,979,680
39,500 Regency Centers Corp. 2,328,525
17,500 Shurgard Storage Centers, Inc. 992,425
91,000 Simon Property Group, Inc. (a) 6,973,330
27,500 Spirit Finance Corp. 312,125
17,500 Strategic Hotel Capital, Inc. 360,150
67,000 Taubman Centers, Inc. 2,328,250
73,300 Trizec Properties, Inc. 1,680,036
57,000 United Dominion Realty Trust 1,336,080
40,000 Vornado Realty Trust 3,338,800
------------
$ 89,037,620
------------
Total Real Estate $ 92,626,860
------------
TOTAL COMMON STOCKS
(Cost $60,502,235) $ 98,299,353
------------
TEMPORARY CASH INVESTMENT - 17.7%
Security Lending Collateral - 17.7%
17,545,193 Securities Lending Investment
Fund, 4.24% $ 17,545,193
------------
TOTAL TEMPORARY CASH
INVESTMENT
(Cost $17,545,193) $ 17,545,193
------------
TOTAL INVESTMENT
IN SECURITIES - 116.5%
(Cost $78,047,428) $115,844,546
------------
OTHER ASSETS
AND LIABILITIES - (16.5)% $(16,375,292)
------------
TOTAL NET ASSETS - 100.0% $ 99,469,254
============
* Non-income producing security.
(a) At December 31, 2005, the following securities were out on loan:
Shares Security Value
40,650 AMB Property Corp. $ 1,998,761
64,400 General Growth Properties, Inc. 3,026,156
167,460 Host Marriott Corp. 3,173,367
64,350 Kimco Realty Corp. 2,064,348
89,100 Simon Property Group, Inc. 6,827,733
-----------
Total $17,090,365
===========
The accompanying notes are an integral part of these financial statements. 63
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
COMMON STOCKS - 100.0%
Energy - 7.0%
Integrated Oil & Gas - 5.4%
179,531 Chevron Corp. $ 10,191,975
88,025 ConocoPhillips 5,121,295
114,668 Exxon Mobil Corp. 6,440,902
63,625 Occidental Petroleum Corp. 5,082,365
------------
$ 26,836,537
------------
Oil & Gas Equipment & Services - 0.3%
42,162 Weatherford International, Inc.* $ 1,526,264
------------
Oil & Gas Exploration & Production - 1.3%
48,194 Apache Corp. $ 3,302,253
67,515 Pioneer Natural Resources Co. 3,461,494
------------
$ 6,763,747
------------
Total Energy $ 35,126,548
------------
Materials - 7.0%
Aluminum - 0.4%
72,726 Alcoa, Inc. $ 2,150,508
------------
Diversified Chemical - 1.2%
70,100 Dow Chemical Co. $ 3,071,782
44,427 E.I. du Pont de Nemours & Co. 1,888,148
20,057 PPG Industries, Inc. 1,161,300
------------
$ 6,121,230
------------
Diversified Metals & Mining - 3.6%
90,507 BHP Billiton, Ltd. (A.D.R.) $ 3,024,744
98,510 Inco, Ltd. 4,292,081
239,324 Rio Tinto Plc 10,930,255
------------
$ 18,247,080
------------
Gold - 0.2%
21,960 Newmont Mining Corp. $ 1,172,664
------------
Industrial Gases - 0.9%
25,334 Air Products & Chemicals, Inc. $ 1,499,519
53,762 Praxair, Inc. 2,847,236
------------
$ 4,346,755
------------
Paper Products - 0.3%
50,997 Meadwestvaco Corp. $ 1,429,446
------------
Specialty Chemicals - 0.3%
37,481 Ecolab, Inc. $ 1,359,436
------------
Steel - 0.1%
7,255 Allegheny Technologies, Inc. $ 261,760
------------
Total Materials $ 35,088,879
------------
Capital Goods - 9.5%
Aerospace & Defense - 3.0%
43,011 General Dynamics Corp. $ 4,905,405
181,953 United Technologies Corp. 10,172,992
------------
$ 15,078,397
------------
Shares Value
Building Products - 0.1%
8,309 Masco Corp. $ 250,849
------------
Construction & Farm Machinery &
Heavy Trucks - 3.7%
99,679 Caterpillar, Inc. $ 5,758,456
94,266 Deere & Co. 6,420,457
91,215 PACCAR, Inc. 6,314,814
------------
$ 18,493,727
------------
Electrical Component & Equipment - 1.2%
55,395 Emerson Electric Co. $ 4,138,007
29,606 Rockwell International Corp. 1,751,491
------------
$ 5,889,498
------------
Industrial Conglomerates - 1.3%
7,200 3M Co. $ 558,000
169,108 General Electric Co. 5,927,235
------------
$ 6,485,235
------------
Industrial Machinery - 0.2%
16,367 Parker Hannifin Corp. $ 1,079,567
------------
Total Capital Goods $ 47,277,273
------------
Transportation - 3.6%
Airlines - 0.5%
151,393 Southwest Airlines Co. $ 2,487,387
------------
Railroads - 3.1%
74,802 Burlington Northern, Inc. $ 5,297,478
222,911 Norfolk Southern Corp. 9,993,100
------------
$ 15,290,578
------------
Total Transportation $ 17,777,965
------------
Automobiles & Components - 2.5%
Auto Parts & Equipment - 1.5%
101,606 Johnson Controls, Inc. $ 7,408,093
------------
Automobile Manufacturers - 1.0%
628,984 Ford Motor Corp. $ 4,855,756
------------
Total Automobiles & Components $ 12,263,849
------------
Consumer Durables & Apparel - 0.2%
Apparel, Accessories & Luxury Goods - 0.2%
23,883 Liz Claiborne, Inc. $ 855,489
------------
Total Consumer Durables & Apparel $ 855,489
------------
Consumer Services - 0.1%
Restaurants - 0.1%
7,325 Tricon Global Restaurants, Inc. $ 343,396
------------
Total Consumer Services $ 343,396
------------
Media - 5.7%
Advertising - 0.7%
42,090 Omnicom Group $ 3,583,122
------------
64 The accompanying notes are an integral part of these financial statements.
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Movies & Entertainment - 0.8%
162,516 The Walt Disney Co. $ 3,895,509
------------
Publishing - 4.2%
41,058 Elsevier NV $ 573,242
100,160 Gannett Co. 6,066,691
125,263 John Wiley & Sons, Inc. 4,890,268
188,438 McGraw-Hill Co., Inc. 9,729,054
------------
$ 21,259,255
------------
Total Media $ 28,737,886
------------
Retailing - 6.8%
Apparel Retail - 0.2%
60,617 Gap Inc. $ 1,069,284
------------
Computer & Electronics Retail - 0.1%
9,295 GameStop Corp. (Class B)* $ 268,626
------------
Department Stores - 2.1%
50,178 Federated Department Stores, Inc. $ 3,328,307
193,453 Nordstrom, Inc. 7,235,142
------------
$ 10,563,449
------------
General Merchandise Stores - 1.9%
177,813 Target Corp. $ 9,774,381
------------
Home Improvement Retail - 1.9%
121,451 Home Depot, Inc. $ 4,916,336
70,792 Lowe's Companies, Inc. 4,718,995
------------
$ 9,635,331
------------
Specialty Stores - 0.6%
29,018 Barnes & Noble, Inc. $ 1,238,198
69,072 Staples, Inc. 1,568,625
------------
$ 2,806,823
------------
Total Retailing $ 34,117,894
------------
Food & Drug Retailing - 3.3%
Drug Retail - 2.1%
75,467 CVS Corp. $ 1,993,838
190,303 Walgreen Co. 8,422,811
------------
$ 10,416,649
------------
Food Distributors - 1.0%
161,566 Sysco Corp. $ 5,016,624
------------
Hypermarkets & Supercenters - 0.2%
19,649 Costco Wholesale Corp. $ 972,036
------------
Total Food & Drug Retailing $ 16,405,309
------------
Shares Value
Food, Beverage & Tobacco - 5.2%
Packaged Foods & Meats - 3.5%
83,259 Campbell Soup Co. $ 2,478,620
97,063 General Mills, Inc. 4,787,147
145,574 H.J. Heinz Co., Inc. 4,908,755
52,617 Hershey Foods Corp. 2,907,089
23,685 Kellogg Co. 1,023,666
73,473 Sara Lee Corp. 1,388,640
------------
$ 17,493,917
------------
Soft Drinks - 1.7%
146,681 PepsiCo, Inc. $ 8,665,913
------------
Total Food, Beverage & Tobacco $ 26,159,830
------------
Household & Personal Products - 1.7%
Household Products - 1.2%
96,982 Colgate-Palmolive Co. $ 5,319,463
14,255 Clorox Co. 810,967
------------
$ 6,130,430
------------
Personal Products - 0.5%
67,208 Estee Lauder Co.* $ 2,250,124
------------
Total Household & Personal
Products $ 8,380,554
------------
Health Care Equipment & Services - 2.6%
Health Care Equipment - 2.6%
28,200 C. R. Bard, Inc. $ 1,858,944
71,108 Becton, Dickinson & Co. 4,272,169
63,338 Biomet, Inc. 2,316,271
39,539 Medtronic, Inc. 2,276,260
21,100 St. Jude Medical, Inc.* 1,059,220
30,665 Stryker Corp. 1,362,446
------------
$ 13,145,310
------------
Total Health Care Equipment &
Services $ 13,145,310
------------
Pharmaceuticals & Biotechnology - 8.9%
Biotechnology - 0.8%
53,778 Amgen, Inc.* $ 4,240,933
------------
Pharmaceuticals - 8.1%
102,710 Abbott Laboratories $ 4,049,855
53,017 Barr Laboratorie, Inc.* 3,302,429
119,085 Bristol-Myers Squibb Co. 2,736,573
80,039 Eli Lilly & Co. 4,529,407
137,058 Johnson & Johnson 8,237,186
95,767 Merck & Co., Inc. 3,046,348
77,980 Novartis AG (A.D.R.) 4,092,390
103,100 Pfizer, Inc. 2,404,292
36,377 Roche Holdings AG (A.D.R.) 2,731,040
175,915 Schering-Plough Corp. 3,667,828
35,811 Teva Pharmaceutical Industries, Ltd. 1,540,231
------------
$ 40,337,579
------------
The accompanying notes are an integral part of these financial statements. 65
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
Total Pharmaceuticals &
Biotechnology $ 44,578,512
------------
Banks - 9.0%
Diversified Banks - 4.2%
66,429 Bank of America Corp. $ 3,065,698
235,635 U.S. Bancorp 7,043,130
39,577 Wachovia Corp. 2,092,040
140,973 Wells Fargo & Co. 8,857,334
------------
$ 21,058,202
------------
Regional Banks - 3.1%
13,577 Compass Bancshares, Inc. $ 655,633
83,035 First Horizon National Corp. 3,191,865
170,284 National City Corp. 5,716,434
55,102 SunTrust Banks, Inc. 4,009,222
21,817 Zions Bancorporation 1,648,493
------------
$ 15,221,647
------------
Thrifts & Mortgage Finance - 1.7%
34,700 Golden West Financial Corp. $ 2,290,200
146,301 Washington Mutual, Inc. 6,364,094
------------
$ 8,654,294
------------
Total Banks $ 44,934,143
------------
Diversified Financials - 6.1%
Asset Management & Custody Banks - 3.5%
22,545 Ameriprise Financial, Inc. $ 924,345
43,970 Federated Investors, Inc.* 1,628,649
104,482 State Street Corp. 5,792,482
124,803 T. Rowe Price Associates, Inc. 8,989,560
------------
$ 17,335,036
------------
Consumer Finance - 1.2%
112,725 American Express Co. $ 5,800,829
------------
Investment Banking & Brokerage - 0.8%
58,452 Merrill Lynch & Co., Inc. $ 3,958,954
------------
Diversified Financial Services - 0.6%
66,850 Citigroup, Inc. $ 3,244,231
------------
Total Diversified Financials $ 30,339,050
------------
Insurance - 2.4%
Multi-Line Insurance - 0.2%
13,522 Hartford Financial Services Group, Inc. $ 1,161,405
------------
Property & Casualty Insurance - 2.2%
20,832 ACE, Ltd. $ 1,113,262
40,815 Axis Capital Holdings, Ltd. 1,276,693
68,753 Chubb Corp. 6,713,730
34,082 Safeco Corp. 1,925,633
------------
$ 11,029,318
------------
Total Insurance $ 12,190,723
------------
Shares Value
Software & Services - 4.1%
Application Software - 0.7%
86,186 Adobe Systems, Inc. $ 3,185,435
------------
Data Processing & Outsourced Services - 2.2%
181,884 Automatic Data Processing, Inc. $ 8,346,657
25,841 DST Systems, Inc.* 1,548,134
28,113 Fiserv, Inc.* 1,216,450
------------
$ 11,111,241
------------
Systems Software - 1.2%
229,175 Microsoft Corp. $ 5,992,926
------------
Total Software & Services $ 20,289,602
------------
Technology Hardware & Equipment - 6.2%
Communications Equipment - 2.9%
139,000 Cisco Systems, Inc.* $ 2,379,680
313,651 Motorola, Inc. 7,085,375
274,102 Nokia Corp. (A.D.R.) 5,016,067
------------
$ 14,481,122
------------
Computer Hardware - 2.2%
106,976 Dell, Inc.* $ 3,208,210
176,511 Hewlett-Packard Co. 5,053,510
703,372 Sun Microsystems, Inc.* 2,947,129
------------
$ 11,208,849
------------
Computer Storage & Peripherals - 0.4%
134,374 EMC Corp.* $ 1,830,174
------------
Office Electronics - 0.7%
57,242 Canon, Inc. (A.D.R.) $ 3,367,547
------------
Total Technology Hardware &
Equipment $ 30,887,692
------------
Semiconductors - 3.0%
Semiconductor Equipment - 0.4%
96,070 Applied Materials, Inc. $ 1,723,495
------------
Semiconductors - 2.6%
20,845 Freescale Semiconductor, Inc. (Class B)* $ 524,669
236,129 Intel Corp. 5,893,780
211,248 Texas Instruments, Inc. 6,774,723
------------
$ 13,193,172
------------
Total Semiconductors $ 14,916,667
------------
Telecommunication Services - 3.7%
Integrated Telecommunication Services - 3.4%
279,088 AT&T Corp. $ 6,834,865
141,901 BellSouth Corp. 3,845,517
74,411 Century Telephone Enterprises, Inc. 2,467,468
129,130 Verizon Communications, Inc. 3,889,396
------------
$ 17,037,246
------------
66 The accompanying notes are an integral part of these financial statements.
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Wireless Telecommunication Services - 0.3%
23,216 Alltel Corp. $ 1,464,930
------------
Total Telecommunication Services $ 18,502,176
------------
Utilities - 1.5%
Electric Utilities - 0.5%
15,000 Exelon Corp. $ 797,100
56,177 Southern Co. 1,939,792
------------
$ 2,736,892
------------
Multi-Utilities - 1.0%
34,904 Consolidated Edison, Inc. $ 1,617,100
74,103 KeySpan Energy Corp. 2,644,736
13,700 PG&E Corp. 508,542
------------
$ 4,770,378
------------
Total Utilities $ 7,507,270
------------
TOTAL COMMON STOCKS
(Cost $396,395,153) $499,826,017
------------
TOTAL INVESTMENT
IN SECURITIES - 100.0%
(Cost $396,395,153) $499,826,017
------------
OTHER ASSETS
AND LIABILITIES - 0.0% $ (196,475)
------------
TOTAL NET ASSETS - 100.0% $499,629,542
============
(A.D.R.) American Depositary Receipt
* Non-income producing security
The accompanying notes are an integral part of these financial statements. 67
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
CONVERTIBLE PREFERRED STOCK - 0.5%
Automobiles & Components - 0.5%
Automobile Manufacturers - 0.5%
60,747 Ford Cap Trust, 6.5%, 1/15/32 $ 1,674,187
------------
Total Automobiles & Components $ 1,674,187
------------
Pharmaceuticals & Biotechnology - 0.0%
Pharmaceuticals - 0.0%
4,255 Schering-Plough Corp., 6.0%, 9/14/07 $ 227,643
------------
Total Pharmaceuticals &
Biotechnology $ 227,643
------------
TOTAL CONVERTIBLE
PREFERRED STOCK
(Cost $3,070,923) $ 1,901,830
------------
COMMON STOCK - 96.9%
Energy - 5.5%
Integrated Oil & Gas - 5.5%
144,649 Chevron Corp. $ 8,211,724
115,922 ConocoPhillips 6,744,342
84,898 Exxon Mobil Corp. 4,768,721
------------
$ 19,724,787
------------
Total Energy $ 19,724,787
------------
Materials - 7.0%
Construction Materials - 0.8%
40,637 Vulcan Materials Co. $ 2,753,157
------------
Diversified Chemical - 2.1%
73,300 Dow Chemical Co. $ 3,212,006
82,800 Olin Corp. 1,629,504
46,965 PPG Industries, Inc. 2,719,274
------------
$ 7,560,784
------------
Diversified Metals & Mining - 0.3%
43,156 Compass Minerals International, Inc. $ 1,059,048
------------
Industrial Gases - 1.2%
71,152 Air Products & Chemicals, Inc. $ 4,211,487
------------
Paper Products - 0.6%
79,793 Meadwestvaco Corp. $ 2,236,598
------------
Specialty Chemicals - 0.7%
105,965 Valspar Corp. $ 2,614,157
------------
Steel - 1.3%
61,162 Nucor Corp. (a) $ 4,080,729
24,009 Roanoke Electric Steel Corp. 566,612
------------
$ 4,647,341
------------
Total Materials $ 25,082,572
------------
Capital Goods - 9.1%
Aerospace & Defense - 1.6%
103,955 United Technologies Corp. $ 5,812,124
------------
Shares Value
Construction & Farm Machinery &
Heavy Trucks - 4.3%
38,489 Deere & Co. $ 2,621,486
185,643 PACCAR, Inc. 12,852,065
------------
$ 15,473,551
------------
Electrical Component & Equipment - 1.9%
91,501 Emerson Electric Co. $ 6,835,125
------------
Industrial Machinery - 1.3%
30,350 Gorman-Rupp Co. $ 671,039
117,902 The Timken Co. 3,775,222
------------
$ 4,446,261
------------
Total Capital Goods $ 32,567,061
------------
Transportation - 1.4%
Railroads - 1.4%
72,891 Burlington Northern, Inc. $ 5,162,141
------------
Total Transportation $ 5,162,141
------------
Automobiles & Components - 2.6%
Auto Parts & Equipment - 1.9%
93,560 Johnson Controls, Inc. $ 6,821,460
------------
Automobile Manufacturers - 0.7%
318,322 Ford Motor Corp. $ 2,457,446
------------
Total Automobiles & Components $ 9,278,906
------------
Consumer Durables & Apparel - 0.8%
Housewares & Specialties - 0.8%
123,380 Tupperware Brands Corp. $ 2,763,712
------------
Total Consumer Durables &
Apparel $ 2,763,712
------------
Consumer Services - 1.9%
Leisure Facilities - 1.5%
184,827 Cedar Fair, L.P. $ 5,274,963
------------
Specialized Consumer Services - 0.4%
134,841 Servicemaster Co. $ 1,611,350
------------
Total Consumer Services $ 6,886,313
------------
Media - 1.6%
Publishing - 1.6%
113,625 McGraw-Hill Co., Inc. $ 5,866,459
------------
Total Media $ 5,866,459
------------
Retailing - 1.5%
Department Stores - 1.1%
59,221 Federated Department Stores, Inc. $ 3,928,129
------------
Distributors - 0.4%
36,130 Genuine Parts Co. $ 1,586,830
------------
Total Retailing $ 5,514,959
------------
68 The accompanying notes are an integral part of these financial statements.
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Food & Drug Retailing - 0.4%
Food Retail - 0.4%
73,200 Albertson's, Inc. $ 1,562,820
------------
Total Food & Drug Retailing $ 1,562,820
------------
Food, Beverage & Tobacco - 5.0%
Packaged Foods & Meats - 3.6%
188,614 Campbell Soup Co. $ 5,615,039
60,831 General Mills, Inc. 3,000,185
94,243 H.J. Heinz Co., Inc. 3,177,874
59,974 Sara Lee Corp. 1,133,509
------------
$ 12,926,607
------------
Soft Drinks - 1.4%
72,855 Coca-Cola Co. $ 2,936,785
36,572 PepsiCo, Inc. 2,160,674
------------
$ 5,097,459
------------
Total Food, Beverage & Tobacco $ 18,024,066
------------
Household & Personal Products - 2.3%
Household Products - 2.3%
76,594 Colgate-Palmolive Co. $ 4,201,181
70,315 Clorox Co. 4,000,220
------------
$ 8,201,401
------------
Total Household & Personal
Products $ 8,201,401
------------
Health Care Equipment & Services - 0.7%
Health Care Equipment - 0.7%
41,439 Becton, Dickinson & Co. $ 2,489,655
------------
Total Health Care Equipment &
Services $ 2,489,655
------------
Pharmaceuticals & Biotechnology - 7.7%
Pharmaceuticals - 7.7%
123,566 Abbott Laboratories $ 4,872,207
227,507 Bristol-Myers Squibb Co. 5,228,111
74,039 Eli Lilly & Co. 4,189,867
73,265 Johnson & Johnson 4,403,227
260,932 Merck & Co., Inc. 8,300,247
36,900 Pfizer, Inc. 860,508
------------
$ 27,854,167
------------
Total Pharmaceuticals &
Biotechnology $ 27,854,167
------------
Banks - 13.8%
Diversified Banks - 4.7%
35,852 Bank of America Corp. $ 1,654,570
31,452 Comerica, Inc. 1,785,216
110,101 U.S. Bancorp 3,290,919
103,024 Wachovia Corp. 5,445,849
74,937 Wells Fargo & Co. 4,708,292
------------
$ 16,884,846
------------
Shares Value
Regional Banks - 6.1%
88,467 First Horizon National Corp. $ 3,400,671
123,911 National City Corp. 4,159,692
54,800 PNC Bank Corp. 3,388,284
94,678 SunTrust Banks, Inc. 6,888,771
144,505 Whitney Holding Corp. 3,982,558
------------
$ 21,819,976
------------
Thrifts & Mortgage Finance - 3.0%
250,458 Washington Mutual, Inc. $ 10,894,923
------------
Total Banks $ 49,599,745
------------
Diversified Financials - 5.7%
Asset Management & Custody Banks - 4.5%
152,899 Eaton Vance Corp. $ 4,183,317
34,424 State Street Corp. 1,908,467
139,943 T. Rowe Price Associates, Inc. 10,080,094
------------
$ 16,171,878
------------
Investment Banking & Brokerage - 0.7%
55,113 A.G. Edwards, Inc. $ 2,582,595
------------
Diversified Financial Services - 0.5%
37,890 Citigroup, Inc. $ 1,838,802
------------
Total Diversified Financials $ 20,593,275
------------
Insurance - 4.9%
Life & Health Insurance - 1.2%
72,900 Jefferson - Pilot Corp. $ 4,150,197
------------
Property & Casualty Insurance - 3.7%
71,246 Chubb Corp. $ 6,957,172
110,994 Safeco Corp. 6,271,161
------------
$ 13,228,333
------------
Total Insurance $ 17,378,530
------------
Real Estate - 1.3%
Real Estate Investment Trusts - 1.3%
56,454 Archstone Communities Trust $ 2,364,858
72,900 Kimco Realty Corp. 2,338,632
------------
$ 4,703,490
------------
Total Real Estate $ 4,703,490
------------
Software & Services - 0.6%
Data Processing & Outsourced Services - 0.6%
50,297 Automatic Data Processing, Inc. $ 2,308,129
------------
Total Software & Services $ 2,308,129
------------
Technology Hardware & Equipment - 0.3%
Computer Hardware - 0.3%
36,500 Hewlett-Packard Co. $ 1,044,995
------------
Total Technology Hardware &
Equipment $ 1,044,995
------------
The accompanying notes are an integral part of these financial statements. 69
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
Telecommunication Services - 8.4%
Integrated Telecommunication Services - 7.2%
305,096 AT&T Corp. $ 7,471,801
251,696 BellSouth Corp. 6,820,962
309,779 Citizens Utilities Co. (Class B) 3,788,597
254,800 Verizon Communications, Inc. 7,674,576
------------
$ 25,755,936
------------
Wireless Telecommunication Services - 1.2%
66,304 Alltel Corp. $ 4,183,782
------------
Total Telecommunication
Services $ 29,939,718
------------
Utilities - 14.4%
Electric Utilities - 2.6%
134,311 Great Plains Energy, Inc.(a) $ 3,755,336
157,858 Southern Co. 5,450,837
------------
$ 9,206,173
------------
Gas Utilities - 4.5%
19,070 Atmos Energy Corp. $ 498,871
124,038 Equitable Resources, Inc. 4,550,954
148,981 Questar Corp. 11,277,862
------------
$ 16,327,687
------------
Multi-Utilities - 7.3%
98,272 Ameren Corp. $ 5,035,457
94,780 Consolidated Edison, Inc. 4,391,157
158,706 KeySpan Energy Corp. 5,664,217
143,415 NSTAR 4,116,011
193,900 PG&E Corp. 7,197,561
------------
$ 26,404,403
------------
Total Utilities $ 51,938,263
------------
TOTAL COMMON STOCK
(Cost $291,121,572) $348,485,164
------------
Principal
Amount
TEMPORARY CASH INVESTMENTS - 3.3%
Repurchase Agreement - 1.8%
$6,300,000 UBS Warburg, Inc., 3.25% dated
12/31/05, repurchase price of
$6,300,000 plus accrued interest on
1/3/06 collateralized by $6,567,000
U.S. Treasury Bill, 3.25%, 6/29/06 $ 6,300,000
------------
Shares Value
Security Lending Collateral - 1.5%
5,595,647 Securities Lending
Collateral Fund, 4.24% $ 5,595,647
------------
TOTAL TEMPORARY CASH
INVESTMENTS
(Cost $11,895,647) $ 11,895,647
------------
TOTAL INVESTMENT
IN SECURITIES - 100.7%
(Cost $306,088,142) $362,282,641
------------
OTHER ASSETS
AND LIABILITIES - (0.7)% $ (2,575,311)
------------
TOTAL NET ASSETS - 100.0% $359,707,330
============
(a) At December 31, 2005, the following securities were out on loan:
Shares Security Market Value
58,299 Great Plains Energy, Inc. $ 1,630,040
56,659 Nucor Corp. 3,780,288
-----------
Total $ 5,410,328
===========
70 The accompanying notes are an integral part of these financial statements.
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
COMMON STOCKS - 64.7%
Energy - 5.0%
Integrated Oil & Gas - 0.5%
3,900 Exxon Mobil Corp. $ 219,063
------------
Oil & Gas Drilling - 2.0%
19,500 ENSCO International, Inc. $ 864,825
------------
Oil & Gas Equipment & Services - 2.0%
13,298 National-Oilwell Varco, Inc.* $ 833,785
------------
Oil & Gas Exploration & Production - 0.4%
2,700 Encana Corp. $ 121,932
1,100 Pioneer Natural Resources Co. 56,397
------------
$ 178,329
------------
Total Energy $ 2,096,002
------------
Materials - 4.5%
Gold - 2.1%
16,800 Newmont Mining Corp. $ 897,120
------------
Industrial Gases - 2.4%
19,000 Praxair, Inc. $ 1,006,240
------------
Total Materials $ 1,903,360
------------
Capital Goods - 4.6%
Aerospace & Defense - 3.1%
21,800 Northrop Grumman Corp. $ 1,310,398
------------
Industrial Conglomerates - 1.4%
7,900 3M Co. $ 612,250
------------
Total Capital Goods $ 1,922,648
------------
Commercial Services & Supplies - 0.5%
Diversified Commercial Services - 0.5%
4,600 Cintas Corp. $ 189,428
------------
Total Commercial Services &
Supplies $ 189,428
------------
Transportation - 2.0%
Air Freight & Couriers - 2.0%
11,200 United Parcel Service $ 841,680
------------
Total Transportation $ 841,680
------------
Consumer Durables & Apparel - 1.5%
Apparel, Accessories & Luxury Goods - 1.5%
18,100 Liz Claiborne, Inc. $ 648,342
------------
Total Consumer Durables & Apparel $ 648,342
------------
Media - 3.4%
Broadcasting & Cable TV - 3.4%
18,100 Comcast Corp.* 464,989
29,319 Viacom, Inc. (Class B) 955,799
------------
$ 1,420,788
------------
Total Media $ 1,420,788
------------
Shares Value
Retailing - 1.4%
Apparel Retail - 1.4%
20,500 Ross Stores, Inc. $ 592,450
------------
Total Retailing $ 592,450
------------
Food & Drug Retailing - 3.0%
Drug Retail - 2.7%
43,400 CVS Corp. $ 1,146,628
------------
Hypermarkets & Supercenters - 0.3%
2,500 Wal-Mart Stores, Inc. $ 117,000
------------
Total Food & Drug Retailing $ 1,263,628
------------
Food, Beverage & Tobacco - 6.4%
Brewers - 0.6%
5,900 Anheuser-Busch Companies, Inc. $ 253,464
------------
Packaged Foods & Meats - 1.7%
10,700 William Wrigley Jr. Co. $ 711,443
------------
Soft Drinks - 4.1%
10,000 Coca-Cola Co. $ 403,100
22,300 PepsiCo, Inc. 1,317,484
------------
$ 1,720,584
------------
Total Food, Beverage & Tobacco $ 2,685,491
------------
Household & Personal Products - 0.7%
Personal Products - 0.7%
9,300 Estee Lauder Co.* $ 311,364
------------
Total Household & Personal
Products $ 311,364
------------
Health Care Equipment & Services - 2.9%
Health Care Distributors - 1.0%
6,400 Cardinal Health, Inc. $ 440,000
------------
Health Care Equipment - 1.9%
11,100 Biomet, Inc. $ 405,927
6,000 Guidant Corp. 388,500
------------
$ 794,427
------------
Total Health Care Equipment &
Services $ 1,234,427
------------
Pharmaceuticals & Biotechnology - 7.5%
Biotechnology - 2.2%
11,616 Amgen, Inc.* $ 916,038
------------
Pharmaceuticals - 5.3%
4,000 Eli Lilly & Co. $ 226,360
22,900 IVAX Corp.* 717,457
20,788 Pfizer, Inc. 484,776
17,800 Wyeth 820,046
------------
$ 2,248,639
------------
Total Pharmaceuticals &
Biotechnology $ 3,164,677
------------
The accompanying notes are an integral part of these financial statements. 71
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
Banks - 1.3%
Diversified Banks - 1.3%
11,900 Bank of America Corp. $ 549,185
------------
Total Banks $ 549,185
------------
Diversified Financials - 3.4%
Asset Management & Custody Banks - 1.4%
960 Ameriprise Financial, Inc. $ 39,360
17,200 The Bank of New York Co., Inc. 547,820
------------
$ 587,180
------------
Consumer Finance - 1.5%
12,300 American Express Co. $ 632,958
------------
Investment Banking & Brokerage - 0.4%
2,900 Merrill Lynch & Co., Inc. $ 196,417
------------
Total Diversified Financials $ 1,416,555
------------
Insurance - 4.4%
Property & Casualty Insurance - 4.4%
485 Berkshire Hathaway, Inc. (Class B)* $ 1,423,718
3,700 Progressive Corp. 432,086
------------
$ 1,855,804
------------
Total Insurance $ 1,855,804
------------
Software & Services - 6.3%
Data Processing & Outsourced Services - 3.1%
30,500 First Data Corp. $ 1,311,805
------------
Shares Value
Systems Software - 3.2%
52,000 Microsoft Corp. $ 1,359,800
------------
Total Software & Services $ 2,671,605
------------
Technology Hardware & Equipment - 3.9%
Communications Equipment - 2.3%
12,900 Avaya, Inc.* $ 137,643
21,900 Cisco Systems, Inc.* 374,928
10,900 Qualcomm, Inc. 469,572
------------
$ 982,143
------------
Computer Hardware - 1.5%
21,622 Hewlett-Packard Co. $ 619,038
------------
Electronic Manufacturing Services - 0.0%
900 Molex, Inc. $ 22,131
------------
Total Technology Hardware &
Equipment $ 1,623,312
------------
Semiconductors - 0.5%
7,800 Intel Corp. $ 194,688
------------
Total Semiconductors $ 194,688
------------
Telecommunication Services - 1.5%
Wireless Telecommunication Services - 1.5%
28,500 Vodafone Group Plc (A.D.R.) $ 611,894
------------
Total Telecommunication Services $ 611,894
------------
TOTAL COMMON STOCKS
(Cost $22,776,857) $ 27,197,328
------------
72 The accompanying notes are an integral part of these financial statements.
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
ASSET BACKED SECURITIES - 0.6%
Diversified Financials - 0.2%
Diversified Financial Services - 0.2%
76,659 BBB-/Baa2 PF Export Receivable Master Trust, 6.436%, 6/1/15 (144A) $ 76,541
-----------
Total Diversified Financials $ 76,541
-----------
Utilities - 0.4%
Electric Utilities - 0.3%
65,325 BBB-/Baa3 FPL Energy Wind Funding, 6.876%, 6/27/17 (144A) $ 65,243
89,110 BB-/Ba2 FPL Energy America Wind LLC, 6.639%, 6/20/23 (144A) 92,661
-----------
Total Utilities $ 157,904
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $235,943) $ 234,445
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.3%
Diversified Financials - 0.3%
Diversified Financial Services - 0.3%
100,000 BBB-/Baa3 Tower 2004-1A E, 5.395%, 1/15/34 $ 96,213
50,000 BBB-/Baa3 Tower 2004-2A F, 6.376%, 12/15/14 49,862
-----------
$ 146,075
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $150,000) $ 146,075
-----------
CORPORATE BONDS - 9.6%
Energy - 0.4%
Integrated Oil & Gas - 0.1%
40,000 A-/A3 Occidental Petroleum, 6.75%, 1/15/12 $ 43,904
-----------
Oil & Gas Exploration & Production - 0.3%
100,000 BBB-/Baa3 Gazprom International SA., 7.201%, 2/1/20 (144A) $ 106,850
-----------
Oil & Gas Refining & Marketing - 0.0%
25,000 BBB/Baa2 Boardwalk Pipelines LLC, 5.5%, 2/1/17 $ 24,795
-----------
Total Energy $ 175,549
-----------
Materials - 1.3%
Aluminum - 0.1%
50,000 B/B1 Novelis, Inc., 7.25%, 02/15/15 $ 46,625
-----------
Commodity Chemicals - 0.3%
100,000 BB+/Ba2 Nova Chemicals, Ltd., 6.5%, 1/15/12 $ 96,875
-----------
Diversified Metals & Mining - 0.3%
125,000 BBB-/Baa3 Inco, Ltd., 7.2%, 9/15/32 $ 137,530
-----------
Metal & Glass Containers - 0.1%
40,000 BBB/Baa2 Tenneco Packaging, 8.125%, 6/15/17 $ 45,373
-----------
Paper Products - 0.5%
100,000 BB-/Ba3 Abitibi-Consolidated, Inc., 6.95%, 4/1/08 $ 100,000
100,000 B/B2 MDP Acquisitions, 9.625%, 10/1/12 100,000
-----------
$ 200,000
-----------
Total Materials $ 526,403
-----------
The accompanying notes are an integral part of these financial statements. 73
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
Capital Goods - 0.3%
Electrical Component & Equipment - 0.1%
25,000 NR/Ba1 Orcal Geothermal, 6.21%, 12/30/20 (144A) $ 25,070
-----------
Industrial Conglomerates - 0.2%
55,000 AAA/Aaa General Electric Capital Corp., 6.125%, 2/22/11 $ 57,863
30,000 AAA/Aaa General Electric Capital Corp., 6.75%, 3/15/32 35,216
-----------
$ 93,079
-----------
Total Capital Goods $ 118,149
-----------
Automobiles & Components - 0.4%
Auto Parts & Equipment - 0.1%
40,000 B+/Ba2 Sun Sage BV, 8.25%, 3/26/09 (144A) $ 42,150
-----------
Automobile Manufacturers - 0.3%
200,000 BB/Baa3 General Motors, 7.2%, 1/15/11 (a) $ 140,500
-----------
Total Automobiles & Components $ 182,650
-----------
Media - 1.3%
Broadcasting & Cable TV - 0.9%
250,000 BBB+/Baa2 Comcast Cable Corp., 7.125%, 6/15/13 $ 271,735
100,000 BBB-/Baa3 Cox Communications, 7.125%, 10/1/12 107,148
-----------
$ 378,883
-----------
Publishing - 0.4%
170,000 BBB-/Baa3 News America, Inc., 7.3%, 4/30/28 $ 186,518
-----------
Total Media $ 565,401
-----------
Retailing - 0.1%
Specialty Stores - 0.1%
50,000 BBB-/Baa3 Tanger Factory Outlet Centers, Inc., 6.15%, 11/15/15 $ 50,509
-----------
Total Retailing $ 50,509
-----------
Health Care Equipment & Services - 0.7%
Health Care Facilities - 0.5%
200,000 BB+/Ba2 HCA, Inc., 6.3%, 10/1/12 $ 200,999
-----------
Health Care Supplies - 0.2%
100,000 BBB/Baa3 Bausch & Lomb, 7.125%, 8/1/28 $ 108,211
-----------
Total Health Care Equipment & Services $ 309,210
-----------
Banks - 0.3%
Diversified Banks - 0.3%
50,000 NR/Aaa KFW-Kredit Wiederaufbau, 2.75%, 5/8/07 $ 48,879
75,000 AA-/Aa2 National Westminster, 7.375%, 10/1/09 81,424
-----------
$ 130,303
-----------
Total Banks $ 130,303
-----------
Diversified Financials - 0.9%
Consumer Finance - 0.2%
100,000 A/A2 SLM Corp., Floating Rate Note, 7/25/14 $ 94,027
-----------
Investment Banking & Brokerage - 0.1%
75,000 B+/B1 E*Trade Financial Corp., 8.0%, 6/15/11 $ 78,000
-----------
74 The accompanying notes are an integral part of these financial statements.
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
Diversified Financial Services - 0.5%
100,000 A-/Baa3 Brascan Corp., 5.75%, 3/1/10 $ 101,554
100,000 BBB-/Baa3 Glencore Funding LLC, 6.0%, 4/15/14 (144A) 94,054
-----------
$ 195,608
-----------
Total Diversified Financials $ 367,635
-----------
Insurance - 1.3%
Life & Health Insurance - 0.2%
100,000 BB+/Ba1 Provident Co., Inc., 7.0%, 7/15/18 $ 103,405
-----------
Multi-Line Insurance - 0.1%
50,000 A/Baa1 Loew Corp., 5.25%, 3/15/16 $ 49,414
-----------
Property & Casualty Insurance - 0.6%
85,000 BBB-/NR Kingsway America, Inc., 7.5%, 2/1/14 $ 87,581
150,000 BB/Baa3 Ohio Casualty Corp., 7.3%, 6/15/14 161,223
-----------
$ 248,804
-----------
Reinsurance - 0.3%
100,000 BBB-/Baa3 Odyssey Re Holdings, 7.65%, 11/1/13 $ 104,491
50,000 BBB/Baa3 Platinum Underwriters HD, 7.50%, 6/1/17 50,954
-----------
$ 155,445
-----------
Total Insurance $ 557,068
-----------
Real Estate - 1.0%
Real Estate Investment Trusts - 1.0%
100,000 BBB-/Baa3 Colonial Reality LP, 6.15%, 4/15/13 $ 102,584
100,000 BBB-/Baa3 Health Care, Inc., 6.2%, 6/1/16 100,042
107,000 B+/Ba3 Host Marriott LP, 6.375%, 3/15/15 106,733
75,000 B+/B1 Trustreet Properties Inc., 7.5%, 4/1/15 75,000
50,000 BB/Ba3 Ventas Realty Capital Corp., 7.125%, 6/1/15 (144A) 52,500
-----------
$ 436,859
-----------
Total Real Estate $ 436,859
-----------
Technology Hardware & Equipment - 0.6%
Computer Hardware - 0.6%
250,000 BBB-/Baa3 NCR Corp., 7.125%, 6/15/09 $ 261,511
-----------
Total Technology Hardware & Equipment $ 261,511
-----------
Semiconductors - 0.2%
85,000 BBB-/Baa3 Chartered Semiconductor, 6.375%, 8/3/15 $ 84,508
-----------
Total Semiconductors $ 84,508
-----------
Telecommunication Services - 0.6%
Integrated Telecommunication Services - 0.6%
100,000 BBB+/Baa2 Telecom Italia Capital, 5.25%, 11/15/13 $ 98,127
140,000 BBB+/Baa2 Telecom Italia Capital, 4.875%, 10/1/10 137,254
-----------
$ 235,381
-----------
Total Telecommunication Services $ 235,381
-----------
The accompanying notes are an integral part of these financial statements.
75
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
Utilities - 0.1%
Electric Utilities - 0.1%
50,000 BBB+/Baa3 Entergy Gulf States, 5.7%, 6/1/15 $ 48,931
-----------
Total Utilities $ 48,931
-----------
TOTAL CORPORATE BONDS
(Cost $3,993,144) $ 4,050,067
-----------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 23.6%
Government - 23.6%
100,000 Federal Home Loan Bank, 5.27%, 12/28/12 $ 99,880
149,538 Federal Home Loan Mortgage Corp., 4.5%, 12/1/20 145,516
210,875 Federal Home Loan Mortgage Corp., 5.0%, 5/1/34 204,568
107,559 Federal Home Loan Mortgage Corp., 5.5%, 10/1/16 108,320
174,289 Federal Home Loan Mortgage Corp., 5.5%, 12/1/35 172,727
150,000 Federal Home Loan Mortgage Corp., 5.75%, 1/15/12 157,382
945,583 Federal Home Loan Mortgage Corp., 6.0%, 1/1/33 956,663
231,738 Federal Home Loan Mortgage Corp., 6.0%, 11/1/33 234,324
34,234 Federal Home Loan Mortgage Corp., 6.0%, 6/1/34 34,579
21,615 Federal Home Loan Mortgage Corp., 6.5%, 5/1/09 22,128
15,199 Federal Home Loan Mortgage Corp., 6.5%, 11/1/33 15,644
124,701 Federal National Mortgage Association, 5.0%, 6/1/34 121,072
166,264 Federal National Mortgage Association, 5.5%, 2/1/17 167,483
143,830 Federal National Mortgage Association, 5.5%, 9/1/17 144,778
182,707 Federal National Mortgage Association, 5.5%, 11/1/33 181,367
350,765 Federal National Mortgage Association, 5.5%, 1/1/34 347,889
95,092 Federal National Mortgage Association, 5.5%, 3/1/34 94,252
177,101 Federal National Mortgage Association, 5.5%, 4/1/34 175,536
215,192 Federal National Mortgage Association, 5.5%, 9/1/34 213,291
248,203 Federal National Mortgage Association, 5.5%, 10/1/34 246,010
93,092 Federal National Mortgage Association, 5.5%, 12/1/34 92,269
78,534 Federal National Mortgage Association, 6.0%, 1/1/32 79,513
99,621 Federal National Mortgage Association, 6.0%, 12/1/33 100,661
110,000 Federal National Mortgage Association, 6.125%, 3/15/12 117,714
14,682 Federal National Mortgage Association, 6.5%, 8/1/13 15,104
12,747 Federal National Mortgage Association, 6.5%, 8/1/14 13,115
48,954 Federal National Mortgage Association, 6.5%, 12/1/21 50,599
48,249 Federal National Mortgage Association, 6.5%, 4/1/29 50,490
62,271 Federal National Mortgage Association, 6.5%, 7/1/32 64,010
95,315 Federal National Mortgage Association, 6.5%, 7/1/32 97,958
47,497 Federal National Mortgage Association, 6.5%, 9/1/32 49,078
28,657 Federal National Mortgage Association, 6.5%, 10/1/32 29,452
14,258 Federal National Mortgage Association, 6.5%, 10/1/32 14,654
10,000 Federal National Mortgage Association, 7.125%, 6/15/10 10,938
26,858 Federal National Mortgage Association, 9.0%, 4/1/33 28,354
41,439 Government National Mortgage Association, 4.5%, 1/15/35 39,769
98,994 Government National Mortgage Association, 4.5%, 4/15/35 95,004
92,251 Government National Mortgage Association, 5.0%, 4/15/34 91,149
315,457 Government National Mortgage Association, 5.0%, 10/15/34 311,704
52,644 Government National Mortgage Association, 5.5%, 4/15/33 53,058
170,262 Government National Mortgage Association, 5.5%, 6/15/33 171,601
137,610 Government National Mortgage Association, 5.5%, 7/15/33 138,691
199,735 Government National Mortgage Association, 5.5%, 8/15/19 202,683
76 The accompanying notes are an integral part of these financial statements.
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
U.S. Government and Agency Obligations (Cont.)
150,112 Government National Mortgage Association, 5.5%, 8/15/33 $ 151,292
35,403 Government National Mortgage Association, 5.5%, 9/15/33 35,687
251,537 Government National Mortgage Association, 6.0%, 8/15/32 257,825
80,051 Government National Mortgage Association, 6.0%, 9/15/32 82,064
67,080 Government National Mortgage Association, 6.5%, 5/15/33 70,079
162,673 Government National Mortgage Association, 6.0%, 8/15/34 166,592
293,382 Government National Mortgage Association, 6.0%, 9/15/33 300,740
38,465 Government National Mortgage Association, 6.5%, 10/15/28 40,276
141,677 Government National Mortgage Association II, 5.5%, 2/20/34 142,296
49,940 Government National Mortgage Association II, 6.0%, 10/20/33 51,255
15,976 Government National Mortgage Association II, 7.5%, 9/20/29 16,731
50,000 U.S. Treasury Bonds, 4.0%, 2/15/14 48,645
175,000 U.S. Treasury Bonds, 5.25%, 11/15/28 190,873
100,000 U.S. Treasury Bonds, 6.25%, 8/15/23 119,414
470,000 U.S. Treasury Notes, 4.0%, 11/15/12 459,884
175,000 U.S. Treasury Notes, 4.125%, 5/15/15 171,165
100,000 U.S. Treasury Notes, 4.25%, 8/15/15 98,707
500,000 U.S. Treasury Notes, 4.25%, 11/15/14 494,180
200,000 U.S. Treasury Notes, 4.75%, 5/15/14 204,867
300,000 U.S. Treasury Notes, 4.75%, 11/15/08 302,883
130,000 U.S. Treasury Notes, 5.375%, 2/15/31 146,027
250,000 U.S. Treasury Notes, 5.625%, 5/15/08 256,817
257,486 U.S. Treasury Inflation Protected Security, 3.5%, 1/15/11 275,184
100,000 U.S. Treasury Strip, 0.0%, 11/15/15 64,393
-----------
Total Government $ 9,908,853
-----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(Cost $10,008,942) $ 9,908,853
-----------
Shares
TEMPORARY CASH INVESTMENT - 0.3%
Security Lending Collateral - 0.3%
141,455 Securities Lending Investment Fund, 4.24% $ 141,455
-----------
TOTAL TEMPORARY CASH INVESTMENT
(Cost $141,455) $ 141,455
-----------
TOTAL INVESTMENTS IN SECURITIES - 99.1%
(Cost $37,306,341) $41,678,223
-----------
OTHER ASSETS AND LIABILITIES - 0.9% $ 402,093
-----------
TOTAL NET ASSETS - 100.0% $42,080,316
===========
(A.D.R.) American Depositary Receipt
* Non-income producing security
144A Security is exempt from registration under Rule 144A of the Securities
Act of 1933. Such securities may be resold normally to qualified
institutional buyers in a transaction exempt from registration. At
December 31, 2005, the value of these securities amounted to $555,069
or 1.3% of net assets.
N/R Not rated by either S&P or Moody's.
(a) At December 31, 2005, the following security was out on loan:
Principal
Amount Security Market Value
$ 190,000 General Motors, 7.2%, 1/15/11 $139,821
--------
Total $139,821
========
The accompanying notes are an integral part of these financial statements. 77
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- -------------------------------------------------------------------------------
S&P/Moody's
Ratings
Shares (unaudited) Value
CONVERTIBLE PREFERRED STOCK - 1.7%
Materials - 1.3%
Diversified Metals & Mining - 1.2%
1,200 B-/B1 Freeport-MC Copp., 5.5%, 12/31/49 $ 1,406,100
------------
Steel - 0.1%
1,750 B-/NR TXI Capital Trust I, 5.5%, 6/30/28 $ 90,125
------------
Total Materials $ 1,496,225
------------
Banks - 0.4%
Thrifts & Mortgage Finance - 0.4%
10,000 BB/Ba1 Sovereign Cap Trust IV, 4.375%, 3/1/34 $ 437,500
------------
Total Banks $ 437,500
------------
TOTAL CONVERTIBLE PREFERRED STOCK
(Cost $1,726,088) $ 1,933,725
------------
Principal
Amount
CONVERTIBLE CORPORATE BONDS - 9.4%
Materials - 0.9%
Commodity Chemicals - 0.3%
$ 200,000 B+/B1 Millennium Chemicals, Inc., 4.0%, 11/15/23 $ 374,750
------------
Gold - 0.6%
800,000 NR/NR Coeur D'Alene Mines Corp., 1.25%, 1/15/24 $ 648,000
------------
Total Materials $ 1,022,750
------------
Capital Goods - 1.6%
Construction & Engineering - 0.3%
400,000 NR/NR Quanta Services, Inc., 4.0%, 7/1/07 $ 386,000
------------
Electrical Component & Equipment - 1.3%
2,595,000 NR/B1 Roper Industries, Inc., 1.4813%, 1/15/34 $ 1,420,763
------------
Total Capital Goods $ 1,806,763
------------
Consumer Services - 1.3%
Specialized Consumer Services - 1.3%
1,500,000 B+/Ba3 SCI Systems, Inc., 3.0%, 3/15/07 $ 1,436,250
------------
Total Consumer Services $ 1,436,250
------------
Media - 1.7%
Advertising - 1.7%
1,800,000 BB+/Baa3 Interpublic Group Cos., 4.5%, 3/15/23 $ 1,874,250
------------
Total Media $ 1,874,250
------------
Retailing - 0.9%
Automotive Retail - 0.9%
1,000,000 B+/B3 Sonic Automotive, Inc., 5.25%, 5/7/09 $ 980,000
------------
Total Retailing $ 980,000
------------
78 The accompanying notes are an integral part of these financial statements.
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
S&P/Moody's
Principal Ratings
Amount (unaudited) Value
Health Care Equipment & Services - 0.7%
Health Care Equipment - 0.7%
$ 375,000 NR/NR Epix Medical, 3.0%, 6/15/24 (144A) $ 225,000
600,000 NR/NR Wilson Greatbatch Tech., 2.25%, 6/15/13 525,000
------------
$ 750,000
------------
Total Health Care Equipment & Services $ 750,000
------------
Pharmaceuticals & Biotechnology - 0.3%
Biotechnology - 0.3%
300,000 NR/NR Cubist Pharmaceuticals, 5.5%, 11/1/08 $ 282,375
------------
Total Pharmaceuticals & Biotechnology $ 282,375
------------
Software & Services - 0.2%
Application Software - 0.2%
200,000 NR/NR Mentor Graphics, 6.875%, 6/15/07 $ 198,750
------------
Total Software & Services $ 198,750
------------
Technology Hardware & Equipment - 1.4%
Electronic Equipment & Instruments - 1.1%
300,000 B+/NR Flir Systems, Inc., 3.0%, 6/1/23 $ 352,125
1,000,000 NR/NR Veeco Instruments, 4.125%, 12/21/08 938,750
------------
$ 1,290,875
------------
Technology Distributors - 0.3%
300,000 NR/R Bell Microproducts, Inc., 3.75%, 3/5/24 $ 285,690
------------
Total Technology Hardware & Equipment $ 1,576,565
------------
Semiconductors - 0.4%
Semiconductor Equipment - 0.4%
500,000 B-/NR Cymer, Inc., 3.5%, 2/15/09 $ 489,375
------------
Total Semiconductors $ 489,375
------------
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost $11,038,877) $ 10,417,078
------------
Shares
PREFERRED STOCK - 1.7%
Real Estate - 1.7%
Real Estate Management & Development - 1.7%
75,000 BB-/Ba3 Forest City Enterprises, 7.375%, 2/1/34 $ 1,899,000
------------
TOTAL PREFERRED STOCK
(Cost $1,917,000) $ 1,899,000
------------
COMMON STOCK - 7.0%
Materials - 1.2%
Commodity Chemicals - 0.1%
3,500 Georgia Gulf Corp.* $ 106,470
------------
Specialty Chemicals - 1.1%
1,700 Arch Chemicals, Inc. $ 50,830
63,100 RPM, Inc. 1,096,047
------------
$ 1,146,877
------------
Total Materials $ 1,253,347
------------
The accompanying notes are an integral part of these financial statements. 79
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
S&P/Moody's
Ratings
Shares (unaudited) Value
Household & Personal Products - 1.0%
Personal Products - 1.0%
24,600 Alberto-Culver Co. (Class B) $ 1,125,450
------------
Total Household & Personal Products $ 1,125,450
------------
Health Care Equipment & Services - 1.1%
Health Care Equipment - 1.1%
18,000 Bio-Rad Laboratories, Inc.* $ 1,177,920
------------
Total Health Care Equipment & Services $ 1,177,920
------------
Pharmaceuticals & Biotechnology - 1.9%
Biotechnology - 1.0%
11,900 Protein Design Labs, Inc.* $ 338,198
28,400 Vertex Pharmaceuticals, Inc.* 785,828
------------
$ 1,124,026
------------
Pharmaceuticals - 0.9%
43,900 Bristol-Myers Squibb Co. $ 1,008,822
------------
Total Pharmaceuticals & Biotechnology $ 2,132,848
------------
Real Estate - 0.5%
Real Estate Investment Trusts - 0.5%
60,900 MeriStar Hospitality Corp.* $ 572,460
------------
Total Real Estate $ 572,460
------------
Utilities - 1.3%
Indep Power Producer & Energy Traders - 1.3%
31,100 NRG Energy, Inc.* $ 1,465,432
------------
Total Utilities $ 1,465,432
------------
TOTAL COMMON STOCK
(Cost $7,185,758) $ 7,727,457
------------
Principal
Amount
CORPORATE BONDS - 77.1%
Energy - 6.7%
Coal & Consumable Fuels - 2.3%
$2,500,000 BB-/B1 Massey Energy Co., 6.875%, 12/15/13 (144A) $ 2,521,875
------------
Oil & Gas Equipment & Services - 0.9%
1,000,000 B+/Ba3 Holly Energy Partners LP, 6.25%, 3/1/15 $ 968,750
------------
Oil & Gas Refining & Marketing - 3.5%
1,031,000 Frontier Oil Corp., 6.625%, 10/1/11 $ 1,051,620
2,850,000 BB-/B2 Tesoro Petroleum Corp., 6.25%, 11/1/12 (144A) 2,864,250
------------
$ 3,915,870
------------
Total Energy $ 7,406,495
------------
Materials - 22.1%
Aluminum - 3.4%
4,000,000 B/B1 Novelis, Inc., 7.25%, 2/15/15 $ 3,730,000
------------
80 The accompanying notes are an integral part of these financial statements.
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
S&P/Moody's
Ratings
Shares (unaudited) Value
Commodity Chemicals - 6.4%
1,750,000 BB-/Ba3 Arco Chemical Co., 9.8%, 2/1/20 $ 1,964,375
2,500,000 BB+/Ba2 Nova Chemicals Corp., 7.875%, 9/15/25 2,468,750
2,650,000 BB+/Ba2 Nova Chemicals Corp., 7.4%, 4/1/09 2,709,625
------------
$ 7,142,750
------------
Construction Materials - 1.4%
1,500,000 BB-/Ba3 Texas Industries, Inc., 7.25%, 7/15/13 (144A) $ 1,556,250
------------
Diversified Metals & Mining - 0.9%
1,000,000 B+/B1 Freeport-McMoran Copper & Gold, 6.875%, 2/1/09 $ 1,010,000
------------
Fertilizers & Agricultural Chemicals - 1.1%
1,150,000 B+/Ba2 Scotts Co., 6.625%, 11/15/13 $ 1,164,375
------------
Metal & Glass Containers - 0.7%
800,000 B/B3 Crown Cork and Seal Co., Inc., 7.375%, 12/15/26 $ 732,000
------------
Paper Products - 5.5%
200,000 BB-/Ba3 Abitibi-Consolidated, Inc., 6.0%, 6/20/13 $ 169,500
2,250,000 BB-/Ba3 Abitibi-Consolidated, Inc., 8.55%, 8/1/10 (a) 2,278,125
885,000 BB/Ba3 Bowater Canada Finance, 7.95%, 11/15/11 858,450
3,100,000 BB/Ba3 Bowater, Inc., 6.5%, 6/15/13 2,774,500
------------
$ 6,080,575
------------
Specialty Chemicals - 2.7%
1,950,000 BB-/B1 Millenium America, Inc., 7.625%, 11/15/26 $ 1,862,250
1,000,000 BB-/B1 Millenium America, Inc., 9.25%, 6/15/08 1,078,750
------------
$ 2,941,000
------------
Total Materials $ 24,356,950
------------
Capital Goods - 13.4%
Aerospace & Defense - 4.6%
3,200,000 B/B2 DRS Technologies, Inc., 6.875%, 11/1/13 $ 3,060,000
2,000,000 B+/B1 Esterline Technology, 7.75%, 6/15/13 2,090,000
------------
$ 5,150,000
------------
Industrial Machinery - 8.8%
$ 3,000,000 B/B2 Gardner Denver, Inc., 8.0%, 5/1/13 (144A) $ 3,150,000
517,000 B+/B3 JLG Industries, Inc., 8.375%, 6/15/12 545,435
800,000 B+/B1 Manitowoc Co., Inc., 7.125%, 11/1/13 822,000
5,400,000 NR/NR Mueller Industries, Inc., 6.0%, 11/1/14 5,184,000
------------
$ 9,701,435
------------
Total Capital Goods $ 14,851,435
------------
Automobiles & Components - 0.3%
Tires & Rubber - 0.3%
300,000 B-/B3 Goodyear Tire & Rubber, 7.857%, 8/15/11 $ 293,250
------------
Total Automobiles & Components $ 293,250
------------
The accompanying notes are an integral part of these financial statements. 81
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
S&P/Moody's
Ratings
Shares (unaudited) Value
Consumer Durables & Apparel - 1.0%
Homebuilding - 1.0%
1,000,000 BB/Ba1 Beazer Homes U.S.A., 6.875%, 7/15/15 $ 958,750
185,000 BB-/Ba3 Meritage Homes Corp., 6.25%, 3/15/15 168,350
------------
$ 1,127,100
------------
Total Consumer Durables & Apparel $ 1,127,100
------------
Media - 2.0%
Advertising - 2.0%
2,300,000 BB-/Baa3 Interpublic Group, Inc., 7.25%, 8/15/11 $ 2,162,000
------------
Total Media $ 2,162,000
------------
Retailing - 4.1%
Automotive Retail - 1.8%
2,290,000 B/B1 Pep Boys-Manny Moe Jack, 7.5%, 12/15/14 $ 2,038,100
------------
Distributors - 2.3%
2,500,000 B/B2 Wesco Distribution, Inc., 7.5%, 10/15/17 (144A) $ 2,515,625
------------
Total Retailing $ 4,553,725
------------
Health Care Equipment & Services - 1.6%
Health Care Supplies - 1.6%
1,700,000 CCC+/Caa1 Inverness Medical Innovation, 8.75%, 2/15/12 $ 1,725,500
------------
Total Health Care Equipment & Services $ 1,725,500
------------
Pharmaceuticals & Biotechnology - 2.9%
Pharmaceuticals - 2.9%
3,300,000 BB-/B1 Valeant Pharmaceuticals, 7.0%, 12/15/11 $ 3,242,250
------------
Total Pharmaceuticals & Biotechnology $ 3,242,250
------------
Real Estate - 8.3%
Real Estate Management & Development - 2.8%
2,935,000 BB-/Ba3 Forest City Enterprises, 7.625%, 6/1/15 $ 3,111,100
------------
Real Estate Investment Trusts - 5.5%
1,500,000 B+/B3 BF Saul Real Estate Investment Trust, 7.5%, 3/1/14 $ 1,526,250
2,300,000 B+/B1 Crescent Real Estate, 9.25%, 4/15/09 2,420,750
2,000,000 CCC+/B2 MeriStar Hospitality Corp., 9.125%, 1/15/11 2,180,000
------------
$ 6,127,000
------------
Total Real Estate $ 9,238,100
------------
Technology Hardware & Equipment - 5.4%
Electronic Equipment & Instruments - 1.7%
$ 1,835,000 B/B2 General Cable Corp., 9.5%, 11/15/10 $ 1,945,100
------------
Technology Distributors - 3.7%
1,500,000 BB+/Ba1 Anixter International Corp., 5.95%, 3/1/15 $ 1,357,390
2,550,000 BBB-/Baa3 Arrow Electronic, Inc., 6.875%, 6/1/18 2,708,615
------------
$ 4,066,005
------------
Total Technology Hardware & Equipment $ 6,011,105
------------
82 The accompanying notes are an integral part of these financial statements.
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
S&P/Moody's
Ratings
Shares (unaudited) Value
Utilities - 9.3%
Electric Utilities - 6.1%
3,200,000 B/Ba3 Allegheny Energy Supply, 7.8%, 3/15/11 $ 3,488,000
1,750,000 B/Ba3 Allegheny Energy Supply, 8.25% 4/15/12 (144A) 1,973,125
1,200,000 B+/B1 CMS Energy Corp., 7.5%, 1/15/09 1,236,000
------------
$ 6,697,125
------------
Multi-Utilities - 3.2%
450,000 B+/B1 CMS Energy Corp., 6.875%, 12/15/15 $ 453,938
3,000,000 B+/B1 CMS Energy Corp., 7.75%, 8/1/10 3,146,250
------------
$ 3,600,188
------------
Total Utilities $ 10,297,313
------------
TOTAL CORPORATE BONDS $ 85,265,223
------------
(Cost $85,580,009)
Shares
TEMPORARY CASH INVESTMENTS - 2.1%
Security Lending Collateral - 2.1%
2,282,850 Securities Lending Investment Fund, 4.24% $ 2,282,850
------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $2,282,850) $ 2,282,850
------------
TOTAL INVESTMENT IN SECURITIES - 99.0%
(Cost $109,730,582) $109,525,333
------------
OTHER ASSETS AND LIABILITIES - 1.0% $ 1,095,615
------------
TOTAL NET ASSETS - 100.0% $110,620,948
============
N/R Not rated by either S&P or Moody's
* Non-income producing security
144A Security is exempt from registration under Rule 144A of the Securities
Act of 1933. Such securities may be resold normally to qualified
institutional
buyers in a transaction exempt from registration. At December 31,
2005, the value of these securities amounted to $14,806,125 or 13.5%
of net assets.
(a) At December 31, 2005, the following security was out on loan:
Principal
Amount Security Market Value
$ 2,137,500 Abitibi-Consolidated, Inc., 8.55%, 8/1/10 $2,164,219
==========
The accompanying notes are an integral part of these financial statements. 83
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
CONVERTIBLE CORPORATE BONDS - 0.3%
Semiconductors - 0.3%
Semiconductor Equipment - 0.3%
170,000 NR/NR Brooks Automation, Inc., 4.75%, 6/1/08 $ 163,413
-----------
Total Semiconductors $ 163,413
-----------
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost $155,654) $ 163,413
-----------
ASSET BACKED SECURITIES - 2.7%
Diversified Financials - 1.0%
Consumer Finance - 0.0%
DKK 27,955 AA+/Aa1 Realkredit Danmark, 7.0%, 10/1/32 $ 4,766
-----------
Diversified Financial Services - 1.0%
277,230 BB-/Ba2 Caithness Coso Fund Corp., 6.263%, 6/15/14 (144A) $ 282,897
195,478 BBB-/Baa2 PF Export Receivable Master Trust, 6.436%, 6/1/15 (144A) 195,177
151,798 BBB/Baa2 Power Receivables Finance, 6.29%, 1/1/12 (144A) 154,309
-----------
$ 632,383
-----------
Total Diversified Financials $ 637,149
-----------
Utilities - 1.7%
Electric Utilities - 1.7%
174,150 BBB-/Baa3 Empressa Electric, 8.625%, 4/30/13 (144A) $ 195,128
339,690 BB-/Ba2 FPL Energy Wind Funding, 6.876%, 6/27/17 (144A) 339,265
392,644 NR/NR Ormat Funding Corp., 8.25%, 12/30/20 396,571
84,715 B+/B1 Tenaska Alabama, Floating Rate Note, 6/30/21 (144A) (b) 85,226
-----------
$ 1,016,190
-----------
Total Utilities $ 1,016,190
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $1,640,571) $ 1,653,339
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.7%
Diversified Financials - 0.7%
Diversified Financial Services - 0.7%
160,000 BBB-/Baa3 Tower 2004-1A E, 5.395%, 1/15/34 $ 153,941
265,000 NR/Ba2 Tower 2004-2A F, 6.376%, 12/15/14 264,266
-----------
$ 418,207
-----------
Total Diversified Financials $ 418,207
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $425,000) $ 418,207
-----------
CORPORATE BONDS - 43.0%
Energy - 5.1%
Coal & Consumable Fuels - 0.5%
283,924 BBB-/NR Indocoal Exports Cayman, 7.134%, 7/6/12 (144A) $ 283,214
-----------
Oil & Gas Equipment & Services - 1.2%
350,000 CCC+/Caa1 J. Ray McDermott SA, 11.0%, 12/15/13 (144A) $ 413,000
170,000 B-/B2 Targa Resources, Inc., 8.5%, 11/1/13 (144A) 175,321
150,000 B+/B1 Semgroup LP, 8.75%, 11/15/15 (144A) 153,375
-----------
$ 741,696
-----------
84 The accompanying notes are an integral part of these financial statements.
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
Oil & Gas Exploration & Production - 3.1%
70,000 B+/B1 Atlas Pipeline Partners, 8.125%, 12/15/15 (144A) $ 70,613
210,000 B-/B3 Baytex Energy, Ltd., 9.625%, 7/15/10 220,500
200,000 B-/B3 Clayton Williams Energy, 7.75%, 8/1/13 192,000
145,000 B/B2 Compton Petroleum Corp., 7.625%, 12/1/13 (144A) 148,263
75,000 B-/B3 Delta Petroleum Corp., 7.0%, 4/1/15 69,187
500,000 BBB-/Baa3 Gazprom International SA, 7.201%, 2/1/20 (144A) 534,250
ITL 275,000,000 BBB-/Baa2 Petroleos Mexicanos, 7.375%, 8/13/07 178,603
300,000 CCC+/Caa1 Petroquest Energy, Inc., 10.375%, 5/15/12 313,500
200,000 B+/B2 Stone Energy Corp., 6.75%, 12/15/14 189,500
-----------
$ 1,916,416
-----------
Oil & Gas Storage & Transportation - 0.3%
176,000 B/B3 Transmontaigne, Inc., 9.125%, 6/1/10 $ 172,920
-----------
Total Energy $ 3,114,246
-----------
Materials - 8.2%
Aluminum - 0.8%
370,000 BB/Ba3 Asia Aluminum Holdings, 8.0%, 12/23/11 (144A) $ 361,213
140,000 B/B1 Novelis, Inc., 7.25%, 2/15/15 130,550
-----------
$ 491,763
-----------
Commodity Chemicals - 1.0%
110,000 BB-/B1 Arco Chemical Co., 9.8%, 2/1/20 $ 123,475
125,000 CCC+/B3 Aventine Renewable Energy, Floating Rate Note, 12/15/11 (b) 129,375
300,000 B+/B1 Invista, 9.25%, 5/1/12 (144A) 320,250
-----------
$ 573,100
-----------
Diversified Chemical - 0.7%
100,000 BB-/Ba3 Braskem International, Ltd., 9.375%, 6/1/15 (144A) $ 110,000
150,000 BB+/NR LPG International, Inc., 7.25%, 12/20/15 (144A) 148,050
EURO 145,000 B-/B2 Nell AF Sarl, 8.375%, 8/15/15 (144A) 174,138
-----------
$ 432,188
-----------
Diversified Metals & Mining - 1.5%
200,000 B+/B1 Freeport-McMoran Copper & Gold, 6.875%, 2/1/09 $ 202,000
400,000 NR/Ba1 Vale Overseas, Ltd., 8.25%, 1/17/34 460,500
280,000 BB+/Ba2 Vedenta Resources Plc, 6.625%, 2/22/10 (144A) 272,393
-----------
$ 934,893
-----------
Forest Products - 1.2%
505,000 B+/B1 Ainsworth Lumber, 6.75%, 3/15/14 $ 433,038
290,000 BB-/Ba2 Sino Forest Corp., 9.125%, 8/17/11 (144A) 311,025
-----------
$ 744,063
-----------
Metal & Glass Containers - 0.2%
130,000 BB-/B1 Greif Brothers Corp., 8.875%, 8/1/12 $ 138,450
-----------
Paper Packaging - 0.3%
160,000 CCC+/Caa2 Graham Packaging Co., 9.875%, 10/15/14 $ 156,000
-----------
The accompanying notes are an integral part of these financial statements. 85
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
Paper Products - 0.5%
100,000 BB-/Ba3 Abitibi-Consolidated, Inc., 6.0%, 6/20/13 $ 84,750
200,000 BB-/Ba3 Bowater, Inc., 6.5%, 6/15/13 179,000
55,000 B/Caa1 Mercer International, Inc., 9.25%, 2/15/13 46,338
-----------
$ 310,088
-----------
Specialty Chemicals - 1.5%
130,000 BBB-/Baa3 Basell Finance Co., 8.1%, 3/15/27 (144A) $ 118,950
350,000 B-/Caa2 Crystal US Holdings, Inc., Floating Rate Note, 10/1/14 (b) 255,500
300,000 BB/Ba1 Ferro Corp., 7.125%, 4/1/28 305,171
25,000 BB/Ba1 Ferro Corp., 7.625%, 5/1/13 25,527
EURO 140,000 CCC+/B3 Rhodia SA, 8.0%, 6/1/10 173,931
EURO 45,000 CCC+/Caa1 Rhodia SA, 9.25%, 6/1/11 56,705
-----------
$ 935,784
-----------
Steel - 0.4%
105,000 BB/Ba2 International Steel Group, 6.5%, 4/15/14 $ 105,000
135,000 BBB/Ba1 Ispat Inland ULC, Floating Rate Note, 4/1/10 (b) 140,400
-----------
$ 245,400
-----------
Total Materials $ 4,961,729
-----------
Capital Goods - 3.7%
Building Products - 2.1%
355,000 B-/B3 Builders Firstsource, Inc., Floating Rate Note, 2/15/12 (b) $ 361,213
180,000 BB-/B1 Caue Finance, Ltd., 8.875%, 8/1/15 (144A) 196,200
250,000 BB-/Ba3 Desarrolladora Homex SA, 7.5%, 9/28/15 (144A) 245,625
195,000 B+/B2 Resolution Perform Production, 8.0%, 12/15/09 198,900
275,000 B-/B3 U.S. Concrete, Inc., 8.375%, 4/1/14 274,313
-----------
$ 1,276,251
-----------
Construction & Engineering - 0.3%
160,000 B+/Ba2 Dycom Industries, 8.125%, 10/15/15 (144A) $ 160,000
-----------
Construction, Farm Machinery & Heavy Trucks - 0.3%
70,000 B-/B3 American Rock Salt Co., 9.5%, 3/15/14 $ 70,700
115,000 BB-/Ba3 Navistar International, 6.25%, 3/1/12 102,924
-----------
$ 173,624
-----------
Industrial Machinery - 0.3%
150,000 B/B2 Gardner Denver, Inc., 8.0%, 5/1/13 (144A) $ 157,500
53,000 B/B3 JLG Industries, Inc., 8.375%, 6/15/12 55,915
-----------
$ 213,415
-----------
Trading Companies & Distributors - 0.7%
475,000 BB+/Ba1 Noble Group, Ltd., 6.625%, 3/17/15 (144A) $ 437,421
-----------
Total Capital Goods $ 2,260,711
-----------
Commercial Services & Supplies - 1.8%
Diversified Commercial Services - 1.2%
205,000 B+/Ba2 FTI Consulting, 7.625%, 6/15/13 (144A) $ 211,150
290,000 CCC+/Caa1 Park-Ohio Industries, Inc., 8.375%, 11/15/14 253,750
275,000 B+/B2 United Rentals NA, Inc., 7.75%, 11/15/13 268,125
-----------
$ 733,025
===========
86 The accompanying notes are an integral part of these financial statements.
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
Environmental & Facilities Services - 0.6%
130,000 B/B3 Clean Harbors, Inc., 11.25%, 7/15/12 (144A) $ 146,250
240,000 B-/Caa1 Hydrochem Industrial Service, 9.25%, 2/15/13 (144A) 230,400
-----------
$ 376,650
-----------
Total Commercial Services & Supplies $ 1,109,675
-----------
Transportation - 3.6%
Air Freight & Couriers - 0.2%
130,000 BB-/B1 Petroleum Helicopters, 9.375%, 5/1/09 $ 136,988
-----------
Airlines - 0.4%
85,000 CCC/Caa2 AMR Corp., 9.8%, 10/1/21 $ 63,538
150,000 B/B3 Continental Air, Inc., 7.568%, 12/1/06 147,797
-----------
$ 211,335
-----------
Airport Services - 0.1%
55,000 B-/Caa1 K&F Acquisition, Inc., 7.75%, 11/15/14 $ 55,688
-----------
Marine - 1.9%
NOK 3,530,000 NR/NR Kvaerner ASA, 0.0%, 10/30/11 $ 531,993
325,000 B/B2 Ship Finance International, Ltd., 8.5%, 12/15/13 303,875
315,000 BB-/Ba3 Stena AB, 7.0%, 12/1/16 288,225
40,000 B-/B3 Trailer Bridge, Inc., 9.25%, 11/15/11 41,150
-----------
$ 1,165,243
-----------
Railroads - 0.5%
210,000 CCC+/B3 Atlantic Express Transport, 12.0%, 4/15/08 $ 182,700
130,000 B+/B2 TFM SA De CV, 9.375%, 5/1/12 (144A) 142,350
-----------
$ 325,050
-----------
Trucking - 0.5%
320,000 B+/B1 Greenbrier Co., Inc., 8.375%, 5/15/15 $ 326,400
-----------
Total Transportation $ 2,220,704
-----------
Automobiles & Components - 0.9%
Auto Parts & Equipment - 0.4%
130,000 B+/Ba3 Commercial Vehicle Group, 8.0%, 7/1/13 $ 128,700
125,000 B+/Ba2 Sun Sage BV, 8.25%, 3/26/09 (144A) 131,718
-----------
$ 260,418
-----------
Tires & Rubber - 0.5%
280,000 B-/B3 Goodyear Tire & Rubber, 9.0%, 7/1/15 (144A) $ 276,500
-----------
Total Automobiles & Components $ 536,918
-----------
Consumer Durables & Apparel - 1.1%
Footwear - 0.3%
153,000 BB-/B1 Brown Shoe Co., Inc., 8.75%, 5/1/12 $ 159,885
-----------
Homebuilding - 0.8%
148,000 BB-/Ba3 Meritage Homes Corp., 6.25%, 3/15/15 $ 134,680
250,000 B+/Ba3 WCI Communities, Inc., 6.625%, 3/15/15 217,500
150,000 B+/Ba3 WCI Communities, Inc., 7.875%, 10/1/13 141,375
-----------
$ 493,555
-----------
Total Consumer Durables & Apparel $ 653,440
-----------
The accompanying notes are an integral part of these financial statements. 87
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
Consumer Services - 0.2%
Hotels, Resorts & Cruise Lines - 0.2%
100,000 B-/Caa1 Trump Entertainment Resorts, 8.5%, 6/1/15 $ 97,500
-----------
Total Consumer Services $ 97,500
-----------
Media - 1.5%
Broadcasting & Cable TV - 0.6%
145,000 B-/B3 Innova S De R.L., 9.375%, 9/19/13 $ 160,950
200,000 B-/B2 Kabel Deutschland GMBH, 10.625%, 7/1/14 210,500
-----------
$ 371,450
-----------
Movies & Entertainment - 0.6%
335,000 B+/Ba2 Corp Interamer De Entret, 8.875%, 6/14/15 (144A) $ 328,300
-----------
Publishing - 0.3%
200,000 B/B1 Sheridan Acquisition Corp., 10.25%, 8/15/11 $ 205,750
-----------
Total Media $ 905,500
-----------
Retailing - 0.9%
Automotive Retail - 0.1%
35,000 B/B3 Pep Boys-Manny Moe Jack, 7.5%, 12/15/14 $ 31,150
-----------
Computer & Electronics Retail - 0.1%
95,000 B+/Ba3 GSC Holdings Corp., 8.0%, 10/1/12 (144A) $ 89,538
-----------
Distributors - 0.5%
EURO 215,000 B-/B2 Central Eur Distribution Corp., 8.0%, 7/25/12 (144A) $ 275,374
-----------
Specialty Stores - 0.2%
145,000 B/B3 Asbury Automotive Group, 8.0%, 3/15/14 $ 138,475
-----------
Total Retailing $ 534,537
-----------
Food & Drug Retailing - 0.3%
Drug Retail - 0.3%
145,000 CCC+/Caa1 Duane Reade, Inc., 9.75%, 8/1/11 (a) $ 97,150
110,000 B-/B2 Duane Reade, Inc., Floating Rate Note, 12/15/10 (b) 102,300
-----------
$ 199,450
-----------
Total Food & Drug Retailing $ 199,450
-----------
Food, Beverage & Tobacco - 0.9%
Brewers - 0.7%
202,000 B-/B3 Argentine Beverages, 7.375%, 3/22/12 (144A) $ 203,010
220,000 BBB-/Baa3 Cia Brasileira de Bebida, 8.75%, 9/15/13 257,125
-----------
$ 460,135
-----------
Soft Drinks - 0.2%
80,000 BBB-/Baa3 Cia Brasileira de Bebida, 10.5%, 12/15/11 $ 98,400
-----------
Total Food, Beverage & Tobacco $ 558,535
-----------
Health Care Equipment & Services - 0.8%
Health Care Distributors - 0.1%
60,000 BB+/Ba2 Omnicare, Inc., 6.125%, 6/1/13 $ 58,950
-----------
Health Care Equipment - 0.2%
165,000 B-/B3 Medical Services Co., Floating Rate Note, 10/15/11 (144A) (b) $ 127,050
-----------
88 The accompanying notes are an integral part of these financial statements.
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
Health Care Services - 0.3%
175,000 CCC+/Caa1 Rural/Metro Corp., 9.875%, 3/15/15 (144A) $ 178,500
-----------
Health Care Supplies - 0.2%
125,000 CCC+/Caa1 Inverness Medical Innovation, 8.75%, 2/15/12 $ 126,874
-----------
Total Health Care Equipment & Services $ 491,374
-----------
Pharmaceuticals & Biotechnology - 0.3%
Pharmaceuticals - 0.3%
180,000 CCC+/Caa1 Warner Chilcott Corp., 8.75%, 2/1/15 (144A) $ 165,600
-----------
Total Pharmaceuticals & Biotechnology $ 165,600
-----------
Banks - 1.2%
Diversified Banks - 1.2%
185,000 B/Ba1 ATF Bank JSC, 9.25%, 4/12/12 (144A) $ 195,564
170,000 BB/Baa2 Kazkommerts International BV, 8.0%, 11/3/15 180,200
150,000 B+/Ba2 Russian Stand Bank, 7.5%, 10/7/10 (144A) 146,625
15,000 BBB+/A1 Skandinaviska Enskilda Bank, 8.125%, 9/6/49 (144A) 15,333
175,000 NR/Baa2 Turanalem Finance BV, 8.5%, 2/10/15 (144A) 188,020
-----------
$ 725,742
-----------
Total Banks $ 725,742
-----------
Diversified Financials - 2.7%
Consumer Finance - 1.0%
340,000 BB+/Baa2 Ford Motor Credit Co., 5.7%, 1/15/10 (a) $ 289,021
35,000 BB+/Baa2 Ford Motor Credit Co., 5.8%, 1/12/09 30,537
320,000 A/A2 SLM Corp., Floating Rate Note, 7/25/14 (b) 300,886
-----------
$ 620,444
-----------
Investment Banking & Brokerage - 0.6%
325,000 B+/B1 E*Trade Financial Corp., 8.0%, 6/15/11 $ 338,000
-----------
Diversified Financial Services - 1.1%
210,000 B/B3 Dollar Financial Group, 9.75%, 11/15/11 $ 216,300
325,000 BBB-/Baa3 Glencore Funding LLC, 6.0%, 4/15/14 (144A) 305,676
170,000 B-/B3 Harvest Operations Corp., 7.875%, 10/15/11 169,150
-----------
$ 691,126
-----------
Total Diversified Financials $ 1,649,570
-----------
Insurance - 3.6%
Life & Health Insurance - 1.0%
390,000 B-/B2 Presidential Life Corp., 7.875%, 2/15/09 $ 386,100
200,000 BB+/Ba1 Provident Companies., Inc., 7.0%, 7/15/18 206,811
-----------
$ 592,911
-----------
Multi-Line Insurance - 0.5%
325,000 BB/Ba1 Hanover Insurance Group, 7.625%, 10/15/25 $ 333,297
-----------
Property & Casualty Insurance - 1.1%
285,000 BBB-/NR Kingsway America, Inc., 7.5%, 2/1/14 $ 293,652
350,000 BB/Baa3 Ohio Casualty Corp., 7.3%, 6/15/14 376,187
-----------
$ 669,839
-----------
The accompanying notes are an integral part of these financial statements. 89
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
Reinsurance - 1.0%
200,000 BBB-/Baa3 Odyssey Re Holdings, 7.65%, 11/1/13 $ 208,981
365,000 BBB/Baa2 Platinum Underwriters Financial, 7.5%, 6/1/17 371,963
-----------
$ 580,944
-----------
Total Insurance $ 2,176,991
-----------
Real Estate - 2.1%
Real Estate Management & Development - 0.2%
125,000 BB-/Ba3 Forest City Enterprises, 7.625%, 6/1/15 $ 132,500
-----------
Real Estate Investment Trusts - 1.9%
120,000 B+/B3 BF Saul Real Estate Investment Trust, 7.5%, 3/1/14 $ 122,100
95,000 B+/B1 Crescent Real Estate, 9.25%, 4/15/09 99,987
374,000 B+/Ba3 Host Marriott LP, 6.375%, 3/15/15 373,065
340,000 B+/B1 Trustreet Properties, Inc., 7.5%, 4/1/15 340,000
180,000 BB/Ba3 Ventas Realty Capital Corp., 7.125%, 6/1/15 (144A) 189,000
-----------
$ 1,124,152
-----------
Total Real Estate $ 1,256,652
-----------
Software & Services - 0.4%
Internet Software & Services - 0.4%
250,000 BB/Ba2 Hanarotelecom, Inc., 7.0%, 2/1/12 (144A) $ 246,282
-----------
Total Software & Services $ 246,282
-----------
Technology Hardware & Equipment - 0.7%
Communications Equipment - 0.1%
50,000 BB+/Ba2 Corning, Inc., 5.9%, 3/15/14 $ 50,480
-----------
Electronic Manufacturing Services - 0.2%
125,000 B/B1 Sanmina-Sci Corp., 6.75%, 3/1/13 (a) $ 118,906
-----------
Technology Distributors - 0.4%
256,000 BB+/Ba1 Anixter International Corp., 5.95%, 3/1/15 $ 231,661
-----------
Total Technology Hardware & Equipment $ 401,047
-----------
Semiconductors - 0.3%
Semiconductors - 0.3%
175,000 BBB-/Baa3 Chartered Semiconductor, 6.375%, 8/3/15 $ 173,987
-----------
Total Semiconductors $ 173,987
-----------
Telecommunication Services - 1.3%
Integrated Telecommunication Services - 0.3%
315,000 B/B3 Zeus Special Sub, Ltd., Floating Rate Note, 2/1/15 (144A) (b) $ 207,113
-----------
Wireless Telecommunication Services - 1.0%
115,000 BB-/Ba3 Mobile Telesystems Finance, 8.375%, 10/14/10 (144A) $ 120,014
CAD 240,000 BB/Ba3 Rogers Cantel, Inc., 10.5%, 6/1/06 211,638
CAD 200,000 BB/Ba3 Rogers Wireless, Inc., 7.625%, 12/15/11 184,031
63,000 NR/Baa3 Tele Norte Leste Participacoes , 8.0%, 12/18/13 66,780
-----------
$ 582,463
-----------
Total Telecommunication Services $ 789,576
-----------
90 The accompanying notes are an integral part of these financial statements.
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
Utilities - 1.4%
Electric Utilities - 1.3%
331,771 NR/NR Juniper Generation, 6.79%, 12/31/14 (144A) $ 323,225
250,000 BBB-/Baa3 Kiowa Power Partners LLC, 5.737%, 3/30/21 (144A) 250,735
190,000 BB-/Ba3 MSW Energy Holdings, 7.375%, 9/1/10 195,225
-----------
$ 769,185
-----------
Multi-Utilities - 0.1%
120,000 B+/B1 Reliant Energy, Inc., 6.75%, 12/15/14 $ 104,700
-----------
Total Utilities $ 873,885
-----------
TOTAL CORPORATE BONDS
(Cost $25,608,281) $26,103,651
-----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 39.5%
848,109 Federal Home Loan Mortgage Corp., 4.5%, 4/1/20 $ 825,301
485,131 Federal Home Loan Mortgage Corp., 4.5%, 7/1/20 472,084
287,205 Federal Home Loan Mortgage Corp., 4.5%, 4/1/35 270,212
42,819 Federal Home Loan Mortgage Corp., 5.0%, 5/1/34 41,539
148,818 Federal Home Loan Mortgage Corp., 5.0%, 6/1/35 144,074
53,779 Federal Home Loan Mortgage Corp., 5.5%, 10/1/16 54,160
822,876 Federal Home Loan Mortgage Corp., 5.5%, 11/1/34 816,533
357,027 Federal Home Loan Mortgage Corp., 5.5%, 1/1/35 354,100
265,061 Federal Home Loan Mortgage Corp., 6.0%, 6/1/17 270,577
14,901 Federal Home Loan Mortgage Corp., 6.0%, 1/1/33 15,075
10,769 Federal Home Loan Mortgage Corp., 6.0%, 2/1/33 10,896
265,910 Federal Home Loan Mortgage Corp., 6.0% 11/1/33 268,879
224,757 Federal Home Loan Mortgage Corp., 6.0%, 1/1/34 227,022
241,850 Federal Home Loan Mortgage Corp., 6.0%, 4/1/35 244,294
248,106 Federal Home Loan Mortgage Corp., 6.0%, 6/1/35 250,613
304,298 Federal National Mortgage Association, 4.5%, 5/1/20 296,114
195,471 Federal National Mortgage Association, 4.5%, 9/1/20 190,214
154,126 Federal National Mortgage Association, 4.5%, 3/1/35 145,151
183,714 Federal National Mortgage Association, 5.0%, 2/1/20 181,759
205,883 Federal National Mortgage Association, 5.0%, 10/1/20 203,692
43,118 Federal National Mortgage Association, 5.5%, 3/1/18 43,404
86,632 Federal National Mortgage Association, 5.5%, 12/1/18 87,207
98,590 Federal National Mortgage Association, 5.5%, 4/1/19 99,271
187,500 Federal National Mortgage Association, 5.5%, 5/1/34 185,843
91,701 Federal National Mortgage Association, 6.0%, 7/1/17 93,738
4,573 Federal National Mortgage Association, 6.0%, 12/1/31 4,627
10,140 Federal National Mortgage Association, 6.0%, 2/1/32 10,260
6,330 Federal National Mortgage Association, 6.0% 11/1/32 6,401
324,814 Federal National Mortgage Association, 6.0%, 11/1/33 328,206
219,147 Federal National Mortgage Association, 6.0%, 12/1/33 221,435
The accompanying notes are an integral part of these financial statements. 91
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- -------------------------------------------------------------------------------
Principal
Amount
USD ($) Value
U.S. Government & Agency Obligations (Cont.)
117,794 Federal National Mortgage Association, 6.0%, 1/1/34 $ 118,907
800,000 Federal National Mortgage Association, 6.375%, 8/15/07 592,998
1,449 Federal National Mortgage Association, 6.5%, 7/1/31 1,491
4,872 Federal National Mortgage Association, 6.5%, 10/1/31 5,008
9,385 Federal National Mortgage Association, 6.5%, 2/1/32 9,648
1,011 Federal National Mortgage Association, 7.0%, 9/1/29 1,056
224,302 Government National Mortgage Association, 4.5%, 9/15/33 215,266
175,062 Government National Mortgage Association, 4.5%, 5/15/34 167,980
676,875 Government National Mortgage Association, 4.5%, 4/15/35 649,589
222,697 Government National Mortgage Association, 5.0%, 12/15/34 220,037
479,134 Government National Mortgage Association, 5.0%, 4/15/35 473,145
391,182 Government National Mortgage Association, 5.5%, 10/15/19 396,957
224,837 Government National Mortgage Association, 5.5%, 1/15/34 226,382
427,099 Government National Mortgage Association, 5.5%, 4/15/34 430,033
146,159 Government National Mortgage Association, 5.5%, 4/20/34 146,798
54,870 Government National Mortgage Association, 5.5%, 7/15/34 55,247
421,840 Government National Mortgage Association, 5.5%, 10/15/34 424,739
397,578 Government National Mortgage Association, 5.5%, 6/15/35 400,312
465,258 Government National Mortgage Association, 6.0%, 8/15/16 477,883
25,835 Government National Mortgage Association, 6.0%, 5/15/17 26,537
228,059 Government National Mortgage Association, 6.0%, 6/15/17 234,255
262,225 Government National Mortgage Association, 6.0%, 2/15/18 269,356
169,092 Government National Mortgage Association, 6.0%, 8/15/19 173,687
30,408 Government National Mortgage Association, 6.0%, 2/15/33 31,171
108,048 Government National Mortgage Association, 6.0%, 3/15/33 110,758
52,775 Government National Mortgage Association, 6.0%, 6/15/33 54,099
113,469 Government National Mortgage Association, 6.0%, 7/15/33 116,315
194,584 Government National Mortgage Association, 6.0%, 9/15/33 199,465
71,144 Government National Mortgage Association, 6.0%, 10/15/33 72,928
244,010 Government National Mortgage Association, 6.0%, 8/15/34 249,888
30,862 Government National Mortgage Association, 6.5%, 3/15/29 32,295
7,128 Government National Mortgage Association, 6.5%, 1/15/30 7,453
2,080 Government National Mortgage Association, 6.5%, 6/15/31 2,174
21,864 Government National Mortgage Association, 6.5%, 2/15/32 22,846
24,442 Government National Mortgage Association, 6.5%, 3/15/32 25,540
30,214 Government National Mortgage Association, 6.5%, 11/15/32 31,578
25,396 Government National Mortgage Association, 6.5%, 1/15/33 26,531
41,189 Government National Mortgage Association, 6.5%, 5/15/33 43,031
77,333 Government National Mortgage Association, 6.5%, 1/15/34 80,729
821 Government National Mortgage Association, 7.0%, 3/15/31 862
9,147 Government National Mortgage Association, 7.5%, 5/15/23 9,631
2,787 Government National Mortgage Association, I, 7.0%, 3/15/31 2,926
138,615 Government National Mortgage Association II, 5.5%, 3/20/34 139,221
267,730 Government National Mortgage Association II, 6.0%, 11/20/33 273,861
1,340,000 U.S. Treasury Bonds, 5.25%, 11/15/28 1,461,542
125,000 U.S. Treasury Bonds, 6.25%, 8/15/23 149,268
580,000 U.S. Treasury Bonds, 7.25%, 5/15/16 712,177
830,813 U.S. Treasury Inflation Protected Security, 3.0%, 7/15/12 878,455
431,855 U.S. Treasury Inflation Protected Security, 3.375%, 1/15/12 464,361
3,518,969 U.S. Treasury Inflation Protected Security, 3.5%, 1/15/11 3,760,898
700,000 U.S. Treasury Notes, 4.0%, 2/15/15 678,672
92 The accompanying notes are an integral part of these financial statements.
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
U.S. Government & Agency Obligations (Cont.)
275,000 U.S. Treasury Notes, 4.25%, 11/15/14 $ 271,799
265,000 U.S. Treasury Notes, 4.875%, 2/15/12 272,070
255,000 U.S. Treasury Notes, 5.25%, 2/15/29 278,259
150,000 U.S. Treasury Notes, 5.375%, 2/15/31 168,492
1,800,000 U.S. Treasury Strip, 0.0%, 11/15/13 1,270,139
-----------
$23,979,426
-----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $24,113,594) $23,979,426
-----------
FOREIGN GOVERNMENT BONDS - 7.6%
ITL 195,000,000 B+/B1 Banco Nac De Desen Econo, 8.0%, 4/28/10 $ 132,283
CAD 399,000 AAA/Aaa Government of Canada, 4.25%, 9/1/09 347,158
CAD 315,000 AAA/Aaa Government of Canada, 5.25%, 6/1/12 291,029
EURO 343,000 AAA/Aaa Government of France, 3.0%, 7/25/09 484,375
SEK 3,445,000 TSY/Aaa Government of Sweden, 5.25%, 3/15/11 476,353
SEK 2,955,000 TSY/Aaa Government of Sweden, 5.5%, 10/8/12 421,978
SEK 2,150,000 TSY/Aaa Government of Sweden, 8.0%, 8/15/07 293,367
NOK 1,500,000 AAA/Aaa Norwegian Government, 5.5%, 5/15/09 237,245
NOK 1,320,000 TSY/Aaa Norwegian Government 6.0%, 5/16/11 218,945
NOK 3,410,000 TSY/Aaa Norwegian Government, 6.75%, 1/15/07 525,093
AUD 532,000 AA/Aa2 Ontario Province, 5.5%, 4/23/13 386,160
AUD 207,000 NR/Aaa Queensland Treasury, 6.0%, 8/14/13 158,025
444,768 BB+/Ba2 Republic of Columbia, 9.75%, 4/9/11 500,364
DEM 180,000 BBB-/Baa3 United Mexican States, 8.25%, 2/24/09 124,571
-----------
$ 4,596,946
-----------
TOTAL FOREIGN GOVERNMENT BONDS
(Cost $4,223,559) $ 4,596,946
-----------
MUNICIPAL BONDS - 0.9%
Muni Airport - 0.4%
50,000 B/Caa2 New Jersey Economic Development Authority, 6.25%, 9/15/29 $ 46,501
175,000 B/Caa2 New Jersey Economic Development Authority Special Facility
Revenue, 7.0%, 11/15/30 170,168
100,000 NR/NR Wayne Charter County SPL, 6.75%, 12/1/15 52,384
-----------
$ 269,053
-----------
Muni Tobacco - 0.5%
90,000 BBB/Baa3 Golden State Tobacco Securitization, 6.75%, 6/1/39 $ 101,140
105,000 BBB/Baa3 Tobacco Settlement Authority Washington, 6.625%, 6/1/32 113,304
60,000 BBB/Baa3 Tobacco Settlement Financing Corp., 7.0%, 6/1/41 68,396
-----------
$ 282,840
-----------
TOTAL MUNICIPAL BONDS
(Cost $483,225) $ 551,893
-----------
The accompanying notes are an integral part of these financial statements. 93
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
RIGHTS/WARRANTS - 0.0%
Transportation - 0.0%
Railroads - 0.0%
210 Atlantic Express Transportation, Exp. 4/15/08* $ --
-----------
Total Transportation $ --
-----------
TOTAL RIGHTS/WARRANTS
(Cost $0) $ --
-----------
TEMPORARY CASH INVESTMENTS - 0.8%
Security Lending Collateral - 0.8%
508,725 Securities Lending Investment Fund, 4.24% $ 508,725
-----------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $508,725) $ 508,725
-----------
TOTAL INVESTMENT IN SECURITIES - 95.5%
(Cost $57,158,609) $57,975,600
-----------
OTHER ASSETS AND LIABILITIES - 4.5% $ 2,731,811
-----------
TOTAL NET ASSETS - 100.0% $60,707,411
===========
* Non-income producing.
144A Security is exempt from registration under Rule 144A of the Securities Act
of 1933. Such securities may be resold normally to qualified institutional
buyers in a transaction exempt from registration. At December 31, 2005,
the value of these securities amounted to $11,574,898 or 19.1% of total
net assets.
TSY Treasury Security
NR Not rated by either S&P or Moody's.
(a) At December 31, 2005, the following securities were out on loan:
Principal
Amount Security Value
$ 137,750 Duane Reade, Inc., 9.75%, 8/1/11 $ 92,293
323,000 Ford Motor Credit Co., 5.7%, 1/15/10 274,570
118,750 Sanmina-Sci Corp., 6.75%, 3/1/13 112,961
--------
Total $479,824
========
(b) Debt obligation initially issued at one coupon which converts to a higher
coupon at a specified date. The rate shown is the rate at period end.
NOTE: Principal amounts are denominated in U.S. dollars unless otherwise noted.
DEM Deutsche Marks
EURO Euro
SEK Swedish Krona
NOK Norwegian Kroner
ITL Italian Lira
CAD Canadian Dollar
AUD Australian Dollar
DKK Danish Kroner
94 The accompanying notes are an integral part of these financial statements.
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Principal
Amount Value
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.5%
Government - 1.5%
$ 234,973 Federal Home Loan Bank, 4.75%, 10/25/10 $ 232,917
131,942 Federal Home Loan Bank, 5.0%, 1/15/16 131,763
350,000 Federal Home Loan Bank, 5.5%, 7/15/28 351,532
-----------
$ 716,212
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $728,765) $ 716,212
-----------
CORPORATE BONDS - 0.5%
Diversified Financials - 0.5%
Specialized Finance - 0.5%
250,000 Private Export Funding, 3.375%, 2/15/09 $ 240,665
-----------
TOTAL CORPORATE BONDS
(Cost $250,000) $ 240,665
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 96.4%
Government - 96.4%
250,000 Federal Farm Credit Bank, 3.25%, 6/15/07 $ 244,792
250,000 Federal Farm Credit Bank, 4.45%, 6/1/15 242,934
400,000 Federal Farm Credit Bank, 4.9%, 3/17/14 389,932
100,000 Federal Farm Credit Bank, 5.3%, 9/28/15 97,837
100,000 Federal Farm Credit Bank, 5.88%, 9/8/08 102,891
200,000 Federal Farm Credit Bank, 6.38%, 11/27/06 202,832
250,000 Federal Home Loan Bank, 4.0%, 2/12/10 242,558
250,000 Federal Home Loan Bank, 4.25%, 10/10/08 247,258
250,000 Federal Home Loan Bank, 4.25%, 2/16/10 244,759
300,000 Federal Home Loan Bank, 4.43%, 4/7/08 297,907
200,000 Federal Home Loan Bank, 4.5%, 11/15/12 196,873
500,000 Federal Home Loan Bank, 4.75%, 12/10/10 499,375
300,000 Federal Home Loan Bank, 5.89%, 6/30/08 308,372
250,000 Federal Home Loan Mortgage Corp., 4.9%, 11/3/08 249,142
300,000 Federal Home Loan Mortgage Corp., 5.25%, 11/15/12 296,132
237,523 Federal Home Loan Mortgage Corp., 5.5%, 9/1/34 235,576
226,089 Federal Home Loan Mortgage Corp., 5.5%, 12/1/34 224,235
70,482 Federal Home Loan Mortgage Corp., 6.0%, 10/1/32 71,308
497,629 Federal Home Loan Mortgage Corp., 6.0%, 11/1/32 503,460
163,395 Federal Home Loan Mortgage Corp., 6.0%, 12/1/32 165,309
189,250 Federal Home Loan Mortgage Corp., 6.0%, 2/1/33 191,468
844,359 Federal Home Loan Mortgage Corp., 6.0%, 3/1/33 853,785
564,481 Federal Home Loan Mortgage Corp., 6.0%, 5/1/34 570,171
73,375 Federal Home Loan Mortgage Corp., 6.5%, 3/1/11 75,361
219,713 Federal Home Loan Mortgage Corp., 6.5%, 7/1/16 225,803
53,923 Federal Home Loan Mortgage Corp., 6.5%, 1/1/29 55,487
30,729 Federal Home Loan Mortgage Corp., 6.5%, 3/1/29 31,609
31,871 Federal Home Loan Mortgage Corp., 6.5%, 4/1/31 32,727
85,317 Federal Home Loan Mortgage Corp., 6.5%, 10/1/31 87,610
39,714 Federal Home Loan Mortgage Corp., 6.5%, 2/1/32 40,782
204,842 Federal Home Loan Mortgage Corp., 6.5%, 4/1/32 210,296
69,307 Federal Home Loan Mortgage Corp., 6.5%, 7/1/32 71,153
2,681 Federal Home Loan Mortgage Corp., 7.0%, 4/1/30 2,793
18,919 Federal Home Loan Mortgage Corp., 7.0%, 2/1/31 19,709
The accompanying notes are an integral part of these financial statements. 95
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Principal
Amount Value
U.S. Government Agency Obligations (Cont.)
$ 2,780 Federal Home Loan Mortgage Corp., 7.0%, 7/1/31 $ 2,902
5,125 Federal Home Loan Mortgage Corp., 7.0%, 9/1/31 5,340
31,051 Federal Home Loan Mortgage Corp., 7.0%, 3/1/32 32,525
34,899 Federal Home Loan Mortgage Corp., 7.0%, 4/1/32 36,357
34,317 Federal Home Loan Mortgage Corp., 7.5%, 8/1/31 36,016
235,081 Federal National Mortgage Association, 4.5%, 4/1/19 229,102
75,567 Federal National Mortgage Association, 5.0%, 3/1/09 75,269
217,203 Federal National Mortgage Association, 5.0%, 7/1/19 214,993
283,420 Federal National Mortgage Association, 5.5%, 3/1/18 285,379
326,526 Federal National Mortgage Association, 5.5%, 4/1/18 329,079
352,107 Federal National Mortgage Association, 5.5%, 4/1/19 354,540
219,244 Federal National Mortgage Association, 5.5%, 6/1/23 219,287
320,507 Federal National Mortgage Association, 5.5%, 11/1/23 320,571
215,169 Federal National Mortgage Association, 5.5%, 3/1/24 214,884
379,347 Federal National Mortgage Association, 5.5%, 11/1/33 376,565
186,183 Federal National Mortgage Association, 5.5%, 12/1/34 184,538
66,283 Federal National Mortgage Association, 5.5%, 2/1/33 65,631
165,088 Federal National Mortgage Association, 5.5%, 6/1/33 166,811
307,203 Federal National Mortgage Association, 5.5%, 9/1/33 304,950
235,831 Federal National Mortgage Association, 5.5%, 3/1/34 233,747
182,523 Federal National Mortgage Association, 6.0%, 12/1/11 186,443
30,487 Federal National Mortgage Association, 6.0%, 12/1/31 30,847
41,953 Federal National Mortgage Association, 6.0%, 10/1/32 42,424
390,300 Federal National Mortgage Association, 6.0%, 11/1/32 394,676
499,985 Federal National Mortgage Association, 6.0%, 3/1/33 505,590
111,476 Federal National Mortgage Association, 6.0%, 4/1/33 112,725
107,155 Federal National Mortgage Association, 6.0%, 6/1/33 108,274
145,580 Federal National Mortgage Association, 6.0%, 7/1/34 146,956
138,438 Federal National Mortgage Association, 6.0%, 9/1/34 139,747
39,463 Federal National Mortgage Association, 6.5%, 7/1/21 40,789
92,346 Federal National Mortgage Association, 6.5%, 11/1/28 95,127
51,776 Federal National Mortgage Association, 6.5%, 1/1/29 53,320
63,288 Federal National Mortgage Association, 6.5%, 10/1/31 65,055
74,995 Federal National Mortgage Association, 6.5%, 1/1/32 77,089
30,948 Federal National Mortgage Association, 6.5%, 2/1/32 31,812
174,246 Federal National Mortgage Association, 6.5%, 3/1/32 179,030
81,977 Federal National Mortgage Association, 6.5%, 4/1/32 84,250
71,095 Federal National Mortgage Association, 6.5%, 7/1/32 73,066
262,423 Federal National Mortgage Association, 6.5%, 8/1/32 269,714
33,191 Federal National Mortgage Association, 6.5%, 9/1/32 34,111
329,070 Federal National Mortgage Association, 6.5%, 7/1/34 337,596
43,002 Federal National Mortgage Association, 7.0%, 9/1/18 45,083
26,838 Federal National Mortgage Association, 7.0%, 8/1/19 28,117
7,636 Federal National Mortgage Association, 7.0%, 1/1/29 7,976
135,136 Federal National Mortgage Association, 7.0%, 9/1/30 141,145
3,932 Federal National Mortgage Association, 7.0%, 5/1/31 4,104
19,370 Federal National Mortgage Association, 7.0%, 7/1/31 20,220
24,441 Federal National Mortgage Association, 7.0%, 1/1/32 25,514
16,146 Federal National Mortgage Association, 7.5%, 2/1/31 16,922
54,317 Federal National Mortgage Association, 9.0%, 4/1/33 57,343
96 The accompanying notes are an integral part of these financial statements.
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal
Amount Value
U.S. Government Agency Obligations (Cont.)
$ 250,000 Federal National Mortgage Association, Floating Rate Note, 3/1/19 $ 249,147
290,126 Government National Mortgage Association, 4.5%, 4/15/20 284,404
366,395 Government National Mortgage Association, 4.5%, 8/15/33 351,635
648,903 Government National Mortgage Association, 4.5%, 6/15/34 622,653
281,464 Government National Mortgage Association, 5.0%, 7/15/17 281,790
206,292 Government National Mortgage Association, 5.0%, 11/20/19 205,149
165,799 Government National Mortgage Association, 5.0%, 1/20/20 164,843
187,019 Government National Mortgage Association, 5.0%, 2/15/20 186,545
99,188 Government National Mortgage Association, 5.0%, 10/15/20 98,936
184,271 Government National Mortgage Association, 5.0%, 9/15/33 182,114
582,552 Government National Mortgage Association, 5.0%, 4/15/35 575,271
267,300 Government National Mortgage Association, 5.5%, 6/15/17 271,264
157,273 Government National Mortgage Association, 5.5%, 2/15/19 159,588
359,968 Government National Mortgage Association, 5.5%, 7/15/19 362,567
140,654 Government National Mortgage Association, 5.5%, 4/15/31 141,816
182,728 Government National Mortgage Association, 5.5%, 3/15/33 184,164
265,079 Government National Mortgage Association, 5.5%, 4/15/33 267,163
228,017 Government National Mortgage Association, 5.5%, 7/15/33 229,809
189,676 Government National Mortgage Association, 5.5%, 10/15/34 190,979
241,432 Government National Mortgage Association, 5.5%, 1/15/35 238,414
123,014 Government National Mortgage Association, 6.0%, 6/20/16 125,969
106,954 Government National Mortgage Association, 6.0%, 5/15/17 109,860
193,626 Government National Mortgage Association, 6.0%, 2/15/18 198,891
148,694 Government National Mortgage Association, 6.0%, 8/15/19 152,734
362,736 Government National Mortgage Association, 6.0%, 7/15/23 372,463
163,451 Government National Mortgage Association, 6.0%, 4/15/28 167,659
120,095 Government National Mortgage Association, 6.0%, 9/15/32 123,115
339,163 Government National Mortgage Association, 6.0%, 10/15/32 347,692
354,993 Government National Mortgage Association, 6.0%, 11/15/32 364,232
242,488 Government National Mortgage Association, 6.0%, 12/15/32 249,079
326,712 Government National Mortgage Association, 6.0%, 1/15/33 334,908
495,657 Government National Mortgage Association, 6.0%, 2/15/33 508,088
277,532 Government National Mortgage Association, 6.0%, 9/15/33 284,493
242,842 Government National Mortgage Association, 6.0%, 12/15/33 248,932
591,471 Government National Mortgage Association, 6.0%, 3/15/34 605,717
321,202 Government National Mortgage Association, 6.0%, 8/15/34 329,061
114,201 Government National Mortgage Association, 6.0%, 9/15/34 116,952
618,817 Government National Mortgage Association, 6.0%, 10/15/34 633,723
143,279 Government National Mortgage Association, 6.5%, 4/15/17 148,001
17,662 Government National Mortgage Association, 6.5%, 6/15/17 18,245
14,671 Government National Mortgage Association, 6.5%, 3/15/26 15,363
86,878 Government National Mortgage Association, 6.5%, 6/15/28 90,971
25,540 Government National Mortgage Association, 6.5%, 2/15/29 26,726
342,050 Government National Mortgage Association, 6.5%, 5/15/29 358,025
8,930 Government National Mortgage Association, 6.5%, 6/15/29 9,344
49,287 Government National Mortgage Association, 6.5%, 5/15/31 51,515
277,925 Government National Mortgage Association, 6.5%, 6/15/31 290,488
85,739 Government National Mortgage Association, 6.5%, 7/15/31 89,614
The accompanying notes are an integral part of these financial statements. 97
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Principal
Amount Value
U.S. Government Agency Obligations (Cont.)
$ 69,261 Government National Mortgage Association, 6.5%, 9/15/31 $ 72,391
89,672 Government National Mortgage Association, 6.5%, 10/15/31 93,725
76,797 Government National Mortgage Association, 6.5%, 12/15/31 80,268
9,021 Government National Mortgage Association, 6.5%, 2/15/32 9,470
59,601 Government National Mortgage Association, 6.5%, 4/15/32 62,278
85,797 Government National Mortgage Association, 6.5%, 6/15/32 89,651
71,688 Government National Mortgage Association, 6.5%, 7/15/32 74,909
115,999 Government National Mortgage Association, 6.5%, 1/15/34 121,093
12,942 Government National Mortgage Association, 7.0%, 1/15/26 13,624
44,620 Government National Mortgage Association, 7.0%, 7/15/26 46,972
15,448 Government National Mortgage Association, 7.0%, 9/15/27 16,247
48,023 Government National Mortgage Association, 7.0%, 2/15/28 50,470
12,363 Government National Mortgage Association, 7.0%, 3/15/28 12,993
21,109 Government National Mortgage Association, 7.0%, 4/15/28 22,184
40,072 Government National Mortgage Association, 7.0%, 11/15/28 42,113
26,140 Government National Mortgage Association, 7.0%, 1/15/29 27,458
32,388 Government National Mortgage Association, 7.0%, 6/15/29 34,021
40,413 Government National Mortgage Association, 7.0%, 7/15/29 42,450
4,843 Government National Mortgage Association, 7.0%, 12/15/30 5,086
18,075 Government National Mortgage Association, 7.0%, 2/15/31 18,977
20,396 Government National Mortgage Association, 7.0%, 5/15/31 21,414
23,765 Government National Mortgage Association, 7.0%, 8/15/31 24,951
113,475 Government National Mortgage Association, 7.0%, 5/15/32 119,129
7,643 Government National Mortgage Association, 7.5%, 10/15/22 8,096
1,801 Government National Mortgage Association, 7.5%, 6/15/23 1,906
1,637 Government National Mortgage Association, 7.5%, 8/15/23 1,733
1,770 Government National Mortgage Association, 7.5%, 8/15/29 1,862
25,609 Government National Mortgage Association, 7.5%, 10/15/29 26,947
38,568 Government National Mortgage Association, 7.5%, 11/15/29 40,584
13,184 Government National Mortgage Association, 7.5%, 1/15/31 13,864
16,348 Government National Mortgage Association, 7.5%, 1/15/32 17,191
106,654 Government National Mortgage Association I, 6.0%, 2/15/29 109,357
37,615 Government National Mortgage Association I, 7.0%, 11/15/30 39,499
39,205 Government National Mortgage Association I, 7.0%, 12/15/30 41,168
317,317 Government National Mortgage Association II, 5.0%, 12/20/18 315,706
361,777 Government National Mortgage Association II, 5.5%, 7/20/19 365,989
169,565 Government National Mortgage Association II, 5.5%, 11/20/34 170,306
354,192 Government National Mortgage Association II, 5.5%, 2/20/34 355,741
51,694 Government National Mortgage Association II, 6.0%, 12/20/18 52,939
143,776 Government National Mortgage Association II, 6.0%, 7/20/19 147,192
193,253 Government National Mortgage Association II, 6.0%, 11/20/33 197,678
29,079 Government National Mortgage Association II, 6.5%, 8/20/28 30,242
38,585 Government National Mortgage Association II, 6.5%, 12/20/28 40,125
28,221 Government National Mortgage Association II, 6.5%, 9/20/31 29,294
38,488 Government National Mortgage Association II, 7.0%, 5/20/26 40,252
74,140 Government National Mortgage Association II, 7.0%, 2/20/29 77,369
14,114 Government National Mortgage Association II, 7.0%, 1/20/31 14,721
6,449 Government National Mortgage Association II, 7.5%, 8/20/27 6,762
2,322 Government National Mortgage Association II, 8.0%, 8/20/25 2,477
98 The accompanying notes are an integral part of these financial statements.
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal
Amount Value
U.S. Government Agency Obligations (Cont.)
$ 12,000 Tennessee Valley Authority, Variable Rate Note, 6/1/28 $ 288,000
850,000 U.S. Treasury Bonds, 4.0%, 2/15/14 826,957
2,150,000 U.S. Treasury Bonds, 6.25%, 8/15/23 2,567,403
400,000 U.S. Treasury Bonds, 7.25%, 5/15/16 491,156
3,365,100 U.S. Treasury Inflation Protected Security, 3.375%, 1/15/12 3,618,401
228,876 U.S. Treasury Inflation Protected Security, 3.5%, 1/15/11 244,611
500,000 U.S. Treasury Notes, 4.0%, 11/15/12 489,239
870,000 U.S. Treasury Notes, 4.25%, 11/15/14 859,872
300,000 U.S. Treasury Notes, 4.25%, 8/15/15 296,121
475,000 U.S. Treasury Notes, 4.75%, 5/15/14 486,560
925,000 U.S. Treasury Notes, 6.375%, 8/15/27 1,145,880
4,300,000 U.S. Treasury Notes, 6.5%, 2/15/10 4,638,457
-----------
$45,399,429
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $45,430,211) $45,399,429
-----------
TOTAL INVESTMENT IN SECURITIES - 98.4%
(Cost $46,408,976) $46,356,306
-----------
OTHER ASSETS AND LIABILITIES - 1.6% $ 761,864
-----------
TOTAL NET ASSETS - 100.0% $47,118,170
===========
The accompanying notes are an integral part of these financial statements. 99
Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Principal
Amount Value
COLLATERALIZED MORTGAGE
OBLIGATIONS - 3.0%
Banks - 3.0%
Thrifts & Mortgage Finance - 3.0%
$ 981,854 Federal Home Loan Mortgage Corp.
Multifamily VRD Certificate, 4.13%,
1/15/42 $ 981,854
-----------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $981,854) $ 981,854
-----------
CORPORATE BONDS - 54.3%
Capital Goods - 3.9%
Industrial Conglomerates - 3.9%
500,000 General Electric Capital Corp.,
Floating Rate Note, 10/17/06 $ 500,000
800,000 GE Capital Corp., Floating Rate
Note, 1/9/07 800,000
-----------
Total Capital Goods $ 1,300,000
-----------
Commercial Services & Supplies - 4.5%
Office Services & Supplies - 4.5%
1,500,000 Pitney Bowes, Inc., 5.875%, 5/1/06 $ 1,509,960
-----------
Total Commercial Services &
Supplies $ 1,509,960
-----------
Automobiles & Components - 4.5%
Automobile Manufacturers - 4.5%
1,500,000 Toyota Motor Credit, Floating Rate
Note, 6/23/06 $ 1,500,143
-----------
Total Automobiles & Components $ 1,500,143
-----------
Food & Drug Retailing - 2.3%
Hypermarkets & Supercenters - 2.3%
750,000 Wal-Mart Stores, Floating Rate
Note, 3/16/06 $ 749,846
-----------
Total Food & Drug Retailing $ 749,846
-----------
Pharmaceuticals & Biotechnology - 4.5%
Pharmaceuticals - 4.5%
1,000,000 Abbott Laboratories, 5.625%, 7/1/06 $ 1,006,960
500,000 Pfizer Inc., 5.625%, 2/1/06 500,985
-----------
$ 1,507,945
-----------
Total Pharmaceuticals &
Biotechnology $ 1,507,945
-----------
Principal
Amount Value
Banks - 7.6%
Diversified Banks - 7.6%
$ 1,000,000 Bank of America Corp., 7.125%, 5/1/06 $ 1,010,866
1,000,000 Wells Fargo & Co., Floating Rate
Note, 3/3/06 1,000,199
500,000 Wells Fargo & Co., Floating Rate
Note, 6/12/06 500,217
-----------
$ 2,511,282
-----------
Total Banks $ 2,511,282
-----------
Diversified Financials - 27.0%
Consumer Finance - 6.8%
1,000,000 SLM Corp., Floating Rate Note, 3/15/06 $ 1,000,437
500,000 SLM Corp., Floating Rate Note, 4/25/06 500,312
250,000 National Rural Utilities, 6.0%, 5/15/06 252,037
500,000 National Rural Utilities, Floating Rate
Note, 2/17/06 499,992
-----------
$ 2,252,778
-----------
Investment Banking & Brokerage - 20.2%
1,000,000 Merrill Lynch, Floating Rate
Note, 1/11/07 $ 1,000,158
1,000,000 Merrill Lynch & Co., Floating Rate
Note, 3/17/06 1,000,167
1,500,000 Lehman Brothers Holdings,
6.25%, 5/15/06 1,513,708
1,500,000 Credit Suisse First Boston, Floating
Rate Note, 6/19/06 1,502,080
1,700,000 Morgan Stanley Dean Witter, Floating
Rate Note, 3/27/06 1,701,259
-----------
Total Diversified Financials $ 6,717,372
-----------
TOTAL CORPORATE BONDS
(Cost $18,049,326) $18,049,326
-----------
100 The accompanying notes are an integral part of these financial statements.
Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal
Amount Value
TEMPORARY CASH INVESTMENTS - 47.1%
Commercial Paper - 38.7%
$ 1,000,000 Coca Cola Co., 4.25%, 2/27/06 $ 993,271
1,500,000 Deutsche Bank Financial LLC,
4.31%, 1/30/06 1,494,792
1,500,000 Federal Home Loan Bank,
4.05%, 1/27/06 1,495,612
3,307,000 Federal Home Loan Mortgage
Corp., 4.162%, 1/31/06 3,295,519
1,000,000 Federal Home Loan Mortgage
Corp., 4.165%, 1/3/06 999,768
1,500,000 Federal Home Loan Mortgage
Corp., 4.17%, 2/7/06 1,494,231
1,000,000 Federal Home Loan, Zero
Coupon, 1/13/06 998,607
1,500,000 Minnesota Mining & Manufacturing,
4.15%, 2/2/06 1,494,467
585,000 Paccar Financial Corp., 4.32%, 2/28/06 580,928
-----------
$12,847,195
-----------
Principal
Amount Value
Repurchase Agreement - 8.4%
$ 2,800,000 UBS Warburg, Inc., 3.25% dated
12/30/05, repurchase price of
$2,800,000 plus accrued interest on
1/3/06, collateralized by $2,919,000,
U.S. Treasury Bill, 6/29/06 $ 2,800,000
-----------
TOTAL TEMPORARY CASH
INVESTMENTS
(Cost $15,647,195) $15,647,195
-----------
TOTAL INVESTMENTS IN
SECURITIES - 104.4%
(Cost $34,678,375) $34,678,375
-----------
OTHER ASSETS
AND LIABILITIES - (4.4%) $(1,462,280)
-----------
TOTAL NET ASSETS - 100.0% $33,216,095
===========
The accompanying notes are an integral part of these financial statements. 101
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 20.48 $ 17.37 $ 11.03 $ 11.23 $ 12.10
------- ------- ------- ------- -------
Increase (decrease) from investment operations:
Net investment income $ 0.22 $ 0.22 $ 0.20 $ 0.06 $ 0.15
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 7.51 3.04 6.20 (0.19) (1.02)
------- ------- ------- ------- -------
Net increase (decrease) from investment operations $ 7.73 $ 3.26 $ 6.40 $ (0.13) $ (0.87)
Distributions to shareowners:
Net investment income (0.12) (0.15) (0.06) (0.07) --
------- -------- -------- ------- -------
Net increase (decrease) in net asset value $ 7.61 $ 3.11 $ 6.34 $ (0.20) $ (0.87)
------- -------- -------- ------- -------
Net asset value, end of period $ 28.09 $ 20.48 $ 17.37 $ 11.03 $ 11.23
======= ======== ======== ======== =======
Total return* 37.95% 18.93% 58.17% (1.20)% (7.19)%
Ratio of net expenses to average net assets+ 1.75% 1.75% 1.75% 1.75% 1.66%
Ratio of net investment income to average net assets+ 0.94% 1.12% 1.43% 0.63% 1.30%
Portfolio turnover rate 74% 66% 79% 124% 175%
Net assets, end of period (in thousands) $11,205 $ 8,633 $ 8,399 $ 5,886 $ 6,896
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 1.77% 1.87% 2.51% 2.88% 3.83%
Net investment income (loss) 0.92% 1.00% 0.67% (0.50)% (0.87)%
Ratios with waiver of management fees and assumption of
expenses by PIM and reduction for fees paid indirectly:
Net expenses 1.75% 1.75% 1.75% 1.75% 1.66%
Net investment income 0.94% 1.12% 1.43% 0.63% 1.30%
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
+ Ratios with no reduction for fees paid indirectly.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
102 The accompanying notes are an integral part of these financial statements.
Pioneer Europe VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 10.64 $ 9.05 $ 6.82 $ 8.42 $ 11.07
------- ------- ------ -------- --------
Increase (decrease) from investment operations:
Net investment income (loss) $ 0.12 $ 0.11 $ 0.09 $ 0.05 $ 0.01
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 0.73 1.55 2.17 (1.65) (2.51)
------- ------- ------ -------- --------
Net increase (decrease) from investment operations $ 0.85 $ 1.66 $ 2.26 $ (1.60) $ (2.50)
Distributions to shareowners:
Net investment income (0.07) (0.07) (0.03) -- (0.15)
Net realized gain -- -- -- -- --
-------- ------- ------- -------- --------
Net increase (decrease) in net asset value $ 0.78 $ 1.59 $ 2.23 $ (1.60) $ (2.65)
-------- ------- ------- -------- --------
Net asset value, end of period $ 11.42 $ 10.64 $ 9.05 $ 6.82 $ 8.42
======== ======= ======= ======== ========
Total return* 8.05% 18.48% 33.26% (19.00)% (22.66)%
Ratio of net expenses to average net assets+ 1.50% 1.50% 1.50% 1.50% 1.50%
Ratio of net investment income (loss) to average net assets+ 0.97% 0.92% 1.14% 0.68% 0.25%
Portfolio turnover rate 95% 55% 52% 94% 73%
Net assets, end of period (in thousands) $ 8,714 $ 9,478 $ 9,330 $ 8,696 $ 12,417
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 1.76% 1.94% 2.52% 2.21% 1.99%
Net investment income (loss) 0.71% 0.48% 0.12% 0.03% (0.24)%
Ratios with waiver of management fees and assumption of
expenses by PIM and reduction for fees paid indirectly:
Net expenses 1.50% 1.50% 1.50% 1.50% 1.50%
Net investment income (loss) 0.97% 0.92% 1.14% 0.68% 0.25%
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 11.88 $ 10.06 $ 7.79 $ 9.00 $ 11.83
------- ------- ------- -------- --------
Increase (decrease) from investment operations:
Net investment income (loss) $ 0.10 $ 0.05 $ 0.07 $ 0.03 $ 0.02
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 1.75 1.82 2.26 (1.23) (2.83)
------- ------- ------- -------- --------
Net increase (decrease) from investment operations $ 1.85 $ 1.87 $ 2.33 $ (1.20) $ (2.81)
Distributions to shareowners:
Net investment income (0.02) (0.05) (0.06) (0.01) (0.02)
Net realized gain -- -- -- -- --
------- ------- ------- -------- --------
Net increase (decrease) in net asset value $ 1.83 $ 1.82 $ 2.27 $ (1.21) $ (2.83)
------- ------- ------- -------- --------
Net asset value, end of period $ 13.71 $ 11.88 $ 10.06 $ 7.79 $ 9.00
======= ======= ======= ======== ========
Total return* 15.58% 18.71% 30.06% (13.31)% (23.74)%
Ratio of net expenses to average net assets+ 1.53% 1.75% 1.69% 1.46% 1.38%
Ratio of net investment income (loss) to average net assets+ 0.70% 0.45% 0.68% 0.62% 0.21%
Portfolio turnover rate 108% 129% 99% 31% 39%
Net assets, end of period (in thousands) $21,176 $22,859 $22,506 $ 21,271 $ 32,083
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 1.53% 1.75% 1.69% 1.46% 1.38%
Net investment income 0.70% 0.45% 0.68% 0.62% 0.21%
Ratios with waiver of management fees and assumption of
expenses by PIM and reduction for fees paid indirectly:
Net expenses 1.53% 1.75% 1.69% 1.46% 1.38%
Net investment income 0.70% 0.45% 0.68% 0.62% 0.21%
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
+ Ratios with no reduction for fees paid indirectly.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
The accompanying notes are an integral part of these financial statements. 103
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended Year Ended
Class I 12/31/05 12/31/04
Net asset value, beginning of period $ 15.02 $ 12.50
------- -------
Increase (decrease) from investment operations:
Net investment income (loss) $ 0.05 $ (0.03)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 1.61 2.55
------- -------
Net increase (decrease) from investment operations $ 1.66 $ 2.52
Distributions to shareowners:
Net investment income -- --
Net realized gain (0.49) --
------- -------
Net increase (decrease) in net asset value $ 1.17 $ 2.52
------- -------
Net asset value, end of period $ 16.19 $ 15.02
======= =======
Total return* 11.39% 20.16%
Ratio of net expenses to average net assets+ 1.15% 1.25%
Ratio of net investment income (loss) to average net assets+ 0.35% (0.21)%
Portfolio turnover rate 38% 36%
Net assets, end of period (in thousands) $20,555 $17,993
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 1.15% 1.30%
Net investment income (loss) 0.35% (0.26)%
Ratios with waiver of management fees and assumption of expenses
by PIM and no reduction for fees paid indirectly:
Net expenses 1.15% 1.25%
Net investment income (loss) 0.35% (0.21)%
11/8/01(a)
Year Ended Year Ended to
Class I 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 9.23 $ 10.87 $ 10.00
------- --------- --------
Increase (decrease) from investment operations:
Net investment income (loss) $ -- $ (0.01) $ 0.01
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 3.27 (1.63) 0.86
------- --------- --------
Net increase (decrease) from investment operations $ 3.27 $ (1.64) $ 0.87
Distributions to shareowners:
Net investment income -- (0.00)(b) --
Net realized gain -- (0.00)(b) --
------- --------- ----------
Net increase (decrease) in net asset value $ 3.27 $ (1.65) $ 0.87
------- --------- ----------
Net asset value, end of period $ 12.50 $ 9.23 $ 10.87
======= ========= ========
Total return* 35.43% (15.08)% 8.70%
Ratio of net expenses to average net assets+ 1.25% 1.25% 1.21%**
Ratio of net investment income (loss) to average net assets+ 0.03% (0.05)% 0.86%**
Portfolio turnover rate 74% 50% 0%
Net assets, end of period (in thousands) $12,049 $ 6,603 $ 504
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 2.40% 2.76% 77.48%**
Net investment income (loss) (1.12)% (1.56)% (75.41)%**
Ratios with waiver of management fees and assumption of expenses
by PIM and no reduction for fees paid indirectly:
Net expenses 1.25% 1.25% 1.21%**
Net investment income (loss) 0.03% (0.05)% 0.86%**
(a) Shares of Pioneer Small Cap Value VCT Portfolio were first publicly offered
on November 8, 2001.
(b) Amount rounds to less than one cent per share.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
+ Ratios with no reduction for fees paid indirectly.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
104 The accompanying notes are an integral part of these financial statements.
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended Year Ended
Class I 12/31/05 12/31/04
Net asset value, beginning of period $ 12.97 $ 11.44
------- -------
Increase (decrease) from investment operations:
Net investment income (loss) $ 0.02 $ (0.03)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 0.14 1.56
------- -------
Net increase (decrease) from investment operations $ 0.16 $ 1.53
Distributions to shareowners:
Net investment income -- --
Net realized gain (1.28) --
------- -------
Net increase (decrease) in net asset value $ (1.12) $ 1.53
------- -------
Net asset value, end of period $ 11.85 $ 12.97
======= =======
Total return* 1.78% 13.38%
Ratio of net expenses to average net assets+ 1.25% 1.25%
Ratio of net investment income (loss) to average net assets+ (0.15)% (0.25)%
Portfolio turnover rate 65% 114%
Net assets, end of period (in thousands) $ 3,285 $ 3,784
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 1.61% 1.53%
Net investment income (loss) (0.21)% (0.53)%
Ratio with waiver of management fees and assumption of
expenses by PIM and reduction for fees paid indirectly:
Net expenses 1.25% 1.25%
Net investment income (loss) (0.15)% (0.25)%
1/19/01(a)
Year Ended Year Ended to
Class I 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 9.13 $ 10.97 $ 10.00
------- -------- -------
Increase (decrease) from investment operations:
Net investment income (loss) $ 0.00(b) $ 0.00(b) $ 0.02
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 2.31 (1.84) 0.95
--------- -------- -------
Net increase (decrease) from investment operations $ 2.31 $ (1.84) $ 0.97
Distributions to shareowners:
Net investment income -- (0.00)(b) --
Net realized gain -- -- --
--------- -------- ---------
Net increase (decrease) in net asset value $ 2.31 $ (1.84) $ 0.97
--------- -------- ---------
Net asset value, end of period $ 11.44 $ 9.13 $ 10.97
========= ======== ========
Total return* 25.30% (16.75)% 9.70%
Ratio of net expenses to average net assets+ 1.25% 1.25% 1.24%**
Ratio of net investment income (loss) to average net assets+ 0.02% 0.07% 0.30%**
Portfolio turnover rate 38% 53% 72%
Net assets, end of period (in thousands) $ 3,875 $ 3,441 $ 2,375
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 2.42% 2.68% 7.49%**
Net investment income (loss) (1.15)% (1.36)% 5.95)%**
Ratio with waiver of management fees and assumption of
expenses by PIM and reduction for fees paid indirectly:
Net expenses 1.25% 2.68% 1.24%**
Net investment income (loss) 0.02% 1.36% 0.30%**
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 24.67 $ 20.47 $ 14.94 $ 17.35 $ 17.79
------- ------- ------- -------- --------
Increase (decrease) from investment operations:
Net investment income (loss) $ 0.15 $ 0.08 $ 0.14 $ 0.07 $ 0.07
Net realized and unrealized gain (loss) on investments 1.75 4.41 5.45 (1.97) 1.06
------- ------- ------- -------- --------
Net increase (decrease) from investment operations $ 1.90 $ 4.49 $ 5.59 $ (1.90) $ 1.13
Distributions to shareowners:
Net investment income (0.08) (0.08) (0.06) (0.05) (0.10)
Net realized gain (1.49) (0.21) -- (0.46) (1.47)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value $ 0.33 $ 4.20 $ 5.53 $ (2.41) $ (0.44)
-------- -------- -------- -------- --------
Net asset value, end of year $ 25.00 $ 24.67 $ 20.47 $ 14.94 $ 17.35
======== ======== ========= ========= =========
Total return* 7.88% 22.12% 37.48% (11.21)% 6.49%
Ratio of net expenses to average net assets+ 0.71% 0.72% 0.76% 0.80% 0.79%
Ratio of net investment income (loss) to average net assets+ 0.58% 0.53% 0.86% 0.46% 0.45%
Portfolio turnover rate 42% 55% 52% 68% 95%
Net assets, end of period (in thousands) $288,837 $303,138 $170,237 $120,687 $128,340
Ratio with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 0.71% 0.72% 0.76% 0.80% 0.79%
Net investment income (loss) 0.58% 0.53% 0.86% 0.46% 0.45%
Ratio with waiver of management fees and assumption of
expenses by PIM and reduction for fees paid indirectly:
Net expenses 0.71% 0.72% 0.76% 0.80% 0.79%
Net investment income (loss) 0.58% 0.53% 0.86% 0.46% 0.45%
(a) Shares of Pioneer Small Company VCT Portfolio were first publicly offered
on January 19, 2001.
(b) Amount rounds to less than one cent per share.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
+ Ratios with no reduction for fees paid indirectly.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
The accompanying notes are an integral part of these financial statements. 105
Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended Year Ended
Class I 12/31/05 12/31/04
Net asset value, beginning of period $ 13.04 $ 12.22
------- -------
Increase (decrease) from investment operations:
Net investment income (loss) $ 0.04 $ 0.09
Net realized and unrealized gain (loss) on investments 0.41 0.73
------- -------
Net increase (decrease) from investment operations $ 0.45 $ 0.82
Distributions to shareowners:
Net investment income (0.10) --
------- -------
Net increase (decrease) in net asset value $ 0.35 $ 0.82
------- -------
Net asset value, end of period $ 13.39 $ 13.04
======= ========
Total return* 3.48% 6.71%
Ratio of net expenses to average net assets+ 0.96% 0.96%
Ratio of net investment income (loss) to average net assets+ 0.19% 0.71%
Portfolio turnover rate 79% 206%
Net assets, end of period (in thousands) $26,986 $32,300
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 0.96% 0.97%
Net investment income (loss) 0.19% 0.71%
Ratios with waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 0.96% 0.96%
Net investment income (loss) 0.19% 0.71%
Year Ended Year Ended Year Ended
Class I 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 9.75 $ 14.95 $ 18.39
--------- -------- ---------
Increase (decrease) from investment operations:
Net investment income (loss) $ (0.01) $ 0.00(a) $ 0.01
Net realized and unrealized gain (loss) on investments 2.48 (5.19) (3.45)
--------- --------- ---------
Net increase (decrease) from investment operations $ 2.47 $ (5.19) $ (3.44)
Distributions to shareowners:
Net investment income (0.00)(a) (0.01) --
--------- --------- ---------
Net increase (decrease) in net asset value $ 2.47 $ (5.20) $ (3.44)
--------- --------- ---------
Net asset value, end of period $ 12.22 $ 9.75 $ 14.95
========= ========= ==========
Total return* 25.35% (34.71)% (18.71)%
Ratio of net expenses to average net assets+ 1.08% 0.97% 0.85%
Ratio of net investment income (loss) to average net assets+ (0.05)% 0.01% 0.07%
Portfolio turnover rate 58% 86% 111%
Net assets, end of period (in thousands) $ 35,750 $ 34,746 $ 72,456
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 1.08% 0.97% 0.85%
Net investment income (loss) (0.05)% 0.01% 0.07%
Ratios with waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 1.08% 0.97% 0.85%
Net investment income (loss) (0.05)% 0.01% 0.07%
Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 24.30 $ 18.57 $ 14.47 $ 14.77 $ 14.42
------- ------- ------- ------- -------
Increase (decrease) from investment operations:
Net investment income (loss) $ 0.43 $ 0.52 $ 0.74 $ 0.62 $ 0.68
Net realized and unrealized gain (loss) on investments 3.10 5.99 4.16 (0.23) 0.40
------- ------- ------- ------- -------
Net increase from investment operations $ 3.53 $ 6.51 $ 4.90 $ 0.39 $ 1.08
Distributions to shareowners:
Net investment income (0.39) (0.45) (0.64) (0.69) (0.56)
Net realized gain (1.31) (0.33) -- -- --
Tax return of capital -- -- (0.16) -- (0.17)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value $ 1.83 $ 5.73 $ 4.10 $ (0.30) $ 0.35
------- ------- ------- ------- -------
Net asset value, end of period $ 26.13 $ 24.30 $ 18.57 $ 14.47 $ 14.77
======= ======= ======= ======= =======
Total return* 15.13% 35.74% 34.75% (2.53)% 7.80%
Ratio of net expenses to average net assets+ 0.94% 0.98% 1.03% 1.07% 1.16%
Ratio of net investment income to average net assets+ 1.65% 2.41% 4.49% 4.76% 4.71%
Portfolio turnover rate 12% 35% 20% 29% 34%
Net assets, end of period (in thousands) $32,086 $36,447 $31,891 $29,873 $33,026
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 0.94% 0.98% 1.03% 1.07% 1.16%
Net investment income 1.65% 2.41% 4.49% 4.76% 4.71%
Ratios with waiver of management fees and assumption of
expenses by PIM and reduction for fees paid indirectly:
Net expenses 0.94% 0.98% 1.03% 1.07% 1.16%
Net investment income 1.65% 2.41% 4.49% 4.76% 4.71%
(a) Amount rounds to less than one cent per share.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
+ Ratios with no reduction for fees paid indirectly.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
106 The accompanying notes are an integral part of these financial statements.
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 20.57 $ 18.70 $ 15.28 $ 19.08 $ 22.67
------- ------- ------- ------- --------
Increase (decrease) from investment operations:
Net investment income (loss) $ 0.27 $ 0.24 $ 0.20 $ 0.19 $ 0.17
Net realized and unrealized gain (loss) on investments 0.99 1.85 3.41 (3.81) (2.57)
------- ------- ------- -------- --------
Net increase (decrease) from investment operations $ 1.26 $ 2.09 $ 3.61 $ (3.62) $ (2.40)
Distributions to shareowners:
Net investment income (0.28) (0.22) (0.19) (0.18) (0.17)
Net realized gain -- -- -- -- (1.02)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value $ 0.98 $ 1.87 $ 3.42 $ (3.80) $ (3.59)
-------- -------- -------- -------- --------
Net asset value, end of period $ 21.55 $ 20.57 $ 18.70 $ 15.28 $ 19.08
======== ======== ======== ======== ========
Total return* 6.17% 11.26% 23.76% 19.03% (10.85)%
Ratio of net expenses to average net assets+ 0.70% 0.71% 0.76% 0.80% 0.74%
Ratio of net investment income (loss) to average net assets+ 1.26% 1.26% 1.16% 1.09% 0.83%
Portfolio turnover rate 23% 17% 11% 11% 7%
Net assets, end of period (in thousands) $382,973 $454,136 $154,839 $141,892 $199,160
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 0.70% 0.71% 0.76% 0.80% 0.74%
Net investment income (loss) 1.26% 1.26% 1.16% 1.09% 0.83%
Ratios with waiver of management fees and assumption of
expenses by PIM and reduction for fees paid indirectly:
Net expenses 0.70% 0.71% 0.76% 0.80% 0.74%
Net investment income (loss) 1.26% 1.26% 1.16% 1.09% 0.83%
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 20.58 $ 18.09 $ 15.11 $ 18.40 $ 21.28
------- ------- ------- -------- -------
Increase (decrease) from investment operations:
Net investment income (loss) $ 0.51 $ 0.44 $ 0.41 $ 0.42 $ 0.40
Net realized and unrealized gain (loss) on investments 0.66 2.49 2.96 (3.30) (1.86)
------- ------- ------- -------- -------
Net increase (decrease) from investment operations $ 1.17 $ 2.93 $ 3.37 $ (2.88) $ (1.46)
Distributions to shareowners:
Net investment income (0.50) (0.44) (0.39) (0.41) (0.36)
Net realized gain -- -- -- -- (1.06)
-------- -------- -------- -------- -------
Net increase (decrease) in net asset value $ 0.67 $ 2.49 $ 2.98 $ (3.29) $ (2.88)
-------- -------- -------- -------- -------
Net asset value, end of period $ 21.25 $ 20.58 $ 18.09 $ 15.11 $ 18.40
======== ======== ======== ======== ========
Total return* 5.72% 16.39% 0.86% (15.82)% (6.97)%
Ratio of net expenses to average net assets+ 0.71% 0.72% 0.78% 0.80% 0.75%
Ratio of net investment income (loss) to average net assets+ 2.56% 2.40% 2.55% 2.48% 2.07%
Portfolio turnover rate 22% 19% 12% 12% 13%
Net assets, end of period (in thousands) $232,249 $188,234 $155,634 $133,258 $164,019
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 0.71% 0.72% 0.78% 0.80% 0.75%
Net investment income (loss) 2.56% 2.40% 2.55% 2.48% 2.07%
Ratios with waiver of management fees and assumption of
expenses by PIM and reduction for fees paid indirectly:
Net expenses 0.71% 0.72% 0.78% 0.80% 0.75%
Net investment income (loss) 2.56% 2.40% 2.55% 2.48% 2.07%
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
+ Ratios with no reduction for fees paid indirectly.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
The accompanying notes are an integral part of these financial statements. 107
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01(a)
Net asset value, beginning of period $ 14.40 $ 14.04 $ 12.27 $ 13.91 $ 14.60
------- ------- ------- -------- -------
Increase (decrease) from investment operations:
Net investment income (loss) $ 0.25 $ 0.28 $ 0.23 $ 0.21 $ 0.34
Net realized and unrealized gain (loss) on investments 0.33 0.39 1.80 (1.63) (0.67)
------- ------- ------- -------- -------
Net increase (decrease) from investment operations $ 0.58 $ 0.67 $ 2.03 $ (1.42) $ (0.33)
Distributions to shareowners:
Net investment income (0.27) (0.31) (0.26) (0.22) (0.36)
Net realized gain -- -- -- -- --
------- ------- ------- -------- -------
Net increase (decrease) in net asset value $ 0.31 $ 0.36 $ 1.77 $ (1.64) $ (0.69)
------- ------- ------- -------- -------
Net asset value, end of period $ 14.71 $ 14.40 $ 14.04 $ 12.27 $ 13.91
======= ======= ======= ======== =======
Total return* 4.08% 4.79% 16.71% (10.27)% (2.26)%
Ratio of net expenses to average net assets+ 0.92% 0.90% 0.91% 0.95% 0.84%
Ratio of net investment income to average net assets+ 1.66% 1.96% 1.75% 1.62% 2.42%
Portfolio turnover rate 25% 30% 37% 179% 136%
Net assets, end of period (in thousands) $29,420 $35,312 $40,773 $ 42,849 $56,890
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 0.92% 0.90% 0.91% 0.95% 0.84%
Net investment income 1.66% 1.96% 1.75% 1.62% 2.42%
Ratios with waiver of management fees and assumption of
expenses by PIM and reduction for fees paid indirectly:
Net expenses 0.92% 0.90% 0.91% 0.95% 0.84%
Net investment income 1.66% 1.96% 1.75% 1.62% 2.42%
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 11.67 $ 11.45 $ 9.27 $ 10.33 $ 9.82
------- ------- ------- ------- -------
Increase (decrease) from investment operations:
Net investment income (loss) $ 0.61 $ 0.62 $ 0.76 $ 0.92 $ 0.95
Net realized and unrealized gain (loss) on investments (0.41) 0.27 2.18 (1.06) 0.62
------- ------- ------- ------- -------
Net increase (decrease) from investment operations $ 0.20 $ 0.89 $ 2.94 $ (0.14) $ 1.57
Distributions to shareowners:
Net investment income (0.61) (0.62) (0.76) (0.92) (0.95)
Net realized gain (0.38) (0.05) -- -- (0.11)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value $ (0.79) $ 0.22 $ 2.18 $ (1.06) $ 0.51
-------- ------- ------- ------- -------
Net asset value, end of period $ 10.88 $ 11.67 $ 11.45 $ 9.27 $ 10.33
======== ======= ======= ======= =======
Total return* 1.95% 8.03% 32.78% (1.42)% 16.60%
Ratio of net expenses to average net assets+ 0.77% 0.78% 0.89% 1.02% 1.15%
Ratio of net investment income (loss) to average net assets+ 5.52% 5.40% 7.22% 9.39% 9.15%
Portfolio turnover rate 37% 42% 48% 42% 36%
Net assets, end of period (in thousands) $ 63,452 $70,890 $66,587 $41,111 $32,331
Ratios with no waiver of management fees and assumption of
expenses by PIM and reduction for fees paid indirectly:
Net expenses 0.77% 0.78% 0.89% 1.02% 1.28%
Net investment income (loss) 5.52% 5.40% 7.22% 9.39% 9.02%
(a) The Portfolio began accreting discounts and amortizing premiums on debt
securities. The effect of this change for the year ended December 31, 2001,
was to decrease net investment income by $0.00, increase net realized and
unrealized gain (loss) by $0.00 (both amounts round to less than one cent
per share) and to decrease the ratio of net investment income to average net
assets with waiver of management fees by PIM and reduction for fees paid
indirectly.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
+ Ratios with no reduction for fees paid indirectly.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
108 The accompanying notes are an integral part of these financial statements.
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 11.26 $ 11.01 $ 9.67 $ 9.33 $ 9.43
------- ------- ------- ------ ------
Increase (decrease) from investment operations:
Net investment income (loss) $ 0.61 $ 0.60 $ 0.62 $ 0.65 $ 0.67
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.31) 0.47 1.38 0.32 (0.04)
------- ------- ------- ------ -------
Net increase from investment operations $ 0.30 $ 1.07 $ 2.00 $ 0.97 $ 0.63
Distributions to shareowners:
Net investment income (0.64) (0.66) (0.66) (0.63) (0.67)
Net realized gain (0.16) (0.16) -- -- (0.06)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value $ (0.50) $ 0.25 $ 1.34 $ 0.34 $ (0.10)
-------- ------- ------- ------- -------
Net asset value, end of period $ 10.76 $ 11.26 $ 11.01 $ 9.67 $ 9.33
======== ======= ======= ======= ========
Total return* 2.74% 10.25% 21.24% 10.72% 6.90%
Ratio of net expenses to average net assets+ 0.89% 1.03% 1.25% 1.25% 1.25%
Ratio of net investment income to average net assets+ 5.57% 5.52% 5.95% 6.75% 7.16%
Portfolio turnover rate 46% 53% 68% 50% 55%
Net assets, end of period (in thousands) $ 20,662 $20,814 $19,312 $14,692 $ 7,479
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 0.89% 1.03% 1.25% 1.62% 2.44%
Net investment income 5.57% 5.52% 5.95% 6.38% 5.97%
Ratios with waiver of management fees and assumption of
expenses by PIM and reduction for fees paid indirectly:
Net expenses 0.89% 1.03% 1.25% 1.25% 1.25%
Net investment income 5.57% 5.52% 5.95% 6.75% 7.16%
* Assumes initial investment at net asset value at the beginning of the period,
reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of the period.
+ Ratios with no reduction for fees paid indirectly.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
The accompanying notes are an integral part of these financial statements. 109
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01(a)
Net asset value, beginning of period $ 10.11 $ 10.35 $ 10.59 $ 10.06 $ 9.97
------- ------- ------- ------- -------
Increase (decrease) from investment operations:
Net investment income (loss) $ 0.38 $ 0.37 $ 0.35 $ 0.46 $ 0.52
Net realized and unrealized gain (loss) on investments (0.18) (0.03) (0.16) 0.56 0.12
------- ------- ------- ------- -------
Net increase (decrease) from investment operations $ 0.20 $ 0.34 $ 0.19 $ 1.02 $ 0.64
Distributions to shareowners:
Net investment income (0.47) (0.58) (0.43) (0.49) (0.55)
Net realized gain -- -- -- -- --
------- ------- ------- ------- -------
Net increase (decrease) in net asset value $ (0.27) $ (0.24) $ (0.24) $ 0.53 $ 0.09
-------- -------- -------- ------- -------
Net asset value, end of period $ 9.84 $ 10.11 $ 10.35 $ 10.59 $ 10.06
======== ======== ======== ======= =======
Total return* 2.02% 3.42% 1.81% 10.32% 6.48%
Ratio of net expenses to average net assets+ 0.82% 0.79% 0.78% 0.81% 0.83%
Ratio of net investment income (loss) to average net assets+ 4.05% 3.74% 3.45% 4.39% 5.19%
Portfolio turnover rate 23% 37% 34% 54% 71%
Net assets, end of period (in thousands) $ 25,767 $ 32,342 $ 44,526 $69,551 $37,381
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 0.82% 0.79% 0.78% 0.81% 0.85%
Net investment income (loss) 4.05% 3.74% 3.45% 4.39% 5.17%
Ratios with waiver of management fees and assumption of
expenses by PIM and reduction for fees paid indirectly:
Net expenses 0.82% 0.79% 0.78% 0.81% 0.82%
Net investment income (loss) 4.05% 3.74% 3.45% 4.39% 5.20%
Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 1.00 $ 1.000 $ 1.000 $ 1.00 $ 1.00
------- ------- ------- ------ ------
Increase (decrease) from investment operations:
Net investment income $ 0.025 $ 0.007 $ 0.006 $ 0.01 $ 0.03
Net realized and unrealized gain (loss) on investments -- -- -- -- --
-------- -------- -------- ------- -------
Net increase (decrease) from investment operations $ 0.025 $ 0.007 $ 0.006 $ 0.01 $ 0.03
Distributions to shareowners:
Net investment income (0.025) (0.007) (0.006) (0.01) (0.03)
-------- -------- -------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======= ========
Total return* 2.47 % 0.65 % 0.56 % 1.19% 3.39%
Ratio of net expenses to average net assets+ 0.73 % 0.74 % 0.72 % 0.78% 0.78%
Ratio of net investment income to average net assets+ 2.40 % 0.66 % 0.58 % 1.11% 3.16%
Net assets, end of period (in thousands) $33,216 $42,896 $34,736 $59,521 $49,545
Ratios with no waiver of fees and assumption of expenses by
PIM and no reduction for fees paid indirectly:
Net expenses 0.73 % 0.74 % 0.72 % 0.78% 0.78%
Net investment income 2.40 % 0.66 % 0.58 % 1.11% 3.16%
Ratios with waiver of fees and assumption of expenses by
PIM and reduction for fees paid indirectly:
Net expenses 0.73 % 0.74 % 0.72 % 0.78% 0.78%
Net investment income 2.40 % 0.66 % 0.58 % 1.11% 3.16%
(a) The Portfolio began accreting discounts and amortizing premiums on debt
securities. The effect of this change for the year ended December 31, 2001,
was to decrease net investment income by $0.00, increase net realized and
unrealized gain (loss) by $0.00 (both amounts round to less than one cent
per share) and to decrease the ratio of net investment income to average net
assets with waiver of management fees by PIM and reduction for fees paid
indirectly from 5.38% to 5.17%.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
+ Ratios with no reduction for fees paid indirectly.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
110 The accompanying notes are an integral part of these financial statements.
(This page has been left blank intentionally.)
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
Pioneer
Emerging Pioneer
Markets Europe
VCT Portfolio VCT Portfolio
ASSETS:
Investment in securities, at value (including securities loaned of $3,255,137, $0,
$360,311,
$3,705,730, $1,348,547, $0 and $804,362, respectively) (Cost $39,949,138,
$15,777,172, $21,810,290, $39,267,953, $13,015,198, $328,641,094 and
$34,087,929, respectively) $ 58,053,520 $ 18,335,402
Cash -- 360,949
Foreign currencies, at value (Cost $246,193, $0, $0, $0, $0, $0, $0, and $0, 249,693 --
respectively)
Receivables --
Investment securities sold 425,551 --
Fund shares sold 1,718 4,979
Variation margin -- --
Dividends, interest and foreign taxes withheld 115,610 24,054
Other 3,608 --
------------ ------------
Total assets $ 58,849,700 $ 18,725,384
------------ ------------
LIABILITIES:
Payables --
Investment securities purchased $ -- $ --
Fund shares repurchased 107,737 1,370
Dividends -- --
Upon return of securities loaned 3,324,063 --
Variation margin -- --
Reserve for repatriation taxes 52,359 --
Due to bank 32,753 --
Due to affiliates 7,846 4,020
Accrued expenses 93,380 48,290
------------ ------------
Total liabilities $ 3,618,138 $ 53,680
------------ ------------
NET ASSETS:
Paid-in capital $ 32,037,155 $ 20,701,846
Undistributed net investment income 24,792 106,090
Accumulated net realized gain (loss) 5,114,124 (4,694,306)
Net unrealized gain (loss) on:
Investments 18,052,022 2,558,230
Futures contracts -- --
Forward foreign currency contracts and other assets and liabilities denominated
in foreign currencies 3,469 (156)
------------ ------------
Total net assets $ 55,231,562 $ 18,671,704
------------ ------------
NET ASSET VALUE PER SHARE:
Class I:
(No par value, unlimited number of shares authorized)
Net assets $ 11,205,395 $ 8,714,040
Shares outstanding 398,940 763,219
------------ ------------
Net asset value per share $ 28.09 $ 11.42
Class II:
(No par value, unlimited number of shares authorized)
Net assets $ 44,026,167 $ 9,957,664
Shares outstanding 1,581,297 889,288
------------ ------------
Net asset value per share $ 27.84 $ 11.20
112 The accompanying notes are an integral part of these financial statements.
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Pioneer Pioneer Pioneer Pioneer Pioneer
International Small Cap Small Mid Cap Growth
Value Value Company Value Shares
VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio
$ 27,342,577 $45,430,594 $ 13,955,743 $ 374,498,447 $ 34,981,065
-- 854,630 545,788 2,963,747 --
-- -- -- -- --
-- 105,024 9,459 542,016 --
3,044 40,895 1,621 175,302 --
-- -- -- -- --
32,223 66,521 21,524 404,805 33,532
869 324 -- 5,510 472
------------ ----------- ------------ ------------- -------------
$ 27,378,713 $46,497,988 $ 14,534,135 $ 378,589,827 $ 35,015,069
------------ ----------- ------------ ------------- -------------
$ -- $ 207,694 $ -- $ 807,739 $ --
7,885 100,575 41,334 577,539 15,640
-- -- -- -- --
372,684 3,838,966 1,399,038 -- 836,722
-- 3,800 -- -- --
-- -- -- -- --
17,439 -- -- -- 12,857
6,479 8,104 9,766 22,486 5,126
72,502 84,642 67,558 128,086 63,039
------------ ----------- ------------ ------------- -------------
$ 476,989 $ 4,243,781 $ 1,517,696 $ 1,535,850 $ 933,384
------------ ----------- ------------ ------------- -------------
$ 31,131,519 $33,361,929 $ 11,957,445 $ 236,779,575 $ 69,764,312
120,607 94,683 1,307 2,874,732 49,058
(9,882,195) 2,652,682 117,142 91,542,317 (36,624,821)
5,532,287 6,162,641 940,545 45,857,353 893,136
-- (17,728) -- -- --
(494) -- -- -- --
------------ ----------- ------------ ------------- -------------
$ 26,901,724 $42,254,207 $ 13,016,439 $ 377,053,977 $ 34,081,685
------------ ----------- ------------ ------------- -------------
$ 21,175,902 $20,554,697 $ 3,284,702 $ 288,836,624 $ 26,986,164
1,544,426 1,269,643 277,175 11,553,502 2,015,777
------------ ----------- ------------ ------------- -------------
$ 13.71 $ 16.19 $ 11.85 $ 25.00 $ 13.39
$ 5,725,822 $21,699,510 $ 9,731,737 $ 88,217,353 $ 7,095,521
420,103 1,350,250 831,281 3,569,045 537,490
------------ ----------- ------------ ------------- -------------
$ 13.63 $ 16.07 $ 11.71 $ 24.72 $ 13.20
The accompanying notes are an integral part of these financial statements. 113
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES 12/31/05 (continued)
- --------------------------------------------------------------------------------
Pioneer
Real Estate Pioneer
Shares Fund
VCT Portfolio VCT Portfolio
ASSETS:
Investment in securities, at value (including securities loaned of $17,090,365, $0,
$5,410,328, $139,821, $2,164,219, $479,824, $0 and $0, respectively) (Cost
$78,047,428, $396,395,153, $306,088,142, $37,306,341, $109,730,582,
$57,158,609, $46,408,976 and $34,678,375, respectively) $ 115,844,546 $ 499,826,017
Cash 992,681 952,541
Foreign currencies, at value (Cost $0, $0, $0, $0, $0, $9,491, $0 and $0, respectively) -- --
Receivables --
Investment securities sold 282,762 --
Fund shares sold 42,554 22,858
Variation margin -- --
Dividends, interest and foreign taxes withheld 494,270 958,591
Forward foreign currency settlement contracts, net -- --
Forward foreign currency portfolio hedge contracts, open -- net -- --
Due from Pioneer Investment Management, Inc. -- 8,177
Other 1,934 12,616
------------- -------------
Total assets $ 117,658,747 $ 501,780,800
------------- -------------
LIABILITIES:
Payables --
Investment securities purchased $ -- $ --
Fund shares repurchased 546,900 1,997,352
Dividends -- --
Upon return for securities loaned 17,545,193 --
Due to affiliates 9,274 21,577
Accrued expenses 88,126 132,329
------------- -------------
Total liabilities $ 18,189,493 $ 2,151,258
------------- -------------
NET ASSETS:
Paid-in capital $ 56,459,993 $ 436,333,003
Undistributed (distributions in excess of) net investment income (loss) 211,528 27,272
Accumulated net realized gain (loss) 5,000,615 (40,161,597)
Net unrealized gain (loss) on:
Investments 37,797,118 103,430,864
Forward foreign currency contracts and other assets and liabilities denominated
in foreign currencies -- --
------------- -------------
Total net assets $ 99,469,254 $ 499,629,542
------------- -------------
NET ASSET VALUE PER SHARE:
Class I:
(No par value, unlimited number of shares authorized)
Net assets $ 32,086,132 $ 382,973,420
Shares outstanding 1,227,893 17,771,437
------------- -------------
Net asset value per share $ 26.13 $ 21.55
Class II:
(No par value, unlimited number of shares authorized)
Net assets $ 67,383,122 $ 116,656,122
Shares outstanding 2,583,192 5,427,712
------------- -------------
Net asset value per share $ 26.09 $ 21.49
114 The accompanying notes are an integral part of these financial statements.
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Pioneer Pioneer Pioneer Pioneer Pioneer
Equity Pioneer High Strategic America Money
Income Balanced Yield Income Income Market
VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio
$ 362,282,641 $ 41,678,223 $109,525,333 $ 57,975,600 $ 46,356,306 $34,678,375
1,343,083 423,014 682,465 2,421,786 359,270 640,143
-- -- -- 9,479 -- --
270,080 80,932 -- 82,733 -- --
718,286 10,632 1,304,169 50,370 63,211 --
-- -- -- -- -- --
1,205,543 159,754 1,544,979 852,240 431,824 114,691
-- -- -- -- -- --
-- -- -- 13,826 -- --
-- -- -- -- -- --
1,190 -- -- -- 43 615
------------- ------------ ------------ ------------ ------------ -----------
$ 365,820,823 $ 42,352,555 $113,056,946 $ 61,406,034 $ 47,210,654 $35,433,824
------------- ------------ ------------ ------------ ------------ -----------
$ -- $ 43,301 $ -- $ 55,611 $ -- $ 2,074,707
390,376 5,240 68,166 58,139 7,943 95,618
-- -- -- -- -- 2,863
5,595,647 141,455 2,282,850 508,725 -- --
18,516 5,636 8,448 6,656 5,662 4,610
108,954 76,607 76,534 69,492 78,879 39,931
------------- ------------ ------------ ------------ ------------ -----------
$ 6,113,493 $ 272,239 $ 2,435,998 $ 698,623 $ 92,484 $ 2,217,729
------------- ------------ ------------ ------------ ------------ -----------
$ 295,718,431 $ 41,790,013 $109,236,906 $ 59,217,713 $ 48,837,957 $33,218,610
1,751,090 (4,725) 59,865 397,503 (322,520) 333
6,043,310 (4,076,854) 1,529,426 265,546 (1,344,597) (2,974)
56,194,499 4,371,882 (205,249) 816,991 (52,670) 126
-- -- -- 9,658 -- --
------------- ------------ ------------ ------------ ------------ -----------
$ 359,707,330 $ 42,080,316 $110,620,948 $ 60,707,411 $ 47,118,170 $33,216,095
------------- ------------ ------------ ------------ ------------ -----------
$ 232,248,734 $ 29,419,900 $ 63,451,822 $ 20,662,447 $ 25,766,723 $33,216,095
10,927,244 2,000,046 5,831,312 1,920,286 2,619,336 33,222,976
------------- ------------ ------------ ------------ ------------ -----------
$ 21.25 $ 14.71 $ 10.88 $ 10.76 $ 9.84 $ 1.00
$ 127,458,596 $ 12,660,416 $ 47,169,126 $ 40,044,964 $ 21,351,447 $ --
5,964,294 862,830 4,335,176 3,721,336 2,167,193 --
------------- ------------ ------------ ------------ ------------ -----------
$ 21.37 $ 14.67 $ 10.88 $ 10.76 $ 9.85 $ --
The accompanying notes are an integral part of these financial statements. 115
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS 12/31/05
- --------------------------------------------------------------------------------
Pioneer Pioneer
Emerging Markets Europe
VCT Portfolio VCT Portfolio
Year Year
Ended Ended
12/31/05 12/31/05
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $167,202, $63,473, $75,067, $884,
$74, $19,183 and $2,445, respectively) $ 1,160,247 $ 436,678
Interest 17,442 6,748
Income on securities loaned, net 8,599 --
----------- ------------
Total investment income $ 1,186,288 $ 443,426
----------- ------------
EXPENSES:
Management fees $ 510,446 $ 181,631
Transfer agent fees and expenses 7,715 2,753
Distribution fees (Class II) 87,711 22,956
Administrative reimbursements 18,512 18,512
Custodian fees 135,998 37,053
Professional fees 71,787 42,316
Printing expense 10,670 12,988
Fees and expenses of nonaffiliated trustees 4,569 4,005
Miscellaneous 17,186 20,492
----------- ------------
Total expenses $ 864,594 $ 342,706
Less management fees waived and expenses assumed
by Pioneer Investment Management, Inc. (10,565) (47,561)
Less fees paid indirectly -- --
----------- ------------
Net expenses $ 854,029 $ 295,145
----------- ------------
Net investment income $ 332,259 $ 148,281
----------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Investments (net of foreign capital gain taxes of $34,788, $0, $0, $0, $0, $0 and
$0, respectively) $ 7,432,445 $ 3,151,091
Redemptions in kind -- --
Futures contracts -- --
Forward foreign currency contracts and other assets
and liabilities denominated in foreign currencies (126,742) (42,124)
----------- ------------
$ 7,305,703 $ 3,108,967
----------- ------------
Change in net unrealized gain (loss) from:
Investments (net of the change in reserve for repatriation taxes of $16,869, $0, $0,
$0, $0, $0 and $0, respectively) $ 7,394,630 $ (1,854,575)
Futures contracts -- --
Forward foreign currency contracts and other assets and liabilities denominated in
foreign currencies (4,278) (2,742)
----------- ------------
$ 7,390,352 $ (1,857,317)
----------- ------------
Net gain (loss) on investments, futures contracts
and foreign currency transactions $14,696,055 $ 1,251,650
=========== ============
Net increase in net assets resulting from operations $15,028,314 $ 1,399,931
=========== ============
116 The accompanying notes are an integral part of these financial statements.
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Pioneer Pioneer Pioneer Pioneer Pioneer
International Value Small Cap Value Small Company Mid Cap Value Growth Shares
VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio
Year Year Year Year Year
Ended Ended Ended Ended Ended
12/31/05 12/31/05 12/31/05 12/31/05 12/31/05
$ 541,725 $ 418,320 $ 163,632 $ 8,645,128 $ 414,616
12,408 102,972 15,206 431,672 7,418
21,147 11,006 8,882 88,225 2,263
---------- ---------- --------- ------------- ------------
$ 575,280 $ 532,298 $ 187,720 $ 9,165,025 $ 424,297
---------- ---------- --------- ------------- ------------
$ 258,471 $ 262,583 $ 99,091 $ 4,812,824 $ 258,486
8,676 3,000 7,715 7,468 7,468
12,164 39,927 24,684 1,087,653 19,680
18,512 18,512 18,512 148,904 18,512
29,895 33,950 26,871 54,824 28,449
49,782 45,919 33,845 65,495 32,252
12,970 28,855 17,234 92,301 3,007
3,983 4,025 3,901 14,074 3,964
16,902 3,277 2,955 19,212 4,454
---------- ---------- --------- ------------- ------------
$ 411,355 $ 440,048 $ 234,808 $ 6,302,755 $ 376,272
-- -- (47,244) -- --
-- -- (139) (14,320) (1,220)
---------- ---------- --------- ------------- ------------
$ 411,355 $ 440,048 $ 187,425 $ 6,288,435 $ 375,052
---------- ---------- --------- ------------- ------------
$ 163,925 $ 92,250 $ 295 $ 2,876,590 $ 49,245
---------- ---------- --------- ------------- ------------
$4,225,791 $2,937,296 $ 167,549 $ 97,033,276 $ 3,211,502
-- -- -- 49,200,447 --
-- 87,722 -- -- --
(39,160) -- -- -- --
---------- ---------- --------- ------------- ------------
$4,186,631 $3,025,018 $ 167,549 $ 146,233,723 $ 3,211,502
---------- ---------- --------- ------------- ------------
$ (618,775) $1,061,614 $ 39,771 $ (98,298,212) $ (2,083,627)
-- (50,893) -- -- --
841 -- -- -- --
---------- ---------- --------- ------------- ------------
$ (617,934) $1,010,721 $ 39,771 $ (98,298,212) $ (2,083,627)
---------- ---------- --------- ------------- ------------
$3,568,697 $4,035,739 $ 207,320 $ 47,935,511 $ 1,127,875
========== ========== ========= ============= ============
$3,732,622 $4,127,989 $ 207,615 $ 50,812,101 $ 1,177,120
========== ========== ========= ============= ============
The accompanying notes are an integral part of these financial statements. 117
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Pioneer Pioneer
Real Estate Shares Fund
VCT Portfolio VCT Portfolio
Year Year
Ended Ended
12/31/05 12/31/05
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $10,451, $67,202, $0, $560, $0, $0, $0
and $0, respectively) $ 2,522,994 $ 10,293,023
Interest 27,159 132,621
Income on securities loaned, net 16,232 22,461
----------- -------------
Total investment income $ 2,566,385 $ 10,448,105
----------- -------------
EXPENSES:
Management fees $ 782,628 $ 3,461,438
Transfer agent fees and expenses 3,000 5,974
Distribution fees (Class II) 162,146 305,003
Administrative reimbursements 18,700 105,852
Custodian fees 22,345 14,300
Professional fees 41,419 48,553
Printing expense 32,568 77,940
Fees and expenses of nonaffiliated trustees 4,858 9,634
Miscellaneous 9,767 12,496
----------- -------------
Total expenses $ 1,077,431 $ 4,041,190
Less fees paid indirectly -- --
----------- -------------
Net expenses $ 1,077,431 $ 4,041,190
----------- -------------
Net investment income $ 1,488,954 $ 6,406,915
----------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Investments $ 6,859,537 $ 29,925,821
Redemptions in kind -- 16,752,070
Forward foreign currency contracts and other assets
and liabilities denominated in foreign currencies -- 1,179
----------- -------------
$ 6,859,537 $ 46,679,070
----------- -------------
Change in net unrealized gain (loss) from:
Investments $ 5,415,473 $ (23,029,256)
Forward foreign currency contracts and other assets
and liabilities denominated in foreign currencies -- --
----------- -------------
$ 5,415,473 $ (23,029,256)
----------- -------------
Net gain (loss) on investments, futures contracts
and foreign currency transactions $12,275,010 $ 23,649,814
=========== =============
Net increase in net assets resulting
from operations $13,763,964 $ 30,056,729
=========== =============
118 The accompanying notes are an integral part of these financial statements.
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Pioneer Pioneer
Pioneer Pioneer Pioneer Pioneer America Money
Equity Income Balanced High Yield Strategic Income Income Market
VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
12/31/05 12/31/05 12/31/05 12/31/05 12/31/05 12/31/05
$ 10,276,103 $ 319,740 $ 250,030 $ 3,555,083 $ -- $ --
339,380 826,374 6,763,663 7,305 2,250,256 1,229,389
3,025 2,706 14,050 -- -- --
------------ ---------- ------------ ------------ ---------- ----------
$ 10,618,508 $1,148,820 $ 7,027,743 $ 3,562,388 $2,250,256 $1,229,389
------------ ---------- ------------ ------------ ---------- ----------
$ 2,107,678 $ 289,737 $ 725,723 $ 359,166 $ 258,627 $ 196,195
7,715 7,714 7,715 7,715 7,715 6,091
283,178 30,536 117,009 85,494 44,260 --
62,333 18,512 22,311 18,512 18,512 18,512
38,630 16,760 20,659 22,421 22,493 22,067
37,638 49,599 41,351 50,166 49,758 32,754
40,238 16,402 33,849 15,635 14,371 3,576
4,224 4,606 5,115 4,888 4,444 3,879
8,884 10,779 7,045 13,040 11,265 3,723
------------ ---------- ------------ ------------ ---------- ----------
$ 2,590,518 $ 444,645 $ 980,777 $ 577,037 $ 431,445 $ 286,797
(35,127) -- -- -- -- --
------------ ---------- ------------ ------------ ---------- ----------
$ 2,555,391 $ 444,645 $ 980,777 $ 577,037 $ 431,445 $ 286,797
------------ ---------- ------------ ------------ ---------- ----------
$ 8,063,117 $ 704,175 $ 6,046,966 $ 2,985,351 $1,818,811 $ 942,592
------------ ---------- ------------ ------------ ---------- ----------
$ 19,415,048 $1,339,268 $ 1,530,055 $ 482,520 $ (8,670) $ 85
-- -- -- -- -- --
-- -- -- 28,986 -- --
------------ ---------- ------------ ------------ ---------- ----------
$ 19,415,048 $1,339,268 $ 1,530,055 $ 511,506 $ (8,670) $ 85
------------ ---------- ------------ ------------ ---------- ----------
$ (9,053,445) $ (318,959) $ (5,535,598) $ (2,112,657) $ (945,559) $ 126
-- -- -- 77,046 -- --
------------ ---------- ------------ ------------ ---------- ----------
$ (9,053,445) $ (318,959) $ (5,535,598) $ (2,035,611) $ (945,559) $ 126
------------ ---------- ------------ ------------ ---------- ----------
$ 10,361,603 $1,020,309 $ (4,005,543) $ (1,524,105) $ (954,229) $ 211
============ ========== ============ ============ ========== ==========
$ 18,424,720 $1,724,484 $ 2,041,423 $ 1,461,246 $ 864,582 $ 942,803
============ ========== ============ ============ ========== ==========
The accompanying notes are an integral part of these financial statements. 119
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 12/31/05
- --------------------------------------------------------------------------------
Pioneer Emerging Pioneer
Markets VCT Portfolio Europe VCT Portfolio
Year Year Year Year
Ended Ended Ended Ended
12/31/05 12/31/04 12/31/05 12/31/04
FROM OPERATIONS:
Net investment income (loss) $ 332,259 $ 322,489 $ 148,281 $ 118,530
Net realized gain on investments 7,305,703 5,573,183 3,108,967 1,154,559
Change in net unrealized gain (loss) on
investments, futures contracts and foreign
currency transactions 7,390,352 22,693 (1,857,317) 1,402,807
------------- ------------- ------------ ------------
Net increase in net assets resulting
from operations $ 15,028,314 $ 5,918,365 $ 1,399,931 $ 2,675,896
------------- ------------- ------------ ------------
DISTRIBUTIONS TO SHAREOWNERS:
Net investment income
Class I $ (50,778) $ (65,091) $ (58,420) $ (65,951)
Class II (161,235) (196,317) (44,828) (38,910)
Net realized gain
Class I -- -- -- --
Class II -- -- -- --
------------- ------------- ------------ ------------
Total distributions to shareowners $ (212,013) $ (261,408) $ (103,248) $ (104,861)
------------- ------------- ------------ ------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 13,210,315 $ 9,587,268 $ 3,090,347 $ 3,890,105
Reinvestment of distributions 210,764 259,912 103,248 104,862
Cost of shares repurchased (11,986,023) (11,459,650) (3,544,212) (3,175,336)
------------- ------------- ------------ ------------
Net increase (decrease) in net assets
resulting from Fund share transactions $ 1,435,056 $ (1,612,470) $ (350,617) $ 819,631
------------- ------------- ------------ ------------
Net increase (decrease) in net assets $ 16,251,357 $ 4,044,487 $ 946,066 $ 3,390,666
------------- ------------- ------------ ------------
NET ASSETS:
Beginning of year $ 38,980,205 $ 34,935,718 $ 17,725,638 $ 14,334,972
------------- ------------- ------------ ------------
End of year $ 55,231,562 $ 38,980,205 $ 18,671,704 $ 17,725,638
============= ============= ============ ============
Undistributed net investment income,
end of year $ 24,792 $ 44,879 $ 106,090 $ 103,181
============= ============= ============ ============
120 The accompanying notes are an integral part of these financial statements.
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Pioneer International Pioneer Small Cap Value Pioneer Small Company
Value VCT Portfolio VCT Portfolio VCT Portfolio
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
12/31/05 12/31/04 12/31/05 12/31/04 12/31/05 12/31/04
$ 163,925 $ 93,454 $ 92,250 $ (55,495) $ 295 $ (46,684)
4,186,631 2,810,326 3,025,018 1,744,190 167,549 2,015,360
(617,934) 1,310,186 1,010,721 2,532,121 39,771 (384,806)
------------ ------------ ------------ ------------ ------------ ------------
$ 3,732,622 $ 4,213,966 $ 4,127,989 $ 4,220,816 $ 207,615 $ 1,583,870
------------ ------------ ------------ ------------ ------------ ------------
$ (31,154) $ (113,573) $ -- $ -- $ -- $ --
(3,084) (8,890) -- -- -- --
-- -- (593,880) -- (336,596) --
-- -- (497,417) -- (1,039,487) --
------------ ------------ ------------ ------------ ------------ ------------
$ (34,238) $ (122,463) $ (1,091,297) $ -- $ (1,376,083) $ --
------------ ------------ ------------ ------------ ------------ ------------
$ 3,244,454 $ 4,380,480 $ 20,346,152 $ 14,302,057 $ 1,818,697 $ 4,450,765
34,238 122,460 -- -- 1,363,305 --
(7,067,685) (5,189,620) (9,966,656) (4,493,153) (2,867,211) (3,135,048)
------------ ------------ ------------ ------------ ------------ ------------
$ (3,788,993) $ (686,680) $ 10,379,496 $ 9,808,904 $ 314,791 $ 1,315,717
------------ ------------ ------------ ------------ ------------ ------------
$ (90,609) $ 3,404,823 $ 13,416,188 $ 14,029,720 $ (853,677) $ 2,899,587
------------ ------------ ------------ ------------ ------------ ------------
$ 26,992,333 $ 23,587,510 $ 28,838,019 $ 14,808,299 $ 13,870,116 $ 10,970,529
------------ ------------ ------------ ------------ ------------ ------------
$ 26,901,724 $ 26,992,333 $ 42,254,207 $ 28,838,019 $ 13,016,439 $ 13,870,116
============ ============ ============ ============ ============ ============
$ 120,607 $ 30,080 $ 94,683 $ 260 $ 1,307 $ --
============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. 121
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Pioneer Mid Cap Pioneer Growth
Value VCT Portfolio Shares VCT Portfolio
Year Year Year Year
Ended Ended Ended Ended
12/31/05 12/31/04 12/31/05 12/31/04
FROM OPERATIONS:
Net investment income $ 2,876,590 $ 2,164,987 $ 49,245 $ 271,723
Net realized gain on investments, redemptions in
kind and foreign currency transactions 146,233,723 53,898,712 3,211,502 1,562,700
Change in net unrealized gain (loss) on
investments, futures contracts and foreign
currency transactions (98,298,212) 70,310,429 (2,083,627) 618,844
-------------- ------------- ------------ ------------
Net increase in net assets
resulting from operations $ 50,812,101 $ 126,374,128 $ 1,177,120 $ 2,453,267
-------------- ------------- ------------ ------------
DISTRIBUTIONS TO SHAREOWNERS:
Net investment income
Class I $ (980,182) $ (711,725) $ (221,887) $ --
Class II (1,186,576) (1,067,643) (50,023) --
Net realized gain
Class I (18,901,870) (1,863,831) -- --
Class II (33,992,323) (3,740,321) -- --
-------------- ------------- ------------ ------------
Total distributions to shareowners $ (55,060,951) $ (7,383,520) $ (271,910) $ --
-------------- ------------- ------------ ------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 138,080,446 $ 331,791,818 $ 2,192,354 $ 5,638,676
Class I shares issued in reorganization -- 49,670,328 -- --
Reinvestment of distributions 55,060,951 7,383,520 271,910 --
Cost of shares repurchased (163,603,573) (49,217,509) (9,337,142) (6,840,932)
Redemptions in kind (488,210,933) -- -- --
-------------- ------------- ------------ ------------
Net increase (decrease) in net assets
resulting from Fund share transactions $ (458,673,109) $ 339,628,157 $ (6,872,878) $ (1,202,256)
-------------- ------------- ------------ ------------
Net increase (decrease) in net assets $ (462,921,959) $ 458,618,765 $ (5,967,668) $ 1,251,011
-------------- ------------- ------------ ------------
NET ASSETS:
Beginning of year $ 839,975,936 $ 381,357,171 $ 40,049,353 $ 38,798,342
-------------- ------------- ------------ ------------
End of year $ 377,053,977 $ 839,975,936 $ 34,081,685 $ 40,049,353
============== ============= ============ ============
Undistributed net investment income,
end of year $ 2,874,732 $ 2,164,900 $ 49,058 $ 271,723
============== ============= ============ ============
122 The accompanying notes are an integral part of these financial statements.
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Pioneer Real Estate Pioneer Fund Pioneer Equity
Shares VCT Portfolio VCT Portfolio Income VCT Portfolio
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
12/31/05 12/31/04 12/31/05 12/31/04 12/31/05 12/31/04
$ 1,488,954 $ 1,806,090 $ 6,406,915 $ 3,200,048 $ 8,063,117 $ 5,474,342
6,859,537 7,508,438 46,679,070 1,084,379 19,415,048 2,001,864
5,415,473 15,633,552 (23,029,256) 30,978,376 (9,053,445) 29,937,321
------------- ------------- -------------- ------------- ------------- -------------
$ 13,763,964 $ 24,948,080 $ 30,056,729 $ 35,262,803 $ 18,424,720 $ 37,413,527
------------- ------------- -------------- ------------- ------------- -------------
$ (513,835) $ (707,216) $ (5,374,313) $ (1,685,576) $ (5,101,572) $ (3,809,792)
(868,561) (916,414) (1,440,262) (1,069,680) (2,458,044) (1,595,526)
(1,720,481) (493,376) -- -- -- --
(3,467,765) (803,210) -- -- -- --
------------- ------------- -------------- ------------- ------------- -------------
$ (6,570,642) $ (2,920,216) $ (6,814,575) $ (2,755,256) $ (7,559,616) $ (5,405,318)
------------- ------------- -------------- ------------- ------------- -------------
$ 14,850,583 $ 20,027,996 $ 42,859,167 $ 60,072,885 $ 96,224,481 $ 63,295,941
-- -- 53,856,933 298,220,832 -- --
6,570,642 2,920,216 6,814,325 2,755,256 7,559,617 5,405,317
(27,391,461) (18,513,875) (139,175,447) (48,119,744) (36,867,650) (34,772,572)
-- -- (75,731,419) -- -- --
------------- ------------- -------------- ------------- ------------- -------------
$ (5,970,236) $ 4,434,337 $ (111,376,441) $ 312,929,229 $ 66,916,448 $ 33,928,686
------------- ------------- -------------- ------------- ------------- -------------
$ 1,223,086 $ 26,462,201 $ (88,134,287) $ 345,436,776 $ 77,781,552 $ 65,936,895
------------- ------------- -------------- ------------- ------------- -------------
$ 98,246,168 $ 71,783,967 $ 587,763,829 $ 242,327,053 $ 281,925,778 $ 215,988,883
------------- ------------- -------------- ------------- ------------- -------------
$ 99,469,254 $ 98,246,168 $ 499,629,542 $ 587,763,829 $ 359,707,330 $ 281,925,778
============= ============= ============== ============= ============= =============
$ 211,528 $ 286,854 $ 27,272 $ 433,753 $ 1,751,090 $ 1,228,049
============= ============= ============== ============= ============= =============
The accompanying notes are an integral part of these financial statements. 123
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Pioneer Pioneer High Yield
Balanced VCT Portfolio VCT Portfolio
Year Year Year Year
Ended Ended Ended Ended
12/31/05 12/31/04 12/31/05 12/31/04
FROM OPERATIONS:
Net investment income $ 704,175 $ 857,444 $ 6,046,966 $ 5,467,810
Net realized gain (loss) on investments 1,339,268 1,099,149 1,530,055 3,746,873
Change in net unrealized gain (loss) on
investments, futures contracts and foreign
currency transactions (318,959) 127,896 (5,535,598) (1,480,061)
------------ ------------ ------------- -------------
Net increase in net assets
resulting from operations $ 1,724,484 $ 2,084,489 $ 2,041,423 $ 7,734,622
------------ ------------ ------------- -------------
DISTRIBUTIONS TO SHAREOWNERS:
Net investment income
Class I $ (588,607) $ (789,468) $ (3,563,099) $ (3,715,003)
Class II (208,623) (155,092) (2,466,908) (1,764,209)
Net realized gain
Class I -- -- (2,147,727) (265,040)
Class II -- -- (1,587,624) (135,300)
------------ ------------ ------------- -------------
Total distributions to shareowners $ (797,230) $ (944,560) $ (9,765,358) $ (5,879,552)
------------ ------------ ------------- -------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 4,365,660 $ 8,978,890 $ 43,512,782 $ 75,619,514
Class I shares issued in reorganization -- -- -- --
Reinvestment of distributions 797,221 944,549 9,721,259 5,846,576
Cost of shares repurchased (9,774,029) (9,461,531) (57,690,620) (44,707,455)
------------ ------------ ------------- -------------
Net increase (decrease) in net assets resulting
from Fund share transactions $ (4,611,148) $ 461,908 $ (4,456,579) $ 36,758,635
------------ ------------ ------------- -------------
Net increase (decrease) in net assets $ (3,683,894) $ 1,601,837 $ (12,180,514) $ 38,613,705
------------ ------------ ------------- -------------
NET ASSETS:
Beginning of year $ 45,764,210 44,162,373 $ 122,801,462 $ 84,187,757
------------ ------------ ------------- -------------
End of year $ 42,080,316 $ 45,764,210 $ 110,620,948 $ 122,801,462
============ ============ ============= =============
Undistributed (distributions in excess of) net
investment income, end of year $ (4,725) $ 14,409 $ 59,865 $ 42,906
============ ============ ============= =============
124 The accompanying notes are an integral part of these financial statements.
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Pioneer Strategic Pioneer America Pioneer Money
Income VCT Portfolio Income VCT Portfolio Market VCT Portfolio
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
12/31/05 12/31/04 12/31/05 12/31/04 12/31/05 12/31/04
$ 2,985,351 $ 1,817,102 $ 1,818,811 $ 1,625,595 $ 942,592 $ 205,313
511,506 1,081,207 (8,670) 206,989 85 --
(2,035,611) 767,697 (945,559) (352,583) 126 --
------------ ------------ ------------- ------------- ------------- -------------
$ 1,461,246 $ 3,666,006 $ 864,582 $ 1,480,001 $ 942,803 $ 205,313
------------ ------------ ------------- ------------- ------------- -------------
$ (1,227,712) $ (1,210,066) $ (1,378,835) $ (2,102,796) $ (944,260) $ (203,312)
(1,916,310) (733,628) (792,466) (401,489) -- --
(308,227) (294,736) -- -- -- --
(487,951) (171,204) -- -- -- --
------------ ------------ ------------- ------------- ------------- -------------
$ (3,940,200) $ (2,409,634) $ (2,171,301) $ (2,504,285) $ (944,260) $ (203,312)
------------ ------------ ------------- ------------- ------------- -------------
$ 19,663,891 $ 25,764,732 $ 11,779,535 $ 15,160,465 $ 19,583,940 $ 18,483,037
-- -- -- -- -- 21,976,837
3,902,297 2,367,418 2,174,179 2,504,258 942,853 203,307
(6,220,715) (6,523,479) (11,661,922) (17,669,980) (30,205,433) (32,505,228)
------------ ------------ ------------- ------------- ------------- -------------
$ 17,345,473 $ 21,608,671 $ 2,291,792 $ (5,257) $ (9,678,640) $ 8,157,953
------------ ------------ ------------- ------------- ------------- -------------
$ 14,866,519 $ 22,865,043 $ 985,073 $ (1,029,541) $ (9,680,097) $ 8,159,954
------------ ------------ ------------- ------------- ------------- -------------
$ 45,840,892 $ 22,975,849 $ 46,133,097 $ 47,162,638 $ 42,896,192 $ 34,736,238
------------ ------------ ------------- ------------- ------------- -------------
$ 60,707,411 $ 45,840,892 $ 47,118,170 $ 46,133,097 $ 33,216,095 $ 42,896,192
============ ============ ============= ============= ============= =============
$ 397,503 $ 311,542 $ (322,520) $ (264,827) $ 333 $ 2,001
============ ============ ============= ============= ============= =============
The accompanying notes are an integral part of these financial statements. 125
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer Variable Contracts Trust (the "Trust") is a Delaware statutory
trust registered under the Investment Company Act of 1940 as an open-end
management investment company. The Trust consists of twenty-nine separate
diversified portfolios, fourteen of which issue both Class I and Class II
shares (collectively, the "Portfolios", individually the "Portfolio") as
follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares
only)
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts or by
qualified pension and retirement plans.
The financial statements of Value Portfolio, AmPac Growth Portfolio, Small and
Mid Cap Growth Portfolio, Oak Ridge Large Cap Growth Portfolio, Growth
Opportunities Portfolio, Small Cap Value II Portfolio, Bond Portfolio, Cullen
Value Portfolio, Equity Opportunity Portfolio, Core Bond Portfolio, Global High
Yield Portfolio, Ibbotson Aggressive Allocation Portfolio, Ibbotson Moderate
Allocation Portfolio and Ibbotson Growth Allocation Portfolio and the Class II
financial highlights of all the Portfolios are presented in separate books.
Emerging Markets Portfolio, Europe Portfolio and International Value Portfolio
seek long-term capital growth. Small Company Portfolio, Small Cap Value
Portfolio, Mid Cap Value Portfolio and Growth Shares Portfolio seek capital
appreciation. Real Estate Shares Portfolio pursues long-term capital growth
and, secondarily, current income. Pioneer Fund Portfolio seeks reasonable
income and growth of capital. Equity Income Portfolio seeks current income and
long-term capital growth. Balanced Portfolio seeks capital growth and current
income. High Yield Portfolio seeks to maximize total return through a
combination of income and capital appreciation. Strategic Income Portfolio
seeks to produce a high level of current income. America Income Portfolio seeks
a high level of current income as consistent with preservation of capital.
Money Market Portfolio seeks current income consistent with preserving capital
and providing liquidity.
The Trust's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Trust to, among other things, make estimates and assumptions
126
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of income, expenses and gains and losses on investments
during the reporting years. Actual results could differ from those estimates.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements, which are
consistent with those generally accepted in the investment company industry:
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the Portfolios are computed once daily, on each day the New York Stock
Exchange (NYSE) is open, as of the close of regular trading on the NYSE. In
computing the net asset values, securities are valued at the last sale
price on the principal exchange where they are traded. Securities that have
not traded on the date of valuation, or securities for which sale prices
are not generally reported, are valued at the mean between the last bid and
asked prices. Trading in foreign equity securities is substantially
completed each day at various times prior to the close of the NYSE. The
value of such securities used in computing the net asset value of a
Portfolio's shares is based on the last sale price on the principal
exchange where they traded.
Fixed income securities are valued at prices supplied by independent
pricing services, which consider such factors as Treasury spreads, yields,
maturities and ratings. Valuations may be supplemented by dealers and other
sources, as required. Securities for which market quotations are not
readily available are valued at their fair values as determined by, or
under the direction of, the Board of Trustees.
The Portfolios also may use the fair value of a security, including a
non-U.S. security, when the closing market price on the primary exchange
where the security is traded no longer accurately reflects the value of the
security as of the close of the exchange.
At December 31, 2005, there were no fair valued securities except as
follows. All securities that trade in foreign markets whose closing prices
are as of times prior to the close of the NYSE and that are held by
Emerging Markets Portfolio, Europe Portfolio and International Value
Portfolio are fair valued using vendor-supplied pricing updates for each
security to the time of the close of the NYSE. The principal exchanges and
markets for such securities have closing times prior to the close of the
NYSE. However, the value of these securities may be influenced by changes
in global markets occurring after the closing times of the local exchanges
and markets up to the time the Portfolios determine their net asset values.
Consequently, the Board of Trustees of the Trust has determined that the
use of daily fair valuations as provided by a pricing service is
appropriate for these Portfolios. The Portfolios may also take into
consideration other significant events in determining the fair value of
these securities. Thus, a Portfolio's securities valuations may differ from
prices reported by the various local exchanges and markets. Temporary cash
investments and securities held by any Portfolio are valued at amortized
cost.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities where the ex-dividend date may have
passed are recorded as soon as the Portfolio becomes aware of the
ex-dividend data in the exercise of reasonable diligence. Interest income,
including interest on income bearing cash accounts, is recorded on the
accrual basis. Discounts and premiums on fixed income securities are
accreted and amortized, respectively, on a yield-to-maturity basis and are
included in interest income. Dividend and interest income from foreign
securities are reported net of unrecoverable foreign taxes withheld at the
applicable country rates.
Gains and losses from sales of investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes
and, if applicable, are reported net of foreign taxes on capital gains at
the applicable country rates.
Information regarding the Trust's principal investment risks is contained
in the Trust's prospectus. Please refer to those documents when considering
the Trust's risks.
Because Real Estate Shares Portfolio invests a substantial portion of its
assets in real estate investment trusts (REITs), the Portfolio may be
subject to certain risks associated with direct investments in REITs. REITs
may be affected by changes in the value of their underlying properties and
by defaults by borrowers or tenants. REITs depend generally on their
ability to generate cash flow to make distributions to shareowners, and
certain REITs have self-liquidation provisions by which mortgages held may
be paid in full and return of capital distributions may be made at any
time. In addition, the performance of a REIT may be affected by its failure
to qualify for tax-free pass-through of income under the Internal Revenue
Code or its failure to maintain exemption from registration under the
Investment Company Act of 1940.
Emerging Markets, International Value and Europe Portfolios' investments in
emerging markets or
127
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
countries with limited or developing markets may subject these Portfolios
to a greater degree of risk than in a developed market. Risks associated
with these developing markets include political, social or economic factors
and may affect the price of the Portfolios' investments and income
generated by these investments, as well as the Portfolios' ability to
repatriate such amounts.
High Yield and Strategic Income Portfolios invest in below investment grade
(high yield) debt securities and preferred stocks. Some of these high yield
securities may be convertible into equity securities of the issuer. Debt
securities rated below investment grade are commonly referred to as "junk
bonds" and are considered speculative. These securities involve greater
risk of loss, are subject to greater price volatility, and are less liquid,
especially during periods of economic uncertainty or change, than higher
rated debt securities.
Small capitalization stocks, such as those in the Small Company and Small
Cap Value Portfolios while offering the potential for higher returns, may
be subject to greater short-term price fluctuations than securities of
larger companies.
B. Futures Contracts
The Portfolios may enter into futures transactions to hedge against changes
in interest rates, securities prices, and currency rates or to seek to
increase total return. Upon entering into a futures contract, the
Portfolios are required to deposit with a broker an amount of cash or
securities equal to the minimum "initial margin" requirements of the
associated futures exchange. Subsequent payments for futures contracts
("variation margin") are paid or received by the Portfolios, depending on
the daily fluctuation in the value of the contracts, and are recorded by
the Portfolios as unrealized gains or losses. When the contract is closed,
the Portfolios realize a gain or loss equal to the difference between the
opening and closing value of the contract. The use of futures contracts
involves, to varying degrees, elements of market risk such as the changes
in the value of the contracts may not directly correlate to the changes in
the value of the underlying securities. These risks may decrease the
effectiveness of the Portfolios' hedging and trading strategies and
potentially result in a loss. As of December 31, 2005, open contracts are
shown in the table below.
C. Foreign Currency Translation
The books and records of the Portfolios are maintained in U.S. dollars.
Amounts denominated in foreign currencies are translated into U.S. dollars
using current exchange rates.
Net realized gains and losses on foreign currency transactions represent
the net realized gains and losses on foreign currency contracts,
disposition of foreign currencies, and the difference between the amount of
income accrued and the U.S. dollars actually received. Further, the effects
of changes in foreign currency exchange rates on investments are not
segregated in the statement of operations from the effects of changes in
market price of those securities but are included with the net realized and
unrealized gain or loss on investments.
- ------------------------------------------------------------------------------------------------------------
Number of
Contracts Settlement Unrealized
Portfolio Type Long/(Short) Month Market Value Gain/(Loss)
- ------------------------------------------------------------------------------------------------------------
Small Cap Value Portfolio Russell 2000 4 March 2006 $1,356,600 $(17,728)
D. Forward Foreign Currency Contracts
Certain Portfolios are authorized to enter into forward foreign currency
contracts (contracts) for the purchase or sale of a specific foreign
currency at a fixed price on a future date as a hedge or cross-hedge
against either specific investment transactions (settlement hedges) or
portfolio positions (portfolio hedges). All contracts are marked to market
daily at the applicable exchange rates, and any resulting unrealized gains
or losses are recorded in the Portfolios' financial statements. The
Portfolios record realized gains and losses at the time a portfolio hedge
is offset by entry into a closing transaction or extinguished by delivery
of the currency. Risks may arise upon entering into these contracts from
the potential inability of counterparties to meet the terms of the contract
and from unanticipated movements in the value of foreign currencies
relative to the U.S. dollar (see Note 8).
E. Taxes
It is the Trust's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
all of its taxable income and net realized capital gains, if any, to its
shareowners. Therefore, no federal income tax provision is required.
128
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In addition to the requirements of the Internal Revenue Code, the
Portfolios may also be required to pay local taxes on the recognition of
capital gains and/or the repatriation of foreign currencies in certain
countries. During the year ended December 31, 2005, no such taxes were
paid. In determining the daily net asset value, the Portfolios estimate the
reserve for such taxes, if any, associated with investments in certain
countries. Any estimated reserve for taxes on capital gains is based on the
net unrealized appreciation on certain portfolio securities, the holding
period of such securities and the related tax rates, tax loss carryforward
(if applicable) and other such factors. As of December 31, 2005, the
Portfolios had no reserves related to taxes on capital gains, except
Emerging Markets Portfolio, which had $52,359 in reserve related to capital
gains.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal
income tax rules. Therefore, the source of each Portfolio's distributions
may be shown in the accompanying financial statements as either from or in
excess of net investment income or net realized gain on investment
transactions, or from paid-in capital, depending on the type of book/tax
differences that may exist.
A portion of the dividend income recorded by Real Estate Shares Portfolio
is from distributions by publicly traded REITs, and such distributions for
tax purposes may also consist of capital gains and return of capital. The
actual return of capital and capital gains portions of such distributions
will be determined by formal notifications from the REITs subsequent to the
calendar year-end. Distributions received from the REITs that are
determined to be a return of capital are recorded by the Trust as a
reduction of the cost basis of the securities held, and those determined to
be capital gains are reflected as such in the Statement of Operations.
Capital loss carryforwards are available to offset future realized capital
gains. At December 31, 2005, certain Portfolios had capital loss
carryforwards and expirations as follows:
- -------------------------------------------------------------------------------------------------------
International Mid Cap Growth
Expires in Europe Value Value Shares
Fiscal Year Ending Portfolio Portfolio Portfolio Portfolio
- -------------------------------------------------------------------------------------------------------
2006 $ -- $ -- $ -- $ --
2007 $ -- $ -- $ -- $ --
2008 $ -- $ -- $ -- $ --
2009 $ 1,921,644 $2,426,453 $1,330,134 $ 9,618,208
2010 $ 1,896,288 $5,309,516 $2,529,788 $19,245,183
2011 $ 783,043 $2,130,998 $ -- $ 7,319,241
2012 $ -- $ -- $ -- $ --
2013 $ -- $ -- $ -- $ --
-------------------------------------------------------------------------
Total $ 4,600,975 $9,866,967 $3,859,922 $36,182,632
=========================================================================
America Money
Expires in Fund Balanced Income Market
Fiscal Year Ending Portfolio Portfolio Portfolio Portfolio
- -------------------------------------------------------------------------------------------------------
2006 $ -- $ -- $ -- $ --
2007 $ -- $ -- $ -- $ --
2008 $ -- $ -- $ 382,424 $ --
2009 $ -- $ -- $ -- $ --
2010 $26,951,317 $1,409,746 $ -- $ 2,728
2011 $13,017,527 $2,590,145 $ 435,523 $ --
2012 $ -- $ -- $ 171,643 $ 246
2013 $ -- $ -- $ 241,325 $ --
-------------------------------------------------------------------------
Total $39,968,844 $3,999,891 $1,230,915 $ 2,974
=========================================================================
- -------------------------------------------------------------------------------------------------------
129
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
The following Portfolios elected to defer capital and/or currency losses
recognized between November 1, 2005 and December 31, 2005 to their fiscal
year ending December 31, 2006.
- --------------------------------------------------------------------------------
Portfolio Capital Losses Currency Losses
- --------------------------------------------------------------------------------
Europe Portfolio $ 17,485 $--
America Income Portfolio $109,707 $--
Strategic Income Portfolio $ 40,713 $--
- --------------------------------------------------------------------------------
At December 31, 2005, certain Portfolios made reclassifications as
described below. These reclassifications have no impact on the net asset
values of the respective Portfolios and are designed to present the
Portfolios' capital accounts on a tax basis.
- -----------------------------------------------------------------------------------------
Undistributed Accumulated
Net Investment Realized Gain/Net Paid-in
Portfolio Income (Loss) (Loss) Capital
- -----------------------------------------------------------------------------------------
Emerging Markets Portfolio $ (140,333) $ 140,333 $ --
Europe Portfolio (42,124) 42,124 --
International Value Portfolio (39,160) 39,160 --
Small Cap Value Portfolio 2,173 5,404 (7,577)
Small Company Portfolio 1,012 11,033 (12,045)
Mid Cap Value Portfolio -- (47,572,810) 47,572,810
Growth Shares Portfolio -- -- --
Real Estate Shares Portfolio (181,884) 102,715 79,169
Fund Portfolio 1,179 (16,707,826) 16,706,647
Equity Income Portfolio 19,540 26,171 (45,711)
Balanced Portfolio 73,921 (73,808) (113)
High Yield Portfolio -- -- --
Strategic Income Portfolio 244,632 (244,632) --
America Income Portfolio 294,797 (294,797) --
Money Market Portfolio -- -- --
- -----------------------------------------------------------------------------------------
The following chart shows the distributions paid during the fiscal years
ended December 31, 2005 and 2004, and the components of distributable
earnings (accumulated losses) as of December 31, 2005, on a tax basis.
- -------------------------------------------------------------------------------------------------------------------------------
Pioneer Pioneer Pioneer Pioneer
Emerging Markets Emerging Markets Europe Europe
VCT Portfolio VCT Portfolio VCT Portfolio VCT Portfolio
2005 2004 2005 2004
- -------------------------------------------------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ 212,013 $261,408 $ 103,248 $ 104,861
Long-Term capital gain -- -- -- --
-------------------------------------------------------------
$ 212,013 $261,408 $ 103,248 $ 104,861
Return of Capital $ -- $ -- $ -- $ --
-------------------------------------------------------------
Total distributions $ 212,013 $261,408 $ 103,248 $ 104,861
-------------------------------------------------------------
Distributable Earnings
(Accumulated Losses):
Undistributed ordinary income $ 220,926 $ 106,090
Undistributed long-term gain/(Capital Loss carryforward) 5,193,430 (4,600,975)
Post-October loss deferred (17,485)
Unrealized appreciation (depreciation) 17,780,051 2,482,228
-------------------------------------------------------------
Total $23,194,407 $ (2,030,142)
==============================================================
- -------------------------------------------------------------------------------------------------------------------------------
130
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Pioneer
International
Value
VCT Portfolio
2005
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ 34,238
Long-Term capital gain --
------------
$ 34,238
Return of Capital --
------------
Total distributions $ 34,238
------------
Distributable Earnings
(Accumulated Losses):
Undistributed ordinary income $ 120,607
Undistributed long-term gain/(Capital Loss carryforward) (9,866,967)
Unrealized appreciation (depreciation) 5,516,565
------------
Total $ (4,229,795)
------------
Pioneer
Small
Company
VCT Portfolio
2005
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ --
Long-Term capital gain 1,376,083
-------------
$ 1,376,083
Return of Capital --
-------------
Total distributions $ 1,376,083
-------------
Distributable Earnings
(Accumulated Losses):
Undistributed ordinary income $ 918
Capital loss carryforward from merger --
Undistributed long-term gain/(Capital loss carryforward) 124,956
Unrealized appreciation (depreciation) 933,120
-------------
Total $ 1,058,994
-------------
Pioneer
Growth
Shares
VCT Portfolio
2005
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ 271,910
Long-Term capital gain --
-------------
$ 271,910
Return of Capital --
-------------
Total distributions $ 271,910
-------------
Distributable Earnings
(Accumulated Losses):
Undistributed ordinary income $ 49,058
Undistributed long-term gain/(Capital loss carryforward) (36,182,632)
Post-October loss deferred/REIT Dividend Payable --
Unrealized appreciation (depreciation) 450,947
-------------
Total $(35,682,627)
==============
Pioneer Pioneer Pioneer
International Small Cap Small Cap
Value Value Value
VCT Portfolio VCT Portfolio VCT Portfolio
2004 2005 2004
----------------- ----------------- -----------------
Distributions paid from:
Ordinary Income $122,463 $ -- $ --
Long-Term capital gain -- 1,091,297 --
----------------------------------------------
$122,463 $ 1,091,297 $ --
Return of Capital -- -- --
----------------------------------------------
Total distributions $122,463 $ 1,091,297 $ --
----------------------------------------------
Distributable Earnings
(Accumulated Losses):
Undistributed ordinary income $ 646,863
Undistributed long-term gain/(Capital Loss carryforward) 2,238,710
Unrealized appreciation (depreciation) 6,006,705
----------------------------------------------
Total $ 8,892,278
----------------------------------------------
Pioneer Pioneer Pioneer
Small Mid Cap Mid Cap
Company Value Value
VCT Portfolio VCT Portfolio VCT Portfolio
2004 2005 2004
- ---------------------------------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ -- $ 6,510,571 $3,095,474
Long-Term capital gain -- 48,550,380 4,288,046
----------------------------------------------
$ -- $ 55,060,951 $7,383,520
Return of Capital -- -- --
----------------------------------------------
Total distributions $ -- $ 55,060,951 $7,383,520
----------------------------------------------
Distributable Earnings
(Accumulated Losses):
Undistributed ordinary income $ 30,629,491
Capital loss carryforward from merger (3,859,922)
Undistributed long-term gain/(Capital loss carryforward) 68,794,908
Unrealized appreciation (depreciation) 44,709,925
----------------------------------------------
Total $140,274,402
==============================================
Pioneer Pioneer Pioneer
Growth Real Estate Real Estate
Shares Shares Shares
VCT Portfolio VCT Portfolio VCT Portfolio
2004 2005 2004
- ---------------------------------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ -- $ 1,584,389 $2,449,917
Long-Term capital gain -- 4,986,253 470,299
----------------------------------------------
$ -- $ 6,570,462 $2,920,216
Return of Capital -- -- --
----------------------------------------------
Total distributions $ -- $ 6,570,462 $2,920,216
----------------------------------------------
Distributable Earnings
(Accumulated Losses):
Undistributed ordinary income $ --
Undistributed long-term gain/(Capital loss carryforward) 5,283,368
Post-October loss deferred/REIT Dividend Payable 211,528
Unrealized appreciation (depreciation) 37,514,365
----------------------------------------------
Total $ 43,009,261
===============================================
131
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Pioneer
Fund
VCT Portfolio
2005
--------------------
Distributions paid from:
Ordinary Income $ 6,814,575
Long-Term capital gain --
-----------
$ 6,814,575
Return of Capital --
-----------
Total distributions $ 6,814,575
-----------
Distributable Earnings
(Accumulated Losses):
Undistributed ordinary income $ 27,272
Undistributed long-term gain/Capital loss carryforward (39,968,844)
Post-October loss deferred --
Unrealized appreciation (depreciation) 103,238,111
-----------
Total $63,296,539
===========
Pioneer
Balanced
VCT Portfolio
2005
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ 797,097
Long-Term capital gain --
-----------
$ 797,097
Return of Capital --
-----------
Total distributions $ 797,097
-----------
Distributable Earnings
(Accumulated Losses):
Undistributed ordinary income $ --
Undistributed long-term gain/Capital loss carryforward (3,999,891)
Post-October loss deferred --
Unrealized appreciation (depreciation) 4,290,194
-----------
Total $ 290,303
============
Pioneer
Strategic Income
VCT Portfolio
2005
- -------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ 3,166,871
Long-Term capital gain/(Capital loss carryforward) 773,329
-----------
$ 3,940,200
Return of Capital --
-----------
Total distributions $ 3,940,200
-----------
Distributable Earnings
(Accumulated Losses):
Undistributed ordinary income $ 573,117
Undistributed long-term gain/Capital loss carryforward 148,610
Post-October loss deferred (40,713)
Unrealized appreciation (depreciation) 808,684
-----------
Total $ 1,489,698
===========
Pioneer Pioneer
Pioneer Equity Equity
Fund Income Income
VCT Portfolio VCT Portfolio VCT Portfolio
2004 2005 2004
--------------------------------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $2,755,256 $ 7,559,616 $5,405,318
Long-Term capital gain -- -- --
--------------------------------------------------
$2,755,256 $ 7,559,616 $5,405,318
Return of Capital -- -- --
--------------------------------------------------
Total distributions $2,755,256 $ 7,559,616 $5,405,318
--------------------------------------------------
Distributable Earnings
(Accumulated Losses):
Undistributed ordinary income $ 203,918
Undistributed long-term gain/Capital loss carryforward 6,168,262
Post-October loss deferred --
Unrealized appreciation (depreciation) 57,618,364
--------------------------------------------------
Total $63,990,544
==================================================
Pioneer Pioneer Pioneer
Balanced High Yield High Yield
VCT Portfolio VCT Portfolio VCT Portfolio
2004 2005 2004
- ------------------------------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ 944,560 $ 6,600,658 $5,479,212
Long-Term capital gain -- 3,164,700 400,340
--------------------------------------------------
$ 944,560 $ 9,765,358 $5,879,552
Return of Capital -- -- --
--------------------------------------------------
Total distributions $ 944,560 $ 9,765,358 $5,879,552
--------------------------------------------------
Distributable Earnings
(Accumulated Losses):
Undistributed ordinary income $ 798,588
Undistributed long-term gain/Capital loss carryforward 803,653
Post-October loss deferred --
Unrealized appreciation (depreciation) (212,035)
--------------------------------------------------
Total $ 1,390,206
==================================================
Pioneer Pioneer Pioneer
Strategic Income America Income America Income
VCT Portfolio VCT Portfolio VCT Portfolio
2004 2005 2004
- ------------------------------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $2,196,847 $ 2,171,301 $2,504,285
Long-Term capital gain/(Capital loss carryforward) 212,787 -- --
--------------------------------------------------
$2,409,634 $ 2,171,301 $2,504,285
Return of Capital -- -- --
--------------------------------------------------
Total distributions $2,409,634 $ 2,171,301 $2,504,285
--------------------------------------------------
Distributable Earnings
(Accumulated Losses):
Undistributed ordinary income $ 5,442
Undistributed long-term gain/Capital loss carryforward (1,230,915)
Post-October loss deferred (109,707)
Unrealized appreciation (depreciation) (384,607)
--------------------------------------------------
Total $(1,719,787)
==================================================
132
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Pioneer Pioneer
Money Market Money Market
VCT Portfolio VCT Portfolio
2005 2004
--------------- --------------
Distributions paid from:
Ordinary Income $944,260 $203,312
Long-Term capital gain/(Capital loss carryforward) -- --
---------------------------
$944,260 $203,312
Return of Capital -- --
---------------------------
Total distributions $944,260 $203,312
---------------------------
Distributable Earnings
(Accumulated Losses):
Undistributed ordinary income $ 333
Undistributed long-term gain/Capital loss carryforward (2,974)
Post-October loss deferred --
Unrealized appreciation (depreciation) 126
---------------------------
Total $(2,515)
============================
For the fiscal year ending December 31, 2005, Emerging Markets Portfolio,
Europe Portfolio and International Value Portfolio have elected to pass
through foreign tax credits of $181,164, $46,274 and $58,710, respectively.
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is primarily attributable to the tax deferral of losses on
wash sales, returns of capital on REITs, the recognition of unrealized
gains or losses on certain futures contracts and the tax treatment of
premium amortization.
F. Portfolio Shares
The Portfolios record sales and repurchases of their shares as of trade
date. Certain insurance companies paid Pioneer Funds Distributor, Inc.
(PFD), the principal underwriter for the Trust and a wholly owned indirect
subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $638,021 in
commissions on the sale of Trust shares for the year ended December 31,
2005.
Distribution fees for Class II shares are calculated based on the average
daily net asset values attributable to Class II shares of the Portfolio.
Shareowners of each class share all expenses and fees paid to the transfer
agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS),
for its services, which are allocated based on the number of accounts in
each class and the ratable allocation of related out-of-pocket expenses
(see Note 3). Income, common expenses (excluding transfer agent and
distribution fees) and realized and unrealized gains and losses are
calculated at the Portfolio level and allocated daily to each class of
share based on their respective percentage of the adjusted net assets at
the beginning of the day. High Yield, Strategic Income, America Income and
Money Market Portfolios declare as daily dividends substantially all of
their respective net investment income. All dividends are paid on a monthly
basis. Short-term capital gain distributions, if any, may be declared with
the daily dividends. Dividends and distributions to shareowners are
recorded on the ex-dividend date. Distributions paid by a Portfolio with
respect to each class of shares are calculated in the same manner, at the
same time, and in the same amount, except that Class I and Class II shares
can bear different transfer agent and distribution fees.
G. Securities Lending
The Portfolios lend securities in their portfolios to certain
broker-dealers or other institutional investors, with the Portfolios'
custodian acting as the lending agent. When entering into a loan, the
Portfolio receives collateral which is maintained by the custodian and
earns income in the form of negotiated lenders' fees. The Portfolios also
continue to receive payments in lieu of interest or dividends on the
securities loaned. Gain or loss on the fair value of the loaned securities
that may occur during the term of the loan will be for the account of the
Portfolios. The loans are secured by collateral of at least 102%, at all
times, of the fair value of the securities loaned. The amount of the
collateral will be adjusted daily to reflect any price fluctuation in the
value of the loaned securities. The Portfolios have the right under the
lending agreements to recover the securities on loan from the borrower on
demand. The Portfolios invest cash collateral in the Securities Lending
Investment Fund, which is sponsored by Brown Brothers Harriman & Co., the
Portfolios' custodian.
133
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
H. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolios, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreements at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Trust's custodian, or subcustodians. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano, manages the
Portfolios. Management fees are calculated daily at the following annual rates:
- --------------------------------------------------------------------
- ----------------------------------------------------------------
Management Fee as a Percentage
of each Portfolio's Average
Portfolio Daily Net Assets
- ----------------------------------------------------------------
Emerging Markets Portfolio 1.15%
Europe Portfolio 1.00%
International Value Portfolio 1.00%
Small Cap Value Portfolio 0.75%
Small Company Portfolio 0.75%
Mid Cap Value Portfolio 0.65%
Growth Shares Portfolio 0.70%
Real Estate Shares Portfolio 0.80%
Fund Portfolio 0.65%
Equity Income Portfolio 0.65%
Balanced Portfolio 0.65%
High Yield Portfolio 0.65%
Strategic Income Portfolio 0.65%
America Income Portfolio 0.55%
Money Market Portfolio 0.50%
- ----------------------------------------------------------------
PIM has agreed not to impose a portion of its management fees and to assume
other operating expenses for certain Portfolios through May 1, 2006 to the
extent necessary to limit expenses of Class I shares (Class II shares in the
case of High Yield and Value Portfolios) to the following percentages of the
Portfolios' average daily net assets attributable to Class I shares:
- ----------------------------------------------------------------
Expense Limitation as a Percentage
of each Portfolio's Average
Portfolio Daily Net Assets
- ----------------------------------------------------------------
Emerging Markets Portfolio 1.75%
Europe Portfolio 1.50%
Small Cap Value Portfolio 1.25%
Small Company Portfolio 1.25%
Mid Cap Value Portfolio 0.88%
Fund Portfolio 0.80%
Strategic Income Portfolio 1.25%
Money Market Portfolio 0.90%
- ----------------------------------------------------------------
134
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The portion of the Portfolios' expenses attributable to Class II (or Class I
for shares in the case of High Yield Portfolio) will be reduced only to the
extent such expenses are reduced for Class I shares (or Class II shares).
In addition, under the management and administration agreements, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolios. At December 31, 2005, the following
amounts were payable to PIM related to management fees, administrative fees and
certain other services and are included in due to affiliates:
- --------------------------------------------------------------------------------
Portfolio Amount
- --------------------------------------------------------------------------------
Emerging Markets Portfolio $ 3,295
Europe Portfolio 182
International Value Portfolio 1,493
Small Cap Value Portfolio 3,108
Small Company Portfolio 3,662
Mid Cap Value Portfolio 17,327
Growth Shares Portfolio 1,326
Real Estate Shares Portfolio 4,397
Fund Portfolio 17,748
Equity Income Portfolio 12,822
Balanced Portfolio 1,515
High Yield Portfolio 3,878
Strategic Income Portfolio 2,164
America Income Portfolio 1,424
Money Market Portfolio 911
- --------------------------------------------------------------------------------
3. Transfer Agent
PIMSS, a wholly owned indirect subsidiary of UniCredito Italiano, provides
substantially all transfer agent and shareowner services to the Trust at
negotiated rates. The following amounts of transfer agent fees payable to PIMSS
are included in due to affiliates at December 31, 2005:
- --------------------------------------------------------------------------------
Portfolio Amount
- --------------------------------------------------------------------------------
Emerging Markets Portfolio $ 3,946
Europe Portfolio 3,699
International Value Portfolio 4,907
Small Cap Value Portfolio 268
Small Company Portfolio 3,943
Mid Cap Value Portfolio 3,949
Growth Shares Portfolio 3,702
Real Estate Shares Portfolio 3,945
Fund Portfolio 2,207
Equity Income Portfolio 3,946
Balanced Portfolio 3,947
High Yield Portfolio 3,943
Strategic Income Portfolio 3,947
America Income Portfolio 3,947
Money Market Portfolio 3,699
- --------------------------------------------------------------------------------
135
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
4. Distribution Plans
The Portfolios have adopted plans of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plans, each Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with each Portfolio's
Class II shares. The following amounts of distribution fees payable to PFD are
included in due to affiliates at December 31, 2005:
- --------------------------------------------------------------------------------
Portfolio Amount
- --------------------------------------------------------------------------------
Emerging Markets Portfolio $ 605
Europe Portfolio 139
International Value Portfolio 79
Small Cap Value Portfolio 4,728
Small Company Portfolio 2,161
Mid Cap Value Portfolio 1,210
Growth Shares Portfolio 98
Real Estate Shares Portfolio 932
Fund Portfolio 1,622
Equity Income Portfolio 1,748
Balanced Portfolio 174
High Yield Portfolio 627
Strategic Income Portfolio 545
America Income Portfolio 291
- --------------------------------------------------------------------------------
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolios' aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes were as follows:
- ----------------------------------------------------------------------------------------------------------
Gross Gross Net Appreciation/
Portfolio Tax Cost Appreciation Depreciation (Depreciation)
- ----------------------------------------------------------------------------------------------------------
Emerging Markets Portfolio $ 40,224,578 $ 18,138,652 $ (309,710) $ 17,828,942
Europe Portfolio $ 15,853,018 $ 2,607,249 $ (124,865) $ 2,482,384
International Value Portfolio $ 21,825,518 $ 5,651,803 $ (134,744) $ 5,517,059
Small Cap Value Portfolio $ 39,423,889 $ 7,724,253 $ (1,717,548) $ 6,006,705
Small Company Portfolio $ 13,022,623 $ 1,568,897 $ (635,777) $ 933,120
Mid Cap Value Portfolio $329,788,522 $ 52,846,924 $ (8,136,999) $ 44,709,925
Growth Shares Portfolio $ 34,530,118 $ 2,601,774 $ (2,150,827) $ 450,947
Real Estate Shares Portfolio $ 78,330,181 $ 37,800,321 $ (285,956) $ 37,514,365
Fund Portfolio $396,587,906 $120,731,703 $ (17,493,590) $103,238,113
Equity Income Portfolio $304,664,277 $ 64,450,055 $ (6,831,691) $ 57,618,364
Balanced Portfolio $ 37,388,029 $ 5,387,035 $ (1,096,841) $ 4,290,194
High Yield Portfolio $109,737,368 $ 3,143,440 $ (3,355,475) $ (212,035)
Strategic Income Portfolio $ 57,162,749 $ 1,658,270 $ (845,419) $ 812,851
America Income Portfolio $ 46,740,913 $ 179,576 $ (564,183) $ (384,607)
Money Market Portfolio $ 34,678,375 $ -- $ -- $ --
- ----------------------------------------------------------------------------------------------------------
136
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were as follows:
Portfolio Purchases Sales
- --------------------------------------------------------------------------------
Emerging Markets Portfolio $34,572,618 $ 32,120,040
Europe Portfolio 16,879,436 17,364,001
International Value Portfolio 27,644,939 31,089,404
Small Cap Value Portfolio 20,116,602 11,968,562
Small Company Portfolio 8,231,411 9,545,681
Mid Cap Value Portfolio* 552,734,571 1,022,270,325
Growth Shares Portfolio 29,038,767 35,777,062
Real Estate Shares Portfolio 11,218,671 19,586,688
Fund Portfolio* 121,305,838 262,447,758
Equity Income Portfolio 140,157,173 69,194,499
Balanced Portfolio 8,312,687 12,418,655
High Yield Portfolio 40,480,811 55,124,286
Strategic Income Portfolio 19,322,786 17,662,141
America Income Portfolio -- --
Money Market Portfolio -- --
- --------------------------------------------------------------------------------
The cost of purchases and the proceeds from sales of U.S. Government
obligations for the year ended December 31, 2005, were as follows:
- --------------------------------------------------------------------------------
Portfolio Purchases Sales
- --------------------------------------------------------------------------------
Balanced Portfolio $ 2,731,418 $ 2,851,574
Strategic Income Portfolio 19,830,091 17,662,141
America Income Portfolio 13,301,114 10,355,001
- --------------------------------------------------------------------------------
* For the year ended September 23, 2005, the Mid Cap Value Portfolio and Fund
Portfolio had redemptions in kind which resulted in redemptions out of the
Portfolios totaling $488,210,933 and $75,731,419, respectively.
137
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows for the
fiscal years ended December 31, 2005 and 2004:
- -----------------------------------------------------------------------------------------------
'05 Shares '05 Amount '04 Shares '04 Amount
- -----------------------------------------------------------------------------------------------
Emerging Markets Portfolio
CLASS I:
Shares sold 57,112 $ 1,329,128 72,945 $ 1,305,983
Reinvestment of distributions 2,300 49,529 3,952 63,595
Shares repurchased (82,002) (1,885,112) (138,809) (2,377,707)
--------------------------------------------------------
Net decrease (22,590) $ (506,455) (61,912) $ (1,008,129)
========================================================
CLASS II:
Shares sold 530,098 $ 11,881,187 468,119 $ 8,281,285
Reinvestment of distributions 7,549 161,235 12,278 196,317
Shares repurchased (449,363) (10,100,911) (524,708) (9,081,943)
--------------------------------------------------------
Net increase (decrease) 88,284 $ 1,941,511 (44,311) $ (604,341)
========================================================
Europe Portfolio
CLASS I:
Shares sold 21,878 $ 233,953 43,531 $ 395,370
Reinvestment of distributions 5,591 58,420 7,232 65,952
Shares repurchased (155,613) (1,693,646) (190,688) (1,758,638)
--------------------------------------------------------
Net decrease (128,144) $ (1,401,273) (139,925) $ (1,297,316)
========================================================
CLASS II:
Shares sold 268,948 $ 2,856,394 374,441 $ 3,494,736
Reinvestment of distributions 4,369 44,828 4,343 38,910
Shares repurchased (174,429) (1,850,566) (151,264) (1,416,699)
--------------------------------------------------------
Net increase 98,888 $ 1,050,656 227,520 $ 2,116,947
========================================================
International Value Portfolio:
CLASS I:
Shares sold 48,222 $ 576,930 125,954 $ 1,319,269
Reinvestment of distributions 2,721 31,154 10,994 113,572
Shares repurchased (430,261) (5,229,863) (449,994) (4,643,483)
--------------------------------------------------------
Net decrease (379,318) $ (4,621,779) (313,046) $ (3,210,642)
========================================================
CLASS II:
Shares sold 218,007 $ 2,667,524 294,244 $ 3,061,211
Reinvestment of distributions 270 3,084 862 8,888
Shares repurchased (147,285) (1,837,822) (53,626) (546,137)
--------------------------------------------------------
Net increase 70,992 $ 832,786 241,480 $ 2,523,962
========================================================
Small Cap Value Portfolio
CLASS I:
Shares sold 571,103 $ 8,553,972 510,952 $ 6,774,823
Reinvestment of distributions 40,427 589,019 -- --
Shares repurchased (539,585) (8,145,222) (277,189) (3,672,701)
--------------------------------------------------------
Net increase 71,945 $ 997,769 233,763 $ 3,102,122
========================================================
CLASS II:
Shares sold 712,018 $ 10,705,770 566,136 $ 7,527,234
Reinvestment of distributions 34,350 497,391 -- --
Shares repurchased (121,596) (1,821,434) (61,897) (820,452)
--------------------------------------------------------
Net increase 624,772 $ 9,381,727 504,239 $ 6,706,782
========================================================
- -----------------------------------------------------------------------------------------------
138
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
'05 Shares '05 Amount '04 Shares '04 Amount
--------------- ------------------ --------------- ---------------
Small Company Portfolio
CLASS I:
Shares sold 28,888 $ 341,646 56,890 $ 670,369
Reinvestment of distributions 28,887 323,819 -- --
Shares repurchased (72,370) (872,188) (103,931) (1,215,329)
---------------------------------------------------------------
Net decrease (14,595) $ (206,723) (47,041) $ (544,960)
===============================================================
CLASS II:
Shares sold 122,621 $ 1,477,051 320,212 $ 3,780,396
Reinvestment of distributions 93,902 1,039,486 -- --
Shares repurchased (169,970) (1,995,023) (160,864) (1,919,719)
---------------------------------------------------------------
Net increase 46,553 $ 521,514 159,348 $ 1,860,677
===============================================================
Mid Cap Value Portfolio
CLASS I:
Shares sold 2,037,703 $ 50,295,966 3,133,632 $ 68,612,090
Class I shares issued in reorganization -- -- 2,087,866 49,670,328
Reinvestment of distributions 821,233 19,882,052 117,982 2,575,556
Shares repurchased (2,727,151) (66,908,971) (1,365,569) (29,591,496)
Redemptions in kind (868,079) (21,000,610) -- --
---------------------------------------------------------------
Net increase (decrease) (736,294) $ (17,731,563) 3,973,911 $ 91,266,478
===============================================================
CLASS II:
Shares sold 3,599,252 $ 87,784,480 12,236,512 $ 263,179,728
Reinvestment of distributions 1,468,235 35,178,899 221,974 4,807,964
Shares repurchased (3,965,242) (96,694,602) (881,455) (19,626,013)
Redemptions in kind (19,499,464) (467,210,323) -- --
---------------------------------------------------------------
Net increase (decrease) (18,397,219) $ (440,941,546) 11,577,031 $ 248,361,679
===============================================================
Growth Shares Portfolio
CLASS I:
Shares sold 34,054 $ 438,600 66,360 $ 806,587
Reinvestment of distributions 17,362 221,887 -- --
Shares repurchased (512,773) (6,658,363) (515,053) (6,176,527)
---------------------------------------------------------------
Net decrease (461,357) $ (5,997,876) (448,693) $ (5,369,940)
===============================================================
CLASS II:
Shares sold 137,249 $ 1,753,754 406,516 $ 4,832,089
Reinvestment of distributions 3,965 50,023 -- --
Shares repurchased (205,695) (2,678,779) (56,565) (664,405)
---------------------------------------------------------------
Net increase (decrease) (64,481) $ (875,002) 349,951 $ 4,167,684
===============================================================
Real Estate Shares Portfolio
CLASS I:
Shares sold 57,099 $ 1,401,143 151,466 $ 3,192,487
Reinvestment of distributions 91,076 2,234,316 56,986 1,200,592
Shares repurchased (420,029) (10,198,782) (425,846) (8,497,885)
---------------------------------------------------------------
Net decrease (271,854) $ (6,563,323) (217,394) $ (4,104,806)
===============================================================
CLASS II:
Shares sold 558,332 $ 13,449,440 820,863 $ 16,835,509
Reinvestment of distributions 176,725 4,336,326 81,377 1,719,624
Shares repurchased (699,655) (17,192,679) (505,041) (10,015,990)
---------------------------------------------------------------
Net increase 35,402 $ 593,087 397,199 $ 8,539,143
===============================================================
- -------------------------------------------------------------------------------------------------------------
139
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
'05 Shares '05 Amount '04 Shares '04 Amount
- -------------------------------------------------------------------------------------------------------------
Fund Portfolio
CLASS I:
Shares sold 580,758 $ 11,975,172 451,723 $ 8,690,214
Class I shares issued in reorganization -- -- 14,822,109 298,220,832
Reinvestment of distributions 257,653 5,374,312 87,609 1,685,576
Shares repurchased (5,148,933) (106,238,103) (1,561,121) (29,970,569)
---------------------------------------------------------------
Net increase (decrease) (4,310,522) $ (88,888,619) 13,800,320 $ 278,626,053
===============================================================
CLASS II:
Shares sold 1,500,748 $ 30,883,995 2,721,468 $ 51,382,671
Class II shares issued in reorganization 2,567,061 53,856,933 -- --
Reinvestment of distributions 69,257 1,440,013 55,486 1,069,680
Shares repurchased (1,597,303) (32,937,344) (952,397) (18,149,175)
Redemptions in kind (3,626,019) (75,731,419) -- --
---------------------------------------------------------------
Net increase (decrease) (1,086,256) $ (22,487,822) 1,824,557 $ 34,303,176
===============================================================
Equity Income Portfolio
CLASS I:
Shares sold 2,853,636 $ 59,389,539 1,757,096 $ 33,474,454
Reinvestment of distributions 242,794 5,101,573 198,654 3,809,791
Shares repurchased (1,317,139) (27,494,268) (1,411,407) (26,451,072)
---------------------------------------------------------------
Net increase 1,779,291 $ 36,996,844 544,343 $ 10,833,173
===============================================================
CLASS II:
Shares sold 1,763,038 $ 36,834,942 1,571,139 $ 29,821,487
Reinvestment of distributions 116,340 2,458,044 82,473 1,595,526
Shares repurchased (444,619) (9,373,382) (442,520) (8,321,500)
---------------------------------------------------------------
Net increase 1,434,759 $ 29,919,604 1,211,092 $ 23,095,513
===============================================================
Balanced Portfolio
CLASS I:
Shares sold 30,803 $ 441,468 78,321 $ 1,113,192
Reinvestment of distributions 40,641 588,607 55,609 789,468
Shares repurchased (522,797) (7,567,111) (586,843) (8,291,593)
---------------------------------------------------------------
Net decrease (451,353) $ (6,537,036) (452,913) $ (6,388,933)
===============================================================
CLASS II:
Shares sold 272,986 $ 3,924,192 557,386 $ 7,865,698
Reinvestment of distributions 14,431 208,614 10,920 155,081
Shares repurchased (151,515) (2,206,918) (83,119) (1,169,938)
---------------------------------------------------------------
Net increase 135,902 $ 1,925,888 485,187 $ 6,850,841
===============================================================
High Yield Portfolio
CLASS I:
Shares sold 1,902,148 $ 21,181,455 2,699,382 $ 30,852,667
Reinvestment of distributions 514,993 5,666,754 346,267 3,947,046
Shares repurchased (2,659,638) (29,739,088) (2,787,689) (31,727,505)
---------------------------------------------------------------
Net increase (decrease) (242,497) $ (2,890,879) 257,960 $ 3,072,208
===============================================================
CLASS II:
Shares sold 2,014,754 $ 22,331,327 3,916,481 $ 44,766,847
Reinvestment of distributions 368,486 4,054,505 166,648 1,899,530
Shares repurchased (2,495,978) (27,951,532) (1,171,662) (12,979,950)
---------------------------------------------------------------
Net increase (decrease) (112,738) $ (1,565,700) 2,911,467 $ 33,686,427
===============================================================
- -------------------------------------------------------------------------------------------------------------
140
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
'05 Shares '05 Amount '04 Shares '04 Amount
- -------------------------------------------------------------------------------------------------------------
Strategic Income Portfolio
CLASS I:
Shares sold 299,475 $ 3,285,765 453,590 $ 4,955,002
Reinvestment of distributions 136,735 1,498,145 134,927 1,462,624
Shares repurchased (364,351) (3,995,330) (494,192) (5,414,640)
---------------------------------------------------------------
Net increase 71,859 $ 788,580 94,325 $ 1,002,986
===============================================================
CLASS II:
Shares sold 1,483,721 $ 16,378,126 1,907,997 $ 20,809,730
Reinvestment of distributions 219,709 2,404,152 83,281 904,794
Shares repurchased (204,670) (2,225,385) (101,494) (1,108,839)
---------------------------------------------------------------
Net increase 1,498,760 $ 16,556,893 1,889,784 $ 20,605,685
===============================================================
America Income Portfolio
CLASS I:
Shares sold 116,997 $ 1,169,565 245,204 $ 2,472,061
Reinvestment of distributions 138,561 1,381,733 206,467 2,102,795
Shares repurchased (836,177) (8,331,104) (1,551,998) (15,847,044)
---------------------------------------------------------------
Net decrease (580,619) $ (5,779,806) (1,100,327) $ (11,272,188)
===============================================================
CLASS II:
Shares sold 1,061,522 $ 10,609,970 1,247,751 $ 12,688,404
Reinvestment of distributions 79,492 792,446 39,513 401,463
Shares repurchased (336,194) (3,330,818) (179,116) (1,822,936)
---------------------------------------------------------------
Net increase 804,820 $ 8,071,598 1,108,148 $ 11,266,931
===============================================================
Money Market Portfolio
CLASS I:
Shares sold 19,584,349 $ 19,583,940 18,483,037 $ 18,483,037
Class I shares issued in reorganization -- -- 21,976,837 21,976,837
Reinvestment of distributions 942,853 942,853 203,307 203,307
Shares repurchased (30,205,433) (30,205,433) (32,505,228) (32,505,228)
---------------------------------------------------------------
Net increase (decrease) (9,678,231) $ (9,678,640) 8,157,953 $ 8,157,953
===============================================================
8. Forward Foreign Currency Contracts
During the year ended December 31, 2005, certain Portfolios had entered into
various contracts that obligate the Portfolios to deliver currencies at
specified future dates. At the maturity of a contract, the Portfolios must make
delivery of the foreign currency. Alternatively, prior to the settlement date
of a portfolio hedge, the Portfolio may close out such contracts by entering
into an offsetting hedge contract.
As of December 31, 2005, the Portfolios' open portfolio hedges were as follows:
- -----------------------------------------------------------------------------------------------------------------------------
Contracts to In Exchange Settlement Net
Portfolio Deliver For Date Value Unrealized Gain (Loss)
- -----------------------------------------------------------------------------------------------------------------------------
Strategic Income Portfolio AUD (1,206,000) $ (881,586) 3/23/06 $ (883,432) $ (1,846)
Strategic Income Portfolio CAD (330,000) (283,505) 3/1/06 (284,225) (720)
Strategic Income Portfolio EUR (334,000) (396,021) 3/2/06 (396,654) (633)
Strategic Income Portfolio JPY (22,000,000) (190,451) 3/2/06 (187,792) 2,659
Strategic Income Portfolio JPY (35,000,000) (297,865) 1/27/06 (297,535) 330
Strategic Income Portfolio JPY 166,000,000 1,402,027 3/2/06 1,417,640 15,613
Strategic Income Portfolio JPY 35,000,000 299,217 1/27/06 297,640 (1,577)
- -----------------------------------------------------------------------------------------------------------------------------
141
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
9. Merger Information
On December 8, 2004, beneficial owners of Safeco RST Core Equity Portfolio,
Safeco RST Money Market Portfolio and Safeco RST Multi-Cap Core Portfolio,
three of the six portfolios that comprised Safeco Resource Series Trust,
approved a proposed Agreement and Plan of Reorganization that provided for the
mergers listed below. These tax-free reorganizations were accomplished on
December 10, 2004 ("Closing Date"), by exchanging all of the Safeco's net
assets for Class I shares as indicated below, based on Class I shares' ending
net asset value on the Closing Date. The following charts show the details of
the reorganizations as of that Closing Date:
Pioneer Fund VCT Portfolio
- ---------------------------------------------------------------------------------------------------
Pioneer Fund Safeco RST Core Pioneer Fund
VCT Portfolio Equity Portfolio VCT Portfolio
(Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization)
- ---------------------------------------------------------------------------------------------------
Net Assets $281,591,969 $298,220,832 $879,147,352
Shares Outstanding 13,990,134 12,804,673 28,812,243
Class I Shares Issued 14,822,109
- ---------------------------------------------------------------------------------------------------
Pioneer Money Market VCT Portfolio
- ---------------------------------------------------------------------------------------------------
Pioneer Money Pioneer Money
Market VCT Safeco RST Money Market VCT
Portfolio Market Portfolio Portfolio
(Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization)
- ---------------------------------------------------------------------------------------------------
Net Assets $23,493,640 $21,976,837 $67,613,266
Shares Outstanding 23,500,655 21,976,837 45,477,492
Class I Shares Issued 21,976,837
- ---------------------------------------------------------------------------------------------------
Pioneer Mid Cap Value VCT Portfolio
- ---------------------------------------------------------------------------------------------------
Pioneer Mid Cap Pioneer Mid Cap
Value VCT Safeco RST Multi- Value VCT
Portfolio Cap Core Portfolio Portfolio
(Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization)
- ---------------------------------------------------------------------------------------------------
Net Assets $757,206,652 $49,670,328 $858,922,877
Shares Outstanding 32,072,498 2,399,533 34,160,364
Class I Shares Issued 2,087,866
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Unrealized Realized
Appreciation on Gain/(Loss)
Closing Date on Closing Date
- ---------------------------------------------------------------------------------------------------
Safeco RST Core Equity Portfolio $68,714,366 $20,662,968
Safeco RST Money Market Portfolio -- --
Safeco RST Multi-Cap Core Portfolio 5,550,191 7,992,587
- -------------------------------------------------------------------------------
142
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In addition, on November 4, 2005, beneficial owners of AmSouth VIF Select
Equity Portfolio approved a proposed Agreement and Plan of Reorganization that
provided for the merger listed below. This tax-free reorganization was
accomplished on November 4, 2005, by exchanging all of the AmSouth Fund's net
assets for Class II shares as indicated below, based on Class II share's ending
net asset value on the Closing Date. The following charts show the details of
the reorganizations as of that closing date ("Closing Date"):
- -----------------------------------------------------------------------------------------------------
Pioneer Fund AmSouth VIF Pioneer Fund
VCT Portfolio Select Equity VCT Portfolio
(Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization)
- -----------------------------------------------------------------------------------------------------
Net Assets $444,635,312 $53,856,933 $498,492,245
Shares Outstanding 21,144,152 4,928,631 23,711,213
Class II Shares Issued 2,567,061
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Unrealized Realized
Appreciation on (Loss)
Closing Date on Closing Date
- -----------------------------------------------------------------------------------------------------
AmSouth VIF Select Equity $4,928,126 $ (49,233)
- -----------------------------------------------------------------------------------------------------
Additional Information (unaudited)
The qualifying percentage of certain Portfolios' ordinary income dividends for
the purposes of the corporate dividends received deduction and the percentage
of those ordinary dividends that are subject to a maximum tax rate of 15% as
provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were
as follows:
- -----------------------------------------------------------------------------------------------------
Dividend Qualified
Received Dividend
Deduction Income
- -----------------------------------------------------------------------------------------------------
Emerging Markets Portfolio 0.00% 100.00%
Europe Portfolio 0.00% 100.00%
International Value Portfolio 0.00% 100.00%
Mid Cap Value Portfolio 100.00% 88.84%
Growth Shares Portfolio 100.00% 100.00%
Fund Portfolio 100.00% 100.00%
Equity Income Portfolio 100.00% 100.00%
Balanced Portfolio 37.72% 40.51%
143
Pioneer Variable Contracts Trust PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareowners of
Pioneer Variable Contracts Trust:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Pioneer Emerging Markets VCT
Portfolio, Pioneer Europe VCT Portfolio, Pioneer International Value VCT
Portfolio, Pioneer Small Cap Value VCT Portfolio, Pioneer Small Company VCT
Portfolio, Pioneer Mid Cap Value VCT Portfolio, Pioneer Growth Shares VCT
Portfolio, Pioneer Real Estate Shares VCT Portfolio, Pioneer Fund VCT
Portfolio, Pioneer Equity Income VCT Portfolio, Pioneer Balanced VCT Portfolio,
Pioneer High Yield VCT Portfolio, Pioneer Strategic Income VCT Portfolio,
Pioneer America Income VCT Portfolio and Pioneer Money Market VCT Portfolio
(fifteen of the portfolios constituting the Pioneer Variable Contracts Trust
collectively, the 'Trust', and individually, the 'Portfolios'), as of December
31, 2005, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the four years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for the period ended December 31, 2001 were
audited by other auditors who have ceased operations and whose report, dated
February 8, 2002, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005, by correspondence
with the custodian and brokers or by other appropriate auditing procedures
where replies from brokers were not received. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
fifteen Portfolios of the Pioneer Variable Contracts Trust referred to above at
December 31, 2005, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and their financial highlights for each of the four years in the period then
ended, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
144
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Emerging Markets VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three and five year periods for
the Fund and a peer group selected by the Independent Trustees for this
purpose, (2) management fees incurred by a peer group of funds selected by the
Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objective and regulatory requirements.
The Trustees also reviewed the Fund's investment performance based upon
total return, as well as the Fund's
145
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Emerging Markets VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and the results
of an index, in each case selected by the Independent Trustees for this
purpose. The Fund's performance based upon total return was in the first
quintile of the peer group for the 12 months ended June 30, 2005, the first
quintile for the three years ended June 30, 2005, and the third quintile for
the five years ended June 30, 2005. (In all quintile rankings referred to
throughout this discussion first quintile is most favorable to the Fund's
shareholders. Thus, highest relative performance would be first quintile and
lowest relative expenses also would be first quintile.) The Trustees
concluded that the performance of the Fund supported the continuation of the
Management Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's equities group. Among other things, the Trustees
considered the number, education and experience of the Investment Adviser's
investment staff and their use of technology and emphasis on analytics in
view of the risk profile of securities in which the Fund invests. The
Trustees concluded that the Investment Adviser had the quality and depth of
personnel and the well-developed methods essential to performing its duties
under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the third
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
considered the Fund's expense ratio (before and after giving effect to the
expense limitation) for the 12 months ended June 30, 2005 and expense ratios
for the comparable period of a peer group of funds selected by the
Independent Trustees for this purpose. The Fund's expense ratio (after
giving effect to the expense limitation) was in the fifth quintile of this
peer group for the most recent fiscal year.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. The Trustees concluded that,
given current and anticipated asset levels, break points in management fee
are not necessary at this time. The Trustees will continue to evaluate
annually the appropriateness of break points.
146
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Emerging Markets VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund), and
benefits to the Investment Adviser from the use of "soft" commission dollars
to pay for research services. The Trustees further considered the revenues
and profitability of the Investment Adviser's businesses other than the fund
business, including the Investment Adviser's institutional investment
advisory business. The Trustees considered the intangible benefits that
accrue to the Investment Adviser and its affiliates by virtue of its
relationship with the Fund and the Pioneer Funds as a group. The Trustees
concluded that all these types of benefits accruing to the Investment
Adviser were reasonable in the context of the overall relationship between
the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
147
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Europe VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three and five year periods for
the Fund and a peer group selected by the Independent Trustees for this
purpose, (2) management fees incurred by a peer group of funds selected by the
Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of brake
points in the management fee, reasonable growth expectations for the Fund and
certain of the Fund's expenses that are not incurred as fees based on a
percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objective and regulatory requirements.
The Trustees also reviewed the Fund's investment performance based upon
total return, as well as the Fund's
148
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Europe VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and the results
of an index, in each case selected by the Independent Trustees for this
purpose. The Fund's performance based upon total return was in the second
quintile of the peer group for the 12 months ended June 30, 2005, the third
quintile for the three years ended June 30, 2005, and the fifth quintile for
the five years ended June 30, 2005. (In all quintile rankings referred to
throughout this discussion first quintile is most favorable to the Fund's
shareholders. Thus, highest relative performance would be first quintile and
lowest relative expenses also would be first quintile.) The Trustees
concluded that the performance of the Fund supported the continuation of the
Management Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's equities group. Among other things, the Trustees
considered the number, education and experience of the Investment Adviser's
investment staff and their use of technology and emphasis on analytics in
view of the risk profile of securities in which the Fund invests. The
Trustees concluded that the Investment Adviser had the quality and depth of
personnel and the well-developed methods essential to performing its duties
under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the second
quintile (after fee waivers) relative to the management fees paid by the
other funds in that peer group for the comparable period and in the fifth
quintile without giving effect to fee waivers. The Investment Adviser agreed
to reduce the management fee to 0.85% of average daily net assets, which
would place the Fund in the third quintile of the peer group, and to add a
break point in the management fee. The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
considered the Fund's expense ratio (before and after giving effect to the
expense limitation) for the 12 months ended June 30, 2005 and expense ratios
for the comparable period of a peer group of funds selected by the
Independent Trustees for this purpose. The Fund's expense ratio (after
giving effect to the expense limitation) was in the fifth quintile of this
peer group for the most recent fiscal year.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. Because of break points in
the management fees, the Trustees concluded
149
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Europe VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
that any perceived or potential economies of scale would be shared at future
asset levels, in a reasonable manner as the Fund grows in size, between
Fund's shareholders and the Investment Adviser.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund), and
benefits to the Investment Adviser from the use of "soft" commission dollars
to pay for research services. The Trustees further considered the revenues
and profitability of the Investment Adviser's businesses other than the fund
business, including the Investment Adviser's institutional investment
advisory business. The Trustees considered the intangible benefits that
accrue to the Investment Adviser and its affiliates by virtue of its
relationship with the Fund and the Pioneer Funds as a group. The Trustees
concluded that all these types of benefits accruing to the Investment
Adviser were reasonable in the context of the overall relationship between
the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
150
PIONEER VARIABLE CONTRACTS TRUST
Pioneer International Value VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three, five and ten year
periods for the Fund and a peer group selected by the Independent Trustees for
this purpose, (2) management fees incurred by a peer group of funds selected by
the Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of break
points in the management fee, reasonable growth expectations for the Fund and
certain of the Fund's expenses that are not incurred as fees based on a
percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objective and regulatory requirements.
The Trustees also reviewed the Fund's investment performance based upon
total return, as well as the Fund's
151
PIONEER VARIABLE CONTRACTS TRUST
Pioneer International Value VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and the results
of an index, in each case selected by the Independent Trustees for this
purpose. The Fund's performance based upon total return was in the third
quintile of the peer group for the 12 months ended June 30, 2005, the fourth
quintile for the three years ended June 30, 2005, the fifth quintile for the
five years ended June 30, 2005 and the fifth quintile for the ten year
period ended June 30, 2005. (In all quintile rankings referred to throughout
this discussion first quintile is most favorable to the Fund's shareholders.
Thus, highest relative performance would be first quintile and lowest
relative expenses also would be first quintile.) The Trustees concluded that
the performance of the Fund supported the continuation of the Management
Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's equities group. Among other things, the Trustees
considered the number, education and experience of the Investment Adviser's
investment staff and their use of technology and emphasis on analytics in
view of the risk profile of securities in which the Fund invests. The
Trustees concluded that the Investment Adviser had the quality and depth of
personnel and the well-developed methods essential to performing its duties
under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the fifth
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Investment Adviser agreed to
reduce the management fee to 0.85%, which would be in the third quintile of
the peer group, and to add a break point to the fee schedule. The Trustees
determined that the fee under the Management Contract was reasonable and
fair in light of both the overall nature and quality of services provided by
the Investment Adviser and the fees charged by the funds in the peer group.
The Trustees also considered the Fund's expense ratio for the 12 months
ended June 30, 2005 and expense ratios for the comparable period of a peer
group of funds selected by the Independent Trustees for this purpose. The
Fund's expense ratio was in the fifth quintile of this peer group for the
most recent fiscal year.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. Because of break points in
the management fees, the Trustees concluded
152
PIONEER VARIABLE CONTRACTS TRUST
Pioneer International Value VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
that any perceived or potential economies of scale would be shared at future
asset levels, in a reasonable manner as the Fund grows in size, between
Fund's shareholders and the Investment Adviser.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund), and
benefits to the Investment Adviser from the use of "soft" commission dollars
to pay for research. The Trustees further considered the revenues and
profitability of the Investment Adviser's businesses other than the fund
business, including the Investment Adviser's institutional investment
advisory business. The Trustees considered the intangible benefits that
accrue to the Investment Adviser and its affiliates by virtue of its
relationship with the Fund and the Pioneer Funds as a group. The Trustees
concluded that all these types of benefits accruing to the Investment
Adviser were reasonable in the context of the overall relationship between
the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
153
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Small Cap Value VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one and three year periods for the
Fund and a peer group selected by the Independent Trustees for this purpose,
(2) management fees incurred by a peer group of funds selected by the
Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's
154
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Small Cap Value VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and an index,
in each case selected by the Independent Trustees for this purpose. The
Fund's performance based upon total return was in the second quintile of the
peer group for the 12 months ended June 30, 2005 and the second quintile for
the three years ended June 30, 2005. (In all quintile rankings referred to
throughout this discussion first quintile is most favorable to the Fund's
shareholders. Thus, highest relative performance would be first quintile and
lowest relative expenses also would be first quintile.) The Trustees
concluded that the performance of the Fund supported the continuation of the
Management Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's equities group. Among other things, the Trustees
considered the number, education and experience of the Investment Adviser's
investment staff and their use of technology and emphasis on analytics in
view of the risk profile of securities in which the Fund invests. The
Trustees concluded that the Investment Adviser had the quality and depth of
personnel and the well-developed methods essential to performing its duties
under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the second
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
considered the Fund's expense ratio and expense ratios of a peer group of
funds selected by the Independent Trustees for this purpose. The Fund's
expense ratio (after giving effect to the expense limitation) for the 12
months ended June 30, 2005 was in the fifth quintile of the applicable peer
group for the most recent fiscal year of the peer group for the comparable
period.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. The Trustees concluded that,
given current and anticipated asset levels, a break point in the management
fee was not necessary at this time. As assets increase, the Trustees will
continue to evaluate annually the appropriateness of break points.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates,
155
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Small Company VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
including fees for services such as shareholder services. The Trustees also
considered the receipt of sales loads and payments under Rule 12b-1 plans in
respect to the Pioneer Funds (including the Fund), and benefits to the
Investment Adviser from the use of "soft" commission dollars to pay for
research services. The Trustees further considered the revenues and
profitability of the Investment Adviser's businesses other than the fund
business, including the Investment Adviser's institutional investment
advisory business. The Trustees considered the intangible benefits that
accrue to the Investment Adviser and its affiliates by virtue of its
relationship with the Fund and the Pioneer Funds as a group. The Trustees
concluded that all these types of benefits accruing to the Investment
Adviser were reasonable in the context of the overall relationship between
the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
156
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Small Company VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one and three year periods for the
Fund and a peer group selected by the Independent Trustees for this purpose,
(2) management fees incurred by a peer group of funds selected by the
Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's
157
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Small Company VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and an index,
in each case selected by the Independent Trustees for this purpose. The
Fund's performance based upon total return was in the fifth quintile of the
peer group for the 12 months ended June 30, 2005 and the fifth quintile for
the three year period ended June 30, 2005. (In all quintile rankings
referred to throughout this discussion first quintile is most favorable to
the Fund's shareholders. Thus, highest relative performance would be first
quintile and lowest relative expenses also would be fifth quintile.)
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's equities group. Among other things, the Trustees
considered the number, education and experience of the Investment Adviser's
investment staff and their use of technology and emphasis on analytics in
view of the risk profile of securities in which the Fund invests. The
Trustees concluded that the Investment Adviser had the quality and depth of
personnel and the well-developed methods essential to performing its duties
under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the first
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
considered the Fund's expense ratio and expense ratios of a peer group of
funds selected by the Independent Trustees for this purpose. The Fund's
expense ratio (before and after giving effect to the expense limitation) for
the 12 months ended June 30, 2005 was in the fifth quintile of the
applicable peer group for the most recent fiscal year of the peer group for
the comparable period.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there is potential for
realization of any further economies of scale. The Trustees concluded that,
given current and anticipated asset levels, break points in the management
fees were not necessary at this time. As assets increase, the Trustees would
continue to evaluate annually the appropriateness of break points.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and
158
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Small Company VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
payments under Rule 12b-1 plans in respect to the Pioneer Funds (including
the Fund), and benefits to the Investment Adviser from the use of "soft"
commission dollars to pay for research services. The Trustees further
considered the revenues and profitability of the Investment Adviser's
businesses other than the fund business, including the Investment Adviser's
institutional investment advisory business. The Trustees considered the
intangible benefits that accrue to the Investment Adviser and its affiliates
by virtue of its relationship with the Fund and the Pioneer Funds as a
group. The Trustees concluded that all these types of benefits accruing to
the Investment Adviser were reasonable in the context of the overall
relationship between the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
159
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Mid Cap Value VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three, five and ten year
periods for the Fund and a peer group selected by the Independent Trustees for
this purpose, (2) management fees incurred by a peer group of funds selected by
the Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's
160
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Mid Cap Value VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and an index,
in each case selected by the Independent Trustees for this purpose. The
Fund's performance based upon total return was in the first quintile of the
peer group for the 12 months ended June 30, 2005, the second quintile of the
peer group for the three years ended June 30, 2005, the first quintile for
the five years ended June 30, 2005 and the first quintile for the ten year
period ended June 30, 2005. (In all quintile rankings referred to throughout
this discussion first quintile is most favorable to the Fund's shareholders.
Thus, highest relative performance would be first quintile and lowest
relative expenses also would be first quintile.) The Trustees concluded that
the consistent out performance of the Fund supported the continuation of the
Management Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's equities group. Among other things, the Trustees
considered the number, education and experience of the Investment Adviser's
investment staff and their use of technology and emphasis on analytics in
view of the risk profile of securities in which the Fund invests. The
Trustees concluded that the Investment Adviser had the quality and depth of
personnel and the well-developed methods essential to performing its duties
under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the second
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
considered the Fund's expense ratio and expense ratios of a peer group of
funds selected by the Independent Trustees for this purpose. The Fund's
expense ratio for the 12 months ended June 30, 2005 was in the first
quintile of the applicable peer group for the most recent fiscal year of the
peer group for the comparable period. The Trustees concluded that the Fund's
overall expense ratio was lower than that of comparable funds.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. In light of the fact that the
management fee would remain under the median
161
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Mid Cap Value VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
for the peer group at reasonably anticipated asset levels, the Trustees
concluded that break points in the management fee were not necessary at this
time. The Trustees will continue to evaluate annually the appropriateness of
break points.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund), and
benefits to the Investment Adviser from the use of "soft" commission dollars
to pay for research services. The Trustees further considered the revenues
and profitability of the Investment Adviser's businesses other than the fund
business, including the Investment Adviser's institutional investment
advisory business. The Trustees considered the intangible benefits that
accrue to the Investment Adviser and its affiliates by virtue of its
relationship with the Fund and the Pioneer Funds as a group. The Trustees
concluded that all these types of benefits accruing to the Investment
Adviser were reasonable in the context of the overall relationship between
the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
162
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Growth Shares VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") voting
separately annually approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect of the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareowners.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three and five year periods for
the Fund and a peer group selected by the Independent Trustees for this
purpose, (2) management and other fees incurred by a peer group of funds
selected by the Independent Trustees for this purpose, (3) the advisory fees of
comparable portfolios of other clients of the Investment Adviser, (4) expense
ratios for the Fund and a peer group of funds selected by the Independent
Trustees for this purpose, (5) the overall organization of the Investment
Adviser, (6) the Investment Adviser's financial results and condition,
including its and certain of its affiliates profitability from services
performed for the Fund, (7) transfer agency fees and administrative
reimbursements paid to the Investment Adviser or affiliates, (8) investment
management staffing, and (9) operating expenses paid to third parties. The
Trustees also reviewed information regarding the potential for each of the Fund
and the Investment Adviser to benefit from further economies of scale in the
management of the Fund in light of reasonable growth expectations for the Fund
and certain of the Fund's expenses that are not incurred as fees based on a
percentage of net assets.
The following summarizes matters considered by the Trustees in connection with
their renewal of the Fund's Management Contract. The Trustees did not identify
any single factor as all-important or controlling, and the summary does not
detail all the matters that were considered.
A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to
shareowners of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareowner services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's
163
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Growth Shares VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and an index,
in each case selected by the Independent Trustees for this purpose. The
Fund's performance based upon total return was in the fourth quintile of the
peer group for the 12 months ended June 30, 2005, the fourth quintile of the
peer group for the three years ended June 30, 2005, and the fifth quintile
for the five years ended June 30, 2005. (In all quintile rankings referred
to throughout this discussion first quintile is most favorable to the Fund's
shareowners. Thus, highest relative performance would be first quintile and
lowest relative expenses also would be first quintile.)
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's equities group. Among other things, the Trustees
considered the number, education and experience of the Investment Adviser's
investment staff and their use of technology and emphasis on analytics in
view of the risk profile of securities in which the Fund invests. The
Trustees concluded that the Investment Adviser had the quality and depth of
personnel and the well-developed methods essential to performing its duties
under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareowners of the
Fund, including administrative and shareowner services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareowners of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the third
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
considered the Fund's expense ratio and expense ratios of a peer group of
funds selected by the Independent Trustees for this purpose. The Fund's
expense ratio for the 12 months ended June 30, 2005 was in the fourth
quintile of the applicable peer group for the most recent fiscal year of the
peer group for the comparable period. The Trustees concluded that the Fund's
overall expense ratio was reasonable compared to that of comparable funds.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. The Trustees concluded that,
given current and anticipated assets levels, a break point in the management
fee was not necessary at this time. As the assets increase, the Trustees
will continue to evaluate annually the appropriateness of break points.
164
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Growth Shares VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareowner services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect of the Pioneer Funds (including the Fund), and
benefits to the Investment Adviser from the use of "soft" commission dollars
to pay for research. The Trustees further considered the revenues and
profitability of the Investment Adviser's businesses other than the fund
business, including the Investment Adviser's institutional investment
advisory business. The Trustees considered the intangible benefits that
accrue to the Investment Adviser and its affiliates by virtue of its
relationship with the Fund and the Pioneer Funds as a group. The Trustees
concluded that all these types of benefits accruing to the Investment
Adviser were reasonable in the context of the overall relationship between
the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
165
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Real Estate Shares VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") voting
separately annually approve the Fund's management contract (the "Management
Contract") between the Fund and Pioneer Investment Management, Inc., the Fund's
adviser (the "Investment Adviser"). The Investment Adviser has retained AEW
Investment Advisers, LLC. (the "Sub-adviser") to act as sub-adviser to the Fund
pursuant to a sub-advisory agreement between the Investment Adviser and the
Sub-adviser (the "Sub-advisory Agreement"). The Trustees have determined that
the terms of the Management Contract and the Sub-advisory Agreement are fair
and reasonable and that renewal of these contracts will enable the Fund to
receive quality investment advisory services at a cost deemed reasonable and in
the best interests of the Fund and its shareowners. In making such
determinations, the Independent Trustees relied upon the assistance of counsel
to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
the Investment Adviser, or its affiliates. While the Trustees, including the
Independent Trustees, act on all major matters relating to the Fund, a
significant portion of the activities of the Board of Trustees (including
certain of those described herein) is conducted through committees, the members
of which are comprised exclusively of Independent Trustees. Such committee
meetings are attended by officers of the Fund or the Investment Adviser to the
extent requested by the members of the committee.
In evaluating the Management Contract and Sub-advisory Agreement, the Trustees
conducted a review that was specifically focused upon the renewal of the
Management Contract and Sub-advisory Agreement, and relied upon their
knowledge, resulting from their meetings throughout the year, of the Investment
Adviser, its services and the Fund. Both in meetings specifically dedicated to
renewal of the Management Contract and at other meetings during the course of
the year, the Trustees, including the Independent Trustees, received materials
relating to the Investment Adviser's investment and management services under
the Management Contract. These materials included (i) information on the
investment performance of the Fund, a peer group of funds and an index, in each
case selected by the Independent Trustees for this purpose, (ii) sales and
redemption data in respect of the Fund, (iii) the general investment outlook in
the markets in which the Fund invests, (iv) arrangements in respect of the
distribution of the Fund's shares, (v) the procedures employed to determine the
value of each of the Fund's assets, (vi) the Investment Adviser's management of
the relationships with the Fund's unaffiliated service providers, (vii) the
record of compliance with the Fund's investment policies and restrictions and
with the Fund's Code of Ethics and the structure and responsibilities of the
Investment Adviser's compliance department, (viii) the nature, cost and
character of non-investment management services provided by the Investment
Adviser and its affiliates, (ix) the disclosures included in the Fund's
prospectuses and reports to shareowners and (x) the investment and compliance
staff and operations of the Subadviser.
Specifically, in connection with the Independent Trustees' review of the
Management Contract and the Sub-advisory Agreement, the Independent Trustees
requested and the Investment Adviser provided additional information in order
to evaluate the quality of the Investment Adviser's and Sub-adviser's services
and the reasonableness of the fee under the Management Contract and the
Sub-advisory Agreement. Among other items, this information included data or
analyses of (1) investment performance for one, three, five and ten year
periods for the Fund and a peer group selected by the Independent Trustees for
this purpose, (2) management and other fees incurred by a peer group of funds
selected by the Independent Trustees for this purpose, (3) the advisory fees of
comparable portfolios of other clients of the Investment Adviser and the
Sub-adviser, (4) expense ratios for the Fund and a peer group of funds selected
by the Independent Trustees for this purpose, (5) the overall organization of
the Investment Adviser and the Sub-adviser, (6) the Investment Adviser's and
Sub-adviser's financial results and condition, including, in the case of the
Investment Adviser, its and certain of its affiliates profitability from
services performed for the Fund, (7) transfer agency fees and administrative
reimbursements paid to the Investment Adviser or affiliates, (8) investment
management staffing, and (9) operating expenses paid to third parties. The
Trustees also reviewed information regarding the potential for each of the Fund
and the Investment Adviser to benefit from further economies of scale in the
management of the Fund in light of reasonable growth expectations for the Fund,
the break points in the Fund's management fee and of a peer group of funds
selected by the Independent Trustees for this purpose and certain of the Fund's
expenses that are not incurred as fees based on a percentage of net assets.
166
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Real Estate Shares VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to
shareowners of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareowner services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's performance compared to both
the performance of a peer group and an index, in each case selected by the
Independent Trustees for this purpose. The Fund's performance based upon
total return was in the first quintile of the peer group for the 12 months
ended June 30, 2005, the first quintile of the peer group for the three
years ended June 30, 2005, the first quintile for the five years ended June
30, 2005 and the first quintile for the ten year period ended June 30, 2005.
(In all quintile rankings referred to throughout this discussion first
quintile is most favorable to the Fund's shareowners. Thus, highest relative
performance would be first quintile and lowest relative expenses also would
be first quintile.) The Trustees also considered the activities of the
Investment Adviser in monitoring the investment and compliance operations of
the Sub-adviser. The Trustees also considered the yield (gross of expenses
of the Class I shares of the Fund relative to the yield (at June 30, 2005)
of the Wilshire Real Estate Securities Index. The Trustees concluded that
the performance of the Fund supported the continuation of the Management
Contract and the Sub-advisory Agreement.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations. Among other things, the
Trustees considered the number, education and experience of the
Sub-adviser's investment staff. The Trustees concluded that the Investment
Adviser and the Sub-adviser have the quality and depth of personnel and the
well-developed methods essential to performing their duties under the
Management Contract and the Sub-advisory Agreement.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareowners of the
Fund, including administrative and shareowner services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareowners of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the third
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
evaluated the fee under the Sub-advisory Agreement and the portion of the
fee under the Management Contract retained by the Investment Adviser and
determined that they were consistent with other sub-advised funds. The
Trustees also considered the Fund's expense ratio and expense ratios of a
peer group of funds selected by the Independent Trustees for this purpose.
The Fund's expense ratio for the 12 months ended June 30, 2005 was in the
third quintile of the applicable peer group for the most recent fiscal year
of the peer group for the comparable period. The Trustees concluded that the
Fund's overall expense ratio was reasonable compared to that of comparable
funds.
167
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Real Estate Shares VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. The Trustees concluded that,
given current and anticipated assets levels, a break point in the management
fee was not necessary at this time. As the assets increase, the Trustees
will continue to evaluate annually the appropriateness of break points.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareowner services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect of the Pioneer Funds (including the Fund), and
benefits to the Sub-adviser from the use of "soft" commission dollars to pay
for research and brokerage services. The Trustees further considered the
revenues and profitability of the Investment Adviser's businesses other than
the fund business, including the Investment Adviser's institutional
investment advisory business. The Trustees considered the intangible
benefits that accrue to the Investment Adviser and its affiliates by virtue
of its relationship with the Fund and the Pioneer Funds as a group. The
Trustees concluded that all these types of benefits accruing to the
Investment Adviser were reasonable in the context of the overall
relationship between the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's and
Sub-adviser's overall performance, considered it appropriate to continue to
retain the management services of the Investment Adviser and the Sub-adviser.
Based on their evaluation of all material factors deemed relevant and the
advice of independent counsel, the Trustees concluded that the Management
Contract with the Fund and the Sub-advisory Agreement are fair and reasonable
and voted to approve the continuation of the Management Contract and the
Sub-advisory Agreement for another year.
168
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Fund VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three and five year periods for
the Fund and a peer group selected by the Independent Trustees for this
purpose, (2) management fees incurred by a peer group of funds selected by the
Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's
169
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Fund VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and an index,
in each case selected by the Independent Trustees for this purpose. The
Fund's performance based upon total return was in the third quintile of the
peer group for the 12 months ended June 30, 2005, the fourth quintile of the
peer group for the three years ended June 30, 2005, and the fourth quintile
for the five years ended June 30, 2005. (In all quintile rankings referred
to throughout this discussion first quintile is most favorable to the Fund's
shareholders. Thus, highest relative performance would be first quintile and
lowest relative expenses also would be first quintile.) The Trustees also
considered the yield (gross of expenses) on the Class I shares of the Fund
relative to the yield (at June 30, 2005) of the Standard & Poor's 500 Stock
Index. The Trustees concluded that the performance of the Fund supported the
continuation of the Management Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's equities group. Among other things, the Trustees
considered the number, education and experience of the Investment Adviser's
investment staff and their use of technology and emphasis on analytics in
view of the risk profile of securities in which the Fund invests. The
Trustees concluded that the Investment Adviser had the quality and depth of
personnel and the well-developed methods essential to performing its duties
under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the third
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
considered the Fund's expense ratio and expense ratios of a peer group of
funds selected by the Independent Trustees for this purpose. The Fund's
expense ratio for the 12 months ended June 30, 2005 was in the first
quintile of the applicable peer group for the most recent fiscal year of the
peer group for the comparable period. The Trustees concluded that the Fund's
overall expense ratio was lower than that of comparable funds.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
real-
170
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Fund VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ization of any further economies of scale. The Trustees concluded that,
given current or anticipated asset levels, break points in the management
fees were not necessary at this time. As the assets increase, the Trustees
will continue to evaluate annually the appropriateness of break points.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund), and
benefits to the Investment Adviser from the use of "soft" commission
dollars to pay for research services. The Trustees further considered the
revenues and profitability of the Investment Adviser's businesses other
than the fund business, including the Investment Adviser's institutional
investment advisory business. The Trustees considered the intangible
benefits that accrue to the Investment Adviser and its affiliates by virtue
of its relationship with the Fund and the Pioneer Funds as a group. The
Trustees concluded that all these types of benefits accruing to the
Investment Adviser were reasonable in the context of the overall
relationship between the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
171
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Equity Income VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three, five and ten year
periods for the Fund and a peer group selected by the Independent Trustees for
this purpose, (2) management fees incurred by a peer group of funds selected by
the Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return and yield, as well as
172
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Equity Income VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
the Fund's performance compared to both the performance of a peer group and
an index, in each case selected by the Independent Trustees for this
purpose. The Fund's performance based upon total return was in the second
quintile of the peer group for the 12 months ended June 30, 2005, the third
quintile of the peer group for the three years ended June 30, 2005, the
third quintile for the five years ended June 30, 2005 and in the second
quintile for the ten year period ended June 30, 2005. (In all quintile
rankings referred to throughout this discussion first quintile is most
favorable to the Fund's shareholders. Thus, highest relative performance
would be first quintile and lowest relative expenses also would be first
quintile.) The Trustees also considered the yield (gross of expenses) to
Fund Class I shareholders relative to the yield (as of June 30, 2005) of the
Russell 1000 Value Index. The Trustees concluded that the performance of the
Fund supported the continuation of the Management Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's equities and fixed income groups. Among other
things, the Trustees considered the number, education and experience of the
Investment Adviser's investment staff and their use of technology and
emphasis on analytics in view of the risk profile of securities in which the
Fund invests. The Trustees concluded that the Investment Adviser had the
quality and depth of personnel and the well-developed methods essential to
performing its duties under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the second
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
considered the Fund's expense ratio and expense ratios of a peer group of
funds selected by the Independent Trustees for this purpose. The Fund's
expense ratio for the 12 months ended June 30, 2005 was in the second
quintile of the applicable peer group for the most recent fiscal year of the
peer group for the comparable period. The Trustees concluded that the Fund's
overall expense ratio was lower than that of most of the comparable funds in
the peer group.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential
173
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Equity Income VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
for realization of any further economies of scale. The Trustees concluded
that, given current and anticipated asset levels, break points in the
management fee are not necessary at this time. The Trustees will continue to
evaluate annually the appropriateness of break points.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund), and
benefits to the Investment Adviser from the use of "soft" commission dollars
to pay for research services. The Trustees further considered the revenues
and profitability of the Investment Adviser's businesses other than the fund
business, including the Investment Adviser's institutional investment
advisory business. The Trustees considered the intangible benefits that
accrue to the Investment Adviser and its affiliates by virtue of its
relationship with the Fund and the Pioneer Funds as a group. The Trustees
concluded that all these types of benefits accruing to the Investment
Adviser were reasonable in the context of the overall relationship between
the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
174
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Balanced VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and two indices, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three, five and ten year
periods for the Fund and a peer group selected by the Independent Trustees for
this purpose, (2) management fees incurred by a peer group of funds selected by
the Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes matters considered by the Trustees in connection with
their renewal of the Fund's Management Contract. The Trustees did not identify
any single factor as all-important or controlling, and the summary does not
detail all the matters that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's
175
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Balanced VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and two
relevant indices, in each case selected by the Independent Trustees for this
purpose. The Fund's performance based upon total return was in the fifth
quintile of the peer group for the 12 months ended June 30, 2005, the fourth
quintile of the peer group for the three years ended June 30, 2005, the
fourth quintile for the five years ended June 30, 2005 and the third
quintile for the ten year period ended June 30, 2005. (In all quintile
rankings referred to throughout this discussion first quintile is most
favorable to the Fund's shareholders. Thus, highest relative performance
would be first quintile and lowest relative expenses also would be first
quintile.) The Trustees also considered the yield (gross of expenses) of the
Fund's Class I shares relative to the yield (as of June 30, 2005) of the
Lehman Aggregate Bond Index and the S&P 500 Index. The fixed income portion
of the portfolio performed well but the equity portion had underperformed
its benchmark index. The Trustees concluded, in light of Pioneer's
commitment to address the underperformance of the equity component, that the
performance of the Fund supported the continuation of the Management
Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's fixed income and equities groups. Among other
things, the Trustees considered the number, education and experience of the
Investment Adviser's investment staff and their use of technology and
emphasis on analytics in view of the risk profile of securities in which the
Fund invests. The Trustees concluded that the Investment Adviser had the
quality and depth of personnel and the well-developed methods essential to
performing its duties under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the third
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
considered the Fund's expense ratio and expense ratios of a peer group of
funds selected by the Independent Trustees for this purpose. The Fund's
expense ratio for the 12 months ended June 30, 2005 was in the fourth
quintile of the applicable peer group for the most recent fiscal year of the
peer group for the comparable period. The Trustees concluded that the Fund's
overall expense ratio was reasonable compared to that of peer funds.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
176
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Balanced VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. The Trustees concluded that,
given current and anticipated asset levels, break points in the management
fee are not necessary at this time. The Trustees will continue to evaluate
annually the appropriateness of break points.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund), and
benefits to the Investment Adviser from the use of "soft" commission dollars
to pay for research and brokerage services. The Trustees further considered
the revenues and profitability of the Investment Adviser's businesses other
than the fund business, including the Investment Adviser's institutional
investment advisory business. The Trustees considered the intangible
benefits that accrue to the Investment Adviser and its affiliates by virtue
of its relationship with the Fund and the Pioneer Funds as a group. The
Trustees concluded that all these types of benefits accruing to the
Investment Adviser were reasonable in the context of the overall
relationship between the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
177
PIONEER VARIABLE CONTRACTS TRUST
Pioneer High Yield VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three and five year periods for
the Fund and a peer group selected by the Independent Trustees for this
purpose, (2) management fees incurred by a peer group of funds selected by the
Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's
178
PIONEER VARIABLE CONTRACTS TRUST
Pioneer High Yield VCT Portfolio (the "Fund")-- 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and an index,
in each case selected by the Independent Trustees for this purpose. The
Fund's performance based upon total return was in the third quintile of the
peer group for the 12 months ended June 30, 2005, the second quintile for
the three years ended June 30, 2005 and the second quintile for the five
years ended June 30, 2005. (In all quintile rankings referred to throughout
this discussion first quintile is most favorable to the Fund's shareholders.
Thus, highest relative performance would be first quintile and lowest
relative expenses also would be first quintile.) The Trustees also compared
the yield (gross of expenses) on the Fund's Class I shares relative to the
yield (as of June 30, 2005) on the Merrill Lynch High Yield Master II Index.
The Trustees concluded that the performance of the Fund, particularly the
Fund's longer-term performance, supported the continuation of the Management
Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's fixed income group. Among other things, the
Trustees considered the number, education and experience of the Investment
Adviser's investment staff and their use of technology and emphasis on
analytics in view of the risk profile of securities in which the Fund
invests. The Trustees concluded that the Investment Adviser had the quality
and depth of personnel and the well-developed methods essential to
performing its duties under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the third
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
considered the Fund's expense ratio and expense ratios of a peer group of
funds selected by the Independent Trustees for this purpose. The Fund's
expense ratio for the 12 months ended June 30, 2005 was in the third
quintile of the applicable peer group for the most recent fiscal year of the
peer group for the comparable period. The Trustees concluded that the Fund's
overall expense ratio was reasonable compared to that of comparable funds.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
179
PIONEER VARIABLE CONTRACTS TRUST
Pioneer High Yield VCT Portfolio (the "Fund")-- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
realization of any further economies of scale. The Trustees concluded that,
given current and anticipated asset levels, break points in the management
fee are not necessary at this time. The Trustees will continue to evaluate
annually the appropriateness of break points.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund). The
Trustees further considered the revenues and profitability of the Investment
Adviser's businesses other than the fund business, including the Investment
Adviser's institutional investment advisory business. The Trustees
considered the intangible benefits that accrue to the Investment Adviser and
its affiliates by virtue of its relationship with the Fund and the Pioneer
Funds as a group. The Trustees concluded that all these types of benefits
accruing to the Investment Adviser were reasonable in the context of the
overall relationship between the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
180
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Strategic Income VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three and five year periods for
the Fund and a peer group selected by the Independent Trustees for this
purpose, (2) management fees incurred by a peer group of funds selected by the
Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's
181
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Strategic Income VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and two
relevant indices, in each case selected by the Independent Trustees for this
purpose. The Fund's performance based upon total return was in the second
quintile of the peer group for the 12 months ended June 30, 2005, the second
quintile for the three years ended June 30, 2005, and the second quintile
for the five years ended June 30, 2005. (In all quintile rankings referred
to throughout this discussion first quintile is most favorable to the Fund's
shareholders. Thus, highest relative performance would be first quintile and
lowest relative expenses also would be first quintile.) The Trustees also
considered that the yield (gross of expenses) of the Fund's Class 1 shares
relative to the yield (at June 30, 2005) of the Lehman Universal Bond Index.
The Trustees concluded that the performance of the Fund supported the
continuation of the Management Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's equities group. Among other things, the Trustees
considered the number, education and experience of the Investment Adviser's
investment staff and their use of technology and emphasis on analytics in
view of the risk profile of securities in which the Fund invests. The
Trustees concluded that the Investment Adviser had the quality and depth of
personnel and the well-developed methods essential to performing its duties
under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 at the median relative
to the management fees paid by the other funds in that peer group for the
comparable period. The Trustees determined that the fee under the Management
Contract was reasonable and fair in light of both the overall nature and
quality of services provided by the Investment Adviser and the fees charged
by the funds in the peer group. The Trustees also considered the Fund's
expense ratio and expense ratios of a peer group of funds selected by the
Independent Trustees for this purpose. The Fund's expense ratio for the 12
months ended June 30, 2005 was in the fifth quintile of the applicable peer
group for the most recent fiscal year of the peer group for the comparable
period.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential
182
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Strategic Income VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
for realization of any further economies of scale. The Trustees concluded
that, given current and anticipated asset levels, break points in the
management fee are not necessary at this time. The Trustees will continue to
evaluate annually the appropriateness of break points.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund). The
Trustees further considered the revenues and profitability of the Investment
Adviser's businesses other than the fund business, including the Investment
Adviser's institutional investment advisory business. The Trustees
considered the intangible benefits that accrue to the Investment Adviser and
its affiliates by virtue of its relationship with the Fund and the Pioneer
Funds as a group. The Trustees concluded that all these types of benefits
accruing to the Investment Adviser were reasonable in the context of the
overall relationship between the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
183
PIONEER VARIABLE CONTRACTS TRUST
Pioneer America Income VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three, five and ten year
periods for the Fund and a peer group selected by the Independent Trustees for
this purpose, (2) management fees incurred by a peer group of funds selected by
the Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return and yield, as well as
184
PIONEER VARIABLE CONTRACTS TRUST
Pioneer America Income VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
the Fund's performance compared to both the performance of a peer group and
an index, in each case selected by the Independent Trustees for this
purpose. The Fund's performance based upon total return was in the fourth
quintile of the peer group for the 12 months ended June 30, 2005, the fifth
quintile for the three years ended June 30, 2005, the second quintile for
the five years ended June 30, 2005 and the fourth quintile for the ten year
period ended June 30, 2005. (In all quintile rankings referred to throughout
this discussion first quintile is most favorable to the Fund's shareholders.
Thus, highest relative performance would be first quintile and lowest
relative expenses also would be first quintile.) The Trustees also
considered the yield (gross of expenses) of the Fund's Class I shares
compared to the yield (as of June 30, 2005) of the Lehman Brothers
Government Bond Index.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's fixed income group. Among other things, the
Trustees considered the number, education and experience of the Investment
Adviser's investment staff and their use of technology and emphasis on
analytics in view of the risk profile of securities in which the Fund
invests. The Trustees concluded that the Investment Adviser had the quality
and depth of personnel and the well-developed methods essential to
performing its duties under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the fourth
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. However, the Investment Manager agreed
to reduce the management fee to 0.50% of average daily net assets, which
would place the Fund in the third quintile of the peer group and to add a
break point to the fee schedule. The Trustees determined that the fee under
the Management Contract was reasonable and fair in light of both the overall
nature and quality of services provided by the Investment Adviser and the
fees charged by the funds in the peer group. The Trustees also considered
the Fund's expense ratio and expense ratios of a peer group of funds
selected by the Independent Trustees for this purpose. The Fund's expense
ratio for the 12 months ended June 30, 2005 was in the fifth quintile of the
applicable peer group for the most recent fiscal year of the peer group for
the comparable period.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. Because of break points in
the management fees, the Trustees concluded
185
PIONEER VARIABLE CONTRACTS TRUST
Pioneer America Income VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- -------------------------------------------------------------------------------
that any perceived or potential economies of scale would be shared at future
asset levels, in a reasonable manner as the Fund grows in size, between
Fund's shareholders and the Investment Adviser.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund). The
Trustees further considered the revenues and profitability of the Investment
Adviser's businesses other than the fund business, including the Investment
Adviser's institutional investment advisory business. The Trustees
considered the intangible benefits that accrue to the Investment Adviser and
its affiliates by virtue of its relationship with the Fund and the Pioneer
Funds as a group. The Trustees concluded that all these types of benefits
accruing to the Investment Adviser were reasonable in the context of the
overall relationship between the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
186
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Money Market VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three, five and ten year
periods for the Fund and a peer group selected by the Independent Trustees for
this purpose, (2) management fees incurred by a peer group of funds selected by
the Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of break
points in the management fee, reasonable growth expectations for the Fund and
certain of the Fund's expenses that are not incurred as fees based on a
percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return and yield, as well as
187
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Money Market VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
the Fund's performance compared to both the performance of a peer group and
an index, in each case selected by the Independent Trustees for this
purpose. The Fund's performance based upon total return was in the fifth
quintile of the peer group for the 12 months ended June 30, 2005, the fifth
quintile for the three years ended June 30, 2005, the fourth quintile for
the five years ended June 30, 2005 and the fifth quintile for the ten year
period ended June 30, 2005. (In all quintile rankings referred to throughout
this discussion first quintile is most favorable to the Fund's shareholders.
Thus, highest relative performance would be first quintile and lowest
relative expenses also would be first quintile.) The Trustees also
considered the yield (gross of expenses) on the Fund's Class I shares
relative to the yield (at June 30, 2005) on 30 day U.S. Treasury securities.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's fixed income group. Among other things, the
Trustees considered the number, education and experience of the Investment
Adviser's investment staff and their use of technology and emphasis on
analytics in view of the risk profile of securities in which the Fund
invests. The Trustees concluded that the Investment Adviser had the quality
and depth of personnel and the well-developed methods essential to
performing its duties under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the fifth
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Investment Adviser agree to reduce
the management fee to 0.40% of average daily net assets, which would place
the fee in the third quintile of the peer group, and to add a break point to
the fee schedule. The Trustees also evaluated the fee relative to the median
fee of the peer group and determined that is was only modestly higher than
the median. In light of the range of fees included in the peer group, the
Trustees determined that the fee under the Management Contract was
reasonable and fair in light of both the overall nature and quality of
services provided by the Investment Adviser and the fees charged by the
funds in the peer group. The Trustees also considered the Fund's expense
ratio and expense ratios of a peer group of funds selected by the
Independent Trustees for this purpose. The Fund's expense ratio for the 12
months ended June 30, 2005 was in the fifth quintile of the applicable peer
group for the most recent fiscal year of the peer group for the comparable
period.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
188
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Money Market VCT Portfolio (the "Fund") -- 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
realization of any further economies of scale. Because of break points in
the management fees, the Trustees concluded that any perceived or potential
economies of scale would be shared at future asset levels, in a reasonable
manner as the Fund grows in size, between Fund's shareholders and the
Investment Adviser.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund). The
Trustees further considered the revenues and profitability of the Investment
Adviser's businesses other than the fund business, including the Investment
Adviser's institutional investment advisory business. The Trustees
considered the intangible benefits that accrue to the Investment Adviser and
its affiliates by virtue of its relationship with the Fund and the Pioneer
Funds as a group. The Trustees concluded that all these types of benefits
accruing to the Investment Adviser were reasonable in the context of the
overall relationship between the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
189
Pioneer Variable Contracts Trust
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- -----------------------------------------------------------------------------------------------------------------------------------
Investment Adviser Trustees and Officers
Pioneer Investment Management, Inc. The Trust's Board of Trustees provides broad
supervision over the affairs of the Trust. The
Custodian officers of the Trust are responsible for the
Brown Brothers Harriman & Co. Trust's operations. The Trust's Trustees and
officers are listed below, together with their
Independent Registered Public Accounting Firm principal occupations during the past five years.
Ernst & Young LLP Trustees who are interested persons of the Portfolio
within the meaning of the Investment Company Act of
Principal Underwriter 1940 are referred to as Interested Trustees.
Pioneer Funds Distributor, Inc. Trustees who are not interested persons of the Trust
are referred to as Independent Trustees. Each of the
Legal Counsel Trustees may serve as a trustee of each of the 91
Wilmer Cutler Pickering Hale and Dorr LLP U.S. registered investment portfolios for which
Pioneer Investment Management, Inc. ("Pioneer")
Shareowner Services and Transfer serves as investment adviser (the "Trust"). The
Pioneer Investment Management Shareholder Services, Inc. address for all Interested Trustees and all officers
of the Portfolio is 60 State Street, Boston,
Massachusetts 02109.
The Trust's statement of additional information
provides more detailed information regarding the
Trust's Trustees and is available upon request,
without charge, by calling 1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust
are available without charge, upon Agent request, by
calling our toll free number (1-800-225-6292). This
information is also available online at
pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee and until successor Pioneer Global Asset Management Directors of ICI
President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
- -----------------------------------------------------------------------------------------------------------------------------------
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
190
Pioneer Variable Contracts Trust
- -------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- -------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice Director of The
3050 K. Street NW, until a successor President and Chief Enterprise Social
Washington, DC 20007 trustee is elected Financial Officer, Investment Company
or earlier I-trax, Inc. (privately-held
retirement or (publicly traded affordable housing
removal. health care services finance company);
company) Director of New York
(2001-present); Mortgage Trust
Managing Partner, (publicly traded
Federal City Capital mortgage REIT)
Advisors (boutique
merchant bank) (2002
to 2004); Executive
Vice President and
Chief Financial
Officer, Pedestal
Inc. (internet-based
mortgage trading
company)
(2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- -----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush Director of Brady
3509 Woodbine Street, until successor International Corporation
Chevy Chase, MD 20815 trustee is elected (international (industrial
or earlier financial advisory identification and
retirement or firm). specialty coated
removal. material products
manufacturer),
Mortgage Guaranty
Insurance
Corporation, and
Briggs & Stratton,
Inc. (engine
manufacturer)
- -----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The None
1001 Sherbrooke Street until successor Winthrop Group, Inc.
West, Montreal, Quebec, trustee is elected (counsulting firm);
Canada H3A 1G5 or earlier Desautels, Faculty
retirement or of Management,
removal. McGill University.
- -----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Director of New
One Boston Place, until successor Executive Officer, America High Income
28th Floor, trustee is elected Newbury, Piret & Fund, Inc.
Boston, MA 02108 or earlier Company, Inc. (closed-end
retirement or (investment banking investment company)
removal. firm).
- -----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John None
One North Adgers Wharf, 2000. Serves until Winthrop & Co., Inc.
Charleston, SC 29401 successor trustee is (private investment
elected or earlier firm).
retirement or
removal.
- -----------------------------------------------------------------------------------------------------------------------------------
191
Pioneer Variable Contracts Trust
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Trustee of certain
President at the discretion of Executive Officer, Pioneer funds
the Board. PIM-USA since May
2003 (Director since
January 2001);
President and
Director of Pioneer
since May 2003;
Chairman and
Director of Pioneer
Investment
Management
Shareholder
Services, Inc.
("PIMSS") since May
2003; Executive Vice
President of all of
the Pioneer Funds
since June 2003;
Executive Vice
President and Chief
Operating Officer of
PIM-USA, November
2000 to May 2003;
Executive Vice
President, Chief
Financial Officer
and Treasurer, John
Hancock Advisers,
L.L.C., Boston, MA,
November 1999 to
November 2000;
Senior Vice
President and Chief
Financial Officer,
John Hancock
Advisers, L.L.C.,
April 1997 to
November 1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of None
2003. Serves at the PIM-USA; Senior Vice
discretion of the President - Legal of
Board. Pioneer; and
Secretary/Clerk of
most of PIM-USA's
subsidiaries;
Secretary of all of
the Pioneer Funds
since September 2003
(Assistant Secretary
from November 2000
to September 2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Kelley (41) Assistant Since September, Assistant Vice None
Secretary 2003. Serves at the President and Senior
discretion of the Counsel of Pioneer
Board. since July 2002;
Vice President and
Senior Counsel of
BISYS Fund Services,
Inc. (April 2001 to
June 2002); Senior
Vice President and
Deputy General
Counsel of Funds
Distributor, Inc.
(July 2000 to April
2001) and Assistant
Secretary of all
Pioneer Funds since
September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer None
Secretary 2003. Serves at the Cutler Pickering
discretion of the Hale and Dorr LLP;
Board. Assistant Secretary
of all Pioneer Funds
since September
2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - None
2000. Serves at the Fund Accounting,
discretion of the Administration and
Board. Custody Services of
Pioneer; and
Treasurer of all of
the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of None
Treasurer 2004. Serves at the Pioneer since 2004;
discretion of the Treasurer and Senior
Board. Vice President, CDC
IXIS Asset
Management Services
from 2002 to 2003;
Assistant Treasurer
and Vice President,
MFS Investment
Management from 1997
to 2002; and
Assistant Treasurer
of all of the
Pioneer Funds since
November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
192
Pioneer Variable Contracts Trust
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, Assistant Vice None
Treasurer 2000. Serves at the President - Fund
discretion of the Accounting,
Board. Administration and
Custody Services of
Pioneer; and
Assistant Treasurer
of all of the
Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting None
Treasurer Serves at the Manager - Fund
discretion of the Accounting,
Board. Administration and
Custody Services of
Pioneer; and
Assistant Treasurer
of all of the
Pioneer Funds since
May 2002.
- -----------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Sullivan (32) Assistant Since September, Fund Administration None
Treasurer 2003. Serves at the Manager - Fund
discretion of the Accounting,
Board. Administration and
Custody Services
since June 2003;
Assistant Vice
President - Mutual
Fund Operations of
State Street
Corporation from
June 2002 to June
2003 (formerly
Deutsche Bank Asset
Management); Pioneer
Fund Accounting,
Administration and
Custody Services
(Fund Accounting
Manager from August
1999 to May 2002);
and Assistant
Treasurer of all
Pioneer Funds since
September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance None
Officer Serves at the Officer of Pioneer
discretion of the (Director of
Board Compliance and
Senior Counsel from
November 2000 to
September 2004); and
Chief Compliance
Officer of all of
the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
193
[LOGO]
PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company, Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18646-00-0206
[LOGO] PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Bond VCT Portfolio -- Class I Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Pioneer Bond VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 5
Financial Statements 10
Notes to Financial Statements 14
Report of Independent Registered Public
Accounting Firm 18
Factors Considered by the Independent Trustees in
Approving the Management Contract 19
Trustees, Officers and Service Providers 22
Before investing, consider the Portfolio's investment objectives, risks, charges
and expenses. Contact your advisor or Pioneer Investments for a prospectus
containing this information. Please read it carefully.
The Trust files a complete statement of investments with the Securities and
Exchange Commission for the first and the third quarters for each fiscal year
on Form N-Q. Shareowners may view the filed Form N-Q by visiting the
Commission's web site at http://www.sec.gov. The filed form may also be viewed
and copied at the Commission's Public Reference Room in Washington, D.C.
Information regarding the operations of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment in securities)
(THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.)
U.S. Government Securities 63.4%
U.S. Corporate Bonds 31.5%
Asset Backed Securities 2.7%
Collateralized Mortgage Obligations 1.3%
Temporary Cash Investment 1.1%
Quality Distribution
(As a percentage of total investment in securities)
(THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.)
Commercial Paper 0.1%
Treasury/Agency 65.1%
AA 0.7%
A 4.3%
BBB 17.9%
BB 9.9%
B & Lower 2.0%
Five Largest Holdings
(As a percentage of long-term holdings)
1. Government National Mortgage
Association, 5.5%,
10/15/33 4.36%
- --------------------------------------------------------------------------
2. U.S. Treasury Notes, 5.5%,
8/15/28 4.08
- --------------------------------------------------------------------------
3. Federal National Mortgage
Association, 4.816%,
12/1/12 4.01
- --------------------------------------------------------------------------
4. Federal National Mortgage
Association, 5.0%, 12/1/17 3.86
- --------------------------------------------------------------------------
5. Federal National Mortgage
Association, 5.0%, 3/1/33 3.64
- --------------------------------------------------------------------------
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 10.79 $ 11.61
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 1.1199 $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Bond VCT Portfolio at net asset value, compared to that of the Lehman Brothers
Aggregate Bond Index. Portfolio returns are based on net asset value and do not
reflect any applicable insurance fees or surrender charges.
(THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL)
Lehman Bros. Pioneer Bond
Aggregate Bond Index VCT Portfolio
12/95 10000 10000
10363 10054
12/97 11364 10899
12351 11870
12/99 12249 11397
13673 12740
12/01 14828 13667
16348 14732
12/03 17019 15215
17758 15757
12/05 18189 16170
The Lehman Brothers Aggregate Bond Index is a measure of the U.S. bond market.
A market value-weighted measure of treasure and agency issues, corporate bond
issues and mortgage-backed securities. Index returns assume reinvestment of
dividends and, unlike Portfolio returns, do not reflect any fees, expenses or
sales charges. You cannot invest directly in any Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(as of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
10 Years 4.92%
5 Years 4.88%
1 Year 2.62%
All total returns shown assume reinvestment of distributions at net asset
value. Please refer to the variable products report wrapper for performance
that reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown. Please refer to variable product's semiannual report for
performance that reflects the deduction of the variable products fees and
charges.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers, performance would be lower. Waivers may
not be in effect for all portfolios. Certain fee waivers are contractual
through a specified period. Otherwise, fee waivers can be rescinded at any
time. See the prospectus and financial statements for more information.
2
Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value - $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Bond VCT Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005
Share Class I
-------------------------------------------------------------------------
Beginning Account Value on 7/1/05 $1,000.00
Ending Account Value on 12/31/05 $ 998.73
Expenses Paid During Period* $ 3.12
* Expenses are equal to the Portfolio's annualized expense ratio of 0.62% for
Class I shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have
been higher.
Expenses Paid on a $1,000 Investment in Pioneer Bond VCT Portfolio
Based on a hypothetical 5% per year return before expenses, reflecting the
period from July 1, 2005 through December 31, 2005
Share Class I
-------------------------------------------------------------------------
Beginning Account Value on 7/1/05 $1,000.00
Ending Account Value on 12/31/05 $1,022.08
Expenses Paid During Period* $ 3.16
* Expenses are equal to the Portfolio's annualized expense ratio of 0.62% for
Class I shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
Fixed income investments produced generally positive, if moderate, returns
during 2005. Rising interest rates for bonds of most maturities caused some
price erosion, although not enough to erase the positive benefits of income
produced by bonds. Returns across most sectors of the domestic bond market were
remarkably similar for the year. In the following interview, Kenneth J. Taubes
discusses the factors that influenced the Bond Portfolio's performance during
the 12 months. Mr. Taubes, Director of Pioneer's Fixed Income Group, oversees
the team responsible for the daily management of the Portfolio.
Q: How did the Portfolio perform during the 12 months ended December 31, 2005?
A: The Portfolio performed modestly above its benchmark. Bond Portfolio Class I
Shares had a total return of 2.62% at net asset value for the year. During
the same 12 months, the benchmark Lehman Aggregate Bond Index returned
2.43%. On December 31, 2005, the SEC standardized 30-day yield for Class I
shares was 4.98%.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q: How would you describe the overall investment environment during the year?
A: Against a backdrop of persistent economic growth, the Federal Reserve Board
continued to tighten monetary policy. The central bank raised the key fed
funds rate eight different times during the period as the rate rose from
2.25% to 4.25% by the end of 2005. While the rate hikes were widely
expected, they nevertheless had an impact on the financial markets. Yields
of securities of most securities rose and prices declined during the
period. This particularly affected short to intermediate treasury
securities. The principal exception was the 30-year Treasury bond, where
the yields actually declined. Over the year, the difference between the
yields of shorter- and longer-term securities grew smaller - the yield
curve flattened. At year's end, the yield curve even had inverted in some
places. That phenomenon, when interest rates of shorter maturity securities
become higher than some longer maturity securities, is a reversal of the
usual relationships and has been associated with a relatively restrictive
Federal Reserve monetary policy. Because of the flattening of the yield
curve, performance of fixed income portfolios was heavily influenced by the
distribution of maturities in the portfolio. Intermediate term bonds, in
the middle of the yield curve, tended to perform relatively poorly.
Corporate bonds delivered modestly positive results, with both investment
grade and high yield producing similar results on a total return basis. The
primary difference was that high-yield bonds tended to lose more principal,
although the higher income of those lower-rated securities made up the
difference on a total-return basis.
Mortgages generally outperformed corporate bonds as well as Treasuries, as
they offered relatively good yield with less principal loss than other
sectors.
Q: What led the Portfolio to outperform its benchmark?
A: Our investment holdings had a higher average yield than the Lehman index,
which helped relative results. In addition, we were well positioned on the
yield curve, with a greater emphasis on higher-yielding, longer-maturity
bonds that outperformed intermediates. We also emphasized mortgage-backed
securities, which was one of the better performing parts of the market.
Approximately 51.6% of the Portfolio assets were invested in mortgages at
the end of the year. Treasury and agencies, including an increased
investment in Treasury Inflation Protected Securities (TIPS) accounted for
14.9% of assets.
Within our corporate holdings, we de-emphasized the automotive sector, which
helped performance during a year which saw the high profile credit rating
downgrades of both General Motors and Ford to below-investment grade, or
high yield. We did have a small exposure to securities issued by Ford that
detracted from results. In addition, our position in bonds of auto
components company Delphi, which filed for bankruptcy during the year, held
back performance. Among corporate investments that performed well during
2005 were bonds issued by Ohio Casualty, a property and casualty insurer,
and Pemex, the state-controlled oil company based in Mexico.
At the end of 2005, average credit quality of our portfolio was AA-,
slightly higher than the average of A+ one year earlier. Effective duration,
a measure of sensitivity to changes in interest rates - was 4.84 years.
Q: What is your investment outlook?
A: We anticipate that the pace of economic growth may slow in 2006, but the
economic expansion should persist. The Federal Reserve Board may continue
to raise short-term rates in the early part of the year, but we do not
anticipate that monetary policy will become so restrictive as to push the
economy into recession.
At a time when spreads - or the differences between yields - are narrow
between yields of fixed income securities of different credit quality, we
expect to continue to upgrade overall credit quality. For one thing,
increased corporate merger-and-acquisition activity poses a potential threat
to holders of investment grade, corporate bonds, as many merger deals
benefit shareholders more than bondholders. We anticipate maintaining an
emphasis on mortgage-backed securities over corporate bonds, which offer
only slightly less yield than investment grade corporate, but without the
risk of merger-and-acquisition activity. Within our Treasury holdings, we
expect to continue to focus on TIPS (Treasury Inflation-Protected
Securities). The easing of global monetary policies over the past several
years has potentially provided an environment for inflation to pick-up.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Portfolio's historical or future performance are
statements of the opinion of Portfolio management as of the date of this
report. These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
A Word About Risk:
When interest rates rise, the prices of fixed income securities in the
Portfolio will generally fall. Conversely, when interest rates fall, the prices
of fixed income securities in the Portfolio will generally rise. Investments in
the Portfolio are subject to possible loss due to the financial failure of
underlying securities and their inability to meet their debt obligations.
Prepayment risk is the chance that mortgage-backed bonds will be paid off early
if falling interest rates prompt homeowners to refinance their mortgages.
Forced to reinvest the unanticipated proceeds at lower interest rates, the
Portfolio would experience a decline in income and lose the opportunity for
additional price appreciation associated with falling interest rates.
Investments in high yield or lower-rated securities are subject to
greater-than-average risk. The securities issued by U.S. Government sponsored
entities (i.e., FNMA, Freddie Mac) are neither guaranteed nor issued by the
U.S. Government. The Portfolio may invest in mortgage-backed securities, which
during times of fluctuating interest rates may increase or decrease more than
other fixed-income securities. Mortgage-Backed securities are also subject to
pre-payments. At times, the Portfolio's investments may represent industries or
industry sectors that are interrelated or have common risks, making it more
susceptible to any economic, political, or regulatory developments or other
risks affecting those industries and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers, performance would be lower. Waivers may
not be in effect for all portfolios. Certain fee waivers are contractual
through a specified period. Otherwise, fee waivers can be rescinded at any
time. See the prospectus and financial statements for more information.
4
Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
S&P/Moody's
Principal Ratings
Amount (unaudited) Value
ASSET BACKED SECURITIES - 2.7%
Diversified Financials - 1.5%
Diversified Financial Services - 0.3%
$ 95,597 BB-/Ba2 Caithness Coso Fund Corp., 6.263%, 6/15/14 (144A) $ 97,551
-----------
Specialized Finance - 1.2%
420,000 AAA/Aaa MBNA Credit Card Master Note, Floating Rate Note, 12/15/08 (a) $ 420,198
-----------
Total Diversified Financials $ 517,749
-----------
Utilities - 1.2%
Electric Utilities - 1.2%
131,477 BB-/Ba2 FPL Energy National Wind, 6.125%, 3/25/19 (144A) $ 128,646
204,685 BB+/Ba2 FPL Energy Wind Funding, 6.876%, 6/27/17 (144A) 204,429
59,799 B+/B1 Tenaska Alabama, Floating Rate Note, 6/30/21 (144A) (a) 60,159
-----------
$ 393,234
-----------
Total Utilities $ 393,234
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $918,200) $ 910,983
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.3%
Diversified Financials - 1.3%
Diversified Financial Services - 1.3%
450,000 BB/NR Tower 2004-2A F, 6.376%, 12/15/14 $ 448,754
-----------
Total Diversified Financials $ 448,754
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $450,000) $ 448,754
-----------
CORPORATE BONDS - 31.7%
Energy - 3.8%
Integrated Oil & Gas - 1.0%
215,000 BBB/Baa2 Petro-Canada, 4.0%, 7/15/13 $ 199,018
140,000 BBB+/Baa1 USX Corp., 6.85%, 3/1/08 145,468
-----------
$ 344,486
-----------
Oil & Gas Equipment & Services - 0.4%
125,000 B+/Ba3 Holly Energy Partners LP, 6.25%, 3/1/15 $ 121,094
-----------
Oil & Gas Exploration & Production - 1.3%
370,000 BBB-/Baa1 Pemex Project Funding Master, 9.125%, 10/13/10 $ 425,870
-----------
Oil & Gas Refining & Marketing - 0.2%
50,000 BBB/Baa2 Boardwalk Pipelines LLC, 5.5%, 2/1/17 $ 49,589
-----------
Oil & Gas Storage & Transportation - 0.9%
295,000 BBB+/Baa1 Kinder Morgan Energy Partners, 6.75%, 3/15/11 $ 314,200
-----------
Total Energy $ 1,255,239
-----------
Materials - 2.8%
Aluminum - 0.8%
285,000 B/B1 Novelis, Inc., 7.25%, 2/15/15 $ 265,763
-----------
Commodity Chemicals - 0.8%
80,000 B+/B1 Invista, 9.25%, 5/1/12 (144A) $ 85,400
200,000 BB+/Ba2 Nova Chemicals, Ltd., 6.5%, 1/15/12 193,750
-----------
$ 279,150
-----------
Fertilizers & Agricultural Chemicals - 0.6%
220,000 BBB+/Baa2 Potash Corp. Saskatchewan, 4.875%, 3/1/13 $ 214,528
-----------
The accompanying notes are an integral part of these financial statements. 5
Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
S&P/Moody's
Principal Rating
Amount (unaudited) Value
Paper Products - 0.6%
$ 225,000 BB-/B1 Abitibi-Consolidated, Inc., 6.0%, 6/20/13 $ 190,688
-----------
Total Materials $ 950,129
-----------
Capital Goods - 1.2%
Aerospace & Defense - 0.6%
190,000 A/A3 Boeing Co., 5.125%, 2/15/13 $ 191,579
-----------
Electrical Component & Equipment - 0.2%
60,000 NR/Ba1 Orcal Geothermal, 6.21%, 12/30/20 (144A) $ 60,167
-----------
Trading Companies & Distributors - 0.4%
145,000 BB+/Ba1 Noble Group, Ltd., 6.625%, 3/17/15 (144A) $ 133,529
-----------
Total Capital Goods $ 385,275
-----------
Automobiles & Components - 1.1%
Automobile Manufacturers - 1.1%
435,000 BBB-/Baa1 Ford Motor Co., 7.25%, 10/1/08 (b) $ 352,350
-----------
Total Automobiles & Components $ 352,350
-----------
Media - 1.0%
Broadcasting & Cable TV - 1.0%
335,000 BBB/Baa3 Comcast Corp., 5.3%, 1/15/14 $ 328,651
-----------
Total Media $ 328,651
-----------
Food, Beverage & Tobacco - 2.6%
Brewers - 0.9%
280,000 BBB+/Baa1 Miller Brewing Co., 5.5%, 8/15/13 (144A) $ 285,406
-----------
Packaged Foods & Meats - 0.9%
280,000 A+/A1 Unilever Capital Corp., 7.125%, 11/1/10 $ 304,877
-----------
Soft Drinks - 0.8%
280,000 A/A3 Bottling Group LLC, 5.0%, 11/15/13 $ 280,049
-----------
Total Food, Beverage & Tobacco $ 870,332
-----------
Health Care Equipment & Services - 2.1%
Health Care Distributors - 1.1%
360,000 BBB/Baa3 Cardinal Health, Inc., 6.0%, 1/15/06 $ 360,087
-----------
Health Care Facilities - 1.0%
350,000 BB+/Ba2 HCA, Inc., 6.3%, 10/1/12 $ 351,748
-----------
Total Health Care Equipment & Services $ 711,835
-----------
Banks - 0.6%
Diversified Banks - 0.6%
225,000 A+/Aa3 US Bancorp, 3.125%, 3/15/08 $ 217,280
-----------
Total Banks $ 217,280
-----------
Diversified Financials - 3.8%
Consumer Finance - 1.2%
415,000 A/A2 SLM Corp., Floating Rate Note, 7/25/14 (a) $ 390,212
-----------
Diversified Financial Services - 2.6%
500,000 BBB-/Baa3 Bombardier Capital, Inc., 7.09%, 3/30/07 $ 500,625
400,000 BBB-/Baa3 Glencore Funding LLC, 6.0%, 4/15/14 (144A) 376,217
-----------
$ 876,842
-----------
Total Diversified Financials $ 1,267,054
-----------
6 The accompanying notes are an integral part of these financial statements.
Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
S&P/Moody's
Principal Ratings
Amount (unaudited) Value
Insurance - 4.2%
Life & Health Insurance - 1.4%
$ 250,000 A-/A3 Lincoln National Corp., 5.25%, 6/15/07 $ 250,908
225,000 B-/B2 Presidential Life Corp., 7.875%, 2/15/09 222,750
-----------
$ 473,658
-----------
Multi-Line Insurance - 0.4%
130,000 BB/Ba1 Hanover Insurance Group, 7.625%, 10/15/25 $ 133,319
-----------
Property & Casualty Insurance - 1.6%
250,000 BBB-/NR Kingsway America, Inc., 7.5%, 2/1/14 $ 257,590
250,000 BB/Baa3 Ohio Casualty Corp., 7.3%, 6/15/14 268,705
-----------
$ 526,295
-----------
Reinsurance - 0.8%
255,000 BBB/Baa2 Platinum Underwriters Holding, 7.5%, 6/1/17 $ 259,864
-----------
Total Insurance $ 1,393,136
-----------
Real Estate - 3.3%
Real Estate Investment Trusts - 3.3%
350,000 BBB-/Baa3 Health Care, Inc., 6.0%, 11/15/13 $ 350,213
350,000 BBB/Baa2 Hospitality Properties Trust, 5.125%, 2/15/15 334,895
225,000 BB-/Ba2 Host Marriott LP, 6.375%, 3/15/15 224,438
50,000 B+/B1 Trustreet Properties, Inc., 7.5%, 4/1/15 50,000
130,000 BB+/Ba2 Ventas Realty Capital Corp., 7.125%, 6/1/15 (144A) 136,500
-----------
$ 1,096,046
-----------
Total Real Estate $ 1,096,046
-----------
Technology Hardware & Equipment - 1.1%
Communications Equipment - 1.1%
350,000 BB+/Ba2 Corning, Inc., 5.9%, 3/15/14 $ 353,359
-----------
Total Technology Hardware & Equipment $ 353,359
-----------
Semiconductors - 0.5%
Semiconductors - 0.5%
155,000 BBB-/Baa3 Chartered Semiconductor, 6.375%, 8/3/15 $ 154,103
-----------
Total Semiconductors $ 154,103
-----------
Telecommunication Services - 0.0%
Integrated Telecommunication Services - 0.0%
10,000 BBB+/Baa2 Telecom Italia Capital, 4.875%, 10/1/10 $ 9,804
-----------
Total Telecommunication Services $ 9,804
-----------
Utilities - 3.6%
Electric Utilities - 2.4%
111,507 BBB-/Baa3 Crocket Cogeneration, 5.869%, 3/30/25 (144A) $ 110,420
85,000 BBB+/Baa3 Entergy Gulf States, 5.7%, 6/1/15 83,187
260,000 BBB-/Baa3 Kiowa Power Partners LLC, 5.737%, 3/30/21 (144A) 260,764
305,000 BBB/Baa1 PSE & G Power, 6.95%, 6/1/12 330,534
-----------
$ 784,905
-----------
Multi-Utilities - 1.2%
270,000 BBB-/Baa3 Avista Corp., 7.75%, 1/1/07 $ 276,656
140,000 BBB+/Baa1 Dominion Resources, 6.25%, 6/30/12 146,469
-----------
$ 423,125
-----------
Total Utilities $ 1,208,030
-----------
TOTAL CORPORATE BONDS
(Cost $10,681,358) $10,552,623
-----------
The accompanying notes are an integral part of these financial statements. 7
Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Principal
Amount Value
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 63.6%
$ 955,000 Federal Home Loan Bank, 6.0%, 4/15/32 $ 981,231
1,081,263 Federal Home Loan Mortgage Corp., 4.5%, 5/1/35 1,017,288
549,187 Federal Home Loan Mortgage Corp., 4.5%, 10/1/35 516,694
251,266 Federal Home Loan Mortgage Corp., 5.5%, 9/1/33 249,575
99,892 Federal Home Loan Mortgage Corp., 6.0%, 1/1/34 100,899
26,211 Federal Home Loan Mortgage Corp., 8.0%, 4/1/08 26,865
1,343,118 Federal National Mortgage Association, 4.816%, 12/1/12 1,325,817
1,288,638 Federal National Mortgage Association, 5.0%, 12/1/17 1,276,907
1,239,946 Federal National Mortgage Association, 5.0%, 3/1/33 1,205,750
632,294 Federal National Mortgage Association, 5.0%, 5/1/34 613,890
730,000 Federal National Mortgage Association, 5.24%, 8/7/18 727,400
841,040 Federal National Mortgage Association, 5.5%, 9/1/17 846,853
1,053,780 Federal National Mortgage Association, 5.5%, 2/1/18 1,061,985
498,465 Federal National Mortgage Association, 5.5%, 7/ (3 498,563
74,641 Federal National Mortgage Association, 6.0%, 6/1/15 76,279
75,396 Federal National Mortgage Association, 6.0%, 1/1/29 77,030
115,108 Federal National Mortgage Association, 6.0%, 9/1/29 116,528
64,592 Federal National Mortgage Association, 7.0%, 3/1/12 67,025
54,549 Federal National Mortgage Association, 8.0%, 2/1/29 58,241
15,362 Federal National Mortgage Association, 8.0%, 2/1/30 16,411
7,578 Federal National Mortgage Association, 8.0%, 4/1/30 8,095
23,340 Federal National Mortgage Association, 8.0%, 7/1/30 24,932
47,051 Federal National Mortgage Association, 8.0%, 10/1/30 50,260
18,416 Federal National Mortgage Association, 8.0%, 1/1/31 19,672
245,136 Federal National Mortgage Association, 8.0%, 3/1/31 261,873
15,079 Federal National Mortgage Association, 8.0%, 5/1/31 16,107
24,995 Federal National Mortgage Association, 9.5%, 2/1/21 27,588
719,212 Government National Mortgage Association, 4.5%, 12/15/18 705,703
366,412 Government National Mortgage Association, 4.5%, 8/15/33 351,652
136,547 Government National Mortgage Association, 4.5%, 12/15/34 131,023
215,823 Government National Mortgage Association, 5.0%, 7/15/19 215,321
355,255 Government National Mortgage Association, 5.5%, 8/15/33 358,047
1,430,791 Government National Mortgage Association, 5.5%, 10/15/33 1,442,036
380,649 Government National Mortgage Association, 5.5%, 12/15/34 383,264
60,529 Government National Mortgage Association, 6.0%, 8/15/13 62,149
11,112 Government National Mortgage Association, 6.0%, 4/15/14 11,414
383,717 Government National Mortgage Association, 6.0%, 8/15/34 392,960
753,730 Government National Mortgage Association, 6.0%, 9/15/34 771,885
48,099 Government National Mortgage Association, 7.0%, 4/15/28 50,549
14,439 Government National Mortgage Association, 7.75%, 11/15/29 15,350
932,608 Government National Mortgage Association II, 5.5%, 11/20/34 936,685
685,000 U.S. Treasury Bonds, 7.125%, 2/15/23 886,112
184,316 U.S. Treasury Inflation Protected Security, 1.875%, 7/15/15 181,264
336,510 U.S. Treasury Inflation Protected Security, 3.375%, 1/15/12 361,840
446,308 U.S. Treasury Inflation Protected Security, 3.5%, 1/15/11 476,992
420,000 U.S. Treasury Notes, 5.25%, 2/15/29 458,309
1,200,000 U.S. Treasury Notes, 5.5%, 8/15/28 1,349,297
525,000 U.S. Treasury Strip, 0.0%, 11/15/13 370,457
-----------
$21,182,067
-----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $21,239,906) $21,182,067
-----------
8 The accompanying notes are an integral part of these financial statements.
Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
TEMPORARY CASH INVESTMENTS - 1.1%
Security Lending Collateral - 1.1%
353,122 Securities Lending Investment Fund, 4.24% $ 353,122
-----------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $353,122) $ 353,122
-----------
TOTAL INVESTMENT IN SECURITIES - 100.4%
(Cost $33,642,586) $33,447,549
-----------
OTHER ASSETS AND LIABILITIES - (0.4)% $ (115,937)
-----------
TOTAL NET ASSETS - 100.0% $33,331,612
===========
144A Security is exempt from registration under Rule 144A of the Securities Act
of 1933. Such securities may be resold normally to qualified institutional
buyers in a transaction exempt from registration. At December 31, 2005, the
value of these securities amounted to $2,608,708 or 7.8% of total net
assets.
NR Not rated by either S&P or Moody's
(a) Debt obligation initially issued at one coupon which converts to a higher
coupon at a specified date. The rate shown is the rate at period end.
(b) At December 31, 2005, the following security was out on loan:
Principal
Amount Security Value
$ 413,250 Ford Motor Co., 7.25%, 10/1/08 $334,733
--------
Total $334,733
========
The accompanying notes are an integral part of these financial statements. 9
Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
Class I 12/31/05 12/31/04 (a) 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 11.61 $ 11.24 $ 11.39 $ 11.12 $ 10.92
------- ------- ------- ------- -------
Net increase (decrease) from investment operations:
Net investment income $ 0.59 $ 0.44 $ 0.46 $ 0.52 $ 0.59
Net realized and unrealized gain (loss) on investments (0.29) (0.04) (0.09) 0.35 0.20
------- ------- ------- ------- -------
Net increase from investment operations $ 0.30 $ 0.40 $ 0.37 $ 0.87 $ 0.79
Distributions to shareowners:
Net investment income (1.12) (0.03) (0.52) (0.60) (0.59)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value $ (0.82) $ 0.37 $ (0.15) $ 0.27 $ 0.20
------- ------- ------- ------- -------
Net asset value, end of period $ 10.79 $ 11.61 $ 11.24 $ 11.39 $ 11.12
======= ======= ======= ======= =======
Total return* 2.62% 3.56% 3.28% 7.79% 7.28%
Ratio of net expenses to average net assets 0.62% 0.89% 0.86% 0.84% 0.82%
Ratio of net investment income to average net assets 4.48% 3.61% 3.79% 4.87% 5.56%
Portfolio turnover rate 31% 57% 56% 87% 133%
Net assets, end of period (in thousands) $33,332 $45,793 $51,565 $51,201 $44,847
Ratios with no waiver of management fees by PIM and no
reduction for fees paid indirectly:
Net expenses 0.83% 0.89% 0.86% 0.84% 0.82%
Net investment income 4.27% 3.61% 3.79% 4.87% 5.56%
Ratios with waiver of management fees by PIM and reduction
for fees paid indirectly:
Net expenses 0.62% 0.89% 0.86% 0.84% 0.82%
Net investment income 4.48% 3.61% 3.79% 4.87% 5.56%
(a) Effective August 2, 2004, PIM became the sub-advisor of the Fund and
subsequently became the advisor on December 10, 2004.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of
the investment at net asset value at the end of each period.
NOTE: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
10 The accompanying notes are an integral part of these financial statements.
Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (including securities loaned of $334,733)
(cost $33,642,586) $33,447,549
Cash 28,735
Receivables --
Dividends, interest and foreign taxes withheld 343,158
Due from Pioneer Investment Management, Inc. 1,610
-----------
Total assets $33,821,052
-----------
LIABILITIES:
Payables --
Fund shares repurchased $ 89,153
Dividends 60
Upon return of securities loaned 353,122
Due to affiliates 138
Accrued expenses 46,967
-----------
Total liabilities $ 489,440
-----------
NET ASSETS:
Paid-in capital $34,351,741
Distributions in excess of net investment income (55,248)
Accumulated net realized loss on investments (769,844)
Net unrealized loss on:
Investments (195,037)
-----------
Total net assets $33,331,612
-----------
NET ASSET VALUE PER SHARE:
Class I:
(No par value, unlimited number of shares authorized)
Net assets $33,331,612
Shares outstanding 3,089,962
-----------
Net asset value per share $ 10.79
The accompanying notes are an integral part of these financial statements. 11
Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended
12/31/05
INVESTMENT INCOME:
Dividends $ 941
Interest 1,935,314
Income on securities loaned, net 5,557
----------
Total investment income $1,941,812
----------
EXPENSES:
Management fees $ 190,599
Transfer agent fees and expenses 1,501
Administrative reimbursements 19,540
Custodian fees 13,017
Professional fees 66,585
Printing expense 14,441
Fees and expenses of nonaffiliated trustees 4,451
Miscellaneous 5,024
----------
Total expenses $ 315,158
Less management fees waived and expenses assumed
by Pioneer Investment Management, Inc. (79,776)
----------
Net expenses $ 235,382
----------
Net investment income $1,706,430
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from:
Investments $ 166,785
----------
Change in net unrealized loss from:
Investments $ (885,532)
----------
Net loss on investments $ (718,747)
===========
Net increase in net assets resulting from operations $ 987,683
===========
12 The accompanying notes are an inte gral part of these financial statements.
Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Year
Ended Ended
12/31/05 12/31/04
FROM OPERATIONS:
Net investment income $ 1,706,430 $ 1,751,711
Net realized gain on investments 166,785 270,731
Change in net unrealized loss on investments (885,532) (328,382)
------------ ------------
Net increase in net assets resulting from operations $ 987,683 $ 1,694,060
------------ ------------
DISTRIBUTIONS TO SHAREOWNERS
Net investment income:
Class I $ (3,723,847) $ (118,093)
------------ ------------
Total distributions to shareholders $ (3,723,847) $ (118,093)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 440,667 $ 8,055,931
Reinvestment of distributions 3,722,866 118,093
Cost of shares repurchased (13,889,129) (15,521,812)
------------ ------------
Net decrease in net assets resulting from Fund share transactions $ (9,725,596) $ (7,347,788)
------------ ------------
Net decrease in net assets $(12,461,760) $ (5,771,821)
NET ASSETS:
Beginning of year 45,793,372 51,565,193
------------ ------------
End of year $ 33,331,612 $ 45,793,372
============ ============
Undistributed (distribution in excess of) net investment income, end of year $ (55,248) $ 1,759,777
============ ============
The accompanying notes are an integral part of these financial statements. 13
Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer Bond VCT Portfolio (The Portfolio) (formerly Safeco RST Bond
Portfolio) is a portfolio of Pioneer Variable Contracts Trust (the Trust),
which is a Delaware statutory trust registered under the Investment Company Act
of 1940 as an open-end management investment company. The Trust consists of
twenty nine separate diversified portfolios, fourteen of which issue both Class
I and Class II shares (collectively, the "Portfolios", individually the
"Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I
shares only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II
shares only)
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts, or
by qualified pension and retirement plans.
Bond Portfolio seeks current income from an investment grade portfolio with due
regard to preservation of capital and prudent investment risk. Secondarily, the
Portfolio seeks a relatively stable level of dividends.
The Portfolio, organized on December 10, 2004, is the successor to the Safeco
RST Bond Portfolio. Safeco RST Bond Portfolio, one of six series of portfolios
that comprised Safeco Resource Series Trust, transferred all of the net assets
of Trust shares in exchange for the Portfolio's Class I shares in a one-to-one
exchange ratio, on December 10, 2004, pursuant to an agreement and plan of
reorganization (the "reorganization" which was approved by the shareholders of
Safeco RST Bond Portfolio on December 8, 2004). The Portfolio had no assets or
liabilities prior to the reorganization. Accordingly, the reorganization, which
was a tax-free exchange, had no effect on the Portfolio's operations.
The financial statements and financial highlights of all other Portfolios are
presented in separate books.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
years. Actual results could differ from those estimates. The following is a
summary of significant accounting policies consistently followed by the
Portfolio,
14
Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
in the preparation of its financial statements which are consistent with those
generally accepted in the investment company industry:
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the Portfolios are computed once daily, on each day the New York Stock
Exchange (NYSE) is open, as of the close of regular trading on the NYSE. In
computing the net asset values, securities are valued at the last sale
price on the principal exchange where they are traded.
Fixed income securities are valued at prices supplied by independent
pricing services, which consider such factors as Treasury spreads, yields,
maturities and ratings. Valuations may be supplemented by dealers and other
sources, as required. Securities for which market quotations are not
readily available are valued at their fair values as determined by, or
under the direction of, the Board of Trustees. Interest income, including
interest on income bearing cash accounts, is recorded on the accrual basis,
net of unrecoverable foreign taxes withheld at the applicable country
rates. All discounts/premiums are accreted/amortized for financial
reporting purposes.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes on capital gains at
the applicable country rates.
At times, the Portfolio's investments may represent industries or industry
sectors that are interrelated or have common risks, making it more
susceptible to any economic, political, or regulatory developments or other
risks affecting those industries and sectors. Information regarding the
Portfolio's principal investment risks is contained in the Portfolio's
prospectus. Please refer to those documents when considering the
Portfolio's risks.
B. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal
income tax rules. Therefore, the source of the Portfolio's distributions
may be shown in the accompanying financial statements as either from or in
excess of net investment income or net realized gain on investment
transactions, or from paid-in capital, depending on the type of book/tax
differences that may exist.
The Portfolio elected to defer $52,974 in capital losses recognized between
November 1, 2005 and December 31, 2005 to its fiscal year ended December
31, 2006.
Capital loss carryforwards are available to offset future realized capital
gains. At December 31, 2005, Bond VCT Portfolio had a net capital loss
carryforward of $716,870, of which the following amounts will expire
between 2008 and 2010, if not utilized: $136,015 in 2008 and $580,855 in
2010.
At December 31, 2005, the Portfolio made reclassifications as described
below. These reclassifications have no impact on the net asset value of the
Portfolio and are designed to present the Portfolio's capital accounts on a
tax basis.
- --------------------------------------------------------------------------------
Undistributed Accumulated
Net Investment Net Realized Paid-In
Portfolio Income (Loss) Gain (Loss) Capital
- --------------------------------------------------------------------------------
Bond Portfolio $202,392 $ (202,392) $--
- --------------------------------------------------------------------------------
15
Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
The following chart shows the distributions paid during the years ended
December 31, 2005 and 2004 on a tax basis and the components of
distributable earnings (accumulated losses) as of December 31, 2005.
- --------------------------------------------------------------------------------------------------
2005 2004
- --------------------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ 3,723,847 $ 118,093
Long-Term capital gain -- --
----------- ---------
$ 3,723,847 $ 118,093
Return of Capital -- --
----------- ---------
Total distributions $ 3,723,847 $ 118,093
=========== =========
Distributable Earnings (Accumulated Losses):
Undistributed ordinary income $ 86,609
Undistributed long-term gain/(capital loss carryforward) (716,870)
Post-October loss deferred (52,974)
Unrealized appreciation (depreciation) (336,894)
-----------
Total $(1,020,129)
-----------
- --------------------------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is primarily attributable to the tax treatment of premium
and amortization.
C. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Trust and a wholly owned indirect subsidiary
of UniCredito Italiano S.p.A. (UniCredito Italiano), $638,021 in
commissions on the sale of Trust shares for the year ended December 31,
2005.
D. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees. The Portfolio also continues to receive
payments in lieu of interest or dividends on the securities loaned. Gain or
loss in the fair value of the securities loaned that may occur during the
term of the loan, will be for the account of the Trust. The loans are
secured by collateral of at least 102%, at all times, of the fair value of
the securities loaned. The fair value of the collateral will be adjusted
daily to reflect any price fluctuation in the value of the loaned
securities. The Trust has the right under the lending agreement to recover
the securities on loan from the borrower on demand. The Trust invests cash
collateral in the Securities Lending Investment Fund which is sponsored by
Brown Brothers Harriman & Co., the Trust's custodian.
E. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano manages the
portfolio. Management fees are calculated at the annual rate of 0.50% of the
Portfolio's average daily net assets.
Prior to the reorganization, the Portfolio was advised by Safeco Asset
Management, which received an annual fee equal to 0.74% of its average daily
net assets.
Through December 10, 2006, PIM has agreed not to impose all or a portion of
its management fee and to assume other operating expenses of the Portfolio
to the extent necessary to limit Class I expenses to 0.62% of the average
daily net assets attributable to Class I shares.
In addition, under the management and administration agreements, certain
other services and costs, including accounting, regulatory reporting and
insurance premiums, are paid by the Portfolio. At December 31, 2005, $12 was
payable to PIM related to management fees, administrative reimbursements and
certain other services, and is included in due to affiliates.
16
Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
3. Transfer Agent
Since the reorganization PIMSS, a wholly owned indirect subsidiary of
UniCredito Italiano provides substantially all transfer agent and shareowner
services to the Trust at negotiated rates. Included in due to affiliates is
$126 in transfer agent fees payable to PIMSS at December 31, 2005. Prior to
the reorganization Safeco services corporation was the transfer and
shareholder servicing agent.
4. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- -----------------------------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- -----------------------------------------------------------------------------------------------------------------
Bond Portfolio $33,784,443 $242,563 $ (579,457) $ (336,894)
- -----------------------------------------------------------------------------------------------------------------
5. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were $4,428,478 and $6,636,813, respectively. The cost of
purchases and the proceeds from sales of investments in U.S. Government
obligations for the year ended December 31, 2005, were $7,342,882 and
$15,973,723, respectively.
6. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares for the years ended
December 31, 2005 and December 31, 2004 were as follows:
- -----------------------------------------------------------------------------------------------------------------
Bond Portfolio '05 Shares '05 Amount '04 Shares '04 Amount
- -----------------------------------------------------------------------------------------------------------------
Safeco Trust Shares
Shares sold -- -- 698,811 $ 7,960,250
Reinvestment of distributions -- -- -- --
Shares repurchased -- -- (1,359,793) (15,521,812)
Shares transferred in reorganization -- -- (3,993,012) (46,518,595)
CLASS I:
Shares sold 38,950 $ 440,667 8,248 $ 95,681
Reinvestment of distributions 334,515 3,722,866 10,191 118,316
Shares repurchased (1,227,950) (13,889,129) -- --
Shares issued in reorganization -- -- 3,993,2 46,518,372
----------------------------------------------------------------
Net decrease (854,485) $ (9,725,596) (642,543) $ (7,347,788)
================================================================
- -----------------------------------------------------------------------------------------------------------------
17
Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust
and the Shareowners of Pioneer Bond VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer Bond VCT Portfolio, one of the
portfolios constituting Pioneer Variable Contracts Trust (the "Trust"), as of
December 31, 2005, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005, by correspondence
with the custodian. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer Bond VCT Portfolio of the Pioneer Variable Contracts Trust at December
31, 2005, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and
financial highlights for each of the five years in the period then ended, in
conformity with U.S. generally accepted accounting principles.
/s/Ernst + Young LLP
Boston, Massachusetts
February 10, 2006
18
Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING
THE MANAGEMENT CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareholders. In
making such determinations, the Independent Trustees relied upon the assistance
of counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three-, five- and ten-year
periods for the Fund and a peer group selected by the Independent Trustees for
this purpose, (2) management fees incurred by a peer group of funds selected by
the Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's performance
19
Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING
THE MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
compared to both the performance of a peer group and two relevant indices,
in each case selected by the Independent Trustees for this purpose. The
Fund's performance based upon total return was in the fourth quintile of the
peer group for the 12 months ended June 30, 2005, the fourth quintile of the
peer group for the three years ended June 30, 2005, the second quintile for
the five years ended June 30, 2005 and the third quintile for the ten year
period ended June 30, 2005. (In all quintile rankings referred to throughout
this discussion first quintile is most favorable to the Fund's shareholders.
Thus, highest relative performance would be first quintile and lowest
relative expenses also would be first quintile.) The Trustees also
considered the yield (gross of expenses) of the Class I shares of the Fund
relative to the yield (as of June 30, 2005) of the Lehman Aggregate Bond
Index. The Trustees concluded that the performance of the Fund supported the
continuation of the Management Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's fixed income group. Among other things, the
Trustees considered the number, education and experience of the Investment
Adviser's investment staff and their use of technology and emphasis on
analytics in view of the risk profile of securities in which the Fund
invests. The Trustees concluded that the Investment Adviser had the quality
and depth of personnel and the well-developed methods essential to
performing its duties under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was below the median
relative to the management fees paid by the other funds in that peer group
for the comparable period. The Trustees determined that the fee under the
Management Contract was reasonable and fair in light of both the overall
nature and quality of services provided by the Investment Adviser and the
fees charged by the funds in the peer group. The Trustees also considered
the Fund's expense ratio and expense ratios of a peer group of funds
selected by the Independent Trustees for this purpose. The Fund's expense
ratio for the 12 months ended June 30, 2005 was in the fifth quintile of the
applicable peer group for the most recent fiscal year of the peer group for
the comparable period.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. The Trustees concluded that,
given current and anticipated asset levels, break points in
20
Pioneer Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
the management fee are not necessary at this time. The Trustees will
continue to evaluate annually the appropriateness of break points.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund). The
Trustees further considered the revenues and profitability of the Investment
Adviser's businesses other than the fund business, including the Investment
Adviser's institutional investment advisory business. The Trustees
considered the intangible benefits that accrue to the Investment Adviser and
its affiliates by virtue of its relationship with the Fund and the Pioneer
Funds as a group. The Trustees concluded that all these types of benefits
accruing to the Investment Adviser were reasonable in the context of the
overall relationship between the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
21
Pioneer Bond VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
22
Pioneer Bond VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held
Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance
or earlier services company) (2001-present); company); Director of New York
retirement or Managing Partner, Federal City Mortgage Trust (publicly traded
removal. Capital Advisors (boutique merchant mortgage REIT)
bank) (2002 to 2004); Executive
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products
or earlier manufacturer), Mortgage Guaranty
retirement or Insurance Corporation, and Briggs
removal. & Stratton, Inc. (engine
manufacturer)
- ----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
23
Pioneer Bond VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
24
Pioneer Bond VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, None
Treasurer 2000. Serves at the Assistant Vice President - Fund
discretion of the Accounting, Administration and
Board. Custody Services of Pioneer; and
Assistant Treasurer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ---------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ---------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
25
[LOGO]PIONEER
Investments (R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company,
Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18656-00-0206
[LOGO] PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Growth Opportunities VCT Portfolio -- Class I Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Pioneer Growth Opportunities VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 5
Financial Statements 9
Notes to Financial Statements 13
Report of Independent Registered Public
Accounting Firm 17
Factors Considered by the Independent Trustees
in Approving the Management Contract 18
Trustees, Officers and Service Providers 21
Before investing, consider the Portfolio's investment
objectives, risks, charges and expenses. Contact your
advisor or Pioneer Investments for a prospectus containing
this information. Please read it carefully.
The Trust files a complete statement of investments with the
Securities and Exchange Commission for the first and the
third quarters for each fiscal year on Form N-Q. Shareowners
may view the filed Form N-Q by visiting the Commission's web
site at http://www.sec.gov. The filed form may also be
viewed and copied at the Commission's Public Reference Room
in Washington, D.C. Information regarding the operations of
the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 80.3%
Temporary Cash Investment 16.1%
Exchange Traded Fund 3.4%
Warrants 0.2%
Sector Distribution
(As a percentage of equity holdings)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Information Technology 25.7%
Health Care 21.4%
Consumer Discretionary 14.7%
Industrials 12.0%
Financials 10.7%
Energy 8.1%
Materials 4.1%
Consumer Staples 2.6%
Utilities 0.7%
Five Largest Holdings
(As a percentage of equity holdings)
1. Newfield Exploration Co. 1.85%
2. Monster Worldwide, Inc. 1.70
3. Micros Systems, Inc. 1.64
4. Pride International, Inc. 1.58
5. Central Garden & Pet Co. 1.57
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 25.37 $ 23.78
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ - $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Growth Opportunities VCT Portfolio at net asset value, compared to that of the
Russell 2000 Growth Index. Portfolio returns are based on net asset value and
do not reflect any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Russell Pioneer
2000 Growth Growth Opportunities
Index VCT Portfolio
Dec-95 10000 10000
11126 13206
Dec-97 12567 19090
12721 19439
Dec-99 18203 20534
14120 19268
Dec-01 12817 22956
8938 14309
Dec-03 13277 20453
15177 25019
Dec-05 15807 26692
The Russell 2000 Growth Index is an unmanaged measure of the performance of
U.S. small-cap growth stocks. Index returns are calculated monthly, assume
reinvestment of dividends and, unlike Portfolio returns do not reflect any
fees, expenses or sales charges. You cannot invest directly in the Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
10 Year 10.32%
5 Year 6.74%
1 Year 6.69%
All total returns shown assume reinvestment of distributions at net asset
value. Please refer to the variable product's report wrapper for performance
that reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
2
Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value / $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Growth Opportunities VCT
Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005
Share Class I
- ---------------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,074.10
Expenses Paid During Period* $ 4.13
* Expenses are equal to the Portfolio's annualized expense ratio of 0.79% for
Class I shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer Growth Opportunities VCT
Portfolio
Based on a hypothetical 5% per year return before expenses, reflecting the
period from July 1, 2005 through December 31, 2005.
Share Class I
- ---------------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,021.22
Expenses Paid During Period* $ 4.02
* Expenses are equal to the Portfolio's annualized expense ratio of 0.79% for
Class I shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
In the following interview, Michael Rega, a member of the Pioneer Growth
Opportunities VCT Portfolio management team, discusses the factors that
influenced performance for the 12-month period ended December 31, 2005.
Q: How did the Portfolio perform during the period?
A: The Portfolio produced a total return of 6.69% at net asset value during the
12-month period ended December 31, 2005, compared to a return of 4.15% for
its benchmark, the Russell 2000 Growth Index. In an environment
characterized by widely divergent sector performance, the Portfolio was
well-served by our disciplined and largely sector-neutral approach. We
strive to keep the Portfolio's sector weightings within three to four
percentage points of the sector weightings in the Russell 2000 Growth
benchmark, which means that the majority of the Portfolio's performance
will be the result of our rigorous individual stock selection process. This
was the case in 2005, and we are pleased to report that our process worked
well: the Portfolio's holdings outperformed the corresponding holdings in
the benchmark index in seven of the ten major market sectors.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q: What elements of the Portfolio's positioning helped performance?
A: Several of the Portfolio's top performers provide an illustration of our
investment process at work. To review, we use a quantitative screen to
identify stocks that are potential buy candidates, then employ the research
of Pioneer's small-cap stock analysts to confirm whether these stocks are
indeed attractive on a fundamental basis. We feel that this methodology
provides a broad, multifaceted view of the stocks we consider for addition
to the Portfolio.
This approach supported our investment in Station Casinos, which delivered a
gain of over 20% in 2005. Station is a casino operator in Las Vegas that
caters to the local market rather than vacationers. As such, it is more
sensitive to the city's rapid population growth than it is to broader trends
in travel or the city's position in the increasingly competitive market for
gambling dollars. In health care, performance was helped by the Portfolio's
holdings in Cubist Pharmaceuticals, which benefited from
faster-than-expected sales for Cubicin, a drug that has proven very
effective in fighting staph infections; and American Healthways, which
strives to keep health plans' costs down by helping patients to manage their
diseases better. We also added value in the technology sector through a
position in SanDisk, whose stock gained over 100% as demand for its flash
memory chips - used in cell phones and Apple's iPod - soared. And in the
materials industry, the Portfolio was helped by its holding in Florida Rock
Industries, a provider of building materials in the Southeast that benefited
not only from Florida's rapidly growing population, but also from the need
for post-hurricane rebuilding.
Q: What were some detractors from performance?
A: The Puerto Rican banks Doral Financial and W. Holding, declined sharply in
the first quarter when Doral restated its earnings results, causing W.
Holding to fall in sympathy. We quickly sold out of the position in Doral,
but we maintained a position in W. Holding on the belief that the company,
which we see as the most well managed of the Puerto Rican banks, is
attractively valued following its poor performance of the past year.
Our decisions regarding the specialty retailer Aeropostale also detracted
from Portfolio performance. Although the stock performed well after our
initial purchase, it ultimately faltered due to its failure to deliver a
compelling product mix. Nu Skin Enterprises was another notable detractor.
We believed the company, which makes health and beauty products, would be
helped by its push into the rapidly-growing Chinese market. Its profit
growth came in below expectations, however, and we elected to remove it from
the portfolio.
Q: Do you have any closing thoughts for investors?
A: The strength of the U.S. consumer, the effect of higher production costs on
corporations' profit margins, and the likely direction of Fed policy are
all factors that we will be watching closely in the year ahead. In what we
see as being a potentially risky environment, we will continue to look for
growth, but we will also be very conscious of valuations in order to help
manage downside risk.
Believing that the Portfolio's outperformance of the past year, while
modest, helps validate the effectiveness of our invesment approach, we
remain committed to our bottom-up, research-based discipline.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Portfolio's historical or future performance are
statements of the opinion of Portfolio management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
A Word About Risk:
Investments in small companies may offer the potential for higher returns, but
are also subject to greater short-term price fluctuations than larger, more
established companies. Investing in foreign and/or emerging markets securities
involves risks relating to interest rates, currency exchange rates, economic,
and political conditions. The Portfolio may invest a substantial amount of its
assets in issuers located in a limited number of countries and therefore is more
susceptible to adverse developments affecting those countries.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
COMMON STOCKS - 94.7%
Energy - 8.0%
Oil & Gas Drilling - 2.8%
532,100 Grey Wolf, Inc.*(a) $ 4,113,133
165,200 Pride International, Inc.* 5,079,900
------------
$ 9,193,033
------------
Oil & Gas Equipment & Services - 0.6%
99,300 Superior Energy Services, Inc.* $ 2,090,265
------------
Oil & Gas Exploration & Production - 4.6%
109,700 Forest Oil Corp.* $ 4,999,029
118,400 Newfield Exploration Co.* 5,928,288
83,400 Stone Energy Corp.* 3,797,202
------------
$ 14,724,519
------------
Total Energy $ 26,007,817
------------
Materials - 4.1%
Aluminum - 0.8%
103,900 Century Aluminum Co.* $ 2,723,219
------------
Construction Materials - 1.7%
69,050 Florida Rock Industries, Inc. $ 3,387,593
40,000 Texas Industries, Inc. 1,993,600
------------
$ 5,381,193
------------
Fertilizers & Agricultural Chemicals - 1.2%
82,400 The Scotts Miracle-Gro Co. $ 3,727,776
------------
Specialty Chemicals - 0.4%
273,200 Omnova Solutions, Inc.* $ 1,311,360
------------
Total Materials $ 13,143,548
------------
Capital Goods - 6.2%
Aerospace & Defense - 1.9%
94,300 DRS Technologies, Inc. $ 4,848,906
66,300 Hexcel Corp.* 1,196,715
------------
$ 6,045,621
------------
Construction, Farm Machinery &
Heavy Trucks - 2.1%
39,900 Terex Corp.* $ 2,370,060
160,100 Wabtec Corp. 4,306,690
------------
$ 6,676,750
------------
Electrical Component & Equipment - 0.9%
508,400 Power-One, Inc.* $ 3,060,568
------------
Industrial Conglomerates - 0.5%
137,300 Tredegar Corp. $ 1,769,797
------------
Industrial Machinery - 0.8%
77,200 Pentair, Inc. $ 2,664,944
------------
Total Capital Goods $ 20,217,680
------------
Commercial Services & Supplies - 2.3%
Commercial Printing - 0.6%
56,637 R.R. Donnelly & Sons Co. $ 1,937,552
------------
Shares Value
Human Resource & Employment Services - 1.7%
133,600 Monster Worldwide, Inc.* $ 5,453,552
------------
Total Commercial Services &
Supplies $ 7,391,104
------------
Transportation - 3.4%
Airlines - 0.5%
45,300 Alaska Air Group, Inc.* $ 1,618,116
------------
Trucking - 2.9%
176,500 Heartland Express, Inc. $ 3,581,185
103,100 Laidlaw International, Inc. 2,395,013
122,950 Old Dominion Freight Line, Inc.* 3,317,191
------------
$ 9,293,389
------------
Total Transportation $ 10,911,505
------------
Consumer Durables & Apparel - 2.8%
Footwear - 2.8%
316,000 Skechers U.S.A.* $ 4,841,120
192,100 Wolverine World Wide, Inc. 4,314,566
------------
$ 9,155,686
------------
Total Consumer Durables &
Apparel $ 9,155,686
------------
Consumer Services - 6.9%
Casinos & Gaming - 3.0%
170,500 Scientific Games Corp.* $ 4,651,240
73,300 Station Casinos, Inc. 4,969,740
------------
$ 9,620,980
------------
Restaurants - 2.8%
81,200 Papa John's International, Inc.*(a) $ 4,815,972
140,400 Rare Hospitality International, Inc.* 4,266,756
------------
$ 9,082,728
------------
Specialized Consumer Services - 1.1%
128,300 Jackson Hewitt Tax Service, Inc. $ 3,555,193
------------
Total Consumer Services $ 22,258,901
------------
Media - 2.4%
Advertising - 1.1%
93,900 Arbitron, Inc. $ 3,566,322
------------
Publishing - 1.3%
181,500 Interactive Data Corp. $ 4,121,865
------------
Total Media $ 7,688,187
------------
Retailing - 2.5%
Apparel Retail - 2.5%
56,900 Guess?, Inc.* $ 2,025,640
127,050 Stage Stores, Inc. 3,783,549
131,100 Stein Mart, Inc. 2,379,465
------------
$ 8,188,654
------------
Total Retailing $ 8,188,654
------------
The accompanying notes are an integral part of these financial statements. 5
Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
Food & Drug Retailing - 1.0%
Food Retail - 1.0%
129,400 Casey's General Stores, Inc. $ 3,209,120
------------
Total Food & Drug Retailing $ 3,209,120
------------
Household & Personal Products - 1.6%
Household Products - 1.6%
109,300 Central Garden & Pet Co.* $ 5,021,242
------------
Total Household & Personal
Products $ 5,021,242
------------
Health Care Equipment & Services - 13.1%
Health Care Equipment - 3.7%
101,600 Cytyc Corp.* $ 2,868,168
116,200 Palomar Medical Technologies*(a) 4,071,648
132,000 Steris Corp. 3,302,640
85,900 Symmetry Medical, Inc.* 1,665,601
------------
$ 11,908,057
------------
Health Care Facilities - 0.5%
70,300 Kindred Healthcare, Inc.* $ 1,810,928
------------
Health Care Services - 6.1%
103,400 American Healthways, Inc.* $ 4,678,850
55,000 Cerner Corp.*(a) 5,000,050
145,700 Merge Technologies, Inc.*(a) 3,648,328
201,500 Per-Se Technologies, Inc.*(a) 4,707,040
101,300 The Trizetto Group, Inc.* 1,721,087
------------
$ 19,755,355
------------
Health Care Supplies - 2.8%
78,500 Haemonetics Corp.* $ 3,835,510
73,700 Merit Medical Systems, Inc.* 894,718
129,710 PolyMedica Corp. 4,341,394
------------
$ 9,071,622
------------
Total Health Care Equipment &
Services $ 42,545,962
------------
Pharmaceuticals & Biotechnology - 7.8%
Biotechnology - 4.8%
225,500 Cubist Pharmaceuticals, Inc.* $ 4,791,875
129,300 CV Therapeutics, Inc.*(a) 3,197,589
254,300 Serologicals Corp.*(a) 5,019,882
93,000 Vertex Pharmaceuticals, Inc.* 2,573,310
------------
$ 15,582,656
------------
Pharmaceuticals - 3.0%
328,700 Connetics Corp.*(a) $ 4,749,715
66,500 Medicis Pharmaceutical Corp. (a) 2,131,325
161,400 Salix Pharmaceuticals, Ltd.* 2,837,412
------------
$ 9,718,452
------------
Total Pharmaceuticals &
Biotechnology $ 25,301,108
------------
Shares Value
Banks - 2.5%
Regional Banks - 1.0%
189,091 Fulton Financial Corp. (a) $ 3,328,002
------------
Thrifts & Mortgage Finance - 1.5%
126,300 Franklin Bank Corp.* $ 2,272,137
296,252 W Holding Co., Inc. (a) 2,438,154
------------
$ 4,710,291
------------
Total Banks $ 8,038,293
------------
Diversified Financials - 1.8%
Asset Management & Custody Banks - 0.9%
135,000 Waddell & Reed Financial, Inc.* $ 2,830,950
------------
Consumer Finance - 0.9%
114,400 Asta Funding, Inc. (a) $ 3,127,696
------------
Total Diversified Financials $ 5,958,646
------------
Insurance - 0.3%
Life & Health Insurance - 0.3%
74,000 American Equity Investment
Life Holding* $ 965,700
------------
Total Insurance $ 965,700
------------
Real Estate - 2.0%
Real Estate Management & Development - 0.5%
123,000 Deerfield Triarc Capital Corp. $ 1,685,100
------------
Real Estate Investment Trusts - 1.5%
38,900 Alexandria Real Estate Equities, Inc. $ 3,131,450
146,600 Annaly Mortgage Management, Inc. (a) 1,603,804
------------
$ 4,735,254
------------
Total Real Estate $ 6,420,354
------------
Software & Services - 10.7%
Application Software - 3.6%
41,300 Bottomline Technologies, Inc.* $ 455,126
33,900 Net 1 UEPS Technologies, Inc.* 978,015
583,600 Parametric Technology Co.* 3,559,960
412,600 Plato Learning, Inc.* 3,276,044
229,600 Sonic Solutions* 3,469,256
------------
$ 11,738,401
------------
Data Processing & Outsourced Services - 0.3%
66,900 The BISYS Group, Inc.* $ 937,269
------------
Internet Software & Services - 2.3%
238,300 HouseValues, Inc.*(a) $ 3,105,049
65,700 Websense, Inc.* 4,312,548
------------
$ 7,417,597
------------
IT Consulting & Other Services - 2.4%
30,300 CACI International, Inc.* $ 1,738,614
542,900 Ciber, Inc.* 3,583,140
175,100 Perot Systems Corp.* 2,475,914
------------
$ 7,797,668
------------
6 The accompanying notes are an integral part of these financial statements.
Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Systems Software - 2.1%
85,700 Macrovision Corp.* $ 1,433,761
108,700 Micros Systems, Inc.* 5,252,384
------------
$ 6,686,145
------------
Total Software & Services $ 34,577,080
------------
Technology Hardware & Equipment - 11.1%
Communications Equipment - 4.5%
391,400 Arris Group, Inc.* $ 3,706,558
132,200 CommScope, Inc.* 2,661,186
203,100 Foundry Networks, Inc.* 2,804,811
137,300 NETGEAR, Inc.* 2,643,025
184,000 Packeteer, Inc.* 1,429,680
163,700 Symmetricom, Inc.* 1,386,539
------------
$ 14,631,799
------------
Computer Hardware - 2.3%
86,200 Avid Technology, Inc.* $ 4,720,312
54,100 Intergraph Corp.* 2,694,721
------------
$ 7,415,033
------------
Electronic Equipment & Instruments - 3.1%
403,000 Aeroflex, Inc.* $ 4,332,250
86,900 Paxar Corp.* 1,705,847
145,200 Tektronix, Inc. 4,096,091
------------
$ 10,134,188
------------
Technology Distributors - 1.2%
204,700 Agilysys, Inc. $ 3,729,634
------------
Total Technology Hardware &
Equipment $ 35,910,654
------------
Semiconductors - 3.6%
Semiconductor Equipment - 2.4%
331,300 Axcelis Technologies, Inc.* $ 1,580,301
242,700 Entegris, Inc.* 2,286,234
135,400 MKS Instruments, Inc.* 2,422,306
94,300 Photronics, Inc.* 1,420,158
------------
$ 7,708,999
------------
Semiconductors - 1.2%
74,700 DSP Group, Inc.* $ 1,871,982
120,800 Semtech Corp.* 2,205,808
------------
$ 4,077,790
------------
Total Semiconductors $ 11,786,789
------------
Utilities - 0.6%
Independent Power Producer &
Energy Traders - 0.6%
58,900 Black Hills Corp. $ 2,038,529
------------
Total Utilities $ 2,038,529
------------
TOTAL COMMON STOCKS
(Cost $248,386,331) $306,736,559
------------
Shares Value
WARRANTS - 0.3%
Commercial Services & Supplies - 0.0%
Diversified Commercial Services - 0.0%
37,165 NCO Group Warrants, Exp. 9/28/06* $ --
------------
Total Commercial Services &
Supplies $ --
------------
Health Care Equipment & Services - 0.0%
Health Care Facilities - 0.0%
140,000 Lifepoint, Warrants Exp. 4/1/07* $ --
------------
84,000 Lifepoint, Warrants Exp. 7/21/07* $ --
------------
Health Care Supplies - 0.0%
92,800 SpectRx, Inc., Warrants Exp. 6/4/06* $ --
------------
Total Health Care Equipment &
Services $ --
------------
Pharmaceuticals & Biotechnology - 0.3%
Biotechnology - 0.0%
250,000 Photomedex, Warrants Exp. 6/13/07* $ --
------------
Pharmaceuticals - 0.3%
105,000 Nastech, Warrants Exp. 3/22/06* $ 880,163
------------
Total Pharmaceuticals &
Biotechnology $ 880,163
------------
TOTAL WARRANTS
(Cost $21,608) $ 880,163
------------
EXCHANGE TRADED FUNDS - 4.0%
66,800 Russell 2000 Growth Exchange
Traded Fund (a) $ 4,651,284
56,100 Russell 2000 Value Exchange
Traded Fund (a) 3,703,161
40,100 S&P Small Cap 600/BARRA Growth
Exchange Traded Fund (a) 4,662,427
------------
$ 13,016,872
------------
TOTAL EXCHANGE TRADED FUNDS
(Cost $9,826,366) $ 13,016,872
------------
TEMPORARY CASH INVESTMENT - 19.0%
Security Lending Collateral - 19.0%
61,463,181 Securities Lending Investment
Fund, 4.24% $ 61,463,181
------------
TOTAL TEMPORARY CASH INVESTMENT
(Cost $61,463,181) $ 61,463,181
------------
TOTAL INVESTMENT IN SECURITIES - 118.0%
(Cost $319,697,486) $382,096,775
------------
OTHER ASSETS AND LIABILITIES - (18.0)% $(58,151,580)
------------
TOTAL NET ASSETS - 100.0% $323,945,195
============
The accompanying notes are an integral part of these financial statements. 7
Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) At December 31, 2005, the following securities were out on loan:
Shares Security Value
34,860 Annaly Mortgage Management, Inc. $ 381,368
108,680 Asta Funding, Inc. 2,971,311
52,250 Cerner Corp.* 4,750,048
250,600 Connetics Corp.* 3,621,170
78,945 CV Therapeutics, Inc.* 1,952,310
185,926 Fulton Financial Corp. 3,272,298
505,495 Grey Wolf, Inc.* 3,907,476
226,385 HouseValues, Inc.* 2,949,797
63,175 Medicis Pharmaceutical Corp. 2,024,759
138,415 Merge Technologies, Inc.* 3,465,912
110,390 Palomar Medical Technologies* 3,868,066
75,000 Papa John's International, Inc.* 4,448,250
191,425 Per-Se Technologies, Inc.* 4,471,688
Russell 2000 Value Exchange
53,124 Traded Fund 3,506,715
Russell 2000 Growth Exchange
27,890 Traded Fund 1,941,981
240,590 Serologicals Corp.* 4,749,247
S&P Small Cap 600/BARRA Growth
38,070 Exchange Traded Fund 4,426,399
281,439 W Holding Co., Inc. 2,316,243
-----------
Total $59,025,038
===========
8 The accompanying notes are an integral part of these financial statements.
Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
Class I 12/31/05 12/31/04 (b) 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 23.78 $ 19.44 $ 13.60 $ 21.89 $ 18.81
------- ------- ------- -------- -------
Increase (decrease) from investment operations:
Net investment loss $ (0.01) $ (0.01) $ (0.02) $ (0.10) $ (0.10)
Net realized and unrealized gain (loss) on
investments 1.60 4.35 5.86 (8.12)(a) 3.67
------- ------- ------- -------- -------
Net increase (decrease) from investment
operations $ 1.59 $ 4.34 $ 5.84 $ (8.22) $ 3.57
------- ------- ------- -------- -------
Distributions to shareowners:
Net realized gain -- -- -- (0.07) (0.49)
------- ------- ------- -------- -------
Net increase (decrease) in net asset value $ 1.59 $ 4.34 $ 5.84 $ (8.29) $ 3.08
------- ------- ------- -------- -------
Net asset value, end of period $ 25.37 $ 23.78 $ 19.44 $ 13.60 $ 21.89
======= ======= ======= ======== =======
Total return* 6.69% 22.33% 42.94% (37.67)% 19.14%
Ratio of net expenses to average net assets 0.79% 0.81% 0.80% 0.79% 0.78%
Ratio of net investment loss to average net assets (0.02)% (0.06)% (0.16)% (0.58)% (0.53)%
Portfolio turnover rate 75% 19% 54% 38% 47%
Net assets, end of period (in thousands) $323,945 $383,468 $337,573 $245,954 $428,013
Ratios with no waiver of management fees and
assumption of expenses by PIM and no
reduction for fees paid indirectly:
Net expenses 0.80% 0.81% 0.80% 0.79% 0.78%
Net investment loss (0.03)% (0.06)% (0.16)% (0.58)% (0.53)%
Ratios with waiver of management fees and
assumption of expenses by PIM and reduction
for fees paid indirectly:
Net expenses 0.79% 0.81% 0.80% 0.79% 0.78%
Net investment loss (0.02)% (0.06)% (0.16)% (0.58)% (0.53)%
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions, the complete redemption of the
investment at net asset value at the end of each period.
(a) Includes $0.01 related to investment reimbursement by advisor. (Safeco
Asset Management)
(b) Effective August 2, 2004, PIM became the sub-advisor of the Fund and
subsequently became the advisor on December 10, 2004.
NOTE: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
The accompanying notes are an integral part of these financial statements. 9
Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (including securities loaned of $59,025,038)
(cost $319,697,486) $ 382,096,775
Cash 4,449,949
Receivables --
Fund shares sold 18,083
Dividends, interest and foreign taxes withheld 182,052
Other 129
-------------
Total assets $ 386,746,988
-------------
LIABILITIES:
Payables --
Fund shares repurchased $ 1,285,509
Upon return of securities loaned 61,463,181
Due to affiliates 13,174
Accrued expenses 39,929
-------------
Total liabilities $ 62,801,793
-------------
NET ASSETS:
Paid-in capital $ 276,291,420
Accumulated net realized loss on investments (14,745,514)
Net unrealized gain on:
Investments 62,399,289
-------------
Total net assets $ 323,945,195
-------------
NET ASSET VALUE PER SHARE:
Class I:
(No par value, unlimited number of shares authorized)
Net assets $ 323,945,195
Shares outstanding 12,767,152
-------------
Net asset value per share $ 25.37
10 The accompanying notes are an integral part of these financial statements.
Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year
Ended
12/31/05
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $16,591) $ 2,043,652
Interest 439,182
Income on securities loaned, net 131,496
-------------
Total investment income $ 2,614,330
-------------
EXPENSES:
Management fees $ 2,517,802
Transfer agent fees and expenses 1,501
Administrative reimbursements 72,042
Custodian fees 36,436
Professional fees 41,034
Printing expense 22,700
Fees and expenses of nonaffiliated trustees 6,610
Miscellaneous 3,790
-------------
Total expenses $ 2,701,915
Less management fees waived and expenses assumed by Pioneer Investment
Management, Inc. (18,971)
-------------
Net expenses $ 2,682,944
-------------
Net investment loss $ (68,614)
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from:
Investments $ 74,701,451
-------------
Change in net unrealized gain or loss from:
Investments $ (54,760,663)
-------------
Net gain on investments $ 19,940,788
=============
Net increase in net assets resulting from operations $ 19,872,174
=============
The accompanying notes are an integral part of these financial statements. 11
Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Year
Ended Ended
12/31/05 12/31/04
FROM OPERATIONS:
Net investment loss $ (68,614) $ (191,294)
Net realized gain on investments 74,701,451 579,315
Change in net unrealized gain or loss on investments (54,760,663) 71,554,233
------------- -------------
Net increase in net assets resulting from operations $ 19,872,174 $ 71,942,254
------------- -------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 9,685,009 $ 48,727,340
Cost of shares repurchased (89,080,383) (74,774,095)
------------- -------------
Net decrease in net assets resulting from Fund share transactions $ (79,395,374) $ (26,046,755)
------------- -------------
Net increase (decrease) in net assets $ (59,523,200) $ 45,895,499
NET ASSETS:
Beginning of year 383,468,395 337,572,896
------------- -------------
End of year $ 323,945,195 $ 383,468,395
============= =============
Undistributed Net Investment Income, end of year $ -- $ --
------------- -------------
12 The accompanying notes are an integral part of these financial statements.
Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer Growth Opportunities VCT Portfolio (the Portfolio) is a Portfolio
of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust
registered under the Investment Company Act of 1940 as an open-end management
investment company. The Trust consists of twenty nine separate diversified
portfolios, fourteen of which issue both Class I and Class II shares
(collectively, the "Portfolios", individually the "Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares
only)
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts, or
by qualified pension and retirement plans.
The Portfolio is the successor to the Safeco RST Growth Opportunities
Portfolio. Safeco RST Growth Opportunities Portfolio, one of six portfolios
that comprised Safeco Resource Series Trust, transferred all of the net assets
to the portfolio in exchange for the Portfolio's Class I shares in a one-to-one
exchange ratio, on December 10, 2004, pursuant to an agreement and plan of
reorganization (the "reorganization" which was approved by the shareholders of
Safeco RST Growth Opportunities Portfolio on December 8, 2004). The Portfolio
had no assets or liabilities prior to the reorganization. Accordingly, the
reorganization, which was a tax-free exchange, had no effect on the Portfolio's
operations.
The Growth Opportunities VCT Portfolio seeks capital appreciation.
The financial statements and financial highlights of all other Portfolios are
presented in separate books.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
years. Actual results could differ from those estimates. The following is a
summary of significant accounting policies consistently followed by the
Portfolio
13
Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
in the preparation of its financial statements, which are consistent with those
generally accepted in the investment company industry:
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the Portfolio are computed once daily, on each day the New York Stock
Exchange (NYSE) is open, as of the close of regular trading on the NYSE. In
computing the net asset values, securities are valued at the last sale
price on the principal exchange where they are traded. Securities that have
not traded on the date of valuation, or securities for which sale prices
are not generally reported, are valued at the mean between the last bid and
asked prices. The Portfolio also may use the fair value of a security,
including a non-U.S. security, when the closing market price on the primary
exchange where the security is traded no longer accurately reflects the
value of the security as of the close of the NYSE. At December 31, 2005,
there were no fair valued securities. Temporary cash investments are valued
at amortized cost.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities where the ex-dividend date may have
passed are recorded as soon as the Portfolio becomes aware of the
ex-dividend data in the exercise of reasonable diligence. Interest income,
including interest on income bearing cash accounts, is recorded on the
accrual basis.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes on capital gains at
the applicable country rates.
Investments in small companies may offer the potential for higher returns,
but are also subject to greater short-term price fluctuations than larger,
more established companies. Investing in foreign and/or emerging markets
securities involves risks relating to interest rates, currency exchange
rates, economic, and political conditions. The Portfolio may invest a
substantial amount of its assets in issuers located in a limited number of
countries and therefore is more susceptible to adverse developments
affecting those countries. Information regarding the Portfolio's principal
investment risks is contained in the Portfolio's prospectus. Please refer
to those documents when considering the Portfolio's risks.
B. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal
income tax rules. Therefore, the source of the Portfolio's distributions
may be shown in the accompanying financial statements as either from, or in
excess of, net investment income or net realized gain on investment
transactions, or from paid-in capital, depending on the type of book/tax
differences that may exist.
Capital loss carryforwards are available to offset future realized capital
gains. At December 31, 2005, Growth Opportunities Portfolio had a net
capital loss carryforward of $14,745,514, of which the following amounts
will expire between 2011 and 2012, if not utilized: $14,496,308 in 2011 and
$249,206 in 2012.
At December 31, 2005, the Portfolio made reclassifications as described
below. These reclassifications have no impact on the net asset value of the
Portfolio and are designed to present the Portfolio's capital accounts on a
tax basis.
- ------------------------------------------------------------------------------------------
Undistributed Accumulated
Net Investment Net Realized
Portfolio Income (Loss) Gain (Loss) Paid-In Capital
- ------------------------------------------------------------------------------------------
Growth Opportunities Portfolio $68,614 $-- $ (68,614)
- ------------------------------------------------------------------------------------------
14
Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following chart shows the components of distributable earnings
(accumulated losses) as of December 31, 2005.
There were no distributions paid during the fiscal years ended December 31,
2005 and 2004.
- ----------------------------------------------------------------------------------
Pioneer Growth
Opportunities
VCT Portfolio
2005
- ----------------------------------------------------------------------------------
Distributable Earnings (Accumulated Losses):
Undistributed ordinary income $ --
Undistributed long-term gain/(capital loss carryforward) (14,745,514)
Unrealized appreciation (depreciation) 62,399,289
-----------
Total $47,653,775
===========
- ----------------------------------------------------------------------------------
C. Portfolio Shares
The Portfolio records sales and repurchases of its portfolio shares as of
trade date. Certain insurance companies paid Pioneer Funds Distributor,
Inc. (PFD), the principal underwriter for the Trust and a wholly owned
indirect subsidiary of UniCredito Italiano S.p.A. (Unicredito Italiano),
$638,021 in commissions on the sale of Trust shares for the year ended
December 31, 2005.
D. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees. The Portfolio also continues to receive
interest or dividends on the securities loaned, and gain or loss in the
fair value of the securities loaned that may occur during the term of the
loan, will be for the account of the Portfolio. The loans are secured by
collateral of at least 102%, at all times, of the fair value of the
securities loaned. The fair value of the collateral will be adjusted daily
to reflect any price fluctuation in the value of the loaned securities. The
Portfolio has the right under the lending agreement to recover the
securities on loan from the borrower on demand. The Portfolio invests cash
collateral in the Securities Lending Investment Fund which is sponsored by
Brown Brothers Harriman & Co., the Trust's custodian.
E. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano, manages the
portfolio. Management fees are calculated at the annual rate of 0.74% of the
Portfolio's average daily net assets.
Prior to the reorganization, the Portfolio was advised by Safeco Asset
Management, which received an annual fee equal to 0.74% of its average daily
net assets.
Through December 10, 2006, PIM has agreed not to impose all or a portion of its
management fee and to assume other operating expenses of the Portfolio to the
extent necessary to limit Class I expenses to 0.79% of the average daily net
assets attributable to Class I shares.
In addition, under the management and administration agreements, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $13,048 was payable
to PIM related to management fees, administrative reimbursements and certain
other services, and is included in due to affiliates.
3. Transfer Agent
Since the reorganization, Pioneer Investment Management Shareholder Services,
Inc. (PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano
provides substantially all transfer agent and shareowner services to the Trust
at
15
Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
negotiated rates. Included in due to affiliates is $126 in transfer agent fees
payable to PIMSS at December 31, 2005. Prior to the reorganization Safeco
Services Corporation was the Transfer and Shareholder Servicing agent.
4. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- -----------------------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- -----------------------------------------------------------------------------------------------------------
Growth Opportunities Portfolio $319,697,486 $77,481,033 $ (15,081,744) $62,399,289
============ =========== ============== ===========
- -----------------------------------------------------------------------------------------------------------
5. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were $247,751,362 and $285,304,163, respectively.
6. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows for the
fiscal years ended December 31, 2005 and December 31, 2004:
- ----------------------------------------------------------------------------------------------------------------
Growth Opportunities Portfolio '05 Shares '05 Amount '04 Shares '04 Amount
- ----------------------------------------------------------------------------------------------------------------
Safeco Trust Shares:
Shares sold -- Safeco -- -- 2,250,905 $ 46,344,246
Shares repurchased-Safeco -- -- (3,399,953) (70,300,296)
Shares transferred in reorganization -- -- (16,214,763) (374,885,314)
Class I:
Shares Sold 406,285 $ 9,685,009 101,479 $ 2,383,096
Shares repurchased (3,765,592) (89,080,383) (189,783) (4,473,799)
Shares issued in reorganization -- -- 16,214,763 374,885,312
-------------------------------------------------------------------
Net decrease (3,359,307) $ (79,395,374) (1,237,352) $ (26,046,755)
===================================================================
- ----------------------------------------------------------------------------------------------------------------
16
Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust
and the Shareowners of Pioneer Growth Opportunities VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer Growth Opportunities VCT Portfolio, one
of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust"),
as of December 31, 2005, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005, by correspondence
with the custodian. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer Growth Opportunities VCT Portfolio of the Pioneer Variable Contracts
Trust at December 31, 2005, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended, in conformity with U.S. generally accepted accounting
principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
17
Pioneer Growth Opportunities VCT Portfolio(the "Fund")
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING
THE MANAGEMENT CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") voting
separately annually; approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect of the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareowners.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three, five and ten year
periods and life of the Fund periods for the Fund and a peer group selected by
the Independent Trustees for this purpose, (2) management and other fees
incurred by a peer group of funds selected by the Independent Trustees for this
purpose, (3) the advisory fees of comparable portfolios of other clients of the
Investment Adviser, (4) expense ratios for the Fund and a peer group of funds
selected by the Independent Trustees for this purpose, (5) the overall
organization of the Investment Adviser, (6) the Investment Adviser's financial
results and condition, including its and certain of its affiliates
profitability from services performed for the Fund, (7) transfer agency fees
and administrative reimbursements paid to the Investment Adviser or affiliates,
(8) investment management staffing, and (9) operating expenses paid to third
parties. The Trustees also reviewed information regarding the potential for the
Fund and the Investment Adviser to benefit from further economies of scale in
the management of the Fund in light of reasonable growth expectations for the
Fund and certain of the Fund's expenses that are not incurred as fees based on
a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to
shareowners of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareowner services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements.
18
Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Trustees also reviewed the Fund's investment performance based upon
total return, as well as the Fund's performance compared to both the
performance of a peer group and an index, in each case selected by the
Independent Trustees for this purpose. The Fund's performance based upon
total return was in the third quintile of the peer group for the 12 months
ended June 30, 2005, the third quintile of the peer group for the three
years ended June 30, 2005, the third quintile for the five years ended June
30, 2005 an second quintile for the ten year ended June 30, 2005. (In all
quintile rankings referred to throughout this discussion first quintile is
most favorable to the Fund's shareowners. Thus, highest relative
performance would be first quintile and lowest relative expenses also would
be first quintile.) The Trustees concluded that the performance of the Fund
supported the continuation of the Management Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The
Independent Trustees also have had discussions with senior management of
the Investment Adviser responsible for investment operations and the senior
management of the Investment Adviser's equities group. Among other things,
the Trustees considered the number, education and experience of the
Investment Adviser's investment staff and their use of technology and
emphasis on analytics in view of the risk profile of securities in which
the Fund invests. The Trustees concluded that the Investment Adviser had
the quality and depth of personnel and the well-developed methods essential
to performing its duties under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareowners of the
Fund, including administrative and shareowner services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision
of third party service providers. Based on these considerations, the
Trustees concluded that the nature, quality, cost and extent of such
services are satisfactory and reliable and serve the shareowners of the
Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the second
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
considered the Fund's expense ratio and expense ratios of a peer group of
funds selected by the Independent Trustees for this purpose. The Fund's
expense ratio for the 12 months ended June 30, 2005 was in the second
quintile of the applicable peer group for the most recent fiscal year of
the peer group for the comparable period. The Trustees concluded that the
Fund's overall expense ratio was reasonable compared to that of comparable
funds.
F. Profitability. The Trustees considered the level of the Investment
Adviser's profits with respect to the management of the Pioneer Funds,
including details with respect to the Fund. This consideration included a
review of the Investment Adviser's methodology in allocating certain of its
costs to the management of each Fund. The Trustees also considered the
financial results realized by the Investment Adviser in connection with the
operation of the Fund. They further considered the profits realized by the
Investment Adviser and its affiliates from non-fund businesses that may
benefit from or be related to the Fund's business. The Trustees considered
the Investment Adviser's profit margins in comparison with the limited
available industry data. The Trustees concluded that the Investment
Adviser's profits from management of the Pioneer Funds, including the
financial results derived from the Fund, bear a reasonable relationship to
the services rendered and are fair for the management of the Fund.
19
Pioneer Growth Opportunities VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING
THE MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. The Trustees concluded that,
given current and anticipated assets levels, a break point in the
management fee was not necessary at this time. As the assets increase, the
Trustees will continue to evaluate annually the appropriateness of break
points.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareowner services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect of the Pioneer Funds (including the Fund), and
benefits to the Investment Adviser from the use of "soft" commission
dollars to pay for research services. The Trustees further considered the
revenues and profitability of the Investment Adviser's businesses other
than the fund business, including the Investment Adviser's institutional
investment advisory business. The Trustees considered the intangible
benefits that accrue to the Investment Adviser and its affiliates by virtue
of its relationship with the Fund and the Pioneer Funds as a group. The
Trustees concluded that all these types of benefits accruing to the
Investment Adviser were reasonable in the context of the overall
relationship between the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
20
Pioneer Growth Opportunities VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
21
Pioneer Growth Opportunities VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held
Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance
or earlier services company) (2001-present); company); Director of New York
retirement or Managing Partner, Federal City Mortgage Trust (publicly traded
removal. Capital Advisors (boutique merchant mortgage REIT)
bank) (2002 to 2004); Executive
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products
or earlier manufacturer), Mortgage Guaranty
retirement or Insurance Corporation, and Briggs
removal. & Stratton, Inc. (engine
manufacturer)
- ----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
22
Pioneer Growth Opportunities VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
23
Pioneer Growth Opportunities VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, None
Treasurer 2000. Serves at the Assistant Vice President - Fund
discretion of the Accounting, Administration and
Board. Custody Services of Pioneer; and
Assistant Treasurer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ---------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ---------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
24
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
25
[LOGO]PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company, Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18682-00-0206
[Logo] PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Small Cap Value II VCT Portfolio - Class I Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
T a b l e o f C o n t e n t s
- --------------------------------------------------------------------------------
Pioneer Small Cap Value II VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 5
Financial Statements 8
Notes to Financial Statements 12
Report of Independent Registered Public
Accounting Firm 16
Factors Considered by the Independent Trustees in
Approving the Management Contract 17
Trustees, Officers and Service Providers 20
Before investing, consider the Portfolio's investment objectives, risks,
charges and expenses. Contact your advisor or Pioneer Investments for a
prospectus containing this information. Please read it carefully.
The Trust files a complete statement of investments with the Securities and
Exchange Commission for the first and the third quarters for each fiscal year
on Form N-Q. Shareowners may view the filed Form N-Q by visiting the
Commission's web site at http://www.sec.gov. The filed form may also be viewed
and copied at the Commission's Public Reference Room in Washington, D.C.
Information regarding the operations of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Portfolio Diversification
(As a percentage of total investment portfolio)
U.S. Common Stocks 89.1%
Temporary Cash Investment 7.5%
Depository Receipts for International Stocks 1.9%
International Common Stocks 1.5%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution
(As a percentage of equity holdings)
Financials 36.0%
Information Technology 17.1%
Consumer Discretionary 16.3%
Industrials 14.8%
Energy 6.2%
Materials 3.4%
Consumer Staples 2.8%
Utilities 1.4%
Health Care 1.0%
Telecommunication Services 1.0%
Five Largest Holdings
(As a percentage of equity holdings)
1. Astec Industries, Inc. 2.53%
2. Lone Star
Technologies, Inc. 2.46
3. Ameristar Casinos, Inc. 2.41
4. Central Pacific
Financial Corp. 2.40
5. Landstar System, Inc. 2.39
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 23.33 $ 20.44
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.1300 $ - $ 0.0178
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Small Cap Value II VCT Portfolio at net asset value, compared to that of the
Russell 2000 Value Index. Portfolio returns are based on net asset value and do
not reflect any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Small Cap Value II VCT Portfolio Russell 2000 Value Index
Apr-97 10000 10000
12840 13020
10278 12180
Dec-99 11861 11999
11147 14737
Dec-1 13504 16804
12888 14884
Dec-3 18402 21735
22507 26570
Dec-5 25870 27821
The Russell 2000 Value Index is a measure of the performance of the
value-oriented stocks in the Russell 2000 Index. Index returns are calculated
monthly, assume reinvestment of dividends and, unlike Portfolio returns, do not
reflect any fees, expenses or sales charges. You cannot invest directly in the
Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Life-of-Class 11.59%
(4/30/97)
5 Years 18.34%
1 Year 14.94%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
2
Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value [divided by] $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Small Cap Value II VCT
Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class I
- --------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,104.13
Expenses Paid During Period* $ 5.14
* Expenses are equal to the Portfolio's annualized expense ratio of 0.97% for
Class I shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer Small Cap Value II VCT
Portfolio
Based on a hypothetical 5% return per year before expenses, reflecting the
period from July 1, 2005 through December 31, 2005.
Share Class I
- ---------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,020.32
Expenses Paid During Period* $ 4.94
* Expenses are equal to the Portfolio's annualized expense ratio of 0.97% for
Class I shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
David Adams, portfolio manager, and Jack McPherson, assistant portfolio
manager, have managed Pioneer Small Cap Value II VCT Portfolio since Pioneer
became the investment manager of the former SAFECO Funds.
Q. How did the Portfolio perform over this period?
A. For the twelve months ended December 31, 2005, Pioneer's Small Cap Value II
VCT Portfolio returned 14.94% at net asset value. The results far
outdistanced the 4.71% return on the Russell 2000 Value Index, the
Portfolio's benchmark, for the same period.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
Q. Please describe the investment environment for small-cap value stocks during
the first half of 2005.
A. Uncertainty about the possible impacts of high energy prices, rising
interest rates and the strengthening U.S. dollar kept equity markets
confined to a narrow range. Large companies led the market for a short
time, but solid earnings growth soon drew market participants to
smaller-cap issues.
The Portfolio's results support our basic view that, interest rates and
energy costs aside, an expanding economy creates opportunities for
well-managed small companies to increase profits substantially.
Q. What stocks or sectors contributed to performance?
A. The boom in homebuilding fed strong results at Building Materials Holding,
which provides materials and construction services to contractors. We took
some profits in this position when valuations surpassed our targets. The
hot building market also boosted Beazer Homes, whose designs target new
buyers and other demographic segments in some of the country's busiest
housing markets.
In the industrial sector, an upturn in orders for new aircraft benefited
Precision Castparts, a low-cost provider of castings to the commercial
aerospace market. Increased spending on infrastructure boosted demand for
Astec Industries' road-building equipment, adding to revenues and earnings.
And United Defense Systems was acquired by BAE Systems, Europe's largest
defense contractor.
Lone Star Technologies moved higher as rising energy prices stimulated
drilling activity, and bolstered demand for its welded pipes and casings.
World Fuel, which serves airline clients through airport-based jet refueling
facilities around the world, also saw earnings rise.
Q. What were some of the period's disappointments?
A. Sluggish trends among orthopedic and prosthetic care centers caused shares
of Hanger Orthopedic Group to decline. Amerigroup, a managed health care
company, also disappointed. Cash America, which makes high-risk,
high-interest payday loans, was the period's worst performer. The Texas
legislature's failure to enact legislation that would have provided greater
operating flexibility was the key factor.
In technology, Plantronics, makers of headsets for telecommunications
devices, declined after a long upward run. Sensient Technologies, suppliers
of flavors and fragrances for food and beverages, as well as inks and
chemicals for computer peripherals, experienced a sub-par year. We
eliminated Impac Mortgage, a real estate investment trust, when weakness in
the housing market pressured shares.
Q. What is your outlook for the economy and how have you positioned the
Portfolio?
A. We think that good stocks bought at prices that appear reasonable should do
well in the moderate-growth environment that we foresee. Compelling ideas
continue to emerge in the technology arena, where we have increased the
Portfolio's exposure. We are also adding some financial stocks, while
scaling back others. On the other hand, we are not finding good value among
consumer-discretionary issues, a sector that could feel pressure if
households reduce spending in the face of big energy bills and rising
interest rates. Persistent demand and high prices make us comfortable with
our current large exposure to energy stocks; we would view any sharp
decline in this sector as an opportunity. Finally, we will continue to
employ our proven discipline in an effort to ferret out superior
opportunities, and take profits as valuations approach our targets.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Portfolio's historical or future performance are
statements of the opinion of Portfolio management as of the date of this
report. These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
A Word About Risk:
Investments in small companies may offer the potential for higher returns, but
are also subject to greater short-term price fluctuations than larger, more
established companies.
The Portfolio invests in REIT securities, the value of which can fall for a
variety of reasons, such as declines in rental income, fluctuating interest
rates, poor property management, environmental liabilities, uninsured damage,
increased competition, or changes in real estate tax laws. At times, the
Portfolio's investments may represent industries or industry sectors that are
interrelated or have common risks, making it more susceptible to any economic,
political, or regulatory developments or other risks affecting those industries
and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
COMMON STOCKS - 99.2%
Energy - 6.1%
Integrated Oil & Gas - 0.6%
11,900 CNX Gas Corp. (144A)* $ 246,925
-----------
Oil & Gas Drilling - 0.4%
8,500 Bronco Drilling Co., Inc.* $ 195,585
-----------
Oil & Gas Equipment & Services - 4.2%
57,900 Key Energy Services, Inc.* $ 779,913
21,050 Lone Star Technologies, Inc.* 1,087,443
-----------
$ 1,867,356
-----------
Oil & Gas Exploration & Production - 0.9%
2,800 Forest Oil Corp.* $ 127,596
19,000 Riata Energy, Inc. (144A)* 289,750
-----------
$ 417,346
-----------
Total Energy $ 2,727,212
-----------
Materials - 3.4%
Construction Materials - 1.5%
13,112 Florida Rock Industries, Inc. $ 643,275
-----------
Specialty Chemicals - 1.2%
30,950 Sensient Technologies Corp. $ 554,005
-----------
Steel - 0.7%
10,125 Schnitzer Steel Industries, Inc. $ 309,724
-----------
Total Materials $ 1,507,004
-----------
Capital Goods - 7.4%
Aerospace & Defense - 2.3%
7,337 NCI, Inc.* $ 100,737
18,225 Precision Castparts Corp. 944,237
-----------
$ 1,044,974
-----------
Construction & Engineering - 2.1%
24,600 URS Corp.* $ 925,206
-----------
Construction, Farm Machinery &
Heavy Trucks - 2.5%
34,250 Astec Industries, Inc.* $ 1,118,605
-----------
Electrical Component & Equipment - 0.5%
15,200 C&D Technologies, Inc. $ 115,824
18,500 Power-One, Inc.* 111,370
-----------
$ 227,194
-----------
Total Capital Goods $ 3,315,979
-----------
Commercial Services & Supplies - 0.2%
Human Resource & Employment
Services - 0.2%
5,000 Korn/Ferry International* $ 93,450
-----------
Total Commercial Services &
Supplies $ 93,450
-----------
Transportation - 7.0%
Air Freight & Couriers - 2.3%
40,075 Pacer International, Inc. $ 1,044,354
-----------
Shares Value
Marine - 0.9%
7,100 Eagle Bulk Shipping, Inc. $ 113,032
4,800 Genco Shipping & Trading, Ltd. 83,712
19,200 Quintana Maritime, Ltd. 195,456
-----------
$ 392,200
-----------
Trucking - 3.8%
14,675 Arkansas Best Corp. (a) $ 641,004
25,325 Landstar System, Inc. 1,057,066
-----------
$ 1,698,070
-----------
Total Transportation $ 3,134,624
-----------
Automobiles & Components - 0.3%
Tires & Rubber - 0.3%
9,000 Cooper Tire & Rubber* $ 137,880
-----------
Total Automobiles & Components $ 137,880
-----------
Consumer Durables & Apparel - 4.9%
Home Furnishings - 0.4%
7,925 Furniture Brands International, Inc. $ 176,965
-----------
Homebuilding - 3.8%
12,850 Beazer Homes USA, Inc. (a) $ 935,994
56,050 Champion Enterprises, Inc.* 763,401
-----------
$ 1,699,395
-----------
Housewares & Specialties - 0.7%
9,500 Jarden Corp.*(a) $ 286,425
-----------
Total Consumer Durables & Apparel $ 2,162,785
-----------
Consumer Services - 4.7%
Casinos & Gaming - 2.4%
47,000 Ameristar Casinos, Inc. $ 1,066,900
-----------
Restaurants - 1.0%
13,125 Jack In The Box, Inc.* $ 458,456
-----------
Specialized Consumer Services - 1.3%
15,275 Regis Corp. $ 589,157
-----------
Total Consumer Services $ 2,114,513
-----------
Retailing - 6.3%
Apparel Retail - 2.1%
39,625 Foot Locker, Inc. $ 934,754
-----------
Catalog Retail - 2.3%
51,950 Insight Enterprises, Inc.* $ 1,018,740
-----------
Distributors - 1.9%
12,425 Building Materials Holding Corp. (a) $ 847,509
-----------
Total Retailing $ 2,801,003
-----------
Food, Beverage & Tobacco - 1.1%
Tobacco - 1.1%
11,650 Universal Corp. $ 505,144
-----------
Total Food, Beverage & Tobacco $ 505,144
-----------
The accompanying notes are an integral part of these financial statements. 5
Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
Household & Personal Products - 1.7%
Personal Products - 1.7%
4,800 Herbalife, Ltd.* $ 156,096
33,000 Nu Skin Enterprises, Inc. 580,140
-----------
$ 736,236
-----------
Total Household & Personal
Products $ 736,236
-----------
Health Care Equipment & Services - 1.0%
Health Care Facilities - 0.4%
29,175 Hanger Orthopedic Group, Inc.* $ 166,589
-----------
Health Care Supplies - 0.4%
15,300 Merit Medical Systems, Inc.* $ 185,741
-----------
Managed Health Care - 0.2%
5,500 AMERIGROUP Corp.* $ 107,030
-----------
Total Health Care Equipment &
Services $ 459,360
-----------
Banks - 8.5%
Regional Banks - 5.9%
29,550 Central Pacific Financial Corp. $ 1,061,436
21,400 Greater Bay Bancorp 548,268
38,945 Hanmi Financial Corp. 695,558
6,968 Provident Bankshares Corp. 235,309
3,300 Southwest Bancorp, Inc.* 66,000
-----------
$ 2,606,571
-----------
Thrifts & Mortgage Finance - 2.6%
16,575 BankUnited Financial Corp. (a) $ 440,398
23,885 PFF Bancorp, Inc. 728,970
-----------
$ 1,169,368
-----------
Total Banks $ 3,775,939
-----------
Diversified Financials - 9.1%
Asset Management & Custody Banks - 2.0%
49,638 Apollo Investment Corp. $ 890,009
-----------
Consumer Finance - 5.2%
39,725 AmeriCredit Corp.* $ 1,018,152
44,100 Cash America International, Inc. 1,022,679
8,500 The First Marblehead Corp. (a) 279,310
-----------
$ 2,320,141
-----------
Investment Banking & Brokerage - 1.9%
40,975 SWS Group, Inc. $ 858,017
-----------
Total Diversified Financials $ 4,068,167
-----------
Insurance - 11.3%
Life & Health Insurance - 2.2%
7,200 American Equity Investment Life Holding* $ 93,960
18,000 Stancorp Financial Group, Inc. 899,100
-----------
$ 993,060
-----------
Shares Value
Multi-Line Insurance - 1.3%
58,200 Quanta Capital Holdings (144A)* $ 296,820
11,000 Quanta Capital Holdings* 280,500
-----------
$ 577,320
-----------
Property & Casualty Insurance - 5.8%
5,000 Assured Guaranty, Ltd. $ 126,950
12,200 First American Corp. 552,660
35,000 Ohio Casualty Corp. 991,200
18,000 RLI Corp. 897,660
-----------
$ 2,568,470
-----------
Reinsurance - 2.0%
12,000 IPC Holdings, Ltd. $ 328,560
13,100 Max Re Capital, Ltd. 340,207
6,900 Platinum Underwriter Holdings, Ltd. 214,383
-----------
$ 883,150
-----------
Total Insurance $ 5,022,000
-----------
Real Estate - 6.9%
Real Estate Management & Development - 1.1%
34,700 Deerfield Triarc Capital Corp. $ 475,390
-----------
Real Estate Investment Trusts - 5.8%
12,275 Alexandria Real Estate Equities, Inc. $ 988,138
11,875 Camden Property Trust 687,800
25,125 First Potomac Realty Trust 668,325
35,400 Hanover Capital Mortgage Holdings,
Inc. (a) 236,472
-----------
$ 2,580,735
-----------
Total Real Estate $ 3,056,125
-----------
Software & Services - 2.7%
Application Software - 2.5%
56,700 Aspen Technology, Inc.* $ 445,095
17,490 Bottomline Technologies, Inc.* 192,740
12,500 Sonic Solutions* 188,874
38,000 TIBCO Software, Inc.* 283,860
-----------
$ 1,110,569
-----------
Systems Software - 0.2%
15,500 Borland Software Corp.* $ 101,215
-----------
Total Software & Services $ 1,211,784
-----------
Technology Hardware & Equipment - 13.3%
Communications Equipment - 4.1%
15,425 Black Box Corp. $ 730,837
13,000 Dycom Industries, Inc.* 286,000
12,800 Plantronics, Inc. 362,240
51,300 Symmetricom, Inc.* 434,511
-----------
$ 1,813,588
-----------
Computer Hardware - 1.8%
14,700 Avid Technology, Inc.* $ 804,972
-----------
6 The accompanying notes are an integral part of these financial statements.
Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Computer Storage & Peripherals - 2.5%
27,125 Hypercom Corp.* $ 173,329
20,175 Imation Corp. 929,462
-----------
$ 1,102,791
-----------
Electronic Equipment & Instruments - 0.6%
6,400 Landauer, Inc. $ 294,976
-----------
Electronic Manufacturing Services - 2.4%
24,925 Benchmark Electronics, Inc.* $ 838,228
11,400 Mercury Computer Systems, Inc.* 235,182
-----------
$ 1,073,410
-----------
Technology Distributors - 1.9%
21,625 Anixter International, Inc.* $ 845,970
-----------
Total Technology Hardware &
Equipment $ 5,935,707
-----------
Semiconductors - 0.9%
Semiconductors - 0.9%
91,725 Lattice Semiconductor Corp.* $ 396,251
-----------
Total Semiconductors $ 396,251
-----------
Telecommunication Services - 1.0%
Integrated Telecommunication Services - 1.0%
44,700 Alaska Communications Systems
Group, Inc. $ 454,152
-----------
Total Telecommunication Services $ 454,152
-----------
Utilities - 1.4%
Electric Utilities - 1.4%
21,075 IDACORP, Inc. $ 617,498
-----------
Total Utilities $ 617,498
-----------
TOTAL COMMON STOCKS
(Cost $29,066,139) $44,232,813
-----------
Shares Value
TEMPORARY CASH INVESTMENTS - 8.1%
Security Lending Collateral - 8.1%
3,604,067 Securities Lending Investment
Fund, 4.24% $ 3,604,067
-----------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $3,604,067) $ 3,604,067
-----------
TOTAL INVESTMENT IN SECURITIES - 107.3%
(Cost $32,670,206) $47,836,880
-----------
OTHER ASSETS AND LIABILITIES - (7.3)% $(3,233,255)
-----------
TOTAL NET ASSETS - 100.0% $44,603,625
===========
* Non-income producing security.
144A Security is exempt from registration under Rule 144A of the Securities
Act of 1933. Such securities may be resold normally to qualified
institutional buyers in a transaction exempt from registration. At
December 31, 2005, the value of these securities amounted to $833,495 or
1.9% of total net assets.
(a) At December 31, 2005, the following securities were out on loan:
Shares Security Value
13,941 Arkansas Best Corp. $ 608,943
16,031 BankUnited Financial Corp. 425,944
12,700 Beazer Homes USA, Inc. 925,068
11,804 Building Materials Holding Corp. 804,088
12,160 The First Marblehead Corp. 399,578
5,200 Hanover Capital Mortgage Holdings, Inc. 34,736
9,025 Jarden Corp.* 272,104
----------
Total $3,470,461
==========
The accompanying notes are an integral part of these financial statements. 7
Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Class I 12/31/05 12/31/04(a) 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 20.44 $ 17.00 $ 12.16 $ 12.81 $ 10.68
------- ------- ------- ------- -------
Increase (decrease) from investment operations:
Net investment income $ 0.20 $ 0.10 $ 0.09 $ 0.07 $ 0.13
Net realized and unrealized gain (loss) on investments 2.84 3.68 5.10 ( 0.65) 2.13
------- ------- ------- ------- -------
Net increase (decrease) from investment operations $ 3.04 $ 3.78 $ 5.19 $ (0.58) $ 2.26
Distributions to shareholders:
Net investment income ( 0.13) -- ( 0.09) ( 0.07) ( 0.13)
Net realized gain ( 0.02) ( 0.34) ( 0.26) -- --
------- ------- ------- ------- -------
Net increase (decrease) in net asset value $ 2.89 $ 3.44 $ 4.84 $ (0.65) $ 2.13
------- ------- ------- ------- -------
Net asset value, end of period $ 23.33 $ 20.44 $ 17.00 $ 12.16 $ 12.81
======= ======= ======= ======= =======
Total return* 14.94% 21.33% 42.78% ( 4.56)% 21.15%+
Ratio of net expenses to average net assets 0.97% 1.01% 1.05% 1.03% 0.96%
Ratio of net investment income to average net assets 0.65% 0.57% 0.71% 0.54% 1.26%
Portfolio turnover rate 19% 27% 50% 56% 97%
Net assets, end of period (in thousands) $44,604 $57,463 $40,405 $24,663 $21,598
(a) Effective August 2, 2004, PIM became the sub-advisor of the Fund and
subsequently became the advisor on December 10, 2004.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
+ The total return would have been lower had certain expenses not been reduced
during the periods shown.
NOTE: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
8 The accompanying notes are an integral part of these financial statements.
Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (including securities loaned of $3,470,461) (cost $ 47,836,880
$32,670,206)
Cash 518,951
Receivables --
Investment securities sold 132,825
Fund shares sold 97,396
Dividends, interest and foreign taxes withheld 93,773
Other 14
------------
Total assets $ 48,679,839
------------
LIABILITIES:
Payables --
Investment securities purchased $ 247,116
Fund shares repurchased 183,986
Upon return of securities loaned 3,604,067
Due to affiliates 3,527
Accrued expenses 37,518
------------
Total liabilities $ 4,076,214
------------
NET ASSETS:
Paid-in capital $ 19,638,536
Undistributed net investment income 308,394
Accumulated net realized gain on investments 9,490,021
Net unrealized gain on:
Investments 15,166,674
------------
Total net assets $ 44,603,625
------------
NET ASSET VALUE PER SHARE:
Class I:
(No par value, unlimited number of shares authorized)
Net assets $ 44,603,625
Shares outstanding 1,911,974
------------
Net asset value per share $ 23.33
The accompanying notes are an integral part of these financial statements. 9
Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended
12/31/05
INVESTMENT INCOME:
Dividends $ 724,396
Interest 10,766
Income on securities loaned, net 6,391
------------
Total investment income $ 741,553
------------
EXPENSES:
Management fees $ 342,746
Transfer agent fees and expenses 1,501
Administrative reimbursements 18,512
Custodian fees 17,676
Professional fees 43,300
Printing expense 16,189
Fees and expenses of nonaffiliated trustees 3,756
Miscellaneous 1,175
------------
Total expenses $ 444,855
------------
Net investment income $ 296,698
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from:
Investments $ 9,585,443
------------
Change in net unrealized gain from:
Investments $ (4,376,717)
------------
Net gain on investments $ 5,208,726
============
Net increase in net assets resulting from operations $ 5,505,424
============
10 The accompanying notes are an integral part of these financial statements.
Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended Year Ended
12/31/05 12/31/04
FROM OPERATIONS:
Net investment income $ 296,698 $ 271,055
Net realized gain on investments 9,585,443 1,150,972
Change in net unrealized gain or loss on investments (4,376,717) 8,540,937
------------- -------------
Net increase in net assets resulting from operations $ 5,505,424 $ 9,962,964
------------- -------------
DISTRIBUTIONS TO SHAREOWNERS
Net investment income:
Class I $ (258,431) $ --
Net realized gain
Class I (35,385) (928,706)
------------- -------------
Total distributions to shareholders $ (293,816) $ (928,706)
------------- -------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 9,074,678 $ 19,072,784
Reinvestment of distributions 293,741 928,706
Cost of shares repurchased (27,439,578) (11,977,166)
------------- -------------
Net increase (decrease) in net assets resulting from Fund share transactions $ (18,071,159) $ 8,024,324
------------- -------------
Net increase (decrease) in net assets $ (12,859,551) $ 17,058,582
NET ASSETS:
Beginning of year 57,463,176 40,404,594
------------- -------------
End of year $ 44,603,625 $ 57,463,176
============= =============
Undistributed net investment income, end of year $ 308,394 $ 271,007
============= =============
The accompanying notes are an integral part of these financial statements. 11
Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer Small Cap Value II VCT Portfolio (the Portfolio) (formerly Safeco
Small-Cap Value Portfolio) is a Portfolio of Pioneer Variable Contracts Trust
(the Trust), a Delaware statutory trust registered under the Investment Company
Act of 1940 as an open-end management investment company. The Trust consists of
twenty nine separate diversified portfolios, fourteen of which issue both Class
I and Class II shares (collectively, the "Portfolios", individually the
"Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares
only)
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts, or
by qualified pension and retirement plans.
The Portfolio, organized on December 10, 2004, is the successor to the Safeco
RST Small Cap Value Portfolio. Safeco RST Small Cap Value Portfolio, one of six
portfolios that comprised Safeco Resource Series Trust, transferred all of its
net assets to the Portfolio in exchange for the Portfolio's Class I shares in a
one-to-one exchange ratio, on December 10, 2004, pursuant to an agreement and
plan of reorganization (the "reorganization" which was approved by the
shareholders of Safeco RST Small Cap Value Portfolio on December 8, 2004). The
Portfolio had no assets or liabilities prior to the reorganization.
Accordingly, the reorganization, which was a tax-free exchange, had no effect
on the Portfolio's operations.
The Small Cap Value II VCT Portfolio seeks capital appreciation.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
years. Actual results could differ from those estimates. The following is a
summary of significant accounting policies consistently followed by the
Portfolio, in the preparation of its financial statements, which are consistent
with those generally accepted in the investment company industry:
12
Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the Portfolio are computed once daily, on each day the New York Stock
Exchange (NYSE) is open, as of the close of regular trading on the NYSE. In
computing the net asset values, securities are valued at the last sale
price on the principal exchange where they are traded. Securities that have
not traded on the date of valuation, or securities for which sale prices
are not generally reported, are valued at the mean between the last bid and
asked prices. The Portfolio also may use the fair value of a security,
including a non-U.S. security, when the closing market price on the primary
exchange where the security is traded no longer accurately reflects the
value of the security as of the close of the NYSE. At December 31, 2005,
there were no securities fair valued. Temporary cash investments are valued
at amortized cost.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities where the ex-dividend date may have
passed are recorded as soon as the Portfolio becomes aware of the
ex-dividend data in the exercise of reasonable diligence. Interest income,
including interest on income bearing cash accounts, is recorded on the
accrual basis.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes on capital gains at
the applicable country rates.
Small capitalization stocks, while offering the potential for higher
returns, such as those held by the Portfolio may be subject to greater
short-term price fluctuations than securities of larger companies.
Information regarding the Portfolio's principal investment risks is
contained in the Portfolio's prospectus. Please refer to those documents
when considering the Portfolio's risks.
B. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal
income tax rules. Therefore, the source of the Portfolio's distributions
may be shown in the accompanying financial statements as either from, or in
excess of, net investment income or net realized gain on investment
transactions, or from paid-in capital, depending on the type of book/tax
differences that may exist.
At December 31, 2005, the Portfolio made reclassifications as described
below. These reclassifications have no impact on the net asset value of the
Portfolio and are designed to present the Portfolio's capital accounts on a
tax basis.
- ------------------------------------------------------------------------------------------
Undistributed Accumulated
Net Investment Net Realized
Portfolio Income (Loss) Gain (Loss) Paid-In Capital
- ------------------------------------------------------------------------------------------
Small Cap Value II Portfolio $(880) $880 $-
- ------------------------------------------------------------------------------------------
13
Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
The following chart shows the distributions paid during the years ended
December 31, 2005 and 2004 on a tax basis and the components of
distributable earnings as of December 31, 2005.
- --------------------------------------------------------------------------------
2005 2004
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ 258,431 $ 213,236
Long-Term capital gain 35,385 715,470
----------- ---------
$ 293,816 $ 928,706
Return of Capital -- --
----------- ---------
Total distributions $ 293,816 $ 928,706
=========== =========
Distributable Earnings
(Accumulated Losses):
Undistributed ordinary income $ 346,060
Undistributed long-term gain 9,496,069
Unrealized appreciation 15,122,960
-----------
Total $24,965,089
===========
- --------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is primarily attributable to the tax deferral of losses on
wash sales and return of capital dividends on REITs.
C. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Trust and a wholly owned indirect subsidiary
of UniCredito Italiano S.p.A. (Unicredito Italiano), $638,021 in
commissions on the sale of Trust shares for the year ended December 31,
2005.
D. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees. The Portfolio also continues to receive
payments in lieu of interest or dividends on the securities loaned. Gain or
loss in the fair value of the securities loaned that may occur during the
term of the loan, will be for the account of the Portfolio. The loans are
secured by collateral of at least 102%, at all times, of the fair value of
the securities loaned. The fair value of the collateral will be adjusted
daily to reflect any price fluctuation in the value of the loaned
securities. The Portfolio has the right under the lending agreement to
recover the securities on loan from the borrower on demand. The Portfolio
invests cash collateral in the Securities Lending Investment Fund which is
sponsored by Brown Brothers Harriman & Co., the Trust's custodian.
E. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano manages the
portfolio. Management fees are calculated at the annual rate of 0.75% of the
Portfolio's average daily net assets.
Prior to the reorganization, the Portfolio was advised by Safeco Asset
Management, which received an annual fee equal to 0.85% of its average daily
net assets.
Through December 10, 2006, PIM has agreed not to impose all or a portion of its
management fee and to assume other operating expenses of the Portfolio to the
extent necessary to limit Class I expenses to 1.01% of the average daily net
assets attributable to Class I shares.
In addition, under the management and administration agreements, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $3,401 was payable
to PIM related to management fees, administrative reimbursements and certain
other services, and is included in due to affiliates.
14
Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. Transfer Agent
Since the reorganization, PIMSS, a wholly owned indirect subsidiary of
UniCredito Italiano provides substantially all transfer agent and shareowner
services to the Trust at negotiated rates. Included in due to affiliates is
$126 in transfer agent fees payable to PIMSS at December 31, 2005. Prior to the
reorganization Safeco Services Corporation was the transfer and shareholder
services agency.
4. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- --------------------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- --------------------------------------------------------------------------------------------------------
Small Cap Value II Portfolio $32,713,920 $15,967,090 $ (844,130) $15,122,960
=========== =========== =========== ===========
- --------------------------------------------------------------------------------------------------------
5. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were $8,721,464 and $25,207,624, respectively.
6. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows for the
year ended December 31, 2005 and the year ended December 31, 2004:
- --------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Small Cap Value II Portfolio '05 Shares '05 Amount '04 Shares '04 Amount
- -----------------------------------------------------------------------------------------------------------------------
Safeco Trust Shares:
Shares sold -- Safeco -- $ -- 1,011,658 $ 18,295,281
Reinvestment of Distributions -- -- 47,480 928,706
Shares repurchased -- Safeco -- -- (637,527) (11,437,564)
Shares transferred in reorganization -- -- (2,800,798) (55,427,794)
Class I:
Shares Sold 415,681 9,074,678 38,614 777,503
Reinvestment of distributions 14,008 293,741 -- --
Shares repurchased (1,328,465) (27,439,578) (26,593) (539,602)
Shares issued in reorganization -- -- 2,800,798 55,427,794
--------------------------------------------------------------------------
Net increase (decrease) (898,776) $ (18,071,159) 433,632 $ 8,024,324
==========================================================================
- -----------------------------------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION (unaudited)
The qualifying percentage of certain Portfolios' ordinary income dividends for
the purposes of the corporate dividends received deduction and the percentage
of those ordinary dividends that are subject to a maximum tax rate of 15% as
provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were
as follows:
- --------------------------------------------------------------------------------
Dividend Qualified
Received Dividend
Deduction Income
- --------------------------------------------------------------------------------
Small Cap Value II Portfolio 100.00% 100.00%
- --------------------------------------------------------------------------------
15
Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust and
the Shareowners of Pioneer Small Cap Value II VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer Small Cap Value II VCT Portfolio, one
of the portfolios constituting Pioneer Variable Contracts Trust, (the "Trust"),
as of December 31, 2005, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005, by correspondence
with the custodian and brokers or by other appropriate auditing procedures
where replies from brokers were not received. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer Small Cap Value II VCT Portfolio of the Pioneer Variable Contracts
Trust at December 31, 2005, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and financial highlights for each of the five years in the period
then ended, in conformity with U.S. gen
erally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
16
Pioneer Small Cap Value II VCT Portfolio (the "Fund") PIONEER VARIABLE
CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for the one, three and five year periods
for the Fund and a peer group selected by the Independent Trustees for this
purpose, (2) management fees incurred by a peer group of funds selected by the
Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's
17
Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and an index,
in each case selected by the Independent Trustees for this purpose. The
Fund's performance based upon total return was in the first quintile of the
peer group for the 12 months ended June 30, 2005, the first quintile for the
three years ended June 30, 2005, and the first quintile for the five years
ended June 30, 2005. (In all quintile rankings referred to throughout this
discussion first quintile is most favorable to the Fund's shareholders.
Thus, highest relative performance would be first quintile and lowest
relative expenses also would be first quintile.) The Trustees concluded that
the performance of the Fund supported the continuation of the Management
Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's equities group. Among other things, the Trustees
considered the number, education and experience of the Investment Adviser's
investment staff and their use of technology and emphasis on analytics in
view of the risk profile of securities in which the Fund invests. The
Trustees concluded that the Investment Adviser had the quality and depth of
personnel and the well-developed methods essential to performing its duties
under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the third
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
considered the Fund's expense ratio and expense ratios of a peer group of
funds selected by the Independent Trustees for this purpose. The Fund's
expense ratio for the 12 months ended June 30, 2005 was in the fourth
quintile of the applicable peer group for the most recent fiscal year of the
peer group for the comparable period. The Trustees concluded that the Fund's
overall expense ratio was reasonable compared to that of comparably sized
funds.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. The Trustees concluded that,
given current and anticipated asset levels, a break point in the management
fee was not necessary at this time. As assets increase, the Trustees will
continue to evaluate annually the appropriateness of break points.
18
Pioneer Small Cap Value II VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund), and
benefits to the Investment Adviser from the use of "soft" commission dollars
to pay for research services. The Trustees further considered the revenues
and profitability of the Investment Adviser's businesses other than the fund
business, including the Investment Adviser's institutional investment
advisory business. The Trustees considered the intangible benefits that
accrue to the Investment Adviser and its affiliates by virtue of its
relationship with the Fund and the Pioneer Funds as a group. The Trustees
concluded that all these types of benefits accruing to the Investment
Adviser were reasonable in the context of the overall relationship between
the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
19
Pioneer Small Cap Value II VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
20
Pioneer Small Cap Value II VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held
Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance
or earlier services company) (2001-present); company); Director of New York
retirement or Managing Partner, Federal City Mortgage Trust (publicly traded
removal. Capital Advisors (boutique merchant mortgage REIT)
bank) (2002 to 2004); Executive
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products
or earlier manufacturer), Mortgage Guaranty
retirement or Insurance Corporation, and Briggs
removal. & Stratton, Inc. (engine
manufacturer)
- ----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
21
Pioneer Small Cap Value II VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
22
Pioneer Small Cap Value II VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, None
Treasurer 2000. Serves at the Assistant Vice President - Fund
discretion of the Accounting, Administration and
Board. Custody Services of Pioneer; and
Assistant Treasurer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ---------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ---------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
23
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
24
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
25
[Logo] PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company,
Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18657-00-0206
[LOGO] PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Money Market VCT Portfolio -- Class I Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
================================================================================
================================================================================
Table of Contents
- --------------------------------------------------------------------------------
Pioneer Money Market VCT Portfolio
Comparing Ongoing Portfolio Expenses 2
Portfolio and Performance Update 3
Schedule of Investments 4
Financial Statements 6
Notes to Financial Statements 10
Factors Considered by the Independent Trustees
in Approving the Management Contract 15
Trustees, Officers and Service Providers 18
Before investing, consider the Portfolio's investment objectives, risks, charges
and expenses. Contact your advisor or Pioneer Investments for a prospectus
containing this information. Read it carefully.
The Trust files a complete statement of investments with the Securities and
Exchange Commission for the first and the third quarters for each fiscal year on
Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's
web site at http://www.sec.gov. The filed form may also be viewed and copied at
the Commission's Public Reference Room in Washington, D.C. Information regarding
the operations of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
================================================================================
COMPARING ONGOING PORTFOLIO EXPENSES
================================================================================
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value [divided by] $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Money Market VCT Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005
Share Class I
- --------------------------------------------------------------------------------
Beginning Account Value on 7/1/05 $1,000.00
Ending Account Value on 12/31/05 $1,014.96
Expenses Paid During Period* $ 3.71
* Expenses are equal to the Portfolio's annualized expense ratio of 0.73% for
Class I shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer Money Market VCT Portfolio
Based on a hypothetical 5% per year return before expenses, reflecting the
period from July 1, 2005 through December 31, 2005
Share Class I
- --------------------------------------------------------------------------------
Beginning Account Value on 7/1/05 $1,000.00
Ending Account Value on 12/31/05 $1,021.53
Expenses Paid During Period* $ 3.72
* Expenses are equal to the Portfolio's annualized expense ratio of 0.73% for
Class I shares multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
2
Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
================================================================================
PORTFOLIO AND PERFORMANCE UPDATE 12/31/05
================================================================================
As the U.S. economy grew persistently throughout 2005, the U.S. Federal Reserve
continued to act aggressively to prevent any acceleration of inflationary
pressures by raising short-term rates. The Fed hiked the influential Fed Funds
rate eight different times during the year, each time by one-quarter of one
percent (25 basis points), to end the year at 4.25%. As a consequence, yields of
shorter-term securities, including money market instruments, also rose. Pioneer
Money Market VCT Portfolio currently invests exclusively in high-quality money
market instruments issued by the U.S. government and domestic corporations and
banks. All issues have the highest ratings from the two nationally recognized
ratings organizations: A1 by Standard & Poor's Investors Services and P1 by
Moody's Investor Services. (Ratings apply to underlying securities, not
Portfolio shares.)
In the following discussion, Andrew D. Feltus reviews the investment environment
and the strategies that affected Pioneer Money Market VCT Portfolio over the 12
months ended December 31, 2005. Mr. Feltus is a member of Pioneer's Fixed Income
Group, which is responsible for the daily management of the Portfolio.
Q. How did the Portfolio perform during 2005?
A. For the 12 months ended December 31, 2005, Class I shares of Pioneer Money
Market VCT Portfolio had a total return of 2.47% at net asset value. On
December 31, 2005, the Portfolio's seven-day effective yield for Class A
shares was 3.43%. Net asset value of Portfolio shares remained stable at
$1.00 throughout the year.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
Q. What were the principal factors that influenced Portfolio performance?
A. Despite intermittent worries about its health, the U.S. economy grew briskly
throughout the year. In response to the steady growth, the Federal Reserve
continued its policy of tightening monetary policy by hiking rates eight
different times in 2005. The Fed Funds rate ended the year at 4.25%, or 325
basis points higher than the 1.00% level when the Fed started its rate hike
cycle in June 2004. Rising energy and commodity prices and the weakening of
the U.S. dollar in relation to major foreign currencies all were factors that
encouraged the Fed to raise rates and head off any significant increase in
general inflationary pressures. As the year ended, the Fed began to hint that
it might be nearing the end of its rate increases, although at least one
further hike was anticipated in 2006.
The higher rates constituted good news to money market fund investors, as
yields at the end of the year were significantly higher than they were 12
months and 18 months earlier. In light of the steady increases in short-term
rates, we reduced the Portfolio's average maturity and duration so that we
could take advantage of opportunities to invest at higher rates as they
became available. The average maturity of the Portfolio's investments at the
end of 2005 was just 54.5 days. We maintained our policy of investing in only
very high-quality securities and we had no credit problems during the year.
Q. What is your investment outlook?
A. As we enter 2006, the Federal Reserve appears to be closer to the end of its
cycle of interest rate hikes than the beginning. We certainly don't expect
that the Fed will be as aggressive in the next year as it has been for the
past 18 months. As we get further into 2006 and it is evident that the
Federal Reserve is acting more cautiously, we will expect to increase the
Portfolio's overall duration somewhat with an eye toward adding more yield to
the portfolio. We expect to continue to invest in only very high-quality
securities.
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 1.00 $ 1.00
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.025 $ - $ -
A Word About Risk:
Although the Portfolio seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the Portfolio. Portfolio
shares are not federally insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other government agency.
Investing in foreign and/or emerging markets securities involves risks relating
to interest rates, currency exchange rates, economic, and political conditions.
At times, the Portfolio's investments may represent industries or industry
sectors that are interrelated or have common risks, making it more susceptible
to any economic, political, or regulatory developments or other risks affecting
those industries and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost. The
returns for the Portfolio do not reflect the deduction of expenses associated
with variable products, such as mortality and expense risk charges, separate
account charges, and sales charges. These expenses would reduce the overall
returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
- -----------------------------
Average Annual Total Returns
(As of December 31, 2005)
=============================
Net Asset Value
=============================
10 Years 3.20%
5 Years 1.65%
1 Year 2.47%
All total returns shown assume reinvestment of distributions at net asset value.
* Portfolio performance does not reflect any variable contract fees, expenses or
sales charges. If they had been included, performance would have been lower.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Portfolio's historical or future performance are
statements of the opinion of Portfolio management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
3
Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
================================================================================
SCHEDULE OF INVESTMENTS 12/31/05
================================================================================
Principal
Amount Value
COLLATERALIZED MORTGAGE
OBLIGATIONS - 3.0%
Banks - 3.0%
Thrifts & Mortgage Finance - 3.0%
$ 981,854 Federal Home Loan Mortgage Corp.
Multifamily VRD Certificate, 4.13%,
1/15/42 $ 981,854
-----------
TOTAL COLLATERALIZED
MORTGAGE OBLIGATIONS
(Cost $981,854) $ 981,854
-----------
CORPORATE BONDS - 54.3%
Capital Goods - 3.9%
Industrial Conglomerates - 3.9%
500,000 General Electric Capital Corp.,
Floating Rate Note, 10/17/06 $ 500,000
800,000 GE Capital Corp., Floating Rate
Note, 1/9/07 800,000
-----------
Total Capital Goods $ 1,300,000
-----------
Commercial Services & Supplies - 4.5%
Office Services & Supplies - 4.5%
1,500,000 Pitney Bowes, Inc., 5.875%, 5/1/06 $ 1,509,960
-----------
Total Commercial Services &
Supplies $ 1,509,960
-----------
Automobiles & Components - 4.5%
Automobile Manufacturers - 4.5%
1,500,000 Toyota Motor Credit, Floating Rate
Note, 6/23/06 $ 1,500,143
-----------
Total Automobiles & Components $ 1,500,143
-----------
Food & Drug Retailing - 2.3%
Hypermarkets & Supercenters - 2.3%
750,000 Wal-Mart Stores, Floating Rate
Note, 3/16/06 $ 749,846
-----------
Total Food & Drug Retailing $ 749,846
-----------
Pharmaceuticals & Biotechnology - 4.5%
Pharmaceuticals - 4.5%
1,000,000 Abbott Laboratories, 5.625%, 7/1/06 $ 1,006,960
500,000 Pfizer Inc., 5.625%, 2/1/06 500,985
-----------
$ 1,507,945
-----------
Total Pharmaceuticals &
Biotechnology $ 1,507,945
-----------
Principal
Amount Value
Banks - 7.6%
Diversified Banks - 7.6%
$ 1,000,000 Bank of America Corp., 7.125%,
5/1/06 $ 1,010,866
1,000,000 Wells Fargo & Co., Floating Rate
Note, 3/3/06 1,000,199
500,000 Wells Fargo & Co., Floating Rate
Note, 6/12/06 500,217
-----------
$ 2,511,282
-----------
Total Banks $ 2,511,282
-----------
Diversified Financials - 27.0%
Consumer Finance - 6.8%
1,000,000 SLM Corp., Floating Rate Note,
3/15/06 $ 1,000,437
500,000 SLM Corp., Floating Rate Note,
4/25/06 500,312
250,000 National Rural Utilities, 6.0%, 5/15/06 252,037
500,000 National Rural Utilities, Floating Rate
Note, 2/17/06 499,992
-----------
$ 2,252,778
-----------
Investment Banking & Brokerage - 20.2%
1,000,000 Merrill Lynch, Floating Rate
Note, 1/11/07 $ 1,000,158
1,000,000 Merrill Lynch & Co., Floating Rate
Note, 3/17/06 1,000,167
1,500,000 Lehman Brothers Holdings,
6.25%, 5/15/06 1,513,708
1,500,000 Credit Suisse First Boston, Floating
Rate Note, 6/19/06 1,502,080
1,700,000 Morgan Stanley Dean Witter, Floating
Rate Note, 3/27/06 1,701,259
-----------
Total Diversified Financials $ 6,717,372
-----------
TOTAL CORPORATE BONDS
(Cost $18,049,326) $18,049,326
-----------
4 The accompanying notes are an integral part of these financial statements.
Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
================================================================================
================================================================================
Principal
Amount Value
TEMPORARY CASH INVESTMENTS - 47.1%
Commercial Paper - 38.7%
$ 1,000,000 Coca Cola Co., 4.25%, 2/27/06 $ 993,271
1,500,000 Deutsche Bank Financial LLC,
4.31%, 1/30/06 1,494,792
1,500,000 Federal Home Loan Bank,
4.05%, 1/27/06 1,495,612
3,307,000 Federal Home Loan Mortgage
Corp., 4.162%, 1/31/06 3,295,519
1,000,000 Federal Home Loan Mortgage
Corp., 4.165%, 1/3/06 999,768
1,500,000 Federal Home Loan Mortgage
Corp., 4.17%, 2/7/06 1,494,231
1,000,000 Federal Home Loan, Zero
Coupon, 1/13/06 998,607
1,500,000 Minnesota Mining & Manufacturing,
4.15%, 2/2/06 1,494,467
585,000 Paccar Financial Corp., 4.32%,
2/28/06 580,928
-----------
$12,847,195
-----------
Principal
Amount Value
Repurchase Agreement - 8.4%
$ 2,800,000 UBS Warburg, Inc., 3.25% dated
12/30/05, repurchase price of
$2,800,000 plus accrued interest on
1/3/06, collateralized by $2,919,000,
U.S. Treasury Bill, 6/29/06 $ 2,800,000
-----------
TOTAL TEMPORARY CASH
INVESTMENTS
(Cost $15,647,195) $15,647,195
-----------
TOTAL INVESTMENTS IN
SECURITIES - 104.4%
(Cost $34,678,375) $34,678,375
-----------
OTHER ASSETS
AND LIABILITIES - (4.4%) $(1,462,280)
-----------
TOTAL NET ASSETS - 100.0% $33,216,095
-----------
The accompanying notes are an integral part of these financial statements. 5
Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
================================================================================
FINANCIAL HIGHLIGHTS
================================================================================
Year Ended Year Ended Year Ended Year Ended Year Ended
Class I 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 1.00 $ 1.000 $ 1.000 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Increase (decrease) from investment operations:
Net investment income $ 0.025 $ 0.007 $ 0.006 $ 0.01 $ 0.03
Net realized and unrealized gain (loss) on investments -- -- -- -- --
------- ------- ------- ------- -------
Net increase (decrease) from investment operations $ 0.025 $ 0.007 $ 0.006 $ 0.01 $ 0.03
Distributions to shareowners:
Net investment income (0.025) (0.007) (0.006) (0.01) (0.03)
------- ------- ------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total return* 2.47% 0.65% 0.56% 1.19% 3.39%
Ratio of net expenses to average net assets 0.73% 0.74% 0.72% 0.78% 0.78%
Ratio of net investment income to average net assets 2.40% 0.66% 0.58% 1.11% 3.16%
Net assets, end of period (in thousands) $33,216 $42,896 $34,736 $59,521 $49,545
Ratios with waiver of fees and assumption of expenses by
PIM and reduction for fees paid indirectly:
Net expenses 0.73% 0.74% 0.72% 0.78% 0.78%
Net investment income 2.40% 0.66% 0.58% 1.11% 3.16%
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
6 The accompanying notes are an integral part of these financial statements.
Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
================================================================================
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
================================================================================
ASSETS:
Investment in securities, at value (Cost $34,678,375) $34,678,375
Cash 640,143
Receivables --
Dividends, interest and foreign taxes withheld 114,691
Other 615
-----------
Total assets $35,433,824
-----------
LIABILITIES:
Payables --
Investment securities purchased $ 2,074,707
Fund shares purchased 95,618
Dividends 2,863
Due to affiliates 4,610
Accrued expenses 39,931
-----------
Total liabilities $ 2,217,729
-----------
NET ASSETS:
Paid-in capital $33,218,610
Undistributed net investment income 333
Accumulated net realized loss (2,974)
Net unrealized gain on investments 126
-----------
Total net assets $33,216,095
-----------
NET ASSET VALUE PER SHARE:
Class I:
(No par value, unlimited number of shares authorized)
Net assets $33,216,095
Shares outstanding 33,222,976
-----------
Net asset value per share $ 1.00
The accompanying notes are an integral part of these financial statements. 7
Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
================================================================================
STATEMENT OF OPERATIONS
================================================================================
Year
Ended
12/31/05
INVESTMENT INCOME:
Interest $1,229,389
----------
Total investment income $1,229,389
----------
EXPENSES:
Management fees $ 196,195
Transfer agent fees and expenses 6,091
Administrative reimbursements 18,512
Custodian fees 22,067
Professional fees 32,754
Printing expense 3,576
Fees and expenses of nonaffiliated trustees 3,879
Miscellaneous 3,723
----------
Total expenses $ 286,797
----------
Net expenses $ 286,797
----------
Net investment income $ 942,592
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS, FUTURES CONTRACTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain from investments $ 85
----------
Change in net unrealized gain from investments $ 126
----------
Net gain on investments, futures contracts and foreign currency transactions $ 211
==========
Net increase in net assets resulting from operations $ 942,803
==========
8 The accompanying notes are an integral part of these financial statements.
Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
Year Year
Ended Ended
12/31/05 12/31/04
FROM OPERATIONS:
Net investment income $ 942,592 $ 205,313
Net realized gain on investments 85 --
Change in net unrealized gain on investments, futures contracts
and foreign currency transactions 126 --
------------- -------------
Net increase in net assets resulting from operations $ 942,803 $ 205,313
------------- -------------
DISTRIBUTIONS TO SHAREOWNERS:
Net investment income
Class I $ (944,260) $ (203,312)
------------- -------------
Total distributions to shareowners $ (944,260) $ (203,312)
------------- -------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 19,583,940 $ 18,483,037
Class I shares issued in reorganization -- 21,976,837
Reinvestment of distributions 942,853 203,307
Cost of shares repurchased (30,205,433) (32,505,228)
------------- -------------
Net increase (decrease) in net assets resulting from Fund share transactions $ (9,678,640) $ 8,157,953
------------- -------------
Net increase (decrease) in net assets $ (9,680,097) $ 8,159,954
------------- -------------
NET ASSETS:
Beginning of year $ 42,896,192 $ 34,736,238
------------- -------------
End of year $ 33,216,095 $ 42,896,192
============= =============
Undistributed net investment income, end of year $ 333 $ 2,001
============= =============
The accompanying notes are an integral part of these financial statements. 9
Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
================================================================================
NOTES TO FINANCIAL STATEMENTS 12/31/05
================================================================================
1. Organization and Significant Accounting Policies
The Pioneer Money Market VCT Portfolio (The Portfolio) is a Portfolio of
Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust
registered under the Investment Company Act of 1940 as an open-end management
investment company. The Trust consists of twenty-nine separate diversified
portfolios, fourteen of which issue both Class I and Class II shares
(collectively, the "Portfolios", individually the "Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares
only)
The Money Market Portfolio seeks current income consistent with preserving
capital and providing liquidity.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of income, expenses, gains and losses during the reporting years. Actual
results could differ from those estimates.
Information concerning the Portfolio's principal investment risks is contained
in the Portfolio's prospectus(es). Please refer to those documents when
considering the Portfolio's risks. Although the Portfolio seeks to preserve the
value of your investment at $1.00 per share, it is possible to lose money by
investing in the Portfolio. Portfolio shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board or any other
government agency.
The following is a summary of significant accounting policies consistently
followed by the Portfolio, which are in conformity with those generally accepted
in the investment company industry:
A. Security Valuation
Security transactions are recorded as of trade date. Securities are valued at
amortized cost, which approximates fair market value. Investments purchased
at a discount or premium are valued by amortizing the difference between the
original purchase price and maturity value of the issue over the period to
maturity. Interest income, including interest in income bearing cash accounts
is recorded on the accrual basis.
10
Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
================================================================================
================================================================================
B. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal
income tax rules. Therefore, the source of each Portfolio's distributions
may be shown in the accompanying financial statements as either from or in
excess of net investment income or net realized gain on investment
transactions, or from paid-in capital, depending on the type of book/tax
differences that may exist.
Capital loss carryforwards are available to offset future realized capital
gains. At December 31, 2005, Money Market Portfolio had a net capital loss
carryforward of $2,974, of which the following amounts will expire between
2010 and 2012 if not utilized: $2,728 in 2010 and $246 in 2012.
The following chart shows the distributions paid during the years ended
December 31, 2005 and December 31, 2004 and the components of distributable
earnings (accumulated losses) as of December 31, 2005 and on a tax basis.
- ------------------------------------------------------------------------------------
2005 2004
- ------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $944,260 $203,312
Long-Term capital gain -- --
-------- --------
$944,260 $203,312
Return of Capital --
-------- --------
Total distributions $944,260 $203,312
======== ========
Distributable Earnings (Accumulated Losses):
Undistributed ordinary income $ 333
Undistributed long-term gain/(capital loss carryforward) (2,974)
Unrealized appreciation (depreciation) 126
--------
Total $(2,515)
========
- ------------------------------------------------------------------------------------
C. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Trust and a wholly owned indirect subsidiary of
UniCredito Italiano S.p.A. (UniCredito Italiano), $638,021 in commissions on
the sale of Trust shares for the year ended December 31, 2005. Distribution
fees are calculated based on the average daily net asset values attributable
to Class I and Class II shares of the Portfolio, respectively. Shareowners of
each class share all expenses and fees paid to the transfer agent, Pioneer
Investment Management Shareholder Services, Inc. (PIMSS), for its services,
which are allocated based on the number of accounts in each class and the
ratable allocation of related out-of-pocket expenses (see Note 3). Income,
common expenses and realized and unrealized gains and losses are calculated
at the Portfolio level and allocated daily to each class of shares based on
the respective percentage of adjusted net assets at the beginning of the day.
Distributions paid by the Portfolio with respect to each class of shares are
calculated in the same manner, at the same time, and in the same amount,
except that Class I and Class II shares can bear different transfer agent and
distribution fees. Dividends and distributions to shareowners are recorded on
the ex-dividend date. Income, expenses (excluding 12b-1 fees) and gains and
losses are calculated at the Portfolio level and are allocated daily based on
the respective percentage of adjusted net assets at the beginning of the day.
D. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers or
other institutional investors, with the Portfolio's custodian acting as the
lending agent. When entering into a loan, the Portfolio receives collateral
which is maintained by the custodian and earns income in the form of
negotiated lenders' fees. The Portfolio also continues to receive interest or
dividends on the securities loaned, and gain or loss in the fair value of the
securities loaned that may occur during the term of the loan, will be for the
account of the Portfolio. The loans are secured by collateral of
11
Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
================================================================================
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
================================================================================
at least 102%, at all times, of the fair value of the securities loaned. The
fair value of the collateral will be adjusted daily to reflect any price
fluctuation in the value of the loaned securities. The Portfolio has the
right under the lending agreement to recover the securities on loan from the
borrower on demand. The Portfolio invests cash collateral in the Securities
Lending Investment Fund which is sponsored by Brown Brothers Harriman & Co.,
the Portfolio's custodian.
E. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase. The
collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at least
equal to the repurchase price.
2. Management Agreement
PIM manages the Portfolio, and is a wholly owned indirect subsidiary of
UniCredito Italiano. Management fees are calculated daily at the annual rate of
0.50% of the Portfolio's average daily net assets.
In addition, under the management and administration agreement, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $923 was payable to
PIM related to management fees, administrative fees and certain other services,
and is included in due to affiliates.
3. Transfer Agent
Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly
owned indirect subsidiary of UniCredito Italiano provides substantially all
transfer agent and shareowner services to the Trust at negotiated rates.
Included in due to affiliates is $3,687 in transfer agent fees payable to PIMSS
at December 31, 2005.
4. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- ----------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- ----------------------------------------------------------------------------------------------
Money Market Portfolio $34,678,375 $-- $-- $--
=========== === === ===
- ----------------------------------------------------------------------------------------------
5. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were $782,017,431 and $790,633,602, respectively.
6. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
- -----------------------------------------------------------------------------------------------------------
Money Market Portfolio '05 Shares '05 Amount '04 Shares '04 Amount
- -----------------------------------------------------------------------------------------------------------
CLASS I:
Shares sold 19,584,349 $ 19,583,940 18,483,037 $ 18,483,037
Class I shares issued in reorganization -- -- 21,976,837 21,976,837
Reinvestment of distributions 942,853 942,853 203,307 203,307
Shares repurchased (30,205,433) (30,205,433) 32,505,228 32,505,228
-----------------------------------------------------------
Net increase (9,678,231) $ (9,680,097) 8,157,953 $ 8,157,953
===========================================================
- -----------------------------------------------------------------------------------------------------------
12
Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
================================================================================
================================================================================
7. Merger Information
On December 8, 2004, beneficial owners of Safeco RST Money Market Portfolio
("Money Market"), one of the six portfolios that comprised Safeco Resource
Series Trust, approved a proposed Agreement and Plan of Reorganization that
provided for the mergers listed below. These tax-free reorganizations were
accomplished on December 10, 2004 ("Closing Date") , by exchanging all of the
Safeco's net assets for Class I shares as indicated below, based on Class I
shares' ending net asset value on the Closing Date. The following charts show
the details of the reorganizations as of that Closing Date:
- ---------------------------------------------------------------------------------------------------------------
Pioneer Money Pioneer Money
Market VCT Safeco RST Money Market VCT
Portfolio Market Portfolio Portfolio
Pioneer Money Market VCT Portfolio (Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization)
- ---------------------------------------------------------------------------------------------------------------
Net Assets $23,493,640 $21,976,837 $67,613,266
Shares Outstanding 23,500,655 21,976,837 45,477,492
Class I Shares Issued 21,976,837
- ---------------------------------------------------------------------------------------------------------------
13
Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
================================================================================
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
================================================================================
To the Board of Trustees of Pioneer Variable Contracts Trust and the
Shareowners of Pioneer Money Market VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer Money Market VCT Portfolio, one of the
portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), as
of December 31, 2005, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits. The financial highlights for the year ended December 31, 2001 was
audited by other auditors who have ceased operations and whose report, dated
February 8, 2002, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
We were not engaged to perform an audit of the Trust's internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2005, by correspondence with the
custodian and brokers or by other appropriate auditing procedures where replies
from brokers were not received. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer Money Market VCT Portfolio of the Pioneer Variable Contracts Trust at
December 31, 2005, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and financial highlights for each of the four years in the period then ended, in
conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
14
Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
================================================================================
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN
APPROVING THE MANAGEMENT CONTRACT
================================================================================
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive session
separately from the Interested Trustees of the Fund and any officer of Pioneer
Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or
its affiliates. While the Trustees, including the Independent Trustees, act on
all major matters relating to the Fund, a significant portion of the activities
of the Board of Trustees (including certain of those described herein) is
conducted through committees, the members of which are comprised exclusively of
Independent Trustees. Such committee meetings are attended by officers of the
Fund or the Investment Adviser to the extent requested by the members of the
committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during the
course of the year, the Trustees, including the Independent Trustees, received
materials relating to the Investment Adviser's investment and management
services under the Management Contract. These materials included (i) information
on the investment performance of the Fund, a peer group of funds and an index,
in each case selected by the Independent Trustees for this purpose, (ii) sales
and redemption data in respect to the Fund, (iii) the general investment outlook
in the markets in which the Fund invests, (iv) arrangements in respect of the
distribution of the Fund's shares, (v) the procedures employed to determine the
value of each of the Fund's assets, (vi) the Investment Adviser's management of
the relationships with the Fund's unaffiliated service providers, (vii) the
record of compliance with the Fund's investment policies and restrictions and
with the Fund's Code of Ethics and the structure and responsibilities of the
Investment Adviser's compliance department, (viii) the nature, cost and
character of non-investment management services provided by the Investment
Adviser and its affiliates and (ix) the disclosures included in the Fund's
prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three, five and ten year periods
for the Fund and a peer group selected by the Independent Trustees for this
purpose, (2) management fees incurred by a peer group of funds selected by the
Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for this
purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information regarding
the potential for the Fund and the Investment Adviser to benefit from further
economies of scale in the management of the Fund in light of break points in the
management fee, reasonable growth expectations for the Fund and certain of the
Fund's expenses that are not incurred as fees based on a percentage of net
assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory requirements.
The Trustees also reviewed the Fund's investment performance based upon total
return and yield, as well as
15
Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
================================================================================
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN
APPROVING THE MANAGEMENT CONTRACT (continued)
================================================================================
the Fund's performance compared to both the performance of a peer group and
an index, in each case selected by the Independent Trustees for this purpose.
The Fund's performance based upon total return was in the fifth quintile of
the peer group for the 12 months ended June 30, 2005, the fifth quintile for
the three years ended June 30, 2005, the fourth quintile for the five years
ended June 30, 2005 and the fifth quintile for the ten year period ended June
30, 2005. (In all quintile rankings referred to throughout this discussion
first quintile is most favorable to the Fund's shareholders. Thus, highest
relative performance would be first quintile and lowest relative expenses
also would be first quintile.) The Trustees also considered the yield (gross
of expenses) on the Fund's Class I shares relative to the yield (at June 30,
2005) on 30 day U.S. Treasury securities.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of the
Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's fixed income group. Among other things, the Trustees
considered the number, education and experience of the Investment Adviser's
investment staff and their use of technology and emphasis on analytics in
view of the risk profile of securities in which the Fund invests. The
Trustees concluded that the Investment Adviser had the quality and depth of
personnel and the well-developed methods essential to performing its duties
under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment Adviser's
fee under the Management Contract relative to the management fees charged by
a peer group of funds selected by the Independent Trustees for this purpose
using data provided by an independent third party. The Fund's management fee
for the 12 months ended June 30, 2005 was in the fifth quintile relative to
the management fees paid by the other funds in that peer group for the
comparable period. The Investment Adviser agree to reduce the management fee
to 0.40% of average daily net assets, which would place the fee in the third
quintile of the peer group, and to add a break point to the fee schedule. The
Trustees also evaluated the fee relative to the median fee of the peer group
and determined that is was only modestly higher than the median. In light of
the range of fees included in the peer group, the Trustees determined that
the fee under the Management Contract was reasonable and fair in light of
both the overall nature and quality of services provided by the Investment
Adviser and the fees charged by the funds in the peer group. The Trustees
also considered the Fund's expense ratio and expense ratios of a peer group
of funds selected by the Independent Trustees for this purpose. The Fund's
expense ratio for the 12 months ended June 30, 2005 was in the fifth quintile
of the applicable peer group for the most recent fiscal year of the peer
group for the comparable period.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of the
Investment Adviser's methodology in allocating certain of its costs to the
management of each Fund. The Trustees also considered the financial results
realized by the Investment Adviser in connection with the operation of the
Fund. They further considered the profits realized by the Investment Adviser
and its affiliates from non-fund businesses that may benefit from or be
related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived from
the Fund, bear a reasonable relationship to the services rendered and are
fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
16
Pioneer Money Market VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
================================================================================
================================================================================
realization of any further economies of scale. Because of break points in the
management fees, the Trustees concluded that any perceived or potential
economies of scale would be shared at future asset levels, in a reasonable
manner as the Fund grows in size, between Fund's shareholders and the
Investment Adviser.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund). The
Trustees further considered the revenues and profitability of the Investment
Adviser's businesses other than the fund business, including the Investment
Adviser's institutional investment advisory business. The Trustees considered
the intangible benefits that accrue to the Investment Adviser and its
affiliates by virtue of its relationship with the Fund and the Pioneer Funds
as a group. The Trustees concluded that all these types of benefits accruing
to the Investment Adviser were reasonable in the context of the overall
relationship between the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
17
Pioneer Money Market VCT Portfolio
================================================================================
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
================================================================================
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
====================================================================================================================================
INTERESTED TRUSTEES
====================================================================================================================================
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
18
Pioneer Money Market VCT Portfolio
================================================================================
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
================================================================================
INDEPENDENT TRUSTEES
================================================================================
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held
Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance
or earlier services company) (2001-present); company); Director of New York
retirement or Managing Partner, Federal City Mortgage Trust (publicly traded
removal. Capital Advisors (boutique merchant mortgage REIT)
bank) (2002 to 2004); Executive
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products
or earlier manufacturer), Mortgage Guaranty
retirement or Insurance Corporation, and Briggs
removal. & Stratton, Inc. (engine
manufacturer)
- ----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
19
Pioneer Money Market VCT Portfolio
================================================================================
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
================================================================================
TRUST OFFICERS
================================================================================
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
20
Pioneer Money Market VCT Portfolio
================================================================================
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
================================================================================
TRUST OFFICERS
================================================================================
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, None
Treasurer 2000. Serves at the Assistant Vice President - Fund
discretion of the Accounting, Administration and
Board. Custody Services of Pioneer; and
Assistant Treasurer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ---------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ---------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
21
[LOGO] PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company, Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18654-00-0206
[LOGO] PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer America Income VCT Portfolio -- Class II Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Pioneer America Income VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 6
Financial Statements 11
Notes to Financial Statements 15
Report of Independent Registered Public
Accounting Firm 19
Factors Considered by the Independent Trustees
in Approving the Management Contract 20
Before investing consider the fund's investment objectives, risks, charges and
expenses. Contact your advisor or Pioneer Investments for a prospectus
containing this information. Read it carefully.
The Trust files a complete statement of investments with the Securities and
Exchange Commission for the first and the third quarters for each fiscal year
on Form N-Q. Shareowners may view the filed Form N-Q by visiting the
Commission's web site at http://www.sec.gov. The filed form may also be viewed
and copied at the Commission's Public Reference Room in Washington, D.C.
Information regarding the operations of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Government Securities 93.4%
U.S. Government Agency Obligations 6.1%
U.S. Corporate Bonds 0.5%
Maturity Distribution
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
0-1 year 2.5%
1-3 year 38.7%
3-4 year 27.8%
4-6 year 16.2%
6-8 year 6.8%
8+ years 8.0%
Five Largest Holdings
(As a percentage of long-term holdings)
1. U.S. Treasury Notes,
6.5%, 2/15/10 10.01%
2. U.S. Treasury Inflation
Protected Securities,
3.375%, 1/15/12 7.81
3. U.S. Treasury Bonds,
6.25%, 8/15/23 5.54
4. U.S. Treasury Notes,
6.375%, 8/15/27 2.47
5. U.S. Treasury Notes,
4.25%, 11/15/14 1.85
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $9.85 $10.12
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$0.4455 $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
America Income VCT Portfolio at net asset value, compared to that of the Lehman
Brothers Fixed-Rate Mortgage-Backed Securities Index and of Lehman Brothers
Government Bond Index. Portfolio returns are based on net asset value and do
not reflect any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Pioneer Lehman Lehman
America Brothers Brothers
Income Government Fixed Rate
VCT Portfolio Bond Index Mortgage Index
12/95 10000 10000 10000
11343 10406 10535
12/97 13138 11210 11535
13086 12161 12338
12/99 13383 12220 12567
14078 13500 13969
12/01 13725 14636 15118
12286 16047 16440
12/03 14595 16414 16944
15264 16797 17741
12/05 16234 17080 18205
The Lehman Brothers Government Bond Index measures the performance of the U.S.
government bond market. The Lehman Brothers Fixed-Rate Mortgage Index measures
the performance of the government and mortgage securities markets. Index
returns are calculated monthly, assume reinvestment of dividends and, unlike
Portfolio returns, do not reflect any fees, expenses or sales charges. You
cannot invest directly in any Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
10 Years 4.96%
5 Years 4.92%
1 Year 1.76%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
2
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value [divided by] $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer America Income VCT Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------------------------------------
Beginning Account Value on 7/1/05 $1,000.00
Ending Account Value on 12/31/05 $ 998.63
Expenses Paid During Period* $ 5.44
* Expenses are equal to the Portfolio's annualized expense ratio of 1.08% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer America Income VCT Portfolio
Based on a hypothetical 5% return per year before expenses, reflecting the
period from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------------------------------------
Beginning Account Value on 7/1/05 $1,000.00
Ending Account Value on 12/31/05 $1,019.76
Expenses Paid During Period* $ 5.50
* Expenses are equal to the Portfolio's annualized expense ratio of 1.08% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
In a year marked by hurricanes, high energy prices, concerns about accelerating
inflation and rising short-term interest rates, shareholders in Pioneer America
Income Trust VCT Portfolio earned a positive return on their investment. In the
interview below, Richard Schlanger, the day-to-day Portfolio Manager, discusses
the factors that affected the fixed-income market and the Trust over the past
12 months.
Q. How did the Trust perform during the period?
A. For the 12-month period ended December 31, 2005, Class II shares of Pioneer
America Income Trust VCT Portfolio produced a total return of 1.76% at net
asset value. The Trust underperformed its benchmark, the Lehman Brothers
Government Bond Index, which returned 2.65% for the same period. It also
fell short of the 2.61% return provided by the Lehman Brothers Fixed-Rate
Mortgage-Backed Index. At the end of the period, the 30-day SEC yield for
Class II shares was 3.42%. The Trust had 229 issues and the average quality
of the portfolio was AAA.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q. What was the investment environment like during the period?
A. Economic growth was relatively strong, and productivity remained high. In
this environment, the Federal Reserve continued to reverse its
accommodative monetary policy and raised interest rates eight times during
the year, each time by a quarter point. At the end of 2005, the federal
funds target rate was 4.25%, up from 2.25% in January 2005. (The federal
funds rate is the rate banks charge for overnight loans. Since June 2004,
the Fed has hiked interest rates 13 times, taking the federal funds rate
from a 40-year low of 1.00% to the current 4.25%.) The net effect of the
Fed's actions was a flattening of the yield curve, where short-term yields
and longer-term yields were approximately the same. On December 30, 2005,
the yield curve inverted slightly, with longer-term yields falling below
short-term yields. (The yield curve shows the relationship between bond
yields and maturity lengths.)
During the year, government bonds benefited from an influx of money from
both foreign and domestic investors. While long-term yields on U.S.
Treasuries were relatively low, they were among the highest of the developed
countries and attractive to overseas investors. The performance of
government bonds was also enhanced by a flight to quality. At a time when
long-term yields declined and the debt of General Motors and Ford was
downgraded by credit rating agencies, domestic investors saw little
advantage to taking on risk. As a result, they moved into the relative
safety of government securities.
Q. What strategies did you use in managing the Trust?
A. As interest rates rose, we extended duration, or sensitivity to
interest-rate changes, by reducing exposure to mortgage securities and
adding to positions in Treasury issues and in Treasury Inflation Protected
Securities (TIPS). TIPS are securities whose principal is tied to the
consumer price index, a monthly indicator that measures the price inflation
of a representative basket of goods and services. When inflation
accelerates, the principal on TIPS increases in value. The interest-rate
payment on TIPS is calculated on the inflated principal. While inflation
was not a problem in 2005, we are concerned about the potential for it to
pick up. Oil prices are over $60 a barrel, the price of gold is at a
25-year high and the unemployment rate fell below 5%. These factors and
others could lead to an upturn in inflation. At the end of the period,
54.8% of the portfolio was in mortgage pass-through securities issued by
the Government National Mortgage Association (Ginnie Mae), 44.4% was in
Treasury issues, TIPS and agency securities issued by the Federal National
Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Association
(Freddie Mac), the Federal Home Loan Bank, and the Federal Farm Credit
Bank. About .80% of the portfolio was in cash.
A Word About Risk:
When interest rates rise, the prices of fixed-income securities in the
Portfolio will generally fall. Conversely, when interest rates fall the prices
of fixed-income securities in the Portfolio will generally rise. Prepayment
risk is the chance that mortgage-backed bonds will be paid off early if falling
interest rates prompt homeowners to refinance their mortgages. Forced to
reinvest the unanticipated proceeds at lower interest rates, the Portfolio
would experience a decline in income and lose the opportunity for additional
price appreciation associated with falling interest rates. The Portfolio may
invest in mortgage-backed securities, which during times of fluctuating
interest rates may increase or decrease more than other fixed--income
securities. Mortgage-backed securities are also subject to pre-payments.
Government guarantees apply to the underlying securities only and not to the
prices and yields of the portfolio. At times, the Portfolio's investments may
represent industries or industry sectors that are interrelated or have common
risks, making it more susceptible to any economic, political, or regulatory
developments or other risks affecting those industries and sectors.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Q. What detracted from performance?
A. Our positioning on the yield curve held back return. Throughout the 12
months, we maintained a bulleted strategy, which means we invested in bonds
across the maturity spectrum, with the biggest concentration in the
intermediate-term range of two-years to ten-years. While our short-term and
long-term bonds did well, our intermediate-term bonds detracted from
performance. In hindsight, it would have been more advantageous to have had
a barbelled configuration, overweighting the short and long ends of the
yield curve and holding relatively few intermediate-term bonds.
Q. What contributed to performance?
A. Mortgages issued by Ginnie Mae outperformed those issued by Fannie Mae and
Freddie Mac, two agencies that had been in the headlines because of
accounting problems. During the second half of 2005, yields on 10-year
Treasuries traded in a relatively narrow range of roughly 3.90% to a high
of roughly 4.68%. As 10-year Treasuries declined in price and rose in
yield, we extended duration. This aided results because 10-year Treasuries
closed the year at 4.40%, down from their highs. A longer duration usually
benefits a portfolio when yields decline. The performance of TIPS also
helped boost the Trust's return.
Q. What is your outlook?
A. In general we are positive in looking ahead. While we believe the inverted
yield curve may be indicating some moderating in economic growth, we do not
think it is signaling recession. When the Fed began raising interest rates,
the federal funds rate was extremely low at 1.00%. We think that the
current 4.25% level is not restrictive, especially with an inflation rate
of roughly 2.0% to 2.5%. While we think the consumer may cut back on
spending, it is likely that business will pick up the slack. An increase in
capital spending on the part of corporations may be enough to keep the
economy growing at a respectable rate. The Fed may be in the late stages of
its rate-raising cycle. Should the Fed ease rates somewhat, we believe
intermediate-term securities will outperform longer-term securities. We are
well-positioned should this occur. As we move into 2006, we believe the
Trust should continue to provide diversification for investors who want to
avoid the risk associated with the more volatile areas of the fixed-income
market and with equities.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
5
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Principal
Amount Value
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.5%
Government - 1.5%
$ 234,973 Federal Home Loan Bank, 4.75%, 10/25/10 $ 232,917
131,942 Federal Home Loan Bank, 5.0%, 1/15/16 131,763
350,000 Federal Home Loan Bank, 5.5%, 7/15/28 351,532
-----------
$ 716,212
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $728,765) $ 716,212
-----------
CORPORATE BONDS - 0.5%
Diversified Financials - 0.5%
Specialized Finance - 0.5%
250,000 Private Export Funding, 3.375%, 2/15/09 $ 240,665
-----------
TOTAL CORPORATE BONDS
(Cost $250,000) $ 240,665
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 96.4%
Government - 96.4%
250,000 Federal Farm Credit Bank, 3.25%, 6/15/07 $ 244,792
250,000 Federal Farm Credit Bank, 4.45%, 6/1/15 242,934
400,000 Federal Farm Credit Bank, 4.9%, 3/17/14 389,932
100,000 Federal Farm Credit Bank, 5.3%, 9/28/15 97,837
100,000 Federal Farm Credit Bank, 5.88%, 9/8/08 102,891
200,000 Federal Farm Credit Bank, 6.38%, 11/27/06 202,832
250,000 Federal Home Loan Bank, 4.0%, 2/12/10 242,558
250,000 Federal Home Loan Bank, 4.25%, 10/10/08 247,258
250,000 Federal Home Loan Bank, 4.25%, 2/16/10 244,759
300,000 Federal Home Loan Bank, 4.43%, 4/7/08 297,907
200,000 Federal Home Loan Bank, 4.5%, 11/15/12 196,873
500,000 Federal Home Loan Bank, 4.75%, 12/10/10 499,375
300,000 Federal Home Loan Bank, 5.89%, 6/30/08 308,372
250,000 Federal Home Loan Mortgage Corp., 4.9%, 11/3/08 249,142
300,000 Federal Home Loan Mortgage Corp., 5.25%, 11/15/12 296,132
237,523 Federal Home Loan Mortgage Corp., 5.5%, 9/1/34 235,576
226,089 Federal Home Loan Mortgage Corp., 5.5%, 12/1/34 224,235
70,482 Federal Home Loan Mortgage Corp., 6.0%, 10/1/32 71,308
497,629 Federal Home Loan Mortgage Corp., 6.0%, 11/1/32 503,460
163,395 Federal Home Loan Mortgage Corp., 6.0%, 12/1/32 165,309
189,250 Federal Home Loan Mortgage Corp., 6.0%, 2/1/33 191,468
844,359 Federal Home Loan Mortgage Corp., 6.0%, 3/1/33 853,785
564,481 Federal Home Loan Mortgage Corp., 6.0%, 5/1/34 570,171
73,375 Federal Home Loan Mortgage Corp., 6.5%, 3/1/11 75,361
219,713 Federal Home Loan Mortgage Corp., 6.5%, 7/1/16 225,803
53,923 Federal Home Loan Mortgage Corp., 6.5%, 1/1/29 55,487
30,729 Federal Home Loan Mortgage Corp., 6.5%, 3/1/29 31,609
31,871 Federal Home Loan Mortgage Corp., 6.5%, 4/1/31 32,727
85,317 Federal Home Loan Mortgage Corp., 6.5%, 10/1/31 87,610
39,714 Federal Home Loan Mortgage Corp., 6.5%, 2/1/32 40,782
204,842 Federal Home Loan Mortgage Corp., 6.5%, 4/1/32 210,296
69,307 Federal Home Loan Mortgage Corp., 6.5%, 7/1/32 71,153
2,681 Federal Home Loan Mortgage Corp., 7.0%, 4/1/30 2,793
18,919 Federal Home Loan Mortgage Corp., 7.0%, 2/1/31 19,709
6 The accompanying notes are an integral part of these financial statements.
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal
Amount Value
U.S. Government Agency Obligations (Cont.)
$ 2,780 Federal Home Loan Mortgage Corp., 7.0%, 7/1/31 $ 2,902
5,125 Federal Home Loan Mortgage Corp., 7.0%, 9/1/31 5,340
31,051 Federal Home Loan Mortgage Corp., 7.0%, 3/1/32 32,525
34,899 Federal Home Loan Mortgage Corp., 7.0%, 4/1/32 36,357
34,317 Federal Home Loan Mortgage Corp., 7.5%, 8/1/31 36,016
235,081 Federal National Mortgage Association, 4.5%, 4/1/19 229,102
75,567 Federal National Mortgage Association, 5.0%, 3/1/09 75,269
217,203 Federal National Mortgage Association, 5.0%, 7/1/19 214,993
283,420 Federal National Mortgage Association, 5.5%, 3/1/18 285,379
326,526 Federal National Mortgage Association, 5.5%, 4/1/18 329,079
352,107 Federal National Mortgage Association, 5.5%, 4/1/19 354,540
219,244 Federal National Mortgage Association, 5.5%, 6/1/23 219,287
320,507 Federal National Mortgage Association, 5.5%, 11/1/23 320,571
215,169 Federal National Mortgage Association, 5.5%, 3/1/24 214,884
379,347 Federal National Mortgage Association, 5.5%, 11/1/33 376,565
186,183 Federal National Mortgage Association, 5.5%, 12/1/34 184,538
66,283 Federal National Mortgage Association, 5.5%, 2/1/33 65,631
165,088 Federal National Mortgage Association, 5.5%, 6/1/33 166,811
307,203 Federal National Mortgage Association, 5.5%, 9/1/33 304,950
235,831 Federal National Mortgage Association, 5.5%, 3/1/34 233,747
182,523 Federal National Mortgage Association, 6.0%, 12/1/11 186,443
30,487 Federal National Mortgage Association, 6.0%, 12/1/31 30,847
41,953 Federal National Mortgage Association, 6.0%, 10/1/32 42,424
390,300 Federal National Mortgage Association, 6.0%, 11/1/32 394,676
499,985 Federal National Mortgage Association, 6.0%, 3/1/33 505,590
111,476 Federal National Mortgage Association, 6.0%, 4/1/33 112,725
107,155 Federal National Mortgage Association, 6.0%, 6/1/33 108,274
145,580 Federal National Mortgage Association, 6.0%, 7/1/34 146,956
138,438 Federal National Mortgage Association, 6.0%, 9/1/34 139,747
39,463 Federal National Mortgage Association, 6.5%, 7/1/21 40,789
92,346 Federal National Mortgage Association, 6.5%, 11/1/28 95,127
51,776 Federal National Mortgage Association, 6.5%, 1/1/29 53,320
63,288 Federal National Mortgage Association, 6.5%, 10/1/31 65,055
74,995 Federal National Mortgage Association, 6.5%, 1/1/32 77,089
30,948 Federal National Mortgage Association, 6.5%, 2/1/32 31,812
174,246 Federal National Mortgage Association, 6.5%, 3/1/32 179,030
81,977 Federal National Mortgage Association, 6.5%, 4/1/32 84,250
71,095 Federal National Mortgage Association, 6.5%, 7/1/32 73,066
262,423 Federal National Mortgage Association, 6.5%, 8/1/32 269,714
33,191 Federal National Mortgage Association, 6.5%, 9/1/32 34,111
329,070 Federal National Mortgage Association, 6.5%, 7/1/34 337,596
43,002 Federal National Mortgage Association, 7.0%, 9/1/18 45,083
26,838 Federal National Mortgage Association, 7.0%, 8/1/19 28,117
7,636 Federal National Mortgage Association, 7.0%, 1/1/29 7,976
135,136 Federal National Mortgage Association, 7.0%, 9/1/30 141,145
3,932 Federal National Mortgage Association, 7.0%, 5/1/31 4,104
19,370 Federal National Mortgage Association, 7.0%, 7/1/31 20,220
24,441 Federal National Mortgage Association, 7.0%, 1/1/32 25,514
The accompanying notes are an integral part of these financial statements. 7
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Principal
Amount Value
U.S. Government Agency Obligations (Cont.)
$ 16,146 Federal National Mortgage Association, 7.5%, 2/1/31 $ 16,922
54,317 Federal National Mortgage Association, 9.0%, 4/1/33 57,343
250,000 Federal National Mortgage Association, Floating Rate Note, 3/1/19 249,147
290,126 Government National Mortgage Association, 4.5%, 4/15/20 284,404
366,395 Government National Mortgage Association, 4.5%, 8/15/33 351,635
648,903 Government National Mortgage Association, 4.5%, 6/15/34 622,653
281,464 Government National Mortgage Association, 5.0%, 7/15/17 281,790
206,292 Government National Mortgage Association, 5.0%, 11/20/19 205,149
165,799 Government National Mortgage Association, 5.0%, 1/20/20 164,843
187,019 Government National Mortgage Association, 5.0%, 2/15/20 186,545
99,188 Government National Mortgage Association, 5.0%, 10/15/20 98,936
184,271 Government National Mortgage Association, 5.0%, 9/15/33 182,114
582,552 Government National Mortgage Association, 5.0%, 4/15/35 575,271
267,300 Government National Mortgage Association, 5.5%, 6/15/17 271,264
157,273 Government National Mortgage Association, 5.5%, 2/15/19 159,588
359,968 Government National Mortgage Association, 5.5%, 7/15/19 362,567
140,654 Government National Mortgage Association, 5.5%, 4/15/31 141,816
182,728 Government National Mortgage Association, 5.5%, 3/15/33 184,164
265,079 Government National Mortgage Association, 5.5%, 4/15/33 267,163
228,017 Government National Mortgage Association, 5.5%, 7/15/33 229,809
189,676 Government National Mortgage Association, 5.5%, 10/15/34 190,979
241,432 Government National Mortgage Association, 5.5%, 1/15/35 238,414
123,014 Government National Mortgage Association, 6.0%, 6/20/16 125,969
106,954 Government National Mortgage Association, 6.0%, 5/15/17 109,860
193,626 Government National Mortgage Association, 6.0%, 2/15/18 198,891
148,694 Government National Mortgage Association, 6.0%, 8/15/19 152,734
362,736 Government National Mortgage Association, 6.0%, 7/15/23 372,463
163,451 Government National Mortgage Association, 6.0%, 4/15/28 167,659
120,095 Government National Mortgage Association, 6.0%, 9/15/32 123,115
339,163 Government National Mortgage Association, 6.0%, 10/15/32 347,692
354,993 Government National Mortgage Association, 6.0%, 11/15/32 364,232
242,488 Government National Mortgage Association, 6.0%, 12/15/32 249,079
326,712 Government National Mortgage Association, 6.0%, 1/15/33 334,908
495,657 Government National Mortgage Association, 6.0%, 2/15/33 508,088
277,532 Government National Mortgage Association, 6.0%, 9/15/33 284,493
242,842 Government National Mortgage Association, 6.0%, 12/15/33 248,932
591,471 Government National Mortgage Association, 6.0%, 3/15/34 605,717
321,202 Government National Mortgage Association, 6.0%, 8/15/34 329,061
114,201 Government National Mortgage Association, 6.0%, 9/15/34 116,952
618,817 Government National Mortgage Association, 6.0%, 10/15/34 633,723
143,279 Government National Mortgage Association, 6.5%, 4/15/17 148,001
17,662 Government National Mortgage Association, 6.5%, 6/15/17 18,245
14,671 Government National Mortgage Association, 6.5%, 3/15/26 15,363
86,878 Government National Mortgage Association, 6.5%, 6/15/28 90,971
25,540 Government National Mortgage Association, 6.5%, 2/15/29 26,726
342,050 Government National Mortgage Association, 6.5%, 5/15/29 358,025
8,930 Government National Mortgage Association, 6.5%, 6/15/29 9,344
49,287 Government National Mortgage Association, 6.5%, 5/15/31 51,515
277,925 Government National Mortgage Association, 6.5%, 6/15/31 290,488
85,739 Government National Mortgage Association, 6.5%, 7/15/31 89,614
8 The accompanying notes are an integral part of these financial statements.
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal
Amount Value
U.S. Government Agency Obligations (Cont.)
$ 69,261 Government National Mortgage Association, 6.5%, 9/15/31 $ 72,391
89,672 Government National Mortgage Association, 6.5%, 10/15/31 93,725
76,797 Government National Mortgage Association, 6.5%, 12/15/31 80,268
9,021 Government National Mortgage Association, 6.5%, 2/15/32 9,470
59,601 Government National Mortgage Association, 6.5%, 4/15/32 62,278
85,797 Government National Mortgage Association, 6.5%, 6/15/32 89,651
71,688 Government National Mortgage Association, 6.5%, 7/15/32 74,909
115,999 Government National Mortgage Association, 6.5%, 1/15/34 121,093
12,942 Government National Mortgage Association, 7.0%, 1/15/26 13,624
44,620 Government National Mortgage Association, 7.0%, 7/15/26 46,972
15,448 Government National Mortgage Association, 7.0%, 9/15/27 16,247
48,023 Government National Mortgage Association, 7.0%, 2/15/28 50,470
12,363 Government National Mortgage Association, 7.0%, 3/15/28 12,993
21,109 Government National Mortgage Association, 7.0%, 4/15/28 22,184
40,072 Government National Mortgage Association, 7.0%, 11/15/28 42,113
26,140 Government National Mortgage Association, 7.0%, 1/15/29 27,458
32,388 Government National Mortgage Association, 7.0%, 6/15/29 34,021
40,413 Government National Mortgage Association, 7.0%, 7/15/29 42,450
4,843 Government National Mortgage Association, 7.0%, 12/15/30 5,086
18,075 Government National Mortgage Association, 7.0%, 2/15/31 18,977
20,396 Government National Mortgage Association, 7.0%, 5/15/31 21,414
23,765 Government National Mortgage Association, 7.0%, 8/15/31 24,951
113,475 Government National Mortgage Association, 7.0%, 5/15/32 119,129
7,643 Government National Mortgage Association, 7.5%, 10/15/22 8,096
1,801 Government National Mortgage Association, 7.5%, 6/15/23 1,906
1,637 Government National Mortgage Association, 7.5%, 8/15/23 1,733
1,770 Government National Mortgage Association, 7.5%, 8/15/29 1,862
25,609 Government National Mortgage Association, 7.5%, 10/15/29 26,947
38,568 Government National Mortgage Association, 7.5%, 11/15/29 40,584
13,184 Government National Mortgage Association, 7.5%, 1/15/31 13,864
16,348 Government National Mortgage Association, 7.5%, 1/15/32 17,191
106,654 Government National Mortgage Association I, 6.0%, 2/15/29 109,357
37,615 Government National Mortgage Association I, 7.0%, 11/15/30 39,499
39,205 Government National Mortgage Association I, 7.0%, 12/15/30 41,168
317,317 Government National Mortgage Association II, 5.0%, 12/20/18 315,706
361,777 Government National Mortgage Association II, 5.5%, 7/20/19 365,989
169,565 Government National Mortgage Association II, 5.5%, 11/20/34 170,306
354,192 Government National Mortgage Association II, 5.5%, 2/20/34 355,741
51,694 Government National Mortgage Association II, 6.0%, 12/20/18 52,939
143,776 Government National Mortgage Association II, 6.0%, 7/20/19 147,192
193,253 Government National Mortgage Association II, 6.0%, 11/20/33 197,678
29,079 Government National Mortgage Association II, 6.5%, 8/20/28 30,242
38,585 Government National Mortgage Association II, 6.5%, 12/20/28 40,125
28,221 Government National Mortgage Association II, 6.5%, 9/20/31 29,294
38,488 Government National Mortgage Association II, 7.0%, 5/20/26 40,252
74,140 Government National Mortgage Association II, 7.0%, 2/20/29 77,369
14,114 Government National Mortgage Association II, 7.0%, 1/20/31 14,721
6,449 Government National Mortgage Association II, 7.5%, 8/20/27 6,762
2,322 Government National Mortgage Association II, 8.0%, 8/20/25 2,477
The accompanying notes are an integral part of these financial statements. 9
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Principal
Amount Value
U.S. Government Agency Obligations (Cont.)
$ 12,000 Tennessee Valley Authority, Variable Rate Note, 6/1/28 $ 288,000
850,000 U.S. Treasury Bonds, 4.0%, 2/15/14 826,957
2,150,000 U.S. Treasury Bonds, 6.25%, 8/15/23 2,567,403
400,000 U.S. Treasury Bonds, 7.25%, 5/15/16 491,156
3,365,100 U.S. Treasury Inflation Protected Security, 3.375%, 1/15/12 3,618,401
228,876 U.S. Treasury Inflation Protected Security, 3.5%, 1/15/11 244,611
500,000 U.S. Treasury Notes, 4.0%, 11/15/12 489,239
870,000 U.S. Treasury Notes, 4.25%, 11/15/14 859,872
300,000 U.S. Treasury Notes, 4.25%, 8/15/15 296,121
475,000 U.S. Treasury Notes, 4.75%, 5/15/14 486,560
925,000 U.S. Treasury Notes, 6.375%, 8/15/27 1,145,880
4,300,000 U.S. Treasury Notes, 6.5%, 2/15/10 4,638,457
-----------
$45,399,429
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $45,430,211) $45,399,429
-----------
TOTAL INVESTMENT IN SECURITIES - 98.4%
(Cost $46,408,976) $46,356,306
-----------
OTHER ASSETS AND LIABILITIES - 1.6% $ 761,864
-----------
TOTAL NET ASSETS - 100.0% $47,118,170
===========
10 The accompanying notes are an integral part of these financial statements.
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
5/1/03(a)
Year Ended Year Ended to
12/31/05 12/31/04 12/31/03
Class II
Net asset value, beginning of period $10.12 $ 10.37 $10.57
------ ------- ------
Increase from investment operations:
Net investment income $ 0.39 $ 0.41 $ 0.21
Net realized and unrealized loss on investments (0.21) (0.11) (0.15)
------ ------- ------
Net increase from investment operations $ 0.18 $ 0.30 $ 0.06
Distributions to shareowners:
Net investment income (0.45) (0.55) (0.26)
------ ------- ------
Net decrease in net asset value $(0.27) $ (0.25) $(0.20)
------ ------- ------
Net asset value, end of period $ 9.85 $ 10.12 $10.37
====== ======= ======
Total return* 1.76% 3.04% 2.60%(b)
Ratio of net expenses to average net assets 1.08% 1.06% 1.01%**
Ratio of net investment income to average net assets 3.57% 3.29% 2.42%**
Portfolio turnover rate 23% 37% 34%**
Net assets, end of period (in thousands) $21,351 $13,791 $2,637
Ratios with no waiver of management fees and assumption of expenses by PIM and no
reduction for fees paid indirectly:
Net expenses 1.08% 1.06% 1.01%**
Net investment income 3.57% 3.29% 2.42%**
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
(a) The Portfolio began offering Class II shares to the public on May 1, 2003.
(b) Not annualized.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
The accompanying notes are an integral part of these financial statements.11
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (Cost $46,408,976) $46,356,306
-----------
Cash 359,270
Receivables --
Fund shares sold 63,211
Dividends, interest and foreign taxes withheld 431,824
Other 43
-----------
Total assets $47,210,654
-----------
LIABILITIES:
Payables --
Fund shares repurchased $ 7,943
Due to affiliates 5,662
Accrued expenses 78,879
-----------
Total liabilities $ 92,484
-----------
NET ASSETS:
Paid-in capital $48,837,957
Distributions in excess of net investment income (322,520)
Accumulated net realized loss (1,344,597)
Net unrealized loss on investments (52,670)
-----------
Total net assets $47,118,170
-----------
NET ASSET VALUE PER SHARE:
Class I:
(No par value, unlimited number of shares authorized)
Net assets $25,766,723
Shares outstanding 2,619,336
-----------
Net asset value per share $ 9.84
Class II:
(No par value, unlimited number of shares authorized)
Net assets $21,351,447
Shares outstanding 2,167,193
-----------
Net asset value per share $ 9.85
12 The accompanying notes are an integral part of these financial statements.
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year
Ended
12/31/05
INVESTMENT INCOME:
Interest $2,250,256
----------
Total investment income $2,250,256
----------
EXPENSES:
Management fees $ 258,627
Transfer agent fees and expenses 7,715
Distribution fees (Class II) 44,260
Administrative reimbursements 18,512
Custodian fees 22,493
Professional fees 49,758
Printing expense 14,371
Fees and expenses of nonaffiliated trustees 4,444
Miscellaneous 11,265
----------
Total expenses $ 431,445
----------
Net expenses $ 431,445
----------
Net investment income $1,818,811
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES
CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized loss from investments $ (8,670)
Change in net unrealized loss from investments $ (945,559)
----------
Net loss on investments, futures contracts and foreign currency transactions $ (954,229)
===========
Net increase in net assets resulting from operations $ 864,582
===========
The accompanying notes are an integral part of these financial statements. 13
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Year
Ended Ended
12/31/05 12/31/04
FROM OPERATIONS:
Net investment income $ 1,818,811 $ 1,625,595
Net realized gain (loss) on investments (8,670) 206,989
Change in net unrealized gain or loss on investments, futures contracts and foreign
currency transactions (945,559) (352,583)
------------ ------------
Net increase in net assets resulting from operations $ 864,582 $ 1,480,001
------------ ------------
DISTRIBUTIONS TO SHAREOWNERS:
Net investment income
Class I $ (1,378,835) $ (2,102,796)
Class II (792,466) (401,489)
------------ ------------
Total distributions to shareowners $ (2,171,301) $ (2,504,285)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 11,779,535 $ 15,160,465
Reinvestment of distributions 2,174,179 2,504,258
Cost of shares repurchased (11,661,922) (17,669,980)
------------ ------------
Net increase (decrease) in net assets resulting from Fund share transactions $ 2,291,792 $ (5,257)
------------ ------------
Net increase (decrease) in net assets $ 985,073 $ (1,029,541)
------------ ------------
NET ASSETS:
Beginning of year $ 46,133,097 $ 47,162,638
------------ ------------
End of year $ 47,118,170 $ 46,133,097
============ =============
Distributions in excess of net investment income, end of year $ (322,520) $ (264,827)
============ =============
14 The accompanying notes are an integral part of these financial statements.
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer America Income VCT Portfolio (The Portfolio) is a Portfolio of
Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust
registered under the Investment Company Act of 1940 as an open-end management
investment company. The Trust consists of twenty-nine separate diversified
portfolios, fourteen of which issue both Class I and Class II shares
(collectively, the "Portfolios", individually the "Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only)
The Portfolio commenced operations on May 1, 2003.
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts or by
qualified pension and retirement plans.
The investment objective of America Income Portfolio is to produce a high level
of current income as consistent with preservation of capital.
The financial highlights for the Portfolio's Class I shares are presented in a
separate book.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
periods. Actual results could differ from those estimates.
Information concerning the Portfolio's principal investment risks is contained
in the Portfolio's prospectus(es). Please refer to those documents when
considering the Portfolio's risks. The Portfolio may invest in mortgage-backed
securities, which during times of fluctuating interest rates may increase or
decrease more than other fixed-income securities. Mortgage-backed securities
are also subject to pre-payments.
The following is a summary of significant accounting policies consistently
followed by the Portfolio, in the preparation of its financial statements,
which are
15
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
consistent with those generally accepted in the investment company industry:
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the portfolios are computed once daily, on each day the New York Stock
Exchange (NYSE) is open, as of the close of regular trading on the NYSE. In
computing the net asset values, securities are valued at the last sale
price on the principal exchange where they are traded. Securities that have
not traded on the date of valuation, or securities for which sale prices
are not generally reported, are valued at the mean between the last bid and
asked prices. Trading in foreign equity securities is substantially
completed each day at various times prior to the close of the NYSE. The
value of such securities used in computing the net asset value of the
Portfolio's shares is based on the last sale price on the principal
exchange where they traded. The Portfolio also may use the fair value of a
security, including a non-U.S. security, when the closing market price on
the primary exchange where the security is traded no longer accurately
reflects the value of the security as of the close of the exchange. At
December 31, 2005, there were no fair valued securities. Temporary cash
investments are valued at amortized cost.
Fixed income securities are valued at prices supplied by independent
pricing services, which consider such factors as Treasury spreads, yields,
maturities and ratings. Valuations may be supplemented by dealers and other
sources, as required. Securities for which market quotations are not
readily available are valued at their fair values as determined by, or
under the direction of, the Board of Trustees.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes on capital gains at
the applicable country rates.
B. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal
income tax rules. Therefore, the source of each Portfolio's distributions
may be shown in the accompanying financial statements as either from or in
excess of net investment income or net realized gain on investment
transactions, or from paid-in capital, depending on the type of book/tax
differences that may exist.
Capital loss carryforwards are available to offset future realized capital
gains. At December 31, 2005, America Income Trust Portfolio had a net
capital loss carryforward of $1,230,915, of which the following amounts
will expire between 2008 and 2013 if not utilized: $382,424 in 2008,
$435,523 in 2011, $171,643 in 2012 and $241,325 in 2013.
The Portfolio elected to defer $109,707 in capital losses recognized
between November 1, 2005 and December 31, 2005 to its fiscal year ending
December 31, 2006.
At December 31, 2005, the Portfolio made reclassifications as described
below. These reclassifications have no impact on the net asset values of
the Portfolio and are designed to present the Portfolio's capital accounts
on a tax basis.
- ---------------------------------------------------------------------------------------------
Undistributed Accumulated
Net Investment Net Realized
Portfolio Income (Loss) Gain (Loss) Paid-In Capital
- ---------------------------------------------------------------------------------------------
Pioneer America Income VCT Portfolio $294,797 $(294,797) $--
- ---------------------------------------------------------------------------------------------
16
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following chart shows the distributions paid during the years ended
December 31, 2005 and December 31, 2004 and the components of distributable
earnings (accumulated losses) as of December 31, 2005 on a tax basis.
- ---------------------------------------------------------------------------------------------
2005 2004
- ---------------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ 2,171,301 $2,504,285
Long-Term capital gain/capital loss carryforward -- --
----------- ----------
$ 2,171,301 $2,504,285
Return of Capital -- --
----------- ----------
Total distributions $ 2,171,301 $2,504,285
=========== ==========
Distributable Earnings (Accumulated Losses):
Undistributed ordinary income $ 5,442
Undistributed long-term gain/(capital loss carryforward) (1,230,915)
Post-October Loss Deferred (109,707)
Unrealized appreciation (depreciation) (384,607)
-----------
Total $(1,719,787)
===========
- ---------------------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is primarily attributable to the tax deferral of losses on
wash sales, and the tax treatment of amortization on securities purchased
at premium.
C. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Trust and a wholly owned indirect subsidiary
of UniCredito Italiano S.p.A. (UniCredito Italiano), $638,021 in
commissions on the sale of Trust shares for the year ended December 31,
2005. Distribution fees for Class II shares are calculated based on the
average daily net asset values attributable to Class II shares of the
Portfolio. Shareowners of each class share all expenses and fees paid to
the transfer agent, Pioneer Investment Management Shareholder Services,
Inc. (PIMSS), for its services, which are allocated based on the number of
accounts in each class and the ratable allocation of related out-of-pocket
expenses (see Note 3). Income, common expenses (excluding transfer agent
and distribution fees) and realized and unrealized gains and losses are
calculated at the Portfolio level and allocated daily to each class of
shares based on the respective percentage of the adjusted-net assets at the
beginning of the day. The Portfolio declares as daily dividends
substantially all of its respective net investment income. All dividends
are paid on a monthly basis. Short-term capital gain distributions, if any,
may be declared with the daily dividends. Distributions paid by the
Portfolio with respect to each class of shares are calculated in the same
manner, at the same time, and in the same amount, except that Class I and
Class II shares can bear different transfer agent and distribution fees.
Dividends and distributions to shareowners are recorded on the ex-dividend
date.
D. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees. The Portfolio also continues to receive
payments in lieu of interest or dividends on the securities loaned. Gain or
loss in the fair value of the securities loaned that may occur during the
term of the loan, will be for the account of the Portfolio. The loans are
secured by collateral of at least 102%, at all times, of the fair value of
the securities loaned. The fair value of the collateral will be adjusted
daily to reflect any price fluctuation in the value of the loaned
securities. The Portfolio has the right under the lending agreement to
recover the securities on loan from the borrower on demand. The Portfolio
invests cash collateral in the Securities Lending Investment Fund which is
sponsored by Brown Brothers Harriman & Co., the Portfolio's custodian.
E. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at
17
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
the time of purchase. The collateral for all repurchase agreements is held
in safekeeping in the customer-only account of the Portfolio's custodian,
or subcustodian. The Portfolio's investment adviser, Pioneer Investment
Management, Inc. (PIM), is responsible for determining that the value of
the collateral remains at least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano, manages the
portfolios. Management fees are calculated daily at the annual rate of 0.55% of
the Portfolio's average daily net assets.
In addition, under the management and administration agreement, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $1,424 was payable
to PIM related to management fees, administrative fees and certain other
services, and is included in due to affiliates.
3. Transfer Agent
Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly
owned indirect subsidiary of UniCredito Italiano provides substantially all
transfer agent and shareowner services to the Trust at negotiated rates.
Included in due to affiliates is $3,946 in transfer agent fees payable to PIMSS
at December 31, 2005.
4. Distribution Plans
The Portfolio has adopted a plan of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with the Portfolio's Class
II shares. Included in due to affiliates is $291 payable to PFD at December 31,
2005.
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- --------------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- --------------------------------------------------------------------------------------------------
America Income Portfolio $46,740,913 $179,576 $(564,183) $(384,607)
=========== ======== ========== =========
- --------------------------------------------------------------------------------------------------
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of U.S. Government
obligations for the year ended December 31, 2005, were $13,301,114 and
$10,355,001, respectively.
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
- --------------------------------------------------------------------------------------------------
America Income Portfolio '05 Shares '05 Amount '04 Shares '04 Amount
- --------------------------------------------------------------------------------------------------
CLASS I:
Shares sold 116,997 $ 1,169,565 245,204 $ 2,472,061
Reinvestment of distributions 138,561 1,381,733 206,467 2,102,795
Shares repurchased (836,177) (8,331,104) (1,551,998) (15,847,044)
-------- ----------- ---------- ------------
Net decrease (580,619) $(5,779,806) (1,100,327) $(11,272,188)
======== =========== ========== ============
CLASS II:
Shares sold 1,061,522 $10,609,970 1,247,751 $ 12,688,404
Reinvestment of distributions 79,492 792,446 39,513 401,463
Shares repurchased (336,194) (3,330,818) (179,116) (1,822,936)
--------- ----------- ---------- ------------
Net increase 804,820 $ 8,071,598 1,108,148 $ 11,266,931
======== =========== ========== ============
- --------------------------------------------------------------------------------------------------
18
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust and the
Shareowners of Pioneer America Income VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer America Income VCT Portfolio, one of
the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"),
as of December 31, 2005, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the two years
in the period then ended, and the financial highlights for the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005, by correspondence
with the custodian. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer America Income VCT Portfolio of the Pioneer Variable Contracts Trust at
December 31, 2005, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and financial highlights for the periods indicated therein, in conformity with
U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
19
Pioneer America Income VCT Portfolio
(the "Fund") PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three, five and ten year
periods for the Fund and a peer group selected by the Independent Trustees for
this purpose, (2) management fees incurred by a peer group of funds selected by
the Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return and yield, as well as
20
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
the Fund's performance compared to both the performance of a peer group and
an index, in each case selected by the Independent Trustees for this
purpose. The Fund's performance based upon total return was in the fourth
quintile of the peer group for the 12 months ended June 30, 2005, the fifth
quintile for the three years ended June 30, 2005, the second quintile for
the five years ended June 30, 2005 and the fourth quintile for the ten year
period ended June 30, 2005. (In all quintile rankings referred to throughout
this discussion first quintile is most favorable to the Fund's shareholders.
Thus, highest relative performance would be first quintile and lowest
relative expenses also would be first quintile.) The Trustees also
considered the yield (gross of expenses) of the Fund's Class I shares
compared to the yield (as of June 30, 2005) of the Lehman Brothers
Government Bond Index.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's fixed income group. Among other things, the
Trustees considered the number, education and experience of the Investment
Adviser's investment staff and their use of technology and emphasis on
analytics in view of the risk profile of securities in which the Fund
invests. The Trustees concluded that the Investment Adviser had the quality
and depth of personnel and the well-developed methods essential to
performing its duties under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the fourth
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. However, the Investment Manager agreed
to reduce the management fee to 0.50% of average daily net assets, which
would place the Fund in the third quintile of the peer group and to add a
break point to the fee schedule. The Trustees determined that the fee under
the Management Contract was reasonable and fair in light of both the overall
nature and quality of services provided by the Investment Adviser and the
fees charged by the funds in the peer group. The Trustees also considered
the Fund's expense ratio and expense ratios of a peer group of funds
selected by the Independent Trustees for this purpose. The Fund's expense
ratio for the 12 months ended June 30, 2005 was in the fifth quintile of the
applicable peer group for the most recent fiscal year of the peer group for
the comparable period.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. Because of break points in
the management fees, the Trustees concluded
21
Pioneer America Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
that any perceived or potential economies of scale would be shared at future
asset levels, in a reasonable manner as the Fund grows in size, between
Fund's shareholders and the Investment Adviser.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund). The
Trustees further considered the revenues and profitability of the Investment
Adviser's businesses other than the fund business, including the Investment
Adviser's institutional investment advisory business. The Trustees
considered the intangible benefits that accrue to the Investment Adviser and
its affiliates by virtue of its relationship with the Fund and the Pioneer
Funds as a group. The Trustees concluded that all these types of benefits
accruing to the Investment Adviser were reasonable in the context of the
overall relationship between the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
22
Pioneer America Income VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
23
Pioneer America Income VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held
Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance
or earlier services company) (2001-present); company); Director of New York
retirement or Managing Partner, Federal City Mortgage Trust (publicly traded
removal. Capital Advisors (boutique merchant mortgage REIT)
bank) (2002 to 2004); Executive
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products
or earlier manufacturer), Mortgage Guaranty
retirement or Insurance Corporation, and Briggs
removal. & Stratton, Inc. (engine
manufacturer)
- ----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
24
Pioneer America Income VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
25
Pioneer America Income VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, None
Treasurer 2000. Serves at the Assistant Vice President - Fund
discretion of the Accounting, Administration and
Board. Custody Services of Pioneer; and
Assistant Treasurer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ---------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ---------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
26
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
27
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
28
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
29
[LOGO] PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company, Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18673-00-0206
[LOGO] PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer AmPac Growth VCT Portfolio -- Class II Shares
(Formerly Pioneer Papp America-Pacif ic Rim VCT Portfolio.
Name change effective May 1, 2005.)
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Pioneer AmPac Growth VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 5
Financial Statements 6
Notes to Financial Statements 10
Report of Independent Registered Public
Accounting Firm 14
Factors Considered by the Independent Trustees
in Approving the Management Contract 15
Trustees, Officers and Service Providers 18
Before investing, consider the product's investment objectives, risks, charges
and expenses. Contact your advisor or Pioneer Investments for a prospectus
containing this information. Please read it carefully.
The Trust files a complete statement of investments with the Securities and
Exchange Commission for the first and the third quarters for each fiscal year
on Form N-Q. Shareowners may view the filed Form N-Q by visiting the
Commission's web site at http://www.sec.gov. The filed form may also be viewed
and copied at the Commission's Public Reference Room in Washington, D.C.
Information regarding the operations of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 95.0%
Depositary Receipts for International Stocks 5.0%
Sector Distribution
(As a percentage of equity holdings)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Information Technology 32.0%
Industrials 22.7%
Health Care 17.6%
Financials 11.6%
Consumer Staples 8.6%
Consumer Discretionary 5.0%
Energy 2.5%
Five Largest Holdings
(As a percentage of equity holdings)
1. WPP Group Plc (A.D.R.) 5.00%
2. General Electric Co. 4.87
3. State Street Corp. 4.85
4. Emerson Electric Co. 4.80
5. Microchip Technology 4.80
The Portfolio is actively managed and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 10.22 $ 10.14
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.0395 $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
AmPac Growth VCT Portfolio at net asset value, compared to that of the Russell
1000 Growth Index. Portfolio returns are based on net asset value and do not
reflect any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Russell 1000 Pioneer AMPac Growth
Growth VCT Portfolio
3/04 10000 10000
12/04 10547 10020
12/05 11102 10139
The Russell 1000 Growth Index measures the performance of large-cap U.S. growth
stocks. Index returns are calculated monthly, assume reinvestment of dividends
and, unlike Portfolio returns, do not reflect any fees, expenses or sales
charges. You cannot invest directly in any Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Life-of-Fund 1.44%
(3/15/04)
1 Year 1.19%
All total returns shown assume reinvestment of distributions at net asset
value. Please refer to the variable product's report wrapper for performance
that reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown. Please refer to the variable product's semiannual report
for performance that reflects the deduction of the variable products fees and
charges.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
2
Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value [divided by] $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer AmPac Growth VCT Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,048.17
Expenses Paid During Period* $ 4.90
* Expenses are equal to the Portfolio's annualized expense ratio of 0.95% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer AmPac Growth VCT Portfolio
Based on a hypothetical 5% per year return before expenses, reflecting the
period from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,020.42
Expenses Paid During Period* $ 4.84
* Expenses are equal to the Portfolio's annualized expense ratio of 0.95% for
Class II, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
During 2005, many growth stocks remained out of favor, and companies that
experienced even minor disappointments were punished by the market. Despite the
challenging market, many holdings prospered - helped in large part by their
unique market niche or superiority of their products, as Rosellen Papp, a
member of the Portfolios management team, discusses in the following interview.
Q: How did the Portfolio perform during fiscal 2005?
A: Class II shares had a total return of 1.19% at net asset value for the 12
months ended December 31, 2005. The Standard & Poor's 500 Index and the
Russell 1000 Growth Index posted returns of 4.91% and 5.26%, respectively,
for the same period.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
The Portfolio's underperformance relative to the indexes centered around
five companies in particular that experienced challenges. Estee Lauder
encountered much more competition in their fragrance business than
anticipated. We were concerned that the problems could be longer term in
nature, therefore sold the position. The pharmaceutical giant Pfizer
struggled in response to concerns about the sales of its
cholesterol-reducing drug Lipitor, which could fall in response to the
availability of lower cost alternatives. With Pfizer's earnings potential
uncertain, we sold the stock.
IBM started the year with a slight revenue and earnings disappointment
relative to analysts' expectations. The marketplace punished the stock as
some analysts concluded that IBM tried to "hide" the disappointment by
changing some accounting policies, including options expensing. Since we
believe that this is a temporary disappointment and that the company is
inexpensively priced, we have retained the holding. Electrical component
manufacturer, Molex, reported disappointing sales and earnings, which caused
us to reposition those assets into niche computer software companies that
have brighter prospects. We have also been concerned about governance and
accounting issues at American International Group. Late in the fiscal year,
we reduced the position significantly, selling into strength.
After carefully analyzing these disappointments, we find no consistent theme
and conclude that the challenges are in no way related to the Portfolio's
emphasis on American companies with substantial and growing business
interests in the Pacific Rim region. In a challenging year, we have
carefully adjusted the Portfolio to avoid any recurrence of these
company-specific issues.
Q: Could you highlight some of the companies that were added to the Portfolio?
A: In the technology sector, we are shifting the emphasis from hardware to
software companies. We reinvested the proceeds from the sale of
Hewlett-Packard and Molex into Adobe Systems, which has a strong market
niche in graphics, photography and digital imaging, and Symantec, which is
a leading provider of security solutions for individuals and businesses.
We added United Parcel Services (UPS), the delivery and logistics company
with trade routes from the United States to Europe and within Europe. We
bought the stock on weakness when investors became concerned that higher
fuel costs could threaten its profitability. We think UPS will be resilient,
as it has the ability to pass on increased fuel costs to its customers with
an energy surcharge.
In the financial sector - a second area of concentration in the Portfolio,
we added UCBH Holdings Inc., which is a commercial bank that caters to the
Chinese-American population. The company is a good example of the
Portfolio's investment strategy, which is designed to offer shareowners
exposure to Asian economies by investing in American companies - eliminating
many of the risks associated with investing directly in developing markets.
Q: Health care stocks represent the third major area of investment. Have you
made any changes within this sector?
A: We are very optimistic about the future of this industry, because we expect
health care expenditures to rise at a much faster rate than the U.S.
economy for the foreseeable future. However, we are concerned that the
traditional pharmaceutical companies are currently battling a variety of
issues - including intellectual property rights and product liability
issues. Consequently, we have shifted our focus from pharmaceuticals toward
a mix of medical device companies, market research companies, suppliers to
the industry and orthopedic implants, which we think offer a better
risk/reward profile. In keeping with this new direction, we added 3M, a
diversified company that derives about 20% of its business from medical
products.
Q: Do you think 2006 will be a positive year for U.S. stocks?
A: Barring any external shocks, we think the U.S. stock market - particularly
growth stocks that have been out of favor for some time - will generate
above-average returns. In 2005, we saw a valuation gap emerge between stock
prices and the underlying strength of the companies - creating undervalued
companies. Therein lies the growth potential that we hope to capture with
the companies in your portfolio.
Investing in foreign and/or emerging markets securities involves risks relating
to interest rates, currency exchange rates, economic, and political conditions.
The fund invest s in a limited number of securities and, as a result, the
fund's performance may be more volatile than the performance of fund's holding
more securities. Investing in the securities of U.S. issuers with substantial
foreign activities involves many of the same risks as investing in the
securities of foreign issuers.
A Word About Risk:
Investing in foreign and/or emerging markets securities involves risks relating
to interest rates, currency exchange rates, economic, and political conditions.
The Portfolio may invest a substantial amount of its assets in issuers located
in a limited number of countries and therefore is susceptible to adverse
economic, political or regulatory developments affecting those countries.
Investing in the securities of U.S. issuers with substantial foreign activities
involves many of the same risks as investing in the securities of foreign
issuers. The Portfolio invests in a limited number of securities and, as a
result, the Portfolio's performance may be more volatile than the performance
of other portfolios holding more securities. At times, the Portfolio's
investments may represent industries or industry sectors that are interrelated
or have common risks, making it more susceptible to any economic, political, or
regulatory developments or other risks affecting those industries and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
COMMON STOCKS - 103.8%
Energy - 2.5%
Integrated Oil & Gas - 2.5%
840 Chevron Corp. $ 47,687
----------
Total Energy $ 47,687
----------
Capital Goods - 15.0%
Electrical Component & Equipment - 5.0%
1,250 Emerson Electric Co. $ 93,375
----------
Industrial Conglomerates - 10.0%
1,200 3M Co. $ 93,000
2,700 General Electric Co. 94,635
----------
$ 187,635
----------
Total Capital Goods $ 281,010
----------
Transportation - 8.5%
Air Freight & Couriers - 8.5%
1,365 Expeditors International of Washington, Inc. $ 92,151
900 United Parcel Service 67,635
----------
$ 159,786
----------
Total Transportation $ 159,786
----------
Media - 5.2%
Advertising - 5.2%
1,800 WPP Group Plc $ 97,200
----------
Total Media $ 97,200
----------
Food, Beverage & Tobacco - 4.6%
Packaged Foods & Meats - 4.6%
1,300 William Wrigley Jr. Co. $ 86,437
----------
Total Food, Beverage & Tobacco $ 86,437
----------
Household & Personal Products - 4.3%
Household Products - 4.3%
1,470 Colgate-Palmolive Co. $ 80,630
----------
Total Household & Personal
Products $ 80,630
----------
Health Care Equipment & Services - 12.0%
Health Care Equipment - 9.1%
1,550 Medtronic, Inc. $ 89,234
1,800 Stryker Corp. 79,974
----------
$ 169,208
----------
Health Care Services - 2.9%
2,200 IMS Health, Inc. $ 54,824
----------
Total Health Care Equipment &
Services $ 224,032
----------
Pharmaceuticals & Biotechnology - 6.3%
Pharmaceuticals - 6.3%
550 Eli Lilly & Co. $ 31,125
1,450 Johnson & Johnson 87,145
----------
$ 118,270
----------
Total Pharmaceuticals &
Biotechnology $ 118,270
----------
Banks - 1.0%
Regional Banks - 1.0%
1,000 UCBH Holdings, Inc. $ 17,880
----------
Total Banks $ 17,880
----------
Shares Value
Diversified Financials - 9.7%
Asset Management & Custody Banks - 9.7%
1,700 State Street Corp. $ 94,248
1,200 T. Rowe Price Associates, Inc. 86,436
----------
$ 180,684
----------
Total Diversified Financials $ 180,684
----------
Insurance - 1.5%
Multi-Line Insurance - 1.5%
400 American International Group, Inc. $ 27,292
----------
Total Insurance $ 27,292
----------
Software & Services - 8.1%
Application Software - 2.3%
1,200 Adobe Systems, Inc. $ 44,352
----------
Systems Software - 5.8%
3,000 Microsoft Corp. $ 78,450
1,700 Symantec Corp.* 29,750
----------
$ 108,200
----------
Total Software & Services $ 152,552
----------
Technology Hardware & Equipment - 11.4%
Communications Equipment - 3.5%
3,800 Cisco Systems, Inc.* $ 65,056
----------
Computer Hardware - 3.9%
900 IBM Corp. $ 73,980
----------
Computer Storage & Peripherals - 2.8%
3,800 EMC Corp.* $ 51,756
----------
Electronic Equipment & Instruments - 1.2%
729 National Instruments Corp. $ 23,363
----------
Total Technology Hardware &
Equipment $ 214,155
----------
Semiconductors - 13.7%
Semiconductor Equipment - 1.0%
1,000 Applied Materials, Inc. $ 17,940
----------
Semiconductors - 12.7%
3,200 Intel Corp. $ 79,871
1,800 Linear Technology Corp. 64,926
2,900 Microchip Technology 93,235
----------
$ 238,032
----------
Total Semiconductors $ 255,972
----------
TOTAL COMMON STOCKS
(Cost $1,819,277) $1,943,587
----------
TOTAL INVESTMENT
IN SECURITIES - 103.8%
(Cost $1,819,277) $1,943,587
----------
OTHER ASSETS AND
LIABILITIES - (3.8)% $ (71,411)
----------
TOTAL NET ASSETS - 100.0% $1,872,176
==========
* Non-income producing security
The accompanying notes are an integral part of these financial statements. 5
Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
3/15/04 (a)
Year Ended to
Class II 12/31/05 12/31/04
Net asset value, beginning of period $ 10.14 $ 10.00
------- -------
Increase from investment operations:
Net investment income $ 0.03 $ 0.05
Net realized and unrealized gain on investments 0.09 0.09
------- -------
Net increase from investment operations $ 0.12 $ 0.14
Distributions to shareowners:
Net investment income ( 0.04) --
------- -------
Net increase in net asset value $ 0.08 $ 0.14
------- --------
Net asset value, end of period $ 10.22 $ 10.14
======= =======
Total return* 1.19% 1.40 %(b)
Ratio of net expenses to average net assets+ 0.95% 0.95%* *
Ratio of net investment income to average net assets+ 0.43% 1.40%* *
Portfolio turnover rate 16% 7%
Net assets, end of period (in thousands) $ 1,872 $ 1,424
Ratios with no waiver of management fees and assumption of expenses by PIM and no
reduction for fees paid indirectly:
Net expenses 6.62% 15.01%* *
Net investment loss ( 5.24)% (12.68)%**
Ratios with waivers of management fees and assumption of expenses by PIM and no reduction
for fees paid indirectly:
Net expenses 0.95% 0.95%* *
Net investment income 0.43% 1.40%* *
(a) The Portfolio commenced operations on March 15, 2004.
(b) Not annualized.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions, the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
+ Ratios with no reduction for fees paid indirectly.
NOTE: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
6 The accompanying notes are an integral part of these financial statements.
Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (cost $1,819,277) $1,943,587
Cash 28,980
Receivables --
Dividends, interest and foreign taxes withheld 1,558
Due from Pioneer Investment Management, Inc. 9,387
Other 12
----------
Total assets $1,983,524
----------
LIABILITIES:
Payables --
Fund shares repurchased $ 49,718
Due to affiliates 410
Accrued expenses 61,220
----------
Total liabilities $ 111,348
----------
NET ASSETS:
Paid-in capital $1,787,653
Undistributed net investment income 7,530
Accumulated net realized loss on investments (47,317)
Net unrealized gain on:
Investments 124,310
----------
Total net assets $1,872,176
----------
NET ASSET VALUE PER SHARE:
Class II:
(No par value, unlimited number of shares authorized)
Net assets $1,872,176
Shares outstanding 183,145
----------
Net asset value per share $ 10.22
The accompanying notes are an integral part of these financial statements. 7
Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended
12/31/05
INVESTMENT INCOME:
Dividends $ 22,579
Interest 1,555
---------
Total investment income $ 24,134
---------
EXPENSES:
Management fees $ 13,103
Transfer agent fees and expenses 1,736
Distribution fees 4,368
Administrative reimbursements 18,512
Custodian fees 13,928
Professional fees 49,133
Printing expense 9,245
Fees and expenses of nonaffiliated trustees 3,756
Miscellaneous 1,806
---------
Total expenses $ 115,587
Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (98,989)
---------
Net expenses $ 16,598
---------
Net investment income $ 7,536
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from:
Investments $ (39,329)
---------
Change in net unrealized gain from:
Investments $ 62,350
---------
Net gain on investments $ 23,021
---------
Net increase in net assets resulting from operations $ 30,557
=========
8 The accompanying notes are an integral part of these financial statements.
Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the period
from 3/15/04
(Commencement
Year Ended of Operations)
12/31/05 to 12/31/04
FROM OPERATIONS:
Net investment income $ 7,536 $ 6,910
Net realized loss on investments (39,329) (7,988)
Change in net unrealized gain on investments 62,350 61,960
---------- ----------
Net increase in net assets resulting from operations $ 30,557 $ 60,882
---------- ----------
DISTRIBUTIONS TO SHAREOWNERS
Net investment income:
Class II $ (7,006) $ --
---------- ----------
Total distributions to shareowners $ (7,006) $ --
---------- ----------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 633,120 $1,395,044
Reinvestment of distributions 6,611 --
Cost of shares repurchased (215,562) (31,470)
---------- ----------
Net increase in net assets resulting from Fund share transactions $ 424,169 $1,363,574
---------- ----------
Net increase in net assets $ 447,720 $1,424,456
NET ASSETS:
Beginning of period 1,424,456 --
---------- ----------
End of period $1,872,176 $1,424,456
========== ==========
Undistributed net investment income, end of period $ 7,530 $ 7,000
========== ==========
The accompanying notes are an integral part of these financial statements. 9
Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer AmPac Growth VCT Portfolio (the Portfolio), is a Portfolio of
Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust
registered under the Investment Company Act of 1940 as an open-end management
investment company. The Trust consists of twenty nine separate diversified
portfolios, fourteen of which issue both Class I and Class II shares
(collectively, the "Portfolios", individually the "Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (formerly America Pacific Rim Portfolio)
(AmPac Growth Portfolio) (Class II shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares
only)
The AmPac Growth VCT Portfolio commenced operations on March 15, 2004.
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts or by
qualified pension and retirement plans.
AmPac Growth Portfolio seeks capital appreciation.
The financial statements and financial highlights of all other Portfolios are
presented in separate books.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
periods. Actual results could differ from those estimates. The following is a
summary of significant accounting policies consistently followed by the
Portfolio, in the preparation of its financial statements which are consistent
with those generally accepted in the investment company industry:
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the Portfolio are computed once daily, on each day the New York Stock
Exchange (NYSE) is open, as of the close of regular trading on the NYSE. In
computing the net asset values, securities are valued at the last sale
price on the principal exchange where they are traded. Securities that have
not traded on the date of valuation, or securities for which sale prices
are not generally reported, are valued at the
10
Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
mean between the last bid and asked prices. The Portfolio also may use the
fair value of a security, including a non-U.S. security, when the closing
market price on the primary exchange where the security is traded no longer
accurately reflects the value of the security as of the close of the NYSE.
At December 31, 2005, there were no securities fair valued. Temporary cash
investments are valued at amortized cost.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities where the ex-dividend date may have
passed are recorded as soon as the Portfolio becomes aware of the
ex-dividend data in the exercise of reasonable diligence. Interest income,
including interest on income bearing cash accounts, is recorded on the
accrual basis.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes on capital gains at
the applicable country rates.
Investing in foreign and/or emerging markets securities involves risks
relating to interest rates, currency exchange rates, economic, and
political conditions. The Portfolio may invest a substantial amount of its
assets in issuers located in a limited number of countries and therefore is
susceptible to adverse economic, political or regulatory developments
affecting those countries. Investing in the securities of U.S. issuers with
substantial foreign activities involves many of the same risks as investing
in the securities of foreign issuers. Information regarding the Portfolio's
principal investment risks is contained in the Portfolio's prospectus.
Please refer to those documents when considering the Portfolio's risks.
B. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal
income tax rules. Therefore, the source of the Portfolio's distributions
may be shown in the accompanying financial statements as either from, or in
excess of, net investment income or net realized gain on investment
transactions, or from paid-in capital, depending on the type of book/tax
differences that may exist.
Capital loss carryforwards are available to offset future realized capital
gains. At December 31, 2005, AmPac Growth Portfolio had a net capital loss
carryforward of $26,565, of which the following amounts will expire between
2012 and 2013, if not utilized: $7,988 in 2012 and $18,577 in 2013.
The Portfolio elected to defer $20,752 in capital losses recognized between
November 1, 2005 and December 31, 2005 to its fiscal year ended December
31, 2006.
The following chart shows the distributions paid during the year ended
December 31, 2005 and the components of distributable earnings (accumulated
losses) as of December 31, 2005. There were no distributions paid during
the fiscal year ended December 31, 2004.
- --------------------------------------------------------------------------------
2005
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ 7,006
Long-term capital gain --
-------
$ 7,006
Return of capital --
-------
Total distributions $ 7,006
-------
Distributable Earnings
(Accumulated Losses):
Undistributed ordinary income $ 7,530
Undistributed long-term gain/
(capital loss carryforward) (26,565)
Post October Loss Deferred (20,752)
Unrealized appreciation (depreciation) 124,310
-------
Total $84,523
=======
- --------------------------------------------------------------------------------
C. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Trust and a wholly owned indirect subsidiary
of UniCredito Italiano S.p.A. (Unicredito Italiano), $638,021 in
commissions on the sale of Trust shares for the year ended December 31,
2005. Distribution fees are calculated based on the average daily net asset
values attributable to Class II shares of the Portfolio.
D. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or
11
Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
in excess of the value of the repurchase agreement at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano manages the
portfolio. Management fees are calculated daily at the annual rate of 0.75% of
the Portfolio's average daily net assets up to $1 billion and 0.70% on assets
over $1 billion.
Through May 1, 2006, PIM has agreed not to impose all or a portion of its
management fee and, if necessary, to limit other ordinary operating expenses of
the Portfolio to the extent required to reduce Class II expenses to 0.95% of
the average daily net assets attributable to Class II shares.
In addition, under the management and administration agreements, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $12 was payable to
PIM related to management fees, administrative reimbursements and certain other
services, and is included in due to affiliates.
3. Transfer Agent
PIMSS, a wholly owned indirect subsidiary of UniCredito Italiano provides
substantially all transfer agent and shareowner services to the Trust at
negotiated rates. Included in due to affiliates is $371 in transfer agent fees
payable to PIMSS at December 31, 2005.
4. Distribution Plans
The Portfolio has adopted a plan of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with the Portfolio's Class
II shares. Included in due to affiliates is $27 payable to PFD at December 31,
2005.
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- ---------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Portfolio Tax Cost Appreciation Depreciation (Depreciation)
- ---------------------------------------------------------------------------------------------
AmPac Growth Portfolio $1,819,277 $160,301 $(35,991) $124,310
- ---------------------------------------------------------------------------------------------
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were $793,973 and $272,148, respectively.
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows for the
fiscal years ended December 31, 2005 and December 31, 2004:
- ---------------------------------------------------------------------------------------------
AmPac Growth Portfolio '05 Shares '05 Amount '04 Shares '04 Amount
- ---------------------------------------------------------------------------------------------
CLASS II:
Shares sold 63,412 $633,120 143,712 $1,395,044
Reinvestment of distributions 669 6,611 -- --
Shares repurchased (21,368) (215,562) (3,280) (31,470)
------- -------- ------- ----------
Net increase 42,713 $424,169 140,432 $1,363,574
======= ======== ======= ==========
- ---------------------------------------------------------------------------------------------
12
Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (unaudited)
The qualifying percentage of certain Portfolios' ordinary income dividends for
the purposes of the corporate dividends received deduction and the percentage
of those ordinary dividends that are subject to a maximum tax rate of 15% as
provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were
as follows:
- --------------------------------------------------------------------------------
Dividend Qualified
Received Dividend
Deduction Income
- --------------------------------------------------------------------------------
AmPac Growth Portfolio 100.00% 100.00%
- --------------------------------------------------------------------------------
13
Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust
and the Shareowners of Pioneer AmPac Growth Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer AmPac Growth VCT Portfolio, one of the
Portfolios constituting The Pioneer Variable Contracts Trust (the "Trust"), as
of December 31, 2005, and the related statement of operations for the year then
ended, and the statements of changes in net assets and financial highlights for
each of the two years in the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005, by correspondence
with the custodian. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer AmPac Growth VCT Portfolio of the Pioneer Variable Contracts Trust at
December 31, 2005, the results of its operations for the year then ended, and
the changes in its net assets and financial highlights for each of the periods
indicated therein, in conformity with U.S. generally accepted accounting
principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
14
Pioneer AmPac Growth VCT Portfolio (the "Fund") PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") voting
separately annually, approve the Fund's management contract (the "Management
Contract") between the Fund and Pioneer Investment Management, Inc., the Fund's
adviser (the "Investment Adviser"). The Investment Adviser has retained L. Roy
Papp and Associates, LLC. (the "Sub-adviser") to act as sub-adviser to the Fund
pursuant to a sub-advisory agreement between the Investment Adviser and the
Sub-adviser (the "Sub-advisory Agreement"). The Trustees have determined that
the terms of the Management Contract and the Sub-advisory Agreement are fair
and reasonable and that renewal of these contracts will enable the Fund to
receive quality investment advisory services at a cost deemed reasonable and in
the best interests of the Fund and its shareowners. In making such
determinations, the Independent Trustees relied upon the assistance of counsel
to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
the Investment Adviser, or its affiliates. While the Trustees, including the
Independent Trustees, act on all major matters relating to the Fund, a
significant portion of the activities of the Board of Trustees (including
certain of those described herein) is conducted through committees, the members
of which are comprised exclusively of Independent Trustees. Such committee
meetings are attended by officers of the Fund or the Investment Adviser to the
extent requested by the members of the committee.
In evaluating the Management Contract and Sub-advisory Agreement, the Trustees
conducted a review that was specifically focused upon the renewal of the
Management Contract and Sub-advisory Agreement, and relied upon their
knowledge, resulting from their meetings throughout the year, of the Investment
Adviser, its services and the Fund. Both in meetings specifically dedicated to
renewal of the Management Contract and at other meetings during the course of
the year, the Trustees, including the Independent Trustees, received materials
relating to the Investment Adviser's investment and management services under
the Management Contract. These materials included (i) information on the
investment performance of the Fund, a peer group of funds and an index, in each
case selected by the Independent Trustees for this purpose, (ii) sales and
redemption data in respect of the Fund, (iii) the general investment outlook in
the markets in which the Fund invests, (iv) arrangements in respect of the
distribution of the Fund's shares, (v) the procedures employed to determine the
value of each of the Fund's assets, (vi) the Investment Adviser's management of
the relationships with the Fund's unaffiliated service providers, (vii) the
record of compliance with the Fund's investment policies and restrictions and
with the Fund's Code of Ethics and the structure and responsibilities of the
Investment Adviser's compliance department, (viii) the nature, cost and
character of non-investment management services provided by the Investment
Adviser and its affiliates, (ix) the disclosures included in the Fund's
prospectuses and reports to shareowners and (x) the investment and compliance
staff and operations of the Sub-Adviser.
Specifically, in connection with the Independent Trustees' review of the
Management Contract and the Sub-advisory Agreement, the Independent Trustees
requested and the Investment Adviser provided additional information in order
to evaluate the quality of the Investment Adviser's and Sub-adviser's services
and the reasonableness of the fee under the Management Contract and the
Sub-advisory Agreement. Among other items, this information included data or
analyses of (1) investment performance for the one year period of the Fund and
a peer group selected by the Independent Trustees for this purpose, (2)
management and other fees incurred by a peer group of funds selected by the
Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund, the break points in the Fund's management fee
and of a peer group of funds selected by the Independent Trustees for this
purpose and certain of the Fund's expenses that are not incurred as fees based
on a percentage of net assets.
The following summarizes matters considered by the Trustees in connection with
their renewal of the Fund's Management Contract and Sub-advisory Agreement. The
Trustees did not identify any single factor as all-important or controlling,
and the summary does not detail all the matters that were considered.
15
Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to
shareowners of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareowner services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's performance compared to both
the performance of a peer group and an index, in each case selected by the
Independent Trustees for this purpose. The Fund's performance based upon
total return was in the fifth quintile of the peer group for the 12 months
ended June 30, 2005. (In all quintile rankings referred to throughout this
discussion first quintile is most favorable to the Fund's shareowners. Thus,
highest relative performance would be first quintile and lowest relative
expenses also would be first quintile.) The Trustees also considered the
activities of the Investment Adviser in monitoring the investment and
compliance operations of the Sub-adviser. The Trustees concluded that the
period of investment operations was too short to evaluate the performance of
the Fund.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations. Among other things, the
Trustees considered the number, education and experience of the
Sub-adviser's investment staff. The Trustees concluded that the Investment
Adviser and the Sub-adviser have the quality and depth of personnel and the
well-developed methods essential to performing their duties under the
Management Contract and the Sub-advisory Agreement.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareowners of the
Fund, including administrative and shareowner services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareowners of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the first
quintile (after fee waivers) relative to the management fees paid by the
other funds in that peer group for the comparable period and below the
median without giving effect to fee waivers. The Trustees determined that
the fee under the Management Contract was reasonable and fair in light of
both the overall nature and quality of services provided by the Investment
Adviser and the fees charged by the funds in the peer group. The Trustees
also evaluated the fee under the Sub-advisory Agreement and the portion of
the fee under the Management Contract retained by the Investment Adviser and
determined that they were consistent with other sub-advised funds. The
Trustees also considered the Fund's expense ratio and expense ratios of a
peer group of funds selected by the Independent Trustees for this purpose.
The Fund's expense ratio for the 12 months ended June 30, 2005 (after
expense limitations) was in the second quintile of the applicable peer group
for the most recent fiscal year of the peer group for the comparable period.
The Trustees concluded that the Fund's overall expense ratio (after expense
limitations) was reasonable compared to that of comparable funds.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in com-
16
Pioneer AmPac Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
parison with the limited available industry data. The Trustees concluded
that the Investment Adviser's profits from management of the Pioneer Funds,
including the financial results derived from the Fund, bear a reasonable
relationship to the services rendered and are fair for the management of the
Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. Because of break points in
the management fee, the Trustees concluded that any perceived or potential
economies of scale would be shared at future asset levels, in a reasonable
manner as the Fund grows in size, between the Investment Adviser and the
Fund's shareowners.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareowner services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect of the Pioneer Funds (including the Fund), and
benefits to the Sub-Adviser from the use of "soft" commission dollars to pay
for research. The Trustees further considered the revenues and profitability
of the Investment Adviser's businesses other than the fund business,
including the Investment Adviser's institutional investment advisory
business. The Trustees considered the intangible benefits that accrue to the
Investment Adviser and its affiliates by virtue of its relationship with the
Fund and the Pioneer Funds as a group. The Trustees concluded that all these
types of benefits accruing to the Investment Adviser were reasonable in the
context of the overall relationship between the Investment Adviser and the
Fund.
Conclusion. The Trustees, in light of the Investment Adviser's and
Sub-adviser's overall performance, considered it appropriate to continue to
retain the management services of the Investment Adviser and the Sub-adviser.
Based on their evaluation of all material factors deemed relevant and the
advice of independent counsel, the Trustees concluded that the Management
Contract with the Fund and the Sub-advisory Agreement are fair and reasonable
and voted to approve the continuation of the Management Contract and the
Sub-advisory Agreement for another year.
17
Pioneer AmPac Growth VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
The Trust's statement of additional information provides
more detailed information regarding the
Shareowner Services and Transfer Trust's Trustees and is available upon request, without charge,
Pioneer Investment Management Shareholder Services, Inc. by calling 1- 800-225-6292.
Proxy Voting Policies and Procedures of the Trust are
available without charge, upon Agent request, by calling our
toll free number (1-800-225-6292). This information is also
available online at pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
18
Pioneer AmPac Growth VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held
Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance
or earlier services company) (2001-present); company); Director of New York
retirement or Managing Partner, Federal City Mortgage Trust (publicly traded
removal. Capital Advisors (boutique merchant mortgage REIT)
bank) (2002 to 2004); Executive
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products
or earlier manufacturer), Mortgage Guaranty
retirement or Insurance Corporation, and Briggs
removal. & Stratton, Inc. (engine
manufacturer)
- ----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
19
Pioneer AmPac Growth VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
20
Pioneer AmPac Growth VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, None
Treasurer 2000. Serves at the Assistant Vice President - Fund
discretion of the Accounting, Administration and
Board. Custody Services of Pioneer; and
Assistant Treasurer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ---------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ---------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
21
[LOGO] PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company, Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18676-00-0206
[Logo] PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Balanced VCT Portfolio -- Class II Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Pioneer Balanced VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 6
Financial Statements 13
Notes to Financial Statements 17
Report of Independent Registered Public
Accounting Firm 22
Factors Considered by the Independent Trustees in
Approving the Management Contract 23
Trustees, Officers and Service Providers 26
Before investing, consider the Portfolio's investment objectives, risks,
charges and expenses. Contact your advisor or Pioneer Investments for a
prospectus containing this information. Read it carefully.
The Trust files a complete statement of investments with the Securities and
Exchange Commission for the first and the third quarters for each fiscal year
on Form N-Q. Shareowners may view the filed Form N-Q by visiting the
Commission's web site at http://www.sec.gov. The filed form may also be viewed
and copied at the Commission's Public Reference Room in Washington, D.C.
Information regarding the operations of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Portfolio Diversification
(As a percentage of total investment portfolio)
U.S. Common Stocks 64.0%
U.S. Government Agency Obligations 23.8%
U.S. Corporate Bonds 9.7%
Despositary Receipts for International Stocks 1.5%
Asset Backed Securities 0.6%
Collateralized Mortgage Obligation 0.4%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution
(As a percentage of long-term holdings)
Government Obligations 23.9%
Financials 13.3%
Information Technology 11.6%
Health Care 11.3%
Consumer Staples 10.3%
Consumer Discretionary 8.3%
Industrials 7.4%
Materials 5.9%
Energy 5.5%
Telecommunication Services 2.0%
Utilities 0.5%
Five Largest Holdings
(As a percentage of long-term holdings)
1. Berkshire Hathaway, Inc.
(Class B) 3.43%
2. Microsoft Corp. 3.27
3. PepsiCo, Inc. 3.17
4. First Data Corp. 3.16
5. Northrop Grumman Corp. 3.15
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 14.67 $ 14.38
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.2404 $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Balanced VCT Portfolio at net asset value, compared to that of the Standard &
Poor's (S&P) 500 Index and the Lehman Brothers Aggregate Bond Index. Portfolio
returns are based on net asset value and do not reflect any applicable
insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Lehman Aggregate Bond Index S&P 500 Pioneer Balanced VCT Portfolio
Dec-95 10000 10000 10000
10363 12295 11343
Dec-97 11364 16395 13138
12351 21084 13086
Dec-99 12249 25518 13383
13673 23196 14078
Dec-01 14828 20441 13725
16348 15925 12286
Dec-03 17019 20490 14595
17758 22718 15264
Dec-05 18189 23833 15833
The Standard & Poor's 500 Stock Index (the S&P 500) is a commonly used
measure of the broad U.S. stock market. The Lehman Brothers Aggregate Bond
Index is a measure of the U.S. bond market. Index returns assume
reinvestment of dividends and, unlike Portfolio returns, do not reflect
any fees, expenses or sales charges. Portfolio returns are based on net
asset value and do not reflect any annuity-related costs. You cannot
invest directly in any Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
10 Years 4.70%
5 Years 2.38%
1 Year 3.73%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
2
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value [divided by] $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Balanced VCT Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II
- -------------------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,019.06
Expenses Paid During Period* $ 6.06
* Expenses are equal to the Portfolio's annualized expense ratio of 1.19% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer Balanced VCT Portfolio
Based on a hypothetical 5% return per year before expenses, reflecting the
period from July 1, 2005 through December 31, 2005.
Share Class II
- -------------------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,019.21
Expenses Paid During Period* $ 6.06
* Expenses are equal to the Portfolio's annualized expense ratio of 1.19% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
The nation's economy grew persistently throughout 2005, producing strong
earnings growth and healthier corporate balance sheets. The economy proved
resilient to the effects of a variety of challenges, from hurricane damage in
the Gulf Coast to sharply rising energy and commodity prices. To head off the
possibility that inflationary pressures would build up as the economy grew, the
U.S. Federal Reserve continued to tighten monetary policy. The Fed raised the
Fed Funds rate eight different times during the calendar year. In the following
interview, Timothy Mulrenan, who is responsible for the equity portfolio of
Pioneer Balanced VCT Portfolio, and Richard Schlanger, who is responsible for
the Portfolio's fixed-income investments, discuss the markets and the factors
that affected performance.
Q. How did the Portfolio perform, and what were the principal factors that
affected Portfolio performance?
A. Class II shares of Pioneer Balanced VCT Portfolio returned 3.73% at net
asset value during the 12 months ended December 31, 2005. In comparison,
the Standard & Poor's 500 Index and the Lehman Brothers Aggregate Bond
Index returned 4.91% and 2.43%, respectively, over the same period.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Throughout the 12 months, we overweighted equities, with a target allocation
of about 64% of Portfolio assets versus a 60% normal allocation. We invested
the remaining 36% of assets in fixed income securities. We placed this
emphasis on stocks because of the favorable earnings environment and our
view that stocks were likely to produce positive returns during the year. At
the same time, we were not sure how far the Federal Reserve Board intended
to push short-term interest rates, and we believed bonds, in general, were
fully valued in the market.
The equity market did have a positive year, buoyed by positive earnings -
profits of S&P 500 companies grew approximately 13%. Despite rising
short-term interest rates and higher commodity prices, long-term interest
rates were essentially unchanged over the 12 months. Other factors giving
support to stock valuations included many stock buyback programs, initiated
by corporations with more cash on their balance sheets, and increasing
merger-and-acquisition activity. Despite all these positive factors, stock
performance was held back by a number of concerns, including fears that
higher short-term interest rates and high energy costs might undermine
future corporate profitability.
The major development in the fixed-income market was the dramatic flattening
of the yield curve - which reflects the difference in yields between
short-term and long-term securities. Normally, the yield curve steepens -
yield differences become greater - the greater the difference in maturity
between short- and long-term securities. However, the yield curve became so
flat that it actually partially inverted by the end of the year, a highly
unusual phenomenon in which 10-year yields actually became slightly lower
than two-year yields. Despite the efforts of the Federal Reserve to raise
short-term rates, long-term rates tended to fall or remain stable because of
strong demand for U.S. Treasuries by international bond investors.
Q. What areas in the equity and fixed income market performed better than
others?
A. In the equity market, mid-cap stocks did better than either small- or
large-cap stocks, continuing a multi-year run for medium-sized companies.
The value style of investing slightly outperformed the growth style, but
the growth style performed somewhat better in the final two months of the
year. We manage the Portfolio in a large-cap growth style. Driven by the
dramatic increases in oil and natural gas prices, energy stocks were by far
the performance leaders in the equity market. On average, energy stocks
rose by 30%. Utilities also performed relatively well, while consumer
discretionary stocks - especially in the automotive and media industries -
lagged.
In the fixed-income market, long-term investments outperformed short- and
intermediate-term investments. With a backdrop of rising profits, investment
grade and high-yield corporate bonds tended to do well. The notable
exception was among a few fallen angels whose financial problems led to
credit rating downgrades. Two highly visible examples were General Motors
and Ford, both of which were downgraded from investment grade to high yield.
Among governments, Treasuries outperformed mortgages, with long-term
Treasuries doing especially well.
Q. What equity investments had the greatest influence on performance?
A. Our overweight position in energy stocks for most of the year and our stock
selection within the energy sector helped boost performance. Two standout
selections were National Oilwell Varco, a leading provider of oil field
equipment, and ENSCO International, a prominent offshore contract driller.
National Oilwell Varco's stock price rose substantially, driven by robust
earnings, favorable
A Word About Risk:
When interest rates rise, the prices of fixed income securities in the
Portfolio will generally fall. Conversely, when interest rates fall the prices
of fixed income securities in the Portfolio will generally rise. Investments in
the Portfolio are subject to possible loss due to the financial failure of
underlying securities and their inability to meet their debt obligations.
Prepayment risk is the chance that mortgage-backed bonds will be paid off early
if falling interest rates prompt homeowners to refinance their mortgages.
Forced to reinvest the unanticipated proceeds at lower interest rates, the
Portfolio would experience a decline in income and lose the opportunity for
additional price appreciation associated with falling interest rates. The
Portfolio invests in REIT securities, the value of which can fall for a variety
of reasons, such as declines in rental income, fluctuating interest rates, poor
property management, environmental liabilities, uninsured damage, increased
competition, or changes in real estate tax laws. Investing in foreign and/or
emerging markets securities involves risks relating to interest rates, currency
exchange rates, economic, and political conditions. The Portfolio may invest in
mortgage-backed securities, which during times of fluctuating interest rates
may increase or decrease more than other fixed-income securities.
Mortgage-Backed securities are also subject to pre-payments. At times, the
Portfolio's investments may represent industries or industry sectors that are
interrelated or have common risks, making it more susceptible to any economic,
political, or regulatory developments or other risks affecting those industries
and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
pricing and a growing backlog of orders. We trimmed the position and took
profits during the year. ENSCO's stock price appreciated by about 40% as the
day rates for its oil rigs surged against a backdrop of growing demand and a
tight supply of the drilling platforms. By the end of the year, we had taken
some profits, but still hold ENSCO, and moved to a slight underweight
position in energy.
Our investments in health care also did well. Shares of generic
pharmaceutical manufacturer IVAX doubled. The company was helped by both an
impressive pipeline of new drugs approaching market and an acquisition offer
from a competitor. Amgen, a major biotechnology firm, benefited from strong
revenue gains across all its product lines and its own promising pipeline of
new products under development, including prospective drugs for treatment of
cancer and arthritis.
Among the more disappointing positions was our investment in Symantec, a
leading software security firm. Its stock price declined after the company
in the second half of the year announced earnings that failed to meet
expectations. Investors also became concerned about price competition in the
software security industry and the possibility of new competition from
Microsoft. The U.K.-based telecommunications services giant Vodafone also
declined as its profit margins came under pressure because of difficulties
in operations in Japan and in Europe. Also detracting from results was our
investment in Family Dollar, a low-price retailer. Lower-income consumers,
who make up a substantial part of Family Dollar's customer base, were
particularly hard hit by rising energy prices. We eliminated our positions
in Symantec and in Family Dollar.
Q. What fixed-income investments had the greatest influence on performance?
A. Our positioning on the yield curve did not help. In a period in which
short-term interest rates were rising and longer-term rates were relatively
stable, the best positioning would have been a bar-belled approach. That
would place greater emphasis both on short-term securities - to take
advantage of rising yields - and on long-term securities to take advantage
of their high yields and price stability. However, we pursued a
bulleted-approach with investments throughout the yield curve - including
those in intermediate-term securities which tended to underperform other
parts of the market. Also holding back results was our investment in bonds
of auto parts manufacturer Delphi, which filed for bankruptcy protection
during the year. We had liquidated our position in Delphi prior to their
bankruptcy filing.
During the year, as yields in many part of the market rose, we extended
duration - a measure of sensitivity to interest rate changes. Duration on
December 31, 2005, was 4.67 years, compared to 4.13 years six months
earlier. Average credit quality remained at AA-, although we did reduce our
exposure to high-yield securities. We also cut our mortgage position, while
raising our allocation to Treasuries and agencies. Mortgages, however, still
represented the largest sector weighting.
Q. What is your investment outlook?
A. We expect positive performance in the equity market if an environment of
rising profits and strengthening balance sheets continues. We believe two
key factors should influence the equity markets in 2006: the continued
revival of corporate capital spending, which already grew by 20% during
2005 and the emergence of a performance edge by growth stocks, which have
underperformed value stocks for several years. As we enter a new year,
value stocks have reached price levels on a par with growth stocks, and we
believe growth stocks should begin to outperform because of their greater
earnings growth potential.
Given this view, we have added to our positions in companies that can
benefit from increasing capital spending, with investments in industrials,
telecommunications equipment and information technology companies. We also
have reduced our exposure to consumer discretionary stocks, although we
continue to emphasize consumer staples with their more consistent earnings.
For the fixed-income market, we anticipate that the Federal Reserve will
move cautiously because of concerns about high debt levels of consumers. We
believe the Fed may raise short-term rates two or three times more. We think
the Fed Funds rate may level off in the range of 4.75% to 5.00%.
Historically, the Fed has begun lowering rates four to six months after the
end of its rate-hike cycles, and we believe this may occur again late in
2006. If that occurs, we expect the short-end and the intermediate parts of
the yield curve to outperform the long-end, and we would position the
Portfolio accordingly. Because of the tightening labor supply and high
energy costs, we are carefully watching inflation trends and are prepared to
become more defensive. We already have established a position in Treasury
Inflation Protective Securities (TIPS) to guard against the impact of higher
inflation.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
5
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
COMMON STOCKS - 64.7%
Energy - 5.0%
Integrated Oil & Gas - 0.5%
3,900 Exxon Mobil Corp. $ 219,063
------------
Oil & Gas Drilling - 2.0%
19,500 ENSCO International, Inc. $ 864,825
------------
Oil & Gas Equipment & Services - 2.0%
13,298 National-Oilwell Varco, Inc.* $ 833,785
------------
Oil & Gas Exploration & Production - 0.4%
2,700 Encana Corp. $ 121,932
1,100 Pioneer Natural Resources Co. 56,397
------------
$ 178,329
------------
Total Energy $ 2,096,002
------------
Materials - 4.5%
Gold - 2.1%
16,800 Newmont Mining Corp. $ 897,120
------------
Industrial Gases - 2.4%
19,000 Praxair, Inc. $ 1,006,240
------------
Total Materials $ 1,903,360
------------
Capital Goods - 4.6%
Aerospace & Defense - 3.1%
21,800 Northrop Grumman Corp. $ 1,310,398
------------
Industrial Conglomerates - 1.4%
7,900 3M Co. $ 612,250
------------
Total Capital Goods $ 1,922,648
------------
Commercial Services & Supplies - 0.5%
Diversified Commercial Services - 0.5%
4,600 Cintas Corp. $ 189,428
------------
Total Commercial Services &
Supplies $ 189,428
------------
Transportation - 2.0%
Air Freight & Couriers - 2.0%
11,200 United Parcel Service $ 841,680
------------
Total Transportation $ 841,680
------------
Consumer Durables & Apparel - 1.5%
Apparel, Accessories & Luxury Goods - 1.5%
18,100 Liz Claiborne, Inc. $ 648,342
------------
Total Consumer Durables & Apparel $ 648,342
------------
Media - 3.4%
Broadcasting & Cable TV - 3.4%
18,100 Comcast Corp.* 464,989
29,319 Viacom, Inc. (Class B) 955,799
------------
$ 1,420,788
------------
Total Media $ 1,420,788
------------
Shares Value
Retailing - 1.4%
Apparel Retail - 1.4%
20,500 Ross Stores, Inc. $ 592,450
------------
Total Retailing $ 592,450
------------
Food & Drug Retailing - 3.0%
Drug Retail - 2.7%
43,400 CVS Corp. $ 1,146,628
------------
Hypermarkets & Supercenters - 0.3%
2,500 Wal-Mart Stores, Inc. $ 117,000
------------
Total Food & Drug Retailing $ 1,263,628
------------
Food, Beverage & Tobacco - 6.4%
Brewers - 0.6%
5,900 Anheuser-Busch Companies, Inc. $ 253,464
------------
Packaged Foods & Meats - 1.7%
10,700 William Wrigley Jr. Co. $ 711,443
------------
Soft Drinks - 4.1%
10,000 Coca-Cola Co. $ 403,100
22,300 PepsiCo, Inc. 1,317,484
------------
$ 1,720,584
------------
Total Food, Beverage & Tobacco $ 2,685,491
------------
Household & Personal Products - 0.7%
Personal Products - 0.7%
9,300 Estee Lauder Co. $ 311,364
------------
Total Household & Personal
Products $ 311,364
------------
Health Care Equipment & Services - 2.9%
Health Care Distributors - 1.0%
6,400 Cardinal Health, Inc. $ 440,000
------------
Health Care Equipment - 1.9%
11,100 Biomet, Inc. $ 405,927
6,000 Guidant Corp. 388,500
------------
$ 794,427
------------
Total Health Care Equipment &
Services $ 1,234,427
------------
Pharmaceuticals & Biotechnology - 7.5%
Biotechnology - 2.2%
11,616 Amgen, Inc.* $ 916,038
------------
Pharmaceuticals - 5.3%
4,000 Eli Lilly & Co. $ 226,360
22,900 IVAX Corp.* 717,457
20,788 Pfizer, Inc. 484,776
17,800 Wyeth 820,046
------------
$ 2,248,639
------------
Total Pharmaceuticals &
Biotechnology $ 3,164,677
------------
6 The accompanying notes are an integral part of these financial statements.
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Banks - 1.3%
Diversified Banks - 1.3%
11,900 Bank of America Corp. $ 549,185
------------
Total Banks $ 549,185
------------
Diversified Financials - 3.4%
Asset Management & Custody Banks - 1.4%
960 Ameriprise Financial, Inc. $ 39,360
17,200 The Bank of New York Co., Inc. 547,820
------------
$ 587,180
------------
Consumer Finance - 1.5%
12,300 American Express Co. $ 632,958
------------
Investment Banking & Brokerage - 0.4%
2,900 Merrill Lynch & Co., Inc. $ 196,417
------------
Total Diversified Financials $ 1,416,555
------------
Insurance - 4.4%
Property & Casualty Insurance - 4.4%
485 Berkshire Hathaway, Inc. (Class B)* $ 1,423,718
3,700 Progressive Corp. 432,086
------------
$ 1,855,804
------------
Total Insurance $ 1,855,804
------------
Software & Services - 6.3%
Data Processing & Outsourced Services - 3.1%
30,500 First Data Corp. $ 1,311,805
------------
Shares Value
Systems Software - 3.2%
52,000 Microsoft Corp. $ 1,359,800
------------
Total Software & Services $ 2,671,605
------------
Technology Hardware & Equipment - 3.9%
Communications Equipment - 2.3%
12,900 Avaya, Inc.* $ 137,643
21,900 Cisco Systems, Inc.* 374,928
10,900 Qualcomm, Inc. 469,572
------------
$ 982,143
------------
Computer Hardware - 1.5%
21,622 Hewlett-Packard Co. $ 619,038
------------
Electronic Manufacturing Services - 0.0%
900 Molex, Inc. $ 22,131
------------
Total Technology Hardware &
Equipment $ 1,623,312
------------
Semiconductors - 0.5%
7,800 Intel Corp. $ 194,688
------------
Total Semiconductors $ 194,688
------------
Telecommunication Services - 1.5%
Wireless Telecommunication Services - 1.5%
28,500 Vodafone Group Plc (A.D.R.) $ 611,894
------------
Total Telecommunication Services $ 611,894
------------
TOTAL COMMON STOCKS
(Cost $22,776,857) $ 27,197,328
------------
The accompanying notes are an integral part of these financial statements. 7
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
ASSET BACKED SECURITIES - 0.6%
Diversified Financials - 0.2%
Diversified Financial Services - 0.2%
76,659 BBB-/Baa2 PF Export Receivable Master Trust, 6.436%, 6/1/15 (144A) $ 76,541
-----------
Total Diversified Financials $ 76,541
-----------
Utilities - 0.4%
Electric Utilities - 0.3%
65,325 BBB-/Baa3 FPL Energy Wind Funding, 6.876%, 6/27/17 (144A) $ 65,243
89,110 BB-/Ba2 FPL Energy America Wind LLC, 6.639%, 6/20/23 (144A) 92,661
-----------
Total Utilities $ 157,904
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $235,943) $ 234,445
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.3%
Diversified Financials - 0.3%
Diversified Financial Services - 0.3%
100,000 BBB-/Baa3 Tower 2004-1A E, 5.395%, 1/15/34 $ 96,213
50,000 BBB-/Baa3 Tower 2004-2A F, 6.376%, 12/15/14 49,862
-----------
$ 146,075
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $150,000) $ 146,075
-----------
CORPORATE BONDS - 9.6%
Energy - 0.4%
Integrated Oil & Gas - 0.1%
40,000 A-/A3 Occidental Petroleum, 6.75%, 1/15/12 $ 43,904
-----------
Oil & Gas Exploration & Production - 0.3%
100,000 BBB-/Baa3 Gazprom International SA, 7.201%, 2/1/20 (144A) $ 106,850
-----------
Oil & Gas Refining & Marketing - 0.0%
25,000 BBB/Baa2 Boardwalk Pipelines LLC, 5.5%, 2/1/17 $ 24,795
-----------
Total Energy $ 175,549
-----------
Materials - 1.3%
Aluminum - 0.1%
50,000 B/B1 Novelis, Inc., 7.25%, 02/15/15 $ 46,625
-----------
Commodity Chemicals - 0.3%
100,000 BB+/Ba2 Nova Chemicals, Ltd., 6.5%, 1/15/12 $ 96,875
-----------
Diversified Metals & Mining - 0.3%
125,000 BBB-/Baa3 Inco, Ltd., 7.2%, 9/15/32 $ 137,530
-----------
Metal & Glass Containers - 0.1%
40,000 BBB/Baa2 Tenneco Packaging, 8.125%, 6/15/17 $ 45,373
-----------
Paper Products - 0.5%
100,000 BB-/Ba3 Abitibi-Consolidated, Inc., 6.95%, 4/1/08 $ 100,000
100,000 B/B2 MDP Acquisitions, 9.625%, 10/1/12 100,000
-----------
$ 200,000
-----------
Total Materials $ 526,403
-----------
8 The accompanying notes are an integral part of these financial statements.
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
Capital Goods - 0.3%
Electrical Component & Equipment - 0.1%
25,000 NR/Ba1 Orcal Geothermal, 6.21%, 12/30/20 (144A) $ 25,070
-----------
Industrial Conglomerates - 0.2%
55,000 AAA/Aaa General Electric Capital Corp., 6.125%, 2/22/11 $ 57,863
30,000 AAA/Aaa General Electric Capital Corp., 6.75%, 3/15/32 35,216
-----------
$ 93,079
-----------
Total Capital Goods $ 118,149
-----------
Automobiles & Components - 0.4%
Auto Parts & Equipment - 0.1%
40,000 B+/Ba2 Sun Sage BV, 8.25%, 3/26/09 (144A) $ 42,150
-----------
Automobile Manufacturers - 0.3%
200,000 BB/Baa3 General Motors, 7.2%, 1/15/11 (a) $ 140,500
-----------
Total Automobiles & Components $ 182,650
-----------
Media - 1.3%
Broadcasting & Cable TV - 0.9%
250,000 BBB+/Baa2 Comcast Cable Corp., 7.125%, 6/15/13 $ 271,735
100,000 BBB-/Baa3 Cox Communications, 7.125%, 10/1/12 107,148
-----------
$ 378,883
-----------
Publishing - 0.4%
170,000 BBB-/Baa3 News America, Inc., 7.3%, 4/30/28 $ 186,518
-----------
Total Media $ 565,401
-----------
Retailing - 0.1%
Specialty Stores - 0.1%
50,000 BBB-/Baa3 Tanger Factory Outlet Centers, Inc., 6.15%, 11/15/15 $ 50,509
-----------
Total Retailing $ 50,509
-----------
Health Care Equipment & Services - 0.7%
Health Care Facilities - 0.5%
200,000 BB+/Ba2 HCA, Inc., 6.3%, 10/1/12 $ 200,999
-----------
Health Care Supplies - 0.2%
100,000 BBB/Baa3 Bausch & Lomb, 7.125%, 8/1/28 $ 108,211
-----------
Total Health Care Equipment & Services $ 309,210
-----------
Banks - 0.3%
Diversified Banks - 0.3%
50,000 NR/Aaa KFW-Kredit Wiederaufbau, 2.75%, 5/8/07 $ 48,879
75,000 AA-/Aa2 National Westminster, 7.375%, 10/1/09 81,424
-----------
$ 130,303
-----------
Total Banks $ 130,303
-----------
Diversified Financials - 0.9%
Consumer Finance - 0.2%
100,000 A/A2 SLM Corp., Floating Rate Note, 7/25/14 $ 94,027
-----------
Investment Banking & Brokerage - 0.1%
75,000 B+/B1 E*Trade Financial Corp., 8.0%, 6/15/11 $ 78,000
-----------
The accompanying notes are an integral part of these financial statements. 9
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
Diversified Financial Services - 0.5%
100,000 A-/Baa3 Brascan Corp., 5.75%, 3/1/10 $ 101,554
100,000 BBB-/Baa3 Glencore Funding LLC, 6.0%, 4/15/14 (144A) 94,054
-----------
$ 195,608
-----------
Total Diversified Financials $ 367,635
-----------
Insurance - 1.3%
Life & Health Insurance - 0.2%
100,000 BB+/Ba1 Provident Co., Inc., 7.0%, 7/15/18 $ 103,405
-----------
Multi-Line Insurance - 0.1%
50,000 A/Baa1 Loew Corp., 5.25%, 3/15/16 $ 49,414
-----------
Property & Casualty Insurance - 0.6%
85,000 BBB-/NR Kingsway America, Inc., 7.5%, 2/1/14 $ 87,581
150,000 BB/Baa3 Ohio Casualty Corp., 7.3%, 6/15/14 161,223
-----------
$ 248,804
-----------
Reinsurance - 0.3%
100,000 BBB-/Baa3 Odyssey Re Holdings, 7.65%, 11/1/13 $ 104,491
50,000 BBB/Baa3 Platinum Underwriters HD, 7.5%, 6/1/17 50,954
-----------
$ 155,445
-----------
Total Insurance $ 557,068
-----------
Real Estate - 1.0%
Real Estate Investment Trusts - 1.0%
100,000 BBB-/Baa3 Colonial Reality LP, 6.15%, 4/15/13 $ 102,584
100,000 BBB-/Baa3 Health Care REIT, Inc., 6.2%, 6/1/16 100,042
107,000 B+/Ba3 Host Marriott LP, 6.375%, 3/15/15 106,733
75,000 B+/B1 Trustreet Properties Inc., 7.5%, 4/1/15 75,000
50,000 BB/Ba3 Ventas Realty Capital Corp., 7.125%, 6/1/15 (144A) 52,500
-----------
$ 436,859
-----------
Total Real Estate $ 436,859
-----------
Technology Hardware & Equipment - 0.6%
Computer Hardware - 0.6%
250,000 BBB-/Baa3 NCR Corp., 7.125%, 6/15/09 $ 261,511
-----------
Total Technology Hardware & Equipment $ 261,511
-----------
Semiconductors - 0.2%
85,000 BBB-/Baa3 Chartered Semiconductor, 6.375%, 8/3/15 $ 84,508
-----------
Total Semiconductors $ 84,508
-----------
Telecommunication Services - 0.6%
Integrated Telecommunication Services - 0.6%
140,000 BBB+/Baa2 Telecom Italia Capital, 4.875%, 10/1/10 137,254
100,000 BBB+/Baa2 Telecom Italia Capital, 5.25%, 11/15/13 $ 98,127
-----------
$ 235,381
-----------
Total Telecommunication Services $ 235,381
-----------
10 The accompanying notes are an integral part of these financial statements.
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
Utilities - 0.1%
Electric Utilities - 0.1%
50,000 BBB+/Baa3 Entergy Gulf States, 5.7%, 6/1/15 $ 48,931
-----------
Total Utilities $ 48,931
-----------
TOTAL CORPORATE BONDS
(Cost $3,993,144) $ 4,050,067
-----------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 23.6%
Government - 23.6%
100,000 Federal Home Loan Bank, 5.27%, 12/28/12 $ 99,880
149,538 Federal Home Loan Mortgage Corp., 4.5%, 12/1/20 145,516
210,875 Federal Home Loan Mortgage Corp., 5.0%, 5/1/34 204,568
107,559 Federal Home Loan Mortgage Corp., 5.5%, 10/1/16 108,320
174,289 Federal Home Loan Mortgage Corp., 5.5%, 12/1/35 172,727
150,000 Federal Home Loan Mortgage Corp., 5.75%, 1/15/12 157,382
945,583 Federal Home Loan Mortgage Corp., 6.0%, 1/1/33 956,663
231,738 Federal Home Loan Mortgage Corp., 6.0%, 11/1/33 234,324
34,234 Federal Home Loan Mortgage Corp., 6.0%, 6/1/34 34,579
21,615 Federal Home Loan Mortgage Corp., 6.5%, 5/1/09 22,128
15,199 Federal Home Loan Mortgage Corp., 6.5%, 11/1/33 15,644
124,701 Federal National Mortgage Association, 5.0%, 6/1/34 121,072
166,264 Federal National Mortgage Association, 5.5%, 2/1/17 167,483
143,830 Federal National Mortgage Association, 5.5%, 9/1/17 144,778
182,707 Federal National Mortgage Association, 5.5%, 11/1/33 181,367
350,765 Federal National Mortgage Association, 5.5%, 1/1/34 347,889
95,092 Federal National Mortgage Association, 5.5%, 3/1/34 94,252
177,101 Federal National Mortgage Association, 5.5%, 4/1/34 175,536
215,192 Federal National Mortgage Association, 5.5%, 9/1/34 213,291
248,203 Federal National Mortgage Association, 5.5%, 10/1/34 246,010
93,092 Federal National Mortgage Association, 5.5%, 12/1/34 92,269
78,534 Federal National Mortgage Association, 6.0%, 1/1/32 79,513
99,621 Federal National Mortgage Association, 6.0%, 12/1/33 100,661
110,000 Federal National Mortgage Association, 6.125%, 3/15/12 117,714
14,682 Federal National Mortgage Association, 6.5%, 8/1/13 15,104
12,747 Federal National Mortgage Association, 6.5%, 8/1/14 13,115
48,954 Federal National Mortgage Association, 6.5%, 12/1/21 50,599
48,249 Federal National Mortgage Association, 6.5%, 4/1/29 50,490
62,271 Federal National Mortgage Association, 6.5%, 7/1/32 64,010
95,315 Federal National Mortgage Association, 6.5%, 7/1/32 97,958
47,497 Federal National Mortgage Association, 6.5%, 9/1/32 49,078
28,657 Federal National Mortgage Association, 6.5%, 10/1/32 29,452
14,258 Federal National Mortgage Association, 6.5%, 10/1/32 14,654
10,000 Federal National Mortgage Association, 7.125%, 6/15/10 10,938
26,858 Federal National Mortgage Association, 9.0%, 4/1/33 28,354
41,439 Government National Mortgage Association, 4.5%, 1/15/35 39,769
98,994 Government National Mortgage Association, 4.5%, 4/15/35 95,004
92,251 Government National Mortgage Association, 5.0%, 4/15/34 91,149
315,457 Government National Mortgage Association, 5.0%, 10/15/34 311,704
52,644 Government National Mortgage Association, 5.5%, 4/15/33 53,058
170,262 Government National Mortgage Association, 5.5%, 6/15/33 171,601
137,610 Government National Mortgage Association, 5.5%, 7/15/33 138,691
199,735 Government National Mortgage Association, 5.5%, 8/15/19 202,683
The accompanying notes are an integral part of these financial statements. 11
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
U.S. Government and Agency Obligations (Cont.)
150,112 Government National Mortgage Association, 5.5%, 8/15/33 $ 151,292
35,403 Government National Mortgage Association, 5.5%, 9/15/33 35,687
251,537 Government National Mortgage Association, 6.0%, 8/15/32 257,825
80,051 Government National Mortgage Association, 6.0%, 9/15/32 82,064
67,080 Government National Mortgage Association, 6.5%, 5/15/33 70,079
162,673 Government National Mortgage Association, 6.0%, 8/15/34 166,592
293,382 Government National Mortgage Association, 6.0%, 9/15/33 300,740
38,465 Government National Mortgage Association, 6.5%, 10/15/28 40,276
141,677 Government National Mortgage Association II, 5.5%, 2/20/34 142,296
49,940 Government National Mortgage Association II, 6.0%, 10/20/33 51,255
15,976 Government National Mortgage Association II, 7.5%, 9/20/29 16,731
50,000 U.S. Treasury Bonds, 4.0%, 2/15/14 48,645
175,000 U.S. Treasury Bonds, 5.25%, 11/15/28 190,873
100,000 U.S. Treasury Bonds, 6.25%, 8/15/23 119,414
470,000 U.S. Treasury Notes, 4.0%, 11/15/12 459,884
175,000 U.S. Treasury Notes, 4.125%, 5/15/15 171,165
100,000 U.S. Treasury Notes, 4.25%, 8/15/15 98,707
500,000 U.S. Treasury Notes, 4.25%, 11/15/14 494,180
200,000 U.S. Treasury Notes, 4.75%, 5/15/14 204,867
300,000 U.S. Treasury Notes, 4.75%, 11/15/08 302,883
130,000 U.S. Treasury Notes, 5.375%, 2/15/31 146,027
250,000 U.S. Treasury Notes, 5.625%, 5/15/08 256,817
257,486 U.S. Treasury Inflation Protected Security, 3.5%, 1/15/11 275,184
100,000 U.S. Treasury Strip, 0.0%, 11/15/15 64,393
-----------
Total Government $ 9,908,853
-----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(Cost $10,008,942) $ 9,908,853
-----------
Shares
TEMPORARY CASH INVESTMENT - 0.3%
Security Lending Collateral - 0.3%
141,455 Securities Lending Investment Fund, 4.24% $ 141,455
-----------
TOTAL TEMPORARY CASH INVESTMENT
(Cost $141,455) $ 141,455
-----------
TOTAL INVESTMENTS IN SECURITIES - 99.1%
(Cost $37,306,341) $41,678,223
-----------
OTHER ASSETS AND LIABILITIES - 0.9% $ 402,093
-----------
TOTAL NET ASSETS - 100.0% $42,080,316
===========
(A.D.R.) American Depositary Receipt
* Non-income producing security
144A Security is exempt from registration under Rule 144A of the Securities Act
of 1933. Such securities may be resold normally to qualified institutional
buyers in a transaction exempt from registration. At December 31, 2005,
the value of these securities amounted to $555,069 or 1.3% of net assets.
N/R Not rated by either S&P or Moody's.
(a) At December 31, 2005, the following security was out on loan:
Principal
Amount Security Market Value
$ 190,000 General Motors, 7.2%, 1/15/11 $139,821
--------
Total $139,821
========
12 The accompanying notes are an integral part of these financial statements.
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
5/1/03 (a)
Year Ended Year Ended to
Class II 12/31/05 12/31/04 12/31/03
Net asset value, beginning of period $ 14.38 $ 14.02 $ 12.67
------- ------- -------
Increase from investment operations:
Net investment income $ 0.19 $ 0.22 $ 0.14
Net realized and unrealized gain on investments 0.34 0.42 1.40
------- ------- -------
Net increase from investment operations $ 0.53 $ 0.64 $ 1.54
Distributions to shareholders:
Net investment income ( 0.24) ( 0.28) ( 0.19)
------- ------- --------
Net increase in net asset value $ 0.29 $ 0.36 $ 1.35
------- ------- --------
Net asset value, end of period $ 14.67 $ 14.38 $ 14.02
======= ======= =======
Total return* 3.73% 4.59% 12.17 %(b)
Ratio of net expenses to average net assets+ 1.19% 1.19% 1.11%**
Ratio of net investment income to average net assets+ 1.37% 1.81% 1.12%**
Portfolio turnover rate 25% 30% 37%**
Net assets, end of period (in thousands) $12,660 $10,452 $ 3,390
Ratios with no waiver of management fees and assumption of expenses by PIM and no
reduction for fees paid indirectly:
Net expenses 1.19% 1.19% 1.11%**
Net investment income 1.37% 1.81% 1.12%**
(a) The Portfolio began offering Class II shares to the public on May 1, 2003.
(b) Not annualized.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
+ Ratios assuming no reduction for fees paid indirectly.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
The accompanying notes are an integral part of these financial statements. 13
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (including securities loaned of $139,821) (Cost $ 41,678,223
$37,306,341)
Cash 423,014
Receivables --
Investment securities sold 80,932
Fund shares sold 10,632
Dividends, interest and foreign taxes withheld 159,754
------------
Total assets $ 42,352,555
------------
LIABILITIES:
Payables --
Investment securities purchased $ 43,301
Fund shares repurchased 5,240
Upon return for securities loaned 141,455
Due to affiliates 5,636
Accrued expenses 76,607
------------
Total liabilities $ 272,239
------------
NET ASSETS:
Paid-in capital $ 41,790,013
Undistributed net investment income (loss) (4,725)
Accumulated net realized gain (loss) (4,076,854)
Net unrealized gain (loss) on investments 4,371,882
------------
Total net assets $ 42,080,316
------------
NET ASSET VALUE PER SHARE:
Class I:
(No par value, unlimited number of shares authorized)
Net assets $ 29,419,900
Shares outstanding 2,000,046
------------
Net asset value per share $ 14.71
Class II:
(No par value, unlimited number of shares authorized)
Net assets $ 12,660,416
Shares outstanding 862,830
------------
Net asset value per share $ 14.67
14 The accompanying notes are an integral part of these financial statements.
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year
Ended
12/31/05
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $560) $ 319,740
Interest 826,374
Income on securities loaned, net 2,706
----------
Total investment income $1,148,820
----------
EXPENSES:
Management fees $ 289,737
Transfer agent fees and expenses 7,714
Distribution fees (Class II) 30,536
Administrative reimbursements 18,512
Custodian fees 16,760
Professional fees 49,599
Printing expense 16,402
Fees and expenses of nonaffiliated trustees 4,606
Miscellaneous 10,779
----------
Total expenses $ 444,645
----------
Net expenses $ 444,645
----------
Net investment income $ 704,175
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain from investments $1,339,268
Change in net unrealized gain or loss from investments $ (318,959)
----------
Net gain on investments, futures contracts and foreign currency transactions $1,020,309
==========
Net increase in net assets resulting from operations $1,724,484
==========
The accompanying notes are an integral part of these financial statements. 15
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Year
Ended Ended
12/31/05 12/31/04
FROM OPERATIONS:
Net investment income $ 704,175 $ 857,444
Net realized gain on investments 1,339,268 1,099,149
Change in net unrealized gain or loss on investments, futures contracts and foreign
currency transactions (318,959) 127,896
------------ ------------
Net increase in net assets resulting from operations $ 1,724,484 $ 2,084,489
------------ ------------
DISTRIBUTIONS TO SHAREOWNERS:
Net investment income
Class I $ (588,607) $ (789,468)
Class II (208,623) (155,092)
------------ ------------
Total distributions to shareowners $ (797,230) $ (944,560)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 4,365,660 $ 8,978,890
Reinvestment of distributions 797,221 944,549
Cost of shares repurchased (9,774,029) (9,461,531)
------------ ------------
Net increase (decrease) in net assets resulting from Fund share transactions $ (4,611,148) $ 461,908
------------ ------------
Net increase (decrease) in net assets $ (3,683,894) $ 1,601,837
------------ ------------
NET ASSETS:
Beginning of year $ 45,764,210 $ 44,162,373
------------ ------------
End of year $ 42,080,316 $ 45,764,210
============ ============
Undistributed (distributions in excess of) net investment income, end of year $ (4,725) $ 14,409
============ ============
16 The accompanying notes are an integral part of these financial statements.
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer Balanced VCT Portfolio is a Portfolio of Pioneer Variable Contracts
Trust (the Trust), a Delaware statutory trust registered under the Investment
Company Act of 1940 as an open-end management investment company. The Trust
consists of twenty-nine separate diversified portfolios, fourteen of which
issue both Class I and Class II shares (collectively, the "Portfolios",
individually the "Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares
only)
The Portfolio commenced operations on May 1, 2003.
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts or by
qualified pension and retirement plans.
The financial highlights for the Portfolio's Class I shares are presented in a
separate book.
The investment objectives of Balanced Portfolio are capital growth and current
income.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
periods. Actual results could differ from those estimates.
Information concerning the Portfolio's principal investment risks is contained
in the Portfolio's prospectus(es). Please refer to those documents when
considering the Portfolio's risks. Investments in the Portfolio are subject to
possible loss due to the financial failure of underlying securities and their
inability to meet their debt obligations. The Portfolio may invest in
mortgage-backed securities, which during times of fluctuating interest rates
may increase or decrease more than other fixed-income securities. At times, the
Portfolio's investments may represent industries or industry sectors that are
interrelated or have common risks, making it more susceptible to any economic,
political, or regulatory developments or other risks affecting those industries
and sectors.
17
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
The following is a summary of significant accounting policies consistently
followed by the Portfolio, which are in conformity with those generally
accepted in the investment company industry:
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the portfolios are computed once daily, on each day the New York Stock
Exchange (NYSE) is open, as of the close of regular trading on the NYSE. In
computing the net asset values, securities are valued at the last sale
price on the principal exchange where they are traded. Securities that have
not traded on the date of valuation, or securities for which sale prices
are not generally reported, are valued at the mean between the last bid and
asked prices. Trading in foreign equity securities is substantially
completed each day at various times prior to the close of the NYSE. The
value of such securities used in computing the net asset value of the
Portfolio's shares is based on the last sale price on the principal
exchange where they traded. The Portfolio also may use the fair value of a
security, including a non-U.S. security, when the closing market price on
the primary exchange where the security is traded no longer accurately
reflects the value of the security as of the close of the NYSE. At December
31, 2005, there were no fair valued securities. Temporary cash investments
are valued at amortized cost.
Fixed income securities are valued at prices supplied by independent
pricing services, which consider such factors as Treasury spreads, yields,
maturities and ratings. Valuations may be supplemented by dealers and other
sources, as required. Securities for which market quotations are not
readily available are valued at their fair values as determined by, or
under the direction of, the Board of Trustees.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities where the ex-dividend date may have
passed are recorded as soon as the Portfolio becomes aware of the
ex-dividend data in the exercise of reasonable diligence. Interest income,
including interest on income bearing cash accounts, is recorded on the
accrual basis, net of unrecoverable foreign taxes withheld at the
applicable country rates. All discounts/premiums are accreted/amortized for
financial reporting purposes.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes on capital gains at
the applicable country rates.
B. Futures Contracts
The Portfolio may enter into futures transactions to hedge against changes
in interest rates, securities prices, and currency rates or to seek to
increase total return. Upon entering into a futures contract, the Portfolio
is required to deposit with a broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the associated futures
exchange. Subsequent payments for futures contracts ("variation margin")
are paid or received by the Portfolio, depending on the daily fluctuation
in the value of the contracts, and are recorded by the Portfolio as
unrealized gains or losses. When the contract is closed, the Portfolio
realizes a gain or loss equal to the difference between the opening and
closing value of the contract. The use of futures contracts involves, to
varying degrees, elements of market risk which may exceed the amounts
recognized by the Portfolio. Changes in the value of the contracts may not
directly correlate to the changes in the value of the underlying
securities. These risks may decrease the effectiveness of the Portfolio's
hedging and trading strategies and potentially result in a loss. As of
December 31, 2005, the portfolio had no open futures contracts.
C. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal
income tax rules. Therefore, the source of each Portfolio's distributions
may be shown in the accompanying financial statements as either from or in
excess of net investment income or net realized gain on investment
transactions, or from paid-in capital, depending on the type of book/tax
differences that may exist.
Capital loss carryforwards are available to offset future realized capital
gains. At December 31, 2005, Balanced Portfolio had a net capital loss
carryforward of $3,999,891, of which the following amounts will expire
between 2010 and 2011, if not utilized: $1,409,746 in 2010 and $2,590,145
in 2011.
At December 31, 2005, the Portfolio made reclassifications as described
below. These reclassifications have no impact on the net asset values of
the Portfolio and are designed to present the Portfolio's capital accounts
on a tax basis.
18
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Undistributed Accumulated
Net Investment Net Realized Paid-In
Portfolio Income (Loss) Gain (Loss) Capital
- --------------------------------------------------------------------------------
Pioneer Balanced VCT Portfolio $73,921 $(73,808) $(113)
The following chart shows the distributions paid during the years ended
December 31, 2005 and December 31, 2004 and the components of distributable
earnings (accumulated losses) as of December 31, 2005 on a tax basis.
- -------------------------------------------------------------------------------------------
2005 2004
- -------------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ 797,097 $944,560
Long-Term capital gain -- --
---------- --------
$ 797,097 $944,560
Return of Capital -- --
---------- --------
Total distributions $ 797,097 $944,560
========== ========
Distributable Earnings (Accumulated Losses):
Undistributed ordinary income $ --
Undistributed long-term gain/(capital loss carryforward) (3,999,891)
Unrealized appreciation (depreciation) 4,290,194
----------
Total $ (290,303)
==========
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is primarily attributable to the tax deferral of losses on
wash sales, returns of capital on REITs, and the recognition of unrealized
gains or losses on certain futures contracts.
D. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Trust and a wholly owned indirect subsidiary
of UniCredito Italiano S.p.A. (UniCredito Italiano), $638,021 in
commissions on the sale of Trust shares for the year ended December 31,
2005. Distribution fees for Class II shares are calculated based on the
average daily net asset values attributable to Class II shares of the
Portfolio. Shareowners of each class share all expenses and fees paid to
the transfer agent, Pioneer Investment Management Shareholder Services,
Inc. (PIMSS), for its services, which are allocated based on the number of
accounts in each class and the ratable allocation of related out-of-pocket
expenses (see Note 3). Income, common expenses (excluding transfer agent
and distribution fees) and realized and unrealized gains and losses are
calculated at the Portfolio level and allocated daily to each class of
shares based on the respective percentage of the adjusted-net assets at the
beginning of the day. The Portfolio declares as daily dividends
substantially all of its respective net investment income. All dividends
are paid on a monthly basis. Short-term capital gain distributions, if any,
may be declared with the daily dividends. Distributions paid by the
Portfolio with respect to each class of shares are calculated in the same
manner, at the same time, and in the same amount, except that Class I and
Class II shares can bear different transfer agent and distribution fees.
Dividends and distributions to shareowners are recorded on the ex-dividend
date.
E. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees. The Portfolio also continues to receive
payments in lieu of interest or dividends on the securities loaned. Gain or
loss in the fair value of the securities loaned that may occur during the
term of the loan, will be for the account of the Portfolio. The loans are
secured by collateral of at least 102%, at all times, of the fair value of
the securities loaned. The fair value of the collateral will be adjusted
daily to reflect any price fluctuation in the value of the loaned
securities. The Portfolio has the right under the lending agreement to
recover the securities on loan from the borrower on demand. The Portfolio
invests cash collateral in the Securities Lending Investment Fund which is
19
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
sponsored by Brown Brothers Harriman & Co., the Portfolio's custodian.
F. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano, manages the
portfolios. Management fees are calculated daily at the annual rate of 0.65% of
the Portfolio's average daily net assets.
In addition, under the management and administration agreement, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $1,515 was payable
to PIM related to management fees, administrative fees and certain other
services, and is included in due to affiliates.
3. Transfer Agent
Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly
owned indirect subsidiary of UniCredito Italiano provides substantially all
transfer agent and shareowner services to the Trust at negotiated rates.
Included in due to affiliates is $3,947 in transfer agent fees payable to PIMSS
at December 31, 2005.
4. Distribution Plans
The Portfolio has adopted a plan of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with the Portfolio's Class
II shares. Included in due to affiliates is $174 payable to PFD at December 31,
2005.
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- -----------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- -----------------------------------------------------------------------------------------------
Balanced Portfolio $37,388,029 $5,387,035 $ (1,096,841) $4,290,194
=========== ========== ============ ==========
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were $8,312,687 and $12,418,655, respectively. The cost of
purchase and the proceeds from sales in U.S. Government obligations were
$2,731,418 and $2,851,574, respectively.
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
- -----------------------------------------------------------------------------------------------
Balanced Portfolio '05 Shares '05 Amount '04 Shares '04 Amount
- -----------------------------------------------------------------------------------------------
CLASS I:
Shares sold 30,803 $ 441,468 78,321 $ 1,113,192
Reinvestment of distributions 40,641 588,607 55,609 789,468
Shares repurchased (522,797) (7,567,111) (586,843) (8,291,593)
-------- ------------ -------- ------------
Net decrease (451,353) $ (6,537,036) (452,913) $ (6,388,933)
======== ============ ======== ============
CLASS II:
Shares sold 272,986 $ 3,924,192 557,386 $ 7,865,698
Reinvestment of distributions 14,431 208,614 10,920 155,081
Shares repurchased (151,515) (2,206,918) (83,119) (1,169,938)
-------- ------------ -------- ------------
Net increase 135,902 $ 1,925,888 485,187 $ 6,850,841
======== ============ ======== ============
- -----------------------------------------------------------------------------------------------
20
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (unaudited)
The qualifying percentage of certain Portfolios' ordinary income dividends for
the purposes of the corporate dividends received deduction and the percentage
of those ordinary dividends that are subject to a maximum tax rate of 15% as
provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were
as follows:
- --------------------------------------------------------------------------------
Dividend Qualified
Received Dividend
Deduction Income
- --------------------------------------------------------------------------------
Balanced Portfolio 37.72% 40.51%
- --------------------------------------------------------------------------------
21
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust and the
Shareowners of Pioneer Balanced VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer Balanced VCT Portfolio, one of the
portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), as
of December 31, 2005, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005, by correspondence
with the custodian and brokers or by other appropriate auditing procedures
where replies from brokers were not received. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer Balanced VCT Portfolio of the Pioneer Variable Contracts Trust at
December 31, 2005, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and financial highlights for the periods indicated therein, in conformity with
U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
22
Pioneer Balanced VCT Portfolio (the "Fund") PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and two indices, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three, five and ten year
periods for the Fund and a peer group selected by the Independent Trustees for
this purpose, (2) management fees incurred by a peer group of funds selected by
the Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes matters considered by the Trustees in connection with
their renewal of the Fund's Management Contract. The Trustees did not identify
any single factor as all-important or controlling, and the summary does not
detail all the matters that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's
23
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and two
relevant indices, in each case selected by the Independent Trustees for this
purpose. The Fund's performance based upon total return was in the fifth
quintile of the peer group for the 12 months ended June 30, 2005, the fourth
quintile of the peer group for the three years ended June 30, 2005, the
fourth quintile for the five years ended June 30, 2005 and the third
quintile for the ten year period ended June 30, 2005. (In all quintile
rankings referred to throughout this discussion first quintile is most
favorable to the Fund's shareholders. Thus, highest relative performance
would be first quintile and lowest relative expenses also would be first
quintile.) The Trustees also considered the yield (gross of expenses) of the
Fund's Class I shares relative to the yield (as of June 30, 2005) of the
Lehman Aggregate Bond Index and the S&P 500 Index. The fixed income portion
of the portfolio performed well but the equity portion had underperformed
its benchmark index. The Trustees concluded, in light of Pioneer's
commitment to address the underperformance of the equity component, that the
performance of the Fund supported the continuation of the Management
Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's fixed income and equities groups. Among other
things, the Trustees considered the number, education and experience of the
Investment Adviser's investment staff and their use of technology and
emphasis on analytics in view of the risk profile of securities in which the
Fund invests. The Trustees concluded that the Investment Adviser had the
quality and depth of personnel and the well-developed methods essential to
performing its duties under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the fourth
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
considered the Fund's expense ratio and expense ratios of a peer group of
funds selected by the Independent Trustees for this purpose. The Fund's
expense ratio for the 12 months ended June 30, 2005 was in the fourth
quintile of the applicable peer group for the most recent fiscal year of the
peer group for the comparable period. The Trustees concluded that the Fund's
overall expense ratio was reasonable compared to that of peer funds.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
24
Pioneer Balanced VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. The Trustees concluded that,
given current and anticipated asset levels, break points in the management
fee are not necessary at this time. The Trustees will continue to evaluate
annually the appropriateness of break points.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund), and
benefits to the Investment Adviser from the use of "soft" commission dollars
to pay for research. The Trustees further considered the revenues and
profitability of the Investment Adviser's businesses other than the fund
business, including the Investment Adviser's institutional investment
advisory business. The Trustees considered the intangible benefits that
accrue to the Investment Adviser and its affiliates by virtue of its
relationship with the Fund and the Pioneer Funds as a group. The Trustees
concluded that all these types of benefits accruing to the Investment
Adviser were reasonable in the context of the overall relationship between
the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
25
Pioneer Balanced VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
26
Pioneer Balanced VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held
Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance
or earlier services company) (2001-present); company); Director of New York
retirement or Managing Partner, Federal City Mortgage Trust (publicly traded
removal. Capital Advisors (boutique merchant mortgage REIT)
bank) (2002 to 2004); Executive
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products
or earlier manufacturer), Mortgage Guaranty
retirement or Insurance Corporation, and Briggs
removal. & Stratton, Inc. (engine
manufacturer)
- ----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
27
Pioneer Balanced VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
28
Pioneer Balanced VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, None
Treasurer 2000. Serves at the Assistant Vice President - Fund
discretion of the Accounting, Administration and
Board. Custody Services of Pioneer; and
Assistant Treasurer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ---------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ---------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
29
[LOGO]PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company, Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18672-00-0206
[LOGO] PIONEER
Investments (R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Core Bond VCT Portfolio -- Class II Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Pioneer Core Bond VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 6
Financial Statements 8
Notes to Financial Statements 12
Report of Independent Registered Public Accounting Firm 16
Factors Considered by the Independent Trustees in
Approving the Management Contract 17
Trustees, Officers and Service Providers 20
Before investing, consider the Portfolio's investment
objectives, risks, charges and expenses. Contact your
advisor or Pioneer Investments for a prospectus containing
this information. Please read it carefully.
The Trust files a complete statement of investments with the
Securities and Exchange Commission for the first and the
third quarters for each fiscal year on Form N-Q. Shareowners
may view the filed Form N-Q by visiting the Commission's web
site at http://www.sec.gov. The filed form may also be
viewed and copied at the Commission's Public Reference Room
in Washington, D.C. Information regarding the operations of
the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment in securities)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Government Securities 90.8%
U.S. Corporate Bonds 9.2%
Quality Distribution
(As a percentage of total investment in securities)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Treasury/Agency 90.6%
BBB 6.1%
BB 2.0%
B & Lower 1.1%
Commercial Paper 0.2%
Five Largest Holdings
(As a percentage of long-term holdings)
1. Government National
Mortgage Association,
5.0%, 10/15/35 27.09%
2. Government National Mortgage
Association, 4.5%, 3/15/20 26.84
3. U.S. Treasury Notes,
3.625%, 6/30/07 19.00
4. U.S. Treasury Bonds,
5.25%, 11/15/28 6.62
5. U.S. Treasury Inflation
Protected Security,
3.0%, 7/15/12 5.92
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 7/15/05
Net Asset Value per Share $ 9.88 $ 10.00
Net
Distributions per Share Investment Short-Term Long-Term
(7/15/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.1608 $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Core Bond VCT Portfolio at net asset value, compared to that of the Lehman
Brothers Aggregate Bond Index. Portfolio returns are based on net asset value
and do not reflect any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Core Lehman Bros.
Bond VCT Aggregate
Portfolio Bond Index
Jul-05 10000 10000
Dec-05 10103 10083
The Lehman Brothers Aggregate Bond Index is a market value-weighted measure of
treasury and agency issues, corporate bond issues and mortgage-backed
securities. Index returns assume reinvestment of dividends and, unlike
Portfolio returns, do not reflect any fees, expenses or sales charges. You
cannot invest directly in any Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(as of December 31, 2005)
Net Asset Value
Life-of-Class
(7/15/05) 0.42%
All total returns shown assume reinvestment of distributions at net asset
value. Please refer to the variable product's report wrapper for performance
that reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown. Please refer to variable product's semiannual report for
performance that reflects the deduction of the variable products fees and
charges.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers, performance would be lower. Waivers may
not be in effect for all portfolios. Certain fee waivers are contractual
through a specified period. Otherwise, fee waivers can be rescinded at any
time. See the prospectus and financial statements for more information.
2
Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value [divided by] $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Core Bond VCT Portfolio
Based on actual returns from July 15, 2005 through December 31, 2005
Share Class II
- ------------------------------------------------------------
Beginning Account Value on 7/15/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,004.20
Expenses Paid During Period* $ 3.94
* Expenses are equal to the Portfolio's annualized expense ratio of 0.85% for
Class II shares, multiplied by the average account value over the period,
multiplied by 169/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer Core Bond VCT Portfolio
Based on a hypothetical 5% per year return before expenses, reflecting the
period from July 15, 2005 through December 31, 2005
Share Class II
- ------------------------------------------------------------
Beginning Account Value on 7/15/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,019.22
Expenses Paid During Period* $ 3.97
* Expenses are equal to the Portfolio's annualized expense ratio of 0.85% for
Class II shares, multiplied by the average account value over the period,
multiplied by 169/365 (to reflect the one-half year period).
3
Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
Rising interest rates undermined the performance of most fixed income
investments during the second half of 2005, a period in which some major
benchmarks of bond market performance produced negative results. Interest rates
rose among securities of virtually all maturities during the period, causing
prices to slip. In this challenging environment, mortgages tended to perform
well. In the following interview, Kenneth J. Taubes discusses the factors that
influenced Pioneer Core Bond VCT Portfolio's performance from its inception on
July 15, 2005, through December 31, 2005. Mr. Taubes, Director of Pioneer's
Fixed Income Group, oversees the team responsible for the daily management of
the Portfolio.
Q: How did the Portfolio perform since its inception?
A: Pioneer Core Bond VCT Portfolio (Class II Shares) had a total return of
0.42% at net asset value since it began investment operations on July 15,
2005, through the end of 2005. The Portfolio's benchmark, the Lehman
Brothers Aggregate Bond Index returned 0.83% over the period from July 31,
2005 through December 31, 2005. The process of constructing the initial
portfolio, and its associated costs, detracted from the Portfolio's
performance versus its benchmark during the period. On December 31, 2005,
the SEC standardized 30-day yield for Class II shares of the Portfolio was
3.38%.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q: What were the principal factors affecting Portfolio performance?
A: Against a backdrop of persistent economic growth, the Federal Reserve Board
continued to tighten monetary policy. The central bank raised the key fed
funds rate eight different times during the period as the rate rose from
2.25% to 4.25% by the end of 2005. While the rate hikes were widely
expected, they nevertheless had an impact on the financial markets. Yields
of securities of most securities rose and prices declined during the period.
This particularly affected short to intermediate treasury securities. The
principal exception was the 30-year Treasury bond, where the yields actually
declined. Over the year, the difference between the yields of shorter- and
longer-term securities grew smaller -- the yield curve flattened. At year's
end, the yield curve even had inverted in some places. That phenomenon, when
interest rates of shorter maturity securities become higher than some longer
maturity securities, is a reversal of the usual relationships and has been
associated with a relatively restrictive federal monetary policy. Because of
the flattening of the yield curve, performance of fixed income portfolios
was heavily influenced by the distribution of maturities in the portfolio.
Intermediate term bonds, in the middle of the yield curve, tended to perform
relatively poorly.
Among higher-quality domestic investments, mortgages generally outperformed
Treasuries, as well as highly-rated corporate bonds. In a challenging period
for fixed- income markets, mortgages offered relatively good yield with less
principal loss than other sectors.
Corporate bonds delivered modestly positive results, with high-yield bonds
performing slightly better as the higher income of these lower-rated
securities made up for price differences on a total-return basis.
A Word About Risk:
When interest rates rise, the prices of fixed income securities in the
Portfolio will generally fall. Conversely, when interest rates fall, the prices
of fixed income securities in the Portfolio will generally rise. Investments in
the Portfolio are subject to possible loss due to the financial failure of
underlying securities and their inability to meet their debt obligations.
Prepayment risk is the chance that mortgage-backed bonds will be paid off early
if falling interest rates prompt homeowners to refinance their mortgages.
Forced to reinvest the unanticipated proceeds at lower interest rates, the
Portfolio would experience a decline in income and lose the opportunity for
additional price appreciation associated with falling interest rates.
Investments in high yield or lower-rated securities are subject to
greater-than-average risk. The securities issued by U.S. Government sponsored
entities (i.e., FNMA, Freddie Mac) are neither guaranteed nor issued by the
U.S. Government. The Portfolio may invest in mortgage-backed securities, which
during times of fluctuating interest rates may increase or decrease more than
other fixed-income securities. Mortgage-Backed securities are also subject to
pre-payments. At times, the Portfolio's investments may represent industries or
industry sectors that are interrelated or have common risks, making it more
susceptible to any economic, political, or regulatory developments or other
risks affecting those industries and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers, performance would be lower. Waivers may
not be in effect for all portfolios. Certain fee waivers are contractual
through a specified period. Otherwise, fee waivers can be rescinded at any
time. See the prospectus and financial statements for more information.
4
Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Q: What were your principal strategies during the period and how did they
affect performance?
A: Our emphasis on higher-quality securities and our overweight position in
government agency mortgage-backed securities helped performance during a
challenging period in the fixed-income market. At the end of the period, 53
% of Portfolio assets were invested in mortgage securities. In addition, we
were well positioned on the yield curve, with a greater emphasis on
higher-yielding, longer-maturity bonds that outperformed intermediates. We
also emphasized Treasuries, with a relatively strong position in Treasury
Inflation Protected Securities (TIPS), and this also supported results. On
December 31, 2005, 37% of Portfolio assets were invested in Treasuries,
including TIPS. Conversely, as we recognized that the yield advantages of
corporate bonds were declining, we maintained a relatively small exposure to
the corporate sector. Corporate securities accounted for just 9.10% of
Portfolio assets at the end of 2005, including 6.10% in investment-grade
corporates.
Average credit quality for the Portfolio stood at AA+ at December 31, 2005.
The Portfolio's effective duration -- a measure of sensitivity to changes in
interest rates -- was 4.85 years on December 31, 2005, while average maturity
was 7.23 years.
Our goal for the Portfolio is to provide current income consistent with
capital preservation and prudent risk. The Portfolio focuses on
investment-grade, fixed income securities in pursuit of the goal.
Q: What is your investment outlook?
A: We anticipate that the pace of economic growth may slow in 2006, but the
economy should continue to expand. The Federal Reserve Board may continue to
raise short-term rates in the early part of the year, but we do not
anticipate that monetary policy will become so restrictive as to push the
economy into recession.
At a time when spreads -- or the differences between yields -- are tight
between yields of fixed-income securities of different credit quality, we
expect to continue to focus on higher-quality securities. We anticipate
maintaining an emphasis on mortgage-backed securities over corporate bonds.
Increased corporate merger-and-acquisition activity poses a potential threat
to holders of investment-grade corporate bonds, as many merger deals benefit
shareholders more than bondholders.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Portfolio's historical or future performance are
statements of the opinion of Portfolio management as of the date of this
report. These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
5
Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
(unaudited) Value
CORPORATE BONDS - 9.1%
Capital Goods - 0.5%
Electrical Component & Equipment - 0.5%
$ 5,000 NR/Ba1 Orcal Geothermal, 6.21%, 12/30/20 $ 5,014
--------
Total Capital Goods $ 5,014
--------
Media - 1.0%
Broadcasting & Cable TV - 1.0%
10,000 BBB+/Baa2 Comcast Corp., 5.85%, 11/15/15 $ 10,129
--------
Total Media $ 10,129
--------
Retailing - 0.5%
Specialty Stores - 0.5%
5,000 BBB-/Baa3 Tanger Factory Outlet Centers, Inc., 6.15%, 11/15/15 $ 5,051
--------
Total Retailing $ 5,051
--------
Insurance - 3.1%
Life & Health Insurance - 0.5%
5,000 B-/B2 Presidential Life Corp., 7.875%, 2/15/09 $ 4,950
--------
Multi-Line Insurance - 0.5%
5,000 BB/Ba1 Hanover Insurance Group, 7.625%, 10/15/25 $ 5,128
--------
Property & Casualty Insurance - 1.1%
10,000 BB+/Baa3 Ohio Casualty Corp., 7.3%, 6/15/14 $ 10,748
--------
Reinsurance - 1.0%
10,000 BBB/Baa2 Platinum Underwriters Financial, 7.5%, 6/1/17 $ 10,191
--------
Total Insurance $ 31,017
--------
Real Estate - 3.0%
Real Estate Investment Trusts - 3.0%
10,000 BBB-/Baa3 Health Care, Inc., 6.0%, 11/15/13 $ 10,006
5,000 BBB/Baa2 Hospitality Properties Trust, 5.125%, 2/15/15 4,784
10,000 BB-/Ba2 Host Marriott LP, 6.375%, 3/15/15 9,975
5,000 B+/B1 Trustreet Properties, Inc., 7.5%, 4/1/15 (144A) 5,000
--------
$ 29,765
--------
Total Real Estate $ 29,765
--------
Semiconductors - 1.0%
Semiconductors - 1.0%
10,000 BBB-/Baa3 Chartered Semiconductor, 6.375%, 8/3/15 $ 9,942
--------
Total Semiconductors $ 9,942
--------
TOTAL CORPORATE BONDS
(Cost $91,318) $ 90,918
--------
6 The accompanying notes are an integral part of these financial statements.
Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal
Amount Value
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 90.3%
$ 270,663 Government National Mortgage Association, 4.5%, 3/15/20 $265,324
271,209 Government National Mortgage Association, 5.0%, 8/15/35 267,819
60,000 U.S. Treasury Bonds, 5.25%, 11/15/28 65,442
55,388 U.S. Treasury Inflation Protected Security, 3.0%, 7/15/12 58,564
190,000 U.S. Treasury Notes, 3.625%, 6/30/07 187,833
10,000 U.S. Treasury Notes, 4.875%, 2/15/12 10,267
60,000 U.S. Treasury Strip, Zero Coupon, 11/15/13 42,338
--------
$897,587
--------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(Cost $908,555) $897,587
--------
TOTAL INVESTMENT IN SECURITIES - 99.4%
(Cost $999,873) $988,505
--------
OTHER ASSETS AND LIABILITIES - 0.6% $ 5,851
--------
TOTAL NET ASSETS - 100.0% $994,356
========
144A Security is exempt from registration under Rule 144A of the Securities Act
of 1933. Such securities may be resold normally to qualified institutional
buyers in a transaction exempt from registration. At December 31, 2005, the
value of these securities amounted to $5,000 or 0.5% of total net assets.
N/R Not rated by either S&P or Moody's.
The accompanying notes are an integral part of these financial statements. 7
Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
7/15/05(a)
to
Class II 12/31/05
Net asset value, beginning of period $ 10.00
-------
Increase (decrease) from investment operations:
Net investment income $ 0.16
Net realized and unrealized loss on investments (0.12)
-------
Net increase in net assets from investment operations $ 0.04
-------
Distributions to shareowners:
Net investment income (0.16)
-------
Net decrease in net asset value $ (0.12)
-------
Net asset value, end of period $ 9.88
=======
Total return* 0.42%(b)
Ratio of net expenses to average net assets 0.85%**
Ratio of net investment income to average net assets 3.57%**
Portfolio turnover rate 7%(b)
Net assets, end of period (in thousands) $ 994
Ratios with no waiver of management fees and assumption of expenses by PIM
Net expenses 10.10%**
Net investment loss (5.68)%**
(a) The Portfolio commenced operations on July 15, 2005.
(b) Not annualized.
* Assumes initial investment at net asset value at the beginning of the
period, reinvestment of all distributions and the complete redemption of
the investment at net asset value at the end of the period.
** Annualized.
NOTE: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
8 The accompanying notes are an integral part of these financial statements.
Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (cost $999,873) $ 988,505
Cash 1,812
Receivables --
Dividends, interest and foreign taxes withheld 8,142
Due from Pioneer Investment Management, Inc. 41,299
----------
Total assets $1,039,758
----------
LIABILITIES:
Payables --
Dividends $ 4,111
Due to affiliates 11,372
Accrued expenses 29,919
----------
Total liabilities $ 45,402
----------
NET ASSETS:
Paid-in capital $1,006,297
Undistributed net investment income 365
Accumulated net realized loss on investments (938)
Net unrealized loss on:
Investments (11,368)
----------
Total net assets $ 994,356
----------
NET ASSET VALUE PER SHARE:
Class II:
(No par value, unlimited number of shares authorized)
Net assets $ 994,356
Shares outstanding 100,647
----------
Net asset value per share $ 9.88
The accompanying notes are an integral part of these financial statements. 9
Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the period
from 7/15/05
(Commencement
of Operations)
to 12/31/05
INVESTMENT INCOME:
Interest $ 20,292
---------
Total investment income $ 20,292
---------
EXPENSES:
Management fees $ 2,243
Transfer agent fees and expenses 733
Distribution fees 1,121
Administrative reimbursements 8,575
Custodian fees 7,436
Professional fees 16,488
Printing expense 6,929
Fees and expenses of nonaffiliated trustees 2,268
Miscellaneous 586
---------
Total expenses $ 46,379
Less management fees waived and expenses assumed
by Pioneer Investment Management, Inc. (42,474)
---------
Net expenses $ 3,905
---------
Net investment income $ 16,387
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from:
Investments $ (915)
---------
Change in net unrealized loss from:
Investments $ (11,368)
---------
Net loss on investments $ (12,283)
---------
Net increase in net assets resulting from operations $ 4,104
=========
10 The accompanying notes are an integral part of these financial statements.
Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the period
from 7/15/05
(Commencement
of Operations)
to 12/31/05
FROM OPERATIONS:
Net investment income $ 16,387
Net realized loss on investments (915)
Change in net unrealized loss on investments (11,368)
----------
Net increase in net assets resulting from operations $ 4,104
----------
DISTRIBUTIONS TO SHAREOWNERS
Net investment income:
Class II $ (16,140)
----------
Total distributions to shareholders $ (16,140)
----------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $1,006,348
Reinvestment of distributions 63
Cost of shares repurchased (19)
----------
Net increase in net assets resulting from
Fund share transactions $1,006,392
----------
Net increase in net assets $ 994,356
NET ASSETS:
Beginning of period --
----------
End of period $ 994,356
==========
Undistributed net investment income, end of period $ 365
==========
The accompanying notes are an integral part of these financial statements. 11
Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer Core Bond VCT Portfolio (The Portfolio) is a Portfolio of Pioneer
Variable Contracts Trust (the Trust), a Delaware statutory trust registered
under the Investment Company Act of 1940 as an open-end management investment
company. The Trust consists of twenty nine separate diversified portfolios,
fourteen of which issue both Class I and Class II shares (collectively, the
"Portfolios", individually the "Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares
only)
The Portfolio commenced operations on July 15, 2005.
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts or by
qualified pension and retirement plans.
Core Bond Portfolio seeks to provide current income from an investment grade
portfolio with due regard to preservation of capital and prudent investment
risk.
The financial statements and financial highlights of all other Portfolios are
presented in separate books.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
periods. Actual results could differ from those estimates. The following is a
summary of significant accounting policies consistently followed by the
Portfolio, in the preparation of its financial statements, which are consistent
with those generally accepted in the investment company industry:
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the portfolios are computed once daily, on each day the New York Stock
Exchange (NYSE) is open, as of the close of regular trading on the NYSE. In
computing the net asset values, securities are valued at the last sale
price on the principal exchange where they are traded. Temporary cash
investments are valued at amortized cost.
12
Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Fixed income securities are valued at prices supplied by independent
pricing services, which consider such factors as Treasury spreads, yields,
maturities and ratings. Valuations may be supplemented by dealers and other
sources, as required. Securities for which market quotations are not
readily available are valued at their fair values as determined by, or
under the direction of, the Board of Trustees. Interest income, including
interest on income bearing cash accounts, is recorded on the accrual basis,
net of unrecoverable foreign taxes withheld at the applicable country
rates. All discounts/premiums are accreted/amortized for financial
reporting purposes.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes on capital gains at
the applicable country rates.
At times, the Portfolio's Investments may represent industries or industry
sectors that are interrelated or have common risks, making it more
susceptible to any economic, political, or regulatory developments or other
risks affecting those industries and sectors. Information regarding the
Portfolio's principal investment risks is contained in the Portfolio's
prospectus. Please refer to those documents when considering the
Portfolio's risks.
B. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal
income tax rules. Therefore, the source of the Portfolio's distributions
may be shown in the accompanying financial statements as either from or in
excess of net investment income or net realized gain on investment
transactions, or from paid-in capital, depending on the type of book/tax
differences that may exist.
The Portfolio elected to defer $945 in capital losses recognized between
November 1, 2005 and December 31, 2005 to its fiscal year ended December
31, 2006.
At December 31, 2005, the Portfolio made reclassifications as described
below. These reclassifications have no impact on the net asset values of
the Portfolio and are designed to present the Portfolio's capital accounts
on a tax basis.
- --------------------------------------------------------------------------------------------
Undistributed Net
Investment Income Accumulated Net
Portfolio (Loss) Realized Gain (Loss) Paid-In Capital
- --------------------------------------------------------------------------------------------
Core Bond Portfolio $118 $ (23) $ (95)
- --------------------------------------------------------------------------------------------
The following chart shows the distributions paid during the period ended
December 31, 2005 on a tax basis and the components of distributable
earnings (accumulated losses) as of December 31, 2005.
- --------------------------------------------------------------------------------------------
2005
- --------------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ 16,140
Long-Term capital gain/capital loss carryforward --
---------
$ 16,140
Return of Capital --
---------
Total distributions $ 16,140
=========
Distributable Earnings (Accumulated Losses):
Undistributed ordinary income $ 562
Undistributed long-term gain/(capital loss carryforward) --
Post-October Loss Deferred (945)
Unrealized appreciation (depreciation) (11,558)
---------
Total $ (11,941)
=========
- --------------------------------------------------------------------------------------------
13
Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is primarily attributable to the tax treatment of
amortization on securities purchased at premium.
C. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Trust and a wholly owned indirect subsidiary
of UniCredito Italiano S.p.A. (UniCredito Italiano), $638,021 in
commissions on the sale of Trust shares for the period ended December 31,
2005.
D. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees. The Portfolio also continues to receive
payments in lieu of interest or dividends on the securities loaned. Gain or
loss in the fair value of the securities loaned that may occur during the
term of the loan, will be for the account of the Trust. The loans are
secured by collateral of at least 102%, at all times, of the fair value of
the securities loaned. The fair value of the collateral will be adjusted
daily to reflect any price fluctuation in the value of the loaned
securities. The Portfolio has the right under the lending agreement to
recover the securities on loan from the borrower on demand. The Portfolio
invests cash collateral in the Securities Lending Investment Fund which is
sponsored by Brown Brothers Harriman & Co., the Trust's custodian.
E. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano, manages the
portfolios. Management fees are calculated daily at the annual rate of 0.50% of
the Portfolio's average daily net assets.
Through May 1, 2007, PIM has agreed not to impose all or a portion of its
management fee and to assume other operating expenses of the Portfolio to the
extent necessary to limit Class II expenses to 0.85% of the average daily net
assets attributable to Class II shares.
In addition, under the management and administration agreement, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $10,587 was payable
to PIM related to management fees, administrative reimbursements and certain
other services, and is included in due to affiliates.
3. Transfer Agent
Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly
owned indirect subsidiary of UniCredito Italiano provides substantially all
transfer agent and shareowner services to the Trust at negotiated rates.
Included in due to affiliates is $608 in transfer agent fees payable to PIMSS
at December 31, 2005.
4. Distribution Plans
The Portfolio has adopted a plan of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with the Portfolio's Class
II shares. Included in due to affiliates is $177 payable to PFD at
December 31, 2005.
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- --------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- --------------------------------------------------------------------------------------------
Core Bond Portfolio $1,000,063 $623 $ (12,181) $ (11,558)
========== ==== ========= =========
- --------------------------------------------------------------------------------------------
14
Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the period ended
December 31, 2005, were $147,975 and $55,650, respectively. The cost of
purchases and the proceeds from sales of investments in U.S. Government
obligations for the period ended December 31, 2005, were $915,629 and $8,128,
respectively.
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows for the
period ended December 31, 2005:
- --------------------------------------------------------------------------------
Core Bond Portfolio '05 Shares '05 Amount
- --------------------------------------------------------------------------------
CLASS II:
Shares sold 100,642 $1,006,348
Reinvestment of distributions 7 63
Shares repurchased (2) (19)
-------------------------------
Net increase 100,647 $1,006,392
===============================
- --------------------------------------------------------------------------------
15
Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust
and the Shareowners of Pioneer Core Bond VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer Core Bond VCT Portfolio, one of the
portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), as
of December 31, 2005, and the related statements of operations and changes in
net assets, and the financial highlights for the period from July 15, 2005
(commencement of operations) to December 31, 2005. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits include consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of December 31, 2005, by
correspondence with the custodian. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer Core Bond VCT Portfolio of the Pioneer Variable Contracts Trust at
December 31, 2005, the results of its operations, changes in its net assets,
and the financial highlights for the period from July 15, 2005 (commencement of
operations) to December 31, 2005 in conformity with U.S. generally accepted
accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
16
Pioneer Core Bond VCT Portfolio (the "Fund") PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and two indices, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for the life of the Fund period for the
Fund and a peer group selected by the Independent Trustees for this purpose,
(2) management fees incurred by a peer group of funds selected by the
Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's initial investment
performance based upon total return, as well as the Fund's
17
Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and two
relevant indices, in each case selected by the Independent Trustees for
this purpose. The Trustees concluded that the period since commencement of
investment operations was too short to evaluate the Investment Adviser's
performance.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The
Independent Trustees also have had discussions with senior management of
the Investment Adviser responsible for investment operations and the senior
management of the Investment Adviser's fixed income group. Among other
things, the Trustees considered the number, education and experience of the
Investment Adviser's investment staff and their use of technology and
emphasis on analytics in view of the risk profile of securities in which
the Fund invests. The Trustees concluded that the Investment Adviser had
the quality and depth of personnel and the well-developed methods essential
to performing its duties under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision
of third party service providers. Based on these considerations, the
Trustees concluded that the nature, quality, cost and extent of such
services are satisfactory and reliable and serve the shareholders of the
Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee from commencement of operations through June 30, 2005 was in
the second quintile relative to the management fees paid by the other funds
in that peer group for the comparable period. (In all quintile rankings
referred to throughout this discussion first quintile is most favorable to
the Fund's shareholders. Thus, highest relative performance would be first
quintile and lowest relative expenses also would be first quintile.) The
Trustees determined that the fee under the Management Contract was
reasonable and fair in light of both the overall nature and quality of
services provided by the Investment Adviser and the fees charged by the
funds in the peer group. The Trustees also considered the Fund's expense
ratio and expense ratios of a peer group of funds selected by the
Independent Trustees for this purpose. The Fund's expense ratio from
commencement of operations through June 30, 2005 was in the second quintile
of the applicable peer group for the most recent fiscal year of the peer
group for the comparable period. The Trustees concluded that the Fund's
overall expense ratio was reasonable compared to that of peer funds.
F. Profitability. The Trustees considered the level of the Investment
Adviser's profits with respect to the management of the Pioneer Funds,
including details with respect to the Fund. This consideration included a
review of the Investment Adviser's methodology in allocating certain of its
costs to the management of each Fund. The Trustees also considered the
financial results realized by the Investment Adviser in connection with the
operation of the Fund. They further considered the profits realized by the
Investment Adviser and its affiliates from non-fund businesses that may
benefit from or be related to the Fund's business. The Trustees considered
the Investment Adviser's profit margins in comparison with the limited
available industry data. The Trustees concluded that the Investment
Adviser's profits from management of the Pioneer Funds, including the
financial results derived from the Fund, bear a reasonable relationship to
the services rendered and are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. The Trustees concluded that,
given current and anticipated asset levels, break point in the management
fee are not necessary at this time. The Trustees will continue to evaluate
annually the appropriateness of break points.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates,
18
Pioneer Core Bond VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
including fees for services such as shareholder services. The Trustees also
considered the receipt of sales loads and payments under tionship with the
Fund and the Pioneer Funds as a group. The Trustees concluded that all
these types of benefits accruing to the Investment Adviser were reasonable
in the context of the overall relationship between the Investment Adviser
and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
19
Pioneer Core Bond VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
20
Pioneer Core Bond VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held
Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance
or earlier services company) (2001-present); company); Director of New York
retirement or Managing Partner, Federal City Mortgage Trust (publicly traded
removal. Capital Advisors (boutique merchant mortgage REIT)
bank) (2002 to 2004); Executive
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products
or earlier manufacturer), Mortgage Guaranty
retirement or Insurance Corporation, and Briggs
removal. & Stratton, Inc. (engine
manufacturer)
- ----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
21
Pioneer Core Bond VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRUST OFFICERS
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
22
Pioneer Core Bond VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRUST OFFICERS
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, Assistant Vice President - Fund None
Treasurer 2000. Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ---------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ---------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
23
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
24
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
25
[LOGO]PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company, Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18684-00-0206
[Logo] PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Cullen Value VCT Portfolio -- Class II Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Pioneer Cullen Value VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 6
Financial Statements 8
Notes to Financial Statements 12
Report of Independent Registered Public Accounting Firm 16
Factors Considered by the Independent Trustees in Approving
the Management Contract 17
Trustees, Officers and Service Providers 20
Before investing, consider the Portfolio's investment objectives, risks,
charges and expenses. Contact your advisor or Pioneer Investments for a
prospectus containing this information. Please read it carefully.
The Trust files a complete statement of investments with the Securities and
Exchange Commission for the first and the third quarters for each fiscal year
on Form N-Q. Shareowners may view the filed Form N-Q by visiting the
Commission's web site at http://www.sec.gov. The filed form may also be viewed
and copied at the Commission's Public Reference Room in Washington, D.C.
Information regarding the operations of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Portfolio Diversification
(As a percentage of total investment portfolio)
U.S. Common Stocks 73.4%
Depositary Receipts for International Stocks 23.5%
International Common Stocks 3.1%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution
(As a percentage of equity holdings)
Financials 32.2%
Industrials 13.7%
Consumer Staples 13.2%
Information Technology 12.2%
Health Care 8.5%
Materials 8.3%
Energy 6.0%
Consumer Discretionary 5.9%
Five Largest Holdings
(As a percentage of equity holdings)
1. Chubb Corp. 3.57%
2. GlaxoSmithKline 3.54
3. Anglo American Plc 3.39
4. Cemex SA (A.D.R.) 3.37
5. Wachovia Corp. 3.36
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 3/18/05
Net Asset Value per Share $ 10.99 $ 10.00
Net
Distributions per Share Investment Short-Term Long-Term
(3/18/05 - 12/31/05) Income Capital Gains Capital Gains
$ - $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Cullen Value VCT Portfolio at net asset value, compared to that of the Standard
& Poor's (S&P) 500 Index and the Russell 1000 Value Index. Portfolio returns
are based on net asset value and do not reflect any applicable insurance fees
or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
S&P 500 Pioneer Cullen Value VCT Portfolio Russell 1000 Value Index
Mar-5 10000 10000 10000
Dec-5 10721 11056 10696
The Standard & Poor's 500 Stock Index (the S&P 500) is a commonly used measure
of the broad U.S. stock market. The Russell 1000 Value Index measures the
performance of large-cap U.S. value stocks. Index returns assume reinvestment
of dividends and, unlike Portfolio returns, do not reflect any fees, expenses
or sales charges. You cannot invest directly in the Index.
- --------------------------------------------------------------------------------
Cumulative Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Life-of-Class 9.90%
(3/18/05)
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
2
Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value [divided by] $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Cullen Value VCT Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,091.36
Expenses Paid During Period* $ 5.24
* Expenses are equal to the Portfolio's annualized expense ratio of 1.00% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer Cullen Value VCT Portfolio
Based on a hypothetical 5% return per year before expenses, reflecting the
period from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,020.05
Expenses Paid During Period* $ 5.06
* Expenses are equal to the Portfolio's annualized expense ratio of 1.00% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
Since Pioneer Cullen Value VCT Portfolio's inception on March 18, 2005 there
has been consistent growth both in the economy and in corporate profitability,
despite interim scares about the impact of hurricane damage in the Gulf region,
sharply rising energy prices and higher short-term interest rates. Stock market
indices generally rose during the period, with some selected sectors and stocks
performing particularly well. In the following interview, James P. Cullen,
President of Cullen Capital Management and the leader of the management team
for the Fund, discusses the factors that influenced the performance of Pioneer
Cullen Value VCT Portfolio during the period from March 18, 2005 through
December 31, 2005.
Q: How did the Portfolio perform?
A: The Portfolio substantially outperformed market benchmarks. For the period
from inception through December 31, 2005, Pioneer Cullen Value VCT Portfolio
returned 9.90% at net asset value. During the same time periods, the
Standard & Poor's 500 Index returned 7.21%, while the Russell 1000 Value
Index returned 6.96%.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q: What were the principal factors that affected performance?
A: Stock selection was the principal driver of performance. We also were helped
by an underweight position in the energy sector and our decision in October
to initiate positions in traditional growth stocks whose stock valuations
had fallen far enough to meet our criteria as value investors.
Our strategy is to focus on the longer term and to stick to our discipline,
which focuses on companies with lower-than-average prices and high dividend
yields and strong balance sheets. Our investment universe encompasses those
companies whose stock valuations - as measured by price/earnings ratios -
are in the lowest 20% of the market. Many of these companies are mispriced
and we try to find these mispriced companies through intense analysis. As
part of our strategy, we like to take advantage of companies that can
benefit from longer-term secular themes, such as the globalization of the
world economies. We have a concentrated portfolio of approximately 37
different companies, and Fund turnover tends to be relatively low.
Stocks in general went through a sharp correction in October 2005 following
the devastation of New Orleans and the Gulf Coast from Hurricanes Katrina
and Rita and the sharp increases in energy prices that quickly followed. We
took advantage of this unusual occurrence to invest in several traditional
growth companies whose prices had fallen to levels that made them eligible
for consideration for our portfolio. They included Home Depot,
Hewlett-Packard, Nokia and Motorola. The stock prices of these traditional
growth companies subsequently began recovering in the final two months of
2005 and had a significant impact on the Portfolio's strong performance.
Also helping performance was our decision before the period began to move
from an overweight to an underweight position in energy stocks. Investors
began taking profits from their energy holdings in the final half of the
year after strong performance by the energy sector earlier.
Q: What were some of the individual stocks that had the greatest positive
impact on results?
A: The growth stocks mentioned earlier turned out to be strong performers.
Hewlett-Packard, a leader in the technology hardware industry, rose sharply
as investors reacted enthusiastically to the appointment of a new chief
executive and the expectation that the company would move in a new
direction. Home Depot's valuation rose as a result of the company's
restructuring, which included a greater focus on business with construction
contractors. Nokia and Motorola both were positioned to benefit from the
globalization of communications, the expansion of wireless
telecommunications services into emerging markets and the introduction of a
new generation of wireless phones.
Several of the Portfolio's other better-performing investments were
companies that exemplified the globalization theme. They included Anglo
American of the United Kingdom, a leading gold and copper mining company
with operations in South America,
A Word About Risk:
Investments in mid-sized companies may offer the potential for higher returns,
but are also subject to greater short-term price fluctuations than larger, more
established companies. The Portfolio invests in a limited number of securities
and, as a result, the Portfolio's performance may be more volatile than the
performance of other portfolios holding more securities. Investing in foreign
and/or emerging markets securities involves risks relating to interest rates,
currency exchange rates, economic, and political conditions. At times, the
Portfolio's investments may represent industries or industry sectors that are
interrelated or have common risks, making it more susceptible to any economic,
political, or regulatory developments or other risks affecting those industries
and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Africa and Asia. Its stock, which had been trading at inexpensive levels,
appreciated as the prices of gold and copper rose. Cemex, the Mexican-based
basic materials company with significant operations throughout the world,
including the United States, also turned in strong stock performance.
Our strategy in the financial industry also supported results, as we
emphasized companies with global franchises, such as J.P Morgan Chase and
Merrill Lynch, as well as domestic companies that eventually could be
acquisition candidates in a consolidating industry. Those included Regions
Financial, an undervalued regional bank headquartered in Montgomery,
Alabama.
Although we usually concentrate on large-cap companies, we do have some
investments in mid-caps. Two mid-cap companies that performed well during
the six months were Arrow Electronics, which has developed a global business
in electrical components, and BorgWarner, a manufacturer of advanced
automotive equipment, including drive trains.
Q: What were some of the disappointments?
A: Two of our remaining energy positions, Anadarko and Petrobras, suffered
small price declines, but still outperformed the energy sector during the
period. Anadarko, an exploration and production company, has good long-term
potential and could be an acquisition candidate. We did not hold Petrobras
at the end of the period.
Our health care holdings also held back results. We have sold our position
in Pfizer for tax reasons, but we continue to see value in the sector since
it has fallen out of favor.
Constellation Energy, a utility company that we owned early in the period,
also detracted from results before we liquidated our position.
Q: What is your investment outlook?
A: We expect to continue to pursue our globalization theme in 2006, and we see
some interesting opportunities. We are particularly interested in
investments in companies that are globalizing their businesses, whether they
are domestic or international. Three years after the world economy emerged
from recession, companies are finding ways to cut costs, become more
productive and still be more competitive in the global marketplace. This
includes financial companies such as J.P. Morgan Chase and Merrill Lynch. We
also have added a number of positions in foreign companies that are becoming
leading consumer staples competitors in the global marketplace. They
include: Unilever, a personal care products company based in the
Netherlands; Nestle, the Swiss-based food products company; and Diageo, a
London-based company marketing alcoholic beverages worldwide under a number
of different brand names.
Our focus continues to be on finding value in companies that we believe are
well positioned to produce gains within a three- to five-year time frame.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Portfolio's historical or future performance are
statements of the opinion of Portfolio management as of the date of this
report. These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
5
Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
COMMON STOCKS - 90.7%
Energy - 5.4%
Coal & Consumable Fuels - 0.4%
300 Cameco Corp. $ 19,017
----------
Integrated Oil & Gas - 1.9%
1,500 ConocoPhillips $ 87,270
----------
Oil & Gas Exploration & Production - 3.1%
750 Anadarko Petroleum Corp. $ 71,063
1,100 Devon Energy Corp. 68,794
----------
$ 139,857
----------
Total Energy $ 246,144
----------
Materials - 7.6%
Construction Materials - 3.1%
2,330 Cemex SA (A.D.R.) $ 138,239
----------
Diversified Metals & Mining - 3.1%
4,000 Anglo American Plc $ 139,120
----------
Forest Products - 1.4%
950 Weyerhaeuser Co. $ 63,023
----------
Total Materials $ 340,382
----------
Capital Goods - 3.9%
Aerospace & Defense - 1.2%
1,340 Raytheon Co. $ 53,801
----------
Industrial Conglomerates - 2.7%
3,520 General Electric Co. $ 123,376
----------
Total Capital Goods $ 177,177
----------
Transportation - 8.5%
Railroads - 8.5%
1,610 Canadian National Railway Co. $ 128,784
3,000 Canadian Pacific Railway, Ltd. 125,850
2,900 Norfolk Southern Corp. 130,007
----------
$ 384,641
----------
Total Transportation $ 384,641
----------
Automobiles & Components - 2.7%
Auto Parts & Equipment - 2.7%
2,040 Borg-Warner Automotive, Inc. $ 123,685
----------
Total Automobiles & Components $ 123,685
----------
Retailing - 2.6%
Home Improvement Retail - 2.6%
2,960 Home Depot, Inc. $ 119,821
----------
Total Retailing $ 119,821
----------
Food, Beverage & Tobacco - 12.0%
Agricultural Products - 2.0%
3,570 Archer Daniels Midland Co. $ 88,036
----------
Distillers & Vintners - 2.7%
2,130 Diageo Plc (A.D.R.) $ 124,179
----------
Shares Value
Packaged Foods & Meats - 7.3%
1,660 General Mills, Inc. $ 81,871
1,810 Nestle SA (A.D.R.) 135,337
1,650 Unilever NV 113,273
----------
$ 330,481
----------
Total Food, Beverage & Tobacco $ 542,696
----------
Pharmaceuticals & Biotechnology - 7.7%
Pharmaceuticals - 7.7%
2,880 GlaxoSmithKline $ 145,382
3,550 Pfizer, Inc. 82,786
2,650 Wyeth 122,086
----------
$ 350,254
----------
Total Pharmaceuticals &
Biotechnology $ 350,254
----------
Banks - 9.5%
Diversified Banks - 6.9%
2,800 Bank of America Corp. $ 129,220
1,500 ICICI Bank, Ltd. (A.D.R.) 43,200
2,610 Wachovia Corp. 137,964
----------
$ 310,384
----------
Regional Banks - 2.6%
3,450 Regions Financial Corp. $ 117,852
----------
Total Banks $ 428,236
----------
Diversified Financials - 11.1%
Diversified Capital Markets - 2.8%
1,320 UBS AG $ 125,598
----------
Investment Banking & Brokerage - 2.8%
1,850 Merrill Lynch & Co., Inc. $ 125,301
----------
Diversified Financial Services - 5.5%
2,450 Citigroup, Inc. $ 118,898
3,300 J.P. Morgan Chase & Co. 130,977
----------
$ 249,875
----------
Total Diversified Financials $ 500,774
----------
Insurance - 8.6%
Life & Health Insurance - 2.7%
2,500 MetLife, Inc. $ 122,500
----------
Multi-Line Insurance - 2.7%
1,400 Hartford Financial Services Group, Inc. $ 120,246
----------
Property & Casualty Insurance - 3.2%
1,500 Chubb Corp. $ 146,475
----------
Total Insurance $ 389,221
----------
Technology Hardware & Equipment - 11.1%
Communications Equipment - 5.6%
5,140 Motorola, Inc. $ 116,112
7,390 Nokia Corp. (A.D.R.) 135,237
----------
$ 251,349
----------
6 The accompanying notes are an integral part of these financial statements.
Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Computer Hardware - 2.8%
4,350 Hewlett-Packard Co. $ 124,541
----------
Technology Distributors - 2.7%
3,850 Arrow Electronics, Inc.* $ 123,316
----------
Total Technology Hardware &
Equipment $ 499,206
----------
TOTAL COMMON STOCKS
(Cost $3,842,020) $4,102,237
----------
TOTAL INVESTMENT IN SECURITIES - 90.7%
(Cost $3,842,020) $4,102,237
----------
OTHER ASSETS AND LIABILITIES - 9.3% $ 420,856
----------
TOTAL NET ASSETS - 100.0% $4,523,093
==========
* Non-income producing security
(A.D.R.) American Depositary Receipt
The accompanying notes are an integral part of these financial statements. 7
Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
3/18/05 (a)
to
Class II 12/31/05
Net asset value, beginning of period $ 10.00
-------
Increase from investment operations:
Net investment income $ 0.04
Net realized and unrealized gain on investments 0.95
-------
Net increase from investment operations $ 0.99
-------
Net increase in net asset value $ 0.99
-------
Net asset value, end of period $ 10.99
=======
Total return* 9.90 %(b)
Ratio of net expenses to average net assets 1.00%* *
Ratio of net investment income to average net assets 1.13%* *
Portfolio turnover rate 34%(b)
Net assets, end of period (in thousands) $ 4,523
Ratios assuming no waiver of management fees and assumption of expenses by PIM and no
reduction for fees paid indirectly:
Net expenses 5.71%* *
Net investment loss (3.58)%**
(a) Class II shares were first publicly offered on March 18, 2005.
* Assumes initial investment at net asset value at the beginning of the
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of the period.
** Annualized.
(b) Not Annualized.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
8 The accompanying notes are an integral part of these financial statements.
Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (cost $3,842,020) $4,102,237
Cash 383,940
Receivables --
Fund shares sold 115,879
Dividends, interest and foreign taxes withheld 3,633
Due from Pioneer Investment Management, Inc. 6,967
Other 23
----------
Total assets $4,612,679
----------
LIABILITIES:
Payables --
Investment securities purchased $ 50,852
Fund shares repurchased 874
Due to affiliates 147
Accrued expenses 37,713
----------
Total liabilities $ 89,586
----------
NET ASSETS:
Paid-in capital $4,287,040
Undistributed net investment income 17,513
Accumulated undistributed net realized loss (41,677)
Net unrealized gain on investments 260,217
----------
Total net assets $4,523,093
----------
NET ASSET VALUE PER SHARE:
Class II:
No par value (unlimited number of shares authorized)
Net assets $4,523,093
Shares outstanding 411,511
----------
Net asset value per share $ 10.99
The accompanying notes are an integral part of these financial statements. 9
Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
3/18/05
(Commencement
of Operations)
to 12/31/05
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $275) $ 26,869
Interest 5,567
---------
Total investment income $ 32,436
---------
EXPENSES:
Management fees $ 10,633
Transfer agent fees 1,250
Distribution fees (Class II) 3,798
Administrative reimbursements 13,887
Custodian fees 13,545
Professional fees 27,368
Printing 13,250
Fees and expenses of nonaffiliated trustees 2,346
Miscellaneous 1,000
---------
Total expenses $ 87,077
Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (71,870)
---------
Net expenses $ 15,207
---------
Net investment income $ 17,229
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from:
Investments $ (41,677)
---------
Change in net unrealized gain or (loss) from:
Investments $ 260,217
---------
Net gain on investments $ 218,540
---------
Net increase in net assets resulting from operations $ 235,769
=========
10 The accompanying notes are an integral part of these financial statements.
Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
3/18/05
(Commencement
of Operations)
to 12/31/05
FROM OPERATIONS:
Net investment income $ 17,229
Net realized loss on investments (41,677)
Change in net unrealized gain or loss on investments 260,217
----------
Net increase in net assets resulting from operations $ 235,769
----------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $4,361,712
Cost of shares repurchased (74,388)
----------
Net increase in net assets resulting from fund share transactions $4,287,324
----------
Net increase in net assets $4,523,093
NET ASSETS:
Beginning of period --
----------
End of period $4,523,093
==========
Undistributed net investment income, end of period $ 17,513
==========
The accompanying notes are an integral part of these financial statements. 11
Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer Cullen Value VCT Portfolio (the Portfolio) is a Portfolio of
Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust
registered under the Investment Company Act of 1940 as an open-end management
investment company. The Trust consists of twenty nine separate diversified
portfolios, sixteen of which issue both Class I and Class II shares
(collectively, the "Portfolios", individually the "Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares
only)
The Cullen Value Portfolio commenced operations on March 18, 2005.
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts or by
qualified pension and retirement plans.
The Cullen Value VCT Portfolio seeks capital appreciation and, secondarily, it
seeks income.
The financial statements and financial highlights of all other Portfolios are
presented in separate books.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
periods. Actual results could differ from those estimates.
Information concerning the Portfolio's principal investment risks is contained
in the Portfolio's prospectus(es). Please refer to those documents when
considering the Portfolio's risks. Investing in mid-sized companies may offer
the potential for higher returns, but are also subject to greater short-term
price fluctuations than larger, more established companies.
The following is a summary of significant accounting policies consistently
followed by the Trust, in the preparation of its financial statements which are
consistent with those generally accepted in the investment company industry:
12
Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the portfolio are computed once daily, on each day the New York Stock
Exchange (NYSE) is open, as of the close of regular trading on the NYSE. In
computing the net asset values, securities are valued at the last sale
price on the principal exchange where they are traded. Securities that have
not traded on the date of valuation, or securities for which sale prices
are not generally reported, are valued at the mean between the last bid and
asked prices. The Portfolio also may use the fair value of a security,
including a non-U.S. security, when the closing market price on the primary
exchange where the security is traded no longer accurately reflects the
value of the security as of the close of the NYSE. At December 31, 2005,
there were no fair valued securities. Temporary cash investments are valued
at amortized cost.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities where the ex-dividend date may have
passed are recorded as soon as the Portfolio becomes aware of the
ex-dividend data in the exercise of reasonable diligence. Interest income,
including interest on income bearing cash accounts, is recorded on the
accrual basis.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes on capital gains at
the applicable country rates.
B. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with income tax
rules. Therefore, the source of the Portfolio's distributions may be shown
in the accompanying financial statements as either from, or in excess of,
net investment income or net realized gain on investment transactions, or
from paid-in capital, depending on the type of book/tax differences that
may exist.
Capital loss carryforwards are available to offset future realized capital
gains. At December 31, 2005, Cullen Value Portfolio had a net capital loss
carryforward of $38,265, which will expire in 2013, if not utilized.
The Portfolio elected to defer $3,412 in capital losses recognized between
November 1, 2005 and December 31, 2005 to its fiscal year ended December
31, 2006.
At December 31, 2005, the Portfolio made reclassifications as described
below. These reclassifications have no impact on the net asset values of
the Portfolio and are designed to present the Portfolio's capital accounts
on a tax basis.
- ---------------------------------------------------------------------------------------
Undistributed Accumulated
Net Investment Net Realized Paid-In
Portfolio Income (Loss) Gain (Loss) Capital
- ---------------------------------------------------------------------------------------
Pioneer Cullen Value VCT Portfolio 284 -- (284)
- ---------------------------------------------------------------------------------------
The following chart shows the components of distributable earnings
(accumulated losses) as of December 31, 2005. There were no distributions
paid during the year ended December 31, 2005.
- ---------------------------------------------------------------------------------------
2005
- ---------------------------------------------------------------------------------------
Distributable Earnings
(Accumulated Losses):
Undistributed ordinary income $ 17,513
Undistributed long-term gain/
(capital loss carryforward) (38,265)
Post-October loss deferred (3,412)
Unrealized appreciation (depreciation) 260,217
--------
Total $236,053
========
- ---------------------------------------------------------------------------------------
C. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Trust and a wholly owned indirect subsidiary
of UniCredito Italiano S.p.A. (Unicredito Italiano), $638,021 in
commissions on the sale of Trust shares for the year ended December 31,
2005. Distribution fees are calculated based on the average daily net asset
values attributable to Class I and Class II shares of the Portfolio,
respectively.
13
Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
D. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees. The Portfolio also continues to receive
payments in lieu of interest or dividends on the securities loaned. Gain or
loss in the fair value of the securities loaned that may occur during the
term of the loan, will be for the account of the Trust. The loans are
secured by collateral of at least 102%, at all times, of the fair value of
the securities loaned. The fair value of the collateral will be adjusted
daily to reflect any price fluctuation in the value of the loaned
securities. The Portfolio has the right under the lending agreement to
recover the securities on loan from the borrower on demand. The Portfolio
invests cash collateral in the Securities Lending Investment Fund which is
sponsored by Brown Brothers Harriman & Co., the Trust's custodian.
E. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano manages the
portfolio. Management fees are calculated daily at the annual rate of 0.70% of
the Portfolio's average daily net assets.
In addition, under the management and administration agreements, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $12 was payable to
PIM related to management fees, administrative fees and certain other services,
and is included in due to affiliates.
Through May 1, 2006, PIM has agreed not to impose all or a portion of its
management fee and, if necessary, to limit other ordinary operating expenses to
the extent required to reduce Class II expenses to 1.00% of the average daily
net assets attributable to class II shares.
3. Transfer Agent
PIMSS, a wholly owned indirect subsidiary of UniCredito Italiano provides
substantially all transfer agent and shareowner services to the Trust at
negotiated rates. Included in due to affiliates is $125 in transfer agent fees
payable to PIMSS at December 31, 2005.
4. Distribution Plans
The Portfolio has adopted a plan of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with the Portfolio's Class
II shares. Included in due to affiliates is $10 payable to PFD at December 31,
2005.
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- ---------------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- ---------------------------------------------------------------------------------------------------
Cullen Value Portfolio $3,842,020 $271,369 $ (11,152) $260,217
========== ======== ========= ========
- ---------------------------------------------------------------------------------------------------
14
Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were $4,530,321 and $646,624, respectively.
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows for the
year ended December 31, 2005:
- -------------------------------------------------------------------
Fund Portfolio '05 Shares '05 Amount
- -------------------------------------------------------------------
CLASS II:
Shares sold 418,641 $4,361,712
Reinvestment of distributions -- --
Shares repurchased (7,130) (74,388)
------------------------------
Net increase 411,511 $4,287,324
==============================
- -------------------------------------------------------------------
15
Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust
and the Shareowners of Pioneer Cullen Value VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer Cullen Value VCT Portfolio, one of the
portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), as
of December 31, 2005, and the related statements of operations, changes in net
assets, and the financial highlights for the period from March 18, 2005
(commencement of operations) to December 31, 2005. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of December 31, 2005, by
correspondence with the custodian and brokers or by other appropriate auditing
procedures where replies from brokers were not received. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer Cullen Value VCT Portfolio of the Pioneer Variable Contracts Trust at
December 31, 2005, the results of its operations, changes in its net assets,
and the financial highlights for the period from March 18, 2005 (commencement
of operations) to December 31, 2005, in conformity with U.S. generally accepted
accounting principles.
/s/Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
16
Pioneer Cullen Value VCT Portfolio (the "Fund") PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract") between the Fund and Pioneer Investment Management, Inc., the Fund's
adviser (the "Investment Adviser"). The Investment Adviser has retained Cullen
Asset Management, LLC (the "Sub-adviser") to act as sub-adviser to the Fund
pursuant to a sub-advisory agreement between the Investment Adviser and the
Sub-adviser (the "Sub-advisory Agreement"). The Trustees have determined that
the terms of the Management Contract and the Sub-advisory Agreement are fair
and reasonable and that renewal of these contracts will enable the Fund to
receive quality investment advisory services at a cost deemed reasonable and in
the best interests of the Fund and its shareowners. In making such
determinations, the Independent Trustees relied upon the assistance of counsel
to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
the Investment Adviser, or its affiliates. While the Trustees, including the
Independent Trustees, act on all major matters relating to the Fund, a
significant portion of the activities of the Board of Trustees (including
certain of those described herein) is conducted through committees, the members
of which are comprised exclusively of Independent Trustees. Such committee
meetings are attended by officers of the Fund or the Investment Adviser to the
extent requested by the members of the committee.
In evaluating the Management Contract and Sub-advisory Agreement, the Trustees
conducted a review that was specifically focused upon the renewal of the
Management Contract and Sub-advisory Agreement, and relied upon their
knowledge, resulting from their meetings throughout the year, of the Investment
Adviser, its services and the Fund. Both in meetings specifically dedicated to
renewal of the Management Contract and at other meetings during the course of
the year, the Trustees, including the Independent Trustees, received materials
relating to the Investment Adviser's investment and management services under
the Management Contract. These materials included (i) information on the
investment performance of the Fund, a peer group of funds and an index, in each
case selected by the Independent Trustees for this purpose, (ii) sales and
redemption data in respect of the Fund, (iii) the general investment outlook in
the markets in which the Fund invests, (iv) arrangements in respect of the
distribution of the Fund's shares, (v) the procedures employed to determine the
value of each of the Fund's assets, (vi) the Investment Adviser's management of
the relationships with the Fund's unaffiliated service providers, (vii) the
record of compliance with the Fund's investment policies and restrictions and
with the Fund's Code of Ethics and the structure and responsibilities of the
Investment Adviser's compliance department, (viii) the nature, cost and
character of non-investment management services provided by the Investment
Adviser and its affiliates, (ix) the disclosures included in the Fund's
prospectuses and reports to shareowners and (x) the investment and compliance
staff and operations of the Subadviser.
Specifically, in connection with the Independent Trustees' review of the
Management Contract and the Sub-advisory Agreement, the Independent Trustees
requested and the Investment Adviser provided additional information in order
to evaluate the quality of the Investment Adviser's and Sub-adviser's services
and the reasonableness of the fee under the Management Contract and the
Sub-advisory Agreement. Among other items, this information included data or
analyses of (1) investment performance for the life of the fund period ended
June 30, 2005 for the Fund and a peer group selected by the Independent
Trustees for this purpose, (2) management and other fees incurred by a peer
group of funds selected by the Independent Trustees for this purpose, (3) the
advisory fees of comparable portfolios of other clients of the Investment
Adviser and the Sub-adviser, (4) expense ratios for the Fund and a peer group
of funds selected by the Independent Trustees for this purpose, (5) the overall
organization of the Investment Adviser and the Sub-adviser, (6) the Investment
Adviser's and the Sub-adviser's financial results and condition, including, in
the case of the Investment Adviser, its and certain of its affiliates
profitability from services performed for the Fund, (7) transfer agency fees
and administrative reimbursements paid to the Investment Adviser or affiliates,
(8) investment management staffing, and (9) operating expenses paid to third
parties. The Trustees also reviewed information regarding the potential for
each of the Fund and the Investment Adviser to benefit from further economies
of scale in the management of the Fund in light of reasonable growth
expectations for the Fund and certain of the Fund's expenses that are not
incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
17
Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to
shareowners of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareowner services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's performance compared to both
the performance of a peer group and an index, in each case selected by the
Independent Trustees for this purpose. The Trustees also considered the
activities of the Investment Adviser in monitoring the investment and
compliance operations of the Sub-adviser. The Trustees concluded that the
period from commencement of investment operations was too short to evaluate
the Investment Adviser's and Sub-adviser's performance.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations. Among other things, the
Trustees considered the number, education and experience of the
Sub-adviser's investment staff. The Trustees concluded that the Investment
Adviser and the Sub-adviser have the quality and depth of personnel and the
well-developed methods essential to performing their duties under the
Management Contract and the Sub-advisory Agreement.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareowners of the
Fund, including administrative and shareowner services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareowners of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee was in the first quintile (after fee waivers) relative to the
management fees paid by the other funds in that peer group for the life of
the Fund period ended June 30, 2005 and below the median without giving
effect to fee waivers. (In all quintile rankings referred to throughout this
discussion first quintile is most favorable to the Fund's shareowners. Thus,
highest relative performance would be first quintile and lowest relative
expenses also would be first quintile.) The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
evaluated the fee under the Sub-advisory Agreement and the portion of the
fee under the Management Contract retained by the Investment Adviser and
determined that they were consistent with other sub-advised funds. The
Trustees also considered the Fund's expense ratio and expense ratios of a
peer group of funds selected by the Independent Trustees for this purpose.
The Trustees concluded that, in light of the small amount of the Fund's net
assets, a comparison of expense ratios was not meaningful at this time.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
18
Pioneer Cullen Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. The Trustees concluded that,
given current and anticipated asset levels, break points in the management
fee are not necessary at this time. The Trustees will continue to evaluate
annually the appropriateness of break points.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareowner services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect of the Pioneer Funds (including the Fund), and
benefits to the Subadviser from the use of "soft" commission dollars to pay
for research services. The Trustees further considered the revenues and
profitability of the Investment Adviser's businesses other than the fund
business, including the Investment Adviser's institutional investment
advisory business. The Trustees considered the intangible benefits that
accrue to the Investment Adviser and its affiliates by virtue of its
relationship with the Fund and the Pioneer Funds as a group. The Trustees
concluded that all these types of benefits accruing to the Investment
Adviser were reasonable in the context of the overall relationship between
the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's and
Sub-adviser's overall performance, considered it appropriate to continue to
retain the management services of the Investment Adviser and the Sub-adviser.
Based on their evaluation of all material factors deemed relevant and the
advice of independent counsel, the Trustees concluded that the Management
Contract with the Fund and the Sub-advisory Agreement are fair and reasonable
and voted to approve the continuation of the Management Contract and the
Sub-advisory Agreement for another year.
19
Pioneer Cullen Value VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
20
Pioneer Cullen Value VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held
Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance
or earlier services company) (2001-present); company); Director of New York
retirement or Managing Partner, Federal City Mortgage Trust (publicly traded
removal. Capital Advisors (boutique merchant mortgage REIT)
bank) (2002 to 2004); Executive
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products
or earlier manufacturer), Mortgage Guaranty
retirement or Insurance Corporation, and Briggs
removal. & Stratton, Inc. (engine
manufacturer)
- ----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
21
Pioneer Cullen Value VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
22
Pioneer Cullen Value VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, None
Treasurer 2000. Serves at the Assistant Vice President - Fund
discretion of the Accounting, Administration and
Board. Custody Services of Pioneer; and
Assistant Treasurer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ---------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ---------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
23
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
24
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
25
[Logo] PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company, Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18678-00-0206
[LOGO]PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Emerging Markets VCT Portfolio -- Class II Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Pioneer Emerging Markets VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 5
Financial Statements 9
Notes to Financial Statements 13
Report of Independent Registered Public Accounting Firm 18
Factors Considered by the Independent Trustees
in Approving the Management Contract 19
Trustees, Officers and Service Providers 22
Before investing consider the Portfolio's investment objectives, risks, charges
and expenses. Contact your advisor or Pioneer Investments for a prospectus
containing this information. Read it carefully.
The Trust files a complete statement of investments with the Securities and
Exchange Commission for the first and the third quarters for each fiscal year
on Form N-Q. Shareowners may view the filed Form N-Q by visiting the
Commission's web site at http://www.sec.gov. The filed form may also be viewed
and copied at the Commission's Public Reference Room in Washington, D.C.
Information regarding the operations of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
International Common Stocks 64.0%
Depositary Receipts for International Stocks 22.9%
Temporary Cash Investment 5.7%
U.S. Common Stocks 4.9%
International Preferred Stocks 2.5%
Geographical Distribution
(As a percentage of equity holdings)
South Korea 22.1%
Brazil 17.8%
South Africa 10.0%
Taiwan 9.6%
Russia 6.4%
People's Republic of China 4.9%
India 4.7%
Turkey 4.6%
Thailand 3.7%
Israel 3.1%
Mexico 2.8%
Indonesia 1.7%
Malaysia 1.3%
Poland 1.2%
Hong Kong 1.0%
Philippines 1.0%
Other (individually less than 1%) 4.1%
Five Largest Holdings
(As a percentage of equity holdings)
1. Petrobras Brasileiro (A.D.R.) 3.96%
2. Companhia Vale do Rio Doce (A.D.R.) 2.21
3. Hyundai Motor Co., Ltd. 2.17
4. Samsung Electronics 2.04
5. Anglo American Platinum Corp. 1.88
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 27.84 $ 20.33
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.1038 $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Emerging Markets VCT Portfolio at net asset value, compared to that of the
Morgan Stanley Capital International (MSCI) Emerging Markets Index. Portfolio
returns are based on net asset value and do not reflect any applicable
insurance fees or surrender charges.
Pioneer Emerging MSCI Emerging
Markets VCT Portfolio Markets Index
10/98 10000 10000
10486 10675
12/99 18695 17764
12317 12326
12/01 11410 12034
11247 11312
12/03 17745 17678
21070 22265
12/05 28993 29956
The Morgan Stanley Capital International (MSCI) Emerging Markets Index measures
the performance of emerging market stocks. Index returns are calculated
monthly, assume reinvestment of dividends and, unlike Portfolio returns, do not
reflect any fees, expenses or sales charges. You cannot invest directly in the
Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Life-of-Class 16.01%
(10/30/98)
5 Years 18.67%
1 Year 37.60%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
2
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value [divided by] $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Emerging Markets VCT Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II
-------------------------------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,306.99
Expenses Paid During Period* $ 11.46
* Expenses are equal to the Portfolio's annualized expense ratio of 1.97% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer Emerging Markets VCT Portfolio
Based on a hypothetical 5% return per year before expenses, reflecting the
period from July 1, 2005 through December 31, 2005.
Share Class II
-------------------------------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,015.27
Expenses Paid During Period* $ 10.01
* Expenses are equal to the Portfolio's annualized expense ratio of 1.97% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
In the following interview, Christopher Smart, Pioneer Emerging Market VCT
Portfolio's Portfolio Manager, discusses the factors that influenced
performance during the 12 months ended December 31, 2005.
Q. Emerging markets equities performed very well during the reporting period.
What factors underpinned this powerful upward move?
A. The rally in emerging markets stocks during the past twelve months follows
four years of outperformance for the asset class relative to the developed
markets. In our view, three key factors have contributed to this outcome.
First, economic growth in emerging markets has been much stronger than that
of the developed markets. This has been the result of both rising value of
commodities exports, as well as increasing domestic consumption by an
emerging middle class. Second, valuations have been well below those of the
developed market stocks, and remain so even after several years of
outperformance. Third, the risk of investing in the emerging markets is
much lower than it was even as recently as the late 1990s. Both
corporations and countries have paid down their debts and rebuilt their
balance sheets, putting the asset class on a much healthier footing to
withstand external shocks. Taken together, those factors have led to
significant outperformance for emerging markets stocks: for the five-year
period ended December 31, the average annual return of the MSCI Emerging
Markets Index was 19.44%, well ahead of the 4.55% annual return of the MSCI
EAFE Index.
Q. How did the Portfolio perform?
A. For the 12 months ended December 31, 2005, the Portfolio's Class II shares
had a total return of 37.60% at net asset value. We are pleased to report
that the Portfolio outpaced the 34.54% return of the Morgan Stanley Capital
International (MSCI) Emerging Markets Index during the period.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q. What factors helped and hurt the Portfolio's performance?
A. The most significant contributions came from the Portfolio's positions in
South Korea, Brazil and South Africa. In South Korea, our stocks produced
an aggregate return well ahead of the benchmark. Our positions in
shipbuilding stocks such as Samsung Heavy Industries and Hyundai Heavy
Industries delivered particularly strong returns, as the rising demand for
new ships led to improved pricing power and a three-year order backlog for
companies in the sector. Korean stocks positioned to benefit from the
recovery in the domestic economy, such as Kookmin Bank and Hyundai Motor,
also did well.
Like South Korea, Brazil has benefited from the release of pent-up consumer
demand. With inflation low and interest rates beginning to decline, the
demand for credit has expanded. The result has been improving bottom lines
for the nation's banks, including the portfolio's holding in Banco Itau.
Another strong performer was our position in Net Servicos, a cable
television provider that is expanding into high speed internet and telephone
services in Brazil's major cities.
The South African economy also has been improving, due in part to the
government's substantial outlays for infrastructure projects such as roads
and ports. A key beneficiary of this trend was Aveng, a construction company
that also has holdings in steel and cement. Another top contributor was
Anglo Platinum, which benefited as the price of platinum surged to nearly US
$1000 per ounce.
There were very few significant detractors during the past year. The Fund's
underweight in Russian oil stocks was a slight negative for relative
performance. Our belief was that Russian energy companies would earn less
money than their global peers due to the government's taxation policies, but
investors largely ignored this issue. An underweight in Mexico also had a
small negative impact on relative performance.
Q. What is your broad view regarding emerging markets equities?
A. Despite nearly five years of outperformance by emerging markets stocks, we
believe that the elements underpinning the recent gains remain in place:
economic growth remains strong, valuations are attractive and debt levels
remain low. As a higher-risk asset class, emerging markets naturally will
be more vulnerable in the event of rapidly rising global interest rates or
heightened risk aversion among investors. However, we believe that the
combination of stronger balance sheets and better economic management will
help guard against the dangers of global economic turbulence.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
A Word About Risk:
Investing in foreign and/or emerging markets securities involves risks relating
to interest rates, currency exchange rates, economic, and political conditions.
At times, the Portfolio's investments may represent industries or industry
sectors that are interrelated or have common risks, making it more susceptible
to any economic, political, or regulatory developments or other risks affecting
those industries and sectors.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
PREFERRED STOCKS - 3.3%
Materials - 0.6%
Steel - 0.6%
239,300 Caemi Mineracao E Metalurgia SA $ 348,977
-----------
Total Materials $ 348,977
-----------
Capital Goods - 0.1%
Industrial Conglomerates - 0.1%
3,445 LG Corp. $ 72,264
-----------
Total Capital Goods $ 72,264
-----------
Media - 0.8%
Broadcasting & Cable TV - 0.8%
963,400 Net Servicos de Comunicacao SA* $ 440,849
-----------
Total Media $ 440,849
-----------
Banks - 1.1%
Diversified Banks - 1.1%
23,930 Banco Itau Holding Financeira $ 576,170
-----------
Total Banks $ 576,170
-----------
Telecommunication Services - 0.7%
Integrated Telecommunication Services - 0.7%
22,801 Tele Norte Leste Participacoes (A.D.R.) $ 408,594
-----------
Total Telecommunication Services $ 408,594
-----------
TOTAL PREFERRED STOCKS
(Cost $1,198,560) $ 1,846,854
-----------
COMMON STOCKS - 95.8%
Energy - 15.5%
Coal & Consumable Fuels - 0.4%
313,200 Yanzhou Coal Mining $ 200,234
-----------
Integrated Oil & Gas - 11.7%
485,600 China Petroleum & Chemicals $ 241,987
13,800 Gazprom (A.D.R.)* 1,002,266
16,000 Lukoil Holding (A.D.R.) 948,800
3,400 Mol Magyar Olaj 318,093
33,700 Petrobras Brasileiro (A.D.R.) 2,169,269
540,000 PetroChina Co., Ltd. 442,593
48,500 PTT Public Co., Ltd. 267,179
9,000 Repsol SA (A.D.R.) 264,690
14,500 Surgutneftegaz (A.D.R.)(a) 794,033
-----------
$ 6,448,910
-----------
Oil & Gas Equipment & Services - 0.7%
3,500 TelecomAsia Corp. $ 400,750
-----------
Oil & Gas Exploration & Production - 0.7%
584,000 Cnooc, Ltd. $ 396,487
-----------
Oil & Gas Refining & Marketing - 1.7%
19,800 Polski Koncern Naftowy Orlen SA $ 382,426
14,300 Reliance Industries, Ltd. (144A) 562,133
-----------
$ 944,559
-----------
Shares Value
Oil & Gas Storage & Transportation - 0.3%
11,718 Ultrapar Participacoes SA $ 162,868
-----------
Total Energy $ 8,553,808
-----------
Materials - 11.8%
Construction Materials - 2.6%
7,450 Asia Cement Co., Ltd. $ 294,603
3,530 Hanil Cement Co., Ltd. 254,162
954,000 Indocement Tunggal Prakarsa Tbk* 343,542
721,100 Lafarge Malayan Cement Berhad 117,139
66,100 Siam City Cement Co., Ltd. 425,961
-----------
$ 1,435,407
-----------
Diversified Metals & Mining - 1.2%
899,000 Aneka Tambang Tbk $ 325,928
6,000 Freeport-McMoRan Copper & Gold, Inc.
(Class B) 322,800
-----------
$ 648,728
-----------
Fertilizers & Agricultural Chemicals - 0.4%
44,000 Makhteshim-Agan Industries, Ltd. $ 253,067
-----------
Gold - 2.7%
14,500 Anglogold Ashanti, Ltd. (A.D.R.)(a) $ 715,285
36,100 IAMGOLD Corp. 282,302
1,070,000 Zijin Mining Group Co., Ltd. 471,789
-----------
$ 1,469,376
-----------
Precious Metals & Minerals - 2.7%
14,200 Anglo American Platinum Corp. $ 1,029,162
15,900 Compania de Minas Buenaventura SA 449,970
-----------
$ 1,479,132
-----------
Steel - 2.2%
33,300 Companhia Vale do Rio Doce (A.D.R.) $ 1,207,125
-----------
Total Materials $ 6,492,835
-----------
Capital Goods - 11.9%
Aerospace & Defense - 0.4%
9,100 Elbit Systems, Ltd. $ 221,793
-----------
Building Products - 0.5%
73,900 Trakya Cam Sanayii AS $ 287,390
-----------
Construction & Engineering - 4.8%
134,200 Aveng, Ltd. $ 380,422
1,003,020 Continental Engineering Corp. 396,090
4,369 Daelim Industrial Co. 309,809
99,017 Empressa ICA Sociedad Controladora
SA de CV* 242,425
8,300 GS Engineering & Construction Corp. 435,538
15,440 Kyeryong Construction Industrial Co., Ltd. 460,057
10,900 Larsen & Toubro, Ltd. 447,161
-----------
$ 2,671,502
-----------
The accompanying notes are an integral part of these financial statements. 5
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
Construction, Farm Machinery &
Heavy Trucks - 3.3%
21,400 Daewoo Heavy Industries &
Machinery, Ltd. $ 580,403
8,030 Hyundai Heavy Industries 610,950
36,500 Samsung Heavy Industries Co., Ltd. 636,792
-----------
$ 1,828,145
-----------
Heavy Electrical Equipment - 0.8%
13,600 Bharat Heavy Electricals (Demat Shares) $ 419,729
-----------
Industrial Conglomerates - 0.8%
45,075 KOC Holding AS $ 211,827
6,825 LG Corp. 211,832
-----------
$ 423,659
-----------
Industrial Machinery - 1.3%
27,900 Doosan Heavy Industries &
Construction Co. $ 498,650
389,000 Yungtay Engineering Co., Ltd. 249,252
-----------
$ 747,902
-----------
Total Capital Goods $ 6,600,120
-----------
Transportation - 1.9%
Airlines - 0.8%
15,100 Gol-Linhas Aereas Inteligentes SA $ 428,919
-----------
Marine - 1.1%
466,000 China Shipping Development Co., Ltd. $ 341,704
103,200 Malaysia International Shipping Bhd. 270,379
-----------
$ 612,083
-----------
Total Transportation $ 1,041,002
-----------
Automobiles & Components - 2.8%
Automobile Manufacturers - 2.8%
12,400 Hyundai Motor Co., Ltd. $ 1,188,614
47,700 Ssangyong Motor Co.* 382,259
-----------
$ 1,570,873
-----------
Total Automobiles & Components $ 1,570,873
-----------
Consumer Durables & Apparel - 1.5%
Homebuilding - 0.8%
34,320 Cyrela Brazil Realty SA $ 469,675
-----------
Household Appliances - 0.7%
53,240 Arcelik AS $ 370,748
-----------
Total Consumer Durables & Apparel $ 840,423
-----------
Consumer Services - 0.8%
Hotels, Resorts & Cruise Lines - 0.8%
21,300 Indian Hotels Co., Ltd.* $ 469,193
-----------
Total Consumer Services $ 469,193
-----------
Shares Value
Media - 2.5%
Broadcasting & Cable TV - 1.4%
459,000 BEC World Public Co., Ltd. $ 151,042
4,947 Grupo Televisa SA (A.D.R.) 398,234
47,000 Television Broadcasts, Ltd. 250,384
-----------
$ 799,660
-----------
Publishing - 1.0%
144,116 Hurriyet Gazetecilik ve Matbaacilik AS $ 565,869
-----------
Total Media $ 1,365,529
-----------
Retailing - 3.2%
Apparel Retail - 0.8%
121,200 Truworths International, Ltd. $ 460,420
-----------
Department Stores - 1.0%
6,300 Hyundai Department Store Co., Ltd. $ 530,896
-----------
General Merchandise Stores - 0.7%
11,900 Lojas Renner SA* $ 381,637
-----------
Homefurnishing Retail - 0.7%
38,200 Ellerine Holdings, Ltd. $ 374,772
-----------
Total Retailing $ 1,747,725
-----------
Food & Drug Retailing - 2.8%
Food Retail - 0.7%
199,000 President Chain Store Corp. $ 417,371
-----------
Hypermarkets & Supercenters - 2.1%
13,100 Brasil Distr Pao Acu (A.D.R.)(a) $ 430,990
34,200 Massmart Holdings, Ltd. 279,752
1,000 Shinsegae Co., Ltd. 437,014
-----------
$ 1,147,756
-----------
Total Food & Drug Retailing $ 1,565,127
-----------
Food, Beverage & Tobacco - 3.6%
Brewers - 0.5%
8,850 Efes Breweries International (144A)
(G.D.R.)* $ 250,013
-----------
Packaged Foods & Meats - 1.5%
5,480 CJ Corp. $ 564,792
12,300 Tiger Brands, Ltd. 283,163
-----------
$ 847,955
-----------
Soft Drinks - 1.6%
12,200 Fomento Economico Mexicano SA de CV $ 884,622
-----------
Total Food, Beverage & Tobacco $ 1,982,590
-----------
6 The accompanying notes are an integral part of these financial statements.
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Household & Personal Products - 1.0%
Personal Products - 1.0%
6,150 Natura Cosmeticos SA $ 270,849
9,100 Oriflame Cosmetics SA 262,183
-----------
$ 533,032
-----------
Total Household &
Personal Products $ 533,032
-----------
Pharmaceuticals & Biotechnology - 0.6%
Pharmaceuticals - 0.6%
9,500 PT Tempo Scan Pacific $ 5,438
7,700 Teva Pharmaceutical Industries, Ltd.
( A.D.R.)(a) 331,177
-----------
$ 336,615
-----------
Total Pharmaceuticals &
Biotechnology $ 336,615
-----------
Banks - 11.8%
Diversified Banks - 11.8%
22,932 Banco Bradesco SA(a) $ 668,468
25,000 Banco do Brasil SA 451,182
88,300 Bangkok Bank, Ltd. 247,719
133,900 Bank Hapoalim, Ltd. 619,981
18,563 Bank of Baroda 99,485
206,500 Bumiputra-Commerce Holdings Bhd. 311,370
149,906 FirstRand, Ltd. 443,418
155,300 Kasikornbank (Class F) 284,096
1,900 Kookmin Bank 142,582
12,000 Kookmin Bank (A.D.R.)(a) 896,520
966,400 Krung Thai Bank Public Co., Ltd. 259,120
221,500 Metropolitan Bank & Trust Co. 133,623
769,500 PT Bank Central Asia Tbk 265,489
28,249 Standard Bank Group, Ltd. 338,484
13,600 State Bank of India 274,114
47,825 Turkiye Is Bankasi (Isbank) 413,959
10,562 Uniao de Bancos Brasileiros SA 671,426
-----------
(Unibanco) (G.D.R.) (144A)
$ 6,521,036
-----------
Total Banks $ 6,521,036
-----------
Diversified Financials - 3.4%
Investment Banking & Brokerage - 1.1%
10,400 Samsung Securities Co., Ltd. $ 632,279
-----------
Multi-Sector Holding - 0.7%
18,600 Remgro, Ltd. $ 358,968
-----------
Diversified Financial Services - 1.6%
418,000 Fubon Group $ 359,023
11,110 Hana Financial Holdings* 509,461
-----------
$ 868,484
-----------
Total Diversified Financials $ 1,859,731
-----------
Shares Value
Insurance - 4.7%
Life & Health Insurance - 2.6%
20,500 Cathay Financial Holding Co., Ltd.
(144A) (G.D.R.) $ 377,200
334,000 China Life Insurance Co., Ltd.* 294,804
145,000 Ping An Insurance Company of China, Ltd. 268,038
194,490 Sanlam, Ltd. 467,239
-----------
$ 1,407,281
-----------
Property & Casualty Insurance - 2.1%
85,567 Aksigorta AS $ 653,018
4,100 Samsung Fire & Marine Insurance 517,299
-----------
$ 1,170,317
-----------
Total Insurance $ 2,577,598
-----------
Real Estate - 0.3%
Real Estate Management & Development - 0.3%
1,095,400 SM Prime Holdings $ 163,077
-----------
Total Real Estate $ 163,077
-----------
Software & Services - 0.6%
IT Consulting & Other Services - 0.6%
4,732 Infosys Technologies, Ltd. $ 315,555
-----------
Total Software & Services $ 315,555
-----------
Technology Hardware & Equipment - 3.7%
Computer Hardware - 1.2%
134,240 ACER Sertek, Inc. $ 335,294
228,900 Quanta Computer, Inc. 322,726
-----------
$ 658,020
-----------
Computer Storage & Peripherals - 1.2%
90,000 Asustek Computer, Inc. $ 275,861
320,800 LITE-ON IT Corp. 414,291
-----------
$ 690,152
-----------
Electronic Manufacturing Services - 1.3%
127,158 Hon Hai Precision Industry $ 696,819
-----------
Total Technology Hardware &
Equipment $ 2,044,991
-----------
Semiconductors - 3.4%
1,730 Samsung Electronics $ 1,118,098
239,704 Taiwan Semiconductor Manufacturing Co. 453,839
31,499 Taiwan Semiconductor Manufacturing Co. (A.D.R.) 312,155
-----------
$ 1,884,092
-----------
Total Semiconductors $ 1,884,092
-----------
The accompanying notes are an integral part of these financial statements. 7
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
Telecommunication Services - 5.9%
Integrated Telecommunication Services - 1.6%
8,900 Brasil Telecom Participacoes SA $ 332,415
7,700 Philippine Long Distance Telephone Co. 263,891
36,100 Telekomunikacja Polska SA 259,951
-----------
$ 856,257
-----------
Wireless Telecommunication Services - 4.3%
13,200 Korea Telecom Freetel Co. $ 321,226
9,900 Mobile Telesystems (A.D.R.) 346,500
33,400 MTN Group, Ltd. 328,287
29,100 Partner Communications Co., Ltd. 244,706
381,700 Shinawatra Computer Co., Plc 393,098
448,000 Taiwan Mobile Co., Ltd. 390,920
8,900 Vimpel-Communications (A.D.R.)* 393,647
-----------
$ 2,418,384
-----------
Total Telecommunication Services $ 3,274,641
-----------
Utilities - 2.1%
Electric Utilities - 0.6%
9,000 Cemig SA (A.D.R.)(a) $ 331,740
-----------
Gas Utilities - 1.5%
593,000 Panva Gas Holdings, Ltd.* $ 315,435
4,100 Samchully Co., Ltd. 488,329
-----------
$ 803,764
-----------
Total Utilities $ 1,135,504
-----------
TOTAL COMMON STOCKS
(Cost $35,426,515) $52,875,097
-----------
RIGHTS/WARRANTS - 0.0%
Commercial Services & Supplies - 0.0%
Diversified Commercial Services - 0.0%
1,580 Bidvest Group, Ltd., Exp 12/8/06* $ 7,506
-----------
Total Commercial
Services & Supplies $ 7,506
-----------
TOAL RIGHTS/WARRANTS
(Cost $0) $ 7,506
-----------
TEMPORARY CASH INVESTMENTS - 6.0%
Security Lending Collateral - 6.0%
3,324,063 Securities Lending Investment
Fund, 4.24% $ 3,324,063
-----------
TOTAL TEMPORARY CASH
INVESTMENTS
(Cost $3,324,063) $ 3,324,063
-----------
TOTAL INVESTMENT
IN SECURITIES - 105.1%
(Cost $39,949,138)(b) $58,053,520
-----------
OTHER ASSETS
AND LIABILITIES - (5.1)% $(2,821,958)
-----------
TOTAL NET ASSETS - 100.0% $55,231,562
===========
(A.D.R.) American Depositary Receipt
(G.D.R.) Global Depositary Receipt
* Non-income producing security.
144A Security is exempt from registration under Rule 144A of the Securities
Act of 1933. Such securities may be resold normally to qualified
institutional buyers in a transaction exempt from registration. At
December 31, 2005, the value of these securities amounted to $1,860,772
or 3.4% of total net assets.
(a) At December 31, 2005, the following securities were out on loan:
Shares Security Value
13,690 Anglogold Ashanti, Ltd. (A.D.R.) $ 675,328
21,646 Banco Bradesco SA 630,981
12,445 Brasil Distr Pao Acu (A.D.R.) 409,441
8,470 Cemig SA (A.D.R.) 312,204
2,060 Kookmin Bank (A.D.R.) 153,903
14,440 Surgutneftegaz (A.D.R.) 790,747
Teva Pharmaceutical Industries,
6,569 Ltd. (A.D.R.) 282,533
----------
Total $3,255,137
==========
(b) Distributions of investments by country of issue, as a percentage of
total equity holdings (excluding temporary cash investments) is as
follows:
South Korea 22.1%
Brazil 17.8
South Africa 10.0
Taiwan 9.6
Russia 6.4
People's Republic of China 4.9
India 4.7
Turkey 4.6
Thailand 3.7
Israel 3.1
Mexico 2.8
Indonesia 1.7
Malaysia 1.3
Poland 1.2
Hong Kong 1.0
Philippines 1.0
Other (individually less than 1%) 4.1
-----
100.0%
=====
8 The accompanying notes are an integral part of thesefinancial statements.
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
Class II
Net asset value, beginning of period $ 20.33 $ 17.26 $ 10.98 $ 11.19 $ 12.08
------- ------- ------- ------- -------
Increase (decrease) from investment operations:
Net investment income $ 0.15 $ 0.16 $ 0.12 $ 0.02 $ 0.09
Net realized and unrealized gain (loss) on investments and foreign
currency transactions 7.46 3.04 6.21 (0.17) (0.98)
------- ------- ------- ------- -------
Net increase (decrease) from investment operations $ 7.61 $ 3.20 $ 6.33 $ (0.15) $ (0.89)
Distributions to shareholders:
Net investment income (0.10) (0.13) (0.05) (0.06) --
------- ------- ------- ------- -------
Net increase (decrease) in net asset value $ 7.51 $ 3.07 $ 6.28 $ (0.21) $ (0.89)
------- ------- ------- ------- -------
Net asset value, end of period $ 27.84 $ 20.33 $ 17.26 $ 10.98 $ 11.19
======= ======= ======= ======= =======
Total return* 37.60% 18.73% 57.87% (1.42)% (7.37)%
Ratio of net expenses to average net assets+ 1.97% 1.99% 1.99% 1.99% 1.90%
Ratio of net investment income to average net assets+ 0.70% 0.88% 1.04% 0.28% 1.05%
Portfolio turnover rate 74% 66% 79% 124% 175%
Net assets, end of period (in thousands) $44,026 $30,347 $26,537 $ 8,852 $ 7,861
Ratios with no waiver of management fees and assumption of expenses
by PIM and no reduction for fees paid indirectly:
Net expenses 1.99% 2.11% 2.65% 3.11% 4.12%
Net investment income (loss) 0.68% 0.76% 0.38% (0.84)% (1.17)%
Ratios with waiver of management fees and assumption of expenses by
PIM and reduction for fees paid indirectly:
Net expenses 1.97% 1.99% 1.99% 1.99% 1.90%
Net investment income 0.70% 0.88% 1.04% 0.28% 1.05%
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
+ Ratios with no reduction for fees paid indirectly.
NOTE: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
The accompanying notes are an integral part of these financial statements. 9
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (Cost $39,949,138) (including securities loaned of $ 58,053,520
$3,255,137)
Foreign currencies, at value (Cost $246,193) 249,693
Receivables --
Investment securities sold 425,551
Fund shares sold 1,718
Dividends, interest and foreign taxes withheld 115,610
Other 3,608
------------
Total assets $ 58,849,700
------------
LIABILITIES:
Payables --
Fund shares repurchased $ 107,737
Upon return of securities loaned 3,324,063
Reserve for repatriation taxes 52,359
Due to bank 32,753
Due to affiliates 7,846
Accrued expenses 93,380
------------
Total liabilities $ 3,618,138
------------
NET ASSETS:
Paid-in capital $ 32,037,155
Undistributed net investment income 24,792
Accumulated net realized gain on investments 5,114,124
Net unrealized gain on:
Investments 18,052,022
Forward foreign currency contracts and other assets and liabilities denominated
in foreign currencies 3,469
------------
Total net assets $ 55,231,562
------------
NET ASSET VALUE PER SHARE:
Class I:
(No par value, unlimited number of shares authorized)
Net assets $ 11,205,395
Shares outstanding 398,940
------------
Net asset value per share $ 28.09
Class II:
(No par value, unlimited number of shares authorized)
Net assets $ 44,026,167
Shares outstanding 1,581,297
------------
Net asset value per share $ 27.84
10 The accompanying notes are an integral part of these financial statements.
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended
12/31/05
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $167,202) $ 1,160,247
Interest 17,442
Income on securities loaned, net 8,599
-----------
Total investment income $ 1,186,288
-----------
EXPENSES:
Management fees $ 510,446
Transfer agent fees and expenses 7,715
Distribution fees (Class II) 87,711
Administrative reimbursements 18,512
Custodian fees 135,998
Professional fees 71,787
Printing expense 10,670
Fees and expenses of nonaffiliated trustees 4,569
Miscellaneous 17,186
-----------
Total expenses $ 864,594
Less management fees waived and expenses assumed
by Pioneer Investment Management, Inc. (10,565)
-----------
Net expenses $ 854,029
-----------
Net investment income $ 332,259
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Investments (net of foreign capital gain taxes of $34,788) $ 7,432,445
Forward foreign currency contracts and other assets
and liabilities denominated in foreign currencies (126,742)
-----------
$ 7,305,703
-----------
Change in net unrealized gain or loss from:
Investments (the change in reserve for repatriation taxes of $16,869) $ 7,394,630
Forward foreign currency contracts and other assets and liabilities denominated
in foreign currencies (4,278)
-----------
$ 7,390,352
-----------
Net gain on investments, futures contracts and foreign currency transactions $14,696,055
===========
Net increase in net assets resulting from operations $15,028,314
===========
The accompanying notes are an integral part of these financial statements. 11
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended Year Ended
12/31/05 12/31/04
FROM OPERATIONS:
Net investment income $ 332,259 $ 322,489
Net realized gain on investments 7,305,703 5,573,183
Change in net unrealized gain or loss on investments, futures contracts and
foreign currency transactions 7,390,352 22,693
------------- -------------
Net increase in net assets resulting from operations $ 15,028,314 $ 5,918,365
------------- -------------
DISTRIBUTIONS TO SHAREOWNERS:
Net investment income
Class I $ (50,778) $ (65,091)
Class II (161,235) (196,317)
------------- -------------
Total distributions to shareowners $ (212,013) $ (261,408)
------------- -------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 13,210,315 $ 9,587,268
Reinvestment of distributions 210,764 259,912
Cost of shares repurchased (11,986,023) (11,459,650)
------------- -------------
Net increase (decrease) in net assets resulting from Fund share transactions $ 1,435,056 $ (1,612,470)
------------- -------------
Net increase in net assets $ 16,251,357 $ 4,044,487
------------- -------------
NET ASSETS:
Beginning of year $ 38,980,205 $ 34,935,718
------------- -------------
End of year $ 55,231,562 $ 38,980,205
============= =============
Undistributed net investment income, end of year $ 24,792 $ 44,879
============= =============
12 The accompanying notes are an integral part of these financial statements.
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer Emerging Markets Portfolio (the Portfolio) is a Portfolio of the
Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust
registered under the Investment Company Act of 1940 as an open-end management
investment company. The Trust consists of twenty nine separate diversified
portfolios, fourteen of which issue both Class I and Class II shares
(collectively, the "Portfolios", individually the "Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares
only)
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts, or
by qualified pension and retirement plans.
The financial highlights for the Portfolio's Class I shares are presented in a
separate book.
The investment objective of Emerging Markets VCT Portfolio is to seek long-term
capital growth.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
years. Actual results could differ from those estimates. The following is a
summary of significant accounting policies consistently followed by the
Portfolio, in the preparation of its financial statements which are consistent
with those generally accepted in the investment company industry:
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the Portfolios are computed once daily, on each day the New York Stock
Exchange (NYSE) is open, as of the close of regular trading on the NYSE. In
computing the net asset values, securities are valued at the last sale
price on the principal exchange where they are traded. Securities that have
not traded on the date of valuation, or securities for which sale prices
are not generally reported, are valued at the mean between the last bid and
asked prices. Trading in foreign equity securities is substantially
completed
13
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
each day at various times prior to the close of the NYSE. The value of such
securities used in computing the net asset value of the Portfolio's shares,
based on the last sale price on the principal exchange where they traded.
The principal exchanges and markets for such securities have closing times
prior to the close of the NYSE. However, the value of these securities may
be influenced by changes in global markets occurring after the closing
times of the local exchanges and markets up to the time the Portfolios
determines their net asset values. Consequently, the Board of Trustees of
the Trust has determined that the use of daily fair valuations as provided
by a pricing service is appropriate for the Portfolios. The Portfolios may
also take into consideration other significant events in determining the
fair value of these securities.
At December 31, 2005 there were no fair valued securities except as
follows. All securities that trade in foreign markets whose closing prices
are as of times prior to the close of the New York Stock Exchange (NYSE)
and that are held by Emerging Markets Portfolio are fair valued using
vendor-supplied pricing updates for each security to the time of the close
of the NYSE. Thus, the Portfolio's securities valuations may differ from
prices reported by the various local exchanges and markets. Temporary cash
investments and securities held by the Portfolio are valued at amortized
cost.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities where the ex-dividend date may have
passed are recorded as soon as the Portfolio becomes aware of the
ex-dividend data in the exercise of reasonable diligence. Interest income,
including interest on income bearing cash accounts, is recorded on the
accrual basis, net of unrecoverable foreign taxes withheld at the
applicable country rates.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes on capital gains at
the applicable country rates.
The Portfolio's investments in emerging markets or countries with limited
or developing markets may subject the Portfolio to a greater degree of risk
than in a developed market. Risks associated with these developing markets
include political, social or economic factors and may affect the price of
the Portfolio's investments and income generated by these investments, as
well as the Portfolio's ability to repatriate such amounts.
Information regarding the Portfolio's principal investment risks is
contained in the Portfolio's prospectus. Please refer to those documents
when considering the Portfolio's risks.
B. Foreign Currency Translation
The books and records of the Portfolio are maintained in U.S. dollars.
Amounts denominated in foreign currencies are translated into U.S. dollars
using current exchange rates.
Net realized gains and losses on foreign currency transactions represent,
the net realized gains and losses on foreign currency contracts,
disposition of foreign currencies, and the difference between the amount of
income accrued and the U.S. dollars actually received. Further, the effects
of changes in foreign currency exchange rates on investments are not
segregated in the statement of operations from the effects of changes in
market price of those securities but are included with the net realized and
unrealized gain or loss on investments.
C. Forward Foreign Currency Contracts
The Portfolio enters into forward foreign currency contracts (contracts)
for the purchase or sale of a specific foreign currency at a fixed price on
a future date as a hedge or cross-hedge against either specific investment
transactions (settlement hedges) or portfolio positions (portfolio hedges).
All contracts are marked to market daily at the applicable exchange rates,
and any resulting unrealized gains or losses are recorded in the
Portfolio's financial statements. The Portfolio records realized gains and
losses at the time a portfolio hedge is offset by entry into a closing
transaction or extinguished by delivery of the currency. Risks may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of the contract and from unanticipated
movements in the value of foreign currencies relative to the U.S. dollar.
The Portfolio had no outstanding portfolio or settlement hedges as of
December 31, 2005.
D. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
In addition to the requirements of the Internal Revenue Code, the Portfolio
may also be required to pay local taxes on the recognition of capital gains
and/or the repatriation of foreign currencies in certain countries. During
the year ended December 31, 2005, no such taxes were paid.
14
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In determining the daily net asset value, the Portfolio estimates the
reserve for such taxes, if any, associated with investments in certain
countries. The estimated reserve for taxes on capital gains is based on the
net unrealized appreciation on certain portfolio securities, the holding
year of such securities and the related tax rates, tax loss carryforward
(if applicable) and other such factors. As of December 31, 2005, the
Portfolio had $52,359 in reserves related to taxes on the repatriation of
foreign capital gains.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal
income tax rules. Therefore, the source of the Portfolio's distributions
may be shown in the accompanying financial statements as either from, or in
excess of, net investment income or net realized gain on investment
transactions, or from paid-in capital, depending on the type of book/tax
differences that may exist.
At December 31, 2005, the Portfolio made reclassifications as described
below. These reclassifications have no impact on the net asset value of the
Portfolio and are designed to present the Portfolio's capital accounts on a
tax basis.
- ---------------------------------------------------------------------------------
Undistributed Net Accumulated Net
Investment Realized Paid-In
Portfolio Income (Loss) Gain (Loss) Capital
- ---------------------------------------------------------------------------------
Emerging Markets Portfolio $(140,333) $140,333 $--
========= ======== ===
- ---------------------------------------------------------------------------------
The following chart shows the distributions paid during the years ended
December 31, 2005 and 2004 on a tax basis and the components of
distributable earnings (accumulated losses) as of December 31, 2005.
- ---------------------------------------------------------------------------------------
2005 2004
- ---------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ 212,013 $ 261,408
Long-Term capital gain -- --
------------ ---------
$ 212,013 $ 261,408
Return of Capital -- --
------------ ---------
Total distributions $ 212,013 $ 261,408
============ =========
Distributable Earnings (Accumulated Losses):
Undistributed ordinary income $ 220,926
Undistributed long-term gain/(capital loss carryforward) 5,193,430
Unrealized appreciation (depreciation) 17,780,051
------------
Total $ 23,194,407
============
- ---------------------------------------------------------------------------------------
For the fiscal year ending December 31, 2005, Emerging Markets Portfolio
has elected to pass through foreign tax credits of $181,164. The difference
between book-basis and tax-basis unrealized appreciation (depreciation) is
primarily attributable to the tax deferral of losses on wash sales and the
tax basis adjustments on Passive Foreign Investment Company (PFIC) holdings
and the mark to market on forward currency contracts.
E. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Trust and a wholly owned indirect subsidiary
of UniCredito Italiano S.p.A. (UniCredito Italiano), $638,021 in
commissions on the sale of Trust shares for the year ended December 31,
2005. Distribution fees for Class II shares are calculated based on the
average daily net asset values attributable to Class II shares of the
Portfolio. Shareowners of each class share all expenses and fees paid to
the transfer agent, Pioneer Investment Management Shareholder Services,
Inc. (PIMSS), for its services, which are allocated based on the number of
accounts in each class and the ratable allocation of related out-of-pocket
expenses (see Note 3). Income, common expenses (excluding transfer agent
and distribution fees) and realized and unrealized gains and losses are
calculated at the Portfolio level and allocated daily to each class of the
shares based on
15
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
the respective percentage of adjusted net assets at the beginning of the
day. Dividends and distributions to shareowners are recorded on the
ex-dividend date. Distributions paid by the Portfolio with respect to each
class of shares are calculated in the same manner, at the same time, and in
the same amount, except that Class I and Class II shares can bear different
transfer agent and distribution fees.
F. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees. The Portfolio also continues to receive
payments in lieu of interest or dividends on the securities loaned. Gain or
loss in the fair value of the securities loaned that may occur during the
term of the loan, will be for the account of the Trust. The loans are
secured by collateral of at least 102%, at all times, of the fair value of
the securities loaned. The fair value of the collateral will be adjusted
daily to reflect any price fluctuation in the value of the loaned
securities. The Trust has the right under the lending agreement to recover
the securities on loan from the borrower on demand. The Trust invests cash
collateral in the Securities Lending Investment Fund which is sponsored by
Brown Brothers Harriman & Co., the Trust's custodian.
G. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano manages the
portfolio. Management fees are calculated daily at the annual rate of 1.15% of
the Portfolio's average daily net assets.
Through May 1, 2006, PIM has agreed not to impose all or a portion of its
management fee and, if necessary, to limit other ordinary operating expenses of
the Portfolio to the extent required to reduce Class I expenses to 1.75% of the
average daily net assets attributable to Class I shares; the portion of the
Portfolio's expenses attributable to Class II shares will be reduced only to
the extent such expenses are reduced for Class I shares (or Class II shares).
In addition, under the management and administration agreement, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $3,295 was payable
to PIM related to management fees, administrative reimbursements and certain
other services, and is included in due to affiliates.
3. Transfer Agent
PIMSS, a wholly owned indirect subsidiary of UniCredito Italiano provides
substantially all transfer agent and shareowner services to the Trust at
negotiated rates. Included in due to affiliates is $3,946 in transfer agent
fees payable to PIMSS at December 31, 2005.
4. Distribution Plans
The Portfolio has adopted a plan of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with the Portfolio's Class
II shares. Included in due to affiliates is $605 payable to PFD at December 31,
2005.
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- --------------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- --------------------------------------------------------------------------------------------------
Emerging Markets Portfolio $40,224,578 $18,138,652 $ (309,710) $17,828,942
=========== =========== ========== ===========
- --------------------------------------------------------------------------------------------------
16
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were $34,572,618 and $32,120,040, respectively.
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows for the
year ended December 31, 2005 and the year ended December 31, 2004:
- ------------------------------------------------------------------------------------------
Emerging Markets Portfolio '05 Shares '05 Amount '04 Shares '04 Amount
- ------------------------------------------------------------------------------------------
CLASS I:
Shares sold 57,112 $ 1,329,128 72,945 $ 1,305,983
Reinvestment of distributions 2,300 49,529 3,952 63,595
Shares repurchased (82,002) (1,885,112) (138,809) (2,377,707)
-----------------------------------------------------
Net decrease (22,590) $ (506,455) (61,912) $ (1,008,129)
=====================================================
CLASS II:
Shares sold 530,098 $ 11,881,187 468,119 $ 8,281,285
Reinvestment of distributions 7,549 161,235 12,278 196,317
Shares repurchased (449,363) (10,100,911) (524,708) (9,081,943)
------------------------------------------------------
Net increase (decrease) 88,284 $ 1,941,511 (44,311) $ (604,341)
=====================================================
- ------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION (unaudited)
The qualifying percentage of certain Portfolios' ordinary income dividends for
the purposes of the corporate dividends received deduction and the percentage
of those ordinary dividends that are subject to a maximum tax rate of 15% as
provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were
as follows:
- --------------------------------------------------------------------------------
Dividend Qualified
Received Dividend
Deduction Income
- --------------------------------------------------------------------------------
Emerging Markets Portfolio 0.00% 100.00%
- --------------------------------------------------------------------------------
17
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust and
the Shareholders of Pioneer Emerging Markets VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer Emerging Markets VCT Portfolio, one of
the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"),
as of December 31, 2005, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the two years
in the period then ended, and the financial highlights for each of the four
years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the period ended December 31,
2001 were audited by other auditors who have ceased operations and whose
report, dated February 8, 2002, expressed an unqualified opinion on those
financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005, by correspondence
with the custodian. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer Emerging Markets VCT Portfolio of the Pioneer Variable Contracts Trust
at December 31, 2005, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the four years in the period
then ended, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
18
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Emerging Markets VCT Portfolio (the "Fund")
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING
THE MANAGEMENT CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three and five year periods for
the Fund and a peer group selected by the Independent Trustees for this
purpose, (2) management fees incurred by a peer group of funds selected by the
Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objective and regulatory requirements.
The Trustees also reviewed the Fund's investment performance based upon
total return, as well as the Fund's
19
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and the results
of an index, in each case selected by the Independent Trustees for this
purpose. The Fund's performance based upon total return was in the first
quintile of the peer group for the 12 months ended June 30, 2005, the first
quintile for the three years ended June 30, 2005, and the third quintile for
the five years ended June 30, 2005. (In all quintile rankings referred to
throughout this discussion first quintile is most favorable to the Fund's
shareholders. Thus, highest relative performance would be first quintile and
lowest relative expenses also would be first quintile.) The Trustees
concluded that the performance of the Fund supported the continuation of the
Management Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's equities group. Among other things, the Trustees
considered the number, education and experience of the Investment Adviser's
investment staff and their use of technology and emphasis on analytics in
view of the risk profile of securities in which the Fund invests. The
Trustees concluded that the Investment Adviser had the quality and depth of
personnel and the well-developed methods essential to performing its duties
under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the third
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
considered the Fund's expense ratio (before and after giving effect to the
expense limitation) for the 12 months ended June 30, 2005 and expense ratios
for the comparable period of a peer group of funds selected by the
Independent Trustees for this purpose. The Fund's expense ratio (after
giving effect to the expense limitation) was in the fifth quintile of this
peer group for the most recent fiscal year.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. The Trustees concluded that,
given current and anticipated asset levels, break points in management fee
are not necessary at this time. The Trustees will continue to evaluate
annually the appropriateness of break points.
20
Pioneer Emerging Markets VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund), and
benefits to the Investment Adviser from the use of "soft" commission dollars
to pay for research services. The Trustees further considered the revenues
and profitability of the Investment Adviser's businesses other than the fund
business, including the Investment Adviser's institutional investment
advisory business. The Trustees considered the intangible benefits that
accrue to the Investment Adviser and its affiliates by virtue of its
relationship with the Fund and the Pioneer Funds as a group. The Trustees
concluded that all these types of benefits accruing to the Investment
Adviser were reasonable in the context of the overall relationship between
the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
21
Pioneer Emerging Markets VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
22
Pioneer Emerging Markets VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held
Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance
or earlier services company) (2001-present); company); Director of New York
retirement or Managing Partner, Federal City Mortgage Trust (publicly traded
removal. Capital Advisors (boutique merchant mortgage REIT)
bank) (2002 to 2004); Executive
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ------------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products
or earlier manufacturer), Mortgage Guaranty
retirement or Insurance Corporation, and Briggs
removal. & Stratton, Inc. (engine
manufacturer)
- ------------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ------------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ------------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ------------------------------------------------------------------------------------------------------------------------------------
23
Pioneer Emerging Markets VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRUST OFFICERS
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- ------------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
24
Pioneer Emerging Markets VCT Portfolio
- -------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRUST OFFICERS
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, None
Treasurer 2000. Serves at the Assistant Vice President - Fund
discretion of the Accounting, Administration and
Board. Custody Services of Pioneer; and
Assistant Treasurer of all of the
Pioneer Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ------------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ------------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
25
[LOGO]PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company, Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18663-00-0206
[LOGO] PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Equity Income VCT Portfolio -- Class II Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Pioneer Equity Income VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 6
Financial Statements 9
Notes to Financial Statements 13
Report of Independent Registered Public
Accounting Firm 18
Factors Considered by the Independent
Trustees in Approving the Management Contract 19
Trustees, Officers and Service Providers 22
Before investing consider the Portfolio's investment objectives, risks, charges
and expenses. Contact your advisor or Pioneer Investments for a prospectus
containing this information. Read it carefully.
The Trust files a complete statement of investments with the Securities and
Exchange Commission for the first and the third quarters for each fiscal year
on Form N-Q. Shareowners may view the filed Form N-Q by visiting the
Commission's web site at http://www.sec.gov. The filed form may also be viewed
and copied at the Commission's Public Reference Room in Washington, D.C.
Information regarding the operations of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 96.2%
Temporary Cash Investment 3.3%
Convertible Preferred Stocks 0.5%
Sector Distribution
(As a percentage of equity holdings)
[THE FOLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Financials 26.4%
Utilities 14.8%
Industrials 10.8%
Consumer Discretionary 9.1%
Health Care 8.7%
Telecommunication Services 8.5%
Consumer Staples 7.9%
Materials 7.2%
Energy 5.6%
Information Technology 1.0%
Five Largest Holdings
(As a percentage of equity holdings)
- ---------------------------------------------------
1. PACCAR, Inc. 3.67%
- ---------------------------------------------------
2. Questar Corp. 3.22
- ---------------------------------------------------
3. Washington Mutual, Inc. 3.11
- ---------------------------------------------------
4. T. Rowe Price Associates, Inc. 2.88
- ---------------------------------------------------
5. Merck & Co., Inc. 2.37
- ---------------------------------------------------
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 21.37 $ 20.68
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.4421 $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Equity Income VCT Portfolio at net asset value, compared to that of the Russell
1000 Value Index. Portfolio returns are based on net asset value and do not
reflect any applicable insurance fees or surrender charges.
[THE FOLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Russell 1000 Pioneer Equity Income
Value Index VCT Portfolio
12/95 10000 10000
12164 11490
12/97 16444 15489
19014 18624
12/99 20411 18542
21843 21228
12/01 20622 19711
17421 16547
12/03 22652 20232
26389 23477
12/05 28250 24773
The Russell 1000 Value Index measures the performance of large-cap U.S. value
stocks. Index returns assume reinvestment of dividends and, unlike Portfolio
returns, do not reflect any fees, expenses or sales charges. You cannot invest
directly in any Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
10 Years 9.50%
5 Years 3.14%
1 Year 5.52%
All total returns shown assume reinvestment of distributions at net asset value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
2
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value [divided by] $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Equity Income VCT Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005
Share Class II
- -----------------------------------------------------------
Beginning Account Value On 7/1/05 $1,000.00
Ending Account Value On 12/31/05 $1,035.53
Expenses Paid During Period* $ 4.93
* Expenses are equal to the Portfolio's annualized expense ratio of 0.96% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer Equity Income VCT Portfolio
Based on a hypothetical 5% per year return before expenses, reflecting the
period from July 1, 2005 through December 31, 2005
Share Class II
- -----------------------------------------------------------
Beginning Account Value On 7/1/05 $1,000.00
Ending Account Value On 12/31/05 $1,020.37
Expenses Paid During Period* $ 4.89
* Expenses are equal to the Portfolio's annualized expense ratio of 0.96% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
In the following discussion, portfolio manager John Carey discusses the
performance of Pioneer Equity Income VCT Portfolio, as well as the investment
environment over the twelve-month period ended December 31, 2005.
Q. Please discuss the performance of the portfolio versus its benchmark, the
Russell 1000 Value Index.
A. For the year ended December 31, 2005, Class II shares of Pioneer Equity
Income VCT Portfolio showed a total return of 5.52% at net asset value. By
comparison, the Russell 1000 Value Index, an unmanaged index of the general
stock market replicating to an extent the universe of stocks in which value
and income-oriented funds often invest, rose 7.05%.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Throughout the year, our overweight in the strongly performing utilities
sector helped results, while our underweight in the top-performing energy
sector, as well as our de-emphasis of the above-average performing energy
equipment-and-services industry within the energy sector, hurt. Late in the
year, our underweight in the recovering financials sector was also a
negative. On the whole, it was a year of shifting tides, with investors
first concerned about higher energy and other commodity prices and the
implications for inflation and interest rates, and later expectant of a halt
to rate increases as inflationary pressures appeared to ebb. The fourth
quarter rally in the financial sector reflected that change of thinking. We
would note, however, that the course of economic events is never entirely
predictable. Certainly there remain some very different views among
economists about the direction of interest rates and everything else. Our
focus will remain on finding stocks that we think have good prospects for
earnings and dividend growth over the next two to three years regardless of
sector.
Q. Please discuss changes you made to the portfolio during the year.
A. In all, we added some eighteen positions to the portfolio and liquidated
sixteen. The effects of the changes, which we made on the basis of the
attractiveness to us of individual stocks, were to increase portfolio
weightings in consumer staples, health care, financials, and
telecommunications services and to decrease weightings in energy,
industrials, consumer discretionary, information technology, and utilities.
The weighting in materials stayed about the same. Some of the changes in
weightings were augmented by stock-market fluctuations.
Financials saw the most new entries. We thought that the prices of two of
the biggest financial-services companies, Citigroup and Bank of America,
represented particularly good value and that the dividend yields were also
compelling. Enlarging our exposure to life insurance, we purchased Jefferson
Pilot, slated to be merged into Lincoln National. PNC Financial is a
successful regional bank with majority ownership of a growing
asset-management business. Whitney Holdings, a New Orleans-based bank,
traded down after Hurricane Katrina devastated its home city, but we felt
that the bank had adequate resources and management experience to prosper as
the area recovered. Finally, we invested in two REITs, Archstone-Smith Trust
and Kimco Realty. Archstone operates apartments, and Kimco is involved with
shopping centers.
Our other new purchases covered a variety of sectors. Dow Chemical and Olin
(materials) are chemical producers with good prospects for better earnings
over the next year or two with improved operating efficiencies. Citizens
Communications (telecommunications services) is a high-dividend-yielding
telecomm company based in Stamford, Connecticut. Pfizer (health care) and
Coca-Cola (consumer staples) were examples of blue-chip names fallen from
investor favor and selling at low prices relative to their historical price
ranges. Albertson's (consumer staples) is a grocery-store and drugstore
company with potential for realizing higher shareholder value through
restructuring. PG&E (Pacific Gas and Electric; utilities) is a recovering
California utility
A Word About Risk:
The Portfolio invests in REIT securities, the value of which can fall for a
variety of reasons, such as declines in rental income, fluctuating interest
rates, poor property management, environmental liabilities, uninsured damage,
increased competition, or changes in real estate tax laws. At times, the
Portfolio's investments may represent industries or industry sectors that are
interrelated or have common risks, making it more susceptible to any economic,
political, or regulatory developments or other risks affecting those industries
and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
with a growing dividend yield. Deere (industrials) is the premier
manufacturer of farm equipment, and Genuine Parts (consumer discretionary)
occupies the same top spot in the auto-parts distribution business.
Hewlett-Packard (information technology) seems to have turned the corner and
resumed its growth under new management. Finally, we received Federated
Department Stores (consumer discretionary) in exchange for part of our
position in May Department Stores (consumer discretionary), which Federated
acquired for a combination of stock and cash.
Deletions included, in addition to May, a number of stocks that we felt were
fully valued. In that category were Motorola, American Electric Power, FPL
Group, Constellation Energy, Aqua America, Occidental Petroleum, Boeing,
General Dynamics, Simon Property, and Microsoft. Due to a more mixed view on
their prospects, we sold Du Pont, General Motors, Diebold, International
Business Machines, and the Gap 5.75% convertible debenture.
Q. What is your outlook for 2006?
A. Our outlook for 2006 is cautious. We think that the moderate expectations
for economic growth can be met, and we also look for higher earnings and
dividends. The broad consensus estimate of roughly 3.5% real GDP growth
looks reasonable to us, and we likewise think that 6-8% earnings growth for
the S&P 500 is doable. However, we are starting to see powerful headwinds
in the form of higher short-term interest rates, stubbornly high oil and
natural gas prices, and a slowing housing market. We also watch
international events out of the corner of our eye, and we remember that
there are U.S. congressional elections this fall. Finally, as was certainly
impressed on us in 2005, the weather and other natural disasters can throw
quite a wrench in the works. The result of all those crosscurrents could be
a more volatile market than we have seen in a while. We believe that
another result might be defensive positioning by investors. Certainly the
higher yields on money-market and other short-term debt instruments are
already providing tougher competition for stocks. Our emphasis in this
environment will be on stocks with good earnings and dividend support. If
it is a softer economy that lies ahead, the companies less vulnerable to
large earnings declines may prove better bets.
Thank you as always for your support.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
5
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
CONVERTIBLE PREFERRED STOCK - 0.5%
Automobiles & Components - 0.5%
Automobile Manufacturers - 0.5%
60,747 Ford Cap Trust, 6.5%, 1/15/32 $ 1,674,187
------------
Total Automobiles & Components $ 1,674,187
------------
Pharmaceuticals & Biotechnology - 0.0%
Pharmaceuticals - 0.0
4,255 Schering-Plough Corp., 6.0%, 9/14/07 $ 227,643
------------
Total Pharmaceuticals &
Biotechnology $ 227,643
------------
TOTAL CONVERTIBLE
PREFERRED STOCK
(Cost $3,070,923) $ 1,901,830
------------
COMMON STOCK - 96.9%
Energy - 5.5%
Integrated Oil & Gas - 5.5%
144,649 Chevron Corp. $ 8,211,724
115,922 ConocoPhillips 6,744,342
84,898 Exxon Mobil Corp. 4,768,721
------------
$ 19,724,787
------------
Total Energy $ 19,724,787
------------
Materials - 7.0%
Construction Materials - 0.8%
40,637 Vulcan Materials Co. $ 2,753,157
------------
Diversified Chemical - 2.1%
73,300 Dow Chemical Co. $ 3,212,006
82,800 Olin Corp. 1,629,504
46,965 PPG Industries, Inc. 2,719,274
------------
$ 7,560,784
------------
Diversified Metals & Mining - 0.3%
43,156 Compass Minerals International, Inc. $ 1,059,048
------------
Industrial Gases - 1.2%
71,152 Air Products & Chemicals, Inc. $ 4,211,487
------------
Paper Products - 0.6%
79,793 Meadwestvaco Corp. $ 2,236,598
------------
Specialty Chemicals - 0.7%
105,965 Valspar Corp. $ 2,614,157
------------
Steel - 1.3%
61,162 Nucor Corp. (a) $ 4,080,729
24,009 Roanoke Electric Steel Corp. 566,612
------------
$ 4,647,341
------------
Total Materials $ 25,082,572
------------
Capital Goods - 9.1%
Aerospace & Defense - 1.6%
103,955 United Technologies Corp. $ 5,812,124
------------
Shares Value
Construction & Farm Machinery &
Heavy Trucks - 4.3%
38,489 Deere & Co. $ 2,621,486
185,643 PACCAR, Inc. 12,852,065
------------
$ 15,473,551
------------
Electrical Component & Equipment - 1.9%
91,501 Emerson Electric Co. $ 6,835,125
------------
Industrial Machinery - 1.3%
30,350 Gorman-Rupp Co. $ 671,039
117,902 The Timken Co. 3,775,222
------------
$ 4,446,261
------------
Total Capital Goods $ 32,567,061
------------
Transportation - 1.4%
Railroads - 1.4%
72,891 Burlington Northern, Inc. $ 5,162,141
------------
Total Transportation $ 5,162,141
------------
Automobiles & Components - 2.6%
Auto Parts & Equipment - 1.9%
93,560 Johnson Controls, Inc. $ 6,821,460
------------
Automobile Manufacturers - 0.7%
318,322 Ford Motor Corp. $ 2,457,446
------------
Total Automobiles & Components $ 9,278,906
------------
Consumer Durables & Apparel - 0.8%
Housewares & Specialties - 0.8%
123,380 Tupperware Brands Corp. $ 2,763,712
------------
Total Consumer Durables &
Apparel $ 2,763,712
------------
Consumer Services - 1.9%
Leisure Facilities - 1.5%
184,827 Cedar Fair, L.P. $ 5,274,963
------------
Specialized Consumer Services - 0.4%
134,841 Servicemaster Co. $ 1,611,350
------------
Total Consumer Services $ 6,886,313
------------
Media - 1.6%
Publishing - 1.6%
113,625 McGraw-Hill Co., Inc. $ 5,866,459
------------
Total Media $ 5,866,459
------------
Retailing - 1.5%
Department Stores - 1.1%
59,221 Federated Department Stores, Inc. $ 3,928,129
------------
Distributors - 0.4%
36,130 Genuine Parts Co. $ 1,586,830
------------
Total Retailing $ 5,514,959
------------
6 The accompanying notes are an integral part of these financial statements.
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Food & Drug Retailing - 0.4%
Food Retail - 0.4%
73,200 Albertson's, Inc. $ 1,562,820
------------
Total Food & Drug Retailing $ 1,562,820
------------
Food, Beverage & Tobacco - 5.0%
Packaged Foods & Meats - 3.6%
188,614 Campbell Soup Co. $ 5,615,039
60,831 General Mills, Inc. 3,000,185
94,243 H.J. Heinz Co., Inc. 3,177,874
59,974 Sara Lee Corp. 1,133,509
------------
$ 12,926,607
------------
Soft Drinks - 1.4%
72,855 Coca-Cola Co. $ 2,936,785
36,572 PepsiCo, Inc. 2,160,674
------------
$ 5,097,459
------------
Total Food, Beverage & Tobac co $ 18,024,066
------------
Household & Personal Products - 2.3%
Household Products - 2.3%
76,594 Colgate-Palmolive Co. $ 4,201,181
70,315 Clorox Co. 4,000,220
------------
$ 8,201,401
------------
Total Household & Personal
Products $ 8,201,401
------------
Health Care Equipment & Services - 0.7%
Health Care Equipment - 0.7%
41,439 Becton, Dickinson & Co. $ 2,489,655
------------
Total Health Care Equipment &
Services $ 2,489,655
------------
Pharmaceuticals & Biotechnology - 7.7%
Pharmaceuticals - 7.7%
123,566 Abbott Laboratories $ 4,872,207
227,507 Bristol-Myers Squibb Co. 5,228,111
74,039 Eli Lilly & Co. 4,189,867
73,265 Johnson & Johnson 4,403,227
260,932 Merck & Co., Inc. 8,300,247
36,900 Pfizer, Inc. 860,508
------------
$ 27,854,167
------------
Total Pharmaceuticals &
Biotechnology $ 27,854,167
------------
Banks - 13.8%
Diversified Banks - 4.7%
35,852 Bank of America Corp. $ 1,654,570
31,452 Comerica, Inc. 1,785,216
110,101 U.S. Bancorp 3,290,919
103,024 Wachovia Corp. 5,445,849
74,937 Wells Fargo & Co. 4,708,292
------------
$ 16,884,846
------------
Shares Value
Regional Banks - 6.1%
88,467 First Horizon National Corp. $ 3,400,671
123,911 National City Corp. 4,159,692
54,800 PNC Bank Corp. 3,388,284
94,678 SunTrust Banks, Inc. 6,888,771
144,505 Whitney Holding Corp. 3,982,558
------------
$ 21,819,976
------------
Thrifts & Mortgage Finance - 3.0%
250,458 Washington Mutual, Inc. $ 10,894,923
------------
Total Banks $ 49,599,745
------------
Diversified Financials - 5.7%
Asset Management & Custody Banks - 4.5%
152,899 Eaton Vance Corp. $ 4,183,317
34,424 State Street Corp. 1,908,467
139,943 T. Rowe Price Associates, Inc. 10,080,094
------------
$ 16,171,878
------------
Investment Banking & Brokerage - 0.7%
55,113 A.G. Edwards, Inc. $ 2,582,595
------------
Diversified Financial Services - 0.5%
37,890 Citigroup, Inc. $ 1,838,802
------------
Total Diversified Financials $ 20,593,275
------------
Insurance - 4.9%
Life & Health Insurance - 1.2%
72,900 Jefferson - Pilot Corp. $ 4,150,197
------------
Property & Casualty Insurance - 3.7%
71,246 Chubb Corp. $ 6,957,172
110,994 Safeco Corp. 6,271,161
------------
$ 13,228,333
------------
Total Insurance $ 17,378,530
------------
Real Estate - 1.3%
Real Estate Investment Trusts - 1.3%
56,454 Archstone Communities Trust $ 2,364,858
72,900 Kimco Realty Corp. 2,338,632
------------
$ 4,703,490
------------
Total Real Estate $ 4,703,490
------------
Software & Services - 0.6%
Data Processing & Outsourced Services - 0.6%
50,297 Automatic Data Processing, Inc. $ 2,308,129
------------
Total Software & Services $ 2,308,129
------------
Technology Hardware & Equipment - 0.3%
Computer Hardware - 0.3%
36,500 Hewlett-Packard Co. $ 1,044,995
------------
Total Technology Hardware &
Equipment $ 1,044,995
------------
The accompanying notes are an integral part of these financial statements. 7
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
Telecommunication Services - 8.4%
Integrated Telecommunication Services - 7.2%
305,096 AT&T Corp. $ 7,471,801
251,696 BellSouth Corp. 6,820,962
309,779 Citizens Utilities Co. (Class B) 3,788,597
254,800 Verizon Communications, Inc. 7,674,576
------------
$ 25,755,936
------------
Wireless Telecommunication Services - 1.2%
66,304 Alltel Corp. $ 4,183,782
------------
Total Telecommunication
Services $ 29,939,718
------------
Utilities - 14.4%
Electric Utilities - 2.6%
134,311 Great Plains Energy, Inc.(a) $ 3,755,336
157,858 Southern Co. 5,450,837
------------
$ 9,206,173
------------
Gas Utilities - 4.5%
19,070 Atmos Energy Corp. $ 498,871
124,038 Equitable Resources, Inc. 4,550,954
148,981 Questar Corp. 11,277,862
------------
$ 16,327,687
------------
Multi-Utilities - 7.3%
98,272 Ameren Corp. $ 5,035,457
94,780 Consolidated Edison, Inc. 4,391,157
158,706 KeySpan Energy Corp. 5,664,217
143,415 NSTAR 4,116,011
193,900 PG&E Corp. 7,197,561
------------
$ 26,404,403
------------
Total Utilities $ 51,938,263
------------
TOTAL COMMON STOCK
(Cost $291,121,572) $348,485,164
------------
Principal
Amount
TEMPORARY CASH INVESTMENTS - 3.3%
Repurchase Agreement - 1.8%
$6,300,000 UBS Warburg, Inc., 3.25% dated
12/31/05, repurchase price of
$6,300,000 plus accrued interest on
1/3/06 collateralized by $6,567,000
U.S. Treasury Bill, 3.25%, 6/29/06 $ 6,300,000
------------
Shares Value
Security Lending Collateral - 1.5%
5,595,647 Securities Lending
Collateral Fund, 4.24% $ 5,595,647
------------
TOTAL TEMPORARY CASH
INVESTMENTS
(Cost $11,895,647) $ 11,895,647
------------
TOTAL INVESTMENT
IN SECURITIES - 100.7%
(Cost $306,088,142) $362,282,641
------------
OTHER ASSETS
AND LIABILITIES - (0.7)% $ (2,575,311)
------------
TOTAL NET ASSETS - 100.0% $359,707,330
============
(a) At December 31, 2005, the following securities were out on loan:
Shares Security Market Value
58,299 Great Plains Energy, Inc. $ 1,630,040
56,659 Nucor Corp. 3,780,288
------------
Total $ 5,410,328
============
8 The accompanying notes are an integral part of these financial statements.
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
Class II 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 20.68 $ 18.19 $ 15.18 $ 18.49 $ 21.37
-------- -------- -------- -------- --------
Increase (decrease) from investment operations:
Net investment income $ 0.45 $ 0.36 $ 0.32 $ 0.31 $ 0.34
Net realized and unrealized gain (loss) on investments 0.68 2.53 3.02 (3.25) (1.84)
-------- -------- -------- -------- --------
Net increase (decrease) from investment operations $ 1.13 $ 2.89 $ 3.34 $ (2.94) $ (1.50)
Distributions to shareholders:
Net investment income (0.44) (0.40) (0.33) (0.37) (0.32)
Net realized gain - - - - (1.06)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value $ 0.69 $ 2.49 $ 3.01 $ (3.31) $ (2.88)
-------- -------- -------- -------- --------
Net asset value, end of period $ 21.37 $ 20.68 $ 18.19 $ 15.18 $ 18.49
======== ======== ======== ======== ========
Total return* 5.52% 16.04% 22.27% (16.05)% (7.15)%
Ratio of net expenses to average net assets+ 0.96% 0.98% 1.02% 1.07% 1.02%
Ratio of net investment income to average net assets+ 2.32% 2.16% 2.29% 2.25% 1.77%
Portfolio turnover rate 22% 19% 12% 12% 13%
Net assets, end of period (in thousands) $127,459 $ 93,691 $ 60,355 $ 27,084 $ 17,948
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 0.96% 0.98% 1.02% 1.07% 1.02%
Net investment income 2.32% 2.16% 2.29% 2.25% 1.77%
Ratios with waiver of management fees and assumption of
expenses by PIM and reduction for fees paid indirectly:
Net expenses 0.95% 0.98% 1.02% 1.07% 1.02%
Net investment income 2.33% 2.16% 2.29% 2.25% 1.77%
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption
of the investment at net asset value at the end of each period.
+ Ratios with no reduction for fees paid indirectly.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
The accompanying notes are an integral part of these financial statements. 9
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (including securities loaned of $5,410,329)
(Cost $306,088,142) $ 362,282,641
Cash 1,343,083
Receivables --
Investment securities sold 270,080
Fund shares sold 718,286
Dividends, interest and foreign taxes withheld 1,205,543
Other 1,190
-------------
Total assets $ 365,820,823
-------------
LIABILITIES:
Payables --
Fund shares repurchased $ 390,376
Upon return of securities loaned 5,595,647
Due to affiliates 18,516
Accrued expenses 108,954
-------------
Total liabilities $ 6,113,493
-------------
NET ASSETS:
Paid-in capital $ 295,718,431
Undistributed net investment income 1,751,090
Accumulated net realized gain 6,043,310
Net unrealized gain on investments 56,194,499
-------------
Total net assets $ 359,707,330
-------------
NET ASSET VALUE PER SHARE:
Class I:
(No par value, unlimited number of shares authorized)
Net assets $ 232,248,734
Shares outstanding 10,927,244
-------------
Net asset value per share $ 21.25
Class II:
(No par value, unlimited number of shares authorized)
Net assets $ 127,458,596
Shares outstanding 5,964,294
-------------
Net asset value per share $ 21.37
10 The accompanying notes are an integral part of these financial statements.
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year
Ended
12/31/05
INVESTMENT INCOME:
Dividends $ 10,276,103
Interest 339,380
Income on securities loaned, net 3,025
------------
Total investment income $ 10,618,508
-------------
EXPENSES:
Management fees $ 2,107,678
Transfer agent fees and expenses 7,715
Distribution fees (Class II) 283,178
Administrative reimbursements 62,333
Custodian fees 38,630
Professional fees 37,638
Printing expense 40,238
Fees and expenses of nonaffiliated trustees 4,224
Miscellaneous 8,884
------------
Total expenses $ 2,590,518
Less fees paid indirectly (35,127)
-------------
Net expenses $ 2,555,391
-------------
Net investment income $ 8,063,117
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain from investments $ 19,415,048
-------------
Change in net unrealized gain from investments $ (9,053,445)
-------------
Net gain on investments, futures contracts and foreign currency transactions $ 10,361,603
=============
Net increase in net assets resulting from operations $ 18,424,720
=============
The accompanying notes are an integral part of these financial statements. 11
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Year
Ended Ended
12/31/05 12/31/04
FROM OPERATIONS:
Net investment income $ 8,063,117 $ 5,474,342
Net realized gain (loss) on investments 19,415,048 2,001,864
Change in net unrealized gain or loss on investments,
futures contracts and foreign currency transactions (9,053,445) 29,937,321
------------- -------------
Net increase in net assets resulting from operations $ 18,424,720 $ 37,413,527
------------- -------------
DISTRIBUTIONS TO SHAREOWNERS:
Net investment income
Class I $ (5,101,572) $ (3,809,792)
Class II (2,458,044) (1,595,526)
------------- -------------
Total distributions to shareowners $ (7,559,616) $ (5,405,318)
------------- -------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 96,224,481 $ 63,295,941
Reinvestment of distributions 7,559,617 5,405,317
Cost of shares repurchased (36,867,650) (34,772,572)
------------- -------------
Net increase in net assets resulting
from Fund share transactions $ 66,916,448 $ 33,928,686
------------- -------------
Net increase in net assets $ 77,781,552 $ 65,936,895
------------- -------------
NET ASSETS:
Beginning of period $ 281,925,778 $ 215,988,883
------------- -------------
End of period $ 359,707,330 $ 281,925,778
============= =============
Undistributed net investment income, end of period $ 1,751,090 $ 1,228,049
============= =============
12 The accompanying notes are an integral part of these financial statements.
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer Equity Income VCT Portfolio is a Portfolio of Pioneer Variable
Contracts Trust (the Trust), a Delaware statutory trust registered under the
Investment Company Act of 1940 as an open-end management investment company.
The Trust consists of twenty nine separate diversified portfolios, fourteen of
which issue both Class I and Class II shares (collectively, the "Portfolios",
individually the "Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio)
(Class I shares only)
Pioneer Value VCT Portfolio (Value Portfolio)(Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio)(Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio)(Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio)(Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares
only)
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts or by
qualified pension and retirement plans.
The financial highlights for the Portfolio's Class I shares are presented in a
separate book.
The investment objective of Equity Income Portfolio is to seek
capital appreciation.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
periods. Actual results could differ from those estimates.
Information concerning the Portfolio's principal investment risks is contained
in the Portfolio's prospectus(es). Please refer to those documents when
considering the Portfolio's risks. At times, the Portfolio's investments may
represent industries or industry sectors that are interrelated or have common
risks, making it more susceptible to any economic, political, or regulatory
developments or other risks affecting those industries and sectors.
The following is a summary of significant accounting policies consistently
followed by the Portfolio, in the preparation of its financial statements,
which are
13
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
consistent with those generally accepted in the investment company industry:
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the portfolios are computed once daily, on each day the New York Stock
Exchange (NYSE) is open, as of the close of regular trading on the NYSE. In
computing the net asset values, securities are valued at the last sale
price on the principal exchange where they are traded. Securities that have
not traded on the date of valuation, or securities for which sale prices
are not generally reported, are valued at the mean between the last bid and
asked prices. Trading in foreign equity securities is substantially
completed each day at various times prior to the close of the NYSE. The
value of such securities used in computing the net asset value of the
Portfolio's shares is based on the last sale price on the principal
exchange where they traded. The Portfolio also may use the fair value of a
security, including a non-U.S. security, when the closing market price on
the primary exchange where the security is traded no longer accurately
reflects the value of the security as of the close of the NYSE. At December
31, 2005, there were no fair valued securities. Temporary cash investments
are valued at amortized cost.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities where the ex-dividend date may have
passed are recorded as soon as the Portfolio becomes aware of the
ex-dividend data in the exercise of reasonable diligence. Interest income,
including interest on income bearing cash accounts, is recorded on the
accrual basis, net of unrecoverable foreign taxes withheld at the
applicable country rates. All discounts/premiums are accreted/amortized for
financial reporting purposes.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes on capital gains at
the applicable country rates.
B. Futures Contracts
The Portfolio may enter into futures transactions to hedge against changes
in interest rates, securities prices, and currency rates or to seek to
increase total return. Upon entering into a futures contract, the Portfolio
is required to deposit with a broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the associated futures
exchange. Subsequent payments for futures contracts ("variation margin")
are paid or received by the Portfolio, depending on the daily fluctuation
in the value of the contracts, and are recorded by the Portfolio as
unrealized gains or losses. When the contract is closed, the Portfolio
realizes a gain or loss equal to the difference between the opening and
closing value of the contract. The use of futures contracts involves, to
varying degrees, elements of market risk which may exceed the amounts
recognized by the Portfolio. Changes in the value of the contracts may not
directly correlate to the changes in the value of the underlying
securities. These risks may decrease the effectiveness of the Portfolio's
hedging and trading strategies and potentially result in a loss. As of
December 31, 2005, the portfolio had no open futures contracts.
C. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal
income tax rules. Therefore, the source of each Portfolio's distributions
may be shown in the accompanying financial statements as either from or in
excess of net investment income or net realized gain on investment
transactions, or from paid-in capital, depending on the type of book/tax
differences that may exist.
At December 31, 2005, the Portfolio made reclassifications as described
below. These reclassifications have no impact on the net asset values of
the Portfolio and are designed to present the Portfolio's capital accounts
on a tax basis.
- --------------------------------------------------------------------------------------------------------
Undistributed Net Accumulated Net
Investment Income Realized Gain
(Loss) (Loss) Paid-In Capital
- --------------------------------------------------------------------------------------------------------
Pioneer Equity Income VCT Portfolio $19,540 $26,171 $ (45,711)
- --------------------------------------------------------------------------------------------------------
14
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following chart shows the distributions paid during the years ended
December 31, 2005 and December 31, 2004 and the components of distributable
earnings (accumulated losses) as of December 31, 2005 on a tax basis.
- ---------------------------------------------------------------------------------------------
2005 2004
- ---------------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ 7,559,616 $ 5,405,318
Long-Term capital gain -- --
----------- -----------
$ 7,559,616 $ 5,405,318
Return of Capital -- --
----------- -----------
Total distributions $ 7,559,616 $ 5,405,318
=========== ===========
Distributable Earnings (Accumulated Losses):
Undistributed ordinary income $ 203,918
Undistributed long-term gain/(capital loss carryforward) 6,168,262
Post-October loss deferred --
Unrealized appreciation (depreciation) 57,618,364
-----------
Total $63,990,544
===========
- ---------------------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is primarily attributable to the tax deferral of losses on
wash sales, returns of capital on REITs, and the recognition of unrealized
gains or losses on certain futures contracts.
D. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Trust and a wholly owned indirect subsidiary
of UniCredito Italiano S.p.A. (UniCredito Italiano), $956,233 in
commissions on the sale of Trust shares for the year ended December 31,
2005. Distribution fees for Class II shares are calculated based on the
average daily net asset values attributable to Class II shares of the
Portfolio. Shareowners of each class share all expenses and fees paid to
the transfer agent, Pioneer Investment Management Shareholder Services,
Inc. (PIMSS), for its services, which are allocated based on the number of
accounts in each class and the ratable allocation of related out-of-pocket
expenses (see Note 3). Income, common expenses (excluding transfer agent
and distribution fees) and realized and unrealized gains and losses are
calculated at the Portfolio level and allocated daily to each class of
shares based on the respective percentage of the adjusted-net assets at the
beginning of the day. Dividends and distributions to shareowners are
recorded on the ex-dividend date. Distributions paid by the Portfolio with
respect to each class of shares are calculated in the same manner, at the
same time, and in the same amount, except that Class I and Class II shares
can bear different transfer agent and distribution fees.
E. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees. The Portfolio also continues to receive
payments in lieu of interest or dividends on the securities loaned. Gain or
loss in the fair value of the securities loaned that may occur during the
term of the loan, will be for the account of the Portfolio. The loans are
secured by collateral of at least 102%, at all times, of the fair value of
the securities loaned. The fair value of the collateral will be adjusted
daily to reflect any price fluctuation in the value of the loaned
securities. The Portfolio has the right under the lending agreement to
recover the securities on loan from the borrower on demand. The Portfolio
invests cash collateral in the Securities Lending Investment Fund which is
sponsored by Brown Brothers Harriman & Co., the Portfolio's custodian.
F. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only
15
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
account of the Portfolio's custodian, or subcustodian. The Trust's
investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano, manages the
portfolios. Management fees are calculated daily at the annual rate of 0.65% of
the Portfolio's average daily net assets.
In addition, under the management and administration agreement, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $12,822 was payable
to PIM related to management fees, administrative fees and certain other
services, and is included in due to affiliates.
3. Transfer Agent
Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly
owned indirect subsidiary of UniCredito Italiano provides substantially all
transfer agent and shareowner services to the Trust at negotiated rates.
Included in due to affiliates is $3,946 in transfer agent fees payable to PIMSS
at December 31, 2005.
4. Distribution Plans
The Portfolio has adopted a plan of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with the Portfolio's Class
II shares. Included in due to affiliates is $1,748 payable to PFD at December
31, 2005.
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- -------------------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- -------------------------------------------------------------------------------------------------------
Equity Income Portfolio $304,664,277 $64,450,055 $(6,831,691) $57,618,364
============ =========== ============ ===========
- -------------------------------------------------------------------------------------------------------
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were $140,157,173 and $69,238,341, respectively.
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
- -------------------------------------------------------------------------------------------------------
Equity Income Portfolio '05 Shares '05 Amount '04 Shares '04 Amount
- -------------------------------------------------------------------------------------------------------
CLASS I:
Shares sold 2,853,636 $ 59,389,539 1,757,096 $ 33,474,454
Reinvestment of distributions 242,794 5,101,573 198,654 3,809,791
Shares repurchased (1,317,139) (27,494,268) (1,411,407) (26,451,072)
----------------------------------------------------------------------
Net increase (decrease) 1,779,291 $ 36,996,844 544,343 $ 10,833,173
======================================================================
CLASS II:
Shares sold 1,763,038 $ 36,834,942 1,571,139 $ 29,821,487
Reinvestment of distributions 116,340 2,458,044 82,473 1,595,526
Shares repurchased (444,619) (9,373,382) (442,520) (8,231,500)
----------------------------------------------------------------------
Net increase 1,434,759 $ 29,919,604 1,211,092 $ 23,095,513
======================================================================
- -------------------------------------------------------------------------------------------------------
16
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (unaudited)
The qualifying percentage of certain Portfolios' ordinary income dividends for
the purposes of the corporate dividends received deduction and the percentage
of those ordinary dividends that are subject to a maximum tax rate of 15% as
provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were
as follows:
- --------------------------------------------------------------------------------
Dividend Qualified
Received Dividend
Deduction Income
- --------------------------------------------------------------------------------
Equity Income Portfolio 100.00% 100.00%
- --------------------------------------------------------------------------------
17
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust and the
Shareowners of Pioneer Equity Income VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer Equity Income VCT Portfolio, one of the
portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), as
of December 31, 2005, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audit. The financial highlights for the year ended December 31, 2001 was
audited by other auditors who have ceased operations and whose report, dated
February 8, 2002, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005, by correspondence
with the custodian and brokers or by other appropriate auditing procedures
where replies from brokers were not received. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer Equity Income VCT Portfolio of the Pioneer Variable Contracts Trust at
December 31, 2005, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and financial highlights for each of the four years in the period then ended,
in conformity with U.S. generally accepted accounting principles.
/s/Ernst + Young LLP
Boston, Massachusetts
February 10, 2006
18
Pioneer Equity Income VCT Portfolio (the "Fund")PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three, five and ten year
periods for the Fund and a peer group selected by the Independent Trustees for
this purpose, (2) management fees incurred by a peer group of funds selected by
the Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return and yield, as well as
19
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
the Fund's performance compared to both the performance of a peer group and
an index, in each case selected by the Independent Trustees for this
purpose. The Fund's performance based upon total return was in the second
quintile of the peer group for the 12 months ended June 30, 2005, the third
quintile of the peer group for the three years ended June 30, 2005, the
third quintile for the five years ended June 30, 2005 and in the second
quintile for the ten year period ended June 30, 2005. (In all quintile
rankings referred to throughout this discussion first quintile is most
favorable to the Fund's shareholders. Thus, highest relative performance
would be first quintile and lowest relative expenses also would be first
quintile.) The Trustees also considered the yield (gross of expenses) to
Fund Class I shareholders relative to the yield (as of June 30, 2005) of the
Russell 1000 Value Index. The Trustees concluded that the performance of the
Fund supported the continuation of the Management Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's equities and fixed income groups. Among other
things, the Trustees considered the number, education and experience of the
Investment Adviser's investment staff and their use of technology and
emphasis on analytics in view of the risk profile of securities in which the
Fund invests. The Trustees concluded that the Investment Adviser had the
quality and depth of personnel and the well-developed methods essential to
performing its duties under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the second
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
considered the Fund's expense ratio and expense ratios of a peer group of
funds selected by the Independent Trustees for this purpose. The Fund's
expense ratio for the 12 months ended June 30, 2005 was in the second
quintile of the applicable peer group for the most recent fiscal year of the
peer group for the comparable period. The Trustees concluded that the Fund's
overall expense ratio was lower than that of most of the comparable funds in
the peer group.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realzation of any further economies of scale. The Trustees concluded that,
given current and anticipated asset levels, break
20
Pioneer Equity Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
points in the management fee are not necessary at this time. The Trustees
will continue to evaluate annually the appropriateness of break points.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund), and
benefits to the Investment Adviser from the use of "soft" commission dollars
to pay for research services. The Trustees further considered the revenues
and profitability of the Investment Adviser's businesses other than the fund
business, including the Investment Adviser's institutional investment
advisory business. The Trustees considered the intangible benefits that
accrue to the Investment Adviser and its affiliates by virtue of its
relationship with the Fund and the Pioneer Funds as a group. The Trustees
concluded that all these types of benefits accruing to the Investment
Adviser were reasonable in the context of the overall relationship between
the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
21
Pioneer Equity Income VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Investment Adviser Trustees and Officers
Pioneer Investment Management, Inc. The Trust's Board of Trustees provides broad supervision over the
affairs of the Trust. The officers of the Trust are responsible
Custodian for the Trust's operations. The Trust's Trustees and officers are
Brown Brothers Harriman & Co. listed below, together with their principal occupations during
the past five years. Trustees who are interested persons of the
Independent Registered Public Accounting Firm Portfolio within the meaning of the Investment Company Act of
Ernst & Young LLP 1940 are referred to as Interested Trustees. Trustees who are not
interested persons of the Trust are referred to as Independent
Principal Underwriter Trustees. Each of the Trustees may serve as a trustee of each of
Pioneer Funds Distributor, Inc. the 91 U.S. registered investment portfolios for which Pioneer
Investment Management, Inc. ("Pioneer") serves as investment
Legal Counsel adviser (the "Trust"). The address for all Interested Trustees
Wilmer Cutler Pickering Hale and Dorr LLP and all officers of the Portfolio is 60 State Street, Boston,
Massachusetts 02109.
Shareowner Services and Transfer
Pioneer Investment Management Shareholder Services, Inc. The Trust's statement of additional information provides more
detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
22
Pioneer Equity Income VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held
Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance
or earlier services company) (2001-present); company); Director of New York
retirement or Managing Partner, Federal City Mortgage Trust (publicly traded
removal. Capital Advisors (boutique merchant mortgage REIT)
bank) (2002 to 2004); Executive
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products
or earlier manufacturer), Mortgage Guaranty
retirement or Insurance Corporation, and Briggs
removal. & Stratton, Inc. (engine
manufacturer)
- ----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
23
Pioneer Equity Income VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
24
- --------------------------------------------------------------------------------
Pioneer Equity Income VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, None
Treasurer 2000. Serves at the Assistant Vice President - Fund
discretion of the Accounting, Administration and
Board. Custody Services of Pioneer; and
Assistant Treasurer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ---------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ---------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
25
[LOGO] PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company,
Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18665-00-0206
[LOGO] PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Equity Opportunity VCT Portfolio -- Class II Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Pioneer Equity Opportunity VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 6
Financial Statements 8
Notes to Financial Statements 12
Report of Independent Registered Public
Accounting Firm 16
Factors Considered by the Independent Trustees
in Approving the Management Contract 17
Trustees, Officers and Service Providers 19
Before investing, consider the Portfolio's investment
objectives, risks, charges and expenses. Contact your
advisor or Pioneer Investments for a prospectus containing
this information. Please read it carefully.
The Trust files a complete statement of investments with the
Securities and Exchange Commission for the first and the
third quarters for each fiscal year on Form N-Q. Shareowners
may view the filed Form N-Q by visiting the Commission's web
site at http://www.sec.gov. The filed form may also be
viewed and copied at the Commission's Public Reference Room
in Washington, D.C. Information regarding the operations of
the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 91.5%
Temporary Cash Investment 3.5%
Depositary Receipts for International Stocks 2.9%
Convertible Preferred Stocks 2.1%
Sector Distribution
(As a percentage of equity holdings)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Materials 26.6%
Financials 20.5%
Industrials 16.2%
Health Care 15.0%
Utilities 12.5%
Consumer Staples 5.2%
Energy 1.7%
Consumer Discretionary 1.2%
Information Technology 1.1%
Five Largest Holdings
(As a percentage of equity holdings)
1. NRG Energy, Inc. 4.28%
2. Equity Office Properties
Trust 3.71
3. Hartford Financial Services
Group, Inc. 3.71
4. The Scotts Miracle-Gro Co. 3.28
5. Mack-Cali Realty Corp. 3.24
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 3/18/05
Net Asset Value per Share $10.78 $10.00
Net
Distributions per Share Investment Short-Term Long-Term
(3/18/05 - 12/31/05) Income Capital Gains Capital Gains
$ - $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Equity Opportunity VCT Portfolio at net asset value, compared to that of the
Russell 2500 Index. Portfolio returns are based on net asset value and do not
reflect any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Equity
Opportunity Russell
VCT Portfolio 2500 Index
Mar-05 10000 10000
Dec-05 10955 11161
The Russell 2500 Index measures the performance of U.S. small- and mid-cap
stocks. Index returns are calculated monthly, assume reinvestment of dividends
and, unlike Portfolio returns, do not reflect any fees, expenses or sales
charges. You cannot invest directly in the Index.
- --------------------------------------------------------------------------------
Cumulative Total Returns
(As of December 31, 2005)
Net Asset Value
Life-of-Class 7.80%
(3/18/05)
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges.
The performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
2
Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value [divided by] $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Equity Opportunity VCT
Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------------------
Beginning Account Value on 7/1/05 $1,000.00
Ending Account Value on 12/31/05 $1,053.76
Expenses Paid During Period* $ 6.47
* Expenses are equal to the Portfolio's annualized expense ratio of 1.25% for
Class II shares multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer Equity Opportunity VCT
Portfolio
Based on a hypothetical 5% return per year before expenses, reflecting the
period from July 1, 2005 through December 31, 2005.
Share Class II
- ----------------------------------------------------------------
Beginning Account Value on 7/1/05 $1,000.00
Ending Account Value on 12/31/05 $1,018.90
Expenses Paid During Period* $ 6.36
* Expenses are equal to the Portfolio's annualized expense ratio of 1.25% for
Class II shares multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/30/05
- --------------------------------------------------------------------------------
Pioneer Equity Opportunity VCT Portfolio's positioning among mid- and small-cap
issues produced positive returns over the Portfolio's first partial year of
operation. In the following discussion, portfolio manager Margie Patel reviews
the year's highlights and offers her outlook for the year ahead.
For the period from the Portfolio's March 18, 2005 inception through December
31, 2005, the Portfolio's Class II shares returned 7.80% at net asset value.
This result trailed the benchmark, the Russell 2500 Index, which returned
15.78% over the period.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
Q: Please describe the investment background and the areas you emphasized.
A: With the economy growing faster than its long-term trend rate and inflation
contained at manageable levels, conditions favored equity investors. Most
sectors recorded positive results, but energy companies were outstanding
performers thanks to record prices for oil and gas.
Our approach emphasizes sectors that may grow faster than the overall
economy; stock selection then focuses on companies that appear attractively
priced relative to our assessment of their long-term potential. Industry
analysis has led us to areas where, we think, positive fundamentals should
produce increasingly favorable operating results. For example, materials,
chemicals, and container and packaging firms appear well positioned to
benefit from higher capital utilization, while expanding demand should
provide some ability to raise prices. Chemical companies in particular would
welcome the ability to raise prices to offset rising energy costs. Paper and
forest product companies benefited from growing demand and restructuring
programs that include the phasing-out of less-efficient plants.
Industrials also seem poised to benefit from an increase in capital outlays
as companies modernize or expand capacity after years of under-investment.
Many businesses can also bolster capital investment using dividends from
offshore facilities under the Jobs Creation Act, which offers favorable tax
treatment on repatriated profits.
The aging U.S. population makes health care another attractive area for the
portfolio with holdings ranging from equipment and supplies to biotech and
pharmaceuticals. In financials, we hold a geographically diverse list of
commercial real estate companies, including office buildings, shopping
centers and industrial space. Although the sector is somewhat sensitive to
higher interest rates, the growing economy may gradually increase occupancy
rates and aid cash flow, and possibly increase the value of underlying
properties.
In utilities, we are emphasizing areas where regulatory commissions favor
growth, and companies whose customers can increase demand in an expanding
economy. Economic growth should also improve operating efficiency by
bringing idle generating capacity online. Some utilities may also profit
from non-regulated activities like transmission and storage facilities.
Q: Which holdings had a beneficial impact on performance during this period?
A: Lennox International, makers of heating and cooling equipment, benefited
from strong housing and industrial demand. Industrial expansion also aided
results at Roper Industries, which manufactures controls and fluid-handling
equipment, and at Wesco, a distributor of industrial maintenance products.
In packaging, Crown Holdings rose, reflecting better financial results from
higher capacity utilization, closing of inefficient facilities and a
strengthening balance sheet. Strong health-care performers included Mentor,
whose shares rose due to expected increased demand for such products as
breast and facial implants, and liposuction devices.
General Growth Properties, a diversified real estate company, led real
estate holdings. We also saw a modest gain in Saul Centers, an established
real estate management company. Saul operates small shopping centers and
other properties in the demographically attractive Washington D.C/Baltimore
corridor.
A Word About Risk:
Investing in small and mid-sized companies may offer the potential for higher
returns, but are also subject to greater short-term price fluctuations than
larger, more established companies. At times, the Portfolio's investments may
represent industries or industry sectors that are interrelated or have common
risks, making it more susceptible to any economic, political, or regulatory
developments or other risks affecting those industries and sectors. When
interest rates rise, the prices of fixed income securities in the Portfolio
will generally fall. Conversely, when interest rates fall, the prices of fixed
income securities in the Portfolio will generally rise. Investments in the
Portfolio are subject to possible loss due to the financial failure of
underlying securities and their inability to meet their debt obligations.
Prepayment risk is the chance that mortgage-backed bonds will be paid off early
if falling interest rates prompt homeowners to refinance their mortgages.
Forced to reinvest the unanticipated proceeds at lower interest rates, the
Portfolio would experience a decline in income and lose the opportunity for
additional price appreciation associated with falling interest rates.
Investments in high yield or lower-rated securities are subject to
greater-than-average risk.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Q: Which of your decisions hurt overall performance?
A. Our small exposure to energy stocks compared with the benchmark's weighting
helps explain why returns lagged the index; valuations among energy shares,
viewed in terms of longer-term potential, did not meet our investment
criteria.
Among individual disappointments, shares of Canadian paper maker Abitibi
declined as demand for newsprint continued to shrink. Unsatisfactory
operating results hurt the performance of NOVA Chemicals, which felt the
pressure of sharply higher natural gas prices.
Interpublic, an international advertising firm, has yet to complete its
long-pending operational turnaround, causing investors to sell shares amid
continued uncertainty.
Q: What is your outlook, and how does the Portfolio reflect that outlook?
A. Despite a series of interest rate hikes and expensive energy, we think that
the current expansion will persist through 2006. Portfolio holdings on
average fall between the small- and mid-cap categories, and combine value
and growth companies. All were selected for their favorable industry
positions and their ability to defend their franchises in a competitive
environment. Some of our holdings may engage in acquisitions or themselves
be the targets of acquirers. Most importantly, our focus is on the
potential long-term value we see in these companies, with less attention
paid to short-term earnings trends.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Portfolio's historical or future performance are
statements of the opinion of Portfolio management as of the date of this
report. These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
5
Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
CONVERTIBLE PREFERRED STOCKS - 2.5%
Materials - 2.5%
Steel - 2.5%
150 TXI Capital Trust I, 5.5%, 6/30/28 $ 7,725
--------
Total Materials $ 7,725
--------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $7,565) $ 7,725
--------
COMMON STOCKS - 108.9%
Energy - 1.9%
Oil & Gas Storage & Transportation - 1.9%
65 Kinder Morgan, Inc. $ 5,977
--------
Total Energy $ 5,977
--------
Materials - 27.3%
Aluminum - 1.2%
182 Novelis, Inc. $ 3,802
--------
Commodity Chemicals - 2.7%
20 Georgia Gulf Corp.* $ 608
201 Lyondell Petrochemicals Co. 4,788
91 NOVA Chemicals Corp. 3,039
--------
$ 8,435
--------
Construction Materials - 1.9%
119 Texas Industries, Inc. $ 5,931
--------
Diversified Chemical - 3.7%
120 FMC Corp.* $ 6,380
259 Olin Corp. 5,097
--------
$ 11,477
--------
Fertilizers & Agricultural Chemicals - 3.7%
254 The Scotts Miracle-Gro Co. $ 11,491
--------
Gold - 3.3%
452 Placer Dome, Inc. $ 10,364
--------
Metal & Glass Containers - 3.1%
239 Crown Cork & Seal Co., Inc.* $ 4,668
244 Owens-Illinois, Inc.* 5,134
--------
$ 9,802
--------
Paper Products - 1.5%
1,181 Abitibi-Consolidated, Inc. $ 4,783
--------
Specialty Chemicals - 6.2%
200 Arch Chemicals, Inc. $ 5,980
39 Cytec Industries, Inc. 1,858
322 RPM, Inc. 5,593
96 Sigma-Aldrich Corp. 6,076
--------
$ 19,507
--------
Total Materials $ 85,592
--------
Capital Goods - 18.1%
Aerospace & Defense - 2.6%
300 EDO Corp. $ 8,118
--------
Building Products - 2.4%
267 Lennox International, Inc. $ 7,529
--------
Shares Value
Construction & Farm Machinery &
Heavy Trucks - 0.9%
152 Wabash National Corp. $ 2,896
--------
Electrical Component & Equipment - 2.2%
178 Roper Industries, Inc. $ 7,033
--------
Industrial Machinery - 6.7%
187 Donaldson Co., Inc. $ 5,947
30 Gardner Denver, Inc.* 1,479
135 Kaydon Corp. (a) 4,339
109 Kennametal, Inc. 5,563
55 Parker Hannifin Corp. 3,628
--------
$ 20,956
--------
Trading Companies & Distributors - 3.3%
240 Wesco International, Inc.* $ 10,255
--------
Total Capital Goods $ 56,787
--------
Media - 1.3%
Advertising - 1.3%
426 The Interpublic Group of Companies, Inc.* $ 4,111
--------
Total Media $ 4,111
--------
Food, Beverage & Tobacco - 2.5%
Packaged Foods & Meats - 2.5%
257 McCormick & Co, Inc. $ 7,946
--------
Total Food, Beverage & Tobacco $ 7,946
--------
Household & Personal Products - 3.2%
Personal Products - 3.2%
223 Alberto-Culver Co. (Class B) $ 10,202
--------
Total Household & Personal
Products $ 10,202
--------
Health Care Equipment & Services - 10.8%
Health Care Distributors - 1.2%
136 Owens & Minor, Inc. $ 3,744
--------
Health Care Equipment - 9.6%
125 Bio-Rad Laboratories, Inc.* $ 8,180
101 Fisher Scientific International, Inc.* 6,248
62 Mentor Corp. 2,857
242 Steris Corp. 6,055
231 Thermo Electron Corp.* 6,960
--------
$ 30,300
--------
Total Health Care Equipment &
Services $ 34,044
--------
Pharmaceuticals & Biotechnology - 5.9%
Biotechnology - 3.3%
364 Protein Design Labs, Inc.* $ 10,345
--------
Pharmaceuticals - 2.6%
350 Bristol-Myers Squibb Co. $ 8,043
--------
Total Pharmaceuticals &
Biotechnology $ 18,388
--------
6 The accompanying notes are an integral part of these financial statements.
Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Banks - 1.8%
Thrifts & Mortgage Finance - 1.8%
267 Sovereign Bancorp, Inc. $ 5,773
--------
Total Banks $ 5,773
--------
Insurance - 4.1%
Multi-Line Insurance - 4.1%
151 Hartford Financial Services Group, Inc. $ 12,969
--------
Total Insurance $ 12,969
--------
Real Estate - 16.9%
Real Estate Management & Development - 1.1%
92 Forest City Enterprises, Inc. $ 3,490
--------
Real Estate Investment Trusts - 15.8%
428 Equity Office Properties Trust $ 12,981
177 General Growth Pro TLB SC (a) 8,317
115 Liberty Property Trust 4,928
262 Mack-Cali Realty Corp. 11,318
548 MeriStar Hospitality Corp.* 5,151
187 Saul Centers, Inc. 6,751
--------
$ 49,446
--------
Total Real Estate $ 52,936
--------
Semiconductors - 1.2%
Semiconductor Equipment - 1.2%
200 FEI Co.* $ 3,834
--------
Total Semiconductors $ 3,834
--------
Utilities - 13.9%
Electric Utilities - 0.9%
66 Edison International $ 2,878
--------
Gas Utilities - 8.2%
404 Atmos Energy Corp. $ 10,569
275 National Fuel Gas Co. 8,577
1,167 SEMCO Energy, Inc.* 6,559
--------
$ 25,705
--------
Shares Value
Independent Power Producer &
Energy Traders - 4.8%
318 NRG Energy, Inc.* $ 14,984
--------
Total Utilities $ 43,567
--------
TOTAL COMMON STOCKS
(Cost $324,408) $342,126
--------
TEMPORARY CASH INVESTMENTS - 4.0%
Security Lending Collateral - 4.0%
12,584 Securities Lending Investment Fund, 4.24% $ 12,584
--------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $12,584) $ 12,584
--------
TOTAL INVESTMENT IN SECURITIES - 115.4%
(Cost $344,557) $362,435
--------
OTHER ASSETS AND
LIABILITIES - (15.4)% $(48,386)
--------
TOTAL NET ASSETS - 100.0% $314,049
========
* Non-income producing security
(a) At December 31, 2005, the following securities were out on loan:
Shares Security Market Value
168 General Growth Pro TLB SC $ 7,894
128 Kaydon Corp. 4,114
-------
Total $12,008
=======
The accompanying notes are an integral part of these financial statements. 7
Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
3/18/05 (a)
to
Class II 12/31/05
Net asset value, beginning of period $ 10.00
-------
Increase from investment operations:
Net investment income $ 0.07
Net realized and unrealized gain on investments 0.71
-------
Net increase from investment operations $ 0.78
-------
Net increase in net asset value $ 0.78
-------
Net asset value, end of period $ 10.78
=======
Total return* 7.80%(b)
Ratio of net expense to average net assets 1.25%**
Ratio of net investment income to average net assets 1.05%**
Portfolio turnover rate 3%(b)
Net assets, end of period (in thousands) $ 314
Ratios with no waiver of management fees and assumption of expenses by PIM and no
reduction for fees paid indirectly:
Net expenses 38.61%**
Net investment loss (36.32)%**
(a) Class II shares were first publicly offered on March 18, 2005.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions, the complete redemption of the
investment at net asset value at the end of each period.
** Annualized
(b) Not annualized.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
8 The accompanying notes are an integral part of these financial statements.
Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (including securities loaned of $12,008) (cost $362,435
$344,557)
Receivables --
Dividends, interest and foreign taxes withheld 332
Due from Pioneer Investment Management, Inc. 9,933
Other 6
--------
Total assets $372,706
--------
LIABILITIES:
Payables --
Fund shares repurchased $ 38
Upon return of securities loaned 12,584
Due to bank 1,760
Due to affiliates 263
Accrued expenses 44,012
--------
Total liabilities $ 58,657
--------
NET ASSETS:
Paid-in capital $295,892
Undistributed net investment income 2,190
Accumulated net realized loss (1,911)
Net unrealized gain on investments 17,878
--------
Total net assets $314,049
--------
NET ASSET VALUE PER SHARE:
Class II:
No par value (unlimited number of shares authorized)
Net assets $314,049
Shares outstanding 29,137
========
Net asset value per share $ 10.78
The accompanying notes are an integral part of these financial statements. 9
Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
3/18/05
(Commencement
of Operations)
to 12/31/05
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $22) $ 4,111
Interest 434
Income on securities loaned, net 11
--------
Total investment income $ 4,556
--------
EXPENSES:
Management fees $ 1,478
Transfer agent fees 1,375
Distribution fees (Class II) 493
Administrative reimbursements 13,887
Custodian fees 12,085
Professional fees 32,653
Printing 12,262
Fees and expenses of nonaffiliated trustees 2,401
Miscellaneous 125
--------
Total expenses $ 76,759
Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (74,283)
--------
Net expenses $ 2,476
--------
Net investment income $ 2,080
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from:
Investments $ (1,911)
--------
Change in net unrealized gain or (loss) from:
Investments $ 17,878
--------
Net gain on investments $ 15,967
========
Net increase in net assets resulting from operations $ 18,047
========
10 The accompanying notes are an integral part of these financial statements.
Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
3/18/05
(Commencement
of Operations)
to 12/31/05
FROM OPERATIONS:
Net investment income $ 2,080
Net realized loss on investments (1,911)
Change in net unrealized gain or (loss) on investments 17,878
--------
Net increase in net assets resulting from operations $ 18,047
---------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $339,533
Cost of shares repurchased (43,531)
--------
Net increase in net assets resulting from fund share transactions $296,002
--------
Net increase in net assets $314,049
NET ASSETS:
Beginning of period --
--------
End of period $314,049
========
Undistributed net investment income, end of period $ 2,190
========
The accompanying notes are an integral part of these financial statements. 11
Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer Equity Opportunity VCT Portfolio (the Portfolio) is a Portfolio of
Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust
registered under the Investment Company Act of 1940 as an open-end management
investment company. The Trust consists of twenty nine separate diversified
portfolios, sixteen of which issue both Class I and Class II shares
(collectively, the "Portfolios", individually the "Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares
only)
The Equity Opportunity Portfolio commenced operations on March 18, 2005.
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts or by
qualified pension and retirement plans.
The Equity Opportunity Portfolio seeks long-term capital growth and
secondarily, it seeks income.
The financial statements and financial highlights of all other Portfolios are
presented in separate books.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
periods. Actual results could differ from those estimates.
Information concerning the Portfolio's principal investment risks is contained
in the Portfolio's prospectus(es). Please refer to those documents when
considering the Portfolio's risks. Investing in small and mid-sized companies
may offer the potential for higher returns, but are also subject to greater
short-term price fluctuations than larger, more established companies.
The following is a summary of significant accounting policies consistently
followed by the Trust, in the preparation of its financial statements which are
consistent with those generally accepted in the investment company industry:
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the portfolio are computed once daily, on each day the New York Stock
Exchange (NYSE) is open, as of the close of regular trading on the NYSE. In
computing the net asset values, securities are valued at the last sale
price on the principal exchange where they are traded. Securities that have
not traded on the date of valuation, or securities for which sale
12
Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
prices are not generally reported, are valued at the mean between the last
bid and asked prices. The Portfolio also may use the fair value of a
security, including a non-U.S. security, when the closing market price on
the primary exchange where the security is traded no longer accurately
reflects the value of the security as of the close of the NYSE. At December
31, 2005, there were no fair valued securities. Temporary cash investments
are valued at amortized cost.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities where the ex-dividend date may have
passed are recorded as soon as the Portfolio becomes aware of the
ex-dividend data in the exercise of reasonable diligence. Interest income,
including interest on income bearing cash accounts, is recorded on the
accrual basis.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes on capital gains at
the applicable country rates.
B. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with income tax
rules. Therefore, the source of the Portfolio's distributions may be shown
in the accompanying financial statements as either from, or in excess of,
net investment income or net realized gain on investment transactions, or
from paid-in capital, depending on the type of book/tax differences that
may exist.
Capital loss carryforwards are available to offset future realized capital
gains. At December 31, 2005, Equity Opportunity Portfolio had a net capital
loss carryforward of $437, which will expire in 2013, if not utilized.
The Portfolio elected to defer $1,474 in capital losses recognized between
November 1, 2005 and December 31, 2005 to its fiscal year ended December
31, 2006.
At December 31, 2005, the Portfolio made reclassifications as described
below. These reclassifications have no impact on the net asset values of
the Portfolio and are designed to present the Portfolio's capital accounts
on a tax basis.
- ---------------------------------------------------------------------------------------------------------------------
Undistributed Net Accumulated Net
Portfolio Investment Income (Loss) Realized Gain (Loss) Paid-In Capital
- ---------------------------------------------------------------------------------------------------------------------
Pioneer Equity Opportunity VCT Portfolio 110 -- (110)
- ---------------------------------------------------------------------------------------------------------------------
The following chart shows the components of distributable earnings
(accumulated losses) as of December 31, 2005, on a tax basis. There were no
distributions paid during the year ended December 31, 2005.
- -----------------------------------------------------------
2005
- -----------------------------------------------------------
Distributions paid from:
Ordinary Income $ --
Long-Term capital gain --
Return of Capital --
-------
Total distributions $ --
=======
Distributable Earnings
(Accumulated Losses):
Undistributed ordinary income $ 2,190
Undistributed long-term gain/(capital
loss carryforward) (437)
Post-October loss deferred (1,474)
Unrealized appreciation (depreciation) 17,878
-------
Total $18,157
=======
- -----------------------------------------------------------
C. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Trust and a wholly owned indirect subsidiary
of UniCredito Italiano S.p.A. (Unicredito Italiano), $638,021 in
commissions on the sale of Trust shares for the year ended December 31,
2005. Distribution fees are calculated based on the average daily net asset
values attributable to Class I and Class II shares of the Portfolio,
respectively.
D. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees. The Portfolio also continues to receive
payments in lieu of interest or dividends on the securities loaned. Gain or
loss in the fair
13
Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
value of the securities loaned that may occur during the term of the loan,
will be for account of the Trust. The loans are secured by collateral of at
least 102%, at all times, of the fair value of the securities loaned. The
fair value of the collateral will be adjusted daily to reflect any price
fluctuation in the value of the loaned securities. The Portfolio has the
right under the lending agreement to recover the securities on loan from
the borrower on demand. The Portfolio invests cash collateral in the
Securities Lending Investment Fund which is sponsored by Brown Brothers
Harriman & Co., the Trust's custodian.
E. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano manages the
portfolio. Management fees are calculated daily at the annual rate of 0.75% of
the Portfolio's average daily net assets.
In addition, under the management and administration agreements, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $12 was payable to
PIM related to management fees, administrative fees and certain other services,
and is included in due to affiliates.
Through May 1, 2006, PIM has agreed not to impose all or a portion of its
management fee and, if necessary, to limit other ordinary operating expenses to
the extent required to reduce Class II expenses to 1.25% of the average daily
net assets attributable to class II shares.
3. Transfer Agent
PIMSS, a wholly owned indirect subsidiary of UniCredito Italiano provides
substantially all transfer agent and shareowner services to the Trust at
negotiated rates. Included in due to affiliates is $250 in transfer agent fees
payable to PIMSS at December 31, 2005.
4. Distribution Plans
The Portfolio has adopted a plan of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with the Portfolio's Class
II shares. Included in due to affiliates is $1 payable to PFD at December 31,
2005.
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- ---------------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- ---------------------------------------------------------------------------------------------------
Equity Opportunity Portfolio $344,557 $30,316 $(12,438) $17,878
======== ======= ======== =======
- ---------------------------------------------------------------------------------------------------
14
Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, was $341,740 and $7,856, respectively.
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows for the
period ended December 31, 2005:
- ------------------------------------------------------------------
Equity Opportunity Portfolio '05 Shares '05 Amount
- ------------------------------------------------------------------
CLASS II:
Shares sold 33,266 $339,533
Reinvestment of distributions -- --
Shares repurchased (4,129) (43,531)
----------------------------
Net increase 29,137 $296,002
============================
- ------------------------------------------------------------------
15
Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust
and the Shareowners of Pioneer Equity Opportunity VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer Equity Opportunity VCT Portfolio, one
of the portfolios constituting the Pioneer Variable Contracts Trust (the
"Trust"), as of December 31, 2005, and the related statement of operations,
changes in net assets, and the financial highlights for the period from March
18, 2005 (commencement of operations) to December 31, 2005. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of December 31, 2005, by
correspondence with the custodian and brokers or by other appropriate auditing
procedures where replies from brokers were not received. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer Equity Opportunity VCT Portfolio of the Pioneer Variable Contracts
Trust at December 31, 2005, the results of its operations, changes in its net
assets, and the financial highlights for the period from March 18, 2005
(commencement of operations) to December 31, 2005 in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
16
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Equity Opportunity VCT Portfolio (the "Fund")
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for the life-of-fund period ended June
30, 2005 for the Fund and a peer group selected by the Independent Trustees for
this purpose, (2) management fees incurred by a peer group of funds selected by
the Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's
17
Pioneer Equity Opportunity VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and an index,
in each case selected by the Independent Trustees for this purpose. The
Trustees concluded that the period since commencement of investment
operations was too short to evaluate the Investment Adviser's performance.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The
Independent Trustees also have had discussions with senior management of
the Investment Adviser responsible for investment operations and the senior
management of the Investment Adviser's equities group. Among other things,
the Trustees considered the number, education and experience of the
Investment Adviser's investment staff and their use of technology and
emphasis on analytics in view of the risk profile of securities in which
the Fund invests. The Trustees concluded that the Investment Adviser had
the quality and depth of personnel and the well-developed methods essential
to performing its duties under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision
of third party service providers. Based on these considerations, the
Trustees concluded that the nature, quality, cost and extent of such
services are satisfactory and reliable and serve the shareholders of the
Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the period ended June 30, 2005 was in the second
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. (In all quintile rankings referred to
throughout this discussion first quintile is most favorable to the Fund's
shareowners. Thus, highest relative performance would be first quintile and
lowest relative expenses also would be first quintile.) The Trustees
determined that the fee under the Management Contract was reasonable and
fair in light of both the overall nature and quality of services provided
by the Investment Adviser and the fees charged by the funds in the peer
group. The Trustees also considered the Fund's expense ratio and expense
ratios of a peer group of funds selected by the Independent Trustees for
this purpose. Given the small asset size of the Fund, the Trustees
concluded that comparison of the Fund's expense ratio to a peer group was
not meaningful.
F. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. The Trustees concluded,
given current and anticipated asset levels, that break points in the
management fee are not necessary at this time. The Trustees will continue
to evaluate annually the appropriateness of break points.
G. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund), and the
benefit to the Investment Adviser from the use of "soft" commission dollars
to pay for research services. The Trustees further considered the revenues
and profitability of the Investment Adviser's businesses other than the
fund business, including the Investment Adviser's institutional investment
advisory business. The Trustees considered the intangible benefits that
accrue to the Investment Adviser and its affiliates by virtue of its
relationship with the Fund and the Pioneer Funds as a group. The Trustees
concluded that all these types of benefits accruing to the Investment
Adviser were reasonable in the context of the overall relationship between
the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
18
Pioneer Equity Opportunity VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; President and Director of
Pioneer Funds Distributor, Inc.
("PFD"); President of all of the
Pioneer Funds; and Of Counsel,
Wilmer Cutler Pickering Hale and
Dorr LLP (counsel to PIM-USA and
the Pioneer Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
19
Pioneer Equity Opportunity VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company
Washington, DC 20007 trustee is elected (publicly traded health care (privately-held affordable
or earlier services company) (2001-present); housing finance company);
retirement or Managing Partner, Federal City Director of New York Mortgage
removal. Capital Advisors (boutique merchant Trust (publicly traded mortgage
bank) (2002 to 2004); Executive REIT)
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material
or earlier products manufacturer),
retirement or Millennium Chemicals, Inc.
removal. (commodity chemicals), Mortgage
Guaranty Insurance Corporation,
and R.J. Reynolds Tobacco
Holdings, Inc. (tobacco)
- ----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Professor of Management, Faculty
Canada H3A 1G5 or earlier of Management, McGill University.
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
20
Pioneer Equity Opportunity VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (57) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
21
Pioneer Equity Opportunity VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, None
Treasurer 2000. Serves at the Assistant Vice President - Fund
discretion of the Accounting, Administration and
Board. Custody Services of Pioneer; and
Assistant Treasurer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ---------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ---------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
22
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
23
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
24
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
25
[LOGO]PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company, Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18680-00-0206
[LOGO] PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Europe VCT Portfolio -- Class II Shares
ANNUAL REPORT
DECEMBER 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Pioneer Europe VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 5
Financial Statements 7
Notes to Financial Statements 11
Report of Independent Registered Public Accounting Firm 16
Factors Considered by the Trustees in Approving the
Management Contract 17
Trustess, Officers and Service Providers 20
Before investing consider the Portfolio's investment objectives, risks, charges
and expenses. Contact your advisor or Pioneer Investments for a prospectus
containing this information. Read it carefully.
The Fund files a complete statement of investments with the Securities and
Exchange Commission for the first and the third quarters for each fiscal year on
Form N-Q. Shareowners may view the filed Form N-Q by visiting the Commission's
web site at http://www.sec.gov. The filed form may also be viewed and copied at
the Commission's Public Reference Room in Washington, D.C. Information regarding
the operations of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Europe VCT Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Diversification
(As a percentage of total investment portfolio)
[The following table was depicted as a pie chart in the printed material.]
International Common Stocks 95.4%
International Preferred Stocks 2.6%
U.S. Common Stocks 2.0%
Geographical Distribution
(As a percentage of equity holdings)
[The following table was depicted as a pie chart in the printed material.]
United Kingdom 26.4%
France 25.1%
Germany 14.5%
Switzerland 13.9%
Netherlands 6.1%
Ireland 5.4%
Spain 3.5%
Italy 3.1%
Panama 2.0%
Five Largest Holdings
(As a percentage of equity holdings)
1. Royal Bank of Scotland
Group Plc 5.14%
2. BP Amoco Plc 4.94
3. BNP Paribas SA 4.47
4. TNT Post Group N.V. 4.34
5. CS Group 4.23
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 11.20 $ 10.44
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.0511 $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
- --------------------------------------------------------------------------------
The following chart shows the change in value of an investment made in Pioneer
Europe VCT Portfolio at net asset value, compared to that of the Morgan Stanley
Capital International (MSCI) Europe Index. Portfolio returns are based on net
asset value and do not reflect any applicable insurance fees or surrender
charges.
[The following table was depicted as a line chart in the printed material.]
Pioneer Europe MSCI Europe
VCT Portfolio Index
10/98 10,000 10,000
10,596 10,998
12/99 13,571 12,783
11,030 11,742
12/01 8,445 9,436
6,835 7,729
12/03 9,085 10,754
10,739 13,054
12/05 11,578 14,351
The Morgan Stanley Capital International (MSCI) Europe Index measures the
performance of stocks in European developed markets. Index returns are
calculated monthly, assume reinvestment of dividends and, unlike Portfolio
returns, do not reflect any fees, expenses or sales charges. You cannot invest
directly in the Index.
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Life of Fund 2.06%
(10/30/98)
5 Years 0.97%
1 Year 7.81%
All total returns shown assume reinvestment of distributions at net asset value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
2
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Europe VCT Portfolio
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value [divided by] $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Europe VCT Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II
- ------------------------------------------------------
Beginning Account Value on 7/1/05 $1,000.00
Ending Account Value on 12/31/05 $1,094.74
Expenses Paid During Period* $ 9.24
* Expenses are equal to the Portfolio's annualized expense ratio of 1.75% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer Europe VCT Portfolio
Based on a hypothetical 5% return per year before expenses, reflecting the
period from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,016.38
Expenses Paid During Period* $ 8.89
* Expenses are equal to the Portfolio's annualized expense ratio of 1.75% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Europe VCT Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
European stocks posted strong positive returns in 2005, supported by solid
company earnings growth and an improving economic backdrop. In the discussion
below, Andrew Arbuthnott, who is responsible for the day-to-day management of
Pioneer Europe VCT Portfolio, discusses the factors that influenced the
Portfolio's performance over the year.
Q. How did the Portfolio perform?
A. For the 12 months ended December 31, 2005, Class II shares returned 7.81% at
net asset value. In comparison, our benchmark, the Morgan Stanley Capital
International (MSCI) Europe Index, posted a return of 9.42%. Returns for
the Portfolio and the Index reflect the negative impact for U.S. investors
with holdings denominated in euros due to the euro's decline over the year
versus the dollar. Nevertheless, European equity returns were strong both
in absolute terms and relative to U.S. domestic equity indices.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q. What factors influenced the Portfolio's relative performance?
A. The Portfolio's underperformance relative to the benchmark was largely the
result of our exposure to the telecommunications and automobile sectors. We
were overweight in the telecommunications sector, which underperformed
strongly in 2005. France Telecom was the key detractor as the market
worried about the impact of new technologies such as internet telephone
calls (VOIP) on its revenue growth potential. In autos, the market reacted
negatively to Porsche's decision to purchase a 20% stake in Volkswagen,
although in our opinion the investment should not undermine the underlying
profitability of Porsche. Disappointing results from Peugeot also held back
overall returns while Michelin underperformed amid sluggish sales of truck
tires.
Q. Which positions were positive contributors to the Portfolio's performance?
A. Our overweight position in diversified financials was the leading positive
contributor for the Portfolio in 2005. The sector saw strong relative
performance driven by generally supportive operating conditions, and our
stock selection within the sector outperformed as well. In particular,
holdings in Credit Suisse, Deutsche Bank and UBS rose on very solid
quarterly results throughout the year. We were also overweight in capital
goods, which outperformed the broader market in 2005, but our stock
selection was particularly robust within the sector. Siemens outperformed
as it continued to restructure under the guidance of its new CEO, moving to
concentrate on its more profitable industrial business and away from
communication equipment and IT services. ACS (a Spanish construction
company) strengthened on good financial results and robust order levels,
while Schneider Electric performed well on optimism for increased returns
to shareholders. Finally, we were overweight in pharmaceuticals throughout
the year. Our positions in AstraZeneca and Roche outperformed, and we
continue to view both as attractive on the basis of strong new drug
pipelines.
Q. Would you discuss the Portfolio's overall approach?
A. Mid-way through the year, the Portfolio moved to a more concentrated
investment portfolio. As a result, the Portfolio now holds around 30
stocks, comprising our strongest investment ideas. We believe this shift
will help maximize the benefits of our bottom-up stock selection process -
while at the same time continuing to allow us to construct a diversified,
multi-cap portfolio. Despite the Portfolio's higher degree of concentration
under its new investment approach, our goal is for its overall level of
volatility to remain broadly comparable to that of its benchmark. This is
due to our consistent application of a rigorous investment process, through
which we aim to achieve a deep understanding of our holdings. The goal is
to find those securities with upside potential that we believe have the
possibility to also offer limited downside risk.
Q. What is your outlook?
A. Our outlook is positive for the European equity markets in 2006. Thanks to
strong earnings growth, valuations remain attractive versus fixed income
investments, and European equities continue to offer solid dividend yields.
From a global perspective, the macroeconomic environment remains favourable
to the equity markets, with positive growth expected to continue. Following
years of successful cost cutting and restructuring, corporate earnings
growth is likely to slow in 2006; however, we feel that valuations have
taken this into account. Equity markets may also continue to benefit from
share buy-backs and merger and acquisition activity. While we are positive
on the market, we would be surprised if equity returns in 2006 were as high
as those in 2005. In terms of our currency outlook, the euro may gain
against the dollar during 2006, if the focus of investors moves back to the
large U.S. trade and current account deficits.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any other
purposes. Past performance is no guarantee of future results, and there is no
guarantee that market forecasts discussed will be realized.
A Word About Risk:
Investing in foreign and/or emerging markets securities involves risks relating
to interest rates, currency exchange rates, economic, and political conditions.
The Portfolio may invest a substantial amount of its assets in issuers located
in a limited number of countries and therefore is susceptible to adverse
economic, political or regulatory developments affecting those countries. The
Portfolio invests in a limited number of securities and, as a result, the
Portfolio's performance may be more volatile than the performance of other
portfolios holding more securities. At times, the Portfolio's investments may
represent industries or industry sectors that are interrelated or have common
risks, making it more susceptible to any economic, political, or regulatory
developments or other risks affecting those industries and sectors.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Europe VCT Portfolio
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
PREFERRED STOCK - 2.5%
Automobiles & Components - 2.5%
Automobile Manufacturers - 2.5%
658 Porsche AG $ 472,253
-----------
TOTAL PREFERRED STOCK
(Cost $411,979) $ 472,253
-----------
COMMON STOCK - 95.7%
Energy - 11.3%
Integrated Oil & Gas - 11.3%
84,652 BP Amoco Plc $ 906,190
20,168 Eni SpA 562,124
21,728 Repsol SA Regd 637,257
-----------
$ 2,105,571
-----------
Total Energy $ 2,105,571
-----------
Materials - 11.3%
Construction Materials - 6.5%
21,189 CRH Plc $ 622,955
6,584 Lafarge Br 591,985
-----------
$ 1,214,940
-----------
Diversified Metals & Mining - 2.3%
9,195 Rio Tinto Plc $ 419,761
-----------
Fertilizers & Agricultural Chemicals - 2.5%
3,784 Syngenta AG* $ 470,580
-----------
Total Materials $ 2,105,281
-----------
Capital Goods - 6.9%
Building Products - 3.3%
10,367 Compagnie de Saint Gobain $ 616,276
-----------
Industrial Conglomerates - 3.6%
7,900 Siemens $ 676,639
-----------
Total Capital Goods $ 1,292,915
-----------
Transportation - 4.3%
Air Freight & Couriers - 4.3%
25,504 TNT NV $ 796,613
-----------
Total Transportation $ 796,613
-----------
Automobiles & Components - 7.2%
Automobile Manufacturers - 2.1%
6,723 PSA Peugeot Citroen $ 386,670
-----------
Tires & Rubber - 5.1%
5,301 Continental AG $ 469,809
8,850 Compagnie Generale des
Etablissements Michelin 496,738
-----------
$ 966,547
-----------
Total Automobiles & Components $ 1,353,217
-----------
Shares Value
Consumer Durables & Apparel - 4.9%
Apparel, Accessories & Luxury Goods - 2.7%
2,680 Adidas-Salomon AG $ 506,979
-----------
Homebuilding - 2.2%
18,968 Persimmon Plc $ 408,382
-----------
Total Consumer Durables & Apparel $ 915,361
-----------
Consumer Services - 2.0%
Hotels, Resorts & Cruise Lines - 2.0%
6,812 Carnival Corp. $ 364,238
-----------
Total Consumer Services $ 364,238
-----------
Media - 4.6%
Advertising - 2.9%
49,530 WPP Group PLC $ 534,710
-----------
Publishing - 1.7%
16,053 Wolters Kluwer NV* $ 324,399
-----------
Total Media $ 859,109
-----------
Food & Drug Retailing - 3.6%
Drug Retail - 1.6%
28,832 Boots Co. Plc $ 300,838
-----------
Hypermarkets & Supercenters - 2.0%
7,774 Carrefour Supermarch* $ 364,098
-----------
Total Food & Drug Retailing $ 664,936
-----------
Pharmaceuticals & Biotechnology - 6.3%
Pharmaceuticals - 6.3%
10,691 Astrazeneca Plc $ 520,925
4,402 Roche Holdings AG 660,619
-----------
$ 1,181,544
-----------
Total Pharmaceuticals &
Biotechnology $ 1,181,544
-----------
Banks - 19.1%
Diversified Banks - 19.1%
17,413 Allied Irish Banks Plc $ 372,627
67,587 Barclays Plc 710,074
10,136 BNP Paribas SA 819,802
31,220 Royal Bank of Scotland Group Plc 942,651
5,931 Societe Generale 729,206
-----------
$ 3,574,360
-----------
Total Banks $ 3,574,360
-----------
Diversified Financials - 10.5%
Diversified Capital Markets - 10.5%
15,233 CS Group $ 776,072
5,549 Deutsche Bank AG 537,725
6,793 UBS AG 646,399
-----------
$ 1,960,196
-----------
Total Diversified Financials $ 1,960,196
-----------
The accompanying notes are an integral part of these financial statements.
5
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Europe VCT Portfolio
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
Telecommunication Services - 3.7%
Integrated Telecommunication Services - 3.2%
24,070 France Telecom SA $ 597,774
-----------
Wireless Telecommunication Services - 0.5%
42,393 Vodafone Group Plc $ 92,034
-----------
Total Telecommunication Services $ 689,808
-----------
TOTAL COMMON STOCK
(Cost $15,365,193) $17,863,149
-----------
TOTAL INVESTMENT IN
SECURITIES - 98.2%
(Cost $15,777,172)(a) $18,335,402
-----------
OTHER ASSETS
AND LIABILITIES - 1.8% $ 336,302
-----------
TOTAL NET ASSETS - 100.0% $18,671,704
===========
* Non-income producing security
(a) Distributions of investments by country of issue, as a percentage of total
equity holdings (excluding temporary cash investments) is as follows:
United Kingdom 26.4%
France 25.1
Germany 14.5
Switzerland 13.9
Netherlands 6.1
Ireland 5.4
Spain 3.5
Italy 3.1
Panama 2.0
-----
100.0%
=====
The accompanying notes are an integral part of these financial statements.
6
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Europe VCT Portfolio
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
1/2/01 (a)
Year Ended Year Ended Year Ended Year Ended to
Class II 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 10.44 $ 8.89 $ 6.71 $ 8.29 $ 11.07
------- ------- ------ -------- --------
Increase (decrease) from investment operations:
Net investment income $ 0.06 $ 0.04 $ 0.03 $ 0.01 $ 0.08
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 0.75 1.57 2.17 (1.59) (2.71)
------- ------- ------ -------- --------
Net increase (decrease) from investment operations $ 0.81 $ 1.61 $ 2.20 $ (1.58) $ (2.63)
Distributions to shareholders:
Net investment income (0.05) (0.06) (0.02) -- (0.15)
------- ------- ------ -------- --------
Net increase (decrease) in net asset value $ 0.76 $ 1.55 $ 2.18 $ (1.58) $ (2.78)
------- ------- ------ -------- --------
Net asset value, end of period $ 11.20 $ 10.44 $ 8.89 $ 6.71 $ 8.29
======= ======= ====== ======== ========
Total return* 7.81% 18.20% 32.92% (19.06)% (23.44)%
Ratio of net expenses to average net assets 1.75% 1.75% 1.79% 1.86% 3.22%
Ratio of net investment income (loss) to average net assets 0.66% 0.61% 0.56% 0.25% (2.56)%
Portfolio turnover rate 95% 55% 52% 95% 73%
Net assets, end of period (in thousands) $ 9,958 $ 8,252 $5,005 $ 1,829 $ 398
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 2.01% 2.20% 2.75% 2.66% 4.57%
Net investment income (loss) 0.40% 0.17% (0.40)% (0.54)% (3.90)%
Ratios with waiver of management fees and assumption of
expenses by PIM and reduction for fees paid indirectly:
Net expenses 1.75%
Net investment income (loss) 0.66%
(a) Class II shares were first publicly offered on January 2, 2001.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
The accompanying notes are an integral part of these financial statements.
7
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Europe VCT Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (Cost $15,777,172) $ 18,335,402
Cash 360,949
Receivables --
Fund shares sold 4,979
Dividends, interest and foreign taxes withheld 24,054
------------
Total assets $ 18,725,384
------------
LIABILITIES:
Payables --
Fund shares repurchased $ 1,370
Due to affiliates 4,020
Accrued expenses 48,290
------------
Total liabilities $ 53,680
------------
NET ASSETS:
Paid-in capital $ 20,701,846
Undistributed net investment income 106,090
Accumulated net realized loss (4,694,306)
Net unrealized gain (loss) on:
Investments 2,558,230
Forward foreign currency contracts and other assets and liabilities denominated
in foreign currencies (156)
------------
Total net assets $ 18,671,704
------------
NET ASSET VALUE PER SHARE:
Class I:
(No par value, unlimited number of shares authorized)
Net assets $ 8,714,040
Shares outstanding 763,219
------------
Net asset value per share $ 11.42
Class II:
(No par value, unlimited number of shares authorized)
Net assets $ 9,957,664
Shares outstanding 889,288
------------
Net asset value per share $ 11.20
The accompanying notes are an integral part of these financial statements.
8
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Europe VCT Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year
Ended
12/31/05
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $63,473) $ 436,678
Interest 6,748
------------
Total investment income $ 443,426
------------
EXPENSES:
Management fees $ 181,631
Transfer agent fees and expenses 2,753
Distribution fees (Class II) 22,956
Administrative reimbursements 18,512
Custodian fees 37,053
Professional fees 42,316
Printing expense 12,988
Fees and expenses of nonaffiliated trustees 4,005
Miscellaneous 20,492
------------
Total expenses $ 342,706
Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (47,561)
------------
Net expenses $ 295,145
------------
Net investment income $ 148,281
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Investments $ 3,151,091
Forward foreign currency contracts and other assets and liabilities denominated
in foreign currencies (42,124)
------------
$ 3,108,967
------------
Change in net unrealized loss from:
Investments $ (1,854,575)
Forward foreign currency contracts and other assets and liabilities denominated
in foreign currencies (2,742)
------------
$ (1,857,317)
------------
Net gain on investments, futures contracts and foreign currency transactions $ 1,251,650
============
Net increase in net assets resulting from operations $ 1,399,931
============
The accompanying notes are an integral part of these financial statements.
9
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Europe VCT Portfolio
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Year Year
Ended Ended
12/31/05 12/31/04
FROM OPERATIONS:
Net investment income $ 148,281 $ 118,530
Net realized gain on investments 3,108,967 1,154,559
Change in net unrealized gain or loss on investments, futures contracts and foreign
currency transactions (1,857,317) 1,402,807
------------ ------------
Net increase in net assets resulting from operations $ 1,399,931 $ 2,675,896
------------ ------------
DISTRIBUTIONS TO SHAREOWNERS:
Net investment income
Class I $ (58,420) $ (65,951)
Class II (44,828) (38,910)
------------ ------------
Total distributions to shareowners $ (103,248) $ (104,861)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 3,090,347 $ 3,890,105
Reinvestment of distributions 103,248 104,862
Cost of shares repurchased (3,544,212) (3,175,336)
------------ ------------
Net increase (decrease) in net assets resulting from Fund share transactions $ (350,617) $ 819,631
------------ ------------
Net increase in net assets $ 946,066 $ 3,390,666
------------ ------------
NET ASSETS:
Beginning of year $ 17,725,638 $ 14,334,972
------------ ------------
End of year $ 18,671,704 $ 17,725,638
------------ ------------
Undistributed net investment income, end of year $ 106,090 $ 103,181
============ ============
The accompanying notes are an integral part of these financial statements.
10
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Europe VCT Portfolio
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer Europe Portfolio (the Portfolio) is a Portfolio of Pioneer Variable
Contracts Trust (the Trust), a Delaware statutory trust registered under the
Investment Company Act of 1940 as an open-end management investment company.
The Trust consists of twenty-nine separate diversified portfolios, fourteen of
which issue both Class I and Class II shares (collectively, the "Portfolios",
individually the "Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money
Market Portfolio) (Class I shares only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only)
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts or by
qualified pension and retirement plans.
The financial highlights for the Portfolio's Class I shares are presented in a
separate book.
The investment objective of Europe VCT Portfolio is to seek long-term capital
growth.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of income, expenses, gains and losses during the reporting periods.
Actual results could differ from those estimates.
Information concerning the Portfolio's principal investment risks is contained
in the Portfolio's prospectus(es). Please refer to those documents when
considering the Portfolio's risks. Investing in foreign and/or emerging markets
securities involves risks relating to interest rates, currency exchange rates,
economic, and political conditions.
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements, which
are consistent with those generally accepted in the investment company industry:
11
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Europe VCT Portfolio
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for the
portfolio is computed once daily, on each day the New York Stock Exchange
(NYSE) is open, as of the close of regular trading on the NYSE. In computing
the net asset values, securities are valued at the last sale price on the
principal exchange where they are traded. Securities that have not traded on
the date of valuation, or securities for which sale prices are not generally
reported, are valued at the mean between the last bid and asked prices.
Trading in foreign equity securities is substantially completed each day at
various times prior to the close of the NYSE. The value of such securities
used in computing the net asset value of the Portfolio's shares, based on the
last sale price on the principal exchange where they traded. The principal
exchanges and markets for such securities have closing times prior to the
close of the NYSE. However, the value of these securities may be influenced
by changes in global markets occurring after the closing times of the local
exchanges and markets up to the time the Portfolio determines its net asset
value. Consequently, the Board of Trustees of the Portfolio has determined
that the use of daily fair valuations as provided by a pricing service is
appropriate for the Portfolio. The Portfolio may also take into consideration
other significant events in determining the fair value of these securities.
Thus, the Portfolio's securities valuations may differ from prices reported
by the various local exchanges and markets. At December 31, 2005, there were
no fair valued securities.
All securities that trade in foreign markets whose closing prices are as of
times prior to the close of the NYSE and that are held by Europe Portfolio
are fair valued using vendor-supplied pricing updates for each security to
the time of the close of the NYSE. Temporary cash investments and securities
held by the Portfolio are valued at amortized cost.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities where the ex-dividend date may have passed
are recorded as soon as the Portfolio becomes aware of the ex-dividend data
in the exercise of reasonable diligence. Interest income, including interest
on income bearing cash accounts, is recorded on the accrual basis, net of
unrecoverable foreign taxes withheld at the applicable country rates.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes on capital gains at the
applicable country rates.
B. Foreign Currency Translation
The books and records of the Portfolio are maintained in U.S. dollars.
Amounts denominated in foreign currencies are translated into U.S. dollars
using current exchange rates.
Net realized gains and losses on foreign currency transactions represent, the
net realized gains and losses on foreign currency contracts, disposition of
foreign currencies, and the difference between the amount of income accrued
and the U.S. dollars actually received. Further, the effects of changes in
foreign currency exchange rates on investments are not segregated in the
statement of operations from the effects of changes in market price of those
securities but are included with the net realized and unrealized gain or loss
on investments.
C. Forward Foreign Currency Contracts
The Portfolio enters into forward foreign currency contracts (contracts) for
the purchase or sale of a specific foreign currency at a fixed price on a
future date as a hedge or cross-hedge against either specific investment
transactions (settlement hedges) or portfolio positions (portfolio hedges).
All contracts are marked to market daily at the applicable exchange rates,
and any resulting unrealized gains or losses are recorded in the Portfolio's
financial statements. The Portfolio records realized gains and losses at the
time a portfolio hedge is offset by entry into a closing transaction or
extinguished by delivery of the currency. Risks may arise upon entering into
these contracts from the potential inability of counterparties to meet the
terms of the contract and from unanticipated movements in the value of
foreign currencies relative to the U.S. dollar. As of December 31, 2005, the
Portfolio had no outstanding portfolio or settlement hedges.
D. Taxes
It is the Portfolio's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
all of its taxable income and net realized capital gains, if any, to its
shareowners. Therefore, no federal income tax provision is required.
In Addition to the requirements of the Internal Revenue Code, the portfolio
may also be required to pay local taxes on the recognition of capital gains
and/ or the repatriation of foreign currencies in certain countries. During
the year ended December 31, 2005, no such taxes were paid.
12
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Europe VCT Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal income
tax rules. Therefore, the source of each Portfolio's distributions may be
shown in the accompanying financial statements as either from, or in excess
of, net investment income or net realized gain on investment transactions, or
from paid-in capital, depending on the type of book/tax differences that may
exist.
Capital loss carryforwards are available to offset future realized capital
gains. At December 31, 2005, Europe VCT Portfolio had a capital loss
carryforward of $4,600,975 of which the following amounts will expire between
2009 and 2011 if not utilized: $1,921,644 in 2009, $1,896,288 in 2010 and
$783,043 in 2011.
The Portfolio elected to defer $17,485 in capital losses recognized between
November 1, 2005 and December 31, 2005 to its fiscal year ending December 31,
2006.
At December 31, 2005, the Portfolio made reclassifications as described
below. These reclassifications have no impact on the net asset value of the
Portfolio and are designed to present the Portfolio's capital accounts on a
tax basis.
- -------------------------------------------------------------------------------------
Undistributed Net Accumulated Net
Investment Income Realized Gain
(Loss) (Loss) Paid-In Capital
- -------------------------------------------------------------------------------------
Pioneer Europe VCT Portfolio $(42,124) $42,124 $--
======== ======= ===
- -------------------------------------------------------------------------------------
The following chart shows the distributions paid during the years ended
December 31, 2005 and December 31, 2004 and the components of distributable
earnings (accumulated losses) as of December 31, 2005, on a tax basis.
- ------------------------------------------------------------------------------------
2005 2004
- ------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ 103,248 $104,861
Long-Term capital gain -- --
----------- --------
$ 103,248 $104,861
Return of Capital -- --
----------- --------
Total distributions $ 103,248 $104,861
=========== ========
Distributable Earnings (Accumulated Losses):
Undistributed ordinary income $ 106,090
Undistributed long-term gain/(capital loss carryforward) (4,600,975)
Post-October loss deferred (17,485)
Unrealized appreciation (depreciation) 2,482,228
-----------
Total $(2,030,142)
===========
- ------------------------------------------------------------------------------------
For the fiscal year ending December 31, 2005, Europe Portfolio has elected to
pass through foreign tax credits of $46,274.
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is primarily attributable to the tax deferral of losses on
wash sales.
E. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Trust and a wholly owned indirect subsidiary of
UniCredito Italiano S.p.A. (UniCredito Italiano), $638,021 in commissions on
the sale of Trust shares for the year ended December 31, 2005. Distribution
fees for Class II shares are calculated based on the average daily net asset
values attributable to Class II shares of the Portfolio. Shareowners of each
class share all expenses and fees paid to the transfer agent, Pioneer
Investment Management Shareholder Services, Inc. (PIMSS), for its services,
which are allocated based on the number of accounts in each class and the
ratable allocation of related out-of-pocket expenses (see Note 3). Income,
common expenses (excluding transfer agent and distribution fees) and realized
and
13
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Europe VCT Portfolio
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
unrealized gains and losses are calculated at the Portfolio level and
allocated daily to each class of shares based on the respective percentage of
the adjusted-net assets at the beginning of the day. The Portfolio declares
as daily dividends substantially all of its respective net investment income.
All dividends are paid on a monthly basis. Short-term capital gain
distributions, if any, may be declared with the daily dividends.
Distributions paid by the Portfolio with respect to each class of shares are
calculated in the same manner, at the same time, and in the same amount,
except that Class I and Class II shares can bear different transfer agent and
distribution fees. Dividends and distributions to shareowners are recorded on
the ex-dividend date.
F. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers or
other institutional investors, with the Portfolio's custodian acting as the
lending agent. When entering into a loan, the Portfolio receives collateral
which is maintained by the custodian and earns income in the form of
negotiated lenders' fees. The Portfolio also continues to receive payments in
lieu of interest or dividends on the securities loaned. Gain or loss in the
fair value of the securities loaned that may occur during the term of the
loan, will be for the account of the Portfolio. The loans are secured by
collateral of at least 102%, at all times, of the fair value of the
securities loaned. The fair value of the collateral will be adjusted daily to
reflect any price fluctuation in the value of the loaned securities. The
Portfolio has the right under the lending agreement to recover the securities
on loan from the borrower on demand. The Portfolio invests cash collateral in
the Securities Lending Investment Fund which is sponsored by Brown Brothers
Harriman & Co., the Portfolio's custodian.
G. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase. The
collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at least
equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano, manages the
portfolio. Management fees are calculated daily at the annual rate of 1.00% of
the Portfolio's average daily net assets.
Through May 1, 2006, PIM has agreed not to impose a portion of its management
fees and to limit other operating expenses to the extent required to limit
expenses of Class I shares to 1.50% of the average daily net assets
attributable to Class I shares; the portion of portfolio expenses attributable
to Class II shares will be reduced only to the extent such expenses are reduced
for Class I shares.
In addition, under the management and administration agreement, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $182 was payable to
PIM related to management fees, administrative fees and certain other services,
and is included in due to affiliates.
3. Transfer Agent
PIMSS, a wholly owned indirect subsidiary of UniCredito Italiano provides
substantially all transfer agent and shareowner services to the Trust at
negotiated rates. Included in due to affiliates is $3,699 in transfer agent
fees payable to PIMSS at December 31, 2005.
4. Distribution Plans
The Portfolio has adopted a plan of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with the Portfolio's Class
II shares. Included in due to affiliates is $139 payable to PFD at December 31,
2005.
14
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Europe VCT Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- ----------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- ----------------------------------------------------------------------------------------
Europe Portfolio $15,853,018 $2,607,249 $ (124,865) $2,482,384
=========== ========== ========== ==========
- ----------------------------------------------------------------------------------------
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were $16,879,436 and $17,364,001, respectively.
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
- ------------------------------------------------------------------------------------------
Europe Portfolio '05 Shares '05 Amount '04 Shares '04 Amount
- ------------------------------------------------------------------------------------------
CLASS I:
Shares sold 21,878 $ 233,953 43,531 $ 395,370
Reinvestment of distributions 5,591 58,420 7,232 65,952
Shares repurchased (155,613) (1,693,646) (190,688) (1,758,638)
------------------------------------------------------
Net decrease (128,144) $ (1,401,273) (139,925) $ (1,297,316)
======================================================
CLASS II:
Shares sold 268,948 $ 2,856,394 374,441 $ 3,494,736
Reinvestment of distributions 4,369 44,828 4,343 38,910
Shares repurchased (174,429) (1,850,566) (151,264) (1,416,699)
------------------------------------------------------
Net increase 98,888 $ 1,050,656 227,520 $ 2,116,947
======================================================
ADDITIONAL INFORMATION (unaudited)
The qualifying percentage of certain Portfolios' ordinary income dividends for
the purposes of the corporate dividends received deduction and the percentage
of those ordinary dividends that are subject to a maximum tax rate of 15% as
provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were
as follows:
- --------------------------------------------------------------------------------
Dividend Qualified
Received Dividend
Deduction Income
- --------------------------------------------------------------------------------
Europe Portfolio 0.00% 100.00%
- --------------------------------------------------------------------------------
15
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Europe VCT Portfolio
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust and the Shareowners
of Pioneer Europe VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer Europe VCT Portfolio, one of the
portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), as
of December 31, 2005, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audit. The financial highlights for the year ended December 31, 2001 was audited
by other auditors who have ceased operations and whose report, dated February 8,
2002, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Trust's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Trust's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2005, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer Europe VCT Portfolio of the Pioneer Variable Contracts Trust at December
31, 2005, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and financial
highlights for each of the four years in the period then ended, in conformity
with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
16
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Europe VCT Portfolio (the "Fund")
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive session
separately from the Interested Trustees of the Fund and any officer of Pioneer
Investment Management, Inc., the Fund's adviser (the "Investment Adviser"), or
its affiliates. While the Trustees, including the Independent Trustees, act on
all major matters relating to the Fund, a significant portion of the activities
of the Board of Trustees (including certain of those described herein) is
conducted through committees, the members of which are comprised exclusively of
Independent Trustees. Such committee meetings are attended by officers of the
Fund or the Investment Adviser to the extent requested by the members of the
committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during the
course of the year, the Trustees, including the Independent Trustees, received
materials relating to the Investment Adviser's investment and management
services under the Management Contract. These materials included (i) information
on the investment performance of the Fund, a peer group of funds and an index,
in each case selected by the Independent Trustees for this purpose, (ii) sales
and redemption data in respect to the Fund, (iii) the general investment outlook
in the markets in which the Fund invests, (iv) arrangements in respect of the
distribution of the Fund's shares, (v) the procedures employed to determine the
value of each of the Fund's assets, (vi) the Investment Adviser's management of
the relationships with the Fund's unaffiliated service providers, (vii) the
record of compliance with the Fund's investment policies and restrictions and
with the Fund's Code of Ethics and the structure and responsibilities of the
Investment Adviser's compliance department, (viii) the nature, cost and
character of non-investment management services provided by the Investment
Adviser and its affiliates and (ix) the disclosures included in the Fund's
prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three and five year periods for
the Fund and a peer group selected by the Independent Trustees for this purpose,
(2) management fees incurred by a peer group of funds selected by the
Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for this
purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information regarding
the potential for the Fund and the Investment Adviser to benefit from further
economies of scale in the management of the Fund in light of brake points in the
management fee, reasonable growth expectations for the Fund and certain of the
Fund's expenses that are not incurred as fees based on a percentage of net
assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objective and regulatory requirements.
The Trustees also reviewed the Fund's investment performance based upon total
return, as well as the Fund's
17
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Europe VCT Portfolio
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and the results
of an index, in each case selected by the Independent Trustees for this
purpose. The Fund's performance based upon total return was in the second
quintile of the peer group for the 12 months ended June 30, 2005, the third
quintile for the three years ended June 30, 2005, and the fifth quintile for
the five years ended June 30, 2005. (In all quintile rankings referred to
throughout this discussion first quintile is most favorable to the Fund's
shareholders. Thus, highest relative performance would be first quintile and
lowest relative expenses also would be first quintile.) The Trustees
concluded that the performance of the Fund supported the continuation of the
Management Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of the
Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's equities group. Among other things, the Trustees
considered the number, education and experience of the Investment Adviser's
investment staff and their use of technology and emphasis on analytics in
view of the risk profile of securities in which the Fund invests. The
Trustees concluded that the Investment Adviser had the quality and depth of
personnel and the well-developed methods essential to performing its duties
under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment Adviser's
fee under the Management Contract relative to the management fees charged by
a peer group of funds selected by the Independent Trustees for this purpose
using data provided by an independent third party. The Fund's management fee
for the 12 months ended June 30, 2005 was in the second quintile (after fee
waivers) relative to the management fees paid by the other funds in that peer
group for the comparable period and in the fifth quintile without giving
effect to fee waivers. The Investment Adviser agreed to reduce the management
fee to 0.85% of average daily net assets, which would place the Fund in the
third quintile of the peer group, and to add a break point in the management
fee. The Trustees determined that the fee under the Management Contract was
reasonable and fair in light of both the overall nature and quality of
services provided by the Investment Adviser and the fees charged by the funds
in the peer group. The Trustees also considered the Fund's expense ratio
(before and after giving effect to the expense limitation) for the 12 months
ended June 30, 2005 and expense ratios for the comparable period of a peer
group of funds selected by the Independent Trustees for this purpose. The
Fund's expense ratio (after giving effect to the expense limitation) was in
the fifth quintile of this peer group for the most recent fiscal year.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of the
Investment Adviser's methodology in allocating certain of its costs to the
management of each Fund. The Trustees also considered the financial results
realized by the Investment Adviser in connection with the operation of the
Fund. They further considered the profits realized by the Investment Adviser
and its affiliates from non-fund businesses that may benefit from or be
related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived from
the Fund, bear a reasonable relationship to the services rendered and are
fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. Because of break points in the
management fees, the Trustees concluded
18
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Europe VCT Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
that any perceived or potential economies of scale would be shared at future
asset levels, in a reasonable manner as the Fund grows in size, between
Fund's shareholders and the Investment Adviser.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund), and
benefits to the Investment Adviser from the use of "soft" commission dollars
to pay for research services. The Trustees further considered the revenues
and profitability of the Investment Adviser's businesses other than the fund
business, including the Investment Adviser's institutional investment
advisory business. The Trustees considered the intangible benefits that
accrue to the Investment Adviser and its affiliates by virtue of its
relationship with the Fund and the Pioneer Funds as a group. The Trustees
concluded that all these types of benefits accruing to the Investment Adviser
were reasonable in the context of the overall relationship between the
Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
19
Pioneer Europe VCT Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- -----------------------------------------------------------------------------------------------------------------------------------
Investment Adviser Trustees and Officers
Pioneer Investment Management, Inc. The Trust's Board of Trustees provides broad supervision
over the affairs of the Trust. The officers of the Trust are
Custodian responsible for the Trust's operations. The Trust's Trustees
Brown Brothers Harriman & Co. and officers are listed below, together with their principal
occupations during the past five years. Trustees who are
Independent Registered Public Accounting Firm interested persons of the Portfolio within the meaning of
Ernst & Young LLP the Investment Company Act of 1940 are referred to as
Interested Trustees. Trustees who are not interested persons
Principal Underwriter of the Trust are referred to as Independent Trustees. Each
Pioneer Funds Distributor, Inc. of the Trustees may serve as a trustee of each of the 91
U.S. registered investment portfolios for which Pioneer
Legal Counsel Investment Management, Inc. ("Pioneer") serves as investment
Wilmer Cutler Pickering Hale and Dorr LLP adviser (the "Trust"). The address for all Interested
Trustees and all officers of the Portfolio is 60 State
Shareowner Services and Transfer Street, Boston, Massachusetts 02109.
Pioneer Investment Management Shareholder Services, Inc.
The Trust's statement of additional information provides more
detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available
online at pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and Directors
Jr. (79)* Board, Trustee until successor trustee Pioneer Global Asset Management of ICI Mutual Insurance
and President is elected or earlier S.p.A. ("PGAM"); Non-Executive Company; Director of Harbor
retirement or removal. Chairman and a Director of Pioneer Global Company, Ltd.
Investment Management USA Inc.
("PIM-USA"); Chairman and a
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
20
Pioneer Europe VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Senior Vice President and Chief Director of The Enterprise
3050 K. Street NW, Serves until a Financial Officer, I-trax, Inc. Social Investment Company
Washington, DC 20007 successor trustee (publicly traded health care (privately-held affordable
is elected or services company) (2001-present); housing finance company);
earlier retirement Managing Partner, Federal City Director of New York Mortgage
or removal. Capital Advisors (boutique merchant Trust (publicly traded
bank) (2002 to 2004); Executive mortgage REIT)
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
* Mr. Bock became a Trustee of the Trust on January 1, 2005.
- -----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. President, Bush International Director of Brady Corporation
3509 Woodbine Street, Serves until (international financial advisory (industrial identification
Chevy Chase, MD 20815 successor trustee firm). and specialty coated material
is elected or products manufacturer),
earlier retirement Mortgage Guaranty Insurance
or removal. Corporation, and Briggs &
Stratton, Inc. (engine
manufacturer)
- -----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Founding Director, The Winthrop None
1001 Sherbrooke Street Serves until Group, Inc. (consulting firm);
West, Montreal, Quebec, successor trustee Desautels, Faculty of Management,
Canada H3A 1G5 is elected or McGill University.
earlier retirement
or removal.
- -----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. President and Chief Executive Director of New America High
One Boston Place, Serves until Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, successor trustee Inc. (investment banking firm). investment company)
Boston, MA 02108 is elected or
earlier retirement
or removal.
- -----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee
is elected or
earlier retirement
or removal.
- -----------------------------------------------------------------------------------------------------------------------------------
21
- --------------------------------------------------------------------------------
Pioneer Europe VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
Osbert M. Hood (53)** Executive Vice Since 2005. President and Chief Executive Trustee of certain
President Serves at Officer, PIM-USA since May 2003 Pioneer funds
the discretion (Director since January 2001);
of Board. President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at President - Legal of Pioneer; and
the discretion Secretary/Clerk of most of
of the Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Kelley (41) Assistant Since September, Assistant Vice President and Senior None
Secretary 2003. Serves at Counsel of Pioneer since July 2002;
the discretion Vice President and Senior Counsel
of the Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at Hale and Dorr LLP; Assistant
the discretion Secretary of all Pioneer Funds
of the Board. since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at Administration and Custody Services
the discretion of Pioneer; and Treasurer of all of
of the Board. the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at 2004; Treasurer and Senior Vice
the discretion President, CDC IXIS Asset
of the Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
22
Pioneer Europe VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
Luis I. Presutti (40) Assistant Since November, Assistant Vice President - Fund None
Treasurer 2000. Serves at Accounting, Administration and
the discretion Custody Services of Pioneer; and
of the Board. Assistant Treasurer of all of the
Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, Fund Accounting Manager - Fund None
Treasurer 2002. Serves Accounting, Administration and
at the discretion Custody Services of Pioneer; and
of the Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- -----------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Sullivan Assistant Since September, Fund Administration Manager - Fund None
(32) Treasurer 2003. Serves at Accounting, Administration and
the discretion Custody Services since June 2003;
of the Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Since October, Chief Compliance Officer of Pioneer None
Compliance 2004. Serves (Director of Compliance and Senior
Officer at the discretion Counsel from November 2000 to
of the Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
23
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
24
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
25
[LOGO] PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company,
Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18666-00-0206
[LOGO]PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Fund VCT Portfolio -- Class II Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
T a b l e o f C o n t e n t s
- --------------------------------------------------------------------------------
Pioneer Fund VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 6
Financial Statements 10
Notes to Financial Statements 14
Report of Independent Registered Public
Accounting Firm 20
Factors Considered by the Independent Trustees
in Approving the Management Contract 21
Trustees, Officers and Service Providers 24
Before investing consider the Portfolio's investment objectives, risks, charges
and expenses. Contact your advisor or Pioneer Investments for a prospectus
containing this information. Read it carefully.
The Trust files a complete statement of investments with the Securities and
Exchange Commission for the first and the third quarters for each fiscal year
on Form N-Q. Shareowners may view the filed Form N-Q by visiting the
Commission's web site at http://www.sec.gov. The filed form may also be viewed
and copied at the Commission's Public Reference Room in Washington, D.C.
Information regarding the operations of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
U.S. Common Stocks 94.1%
Depositary Receipts for International Stocks 3.6%
International Common Stocks 2.3%
Sector Distribution
(As a percentage of equity holdings)
Fnancials 17.6%
Consumer Discretionary 15.3%
Information Technology 13.2%
Industrials 13.0%
Health Care 11.5%
Consumer Staples 10.2%
Energy 7.0%
Materials 7.0%
Telecommunication Services 3.7%
Utilities 1.5%
Five Largest Holdings
(As a percentage of equity holdings)
1. Rio Tinto Plc 2.19%
2. ChevronTexaco Corp. 2.04
3. United Technologies Corp. 2.04
4. Norfolk Southern Corp. 2.00
5. Target Corp. 1.96
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 21.49 $ 20.51
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.2291 $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Fund VCT Portfolio at net asset value, compared to that of the Standard &
Poor's (S&P) 500 Index. Portfolio returns are based on net asset value and do
not reflect any applicable insurance fees or surrender charges.
Pioneer Fund
VCT Portfolio S&P 500
10/97 10000 10000
10545 10642
13257 13686
12/99 15312 16564
15561 15057
12/01 13835 13268
11172 10337
12/03 13790 13300
15297 14747
12/05 16204 15470
The Standard & Poor's 500 Stock Index (the S&P 500) is a commonly used measure
of the broad U.S. stock market. Index returns assume reinvestment of dividends
and, unlike Portfolio returns, do not reflect any fees, expenses or sales
charges. You cannot invest directly in the Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Life-of-Class 6.09%
(10/31/97)
5 Years 0.81%
1 Year 5.94%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
2
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value [divided by] $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Fund VCT Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005
Share Class II
----------------------------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,067.73
Expenses Paid During Period* $ 4.95
* Expenses are equal to the Portfolio's annualized expense ratio of 0.95% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer Fund VCT Portfolio
Based on a hypothetical 5% per year return before expenses, reflecting the
period from July 1, 2005 through December 31, 2005
Share Class II
----------------------------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,020.42
Expenses Paid During Period* $ 4.84
* Expenses are equal to the Portfolio's annualized expense ratio of 0.95% for
Class II shares multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
In the following discussion, portfolio manager John Carey discusses the
performance of Pioneer Fund VCT Portfolio, as well as the investment
environment over the twelve-month period ended December 31, 2005.
Q. Please describe the investment environment in 2005, particularly the second
half, and the performance of Pioneer Fund VCT Portfolio.
A. After a listless first half for the stock market, the second half of 2005
saw gains. For the year 2005 as a whole, the Standard & Poor's 500 Index,
an unmanaged index of the general stock market, showed a total return of
4.91%. We were pleased that Class II shares of Pioneer Fund VCT Portfolio
did better, with a total return for the year of 5.94% at net asset value.
All of the increase took place in the final six months, indeed much of it
in the last couple of months, of the year. For those six months ended
December 31, Pioneer Fund VCT Portfolio increased by 6.77% at net asset
value, versus an increase of 5.76% for the S&P 500.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
As we discussed in our June 30 letter, investors responded to the high
prices for oil and natural gas early in the year by piling into everything
related to energy, including utilities. We noted, though, that changes were
occurring beneath the surface and that other sectors appeared to be emerging
as better values. That came to pass particularly in the fourth quarter, when
energy and utilities were the two worst performing sectors of the S&P 500,
both showing declines versus an index rising overall. Being somewhat
underweight in those two sectors was helpful to the Portfolio's performance
in the fourth quarter, as was our being overweight in the still strongly
performing materials sector. Otherwise our good stock selection in both
health care and industrials contributed positively. For the second six
months of 2005, our investments in those same three sectors, materials,
health care, and industrials, also provided the positive difference in our
performance. Especially big contributors among individual stocks over the
six months were Rio Tinto and Phelps Dodge in materials, Barr
Pharmaceuticals in health care, and Norfolk Southern and Burlington Northern
Santa Fe in industrials.
Our weakest second half performance was in consumer staples, where our
holdings in Hershey and Sysco both declined. Within the energy sector, our
de-emphasis of the energy equipment-and-services industry detracted, as that
industry had superior returns to those of its sector.
With regard again to the investing environment in general in the second
half, there were shifts underway as investors diversified their portfolios.
High growth situations seemed especially to attract investors, as
exemplified by the stunning upward move in the share price of Google, a
stock we have not owned, from what we thought were already quite elevated
levels in terms of price to earnings and sales. However, the persistently
high energy and other commodity prices, as well as projections for increased
capital spending in capacity-constrained industries, continued to provide
firm support for the so-called "old economy." So it has been something of a
bifurcated market and one in which one treads with care. It does seem,
though, that an underlying "theme" to investor behavior has been a powerful
attraction to potential for above-average earnings growth, whether from high
tech or low tech. We take that as our cue to maintain our focus on companies
with compelling fundamentals regardless of industry or sector.
Q. Did you make changes to the Portfolio in the second half? Please discuss.
A. We saw a fair amount of merger-and-acquisition activity in our own
portfolio, and we made customary changes based on our views of relative
valuations. Taken together, the trades in the second half resulted in the
addition of fifteen positions and the deletion of fifteen. Sector by
sector, starting with energy, we took profits on Schlumberger, thinking
that the price reflected our estimate of earnings potential. In materials,
we added Dow Chemical, which has impressed us with its improved operations,
and realized gains on Phelps Dodge
A Word About Risk:
At times, the Portfolio's investments may represent industries or industry
sectors that are interrelated or have common risks, making it more susceptible
to any economic, political, or regulatory developments or other risks affecting
those industries and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
and Newmont Mining. Allegheny Technologies, a stainless-steel producer that
has returned to significant profitability in the past year and a half, was a
second new entry in materials. In industrials, Masco, manufacturer of
plumbing supplies and other home-improvement products, 3M, world leader in
adhesives, and Parker Hannifin, major supplier of fluid-control systems and
components, were new. Consumer discretionary saw the addition of Yum Brands,
former restaurant division of Pepsico and operator of Pizza Hut, Taco Bell,
and Kentucky Fried Chicken, among other popular chains. Also new was
Federated Department Stores, received in exchange for part of our former
holding May Department Stores, which Federated acquired for cash and stock.
Disappointment with earnings progress led to our sale of Family Dollar
Stores.
We added three holdings to health care: C. R. Bard and St. Jude Medical, both
leaders in medical devices, and Pfizer, which seemed to us to have declined
to a price representing good value. We took profits in Guidant following its
receipt of a premium acquisition offer from Johnson & Johnson, and we sold
Mylan Laboratories, which no longer appeared to us to have a clear path to
growth. Financials saw our addition of Compass Bancshares, based in
Birmingham, Alabama, and Golden West Financial, headquartered in Oakland,
California. Both banks have the combination of competitive return on assets
and return on equity that we seek, as well as reasonable share prices. We
took profits in our long-term holding Bank of New York, and we sold
Montpelier Re Holdings, judging that weather-related losses had seriously
impaired its reinsurance business. Finally, Ameriprise Financial, investment
services, came into the portfolio as a spin-out from our holding American
Express.
Information technology witnessed the acquisition for cash of SunGard Data
Systems. VERITAS Software was also acquired, it by another company we also
owned, Symantec. Following the acquisition, discouraged by the prospects for
the combined venture, we liquidated all of our shares of Symantec, including
the new shares we had received for VERITAS. We also exited Diebold and
Computer Sciences, long-term disappointments with respect to earnings growth.
While selling those technology positions, we added Cisco Systems, dominant
supplier of routers and switches for the internet. After years of
"correction" in its share price, Cisco at last sold at a price-to-earnings
ratio we regarded as justified. Growth prospects, while more moderate than in
the past, still exceed those of many other companies.
Lastly, in utilities, we sold, at a large percentage gain, our position in
Aqua America, which we thought adequately priced, and purchased shares of
PG&E (Pacific Gas and Electric), a recovering California utility with a
growing dividend yield.
Q. What is your outlook for 2006?
A. Our outlook for 2006 is cautious. We think that the moderate expectations
for economic growth can be met, and we also look for higher earnings and
dividends. The broad consensus estimate of roughly 3.5% real GDP growth
looks reasonable to us, and we likewise think that 6-8% earnings growth for
the S&P 500 is doable. However, we are starting to see powerful headwinds
in the form of higher short-term interest rates, stubbornly high oil and
natural gas prices, and a slowing housing market. We also watch
international events out of the corner of our eye, and we remember that
there are U.S. congressional elections this fall. Finally, as was certainly
impressed on us in 2005, the weather and other natural disasters can throw
quite a wrench in the works. The result of all those crosscurrents could be
a more volatile market than we've seen in a while. We believe that another
result might be defensive positioning by investors. Certainly the higher
yields on money-market and other short-term debt instruments are already
providing tougher competition for stocks. Our emphasis in this environment
will be on stocks with good earnings and dividend support. If it is a
softer economy that lies ahead, the companies less vulnerable to large
earnings declines may prove better bets.
Thank you as always for your support.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any other
purposes. Past performance is no guarantee of future results, and there is no
guarantee that market forecasts discussed will be realized.
5
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
COMMON STOCKS - 100.0%
Energy - 7.0%
Integrated Oil & Gas - 5.4%
179,531 Chevron Corp. $ 10,191,975
88,025 ConocoPhillips 5,121,295
114,668 Exxon Mobil Corp. 6,440,902
63,625 Occidental Petroleum Corp. 5,082,365
------------
$ 26,836,537
------------
Oil & Gas Equipment & Services - 0.3%
42,162 Weatherford International, Inc.* $ 1,526,264
------------
Oil & Gas Exploration & Production - 1.3%
48,194 Apache Corp. $ 3,302,253
67,515 Pioneer Natural Resources Co. 3,461,494
------------
$ 6,763,747
------------
Total Energy $ 35,126,548
------------
Materials - 7.0%
Aluminum - 0.4%
72,726 Alcoa, Inc. $ 2,150,508
------------
Diversified Chemical - 1.2%
70,100 Dow Chemical Co. $ 3,071,782
44,427 E.I. du Pont de Nemours & Co. 1,888,148
20,057 PPG Industries, Inc. 1,161,300
------------
$ 6,121,230
------------
Diversified Metals & Mining - 3.6%
90,507 BHP Billiton, Ltd. (A.D.R.) $ 3,024,744
98,510 Inco, Ltd. 4,292,081
239,324 Rio Tinto Plc 10,930,255
------------
$ 18,247,080
------------
Gold - 0.2%
21,960 Newmont Mining Corp. $ 1,172,664
------------
Industrial Gases - 0.9%
25,334 Air Products & Chemicals, Inc. $ 1,499,519
53,762 Praxair, Inc. 2,847,236
------------
$ 4,346,755
------------
Paper Products - 0.3%
50,997 Meadwestvaco Corp. $ 1,429,446
------------
Specialty Chemicals - 0.3%
37,481 Ecolab, Inc. $ 1,359,436
------------
Steel - 0.1%
7,255 Allegheny Technologies, Inc. $ 261,760
------------
Total Materials $ 35,088,879
------------
Capital Goods - 9.5%
Aerospace & Defense - 3.0%
43,011 General Dynamics Corp. $ 4,905,405
181,953 United Technologies Corp. 10,172,992
------------
$ 15,078,397
------------
Shares Value
Building Products - 0.1%
8,309 Masco Corp. $ 250,849
------------
Construction & Farm Machinery &
Heavy Trucks - 3.7%
99,679 Caterpillar, Inc. $ 5,758,456
94,266 Deere & Co. 6,420,457
91,215 PACCAR, Inc. 6,314,814
------------
$ 18,493,727
------------
Electrical Component & Equipment - 1.2%
55,395 Emerson Electric Co. $ 4,138,007
29,606 Rockwell International Corp. 1,751,491
------------
$ 5,889,498
------------
Industrial Conglomerates - 1.3%
7,200 3M Co. $ 558,000
169,108 General Electric Co. 5,927,235
------------
$ 6,485,235
------------
Industrial Machinery - 0.2%
16,367 Parker Hannifin Corp. $ 1,079,567
------------
Total Capital Goods $ 47,277,273
------------
Transportation - 3.6%
Airlines - 0.5%
151,393 Southwest Airlines Co. $ 2,487,387
------------
Railroads - 3.1%
74,802 Burlington Northern, Inc. $ 5,297,478
222,911 Norfolk Southern Corp. 9,993,100
------------
$ 15,290,578
------------
Total Transportation $ 17,777,965
------------
Automobiles & Components - 2.5%
Auto Parts & Equipment - 1.5%
101,606 Johnson Controls, Inc. $ 7,408,093
------------
Automobile Manufacturers - 1.0%
628,984 Ford Motor Corp. $ 4,855,756
------------
Total Automobiles & Components $ 12,263,849
------------
Consumer Durables & Apparel - 0.2%
Apparel, Accessories & Luxury Goods - 0.2%
23,883 Liz Claiborne, Inc. $ 855,489
------------
Total Consumer Durables & Apparel $ 855,489
------------
Consumer Services - 0.1%
Restaurants - 0.1%
7,325 Tricon Global Restaurants, Inc. $ 343,396
------------
Total Consumer Services $ 343,396
------------
Media - 5.7%
Advertising - 0.7%
42,090 Omnicom Group $ 3,583,122
------------
6 The accompanying notes are an integral part of these financial statements.
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Movies & Entertainment - 0.8%
162,516 The Walt Disney Co. $ 3,895,509
------------
Publishing - 4.2%
41,058 Elsevier NV $ 573,242
100,160 Gannett Co. 6,066,691
125,263 John Wiley & Sons, Inc. 4,890,268
188,438 McGraw-Hill Co., Inc. 9,729,054
------------
$ 21,259,255
------------
Total Media $ 28,737,886
------------
Retailing - 6.8%
Apparel Retail - 0.2%
60,617 Gap Inc. $ 1,069,284
------------
Computer & Electronics Retail - 0.1%
9,295 GameStop Corp. (Class B)* $ 268,626
------------
Department Stores - 2.1%
50,178 Federated Department Stores, Inc. $ 3,328,307
193,453 Nordstrom, Inc. 7,235,142
------------
$ 10,563,449
------------
General Merchandise Stores - 1.9%
177,813 Target Corp. $ 9,774,381
------------
Home Improvement Retail - 1.9%
121,451 Home Depot, Inc. $ 4,916,336
70,792 Lowe's Companies, Inc. 4,718,995
------------
$ 9,635,331
------------
Specialty Stores - 0.6%
29,018 Barnes & Noble, Inc. $ 1,238,198
69,072 Staples, Inc. 1,568,625
------------
$ 2,806,823
------------
Total Retailing $ 34,117,894
------------
Food & Drug Retailing - 3.3%
Drug Retail - 2.1%
75,467 CVS Corp. $ 1,993,838
190,303 Walgreen Co. 8,422,811
------------
$ 10,416,649
------------
Food Distributors - 1.0%
161,566 Sysco Corp. $ 5,016,624
------------
Hypermarkets & Supercenters - 0.2%
19,649 Costco Wholesale Corp. $ 972,036
------------
Total Food & Drug Retailing $ 16,405,309
------------
Shares Value
Food, Beverage & Tobacco - 5.2%
Packaged Foods & Meats - 3.5%
83,259 Campbell Soup Co. $ 2,478,620
97,063 General Mills, Inc. 4,787,147
145,574 H.J. Heinz Co., Inc. 4,908,755
52,617 Hershey Foods Corp. 2,907,089
23,685 Kellogg Co. 1,023,666
73,473 Sara Lee Corp. 1,388,640
------------
$ 17,493,917
------------
Soft Drinks - 1.7%
146,681 PepsiCo, Inc. $ 8,665,913
------------
Total Food, Beverage & Tobacco $ 26,159,830
------------
Household & Personal Products - 1.7%
Household Products - 1.2%
96,982 Colgate-Palmolive Co. $ 5,319,463
14,255 Clorox Co. 810,967
------------
$ 6,130,430
------------
Personal Products - 0.5%
67,208 Estee Lauder Co.* $ 2,250,124
------------
Total Household & Personal
Products $ 8,380,554
------------
Health Care Equipment & Services - 2.6%
Health Care Equipment - 2.6%
28,200 C. R. Bard, Inc. $ 1,858,944
71,108 Becton, Dickinson & Co. 4,272,169
63,338 Biomet, Inc. 2,316,271
39,539 Medtronic, Inc. 2,276,260
21,100 St. Jude Medical, Inc.* 1,059,220
30,665 Stryker Corp. 1,362,446
------------
$ 13,145,310
------------
Total Health Care Equipment &
Services $ 13,145,310
------------
Pharmaceuticals & Biotechnology - 8.9%
Biotechnology - 0.8%
53,778 Amgen, Inc.* $ 4,240,933
------------
Pharmaceuticals - 8.1%
102,710 Abbott Laboratories $ 4,049,855
53,017 Barr Laboratorie, Inc.* 3,302,429
119,085 Bristol-Myers Squibb Co. 2,736,573
80,039 Eli Lilly & Co. 4,529,407
137,058 Johnson & Johnson 8,237,186
95,767 Merck & Co., Inc. 3,046,348
77,980 Novartis AG (A.D.R.) 4,092,390
103,100 Pfizer, Inc. 2,404,292
36,377 Roche Holdings AG (A.D.R.) 2,731,040
175,915 Schering-Plough Corp. 3,667,828
35,811 Teva Pharmaceutical Industries, Ltd. 1,540,231
------------
$ 40,337,579
------------
The accompanying notes are an integral part of these financial statements. 7
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
Total Pharmaceuticals &
Biotechnology $ 44,578,512
------------
Banks - 9.0%
Diversified Banks - 4.2%
66,429 Bank of America Corp. $ 3,065,698
235,635 U.S. Bancorp 7,043,130
39,577 Wachovia Corp. 2,092,040
140,973 Wells Fargo & Co. 8,857,334
------------
$ 21,058,202
------------
Regional Banks - 3.1%
13,577 Compass Bancshares, Inc. $ 655,633
83,035 First Horizon National Corp. 3,191,865
170,284 National City Corp. 5,716,434
55,102 SunTrust Banks, Inc. 4,009,222
21,817 Zions Bancorporation 1,648,493
------------
$ 15,221,647
------------
Thrifts & Mortgage Finance - 1.7%
34,700 Golden West Financial Corp. $ 2,290,200
146,301 Washington Mutual, Inc. 6,364,094
------------
$ 8,654,294
------------
Total Banks $ 44,934,143
------------
Diversified Financials - 6.1%
Asset Management & Custody Banks - 3.5%
22,545 Ameriprise Financial, Inc. $ 924,345
43,970 Federated Investors, Inc.* 1,628,649
104,482 State Street Corp. 5,792,482
124,803 T. Rowe Price Associates, Inc. 8,989,560
------------
$ 17,335,036
------------
Consumer Finance - 1.2%
112,725 American Express Co. $ 5,800,829
------------
Investment Banking & Brokerage - 0.8%
58,452 Merrill Lynch & Co., Inc. $ 3,958,954
------------
Diversified Financial Services - 0.6%
66,850 Citigroup, Inc. $ 3,244,231
------------
Total Diversified Financials $ 30,339,050
------------
Insurance - 2.4%
Multi-Line Insurance - 0.2%
13,522 Hartford Financial Services Group, Inc. $ 1,161,405
------------
Property & Casualty Insurance - 2.2%
20,832 ACE, Ltd. $ 1,113,262
40,815 Axis Capital Holdings, Ltd. 1,276,693
68,753 Chubb Corp. 6,713,730
34,082 Safeco Corp. 1,925,633
------------
$ 11,029,318
------------
Total Insurance $ 12,190,723
------------
Shares Value
Software & Services - 4.1%
Application Software - 0.7%
86,186 Adobe Systems, Inc. $ 3,185,435
------------
Data Processing & Outsourced Services - 2.2%
181,884 Automatic Data Processing, Inc. $ 8,346,657
25,841 DST Systems, Inc.* 1,548,134
28,113 Fiserv, Inc.* 1,216,450
------------
$ 11,111,241
------------
Systems Software - 1.2%
229,175 Microsoft Corp. $ 5,992,926
------------
Total Software & Services $ 20,289,602
------------
Technology Hardware & Equipment - 6.2%
Communications Equipment - 2.9%
139,000 Cisco Systems, Inc.* $ 2,379,680
313,651 Motorola, Inc. 7,085,375
274,102 Nokia Corp. (A.D.R.) 5,016,067
------------
$ 14,481,122
------------
Computer Hardware - 2.2%
106,976 Dell, Inc.* $ 3,208,210
176,511 Hewlett-Packard Co. 5,053,510
703,372 Sun Microsystems, Inc.* 2,947,129
------------
$ 11,208,849
------------
Computer Storage & Peripherals - 0.4%
134,374 EMC Corp.* $ 1,830,174
------------
Office Electronics - 0.7%
57,242 Canon, Inc. (A.D.R.) $ 3,367,547
------------
Total Technology Hardware &
Equipment $ 30,887,692
------------
Semiconductors - 3.0%
Semiconductor Equipment - 0.4%
96,070 Applied Materials, Inc. $ 1,723,495
------------
Semiconductors - 2.6%
20,845 Freescale Semiconductor, Inc. (Class B)* $ 524,669
236,129 Intel Corp. 5,893,780
211,248 Texas Instruments, Inc. 6,774,723
------------
$ 13,193,172
------------
Total Semiconductors $ 14,916,667
------------
Telecommunication Services - 3.7%
Integrated Telecommunication Services - 3.4%
279,088 AT&T Corp. $ 6,834,865
141,901 BellSouth Corp. 3,845,517
74,411 Century Telephone Enterprises, Inc. 2,467,468
129,130 Verizon Communications, Inc. 3,889,396
------------
$ 17,037,246
------------
8 The accompanying notes are an integral part of these financial statements.
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Wireless Telecommunication
Services - 0.3%
23,216 Alltel Corp. $ 1,464,930
------------
Total Telecommunication Services $ 18,502,176
------------
Utilities - 1.5%
Electric Utilities - 0.5%
15,000 Exelon Corp. $ 797,100
56,177 Southern Co. 1,939,792
------------
$ 2,736,892
------------
Multi-Utilities - 1.0%
34,904 Consolidated Edison, Inc. $ 1,617,100
74,103 KeySpan Energy Corp. 2,644,736
13,700 PG&E Corp. 508,542
------------
$ 4,770,378
------------
Total Utilities $ 7,507,270
------------
TOTAL COMMON STOCKS
(Cost $396,395,153) $499,826,017
------------
TOTAL INVESTMENT
IN SECURITIES - 100.0%
(Cost $396,395,153) $499,826,017
------------
OTHER ASSETS
AND LIABILITIES - 0.0% $ (196,475)
------------
TOTAL NET ASSETS - 100.0% $499,629,542
============
(A.D.R.) American Depositary Receipt
* Non-income producing security
The accompanying notes are an integral part of these financial statements. 9
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Class II 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 20.51 $ 18.66 $ 15.25 $ 19.05 $ 22.65
-------- -------- -------- -------- --------
Increase (decrease) from investment operations:
Net investment income $ 0.20 $ 0.18 $ 0.14 $ 0.13 $ 0.14
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 1.01 1.85 3.42 (3.78) (2.59)
-------- -------- -------- -------- --------
Net increase (decrease) from investment operations $ 1.21 $ 2.03 $ 3.56 $ (3.65) $ (2.45)
Distributions to shareowners:
Net investment income (0.23) (0.18) ( 0.15) (0.15) (0.13)
Net realized gain -- -- -- -- (1.02)
--------- --------- -------- -------- --------
Net increase (decrease) in net asset value $ 0.98 $ 1.85 $ 3.41 $ (3.80) $ (3.60)
--------- --------- -------- -------- --------
Net asset value, end of period $ 21.49 $ 20.51 $ 18.66 $ 15.25 $ 19.05
======== ======== ======== ======== ========
Total return* 5.94% 10.93% 23.44% ( 19.25)% (11.09)%
Ratio of net expenses to average net assets+ 0.95% 0.96% 1.00% 1.06% 1.04%
Ratio of net investment income to average net assets+ 1.01% 1.00% 0.87% 0.84% 0.49%
Portfolio turnover rate 23% 17% 11% 11% 7%
Net assets, end of period (in thousands) $116,656 $ 133,627 $ 87,488 $ 36,218 $ 12,674
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 0.95% 0.96% 1.00% 1.06% 1.04%
Net investment income 1.01% 1.00% 0.87% 0.84% 0.49%
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
+ Ratios with no reduction for fees paid indirectly.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
10 The accompanying notes are an integral part of these financial statements.
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (Cost $396,395,153) $ 499,826,017
Cash 952,541
Receivables --
Fund shares sold 22,858
Dividends, interest and foreign taxes withheld 958,591
Due from Pioneer Investment Management, Inc. 8,177
Other 12,616
-------------
Total assets $ 501,780,800
-------------
LIABILITIES:
Payables --
Fund shares repurchased $ 1,997,352
Due to affiliates 21,577
Accrued expenses 132,329
-------------
Total liabilities $ 2,151,258
-------------
NET ASSETS:
Paid-in capital $ 436,333,003
Undistributed net investment income 27,272
Accumulated net realized loss (40,161,597)
Net unrealized gain on investments 103,430,864
-------------
Total net assets $ 499,629,542
-------------
NET ASSET VALUE PER SHARE:
Class I:
(No par value, unlimited number of shares authorized)
Net assets $ 382,973,420
Shares outstanding 17,771,437
-------------
Net asset value per share $ 21.55
Class II:
(No par value, unlimited number of shares authorized)
Net assets $ 116,656,122
Shares outstanding 5,427,712
-------------
Net asset value per share $ 21.49
The accompanying notes are an integral part of these financial statements. 11
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year
Ended
12/31/05
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $67,202) $ 10,293,023
Interest 132,621
Income on securities loaned, net 22,461
-------------
Total investment income $ 10,448,105
-------------
EXPENSES:
Management fees $ 3,461,438
Transfer agent fees and expenses 5,974
Distribution fees (Class II) 305,003
Administrative reimbursements 105,852
Custodian fees 14,300
Professional fees 48,553
Printing expense 77,940
Fees and expenses of nonaffiliated trustees 9,634
Miscellaneous 12,496
-------------
Total expenses $ 4,041,190
-------------
Net expenses $ 4,041,190
-------------
Net investment income $ 6,406,915
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Investments $ 29,925,821
Redemptions in kind 16,752,070
Forward foreign currency contracts and other assets and liabilities denominated in
foreign currencies 1,179
-------------
$ 46,679,070
-------------
Change in net unrealized loss from investments $ (23,029,256)
-------------
Net gain on investments, futures contracts and foreign currency transactions $ 23,649,814
=============
Net increase in net assets resulting from operations $ 30,056,729
=============
12 The accompanying notes are an integral part of these financial statements.
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Year
Ended Ended
12/31/05 12/31/04
FROM OPERATIONS:
Net investment income $ 6,406,915 $ 3,200,048
Net realized gain on investments, redemptions in kind and foreign currency transactions 46,679,070 1,084,379
Change in net unrealized gain or loss on investments, futures contracts and foreign
currency transactions (23,029,256) 30,978,376
-------------- -------------
Net increase in net assets
resulting from operations $ 30,056,729 $ 35,262,803
-------------- -------------
DISTRIBUTIONS TO SHAREOWNERS:
Net investment income
Class I $ (5,374,313) $ (1,685,576)
Class II (1,440,262) (1,069,680)
-------------- -------------
Total distributions to shareowners $ (6,814,575) $ (2,755,256)
-------------- -------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 42,859,167 $ 60,072,885
Class I shares issued in reorganization 53,856,933 298,220,832
Reinvestment of distributions 6,814,325 2,755,256
Cost of shares repurchased (139,175,447) (48,119,744)
Redemptions in kind (75,731,419) --
-------------- -------------
Net increase (decrease) in net assets resulting from Fund share transactions $ (111,376,441) $ 312,929,229
-------------- -------------
Net increase (decrease) in net assets $ (88,134,287) $ 345,436,776
-------------- -------------
NET ASSETS:
Beginning of year $ 587,763,829 $ 242,327,053
-------------- -------------
End of year $ 499,629,542 $ 587,763,829
============== =============
Undistributed net investment income, end of year $ 27,272 $ 433,753
============== =============
The accompanying notes are an integral part of these financial statements. 13
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer Fund VCT Portfolio (the Portfolio) is a Portfolio of Pioneer
Variable Contracts Trust (the Trust), a Delaware statutory trust registered
under the Investment Company Act of 1940 as an open-end management investment
company. The Trust consists of twenty-nine separate diversified portfolios,
fourteen of which issue both Class I and Class II shares (collectively, the
"Portfolios", individually the "Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio)(Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio)
(Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio)
(Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio)
(Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares
only)
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts or by
qualified pension and retirement plans.
The investment objective of Fund Portfolio is to seek capital appreciation.
The financial highlights for the Portfolio's Class I shares are presented in a
separate book.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
periods. Actual results could differ from those estimates.
Information concerning the Portfolio's principal investment risks is contained
in the Portfolio's prospectus(es). Please refer to those documents when
considering the Portfolio's risks. At times, the Portfolio's investments may
represent industries or industry sectors that are interrelated or have common
risks, making it more susceptible to any economic, political, or regulatory
developments or other risks affecting those industries and sectors.
The following is a summary of significant accounting policies consistently
followed by the Portfolio, in the preparation of its financial statements,
which are consistent with those generally accepted in the investment company
industry:
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the portfolio are computed once daily, on each day the New York Stock
Exchange (NYSE)
14
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
is open, as of the close of regular trading on the NYSE. In computing the
net asset values, securities are valued at the last sale price on the
principal exchange where they are traded. Securities that have not traded
on the date of valuation, or securities for which sale prices are not
generally reported, are valued at the mean between the last bid and asked
prices. Securities for which market quotations are not readily available
are valued at their fair values as determined by, or under the direction
of, the Board of Trustees. The Portfolio also may use the fair value of a
security, including a non-U.S. security, when the closing market price on
the primary exchange where the security is traded no longer accurately
reflects the value of the security as of the close of the NYSE. At December
31, 2005, there were no fair valued securities. Temporary cash investments
are valued at amortized cost.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities where the ex-dividend date may have
passed are recorded as soon as the Portfolio becomes aware of the
ex-dividend data in the exercise of reasonable diligence. Interest income,
including interest on income bearing cash accounts, is recorded on the
accrual basis.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes on capital gains at
the applicable country rates.
B. Futures Contracts
The Portfolio may enter into futures transactions to hedge against changes
in interest rates, securities prices, and currency rates or to seek to
increase total return. Upon entering into a futures contract, the Portfolio
is required to deposit with a broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the associated futures
exchange. Subsequent payments for futures contracts ("variation margin")
are paid or received by the Portfolio, depending on the daily fluctuation
in the value of the contracts, and are recorded by the Portfolio as
unrealized gains or losses. When the contract is closed, the Portfolio
realize a gain or loss equal to the difference between the opening and
closing value of the contract. The use of futures contracts involves, to
varying degrees, elements of market risk which may exceed the amounts
recognized by the Portfolio. Changes in the value of the contracts may not
directly correlate to the changes in the value of the underlying
securities. These risks may decrease the effectiveness of the Portfolio's
hedging and trading strategies and potentially result in a loss. As of
December 31, 2005, Fund Portfolio had no open contracts.
C. Foreign Currency Translation
The books and records of the Portfolio are maintained in U.S. dollars.
Amounts denominated in foreign currencies are translated into U.S. dollars
using current exchange rates.
Net realized gains and losses on foreign currency transactions represent,
the net realized gains and losses on foreign currency contracts,
disposition of foreign currencies, and the difference between the amount of
income accrued and the U.S. dollars actually received. Further, the effects
of changes in foreign currency exchange rates on investments are not
segregated in the statement of operations from the effects of changes in
market price of those securities but are included with the net realized and
unrealized gain or loss on investments.
D. Forward Foreign Currency Contracts
The Portfolio enters into forward foreign currency contracts (contracts)
for the purchase or sale of a specific foreign currency at a fixed price on
a future date as a hedge or cross-hedge against either specific investment
transactions (settlement hedges) or portfolio positions (portfolio hedges).
All contracts are marked to market daily at the applicable exchange rates,
and any resulting unrealized gains or losses are recorded in the
Portfolio's financial statements. The Portfolio records realized gains and
losses at the time a portfolio hedge is offset by entry into a closing
transaction or extinguished by delivery of the currency. Risks may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of the contract and from unanticipated
movements in the value of foreign currencies relative to the U.S. dollar.
At December 31, 2005, the Portfolio had no open forward contracts.
E. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal
income tax rules. Therefore, the source of each Portfolio's distributions
may be shown in the accompanying financial statements as either from, or in
excess of, net investment income or
15
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
net realized gain on investment transactions, or from paid-in capital,
depending on the type of book/tax differences that may exist.
Capital loss carryforwards are available to offset future realized capital
gains. At December 31, 2005, Fund VCT Portfolio had a capital loss
carryforward of $39,968,844, of which the following amounts will expire
between 2010 and 2011 if not utilized: $26,951,317 in 2010 and $13,017,527
in 2011.
At December 31, 2005, the portfolio made reclassifications as described
below. These reclassifications have no impact on the net asset values of
the portfolio and are designed to present the portfolio's capital accounts
on a tax basis.
- -----------------------------------------------------------------------------------------
Undistributed Net Accumulated Net
Investment Income Realized Gain
(Loss) (Loss) Paid-In Capital
- -----------------------------------------------------------------------------------------
Pioneer Fund VCT Portfolio $1,179 $(16,707,826) $16,706,647
- -----------------------------------------------------------------------------------------
The following chart shows the distributions paid during the years ended
December 31, 2005 and December 31, 2004 and the components of distributable
earnings (accumulated losses) as of December 31, 2005 on a tax basis.
- -------------------------------------------------------------------------------------------
2005 2004
- -------------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ 6,814,575 $2,755,256
Long-Term capital gain -- --
----------- ----------
$ 6,814,575 $2,755,256
Return of Capital -- --
----------- ----------
Total distributions $ 6,814,575 $2,755,256
=========== ==========
Distributable Earnings (Accumulated Losses):
Undistributed ordinary income $ 27,272
Undistributed long-term gain/(capital loss carryforward) (39,968,844)
Post-October loss deferred --
Unrealized appreciation 103,238,111
-----------
Total $63,296,539
===========
- -------------------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation is
primarily attributable to the tax deferral of losses on wash sales.
F. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Portfolio and a wholly owned indirect
subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $638,021 in
commissions on the sale of Portfolio shares for the year ended December 31,
2005. Distribution fees for Class II shares are calculated based on the
average daily net asset values attributable to Class II shares of the
Portfolio.
Shareowners of each class share all expenses and fees paid to the transfer
agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS),
for its services, which are allocated based on the number of accounts in
each class and the ratable allocation of related out-of-pocket expenses
(see Note 3). Income, common expenses (excluding transfer agent and
distribution fees) and realized and unrealized gains and losses are
calculated at the Portfolio level and allocated daily to each class of
shares based on the respective percentage of the adjusted net assets at the
beginning of the day. Distributions paid by a Portfolio with respect to
each class of shares are calculated in the same manner, at the same time,
and in the same amount, except that Class I and Class II shares can bear
different transfer agent and distribution fees. Dividends and distributions
to shareowners are recorded on the ex-dividend date.
G. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral
16
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
which is maintained by the custodian and earns income in the form of
negotiated lenders' fees. The Portfolio also continues to receive payments
in lieu of interest or dividends on the securities loaned. Gain or loss in
the fair value of the securities loaned that may occur during the term of
the loan, will be for the account of the Portfolio. The loans are secured
by collateral of at least 102%, at all times, of the fair value of the
securities loaned. The fair value of the collateral will be adjusted daily
to reflect any price fluctuation in the value of the loaned securities. The
Portfolio has the right under the lending agreement to recover the
securities on loan from the borrower on demand. The Portfolio invests cash
collateral in the Securities Lending Investment Fund which is sponsored by
Brown Brothers Harriman & Co., the Portfolio's custodian.
H. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano, manages the
portfolio. Management fees are calculated daily at the annual rate of 0.65% of
the Portfolio's average daily net assets.
In addition, under the management and administration agreements, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $17,748 was payable
to PIM related to management fees, administrative fees and certain other
services, and is included in due to affiliates.
3. Transfer Agent
PIMSS, a wholly owned indirect subsidiary of UniCredito Italiano, provides
substantially all transfer agent and shareowner services to the Trust at
negotiated rates. Included in due to affiliates is $2,207 in transfer agent
fees payable to PIMSS at December 31, 2005.
4. Distribution Plans
The Portfolio has adopted a plan of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with the Portfolio's Class
II shares. Included in due to affiliates is $1,622 payable to PFD at December
31, 2005.
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolios' aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- ------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- ------------------------------------------------------------------------------------------
Fund Portfolio $396,587,906 $120,731,703 $(17,493,590) $103,238,113
============ ============ ============ ============
- ------------------------------------------------------------------------------------------
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were $121,305,838 and $262,447,758, respectively. For the
year ended September 23, 2005 the Portfolio had redemptions in kind which
resulted in redemptions out of the Portfolio totaling $75,731,419.
17
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
- --------------------------------------------------------------------------------------------------------------
Fund Portfolio '05 Shares '05 Amount '04 Shares '04 Amount
- --------------------------------------------------------------------------------------------------------------
CLASS I:
Shares sold 580,758 $ 11,975,172 451,723 $ 8,690,214
Class I shares issued in reorganization -- -- 14,822,109 298,220,832
Reinvestment of distributions 257,653 5,374,312 87,609 1,685,576
Shares repurchased (5,148,933) (106,238,103) (1,561,121) (29,970,569)
--------------------------------------------------------------
Net increase (decrease) (4,310,522) $ (88,888,619) 13,800,320 $ 278,626,053
==============================================================
CLASS II:
Shares sold 1,500,748 $ 30,883,995 2,721,468 $ 51,382,671
Class II shares issued in reorganization 2,567,061 53,856,933 -- --
Reinvestment of distribution 69,257 1,440,013 55,486 1,069,680
Shares repurchased (1,597,303) (32,937,344) (952,397) (18,149,175)
Redemptions in kind (3,626,019) (75,731,419) -- --
--------------------------------------------------------------
Net increase (1,086,256) $ (22,487,822) 1,824,557 $ 34,303,176
==============================================================
- --------------------------------------------------------------------------------------------------------------
8. Merger Information
On December 8, 2004, beneficial owners of Safeco RST Core Equity Portfolio,
Safeco RST Money Market Portfolio and Safeco RST Multi-Cap Core Portfolio,
three of the six portfolios that comprised Safeco Resources Series Trust,
approved a proposed Agreement and Plan of Reorganization that provided for the
mergers listed. These tax-free reorganizations were accomplished on December
10, 2004 ("Closing Date"), by exchanging all of the Safeco's net assets for
Class I shares as indicated below, based on Class I share's ending net asset
value on the Closing Date. The following charts show the details of the
reorganizations as of that Closing Date:
- -----------------------------------------------------------------------------------------------
Pioneer Fund VCT Safeco RST Core Pioneer Fund VCT
Portfolio (Pre- Equity Portfolio Portfolio
Reorganization) (Pre-Reorganization) (Post-Reorganization)
- -----------------------------------------------------------------------------------------------
Net Assets $281,591,969 $298,220,832 $879,147,352
Shares Outstanding 13,990,134 12,804,673 28,812,243
Class I Shares Issued 14,822,109
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Unrealized Appreciation Realized Gain/(Loss)
on Closing Date on Closing Date
- -----------------------------------------------------------------------------------------------
Safeco RST Core Equity Portfolio $68,714,366 $20,662,968
=========== ===========
- -----------------------------------------------------------------------------------------------
18
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In addition, on November 4, 2005, beneficial owners of AmSouth VIF Select
Equity Portfolio approved a proposed Agreement and Plan of Reorganization that
provided for the merger listed below. This tax-free reorganization was
accomplished on November 4, 2005, by exchanging all of the AmSouth Fund's net
assets for Class II shares as indicated below, based on Class II share's ending
net asset value on the Closing Date. The following charts show the details of
the reorganizations as of that closing date ("Closing Date"):
- -------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Pioneer Fund VCT AmSouth VIF Pioneer Fund VCT
Portfolio Select Equity Portfolio
(Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization)
- ----------------------------------------------------------------------------------------------------
Net Assets $444,635,312 $53,856,933 $498,492,245
Shares Outstanding 21,144,152 4,928,631 23,711,213
Class II Shares Issued 2,567,061
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Unrealized Appreciation Realized Gain/(Loss)
on Closing Date on Closing Date
- ----------------------------------------------------------------------------------------------------
AmSouth VIF Select Equity $4,928,126 $ (49,233)
========== =========
- ----------------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION (unaudited)
The qualifying percentage of certain Portfolios' ordinary income dividends for
the purposes of the corporate dividends received deduction and the percentage
of those ordinary dividends that are subject to a maximum tax rate of 15% as
provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were
as follows:
- ----------------------------------------------------------------------------------------------------
Dividend Qualified
Received Dividend
Deduction Income
- ----------------------------------------------------------------------------------------------------
Fund Portfolio 100.00% 100.00%
- ----------------------------------------------------------------------------------------------------
19
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust and
the Shareowners of Pioneer Fund VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer Fund VCT Portfolio, one of the
portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), as
of December 31, 2005, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audit. The financial highlights for the year ended December 31, 2001 was
audited by other auditors who have ceased operations and whose report, dated
February 8, 2002, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005, by correspondence
with the custodian and brokers or by other appropriate auditing procedures
where replies from brokers were not received. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer Fund VCT Portfolio of the Pioneer Variable Contracts Trust at December
31, 2005, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and
financial highlights for each of the four years in the period then ended, in
conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
20
Pioneer Fund VCT Portfolio (the "Fund") PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING
THE MANAGEMENT CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three and five year periods for
the Fund and a peer group selected by the Independent Trustees for this
purpose, (2) management fees incurred by a peer group of funds selected by the
Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's
21
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and an index, in
each case selected by the Independent Trustees for this purpose. The Fund's
performance based upon total return was in the third quintile of the peer
group for the 12 months ended June 30, 2005, the fourth quintile of the peer
group for the three years ended June 30, 2005, and the fourth quintile for
the five years ended June 30, 2005. (In all quintile rankings referred to
throughout this discussion first quintile is most favorable to the Fund's
shareholders. Thus, highest relative performance would be first quintile and
lowest relative expenses also would be first quintile.) The Trustees also
considered the yield (gross of expenses) on the Class I shares of the Fund
relative to the yield (at June 30, 2005) of the Standard & Poor's 500 Stock
Index. The Trustees concluded that the performance of the Fund supported the
continuation of the Management Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's equities group. Among other things, the Trustees
considered the number, education and experience of the Investment Adviser's
investment staff and their use of technology and emphasis on analytics in
view of the risk profile of securities in which the Fund invests. The
Trustees concluded that the Investment Adviser had the quality and depth of
personnel and the well-developed methods essential to performing its duties
under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the third
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
considered the Fund's expense ratio and expense ratios of a peer group of
funds selected by the Independent Trustees for this purpose. The Fund's
expense ratio for the 12 months ended June 30, 2005 was in the first
quintile of the applicable peer group for the most recent fiscal year of the
peer group for the comparable period. The Trustees concluded that the Fund's
overall expense ratio was lower than that of comparable funds.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. The Trustees concluded that,
given current or anticipated asset levels, break
22
Pioneer Fund VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
points in the management fees were not necessary at this time. As the assets
increase, the Trustees will continue to evaluate annually the
appropriateness of break points.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund), and
benefits to the Investment Adviser from the use of "soft" commission
dollars to pay for research services. The Trustees further considered the
revenues and profitability of the Investment Adviser's businesses other
than the fund business, including the Investment Adviser's institutional
investment advisory business. The Trustees considered the intangible
benefits that accrue to the Investment Adviser and its affiliates by virtue
of its relationship with the Fund and the Pioneer Funds as a group. The
Trustees concluded that all these types of benefits accruing to the
Investment Adviser were reasonable in the context of the overall
relationship between the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
23
Pioneer Fund VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
24
Pioneer Fund VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held
Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance
or earlier services company) (2001-present); company); Director of New York
retirement or Managing Partner, Federal City Mortgage Trust (publicly traded
removal. Capital Advisors (boutique merchant mortgage REIT)
bank) (2002 to 2004); Executive
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ------------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products
or earlier manufacturer), Mortgage Guaranty
retirement or Insurance Corporation, and Briggs
removal. & Stratton, Inc. (engine
manufacturer)
- ------------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ------------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ------------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ------------------------------------------------------------------------------------------------------------------------------------
25
Pioneer Fund VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRUST OFFICERS
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- ------------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
26
Pioneer Fund VCT Portfolio
- -------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRUST OFFICERS
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, None
Treasurer 2000. Serves at the Assistant Vice President - Fund
discretion of the Accounting, Administration and
Board. Custody Services of Pioneer; and
Assistant Treasurer of all of the
Pioneer Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ------------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ------------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
27
- --------------------------------------------------------------------------------
This page for your notes.
28
- --------------------------------------------------------------------------------
This page for your notes.
29
[LOGO]PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company,
Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18660-00-0206
[LOGO] PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Global High Yield VCT Portfolio -- Class II Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Pioneer Global High Yield VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 6
Financial Statements 13
Notes to Financial Statements 17
Report of Independent Registered Public Accounting Firm 21
Factors Considered by the Independent Trustees in Approving
the Management Contract 22
Trustees, Officers and Service Providers 25
Before investing, consider the Portfolio's investment objectives, risks,
charges and expenses. Contact your advisor or Pioneer Investments for a
prospectus containing this information. Please read it carefully.
The Trust files a complete statement of investments with the Securities and
Exchange Commission for the first and the third quarters for each fiscal year
on Form N-Q. Shareowners may view the filed Form N-Q by visiting the
Commission's web site at http://www.sec.gov. The filed form may also be viewed
and copied at the Commission's Public Reference Room in Washington, D.C.
Information regarding the operations of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As percentage of total investment in securities)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Corporate Bonds 90.0%
Asset Backed Securities 3.8%
Foreign Government Bonds 3.2%
Convertible Corporate Bonds 3.0%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Maturity Distribution
(as a percentage of total investment in securities)
0-1 years 14.3%
1-3 years 10.9%
3-4 years 12.3%
4-6 years 48.4%
6-8 years 12.8%
8+ years 1.3%
Five Largest Holdings
(As a percentage of long-term holdings)
1. Thule Drilling, 10.0%,
5/10/07 2.18%
2. Nell AF Sarl, 8.375%,
8/15/15 (144A) 1.77
3. Dycom Industries, 8.125%,
10/15/15 (144A) 1.77
4. Tui AG, Floating Rate Note,
12/10/10 (144A) 1.74
5. Polyone Corp., 8.875%,
5/1/12 1.73
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 3/18/05
- --------------------------------------------------------------------------------
Net Asset Value per Share $10.02 $10.00
- --------------------------------------------------------------------------------
Net
Distributions per Share Investment Short-Term Long-Term
(3/18/05 - 12/31/05) Income Capital Gains Capital Gains
$0.5013 $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Global High Yield VCT Portfolio at net asset value, compared to that of Merrill
Lynch (ML) Global High Yield and Emerging Markets Plus Index. Portfolio returns
are based on net asset value and do not reflect any applicable insurance fees
or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Global ML Global High
High Yield VCT Yield and Emerging
Portfolio Markets Plus Index
3/05 10000 10000
12/05 10586 10544
Index comparisons begin on 4/30/00. The ML Global High Yield & Emerging Markets
Plus Index tracks the performance of the below- and border-line
investment-grade global debt markets denominated in the major developed market
currencies. Index returns assume reinvestment of dividends and, unlike
Portfolio returns, do not reflect any fees, expenses or sales charges. You
cannot invest directly in any Index.
- --------------------------------------------------------------------------------
Cumulative Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Life-of-Fund
(3/18/05) 5.34%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges.
The performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown. Please refer to variable product's semiannual report for
performance that reflects the deduction of the variable products fees and
charges.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
2
Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value [divided by] $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Global High Yield VCT Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------------------------------------
Beginning Account Value on 7/1/05 $1,000.00
Ending Account Value on 12/31/05 $1,034.06
Expenses Paid During Period* $ 5.13
* Expenses are equal to the Portfolio's annualized expense ratio of 1.00% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer Global High Yield VCT Portfolio
Based on a hypothetical 5% return per year before expenses, reflecting the
period from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------------------------------------
Beginning Account Value on 7/1/05 $1,000.00
Ending Account Value on 12/31/05 $1,020.16
Expenses Paid During Period* $ 5.09
* Expenses are equal to the Portfolio's annualized expense ratio of 1.00% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
Strong economic growth and improving corporate profitability helped drive the
performance of high-yield corporate bonds in domestic and most foreign markets
during the final nine months of 2005. Lower-rated corporate bonds held up well,
despite the persistent efforts of the Federal Reserve Board in the United
States to limit the threats of inflation by raising short-term interest rates.
In the following interview, Andrew D. Feltus, CFA, discusses the investment
environment and the factors that influenced the Global High Yield Portfolio's
performance since it began investment operations on March 21, 2005. Mr. Feltus
is the member of the team managing the Portfolio.
Q: How did the Portfolio perform since its inception?
A: The Portfolio performed relatively well. Global High Yield Portfolio Class
II Shares had a total return of 5.34% at net asset since it began investment
operations on March 18, 2005. The return of ML Global High Yield & Emerging
Markets Plus Index was 3.62%. The Portfolio produced a healthy income
stream. On December 31, 2005, the SEC standardized 30-day yield for Class II
shares was 6.53%.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
Q: What were the principal factors affecting Portfolio performance?
A: Economies, both domestically and globally, expanded throughout 2005, helping
corporate profits continued to grow. In the face of the mounting evidence of
this economic vitality, the U.S. Federal Reserve Board continued to raise
short-term interest rates to limit inflationary pressures. At the end of
2005, the key fed funds rate stood at 4.25%, compared to 1.00% in June 2004.
The repeated increases put pressure on fixed income markets, especially in
the U.S., where rates rose and prices fell for most types of securities.
We had the greatest concentration of investments in the domestic high yield
bond market, with holdings that accounted for about 60% of Portfolio assets
at the end of 2005. The market for these securities had entered a temporary
period of decline early in the Portfolio's life in mid-March. The big factor
was increasing awareness of the worsening problems in the domestic
automobile industry, especially at General Motors and Ford. The credit
ratings of both companies eventually were downgraded from investment-grade
to high-yield, or below-investment grade. High-yield bonds began recovering
in the late spring and a rally continued throughout the summer as the market
absorbed the impact of credit downgrades, especially of GM. This summer
rally also came to an end and the market entered a decline again in the
fall. A major influence on this downturn was the approaching change in
federal bankruptcy laws, which caused many companies to accelerate their
plans to file for bankruptcy protection. Companies such as automotive
components manufacturer Delphi and airlines such as Northwest and Delta
filed for protection. Stability returned the market in the final two months
of the year, however, and high yield bonds finished the year with positive
performance, helped by the yield advantage of these bonds that helped
overcome the effects of price losses on a total return basis.
The environment for high-yield corporate debt of foreign, developed nations
was somewhat different. We typically had about 10% of Portfolio assets
invested in this area, with a weighting of 8.3% at year's end. These bonds
tended to outperform U.S. high yield bonds on a local currency basis, but
the strength of the U.S. dollar during 2005 took away a major part of the
performance advantage of foreign high-yield corporates.
Emerging market debt was the best-performing area in the global high-yield
universe as well as in fixed income markets in general. While most areas in
the fixed-income markets produced modestly positive results for 2005,
emerging market debt benchmarks had total returns of about 12% for the year.
The sector's strong results were a product of healthy global growth,
improving financial and political stability in many markets, and rising
commodity prices. We generally underweighted emerging market debt, however,
because we thought these bonds were becoming less attractive on a relative
basis. We did maintain investments, however, in government bonds of some
emerging market countries as well as in selected banking, mining and basic
materials companies. At the end of 2005, approximately 24.2% of Portfolio
assets were invested in emerging markets, an underweighted position.
A Word About Risk:
Investments in high yield or lower-rated securities are subject to
greater-than-average risk. When interest rates rise, the prices of fixed income
securities in the Portfolio will generally fall. Conversely, when interest
rates fall, the prices of fixed income securities in the Portfolio will
generally rise. Investing in foreign and/or emerging markets securities
involves risks relating to interest rates, currency exchange rates, economic,
and political conditions. Investments in the Portfolio are subject to possible
loss due to the financial failure of underlying securities and their inability
to meet their debt obligations. Prepayment risk is the chance that
mortgage-backed bonds will be paid off early if falling interest rates prompt
homeowners to refinance their mortgages. Forced to reinvest the unanticipated
proceeds at lower interest rates, the Portfolio would experience a decline in
income and lose the opportunity for additional price appreciation associated
with falling interest rates. At times, the Portfolio's investments may
represent industries or industry sectors that are interrelated or have common
risks, making it more susceptible to any economic, political, or regulatory
developments or other risks affecting those industries and sectors.
4
Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Q: What types of investments had the greatest influence on performance?
A: Our emerging market investments tended to do well. Contributing to results
were government bonds from Brazil. Securities issued by Braskem, a
Brazil-based chemical company, also contributed positively, as did bonds of
Vedanta Resources, a mining and metals company with headquarters in the
United Kingdom and in India. The general upgrades in credit ratings of banks
in Kazakhstan helped the performance of several Portfolio holdings,
including Kazakh Banks, ATF Bank, and Turanalem Finance.
Among our domestic holdings, several bonds appreciated in value either
through credit upgrades or as companies restructured their finances, either
by issuing new stock or tendering for outstanding bonds. Eschelon, for
example, a U.S. telecommunication services company issued new stock and used
the proceeds to reduce its debt. Metro PCS, another wireless
telecommunications company, also was a noteworthy contributor to results.
Holdings of companies whose credit ratings were upgraded during the period
included bonds issued by: J. Ray McDermott, a U.S.-based oil and gas
drilling company; Doane Pet Care, a domestic pet food company; and Mayne, an
Australian pharmacy chain.
Our exposure to the domestic airline industry tended to detract from
performance, however, as bonds of companies such as Continental Airlines and
American Airlines fell in value. We also had investments in two domestic
companies that eventually filed for bankruptcy protection, although we sold
our positions in both companies before the end of 2005. We liquidated our
position in the bonds of Refco, a trading firm specializing in derivative
financial securities, before the company filed for bankruptcy, and
eliminated our investments in Delphi after the bankruptcy filing.
Q: What is your investment outlook?
A: While 2005 was a challenging period to be invested in high-yield bonds, we
think lower-rated securities are now more attractively priced. The yield
spreads - or differences in yields between high-rated and low-rated bonds -
were wider at the end of 2005 than they were in the beginning of the year.
At the same time, the prospects appear favorable for continued economic
growth throughout the world. We think high yield corporate bonds are
positioned to perform better in 2006 than they did in 2005. However we
expect to continue to be underweighted in emerging market debt, where we
think investors are not adequately compensated for the risks.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Portfolio's historical or future performance are
statements of the opinion of Portfolio management as of the date of this
report. These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
5
Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Principal
Amount
USD ($) Value
CONVERTIBLE CORPORATE BONDS - 2.8%
Pharmaceuticals & Biotechnology - 1.5%
Pharmaceuticals - 1.5%
65,000 Pharm Resources, 2.875%, 9/30/10 $ 53,625
----------
Total Pharmaceuticals & Biotechnology $ 53,625
----------
Software & Services - 1.3%
Data Processing & Outsourced Services - 1.3%
50,000 Pegasus Solutions, Inc., 3.875%, 7/15/23 $ 48,625
----------
Total Software & Services $ 48,625
----------
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost $94,528) $ 102,250
----------
ASSET BACKED SECURITIES - 3.6%
Transportation - 1.4%
Airlines - 1.4%
27,435 American Airlines, Inc., 7.377%, 5/23/19 $ 22,496
15,791 American Airlines, Inc., 7.379%, 5/23/16 12,948
17,304 Continental Airlines, Inc., 8.312%, 4/2/11 15,574
----------
$ 51,018
----------
Total Transportation $ 51,018
----------
Retailing - 1.1%
Distributors - 1.1%
40,000 NTComex, Inc., 11.75%, 1/15/11 (144A) $ 39,300
----------
Total Retailing $ 39,300
----------
Utilities - 1.1%
Electric Utilities - 1.1%
19,632 Ormat Funding Corp., 8.25%, 12/30/20 $ 19,829
19,933 Tenaska Alabama, Floating Rate Note, 6/30/21 (144A) (a) 20,053
----------
$ 39,882
----------
Total Utilities $ 39,882
----------
TOTAL ASSET BACKED SECURITIES
(Cost $125,424) $ 130,200
----------
CORPORATE BONDS - 84.0%
Energy - 10.5%
Coal & Consumable Fuels - 0.8%
27,477 Indocoal Exports Cayman, 7.134%, 7/6/12 (144A) $ 27,408
----------
Oil & Gas Drilling - 2.0%
500,000 Thule Drilling, 10.0%, 5/10/07 $ 74,073
----------
Oil & Gas Equipment & Services - 1.9%
20,000 J. Ray McDermott SA, 11.0%, 12/15/13 (144A) $ 23,600
25,000 Semgroup LP, 8.75%, 11/15/15 (144A) 25,563
20,000 Targa Resources, Inc., 8.5%, 11/1/13 (144A) 20,626
----------
$ 69,789
----------
6 The accompanying notes are an integral part of these financial statements.
Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal
Amount
USD ($) Value
Oil & Gas Exploration & Production - 4.7%
25,000 Baytex Energy, Ltd., 9.625%, 7/15/10 $ 26,250
20,000 Clayton Williams Energy, 7.75%, 8/1/13 19,200
35,000 Compton Petroleum Corp., 7.625%, 12/1/13 (144A) 35,788
15,000 Delta Petroleum Corp., 7.0%, 4/1/15 13,838
15,000 Energy Partners, Ltd., 8.75%, 8/1/10 15,375
20,000 Gazprom International SA, 7.2%, 2/1/20 (144A) 21,370
15,000 Petroquest Energy, Inc., 10.375%, 5/15/12 15,675
25,000 Stone Energy Corp., 6.75%, 12/15/14 23,688
----------
$ 171,184
----------
Oil & Gas Storage & Transportation - 1.1%
40,000 Transmontaigne, Inc., 9.125%, 6/1/10 $ 39,300
----------
Total Energy $ 381,754
----------
Materials - 21.4%
Aluminum - 1.2%
45,000 Asia Aluminum Holdings, 8.0%, 12/23/11 (144A) $ 43,931
----------
Commodity Chemicals - 1.7%
20,000 Aventine Renewable Energy, Floating Rate Note, 12/15/11 (a) $ 20,700
40,000 Invista, 9.25%, 5/1/12 (144A) 42,700
----------
$ 63,400
----------
Construction Materials - 0.6%
20,000 RMCC Acquisition Co., 9.5%, 11/1/12 (144A) $ 20,100
----------
Diversified Chemical - 6.3%
45,000 Braskem SA, 11.75%, 1/22/14 (144A) $ 55,575
20,000 Huntsman International LLC, 10.125%, 7/1/09 24,492
50,000 LPG International, Inc., 7.25%, 12/20/15 (144A) 49,350
50,000 Nell AF Sarl, 8.375%, 8/15/15 (144A) 60,047
40,000 Nova Chemicals Corp., Floating Rate Note, 11/15/13 (144A) (a) 40,850
----------
$ 230,314
----------
Diversified Metals & Mining - 1.1%
40,000 Vedenta Resources Plc, 6.625%, 2/22/10 (144A) $ 38,913
----------
Forest Products - 2.2%
30,000 Ainsworth Lumber, 6.75%, 3/15/14 $ 25,500
30,000 Mandra Foresty, 12.0%, 5/15/13 (144A) 28,800
25,000 Sino Forest Corp., 9.125%, 8/17/11 (144A) 26,813
----------
$ 81,113
----------
Paper Packaging - 2.4%
40,000 Graham Packaging Co., 9.875%, 10/15/14 $ 39,000
50,000 Graphic Packaging Co., 9.5%, 8/15/13 47,750
----------
$ 86,750
----------
Specialty Chemicals - 4.4%
50,000 Crystal US Holdings, Inc., Floating Rate Note, 10/1/14 (a) $ 36,500
20,000 OM Group, Inc., 9.25%, 12/15/11 19,550
60,000 Polyone Corp., 8.875%, 5/1/12 58,800
25,000 Resolution Performance Product, 13.5%, 11/15/10 26,563
15,000 Rhodia SA, 9.25%, 6/1/11 18,902
----------
$ 160,315
----------
The accompanying notes are an integral part of these financial statements. 7
Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Principal
Amount
USD ($) Value
Steel - 1.5%
20,000 CSN Islands IX Corp., 10.5%, 1/15/15 (144A) $ 22,300
10,000 CSN Islands X Corp., 9.5%, 7/1/49 (144A) 10,350
20,000 International Steel Group, 6.5%, 4/15/14 20,000
----------
$ 52,650
----------
Total Materials $ 777,486
----------
Capital Goods - 8.3%
Building Products - 3.9%
50,000 Builders Firstsource, Inc., Floating Rate Note, 2/15/12 (a) $ 50,875
20,000 Caue Finance, Ltd., 8.875%, 8/1/15 (144A) 21,800
25,000 Desarrolladora Homex SA, 7.5%, 9/28/15 (144A) 24,563
45,000 U.S. Concrete, Inc., 8.375%, 4/1/14 44,888
----------
$ 142,126
----------
Construction & Engineering - 1.6%
60,000 Dycom Industries, 8.125%, 10/15/15 (144A) $ 60,000
----------
Construction, Farm Machinery & Heavy Trucks - 1.3%
10,000 American Rock Salt Co., LLC, 9.5%, 3/15/14 $ 10,100
40,000 Navistar International, 6.25%, 3/1/12 35,800
----------
$ 45,900
----------
Trading Companies & Distributors - 1.5%
60,000 Noble Group, Ltd., 6.625%, 3/17/15 (144A) $ 55,253
----------
Total Capital Goods $ 303,279
----------
Commercial Services & Supplies - 4.2%
Diversified Commercial Services - 3.0%
35,000 Cardtronics, Inc., 9.25%, 8/15/13 (144A) $ 34,825
20,000 Cornell Co's, Inc., 10.75%, 7/1/12 20,800
20,000 FTI Consulting, 7.625%, 6/15/13 (144A) 20,600
20,000 Park-Ohio Industries, Inc., 8.375%, 11/15/14 17,500
15,000 United Rentals NA, Inc., 7.75%, 11/15/13 (b) 14,624
----------
$ 108,349
----------
Environmental & Facilities Services - 0.8%
13,000 Clean Harbors, Inc., 11.25%, 7/15/12 (144A) $ 14,625
15,000 Hydrochem Industrial Service, 9.25%, 2/15/13 (144A) 14,400
----------
$ 29,025
----------
Human Resource & Employment Services - 0.4%
15,000 Knowledge Learning Center, 7.25%, 2/1/15 (144A) $ 14,250
----------
Total Commercial Services & Supplies $ 151,624
----------
Transportation - 3.0%
Airlines - 0.6%
25,000 Continental Air, Inc., 7.568%, 12/1/06 $ 24,633
----------
Marine - 1.0%
40,000 Stena AB, 7.0%, 12/1/16 $ 36,600
----------
Railroads - 0.6%
20,000 TFM SA De CV, 9.375%, 5/1/12 (144A) $ 21,900
----------
Trucking - 0.7%
25,000 Greenbrier Co., Inc., 8.375%, 5/15/15 $ 25,500
----------
Total Transportation $ 108,633
----------
8 The accompanying notes are an integral part of these financial statements.
Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal
Amount
USD ($) Value
Automobiles & Components - 4.6%
Auto Parts & Equipment - 2.2%
20,000 Accuride Corp. 8.5%, 2/1/15 $ 19,700
20,000 Commercial Vehicle Group, 8.0%, 7/1/13 19,800
20,000 Cooper Standard Auto, 8.375%, 12/15/14 15,350
25,000 Stanadyne Corp., 10.0%, 8/15/14 24,000
----------
$ 78,850
----------
Automobile Manufacturers - 1.0%
25,000 Ford Motor Credit Corp., 7.375%, 10/28/09 $ 22,188
20,000 General Motors, 7.25%, 7/3/13 15,737
----------
$ 37,925
----------
Tires & Rubber - 1.4%
50,000 Goodyear Tire & Rubber, 9.0%, 7/1/15 (144A) $ 49,374
----------
Total Automobiles & Components $ 166,149
----------
Consumer Durables & Apparel - 1.1%
Homebuilding - 1.1%
10,000 WCI Communities, Inc., 6.625%, 3/15/15 $ 8,700
15,000 WCI Communities, Inc., 7.875%, 10/1/13 14,138
20,000 William Lyon Homes, 7.625%, 12/15/12 17,650
----------
$ 40,488
----------
Total Consumer Durables & Apparel $ 40,488
----------
Consumer Services - 3.5%
Casinos & Gaming - 0.6%
20,000 San Pasqual Casino, 8.0%, 9/15/13 (144A) $ 20,300
----------
Hotels, Resorts & Cruise Lines - 1.3%
50,000 Trump Entertainment Resorts, 8.5%, 6/1/15 $ 48,750
----------
Specialized Consumer Services - 1.6%
50,000 Tui AG, Floating Rate Note, 12/10/10 (144A) (a) $ 58,864
----------
Total Consumer Services $ 127,914
----------
Media - 4.8%
Broadcasting & Cable TV - 3.0%
40,000 Cablemas Sa De Cv, 9.375%, 11/15/15 (144A) $ 41,000
40,000 Cleveland Unlimited, Inc., Floating Rate Note, 12/15/10 (144A) (a) 40,400
25,000 Kabel Deutschland GMBH, 10.625%, 7/1/14 26,312
----------
$ 107,712
----------
Movies & Entertainment - 0.9%
35,000 Corp Interamer De Entret, 8.875%, 6/14/15 (144A) $ 34,300
----------
Publishing - 0.9%
30,000 Sheridan Acquisition Corp., 10.25%, 8/15/11 $ 30,863
----------
Total Media $ 172,875
----------
Retailing - 1.0%
Computer & Electronics Retail - 1.0%
40,000 GSC Holdings Corp., 8.0%, 10/1/12 (144A) $ 37,700
----------
Total Retailing $ 37,700
----------
Food & Drug Retailing - 1.6%
Drug Retail - 0.5%
25,000 Duane Reade, Inc., 9.75%, 8/1/11 $ 16,750
----------
The accompanying notes are an integral part of these financial statements. 9
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Global High Yield VCT Portfolio
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Principal
Amount
USD ($) Value
Food Distributors - 1.1%
40,000 Doane Pet Care Co., 10.625%, 11/15/15 (144A) $ 41,700
----------
Total Food & Drug Retailing $ 58,450
----------
Food, Beverage & Tobacco - 0.7%
Brewers - 0.7%
25,000 Argentine Beverages, 7.375%, 3/22/12 (144A) $ 25,124
----------
Total Food, Beverage & Tobacco $ 25,124
----------
Health Care Equipment & Services - 3.6%
Health Care Distributors - 1.3%
50,000 AEP Industries, Inc., 7.875%, 3/15/13 $ 48,885
----------
Health Care Equipment - 2.3%
50,000 Accellent, Inc., 10.5%, 12/1/13 (144A) $ 51,250
15,000 Hanger Orthopedic Group, 10.375%, 2/15/09 15,000
20,000 Medical Services Co., Floating Rate Note, 10/15/11 (144A) (a) 15,400
----------
$ 81,650
----------
Total Health Care Equipment & Services $ 130,535
----------
Pharmaceuticals & Biotechnology - 1.3%
Pharmaceuticals - 1.3%
50,000 Warner Chilcott Corp., 8.75%, 2/1/15 (144A) $ 46,000
----------
Total Pharmaceuticals & Biotechnology $ 46,000
----------
Banks - 1.9%
Diversified Banks - 1.9%
25,000 ATF Bank JSC, 9.25%, 4/12/12 (144A) $ 26,428
10,000 Russian Stand Bank, 7.5%, 10/7/10 (144A) 9,775
30,000 Turanalem Finance BV, 8.5%, 2/10/15 (144A) 32,231
----------
$ 68,434
----------
Total Banks $ 68,434
----------
Diversified Financials - 3.1%
Diversified Financial Services - 3.1%
20,000 Dollar Financial Group, 9.75%, 11/15/11 $ 20,600
25,000 Glencore Funding LLC, 6.0%, 4/15/14 (144A) 23,514
35,000 Harvest Operations Corp., 7.875%, 10/15/11 34,825
35,000 Pipe Acquisition Finance, Floating Rate Note, 12/15/10 (144A) (a) 34,738
----------
$ 113,677
----------
Total Diversified Financials $ 113,677
----------
Insurance - 1.2%
Life & Health Insurance - 0.7%
25,000 Presidential Life Corp., 7.875%, 2/15/09 $ 24,750
----------
Reinsurance - 0.5%
20,000 Platinum Underwriters Holding, 7.5%, 6/1/17 $ 20,382
----------
Total Insurance $ 45,132
----------
Real Estate - 1.0%
Real Estate Investment Trusts - 1.0%
20,000 Host Marriott LP, 6.375%, 3/15/15 $ 19,950
15,000 Trustreet Properties, Inc., 7.5%, 4/1/15 15,000
----------
$ 34,950
----------
Total Real Estate $ 34,950
----------
10 The accompanying notes are an integral part of these financial statements.
Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal
Amount
USD ($) Value
Software & Services - 1.4%
Internet Software & Services - 1.4%
50,000 Hanarotelecom, Inc., 7.0%, 2/1/12 (144A) $ 49,256
----------
Total Software & Services $ 49,256
----------
Technology Hardware & Equipment - 0.5%
Electronic Manufacturing Services - 0.5%
20,000 Sanmina-Sci Corp., 6.75%, 3/1/13 $ 19,025
----------
Total Technology Hardware & Equipment $ 19,025
----------
Semiconductors - 0.3%
Semiconductors - 0.3%
10,000 Chartered Semiconductor, 6.375%, 8/3/15 $ 9,941
----------
Total Semiconductors $ 9,941
----------
Telecommunication Services - 3.5%
Integrated Telecommunication Services - 1.5%
23,000 Eschelon Operating Co., 8.375%, 3/15/10 $ 21,275
20,000 Ntelos Holding Corp., Floating Rate Note, 10/15/13 (144A) (a) 19,950
20,000 Zeus Special Sub, Ltd., Floating Rate Note, 2/1/15 (144A) (a) 13,150
----------
$ 54,375
----------
Wireless Telecommunication Services - 2.0%
15,000 Cell C Pty, Ltd., 8.625%, 7/1/12 (144A) $ 18,990
30,000 Inmarsat Finance Plc, Floating Rate Note, 11/15/12 (a) 25,012
7,000 Tele Norte Leste Participacoes , 8.0%, 12/18/13 7,420
20,000 UBS (Vimpelcom), 8.0%, 2/11/10 (144A) 20,542
----------
$ 71,964
----------
Total Telecommunication Services $ 126,339
----------
Utilities - 1.5%
Electric Utilities - 1.4%
50,000 Verasun Energy Corp., 9.875%, 12/15/12 (144A) $ 50,750
----------
Multi-Utilities - 0.1%
5,000 Reliant Energy, Inc., 6.75%, 12/15/14 $ 4,363
----------
Total Utilities $ 55,113
----------
TOTAL CORPORATE BONDS
(Cost $3,044,359) $3,049,878
----------
FOREIGN GOVERNMENT BONDS - 3.0%
35,000,000 ITL Banco Nac De Desen Econo, 8.0%, 4/28/10 $ 23,743
25,000 COP Republic of Colombia, 8.125%, 5/21/24 27,000
15,000 COP Republic of Columbia, 8.25%, 12/22/14 16,650
40,000,000 COP Republic of Columbia, 11.75%, 3/1/10 19,768
20,000 Republic of Panama, 7.25%, 3/15/15 21,280
----------
$ 108,441
----------
TOTAL FOREIGN GOVERNMENT BONDS
(Cost $105,034) $ 108,441
----------
The accompanying notes are an integral part of these financial statements. 11
Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
WARRANTS - 0.0%
Materials - 0.0%
Forest Products - 0.0%
5 Mandra Forestry-CW13, Exp. 5/15/13* $ --
----------
Total Materials $ --
----------
TOTAL WARRANTS
(Cost $0) $ --
----------
TOTAL INVESTMENT IN SECURITIES - 93.4%
(Cost $3,369,345) $3,390,769
----------
OTHER ASSETS AND LIABILITIES - 6.6% $ 240,824
----------
TOTAL NET ASSETS - 100.0% $3,631,593
==========
* Non-income producing security.
144A Security is exempt from registration under Rule 144A of the Securities Act
of 1933. Such securities may be resold normally to qualified institutional
buyers in a transaction exempt from registration. At December 31, 2005,
the value of these securities amounted to $1,511,191 or 41.6% of total net
assets.
(a) Debt obligation initially issued at one coupon which converts to a higher
coupon at a specified date. The rate shown is the rate at period end.
(b) Distributions of investments by country of issue, as a percentage of total
equity holdings (excluding temporary cash investments) is as follows:
United States 60.3%
Canada 5.7
Mexico 3.7
Bermuda 3.6
Cayman Islands 3.2
Brazil 3.2
United Kingdom 3.0
Luxembourg 2.8
Germany 2.6
Norway 2.2
Columbia 2.0
South Korea 1.5
Sweden 1.1
Netherlands 1.0
Panama 1.3
Other (individually) less than 1% 2.8
-----
100.0%
=====
NOTE: Principal amounts are denominated in U.S. dollars unless otherwise noted.
COP Columbian Peso
ITL Italian Lira
12 The accompanying notes are an integral part of these financial statements.
Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
3/18/05(a) to
Class II 12/31/05
Net asset value, beginning of period $10.00
------
Increase from investment operations:
Net investment income $ 0.51
Net realized and unrealized gain on investments and foreign currency transactions 0.01
------
Net increase from investment operations $ 0.52
Distributions to shareowners:
Net investment income (0.50)
-------
Net increase in net asset value $ 0.02
------
Net asset value, end of period $10.02
======
Total return* 5.34%(b)
Ratio of net expenses to average net assets 0.99%**
Ratio of net investment income to average net assets 6.72%**
Portfolio turnover rate 26%(b)
Net assets, end of period (in thousands) $3,632
Ratios with no waiver of management fees and assumption of expenses by PIM:
Net expenses 5.65%**
Net investment income 2.06%**
(a) The Portfolio commenced operations on March 18, 2005.
(b) Not annualized.
* Assumes initial investment at net asset value at the beginning of the
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of the period.
** Annualized.
NOTE: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
The accompanying notes are an integral part of these financial statements. 13
Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (cost $3,369,345) $3,390,769
Cash 309,100
Receivables --
Investment securities sold 8,166
Fund shares sold 9,278
Dividends, interest and foreign taxes withheld 72,768
----------
Total assets $3,790,081
----------
LIABILITIES:
Payables --
Fund shares repurchased $ 470
Dividends 3,984
Due to foreign bank 126,706
Due to affiliates 394
Accrued expenses 9,022
Due to Pioneer Investment Management, Inc. 17,912
----------
Total liabilities $ 158,488
----------
NET ASSETS:
Paid-in capital $3,617,301
Distributions in excess of net investment income (2,312)
Accumulated net realized loss on investments (5,538)
Net unrealized gain on:
Investments 21,424
Forward foreign currency contracts and other assets and liabilities
denominated in foreign currencies 718
----------
Total net assets $3,631,593
----------
NET ASSET VALUE PER SHARE:
Class II:
(No par value, unlimited number of shares authorized)
Net assets $3,631,593
Shares outstanding 362,368
----------
Net asset value per share $ 10.02
14 The accompanying notes are an integral part of these financial statements.
Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the period
from 3/18/05
(Commencement
of Operations)
to 12/31/05
INVESTMENT INCOME:
Interest $111,501
--------
Total investment income $111,501
--------
EXPENSES:
Management fees $ 9,296
Transfer agent fees and expenses 1,250
Distribution fees 3,600
Administrative reimbursements 13,887
Custodian fees 12,725
Professional fees 27,359
Printing expense 8,791
Fees and expenses of nonaffiliated trustees 2,369
Miscellaneous 2,363
--------
Total expenses $ 81,640
Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (67,282)
--------
Net expenses $ 14,358
--------
Net investment income $ 97,143
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized loss from:
Investments $ (6,424)
Forward foreign currency contracts and other assets and liabilities
denominated in foreign currencies (4,980)
--------
$(11,404)
--------
Change in net unrealized gain from:
Investments $ 21,424
Forward foreign currency contracts and other assets and liabilities
denominated in foreign currencies 718
--------
$ 22,142
--------
Net gain on investments and foreign currency transactions $ 10,738
========
Net increase in net assets resulting from operations $107,881
========
The accompanying notes are an integral part of these financial statements. 15
Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the period
from 3/18/05
(Commencement
of Operations)
to 12/31/05
FROM OPERATIONS:
Net investment income $ 97,143
Net realized loss on investments (11,404)
Change in net unrealized gain on investments and foreign currency transactions 22,142
----------
Net increase in net assets resulting from operations $ 107,881
----------
DISTRIBUTIONS TO SHAREOWNERS
Net investment income:
Class II $ (94,049)
----------
Total distributions to shareholders $ (94,049)
----------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $3,610,396
Reinvestment of distributions 58,955
Cost of shares repurchased (51,590)
----------
Net increase in net assets resulting from fund share transactions $3,617,761
----------
Net increase in net assets $3,631,593
NET ASSETS:
Beginning of period --
----------
End of period $3,631,593
==========
Distributions in excess of net investment income, end of period $ (2,312)
==========
16 The accompanying notes are an integral part of these financial statements.
Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer Global High Yield VCT Portfolio (the Portfolio) is a Portfolio of
the Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust
registered under the Investment Company Act of 1940 as an open-end management
investment company. The Trust consists of twenty nine separate diversified
portfolios, fourteen of which issue both Class I and Class II shares
(collectively, the "Portfolios", individually the "Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only)
The Global High Yield Portfolio commenced operations on March 18, 2005.
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts, or
by qualified pension and retirement plans.
The Global High Yield Portfolio seeks to maximize total return through a
combination of income and capital appreciation.
The financial statements and financial highlights of all other Portfolios are
presented in separate books.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
periods. Actual results could differ from those estimates. The following is a
summary of significant accounting policies consistently followed by the
Portfolio, in the preparation of its financial statements which are consistent
with those generally accepted in the investment company industry:
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the portfolios are computed once daily, on each day the New York Stock
Exchange (NYSE) is open, as of the close of regular trading on the NYSE. In
computing the net asset values, securities are valued at the last sale
price on the principal exchange where they are traded.
17
Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Fixed income securities with remaining maturity of more than 60 days are
valued at prices supplied by independent pricing services, which consider
such factors as Treasury spreads, yields, maturities and ratings.
Valuations may be supplemented by dealers and other sources, as required.
Securities for which there are no other readily available valuation methods
are valued at their fair values as determined by, or under the direction
of, the Board of Trustees and may include yield equivalents or a pricing
matrix.
The Portfolio also may use the fair value of a security, including a
non-U.S. security, when the closing market price on the primary exchange
where the security is traded no longer accurately reflects the value of the
security as of the close of the NYSE. At December 31, 2005, there were no
fair valued securities. Temporary cash investments are valued at amortized
cost.
Discounts and premiums on debt securities are accreted or amortized daily,
respectively, on a yield-to-maturity basis into interest income with a
corresponding increase or decrease in the cost basis of the security.
Interest income is recorded on the accrual basis, net of unrecoverable
foreign taxes withheld at the applicable country rates.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes.
The Global High Yield Portfolio invests in below investment grade (high
yield) debt securities and preferred stocks. These high yield securities
may be convertible into equity securities of the issuer. Debt securities
rated below investment grade are commonly referred to as "junk bonds" and
are considered speculative. These securities involve greater risk of loss,
are subject to greater price volatility, and are less liquid, especially
during years of economic uncertainty or change, than higher rated debt
securities. The Portfolio is not diversified, which means that it can
invest a higher percentage of its asset in any one issuer than a
diversified Portfolio. Being non-diversified may magnify the fund's losses
from adverse events affecting a particular issuer. Information regarding
the Portfolio's principal investment risks is contained in the Portfolio's
prospectus. Please refer to those documents when considering the
Portfolio's risks.
B. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with income tax
rules. Therefore, the source of the Portfolio's distributions may be shown
in the accompanying financial statements as either from, or in excess of,
net investment income or net realized gain on investment transactions, or
from paid-in capital, depending on the type of book/tax differences that
may exist.
Capital loss carryforwards are available to offset future realized capital
gains. At December 31, 2005, Global High Yield Portfolio had a net capital
loss carryforward of $5,538, which will expire in 2013, if not utilized.
The Portfolio elected to defer $2,312 in foreign currency losses recognized
between November 1, 2005 and December 31, 2005 to its fiscal year ended
December 31, 2006.
At December 31, 2005, the Portfolio made reclassifications as described
below. These reclassifications have no impact on the net asset values of
the Portfolio and are designed to present the Portfolio's capital accounts
on a tax basis.
Undistributed Accumulated
Net Investment Net Realized Paid-In
Portfolio Income (Loss) Gain (Loss) Capital
- --------------------------------------------------------------------------------
Global High Yield Portfolio $(5,406) $5,866 $(460)
- --------------------------------------------------------------------------------
18
Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following chart shows the distributions paid during the period ended
December 31, 2005 and the components of distributable earnings (accumulated
losses) as of December 31, 2005.
- --------------------------------------------------------------------------------
2005
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $94,049
Long-Term Capital Gain -
-------
$94,049
Return of Capital -
-------
Total Distributions $94,049
=======
Distributable Earnings (Accumulated Losses):
Undistributed ordinary income $ -
Undistributed long-term gain/(capital loss carryforward) (5,538)
Unrealized appreciation (depreciation) 22,142
Post-October loss deferred (2,312)
-------
Total $14,292
=======
- --------------------------------------------------------------------------------
C. Portfolio Shares
The Portfolio records sales and repurchases of its portfolio shares as of
trade date. Certain insurance companies paid Pioneer Funds Distributor,
Inc. (PFD), the principal underwriter for the Trust and a wholly owned
indirect subsidiary of UniCredito Italiano S.p.A. (Unicredito Italiano),
$638,021 in commissions on the sale of Trust shares for the period ended
December 31, 2005. Distribution fees are calculated based on the average
daily net asset values attributable to Class II shares of the Portfolio.
D. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees. The Portfolio also continues to receive
payments in lieu of interest or dividends on the securities loaned. Gain or
loss in the fair value of the securities loaned that may occur during the
term of the loan, will be for the account of the Trust. The loans are
secured by collateral of at least 102%, at all times, of the fair value of
the securities loaned. The fair value of the collateral will be adjusted
daily to reflect any price fluctuation in the value of the loaned
securities. The Trust has the right under the lending agreement to recover
the securities on loan from the borrower on demand. The Trust invests cash
collateral in the Securities Lending Investment Fund which is sponsored by
Brown Brothers Harriman & Co., the Trust's custodian.
E. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano manages the
portfolio. Management fees are calculated daily at the annual rate of 0.65% of
the Portfolio's average daily net assets up to $500 million and 0.60% on assets
over $500 million.
Through May 1, 2006, PIM has agreed not to impose all or a portion of its
management fee and, if necessary, to limit other ordinary operating expenses of
the Portfolio to the extent required to reduce Class II expenses to 1.00% of
the average daily net assets attributable to Class II shares.
In addition, under the management and administration agreements, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $12 was payable to
PIM related to management fees, administrative reimbursements and certain other
services, and is included in due to affiliates.
19
Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
3. Transfer Agent
PIMSS, a wholly owned indirect subsidiary of UniCredito Italiano provides
substantially all transfer agent and shareowner services to the Trust at
negotiated rates. Included in due to affiliates is $375 in transfer agent fees
payable to PIMSS at December 31, 2005.
4. Distribution Plans
The Portfolio has adopted a plan of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with the Portfolio's Class
II shares. Included in due to affiliates is $7 payable to PFD at December 31,
2005.
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- --------------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- --------------------------------------------------------------------------------------------------
Global High Yield Portfolio $3,369,345 $62,343 $(40,919) $21,424
========== ======= ========= =======
- --------------------------------------------------------------------------------------------------
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the period ended
December 31, 2005, were $3,799,639 and $429,597, respectively.
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows for the
period ended December 31, 2005:
- --------------------------------------------------------------------------------------------------
Global High Yield Portfolio '05 Shares '05 Amount
- --------------------------------------------------------------------------------------------------
CLASS II:
Shares sold 361,651 $3,610,396
Reinvestment of distributions 5,886 58,955
Shares repurchased (5,169) (51,590)
------- ----------
Net increase 362,368 $3,617,761
======= ==========
- --------------------------------------------------------------------------------------------------
20
Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust
and the Shareowners of Pioneer Global High Yield VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer Global High Yield VCT Portfolio, one of
the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust")
as of December 31, 2005, and the related statements of operations, changes in
net assets, and the financial highlights for the period from March 21, 2005
(commencement of operations) to December 31, 2005. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of December 31, 2005, by
correspondence with the custodian. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer Global High Yield VCT Portfolio of the Pioneer Variable Contracts Trust
at December 31, 2005, the results of its operations, changes in its net assets,
and the financial highlights for the period from March 21, 2005 (commencement
of operations) to December 31, 2005 in conformity with U.S. generally accepted
accounting principles.
/S/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
21
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Global High Yield VCT Portfolio (the "Fund")
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for the Life-of-Fund period for the Fund
and a peer group selected by the Independent Trustees for this purpose, (2)
management fees incurred by a peer group of funds selected by the Independent
Trustees for this purpose, (3) the advisory fees of comparable portfolios of
other clients of the Investment Adviser, (4) expense ratios for the Fund and a
peer group of funds selected by the Independent Trustees for this purpose, (5)
the overall organization of the Investment Adviser, (6) the Investment
Adviser's financial results and condition, including its and certain of its
affiliates profitability from services performed for the Fund, (7) transfer
agency fees and administrative reimbursements paid to the Investment Adviser or
affiliates, (8) investment management staffing, and (9) operating expenses paid
to third parties. The Trustees also reviewed information regarding the
potential for the Fund and the Investment Adviser to benefit from further
economies of scale in the management of the Fund in light of break points in
the management fee for the Fund and a peer group of funds selected by the
independent Trustees for this purpose, reasonable growth expectations for the
Fund and certain of the Fund's expenses that are not incurred as fees based on
a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
22
Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's performance compared to both
the performance of a peer group and an index, in each case selected by the
Independent Trustees for this purpose. The Trustees also considered the
yield (gross of expenses) on the Fund's Class I shares relative to the
yields (at June 30, 2005) on the Merrill Lynch Global High Yield and EMP
index. The Trustees concluded that the period since the commencement of
investment operations was too short to evaluate the Investment Adviser's
performance.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's fixed income group. Among other things, the
Trustees considered the number, education and experience of the Investment
Adviser's investment staff and their use of technology and emphasis on
analytics in view of the risk profile of securities in which the Fund
invests. The Trustees concluded that the Investment Adviser had the quality
and depth of personnel and the well-developed methods essential to
performing its duties under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee was in the third quintile relative to the management fees
paid by the other funds in that peer group for the Life-of-Fund period ended
June 30, 2005. (In all quintile rankings referred to throughout this
discussion first quintile is most favorable to the Fund's shareowners. Thus,
highest relative performance would be first quintile and lowest relative
expenses also would be first quintile.) The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
considered the Fund's expense ratio and expense ratios of a peer group of
funds selected by the Independent Trustees for this purpose. The Fund's
expense ratio for the Life-of-Fund period ended June 30, 2005 was in the
fourth quintile of the applicable peer group for the most recent fiscal year
of the peer group for the comparable period.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
23
Pioneer Global High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. Because of break points in
the management fee, the Trustees concluded that any perceived or potential
economies of scale would be shared at future asset levels in a reasonable
manner as the Fund grows in size between Fund's shareholders and the
Investment Adviser.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund). The
Trustees further considered the revenues and profitability of the Investment
Adviser's businesses other than the fund business, including the Investment
Adviser's institutional investment advisory business. The Trustees
considered the intangible benefits that accrue to the Investment Adviser and
its affiliates by virtue of its relationship with the Fund and the Pioneer
Funds as a group. The Trustees concluded that all these types of benefits
accruing to the Investment Adviser were reasonable in the context of the
overall relationship between the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
24
Pioneer Global High Yield VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
25
Pioneer Global High Yield VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company
Washington, DC 20007 trustee is elected (publicly traded health care (privately-held affordable
or earlier services company) (2001-present); housing finance company);
retirement or Managing Partner, Federal City Director of New York Mortgage
removal. Capital Advisors (boutique merchant Trust (publicly traded mortgage
bank) (2002 to 2004); Executive REIT)
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material
or earlier products manufacturer), Mortgage
retirement or Guaranty Insurance Corporation,
removal. and Briggs & Stratton, Inc.
(engine manufacturer)
- ----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
26
Pioneer Global High Yield VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
27
Pioneer Global High Yield VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, None
Treasurer 2000. Serves at the Assistant Vice President - Fund
discretion of the Accounting, Administration and
Board. Custody Services of Pioneer; and
Assistant Treasurer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ---------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ---------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
28
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
29
[LOGO] PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company, Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18679-00-0206
[LOGO] PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Growth Shares VCT Portfolio -- Class II Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Pioneer Growth Shares VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 6
Financial Statements 8
Notes to Financial Statements 12
Report of Independent Registered Public
Accounting Firm 16
Factors Considered by the Independent Trustees
in Approving the Management Contract 17
Trustees, Officers and Service Providers 20
Before investing consider the Portfolio's investment objectives, risks, charges
and expenses. Contact your advisor or Pioneer Investments for a prospectus
containing this information. Read it carefully.
The Trust files a complete statement of investments with the Securities and
Exchange Commission for the first and the third quarters for each fiscal year
on Form N-Q. Shareowners may view the filed Form N-Q by visiting the
Commission's web site at http://www.sec.gov. The filed form may also be viewed
and copied at the Commission's Public Reference Room in Washington, D.C.
Information regarding the operations of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 94.8%
Depositary Receipts for International Stocks 5.2%
Sector Distribution
(As a percentage of equity holdings)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Information Technology 29.5%
Health Care 23.7%
Consumer Discretionary 13.1%
Consumer Staples 12.4%
Industrials 11.8%
Financials 5.7%
Energy 1.5%
Telecommunication Services 1.2%
Materials 1.1%
Five Largest Holdings
(As a percentage of equity holdings)
1. Microsoft Corp. 5.96%
2. Cisco Systems, Inc. 4.20
3. Intel Corp. 4.14
4. Dell, Inc. 3.90
5. Amgen, Inc. 3.71
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
- --------------------------------------------------------------------------------
Net Asset Value per Share $13.20 $12.87
- --------------------------------------------------------------------------------
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$0.0772 $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Growth Shares VCT Portfolio at net asset value, compared to that of the Russell
1000 Growth Index. Portfolio returns are based on net asset value and do not
reflect any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Russell 1000 Pioneer Growth
Index Shares VCT
Portfolio
10/97 10000 10000
10542 10222
14622 13521
12/99 19470 14539
15104 13539
12/01 12019 10934
8668 7099
12/03 11247 8855
11955 9419
12/05 12584 9719
The Russell 1000 Growth Index measures the performance of large-cap U.S. growth
stocks. Index returns are calculated monthly, assume reinvestment of dividends
and, unlike Portfolio returns, do not reflect any fees, expenses or sales
charges. You cannot invest directly in the Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Life-of-Class -0.35%
(10/31/97)
5 Years -6.41%
1 Year 3.19%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
2
Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value [divided by] $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Growth Shares VCT Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005
Share Class II
- --------------------------------------------------------------------------------
Beginning Account Value on 7/1/05 $1,000.00
Ending Account Value on 12/31/05 $1,055.98
Expenses Paid During Period* $ 6.43
* Expenses are equal to the Portfolio's annualized expense ratio of 1.24% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer Growth Shares VCT Portfolio
Based on a hypothetical 5% return per year before expenses, reflecting the
period from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------------------------------------
Beginning Account Value on 7/1/05 $1,000.00
Ending Account Value on 12/31/05 $1,018.95
Expenses Paid During Period* $ 6.31
* Expenses are equal to the Portfolio's annualized expense ratio of 1.24% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
The nation's economy and corporate profits both grew steadily throughout 2005,
which normally would have provided a favorable backdrop for equity investments.
The economy proved resilient in the face of a number of issues, including
hurricane damage in the Gulf Coast, sharply rising energy and the continued
efforts of the Federal Reserve Board to raise short-term interest rates. The
Fed raised the fed funds rate eight different times during the calendar year.
These issues weighed on the minds of many investors and stocks on average
appreciated only modestly. In the following interview, Christopher M. Galizio
and Stephen A. Balter, co-managers of Pioneer Growth Shares VCT Portfolio,
discuss the markets and the factors that affected performance.
Q. How did the Portfolio perform?
A. Pioneer Growth Shares VCT Portfolio (Class II shares) had a total return of
3.19% at net asset value during the 12 months ended December 31, 2005.
During the same period, the Russell 1000 Growth Index returned 5.26%.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q. What were the principal factors that affected Portfolio performance?
A. In 2005, we were well into the economic recovery in the United States, and
we positioned the Fund with an emphasis on secular growth companies in
sectors such as health care and information technology. For much of the
year, we had less emphasis on the more cyclical sectors, such as energy,
industrials and basic materials, although we did have a strong position in
basic materials early in the year. While the Portfolio achieved positive
results, it trailed its benchmark, primarily because of stock selection
rather than sector positioning. However, the de-emphasis of energy stocks
also detracted from results during a period in which the energy sector was
by far the strongest performing part of the market.
The major story in the stock market during 2005 was the effect of the
dramatic increases in commodity prices, which helped lift valuations in the
energy and basic materials sectors, both of which tend to be populated
predominately with value stocks. This was a major factor in the performance
advantage that value stocks enjoyed over growth stocks for most of the year.
We believe, however, that the strong price appreciation of value stocks in
recent years has resulted in a situation in which secular growth companies
now offer superior relative value in relation to their long-term prospects.
Q. What were some of the individual investments that helped performance?
A. Our stock selection was good in the consumer area, both in the consumer
discretionary and consumer staples sectors. Among our staples holdings,
Altria Group was a stand-out performance. Shares of Altria, the parent
company of Philip Morris, rose on continued consistent earnings and several
court victories that appeared to reduce its exposure to tobacco liability
lawsuits. Femsa, the Mexican-based soft drink bottler that also owns the
Dos Equis beer brand, was another staples holding that performed very well.
Its share price has risen by 70% since our initial investment in 2004.
Within our consumer discretionary holdings, stocks that did particularly
well included athletic footwear company Reebok and retailers Lowe's and
Best Buy. Reebok was acquired by Addidas at a substantial premium to its
stock price. Home improvements store Lowe's showed strong earnings growth
throughout the year, while electronics retailer Best Buy benefited from a
restructuring that placed more emphasis on expert service both before and
after the sale. We have taken profits and sold our positions in both Lowe's
and Reebok.
Our strategy in health care also helped. We avoided the largest
pharmaceutical companies, focusing on smaller companies, including some
mid-cap firms -- with greater growth prospects. Two of our more successful
positions were generic pharmaceutical companies. IVAX, which had a strong
new product pipeline, received an attractive acquisition offer from a larger
competitor, Teva. Endo Pharmaceuticals, which specializes in pain
medications and therapies, obtained the rights to a generic version of
Oxycontin and also has developed a new patch to treat chronic pain.
In information technology, two investments that supported performance were
Qualcomm and Texas Instruments, both of which are positioned to benefit from
advances in wireless communications. A new generation of wireless phones is
to be based on Qualcomm's latest CDMA technology, for which the company has
licensing rights, while Texas Instruments stands to benefit from its
increasing focus on producing more specialized -- and more profitable --
semiconductors.
A Word About Risk:
Investing in foreign and/or emerging markets securities involves risks relating
to interest rates, currency exchange rates, economic, and political conditions.
The Portfolio invests in REIT securities, the value of which can fall for a
variety of reasons, such as declines in rental income, fluctuating interest
rates, poor property management, environmental liabilities, uninsured damage,
increased competition, or changes in real estate tax laws. At times, the
Portfolio's investments may represent industries or industry sectors that are
interrelated or have common risks, making it more susceptible to any economic,
political, or regulatory developments or other risks affecting those industries
and sectors.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Q. What were some of the investments that held back results?
A. Avaya, a producer of telecommunications equipment for large enterprises, was
a major disappointment, although its stock price did recover somewhat in
the second half of the year. It was caught in the gap between the decline
of an old technology and the acceptance of a new technology. While sales of
its traditional phone systems slowed, revenues from its new system, based
on voice-over-Internet technology, were slower than had been anticipated.
However, we have retained our position because of the strong belief we have
in the potential of the new Avaya system.
Two other disappointments in the information technology sector were Symantec
and Dell. Symantec, a leader in supplying security and anti-virus software
for computer systems, reported disappointing earnings in the face of more
intense price competition, including for systems providing security for wide
networks. Dell's competitive price advantage over other personal computer
manufacturers shrank somewhat during the year, and revenue growth was slower
than had been anticipated. We continue to think both Symantec and Dell offer
interesting opportunities. We have retained our investment in Symantec and
have added to our position in Dell because of its attractive stock price.
Among our consumer holdings, one disappointment was Avon Products. Sale of
its beauty products in emerging markets, including China, grew more slowly
than had been anticipated. However, the stock has been trading at a very low
valuation, and we continue to hold the position.
Q. What is your investment outlook?
A. We think stocks have the potential to produce positive returns, close to
long-term averages in 2006, but performance leadership should change in
favor of the secular growth stocks that we have emphasized. We expect
corporate earnings to continue to grow during the new year, although growth
may be at a slower rate than in 2005.
We think energy prices finally have begun to stabilize, although at
relatively high levels. The impacts of higher energy costs will be felt in
the economy, but probably not too dramatically. We already have started to
see the effects of higher energy prices on lower-income consumers whose
spending budgets have been squeezed.
We continue to favor secular growth sectors, including information
technology and health care. In information technology, we have positioned
the Portfolio to benefit from new technologies, especially in communications
technology. Longer-term demographic trends - including the aging of the baby
boomer generation - should continue to offer opportunities in health care.
The companies that should benefit will include those offering new products
and devices and those that can benefit from cost-containment programs,
including generic drug manufacturers.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
5
Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
COMMON STOCKS - 100.2%
Energy - 1.5%
Integrated Oil & Gas - 1.5%
2,600 Occidental Petroleum Corp. $ 207,688
10,000 Repsol SA (A.D.R.) 294,100
-----------
$ 501,788
-----------
Total Energy $ 501,788
-----------
Materials - 1.1%
Diversified Chemical - 1.1%
8,700 Dow Chemical Co. $ 381,234
-----------
Total Materials $ 381,234
-----------
Capital Goods - 11.1%
Aerospace & Defense - 3.0%
3,400 L-3 Communications Holdings, Inc. $ 252,790
13,500 United Technologies Corp. 754,785
-----------
$ 1,007,575
-----------
Building Products - 1.8%
15,600 American Standard Companies, Inc. $ 623,220
-----------
Construction, Farm Machinery &
Heavy Trucks - 1.6%
8,000 Deere & Co. $ 544,880
-----------
Industrial Conglomerates - 3.6%
6,800 3M Co. $ 527,000
24,200 Tyco International, Ltd. 698,412
-----------
$ 1,225,412
-----------
Industrial Machinery - 1.1%
4,300 Illinois Tool Works, Inc. (a) $ 378,357
-----------
Total Capital Goods $ 3,779,444
-----------
Commercial Services & Supplies - 0.7%
Diversified Commercial Services - 0.7%
3,500 The Dun & Bradstreet Corp.* $ 234,360
-----------
Total Commercial Services &
Supplies $ 234,360
-----------
Consumer Durables & Apparel - 1.7%
Apparel, Accessories & Luxury Goods - 0.8%
7,200 Liz Claiborne, Inc. $ 257,904
-----------
Housewares & Specialties - 0.9%
4,000 Fortune Brands, Inc.* $ 312,080
-----------
Total Consumer Durables & Apparel $ 569,984
-----------
Consumer Services - 1.4%
Education Services - 0.7%
7,479 Career Education Corp.* $ 252,192
-----------
Hotels, Resorts & Cruise Lines - 0.7%
4,400 Carnival Corp. $ 235,268
-----------
Total Consumer Services $ 487,460
-----------
Shares Value
Media - 4.2%
Advertising - 0.8%
3,200 Omnicom Group $ 272,416
-----------
Broadcasting & Cable TV - 3.4%
95,700 Liberty Media Corp.* 753,159
12,500 Viacom, Inc. (Class B) 407,500
-----------
$ 1,160,659
-----------
Total Media $ 1,433,075
-----------
Retailing - 5.8%
Apparel Retail - 2.7%
4,500 Abercrombie & Fitch Co. $ 293,310
27,200 TJX Companies, Inc. 631,856
-----------
$ 925,166
-----------
Home Improvement Retail - 3.1%
26,000 Home Depot, Inc. $ 1,052,480
-----------
Total Retailing $ 1,977,646
-----------
Food & Drug Retailing - 2.2%
Drug Retail - 2.2%
28,800 CVS Corp. $ 760,896
-----------
Total Food & Drug Retailing $ 760,896
-----------
Food, Beverage & Tobacco - 5.1%
Soft Drinks - 1.5%
6,900 Fomento Economico Mexicano SA de CV $ 500,319
-----------
Tobacco - 3.6%
16,600 Altria Group, Inc. $ 1,240,352
-----------
Total Food, Beverage & Tobacco $ 1,740,671
-----------
Household & Personal Products - 5.1%
Household Products - 3.4%
19,700 Procter & Gamble Co. $ 1,140,236
-----------
Personal Products - 1.7%
20,600 Avon Products, Inc. $ 588,130
-----------
Total Household & Personal
Products $ 1,728,366
-----------
Health Care Equipment & Services - 10.4%
Health Care Distributors - 2.1%
10,400 Cardinal Health, Inc. $ 715,000
-----------
Health Care Equipment - 6.3%
14,600 Biomet, Inc. $ 533,922
32,800 Boston Scientific Corp.* 803,272
12,330 Guidant Corp. 798,368
-----------
$ 2,135,562
-----------
Health Care Services - 0.8%
11,800 IMS Health, Inc. $ 294,056
-----------
6 The accompanying notes are an integral part of these financial statements.
Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Health Care Supplies - 1.2%
7,800 Cooper Companies, Inc. $ 400,140
-----------
Total Health Care Equipment &
Services $ 3,544,758
-----------
Pharmaceuticals & Biotechnology - 13.4%
Biotechnology - 4.8%
16,058 Amgen, Inc.* $ 1,266,334
6,800 Gilead Sciences, Inc.* 357,884
-----------
$ 1,624,218
-----------
Pharmaceuticals - 8.6%
11,800 Astrazeneca Plc (A.D.R.) $ 573,480
21,700 IVAX Corp.* 679,861
20,000 Johnson & Johnson 1,202,000
15,092 Par Pharmaceutical Co., Inc.*(a) 472,983
-----------
$ 2,928,324
-----------
Total Pharmaceuticals &
Biotechnology $ 4,552,542
-----------
Banks - 0.9%
Diversified Banks - 0.9%
5,900 Wachovia Corp. $ 311,874
-----------
Total Banks $ 311,874
-----------
Diversified Financials - 2.3%
Diversified Financial Services - 2.3%
16,400 Citigroup, Inc. $ 795,892
-----------
Total Diversified Financials $ 795,892
-----------
Insurance - 2.5%
Multi-Line Insurance - 2.5%
12,300 American International Group, Inc. $ 839,229
-----------
Total Insurance $ 839,229
-----------
Software & Services - 13.8%
IT Consulting & Other Services - 1.0%
12,100 Accenture, Ltd. $ 349,327
-----------
Systems Software - 12.8%
39,100 Macrovision Corp.* $ 654,143
77,800 Microsoft Corp. 2,034,470
72,900 Oracle Corp.* 890,109
43,700 Symantec Corp.* 764,750
-----------
$ 4,343,472
-----------
Total Software & Services $ 4,692,799
-----------
Technology Hardware & Equipment - 11.7%
Communications Equipment - 7.8%
48,000 Avaya, Inc.* $ 512,160
83,800 Cisco Systems, Inc.* 1,434,656
16,300 Qualcomm, Inc. 702,204
-----------
$ 2,649,020
-----------
Shares Value
Computer Hardware - 3.9%
44,400 Dell, Inc.* $ 1,331,556
-----------
Total Technology Hardware &
Equipment $ 3,980,576
-----------
Semiconductors - 4.1%
Semiconductors - 4.1%
56,700 Intel Corp. $ 1,415,231
-----------
Total Semiconductors $ 1,415,231
-----------
Telecommunication Services - 1.2%
Wireless Telecommunication Services - 1.2%
19,400 Vodafone Group Plc (A.D.R.) $ 416,518
-----------
Total Telecommunication Services $ 416,518
-----------
TOTAL COMMON STOCKS
(Cost $33,251,207) $34,144,343
-----------
TEMPORARY CASH INVESTMENT - 2.4%
Security Lending Collateral - 2.4%
836,722 Securities Lending Investment
Fund, 4.24% $ 836,722
-----------
TOTAL TEMPORARY CASH
INVESTMENT
(Cost $836,722) $ 836,722
-----------
TOTAL INVESTMENT
IN SECURITIES - 102.6%
(Cost $34,087,929) $34,981,065
-----------
OTHER ASSETS
AND LIABILITIES - (2.6)% $ (899,380)
-----------
TOTAL NET ASSETS - 100.0% $34,081,685
===========
* Non-income producing security.
(A.D.R.) American Depositary Receipt.
(a) At December 31, 2005, the following securities were out on loan:
Shares Security Value
4,035 Illinois Tool Works, Inc. $355,040
14,337 Par Pharmaceutical Co., Inc.* 449,322
--------
Total $804,362
========
The accompanying notes are an integral part of these financial statements. 7
Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $12.87 $12.10 $ 9.70 $ 14.94 $ 18.50
------ ------ ------- ------- -------
Increase (decrease) from investment operations:
Net investment income (loss) $(0.02) $ 0.06 $ (0.02) $ (0.13) $ (0.05)
Net realized and unrealized gain (loss) on investments 0.43 0.71 2.42 (5.11) (3.51)
------ ------ ------- ------- -------
Net increase (decrease) from investment operations $ 0.41 $ 0.77 $ 2.40 $ (5.24) $ (3.56)
Distributions to shareowners:
Net investment income (0.08) -- -- -- --
------ ------- ------- ------- -------
Net increase (decrease) in net asset value $ 0.33 $ 0.77 $ 2.40 $ (5.24) $ (3.56)
------ ------- ------- ------- -------
Net asset value, end of period $13.20 $12.87 $ 12.10 $ 9.70 $ 14.94
====== ======= ======= ======= =======
Total return* 3.19% 6.36% 24.74% (35.07)% (19.24)%
Ratio of net expenses to average net assets+ 1.24% 1.25% 1.44% 1.63% 1.58%
Ratio of net investment income (loss) to average net assets+ (0.09)% 0.74% (0.40)% (0.64)% (0.61)%
Portfolio turnover rate 79% 206% 58% 86% 111%
Net assets, end of period (in thousands) $7,096 $7,749 $ 3,049 $ 263 $ 658
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 1.24% 1.26% 1.44% 1.63% 1.58%
Net investment income (loss) (0.09)% 0.73% (0.40)% (0.64)% (0.61)%
Ratios with waiver of management fees and assumption of
expenses by PIM and reduction for fees paid indirectly:
Net expenses 1.24% 1.25% 1.44% 1.63% 1.58%
Net investment income (loss) (0.09)% 0.74% (0.40)% (0.64)% (0.61)%
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
+ Ratios with no reduction for fees paid indirectly.
NOTE: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
8 The accompanying notes are an integral part of these financial statements.
Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (including securities loaned of $804,362) (Cost $ 34,981,065
$34,087,929)
Receivables --
Dividends, interest and foreign taxes withheld 33,532
Other 472
-------------
Total assets $ 35,015,069
-------------
LIABILITIES:
Payables --
Fund shares repurchased $ 15,640
Upon return of securities loaned 836,722
Due to bank 12,857
Due to affiliates 5,126
Accrued expenses 63,039
-------------
Total liabilities $ 933,384
-------------
NET ASSETS:
Paid-in capital $ 69,764,312
Undistributed net investment income 49,058
Accumulated net realized loss on investments (36,624,821)
Net unrealized gain on investments 893,136
-------------
Total net assets $ 34,081,685
-------------
NET ASSET VALUE PER SHARE:
Class I:
(No par value, unlimited number of shares authorized)
Net assets $ 26,986,164
Shares outstanding 2,015,777
-------------
Net asset value per share $ 13.39
Class II:
(No par value, unlimited number of shares authorized)
Net assets $ 7,095,521
Shares outstanding 537,490
-------------
Net asset value per share $ 13.20
The accompanying notes are an integral part of these financial statements. 9
Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS 12/31/05
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $2,445) $ 414,616
Interest 7,418
Income on securities loaned, net 2,263
------------
Total investment income $ 424,297
------------
EXPENSES:
Management fees $ 258,486
Transfer agent fees and expenses 7,468
Distribution fees (Class II) 19,680
Administrative reimbursements 18,512
Custodian fees 28,449
Professional fees 32,252
Printing expense 3,007
Fees and expenses of nonaffiliated trustees 3,964
Miscellaneous 4,454
------------
Total expenses $ 376,272
Less fees paid indirectly (1,220)
------------
Net expenses $ 375,052
------------
Net investment income $ 49,245
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investments $ 3,211,502
------------
Change in net unrealized gain from investments $ (2,083,627)
------------
Net gain on investments $ 1,127,875
============
Net increase in net assets resulting from operations $ 1,177,120
============
10 The accompanying notes are an integral part of these financial statements.
Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Year
Ended Ended
12/31/05 12/31/04
FROM OPERATIONS:
Net investment income $ 49,245 $ 271,723
Net realized gain on investments 3,211,502 1,562,700
Change in net unrealized gain on investments (2,083,627) 618,844
----------- -----------
Net increase in net assets resulting from operations $ 1,177,120 $ 2,453,267
----------- -----------
DISTRIBUTIONS TO SHAREOWNERS:
Net investment income
Class I $ (221,887) $ --
Class II (50,023) --
----------- -----------
Total distributions to shareowners $ (271,910) $ --
----------- -----------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 2,192,354 $ 5,638,676
Reinvestment of distributions 271,910 --
Cost of shares repurchased (9,337,142) (6,840,932)
----------- -----------
Net decrease in net assets resulting from Fund share transactions $(6,872,878) $(1,202,256)
----------- -----------
Net increase (decrease) in net assets $(5,967,668) $ 1,251,011
----------- -----------
NET ASSETS:
Beginning of year $40,049,353 $38,798,342
----------- -----------
End of year $34,081,685 $40,049,353
=========== ===========
Undistributed net investment income, end of year $ 49,058 $ 271,723
=========== ===========
The accompanying notes are an integral part of these financial statements. 11
Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer Growth Shares VCT Portfolio (the Portfolio) is a Portfolio of
Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust
registered under the Investment Company Act of 1940 as an open-end management
investment company. The Trust consists of twenty nine separate diversified
portfolios, fourteen of which issue both Class I and Class II shares
(collectively, the "Portfolios", individually the "Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares
only)
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts, or
by qualified pension and retirement plans.
The investment objective of Growth Shares Portfolio is to seek capital
appreciation.
The financial highlights for the Portfolio's Class II shares are presented in a
separate book.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
periods. Actual results could differ from those estimates. The following is a
summary of significant accounting policies consistently followed by the
Portfolio, in the preparation of its financial statements, which are consistent
with those generally accepted in the investment company industry:
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the Portfolio are computed once daily, on each day the New York Stock
Exchange (NYSE) is open, as of the close of regular trading on the NYSE. In
computing the net asset values, securities are valued at the last sale
price on the principal exchange where they are traded. Securities that have
not traded on the date of valuation, or securities for which sale prices
are not generally reported, are valued at the mean between the last bid and
asked prices. Securities for which market quotations are not readily
available
12
Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
are valued at their fair values as determined by, or under the direction
of, the Board of Trustees. The Portfolio also may use the fair value of a
security, including a non-U.S. security, when the closing market price on
the primary exchange where the security is traded no longer accurately
reflects the value of the security as of the close of the exchange. At
December 31, 2005, there were no fair valued securities. Temporary cash
investments are valued at amortized cost.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities where the ex-dividend date may have
passed are recorded as soon as the Portfolio becomes aware of the
ex-dividend data in the exercise of reasonable diligence. Interest income,
including interest on income bearing cash accounts, is recorded on the
accrual basis.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes on capital gains at
the applicable country rates.
Investing in foreign and/or emerging markets securities involves risks
relating to interest rates, currency exchange rates, economic, and
political conditions. The Portfolio invests in REIT securities, the value
of which can fall for a variety of reasons, such as declines in rental
income, fluctuating interest rates, poor property management, environmental
liabilities, uninsured damage, increased competition, or changes in real
estate tax laws. At times, the Portfolio's investments may represent
industries or industry sectors that are interrelated or have common risks,
making it more susceptible to any economic, political, or regulatory
developments or other risks affecting those industries and sectors.
Information regarding the Portfolio's principal investment risks is
contained in the Portfolio's prospectus. Please refer to those documents
when considering the Portfolio's risks.
B. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal
income tax rules. Therefore, the source of the Portfolio's distributions
may be shown in the accompanying financial statements as either from, or in
excess of, net investment income or net realized gain on investment
transactions, or from paid-in capital, depending on the type of book/tax
differences that may exist.
Capital loss carryforwards are available to offset future realized capital
gains. At December 31, 2005, Growth Shares Portfolio had a net capital loss
carryforward of $36,182,632, of which the following amounts will expire
between 2009 and 2011, if not utilized: $9,618,208 in 2009, $19,245,183 in
2010 and $7,319,241 in 2011.
The following chart shows the distributions paid during the year ended
December 31, 2005 and the components of distributable earnings (accumulated
losses) as of December 31, 2005. There were no distributions paid during
the fiscal year ended December 31, 2004.
- -------------------------------------------------------------------------------
2005
- -------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ 271,910
Long-Term Capital Gain --
------------
$ 271,910
Return of Capital --
------------
Total Distributions $ 271,910
------------
Distributable Earnings (Accumulated Losses):
Undistributed ordinary income $ 49,058
Undistributed long-term gain/(capital loss carryforward) (36,182,632)
Unrealized appreciation (depreciation) 450,947
------------
Total $(35,682,627)
=============
- -------------------------------------------------------------------------------
13
Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation is
primarily attributable to the tax deferral of losses on wash sales.
C. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Trust and a wholly owned indirect subsidiary
of UniCredito Italiano S.p.A. (Unicredito Italiano), $638,021 in
commissions on the sale of Trust shares for the year ended December 31,
2005. Distribution fees for Class II shares are calculated based on the
average daily net asset values attributable to Class II shares of the
Portfolio.
Shareowners of each class share all expenses and fees paid to the transfer
agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS),
for its services, which are allocated based on the number of accounts in
each class and the ratable allocation of related out-of-pocket expenses
(see Note 3). Income, common expenses (excluding transfer agent and the
distribution fees) and realized and unrealized gains and losses are
calculated at the Portfolio level and allocated daily to each class of
shares based on the respective percentage of the adjusted net assets at the
beginning of the day. Distributions paid by the Portfolio with respect to
each class of shares are calculated in the same manner, at the same time,
and in the same amount, except that Class I and Class II shares can bear
different transfer agent and distribution fees.
D. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees. The Portfolio also continues to receive
payments in lieu of interest or dividends on the securities loaned. Gain or
loss in the fair value of the securities loaned that may occur during the
term of the loan, will be for the account of the Trust. The loans are
secured by collateral of at least 102%, at all times, of the fair value of
the securities loaned. The fair value of the collateral will be adjusted
daily to reflect any price fluctuation in the value of the loaned
securities. The Trust has the right under the lending agreement to recover
the securities on loan from the borrower on demand. The Trust invests cash
collateral in the Securities Lending Investment Fund which is sponsored by
Brown Brothers Harriman & Co., the Trust's custodian.
E. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano manages the
portfolio. Management fees are calculated daily at the annual rate of 0.70% of
the Portfolio's average daily net assets.
In addition, under the management and administration agreements, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $1,326 was payable
to PIM related to management fees, administrative reimbursements and certain
other services, and is included in due to affiliates.
3. Transfer Agent
PIMSS, a wholly owned indirect subsidiary of UniCredito Italiano provides
substantially all transfer agent and shareowner services to the Trust at
negotiated rates. Included in due to affiliates is $3,702 in transfer agent
fees payable to PIMSS at December 31, 2005.
14
Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. Distribution Plans
The Portfolio has adopted a plan of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with the Portfolio's Class
II shares. Included in due to affiliates is $98 payable to PFD at December 31,
2005.
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- --------------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- --------------------------------------------------------------------------------------------------
Growth Shares Portfolio $34,530,118 $2,601,774 $(2,150,827) $450,947
=========== ========== ============ =========
- --------------------------------------------------------------------------------------------------
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were $29,038,767 and $35,777,062, respectively.
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows for the
years ended December 31, 2005 and 2004:
- --------------------------------------------------------------------------------------------------
Growth Shares Portfolio '05 Shares '05 Amount '04 Shares '04 Amount
- --------------------------------------------------------------------------------------------------
CLASS I:
Shares sold 34,054 438,600 66,360 $ 806,587
Reinvestment of distributions 17,362 221,887 -- --
Shares repurchased (512,773) (6,658,363) (515,053) (6,176,527)
-------- ---------- -------- -----------
Net increase (461,357) (5,997,876) (448,693) $(5,369,940)
========= =========== ========= ============
CLASS II:
Shares sold 137,249 1,753,754 406,516 $ 4,832,089
Reinvestment of distributions 3,965 50,023 -- --
Shares repurchased (205,695) (2,678,779) (56,565) (664,405)
-------- ---------- -------- -----------
Net increase (64,481) (875,002) 349,951 $ 4,167,684
========= =========== ========= ============
- --------------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION (unaudited)
The qualifying percentage of certain Portfolios' ordinary income dividends for
the purposes of the corporate dividends received deduction and the percentage
of those ordinary dividends that are subject to a maximum tax rate of 15% as
provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were
as follows:
- --------------------------------------------------------------------------------------------------
Dividend Qualified
Received Dividend
Deduction Income
- --------------------------------------------------------------------------------------------------
Growth Shares Portfolio 100.00% 100.00%
- --------------------------------------------------------------------------------------------------
15
Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust and the
Shareholders of Pioneer Growth Shares VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer Growth Shares VCT Portfolio, one of the
portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), as
of December 31, 2005, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits. The financial highlights for the period ended December 31, 2001 were
audited by other auditors who have ceased operations and whose report, dated
February 8, 2002, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005, by correspondence
with the custodian. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer Growth Shares VCT Portfolio of the Pioneer Variable Contracts Trust at
December 31, 2005, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and financial highlights for each of the four years in the period then ended,
in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
16
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Growth Shares VCT Portfolio (the "Fund")
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") voting
separately annually approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect of the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareowners.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three and five year periods for
the Fund and a peer group selected by the Independent Trustees for this
purpose, (2) management and other fees incurred by a peer group of funds
selected by the Independent Trustees for this purpose, (3) the advisory fees of
comparable portfolios of other clients of the Investment Adviser, (4) expense
ratios for the Fund and a peer group of funds selected by the Independent
Trustees for this purpose, (5) the overall organization of the Investment
Adviser, (6) the Investment Adviser's financial results and condition,
including its and certain of its affiliates profitability from services
performed for the Fund, (7) transfer agency fees and administrative
reimbursements paid to the Investment Adviser or affiliates, (8) investment
management staffing, and (9) operating expenses paid to third parties. The
Trustees also reviewed information regarding the potential for each of the Fund
and the Investment Adviser to benefit from further economies of scale in the
management of the Fund in light of reasonable growth expectations for the Fund
and certain of the Fund's expenses that are not incurred as fees based on a
percentage of net assets.
The following summarizes matters considered by the Trustees in connection with
their renewal of the Fund's Management Contract. The Trustees did not identify
any single factor as all-important or controlling, and the summary does not
detail all the matters that were considered.
A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to
shareowners of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareowner services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's
17
Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and an index,
in each case selected by the Independent Trustees for this purpose. The
Fund's performance based upon total return was in the fourth quintile of the
peer group for the 12 months ended June 30, 2005, the fourth quintile of the
peer group for the three years ended June 30, 2005, and the fifth quintile
for the five years ended June 30, 2005. (In all quintile rankings referred
to throughout this discussion first quintile is most favorable to the Fund's
shareowners. Thus, highest relative performance would be first quintile and
lowest relative expenses also would be first quintile.)
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of the
Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's equities group. Among other things, the Trustees
considered the number, education and experience of the Investment Adviser's
investment staff and their use of technology and emphasis on analytics in
view of the risk profile of securities in which the Fund invests. The
Trustees concluded that the Investment Adviser had the quality and depth of
personnel and the well-developed methods essential to performing its duties
under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareowners of the
Fund, including administrative and shareowner services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareowners of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment Adviser's
fee under the Management Contract relative to the management fees charged by
a peer group of funds selected by the Independent Trustees for this purpose
using data provided by an independent third party. The Fund's management fee
for the 12 months ended June 30, 2005 was in the third quintile relative to
the management fees paid by the other funds in that peer group for the
comparable period. The Trustees determined that the fee under the Management
Contract was reasonable and fair in light of both the overall nature and
quality of services provided by the Investment Adviser and the fees charged
by the funds in the peer group. The Trustees also considered the Fund's
expense ratio and expense ratios of a peer group of funds selected by the
Independent Trustees for this purpose. The Fund's expense ratio for the 12
months ended June 30, 2005 was in the fourth quintile of the applicable peer
group for the most recent fiscal year of the peer group for the comparable
period. The Trustees concluded that the Fund's overall expense ratio was
reasonable compared to that of comparable funds.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of the
Investment Adviser's methodology in allocating certain of its costs to the
management of each Fund. The Trustees also considered the financial results
realized by the Investment Adviser in connection with the operation of the
Fund. They further considered the profits realized by the Investment Adviser
and its affiliates from non-fund businesses that may benefit from or be
related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived from
the Fund, bear a reasonable relationship to the services rendered and are
fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. The Trustees concluded that,
given current and anticipated assets levels, a break point in the management
fee was not necessary at this time. As the assets increase, the Trustees will
continue to evaluate annually the appropriateness of break points.
18
Pioneer Growth Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareowner services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect of the Pioneer Funds (including the Fund), and
benefits to the Investment Adviser from the use of "soft" commission dollars
to pay for research. The Trustees further considered the revenues and
profitability of the Investment Adviser's businesses other than the fund
business, including the Investment Adviser's institutional investment
advisory business. The Trustees considered the intangible benefits that
accrue to the Investment Adviser and its affiliates by virtue of its
relationship with the Fund and the Pioneer Funds as a group. The Trustees
concluded that all these types of benefits accruing to the Investment Adviser
were reasonable in the context of the overall relationship between the
Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
19
Pioneer Growth Shares VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
20
Pioneer Growth Shares VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held
Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance
or earlier services company) (2001-present); company); Director of New York
retirement or Managing Partner, Federal City Mortgage Trust (publicly traded
removal. Capital Advisors (boutique merchant mortgage REIT)
bank) (2002 to 2004); Executive
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products
or earlier manufacturer), Mortgage Guaranty
retirement or Insurance Corporation, and Briggs
removal. & Stratton, Inc. (engine
manufacturer)
- ----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
21
Pioneer Growth Shares VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
22
Pioneer Growth Shares VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, None
Treasurer 2000. Serves at the Assistant Vice President - Fund
discretion of the Accounting, Administration and
Board. Custody Services of Pioneer; and
Assistant Treasurer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ---------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ---------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
23
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
24
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
25
[LOGO] PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company,
Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18667-00-0206
[LOGO] PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer High Yield VCT Portfolio -- Class II Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Pioneer High Yield VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 5
Financial Statements 11
Notes to Financial Statements 15
Report of Independent Registered Public
Accounting Firm 20
Factors Considered by the Independent Trustees
in Approving the Management Contract 21
Trustees, Officers and Service Providers 24
Before investing, consider the Portfolio's investment objectives, risks,
charges and expenses. Contact your advisor or Pioneer Investments for a
prospectus containing this information. Read it carefully.
The Trust files a complete statement of investments with the Securities and
Exchange Commission for the first and the third quarters for each fiscal year
on Form N-Q. Shareowners may view the filed Form N-Q by visiting the
Commission's web site at http://www.sec.gov. The filed form may also be viewed
and copied at the Commission's Public Reference Room in Washington, D.C.
Information regarding the operations of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment in securities)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Corporate Bonds 77.8%
Convertible Corporate Bonds 9.5%
U.S. Common Stocks 7.1%
Convertible Preferred Stocks 3.5%
Temporary Cash Investment 2.1%
Maturity Bonds
(As a percentage of total investment in securities)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
0-1 years 0.8%
1-3 years 19.3%
3-4 years 19.7%
4-6 years 40.3%
6-8 years 14.2%
8+ years 5.7%
Five Largest Holdings
(As a percentage of long-term holdings)
1. Mueller Industries, Inc.,
6.0%, 11/1/14 4.83%
2. Novelis, Inc., 7.25%,
2/15/15 3.48
3. Allegheny Energy Supply,
7.8%, 3/15/11 3.25
4. Valeant Pharmaceuticals,
7.0%, 12/15/11 3.02
5. Gardner Denver, Inc.,
8.0%, 5/1/13 (144A) 2.94
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 10.88 $ 11.67
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.5850 $ 0.0579 $ 0.3211
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
High Yield VCT Portfolio at net asset value, compared to that of Merrill Lynch
(ML) High Yield Master II Index and of the ML Index of Convertible Bonds
(Speculative Quality). Portfolio returns are based on net asset value and do
not reflect any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer High ML High Yield ML Convertible Bonds
Yield VCT Master II Index (Speculative Quality) Index
Portfolio
05/00 10000 10000 10000
10608 9769 8424
12/01 12390 10206 7883
12090 10013 7747
12/03 16022 12831 10535
17266 14226 11867
12/05 17557 14615 11485
Index comparisons begin on 4/30/00. The ML High Yield Master II Index is a
commonly accepted measure of the performance of high yield securities. The ML
Index of Convertible Bonds (speculative quality) is a commonly accepted measure
of the performance of speculative grade convertible bond securities. Index
returns assume reinvestment of dividends and, unlike Portfolio returns, do not
reflect any fees, expenses or sales charges. You cannot invest directly in any
Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
Net Asset Value
Life-of-Class 10.05%
(5/1/00)
5 Years 10.60%
1 Year 1.70%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
2
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value [divided by] $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer High Yield VCT Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,025.51
Expenses Paid During Period* $ 5.18
- --------------------------------------------------------------------------------
* Expenses are equal to the Portfolio's annualized expense ratio of 1.02% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer High Yield VCT Portfolio
Based on a hypothetical 5% return per year before expenses, reflecting the
period from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,019.95
Expenses Paid During Period* $ 5.16
- --------------------------------------------------------------------------------
* Expenses are equal to the Portfolio's annualized expense ratio of 1.02% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
During the 12 months ended December 31, 2005, high-yield bonds offered modestly
positive returns, generated mainly by interest income. In the interview below,
Portfolio Manager Margaret Patel describes the factors that drove the
high-yield market and explains the Portfolio's underperformance of its
benchmark.
Q. How did the Portfolio perform?
A. During the 12 months ended December 31, 2005, the Portfolio's Class II
shares had a total return based on net asset value of 1.70%. By comparison,
the Merrill Lynch High Yield Master II Index returned 2.74%.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q. What factors drove the performance of the high-yield market during 2005?
A. The economy continued to grow, which helped keep the yield spread - or yield
advantage offered by high-yield bonds over comparable Treasuries -
relatively narrow and below historical averages. Returns for the high-yield
market were modestly positive, with the regular coupon payments provided by
the securities offset by lower bond prices. Those bond price declines
resulted from generally rising interest rates in both the Treasury and
high-yield markets. Defaults declined during the period and approached the
historical low of less than 2% seen in 1997. A major event in the market
occurred in May, when the credit ratings of Ford and General Motors were
downgraded to below investment grade. There was some short-term volatility
caused by the moves, as investors pondered the effect that the large influx
of Ford and GM debt might have on the market. Overall, however, the market
absorbed the transfer with no major disruptions.
Q. Why did the Portfolio lag the Merrill Lynch High Yield Master II Index?
A. While investments in convertible bonds - a cornerstone of our approach for
some time - historically have helped the Portfolio's relative performance,
they underperformed conventional high-yield issues, particularly from the
beginning of 2005 through April. The low volatility experienced by the
convertible bonds' underlying stocks worked to compress the premium
investors were willing to pay for convertibles. In addition, many
convertible bonds offer relatively low coupons and are generally of shorter
maturity, two attributes that resulted in negative price performance as the
Federal Reserve Board steadily raised short-term interest rates during the
period. However, convertible bonds performed better during the second half
of the period as stock prices improved and equity market volatility
increased.
Q. Which investments performed best during the fiscal year? Which disappointed?
A. The convertible securities of Roper Industries (1.30% of the Portfolio at
the end of the period), which makes industrial controls and fluid handling
equipment, enjoyed price appreciation due to improving demand. The
biotechnology firm holding, IVAX, benefited from better operating results
and its acquisition by Teva Pharmaceuticals scheduled to be close by the
end of January 2006. Our convertible bonds held in Vertex Pharmaceuticals
(0.72%) increased substantially with the underlying stock price, due to
advances in the company's drug pipeline and the achievement of several
strategic partnerships. And copper and gold producer Freeport-McMoRan
(1.29%) was an outstanding winner, as it benefited from higher metals
prices. Disappointments included Epix Medical (0.21%), which manufacturers
contrast agents for the treatment of vascular diseases. Epix declined
because its products required more clinical testing. Auto parts retailer
Pep Boys (1.87%) fell as the company's turnaround took longer than
expected. Interpublic Group (1.98%), a large advertising agency, saw the
value of its common stock and associated convertible bonds decline due to
concerns about management changes and the firm's delay in releasing
required compliance information. Finally, Valiant Pharmaceuticals (2.97%)
dropped because of an uncertain outlook for its products and the relatively
slow pace of the company's new-drug development.
Q. What is your outlook?
A. We are optimistic about the health of the economy and the corporate
high-yield market. If the economy continues to grow faster than the
historical long-term average - as the Fed gradually moves interest rates
higher - high-yield bonds could continue to produce moderately positive
results and coupon income. The major credit rating agencies predict modest
increases in defaults going forward, but still well below the historical
average of about 4.75%. In addition, we believe the Fund is well positioned
- through its holdings in convertible bonds, convertible preferred
securities and common stock - to offer shareholders the opportunity for
capital appreciation, should stocks participate in the continued economic
advance that we expect.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
A Word About Risk:
Investments in high-yield or lower-rated securities are subject to
greater-than-average risk. When interest rates rise, the prices of fixed-income
securities in the Portfolio will generally fall. Conversely, when interest
rates fall the prices of fixed income securities in the Portfolio will
generally rise. Investments in the Portfolio are subject to possible loss due
to the financial failure of underlying securities and their inability to meet
their debt obligations. Prepayment risk is the chance that mortgage-backed
bonds will be paid off early if falling interest rates prompt homeowners to
refinance their mortgages. Forced to reinvest the unanticipated proceeds at
lower interest rates, the Portfolio would experience a decline in income and
lose the opportunity for additional price appreciation associated with falling
interest rates. At times, the Portfolio's investments may represent industries
or industry sectors that are interrelated or have common risks, making it more
susceptible to any economic, political, or regulatory developments or other
risks affecting those industries and sectors.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
S&P/Moody's
Ratings
Shares (unaudited) Value
CONVERTIBLE PREFERRED STOCK - 1.7%
Materials - 1.3%
Diversified Metals & Mining - 1.2%
1,200 B-/B1 Freeport-MC Copp., 5.5%, 12/31/49 $ 1,406,100
------------
Steel - 0.1%
1,750 B-/NR TXI Capital Trust I, 5.5%, 6/30/28 $ 90,125
------------
Total Materials $ 1,496,225
------------
Banks - 0.4%
Thrifts & Mortgage Finance - 0.4%
10,000 BB/Ba1 Sovereign Cap Trust IV, 4.375%, 3/1/34 $ 437,500
------------
Total Banks $ 437,500
------------
TOTAL CONVERTIBLE PREFERRED STOCK
(Cost $1,726,088) $ 1,933,725
------------
Principal
Amount
CONVERTIBLE CORPORATE BONDS - 9.4%
Materials - 0.9%
Commodity Chemicals - 0.3%
$ 200,000 B+/B1 Millennium Chemicals, Inc., 4.0%, 11/15/23 $ 374,750
------------
Gold - 0.6%
800,000 NR/NR Coeur D'Alene Mines Corp., 1.25%, 1/15/24 $ 648,000
------------
Total Materials $ 1,022,750
------------
Capital Goods - 1.6%
Construction & Engineering - 0.3%
400,000 NR/NR Quanta Services, Inc., 4.0%, 7/1/07 $ 386,000
------------
Electrical Component & Equipment - 1.3%
2,595,000 NR/B1 Roper Industries, Inc., 1.4813%, 1/15/34 $ 1,420,763
------------
Total Capital Goods $ 1,806,763
------------
Consumer Services - 1.3%
Specialized Consumer Services - 1.3%
1,500,000 B+/Ba3 SCI Systems, Inc., 3.0%, 3/15/07 $ 1,436,250
------------
Total Consumer Services $ 1,436,250
------------
Media - 1.7%
Advertising - 1.7%
1,800,000 BB+/Baa3 Interpublic Group Cos., 4.5%, 3/15/23 $ 1,874,250
------------
Total Media $ 1,874,250
------------
Retailing - 0.9%
Automotive Retail - 0.9%
1,000,000 B+/B3 Sonic Automotive, Inc., 5.25%, 5/7/09 $ 980,000
------------
Total Retailing $ 980,000
------------
The accompanying notes are an integral part of these financial statements. 5
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
S&P/Moody's
Principal Ratings
Amount (unaudited) Value
Health Care Equipment & Services - 0.7%
Health Care Equipment - 0.7%
$ 375,000 NR/NR Epix Medical, 3.0%, 6/15/24 (144A) $ 225,000
600,000 NR/NR Wilson Greatbatch Tech., 2.25%, 6/15/13 525,000
------------
$ 750,000
------------
Total Health Care Equipment & Services $ 750,000
------------
Pharmaceuticals & Biotechnology - 0.3%
Biotechnology - 0.3%
300,000 NR/NR Cubist Pharmaceuticals, 5.5%, 11/1/08 $ 282,375
------------
Total Pharmaceuticals & Biotechnology $ 282,375
------------
Software & Services - 0.2%
Application Software - 0.2%
200,000 NR/NR Mentor Graphics, 6.875%, 6/15/07 $ 198,750
------------
Total Software & Services $ 198,750
------------
Technology Hardware & Equipment - 1.4%
Electronic Equipment & Instruments - 1.1%
300,000 B+/NR Flir Systems, Inc., 3.0%, 6/1/23 $ 352,125
1,000,000 NR/NR Veeco Instruments, 4.125%, 12/21/08 938,750
------------
$ 1,290,875
------------
Technology Distributors - 0.3%
300,000 NR/R Bell Microproducts, Inc., 3.75%, 3/5/24 $ 285,690
------------
Total Technology Hardware & Equipment $ 1,576,565
------------
Semiconductors - 0.4%
Semiconductor Equipment - 0.4%
500,000 B-/NR Cymer, Inc., 3.5%, 2/15/09 $ 489,375
------------
Total Semiconductors $ 489,375
------------
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost $11,038,877) $ 10,417,078
------------
Shares
PREFERRED STOCK - 1.7%
Real Estate - 1.7%
Real Estate Management & Development - 1.7%
75,000 BB-/Ba3 Forest City Enterprises, 7.375%, 2/1/34 $ 1,899,000
------------
TOTAL PREFERRED STOCK
(Cost $1,917,000) $ 1,899,000
------------
COMMON STOCK - 7.0%
Materials - 1.2%
Commodity Chemicals - 0.1%
3,500 Georgia Gulf Corp.* $ 106,470
------------
Specialty Chemicals - 1.1%
1,700 Arch Chemicals, Inc. $ 50,830
63,100 RPM, Inc. 1,096,047
------------
$ 1,146,877
------------
Total Materials $ 1,253,347
------------
6 The accompanying notes are an integral part of these financial statements.
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
S&P/Moody's
Ratings
Shares (unaudited) Value
Household & Personal Products - 1.0%
Personal Products - 1.0%
24,600 Alberto-Culver Co. (Class B) $ 1,125,450
------------
Total Household & Personal Products $ 1,125,450
------------
Health Care Equipment & Services - 1.1%
Health Care Equipment - 1.1%
18,000 Bio-Rad Laboratories, Inc.* $ 1,177,920
------------
Total Health Care Equipment & Services $ 1,177,920
------------
Pharmaceuticals & Biotechnology - 1.9%
Biotechnology - 1.0%
11,900 Protein Design Labs, Inc.* $ 338,198
28,400 Vertex Pharmaceuticals, Inc.* 785,828
------------
$ 1,124,026
------------
Pharmaceuticals - 0.9%
43,900 Bristol-Myers Squibb Co. $ 1,008,822
------------
Total Pharmaceuticals & Biotechnology $ 2,132,848
------------
Real Estate - 0.5%
Real Estate Investment Trusts - 0.5%
60,900 MeriStar Hospitality Corp.* $ 572,460
------------
Total Real Estate $ 572,460
------------
Utilities - 1.3%
Indep Power Producer & Energy Traders - 1.3%
31,100 NRG Energy, Inc.* $ 1,465,432
------------
Total Utilities $ 1,465,432
------------
TOTAL COMMON STOCK
(Cost $7,185,758) $ 7,727,457
------------
Principal
Amount
CORPORATE BONDS - 77.1%
Energy - 6.7%
Coal & Consumable Fuels - 2.3%
$2,500,000 BB-/B1 Massey Energy Co., 6.875%, 12/15/13 (144A) $ 2,521,875
------------
Oil & Gas Equipment & Services - 0.9%
1,000,000 B+/Ba3 Holly Energy Partners LP, 6.25%, 3/1/15 $ 968,750
------------
Oil & Gas Refining & Marketing - 3.5%
1,031,000 Frontier Oil Corp., 6.625%, 10/1/11 $ 1,051,620
2,850,000 BB-/B2 Tesoro Petroleum Corp., 6.25%, 11/1/12 (144A) 2,864,250
------------
$ 3,915,870
------------
Total Energy $ 7,406,495
------------
The accompanying notes are an integral part of these financial statements. 7
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
S&P/Moody's
Principal Ratings
Amount (unaudited) Value
Materials - 22.1%
Aluminum - 3.4%
$ 4,000,000 B/B1 Novelis, Inc., 7.25%, 2/15/15 $ 3,730,000
------------
Commodity Chemicals - 6.4%
1,750,000 BB-/Ba3 Arco Chemical Co., 9.8%, 2/1/20 $ 1,964,375
2,500,000 BB+/Ba2 Nova Chemicals Corp., 7.875%, 9/15/25 2,468,750
2,650,000 BB+/Ba2 Nova Chemicals Corp., 7.4%, 4/1/09 2,709,625
------------
$ 7,142,750
------------
Construction Materials - 1.4%
1,500,000 BB-/Ba3 Texas Industries, Inc., 7.25%, 7/15/13 (144A) $ 1,556,250
------------
Diversified Metals & Mining - 0.9%
1,000,000 B+/B1 Freeport-McMoran Copper & Gold, 6.875%, 2/1/09 $ 1,010,000
------------
Fertilizers & Agricultural Chemicals - 1.1%
1,150,000 B+/Ba2 Scotts Co., 6.625%, 11/15/13 $ 1,164,375
------------
Metal & Glass Containers - 0.7%
800,000 B/B3 Crown Cork and Seal Co., Inc., 7.375%, 12/15/26 $ 732,000
------------
Paper Products - 5.5%
200,000 BB-/Ba3 Abitibi-Consolidated, Inc., 6.0%, 6/20/13 $ 169,500
2,250,000 BB-/Ba3 Abitibi-Consolidated, Inc., 8.55%, 8/1/10 (a) 2,278,125
885,000 BB/Ba3 Bowater Canada Finance, 7.95%, 11/15/11 858,450
3,100,000 BB/Ba3 Bowater, Inc., 6.5%, 6/15/13 2,774,500
------------
$ 6,080,575
------------
Specialty Chemicals - 2.7%
1,950,000 BB-/B1 Millenium America, Inc., 7.625%, 11/15/26 $ 1,862,250
1,000,000 BB-/B1 Millenium America, Inc., 9.25%, 6/15/08 1,078,750
------------
$ 2,941,000
------------
Total Materials $ 24,356,950
------------
Capital Goods - 13.4%
Aerospace & Defense - 4.6%
3,200,000 B/B2 DRS Technologies, Inc., 6.875%, 11/1/13 $ 3,060,000
2,000,000 B+/B1 Esterline Technology, 7.75%, 6/15/13 2,090,000
------------
$ 5,150,000
------------
Industrial Machinery - 8.8%
3,000,000 B/B2 Gardner Denver, Inc., 8.0%, 5/1/13 (144A) $ 3,150,000
517,000 B+/B3 JLG Industries, Inc., 8.375%, 6/15/12 545,435
800,000 B+/B1 Manitowoc Co., Inc., 7.125%, 11/1/13 822,000
5,400,000 NR/NR Mueller Industries, Inc., 6.0%, 11/1/14 5,184,000
------------
$ 9,701,435
------------
Total Capital Goods $ 14,851,435
------------
Automobiles & Components - 0.3%
Tires & Rubber - 0.3%
300,000 B-/B3 Goodyear Tire & Rubber, 7.857%, 8/15/11 $ 293,250
------------
Total Automobiles & Components $ 293,250
------------
8 The accompanying notes are an integral part of these financial statements.
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
S&P/Moody's
Principal Ratings
Amount (unaudited) Value
Consumer Durables & Apparel - 1.0%
Homebuilding - 1.0%
$ 1,000,000 BB/Ba1 Beazer Homes U.S.A., 6.875%, 7/15/15 $ 958,750
185,000 BB-/Ba3 Meritage Homes Corp., 6.25%, 3/15/15 168,350
------------
$ 1,127,100
------------
Total Consumer Durables & Apparel $ 1,127,100
------------
Media - 2.0%
Advertising - 2.0%
2,300,000 BB-/Baa3 Interpublic Group, Inc., 7.25%, 8/15/11 $ 2,162,000
------------
Total Media $ 2,162,000
------------
Retailing - 4.1%
Automotive Retail - 1.8%
2,290,000 B/B1 Pep Boys-Manny Moe Jack, 7.5%, 12/15/14 $ 2,038,100
------------
Distributors - 2.3%
2,500,000 B/B2 Wesco Distribution, Inc., 7.5%, 10/15/17 (144A) $ 2,515,625
------------
Total Retailing $ 4,553,725
------------
Health Care Equipment & Services - 1.6%
Health Care Supplies - 1.6%
1,700,000 CCC+/Caa1 Inverness Medical Innovation, 8.75%, 2/15/12 $ 1,725,500
------------
Total Health Care Equipment & Services $ 1,725,500
------------
Pharmaceuticals & Biotechnology - 2.9%
Pharmaceuticals - 2.9%
3,300,000 BB-/B1 Valeant Pharmaceuticals, 7.0%, 12/15/11 $ 3,242,250
------------
Total Pharmaceuticals & Biotechnology $ 3,242,250
------------
Real Estate - 8.3%
Real Estate Management & Development - 2.8%
2,935,000 BB-/Ba3 Forest City Enterprises, 7.625%, 6/1/15 $ 3,111,100
------------
Real Estate Investment Trusts - 5.5%
1,500,000 B+/B3 BF Saul Real Estate Investment Trust, 7.5%, 3/1/14 $ 1,526,250
2,300,000 B+/B1 Crescent Real Estate, 9.25%, 4/15/09 2,420,750
2,000,000 CCC+/B2 Meristar Hospitality Corp., 9.125%, 1/15/11 2,180,000
------------
$ 6,127,000
------------
Total Real Estate $ 9,238,100
------------
Technology Hardware & Equipment - 5.4%
Electronic Equipment & Instruments - 1.7%
1,835,000 B/B2 General Cable Corp., 9.5%, 11/15/10 $ 1,945,100
------------
Technology Distributors - 3.7%
1,500,000 BB+/Ba1 Anixter International Corp., 5.95%, 3/1/15 $ 1,357,390
2,550,000 BBB-/Baa3 Arrow Electronic, Inc., 6.875%, 6/1/18 2,708,615
------------
$ 4,066,005
------------
Total Technology Hardware & Equipment $ 6,011,105
------------
The accompanying notes are an integral part of these financial statements. 9
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
S&P/Moody's
Principal Ratings
Amount (unaudited) Value
Utilities - 9.3%
Electric Utilities - 6.1%
$ 3,200,000 B/Ba3 Allegheny Energy Supply, 7.8%, 3/15/11 $ 3,488,000
1,750,000 B/Ba3 Allegheny Energy Supply, 8.25% 4/15/12 (144A) 1,973,125
1,200,000 B+/B1 CMS Energy Corp., 7.5%, 1/15/09 1,236,000
------------
$ 6,697,125
------------
Multi-Utilities - 3.2%
450,000 B+/B1 CMS Energy Corp., 6.875%, 12/15/15 $ 453,938
3,000,000 B+/B1 CMS Energy Corp., 7.75%, 8/1/10 3,146,250
------------
$ 3,600,188
------------
Total Utilities $ 10,297,313
------------
TOTAL CORPORATE BONDS $ 85,265,223
------------
(Cost $85,580,009)
Shares
TEMPORARY CASH INVESTMENTS - 2.1%
Security Lending Collateral - 2.1%
2,282,850 Securities Lending Investment Fund, 4.24% $ 2,282,850
------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $2,282,850) $ 2,282,850
------------
TOTAL INVESTMENT IN SECURITIES - 99.0%
(Cost $109,730,582) $109,525,333
------------
OTHER ASSETS AND LIABILITIES - 1.0% $ 1,095,615
------------
TOTAL NET ASSETS - 100.0% $110,620,948
============
N/R Not rated by either S&P or Moody's
* Non-income producing security
144A Security is exempt from registration under Rule 144A of the Securities Act
of 1933. Such securities may be resold normally to qualified institutional
buyers in a transaction exempt from registration. At December 31, 2005,
the value of these securities amounted to $14,806,125 or 13.5% of net
assets.
(a) At December 31, 2005, the following security was out on loan:
Principal
Amount Security Market Value
$ 2,137,500 Abitibi-Consolidated, Inc., 8.55%, 8/1/10 $2,164,219
==========
10 The accompanying notes are an integral part of these financial statements.
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Year Year Year 5/1/01
Ended Ended Ended Ended to
Class II 12/30/05 12/31/04 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 11.67 $ 11.46 $ 9.28 $ 10.33 $ 10.51
------- ------- ------- ------- -------
Increase (decrease) from investment operations:
Net investment income $ 0.59 $ 0.58 $ 0.76 $ 0.80 $ 0.60
Net realized and unrealized gain (loss) on investments and
foreign currency transactions ( 0.41) 0.27 2.17 ( 1.05) ( 0.07)
------- ------- ------- ------- --------
Net increase (decrease) from investment operations $ 0.18 $ 0.85 $ 2.93 $ (0.25) $ 0.53
Distributions to shareowners:
Net investment income ( 0.59) ( 0.59) ( 0.75) ( 0.80) ( 0.60)
Net realized gain ( 0.38) ( 0.05) -- -- ( 0.11)
------- ------- ------- ------- --------
Net increase (decrease) in net asset value $ (0.79) $ 0.21 $ 2.18 $ (1.05) $ (0.18)
-------- ------- ------- ------- --------
Net asset value, end of period $ 10.88 $ 11.67 $ 11.46 $ 9.28 $ 10.33
======== ======= ======= ======= ========
Total return* 1.70% 7.76% 32.64% ( 2.42)% 5.39%
Ratio of net expenses to average net assets 1.02% 1.03% 1.09% 1.82% 1.39%**
Ratio of net investment income to average net assets 5.27% 5.12% 6.33% 8.67% 8.94%**
Portfolio turnover rate 37% 42% 48% 42% 36%
Net assets, end of period (in thousands) $ 47,169 $51,912 $17,601 $ 228 $ 28
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 1.02% 1.04% 1.09% 1.82% 1.50%**
Net investment income 5.27% 5.12% 6.33% 8.67% 8.83%**
Ratios with waiver of management fees and assumption of
expenses by PIM and reduction for fees paid indirectly:
Net expenses 1.02% 1.04% 1.09% 0.97% 0.85%**
Net investment income 5.27% 5.12% 6.33% 0.01% 0.07%**
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redmeption of the
investment at net asset value at the end of each period.
** Annualized.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
The accompanying notes are an integral part of these financial statements. 11
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (including securities loaned of $2,164,219) (Cost $109,525,333
$109,730,582)
Cash 682,465
Receivables --
Fund shares sold 1,304,169
Dividends, interest and foreign taxes withheld 1,544,979
------------
Total assets $113,056,946
------------
LIABILITIES:
Payables --
Fund shares repurchased $ 68,166
Upon return for securities loaned 2,282,850
Due to affiliates 8,448
Accrued expenses 76,534
------------
Total liabilities $ 2,435,998
------------
NET ASSETS:
Paid-in capital $109,236,906
Undistributed net investment income 59,865
Accumulated net realized gain 1,529,426
Net unrealized gain on investments (205,249)
------------
Total net assets $110,620,948
------------
NET ASSET VALUE PER SHARE:
Class I:
(No par value, unlimited number of shares authorized)
Net assets $ 63,451,822
Shares outstanding 5,831,312
------------
Net asset value per share $ 10.88
Class II:
(No par value, unlimited number of shares authorized)
Net assets $ 47,169,126
Shares outstanding 4,335,176
------------
Net asset value per share $ 10.88
12 The accompanying notes are an integral part of these financial statements.
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year
Ended
12/31/05
INVESTMENT INCOME:
Dividends $ 250,030
Interest 6,763,663
Income on securities loaned, net 14,050
------------
Total investment income $ 7,027,743
------------
EXPENSES:
Management fees $ 725,723
Transfer agent fees and expenses 7,715
Distribution fees (Class II) 117,009
Administrative reimbursements 22,311
Custodian fees 20,659
Professional fees 41,351
Printing expense 33,849
Fees and expenses of nonaffiliated trustees 5,115
Miscellaneous 7,045
------------
Total expenses $ 980,777
------------
Net expenses $ 980,777
------------
Net investment income $ 6,046,966
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES
CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from investments $ 1,530,055
------------
Change in net unrealized gain or loss from investments $ (5,535,598)
------------
Net gain (loss) on investments, futures contracts and foreign currency transactions $ (4,005,543)
=============
Net increase in net assets resulting from operations $ 2,041,423
=============
The accompanying notes are an integral part of these financial statements.
13
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Year
Ended Ended
12/31/05 12/31/04
FROM OPERATIONS:
Net investment income $ 6,046,966 $ 5,467,810
Net realized gain (loss) on investments 1,530,055 3,746,873
Change in net unrealized gain or loss on investments, futures contracts and foreign
currency transactions (5,535,598) (1,480,061)
------------- -------------
Net increase in net assets resulting from operations $ 2,041,423 $ 7,734,622
------------- -------------
DISTRIBUTIONS TO SHAREOWNERS:
Net investment income
Class I $ (3,563,099) $ (3,715,003)
Class II (2,466,908) (1,764,209)
Net realized gain
Class I (2,147,727) (265,040)
Class II (1,587,624) (135,300)
------------- -------------
Total distributions to shareowners $ (9,765,358) $ (5,879,552)
------------- -------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 43,512,782 $ 75,619,514
Reinvestment of distributions 9,721,259 5,846,576
Cost of shares repurchased (57,690,620) (44,707,455)
------------- -------------
Net increase (decrease) in net assets resulting from Fund share transactions $ (4,456,579) $ 36,758,635
------------- -------------
Net increase (decrease) in net assets $ (12,180,514) $ 38,613,705
------------- -------------
NET ASSETS:
Beginning of year $ 122,801,462 $ 84,187,757
------------- -------------
End of year $ 110,620,948 $ 122,801,462
============= =============
Undistributed net investment income, end of year $ 59,865 $ 42,906
============= =============
14 The accompanying notes are an integral part of these financial statements.
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer High Yield VCT Portfolio (The Portfolio) is a Portfolio of Pioneer
Variable Contracts Trust (the Trust), a Delaware statutory trust registered
under the Investment Company Act of 1940 as an open-end management investment
company. The Trust consists of twenty-nine separate diversified portfolios,
fourteen of which issue both Class I and Class II shares (collectively, the
"Portfolios", individually the "Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares
only)
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts or by
qualified pension and retirement plans.
The investment objective of High Yield Portfolio is to maximize total return
through a combination of income and capital appreciation.
The financial highlights for the Portfolio's Class I shares are presented in a
separate book.
The Portfolio's financial statements have been prepared in conformity with U.S.
Generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
periods. Actual results could differ from those estimates.
Information concerning the Portfolio's principal investment risks is contained
in the Portfolio's prospectus(es). Please refer to those documents when
considering the Portfolio's risks. Investments in high-yield or lower-rated
securities are subject to greater-than-average risk.
The following is a summary of significant accounting policies consistently
followed by the Portfolio, in the preparation of its financial statements,
which are consistent with those generally accepted in the investment company
industry:
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the portfolios are computed once daily, on each day the New York Stock
Exchange (NYSE)
15
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
is open, as of the close of regular trading on the NYSE. In computing the
net asset values, securities are valued at the last sale price on the
principal exchange where they are traded. Securities that have not traded
on the date of valuation, or securities for which sale prices are not
generally reported, are valued at the mean between the last bid and asked
prices. Trading in foreign equity securities is substantially completed
each day at various times prior to the close of the NYSE. The value of such
securities used in computing the net asset value of the Portfolio's shares
is based on the last sale price on the principal exchange where they
traded. The Portfolio also may use the fair value of a security, including
a non-U.S. security, when the closing market price on the primary exchange
where the security is traded no longer accurately reflects the value of the
security as of the close of the NYSE. At December 31, 2005, there were no
fair valued securities. Temporary cash investments are valued at amortized
cost.
Fixed income securities are valued at prices supplied by independent
pricing services, which consider such factors as Treasury spreads, yields,
maturities and ratings. Valuations may be supplemented by dealers and other
sources, as required. Securities for which market quotations are not
readily available are valued at their fair values as determined by, or
under the direction of, the Board of Trustees.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities where the ex-dividend date may have
passed are recorded as soon as the Portfolio becomes aware of the
ex-dividend data in the exercise of reasonable diligence. Interest income,
including interest on income bearing cash accounts, is recorded on the
accrual basis, net of unrecoverable foreign taxes withheld at the
applicable country rates. All discounts/premiums are accreted/amortized for
financial reporting purposes.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes on capital gains at
the applicable country rates.
The High Yield Portfolio invests in below investment grade (high yield)
debt securities and preferred stocks. These high yield securities may be
convertible into equity securities of the issuer. Debt securities rated
below investment grade are commonly referred to as "junk bonds" and are
considered speculative. These securities involve greater risk of loss, are
subject to greater price volatility, and are less liquid, especially during
years of economic uncertainty or change, than higher rated debt securities.
The Portfolio is not diversified, which means that it can invest a higher
percentage of its asset in any one issuer than a diversified fund. Being
non-diversified may magnify the fund's losses from adverse events affecting
a particular issuer.
In addition, the non-diversified Portfolio may have concentrations in
certain asset types, which may subject the Portfolio to additional risks.
Further description of these risks is included in the Trust's Prospectus.
B. Foreign Currency Translation
The books and records of the Portfolio are maintained in U.S. dollars.
Amounts denominated in foreign currencies are translated into U.S. dollars
using current exchange rates.
Net realized gains and losses on foreign currency transactions represent,
the net realized gains and losses on foreign currency contracts,
disposition of foreign currencies, and the difference between the amount of
income accrued and the U.S. dollars actually received. Further, the effects
of changes in foreign currency exchange rates on investments are not
segregated in the statement of operations from the effects of changes in
market price of those securities but are included with the net realized and
unrealized gain or loss on investments.
C. Forward Foreign Currency Contracts
The Portfolio enters into forward foreign currency contracts (contracts)
for the purchase or sale of a specific foreign currency at a fixed price on
a future date as a hedge or cross-hedge against either specific investment
transactions (settlement hedges) or portfolio positions (portfolio hedges).
All contracts are marked to market daily at the applicable exchange rates,
and any resulting unrealized gains or losses are recorded in the
Portfolio's financial statements. The Portfolio records realized gains and
losses at the time a portfolio hedge is offset by entry into a closing
transaction or extinguished by delivery of the currency. Risks may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of the contract and from unanticipated
movements in the value of foreign currencies relative to the U.S. dollar.
At December 31, 2005 the Portfolio had no open forward contracts.
D. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all
16
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
of its taxable income and net realized capital gains, if any, to its
shareowners. Therefore, no federal income tax provision is required.
In addition to the requirements of the Internal Revenue Code, the Portfolio
may also be required to pay local taxes on the recognition of capital gains
and/or the repatriation of foreign currencies in certain countries. During
the year ended December 31, 2005, no such taxes were paid.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal
income tax rules. Therefore, the source of each Portfolio's distributions
may be shown in the accompanying financial statements as either from or in
excess of net investment income or net realized gain on investment
transactions, or from paid-in capital, depending on the type of book/tax
differences that may exist.
The following chart shows the distributions paid during the years ended
December 31, 2005 and December 31, 2004 and the components of distributable
earnings (accumulated losses) as of December 31, 2005 on a tax basis.
- --------------------------------------------------------------------------------------
2005 2004
- --------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $6,600,658 $5,479,212
Long-Term capital gain 3,164,700 400,340
---------- ----------
$9,765,358 $5,879,552
Return of Capital -- --
---------- ----------
Total distributions $9,765,358 $5,879,552
========== ==========
Distributable Earnings (Accumulated Losses):
Undistributed ordinary income $ 798,588
Undistributed long-term gain/(capital loss carryforward) 803,653
Unrealized appreciation (depreciation) (212,035)
----------
Total $1,390,206
==========
- --------------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is primarily attributable to the tax deferral of losses on
wash sales and interest accrual on preferred stock.
E. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Trust and a wholly owned indirect subsidiary
of UniCredito Italiano S.p.A. (UniCredito Italiano), $638,021 in
commissions on the sale of Trust shares for the year ended December 31,
2005. Distribution fees for Class II are calculated based on the average
daily net asset values attributable to Class II shares of the Portfolio.
Shareowners of each class share all expenses and fees paid to the transfer
agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS),
for its services, which are allocated based on the number of accounts in
each class and the ratable allocation of related out-of-pocket expenses
(see Note 3). Income, common expenses (excluding transfer agent and
distribution fees) and realized and unrealized gains and losses are
calculated at the Portfolio level and allocated daily to each class of
shares based on the respective percentage of the adjusted net assets at the
beginning of the day. The Portfolio declares as daily dividends
substantially all of its respective net investment income. All dividends
are paid on a monthly basis. Short-term capital gain distributions, if any,
may be declared with the daily dividends. Distributions paid by a Portfolio
with respect to each class of shares are calculated in the same manner, at
the same time, and in the same amount, except that Class I and Class II
shares can bear different transfer agent and distribution fees. Dividends
and distributions to shareowners are recorded on the ex-dividend date.
F. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees. The Portfolio also continues to receive
payments in lieu of interest or dividends on the securities loaned. Gain or
loss in the fair value of the securities loaned that may occur during the
term of the loan, will be for the account of the Portfolio. The loans are
secured by collateral of at least 102%, at all times, of the fair
17
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
value of the securities loaned. The fair value of the collateral will be
adjusted daily to reflect any price fluctuation in the value of the loaned
securities. The Portfolio has the right under the lending agreement to
recover the securities on loan from the borrower on demand. The Portfolio
invests cash collateral in the Securities Lending Investment Fund which is
sponsored by Brown Brothers Harriman & Co., the Portfolio's custodian.
G. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano, manages the
portfolio. Management fees are calculated daily at the annual rate of 0.65% of
the Portfolio's average daily net assets.
In addition, under the management and administration agreement, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $3,878 was payable
to PIM related to management fees, administrative fees and certain other
services, and is included in due to affiliates.
3. Transfer Agent
PIMSS, a wholly owned indirect subsidiary of UniCredito Italiano provides
substantially all transfer agent and shareowner services to the Trust at
negotiated rates. Included in due to affiliates is $3,943 in transfer agent
fees payable to PIMSS at December 31, 2005.
4. Distribution Plans
The Portfolio has adopted a plan of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with the Portfolio's Class
II shares. Included in due to affiliates is $627 payable to PFD at December 31,
2005.
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- -----------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- -----------------------------------------------------------------------------------------------
High Yield Portfolio $109,737,368 $3,143,440 $(3,355,475) $(212,035)
============ ========== ============ ==========
- -----------------------------------------------------------------------------------------------
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were $40,480,811 and $55,124,286, respectively.
18
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
- -------------------------------------------------------------------------------------------------
High Yield Portfolio '05 Shares '05 Amount '04 Shares '04 Amount
- -------------------------------------------------------------------------------------------------
CLASS I:
Shares sold 1,902,148 $ 21,181,455 2,699,382 $ 30,852,667
Reinvestment of distributions 514,993 5,666,754 346,267 3,947,046
Shares repurchased (2,659,638) (29,739,088) (2,787,689) (31,727,505)
---------- ------------- ---------- -------------
Net increase (decrease) (242,497) $ (2,890,879) 257,960 $ 3,072,208
========== ============= ========== =============
CLASS II:
Shares sold 2,014,754 $ 22,331,327 3,916,481 $ 44,766,847
Reinvestment of distributions 368,486 4,054,505 166,648 1,899,530
Shares repurchased (2,495,978) (27,951,532) (1,171,662) (12,979,950)
---------- ------------- ---------- -------------
Net increase (decrease) (112,738) $ (1,565,700) 2,911,467 $ 33,686,427
========== ============= ========== =============
- -------------------------------------------------------------------------------------------------
19
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust and
the Shareowners of Pioneer High Yield VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer High Yield VCT Portfolio, one of the
portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), as
of December 31, 2005, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audit. The financial highlights for the year ended December 31, 2001 was
audited by other auditors who have ceased operations and whose report, dated
February 8, 2002, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005, by correspondence
with the custodian and brokers or by other appropriate auditing procedures
where replies from brokers were not received. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer High Yield VCT Portfolio of the Pioneer Variable Contracts Trust at
December 31, 2005, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and financial highlights for each of the four years in the period then ended,
in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
20
Pioneer High Yield VCT Portfolio (the "Fund") PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three and five year periods for
the Fund and a peer group selected by the Independent Trustees for this
purpose, (2) management fees incurred by a peer group of funds selected by the
Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's
21
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and an index,
in each case selected by the Independent Trustees for this purpose. The
Fund's performance based upon total return was in the third quintile of the
peer group for the 12 months ended June 30, 2005, the second quintile for
the three years ended June 30, 2005 and the second quintile for the five
years ended June 30, 2005. (In all quintile rankings referred to throughout
this discussion first quintile is most favorable to the Fund's shareholders.
Thus, highest relative performance would be first quintile and lowest
relative expenses also would be first quintile.) The Trustees also compared
the yield (gross of expenses) on the Fund's Class I shares relative to the
yield (as of June 30, 2005) on the Merrill Lynch High Yield Master II Index.
The Trustees concluded that the performance of the Fund, particularly the
Fund's longer-term performance, supported the continuation of the Management
Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's fixed income group. Among other things, the
Trustees considered the number, education and experience of the Investment
Adviser's investment staff and their use of technology and emphasis on
analytics in view of the risk profile of securities in which the Fund
invests. The Trustees concluded that the Investment Adviser had the quality
and depth of personnel and the well-developed methods essential to
performing its duties under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the third
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
considered the Fund's expense ratio and expense ratios of a peer group of
funds selected by the Independent Trustees for this purpose. The Fund's
expense ratio for the 12 months ended June 30, 2005 was in the third
quintile of the applicable peer group for the most recent fiscal year of the
peer group for the comparable period. The Trustees concluded that the Fund's
overall expense ratio was reasonable compared to that of comparable funds.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. The Trustees concluded that,
given current and anticipated asset levels,
22
Pioneer High Yield VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
break points in the management fee are not necessary at this time. The
Trustees will continue to evaluate annually the appropriateness of break
points.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund). The
Trustees further considered the revenues and profitability of the Investment
Adviser's businesses other than the fund business, including the Investment
Adviser's institutional investment advisory business. The Trustees
considered the intangible benefits that accrue to the Investment Adviser and
its affiliates by virtue of its relationship with the Fund and the Pioneer
Funds as a group. The Trustees concluded that all these types of benefits
accruing to the Investment Adviser were reasonable in the context of the
overall relationship between the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
23
Pioneer High Yield VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
24
Pioneer High Yield VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held
Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance
or earlier services company) (2001-present); company); Director of New York
retirement or Managing Partner, Federal City Mortgage Trust (publicly traded
removal. Capital Advisors (boutique merchant mortgage REIT)
bank) (2002 to 2004); Executive
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products
or earlier manufacturer), Mortgage Guaranty
retirement or Insurance Corporation, and Briggs
removal. & Stratton, Inc. (engine
manufacturer)
- ----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
25
Pioneer High Yield VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
26
Pioneer High Yield VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, None
Treasurer 2000. Serves at the Assistant Vice President - Fund
discretion of the Accounting, Administration and
Board. Custody Services of Pioneer; and
Assistant Treasurer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ---------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ---------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
27
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
28
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
29
[Logo] PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company, Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18662-00-0206
[LOGO] PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer International Value VCT Portfolio -- Class II Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Pioneer International Value VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 5
Financial Statements 9
Notes to Financial Statements 13
Report of Independent Registered Public Accounting Firm 18
Factors Considered by the Independent Trustees
in Approving the Management Contract 19
Trustees, Officers and Service Providers 22
Before investing consider the fund's investment objectives,
risks, charges and expenses. Contact your advisor or Pioneer
Investments for a prospectus containing this information.
Read it carefully.
The Trust files a complete statement of investments with the
Securities and Exchange Commission for the first and the
third quarters for each fiscal year on Form N-Q. Shareowners
may view the filed Form N-Q by visiting the Commission's web
site at http://www.sec.gov. The filed form may also be
viewed and copied at the Commission's Public Reference Room
in Washington, D.C. Information regarding the operations of
the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
International Common Stocks 87.3%
Depositary Receipts for International Stocks 6.0%
U.S. Common Stocks 4.8%
Temporary Cash Investment 1.3%
International Preferred Stocks 0.6%
Geographical Distribution
(As a percentage of equity holdings)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Japan 28.0%
United Kingdom 14.8%
France 10.8%
Switzerland 9.5%
Germany 5.8%
South Korea 4.7%
Brazil 3.3%
Spain 3.0%
Netherlands 3.0%
United States 2.1%
Sweden 1.9%
Russia 1.8%
Australia 1.5%
People's Republic of China 1.4%
Ireland 1.0%
Singapore 1.0%
Other (individually less than 1%) 6.4%
Five Largest Holdings
(As a percentage of equity holdings)
1. Total SA 2.45%
2. Roche Holdings AG 1.97
3. CS Group 1.86
4. Repsol SA 1.67
5. Sumitomo Mitsui Financial
Group, Inc. 1.67
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 13.63 $ 11.84
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.0074 $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
International Value VCT Portfolio at net asset value, compared to that of the
Morgan Stanley Capital International (MSCI) All Country (ex. U.S.) Index.
Portfolio returns are based on net asset value and do not reflect any
applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer MSCI AC
International Value Wld (ex. U.S.)
VCT Portfolio Index
12-95 10000 10000
10799 10668
12-97 11172 10886
10061 12459
12-99 14490 16310
11201 13850
12-01 8520 11150
7368 9514
12-03 9753 13454
11550 16327
12-05 13305 19121
The Morgan Stanley Capital International (MSCI) All Country World (ex. U.S.)
Index measures the performance of developed and emerging market stock markets.
Index returns are calculated monthly, assume reinvestment of dividends and,
unlike Portfolio returns, do not reflect any fees, expenses or sales charges.
You cannot invest directly in the Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
Net Asset Value
10 Years 2.90%
5 Years 3.50%
1 Year 15.19%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
2
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value [divided by] $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer International Value VCT
Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II
- ------------------------------------------ --------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,199.77
Expenses Paid During Period* $ 10.20
* Expenses are equal to the Portfolio's annualized expense ratio of 1.84% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer International Value VCT
Portfolio
Based on a hypothetical 5% return per year before expenses, reflecting the
period from July 1, 2005 through December 31, 2005.
Share Class II
- ------------------------------------------ --------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,015.93
Expenses Paid During Period* $ 9.35
* Expenses are equal to the Portfolio's annualized expense ratio of 1.84% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
International markets rallied considerably in the second half of Pioneer
International Value VCT Portfolio's fiscal year. Investments in emerging
markets and Japan were particularly rewarding, contributing strongly to its
double-digit returns for the 12-months ended December 31, 2005. In the
following interview, lead portfolio manager Christopher Smart discusses the
factors that influenced this performance.
Q. How did the Portfolio perform for fiscal year?
A. For the 12 months ended December 31, 2005, Class II shares posted a return
of 15.19% at net asset value. The Portfolio lagged the 16.53% return of the
Morgan Stanley Capital International (MSCI) All Country World (ex. U.S.)
Index excluding the United States. We attribute the underperformance to a
handful of stocks in Europe and Japan. Perhaps the biggest disappointment
was Vodafone, a sizable holding in the portfolio, which fell sharply in
response to the company's announcement of lower-than-expected profitability
over the next several years due to increased competition.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q. Emerging markets stocks rose sharply during the Portfolio's fiscal year.
What contributed to those dramatic returns?
A. In our view, three main factors contributed to the outcome. First, economic
growth in emerging markets has been much stronger than that of the
developed markets, with countries such as Russia, China and Turkey
expanding between 5% and 10% per year. Second, valuations have been much
lower than those of the developed market stocks, and they remain so even
after several years of outperformance. Third, the risk of investing in
emerging markets is much lower than it was even as recently as the late
1990s. Both corporations and countries have paid down their debts and
rebuilt their balance sheets, putting the asset class on a much healthier
footing to withstand external shocks.
Q. Could you mention some of the holdings that capture this growth potential in
emerging markets?
A. Certainly. With inflation low and interest rates beginning to decline in
Brazil, pent-up consumer spending is increasing the demand for credit. The
Portfolio's investments in Unibanco, the country's largest retail bank,
were very rewarding. In South Korea, the Portfolio's holdings that are
positioned to benefit from the recovery in the domestic economy also did
well. In recent years, high levels of consumer debt contributed to slower
growth and reduced earnings for companies in the financial and retail
sectors. With the problem now largely resolved, bank stocks - such as Fund
holding Kookmin Bank - have recovered nicely.
Q. Why did investments in Japan contribute so favorably to performance?
A. Effective stock selection and a resurging stock market contributed to strong
returns from Japanese stocks. An improving economy is raising consumer
confidence and giving companies an incentive to build new factories and
infrastructure. In addition, the recent reelection of Prime Minister
Koizumi brought more of his reformist allies into the legislature, which
should help expedite his privatization efforts. Two of the Fund's
investments - the department store chain Takashimaya and commercial and
residential builder Shimizu - made strong gains.
Q. How did investments in the more mature markets of Europe fare?
A. Investment returns from stocks across Europe were less dramatic than those
outside the region, but still contributed positively to performance
overall. Economic growth across Europe is modest, but business confidence
is strong and valuations are attractive on a stock-by-stock basis. Stat Oil
(Norway) and Repsol (Spain) are profiting from higher oil prices, but also
represent good value relative to the rest of their competitors. In the
pharmaceutical sector, Roche Holdings (Switzerland), which produces the flu
vaccine Tamiflu, and AstraZeneca (United Kingdom) appreciated considerably.
Q. What holdings detracted from performance?
A. Royal Bank of Scotland Group, like many of the portfolio's U.K. bank stocks,
underperformed as a result of rising interest rates and slower loan growth.
Television broadcaster Mediaset suffered in response to Italy's slowing
economy and the shrinking demand for advertising. Finally, computer
integration consulting services provider OBIC (Japan) struggled - as did
the software services sector in general.
Q. What is your outlook for international equities in 2006?
A. We remain positive in our outlook for international equity markets. We are
watching for inflationary signs that could cause interest rates to rise
quickly, but so far we see none. Rising oil prices are a concern, but we
think that the declining costs of exports and technology coming from Asia
and other developing countries have offset these pressures to a large
extent. Given our expectations for a moderate pace of global growth in
2006, we will continue to focus on high-quality markets and stocks that
offer attractive valuations and good prospects for appreciation.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
A Word About Risk:
Investing in foreign and/or emerging markets securities involves risks relating
to interest rates, currency exchange rates, economic, and political conditions.
The Portfolio may invest a substantial amount of its assets in issuers located
in a limited number of countries and therefore is susceptible to adverse
economic, political or regulatory developments affecting those countries. At
times, the Portfolio's investments may represent industries or industry sectors
that are interrelated or have common risks, making it more susceptible to any
economic, political, or regulatory developments or other risks affecting those
industries and sectors.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
PREFERRED STOCK - 0.6%
Utilities - 0.6%
Multi-Utilities - 0.6%
2,400 RWE AG - Non-Voting $ 154,366
-----------
TOTAL PREFERRED STOCK
(Cost $139,965) $ 154,366
-----------
COMMON STOCKS - 99.7%
Energy - 9.3%
Integrated Oil & Gas - 7.8%
28,910 BP Amoco Plc $ 309,478
2,100 Gazprom (A.D.R.)* 152,519
3,300 Lukoil Holding (A.D.R.) 195,690
3,700 Petrobras Brasileiro (A.D.R.) 238,169
15,400 Repsol SA 451,664
3,400 Statoil SA 78,079
2,630 Total SA 661,524
-----------
$ 2,087,123
-----------
Oil & Gas Equipment & Services - 0.8%
4,900 Saipem S.p.A. $ 80,361
2,160 Technip 130,947
-----------
$ 211,308
-----------
Oil & Gas Exploration & Production - 0.7%
284,000 CNOOC, Ltd. $ 192,812
-----------
Total Energy $ 2,491,243
-----------
Materials - 8.4%
Construction Materials - 1.6%
8,800 CRH Plc $ 258,607
2,600 Holcim, Ltd. 176,954
-----------
$ 435,561
-----------
Diversified Chemical - 0.4%
1,400 BASF India, Ltd. $ 107,187
-----------
Diversified Metals & Mining - 3.3%
17,002 Broken Hill Proprietary Co., Ltd. $ 284,341
6,750 Freeport-McMoRan Copper & Gold, Inc.
(Class B) 363,150
5,490 Rio Tinto Plc 250,624
-----------
$ 898,115
-----------
Fertilizers & Agricultural Chemicals - 0.7%
1,400 Syngenta AG* $ 174,105
-----------
Specialty Chemicals - 0.8%
4,300 Shin-Etsu Chemical Co., Ltd. $ 227,017
-----------
Steel - 1.5%
7,300 Companhia Vale do Rio Doce (A.D.R.) $ 264,625
13,200 Hitachi Metals, Ltd. 143,482
-----------
$ 408,107
-----------
Total Materials $ 2,250,092
-----------
Shares Value
Capital Goods - 12.3%
Building Products - 2.2%
23,000 Asahi Glass Co., Ltd. $ 294,160
2,600 Compagnie de Saint Gobain 154,560
3,200 Wienerberger AG 127,349
-----------
$ 576,069
-----------
Construction & Farm Machinery &
Heavy Trucks - 3.2%
13,700 Daewoo Heavy Industries &
Machinery, Ltd. $ 371,566
3,900 Hyundai Heavy Industries 296,725
12,000 Komatsu, Ltd. 200,750
-----------
$ 869,041
-----------
Heavy Electrical Equipment - 1.3%
50,000 Mitsubishi Electric Corp. $ 357,293
-----------
Industrial Conglomerates - 1.3%
1 KOC Holding AS $ 4
4,190 Siemens 358,876
-----------
$ 358,880
-----------
Industrial Machinery - 2.3%
8,600 Atlas Copco AB $ 191,468
2,600 Fanuc, Ltd. 222,519
16,000 Nabtesco Corp. 208,060
-----------
$ 622,047
-----------
Trading Companies & Distributors - 2.0%
20,800 Mitsui & Co., Ltd. $ 268,837
21,000 Sumitomo Corp. 270,103
-----------
$ 538,940
-----------
Total Capital Goods $ 3,322,270
-----------
Transportation - 2.8%
Air Freight & Couriers - 0.5%
4,800 TNT Post Group NV $ 149,927
-----------
Airport Services - 0.9%
22,100 BAA Plc $ 238,752
-----------
Railroads - 1.4%
55 East Japan Railway Co. $ 376,950
-----------
Total Transportation $ 765,629
-----------
Automobiles & Components - 4.8%
Auto Parts & Equipment - 1.0%
7,900 Denso Corp. $ 274,760
-----------
Automobile Manufacturers - 2.5%
2,700 Hyundai Motor Co., Ltd. $ 258,811
8,000 Toyota Motor Co. 418,246
-----------
$ 677,057
-----------
The accompanying notes are an integral part of these financial statements. 5
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
Tires & Rubber - 1.3%
3,200 Compagnie Generale des
Etablissements Michelin $ 179,612
1,800 Continental AG 159,528
-----------
$ 339,140
-----------
Total Automobiles & Components $ 1,290,957
-----------
Consumer Durables & Apparel - 3.2%
Apparel, Accessories & Luxury Goods - 0.6%
650 Adidas-Salomon AG $ 122,961
3,385 Burberry Group Plc 24,787
-----------
$ 147,748
-----------
Consumer Electronics - 2.0%
8,200 Philips Electronics NV $ 254,658
6,900 Sony Corp. 281,540
-----------
$ 536,198
-----------
Footwear - 0.3%
300 Puma AG Rudolf Dassler Sport $ 87,496
-----------
Homebuilding - 0.3%
4,200 Persimmon Plc $ 90,426
-----------
Total Consumer Durables & Apparel $ 861,868
-----------
Consumer Services - 1.2%
Casinos & Gaming - 0.4%
3,300 Opap SA* $ 113,554
-----------
Hotels, Resorts & Cruise Lines - 0.8%
4,100 Carnival Corp. $ 219,227
-----------
Total Consumer Services $ 332,781
-----------
Media - 2.0%
Advertising - 0.7%
16,600 WPP Group Plc $ 179,208
-----------
Broadcasting & Cable TV - 0.8%
2,700 Grupo Televisa SA (A.D.R.) $ 217,350
-----------
Movies & Entertainment - 0.5%
4,500 Vivendi Universal $ 141,304
-----------
Total Media $ 537,862
-----------
Retailing - 2.2%
Apparel Retail - 0.6%
42,300 Truworths International, Ltd. $ 160,691
-----------
Catalog Retail - 0.6%
9,546 GUS Plc $ 169,174
-----------
Department Stores - 1.0%
15,700 Takashimaya Co., Ltd. $ 252,567
-----------
Total Retailing $ 582,432
-----------
Shares Value
Food & Drug Retailing - 3.0%
Food Retail - 0.9%
39,600 Tesco Plc $ 224,951
-----------
Hypermarkets & Supercenters - 2.1%
12,200 Aeon Co., Ltd. $ 311,771
4,000 Brasil Distr Pao Acu (A.D.R.) 131,600
300 Shinsegae Co., Ltd. 131,104
-----------
$ 574,475
-----------
Total Food & Drug Retailing $ 799,426
-----------
Food, Beverage & Tobacco - 2.1%
Packaged Foods & Meats - 2.1%
1,200 Nestle SA $ 358,118
13,000 Toyo Suisan Kaisha, Ltd. 209,437
-----------
$ 567,555
-----------
Total Food. Beverage & Tobacco $ 567,555
-----------
Health Care Equipment & Services - 0.8%
Health Care Equipment - 0.8%
1,900 Synthes, Inc. $ 213,215
-----------
Total Health Care Equipment &
Services $ 213,215
-----------
Pharmaceuticals & Biotechnology - 7.8%
Pharmaceuticals - 7.8%
5,800 Astellas Pharma, Inc. $ 224,865
7,032 AstraZeneca Plc 342,638
12,700 Daiichi Sankyo Co., Ltd.* 244,731
7,890 GlaxoSmithKline Plc 198,661
3,300 Novartis 173,197
3,538 Roche Holdings AG 530,957
1,400 Schering AG 93,727
5,500 Shire Pharmaceuticals Group Plc (A.D.R.) 213,345
1,400 UCB S.A. 65,715
-----------
$ 2,087,836
-----------
Total Pharmaceuticals &
Biotechnology $ 2,087,836
-----------
6 The accompanying notes are an integral part of these financial statements.
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Banks - 15.6%
Diversified Banks - 15.6%
14,700 Banco Bilbao Vizcaya Argentaria, SA $ 262,198
2,100 Banco Itau SA* 50,442
38,925 Barclays Plc 408,949
4,700 BNP Paribas SA 380,137
4,100 Commonwealth Bank of Australia 128,582
4,745 Credit Agricole SA 149,411
27,800 Development Bank of Singapore, Ltd. 275,764
18,200 HSBC Holding Plc 291,960
2,800 Kookmin Bank (A.D.R.) (b) 209,188
30 Mitsubishi UFJ Financial Group, Inc. 410,927
12,720 Royal Bank of Scotland Group Plc 384,065
3,019 Societe Generale 371,181
42 Sumitomo Mitsui Financial Group, Inc. 449,609
27,240 Turkiye Is Bankasi (Isbank) 235,782
3,100 Uniao de Bancos Brasileiros S.A.
(Unibanco) (G.D.R.) (144A) 197,067
-----------
$ 4,205,262
-----------
Total Banks $ 4,205,262
-----------
Diversified Financials - 5.9%
Asset Management & Custody Banks - 0.4%
1,300 Julius Baer Holding $ 92,034
-----------
Diversified Capital Markets - 3.4%
9,830 CS Group $ 500,808
1,400 Deutsche Bank AG 135,667
2,850 UBS AG 271,196
-----------
$ 907,671
-----------
Investment Banking & Brokerage - 0.6%
15,000 Daiwa Securities Group, Inc. $ 171,916
-----------
Diversified Financial Services - 1.5%
11,900 ING Groep N.V. $ 412,517
-----------
Total Diversified Financials $ 1,584,138
-----------
Insurance - 4.8%
Life & Health Insurance - 0.7%
4,900 China Life Insurance Co. (A.D.R.)*(b) $ 172,872
-----------
Multi-Line Insurance - 3.2%
18,100 Aviva Plc $ 218,548
10,900 AXA 352,059
1,380 Zurich Financial Services* 294,209
-----------
$ 864,816
-----------
Property & Casualty Insurance - 0.9%
19,500 Mitsui Sumitomo Insurance Co. $ 241,125
-----------
Total Insurance $ 1,278,813
-----------
Shares Value
Real Estate - 1.3%
Real Estate Management & Development - 1.3%
16,900 Mitsui Fudosan Co. $ 345,038
-----------
Total Real Estate $ 345,038
-----------
Software & Services - 1.2%
IT Consulting & Other Services - 1.2%
2,000 Nomura Research Institute, Ltd. $ 244,613
1,200 Atos Origin* 78,987
-----------
$ 323,600
-----------
Total Software & Services $ 323,600
-----------
Technology Hardware & Equipment - 3.3%
Communications Equipment - 1.1%
91,400 Ericsson LM $ 313,985
-----------
Computer Hardware - 1.1%
48,000 Toshiba Corp. $ 288,960
-----------
Office Electronics - 1.1%
5,000 Canon, Inc. $ 293,802
-----------
Total Technology Hardware &
Equipment $ 896,747
-----------
Semiconductors - 0.8%
19,500 Hon Hai Precision Industry (G.D.R.) $ 222,323
-----------
Total Semiconductors $ 222,323
-----------
Telecommunication Services - 4.4%
Integrated Telecommunication Services - 2.3%
13,000 France Telecom SA $ 322,853
6,923 Telefonica SA 104,117
5,000 Telekom Austria AG 112,210
10,500 Telekomunikacja Polska SA 75,609
-----------
$ 614,789
-----------
Wireless Telecommunication Services - 2.1%
115 NTT Mobile Communications, Inc. $ 175,974
4,000 Mobile Telesystems (A.D.R.) 140,000
112,411 Vodafone Group Plc 244,040
-----------
$ 560,014
-----------
Total Telecommunication Services $ 1,174,803
-----------
Utilities - 2.5%
Electric Utilities - 1.2%
3,333 E.On AG $ 344,756
-----------
Gas Utilities - 0.5%
31,000 Tokyo Gas Co., Ltd. $ 137,729
-----------
Multi-Utilities - 0.7%
20,446 National Grid Plc $ 199,152
-----------
Total Utilities $ 681,637
-----------
The accompanying notes are an integral part of these financial statements. 7
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
TOTAL COMMON STOCKS
(Cost $21,297,641) $26,815,527
-----------
TEMPORARY CASH INVESTMENT - 1.4%
Security Lending Collateral - 1.4%
372,684 Securities Lending Collateral Fund, 4.24% $ 372,684
-----------
TOTAL TEMPORARY CASH
INVESTMENT
(Cost $372,684) $ 372,684
-----------
TOTAL INVESTMENT IN
SECURITIES - 101.7%
(Cost $21,810,290)(a) $27,342,577
-----------
OTHER ASSETS
AND LIABILITIES - (1.7)% $ (440,853)
-----------
TOTAL NET ASSETS - 100.0% $26,901,724
===========
* Non-income producing security
(A.D.R.) American Depositary Receipt
(G.D.R.) Global Depositary Receipt
144A Security is exempt from registration under Rule 144A of the Securities
Act of 1933. Such securities may be resold normally to qualified
institutional buyers in a transaction exempt from registration. At
December 31, 2005, the value of these securities amounted to $197,067
or 0.7% of net assets.
(a) Distributions of investments by country of issue, as percentage of
total equity holdings (excluding temporary cash investments) is
as follows:
Japan 30.6%
France 16.3%
United Kingdom 15.9%
Switzerland 7.9%
Germany 5.4%
Spain 4.9%
Italy 4.2%
Netherlands 3.6%
South Korea 1.5
Ireland 1.5
Turkey 1.3
Brazil 1.1
Belgium 1.0
Austrialia 1.0
Other (individually less than 1%) 3.8
-----
100.0%
=====
(b) At December 31, 2005, the following securities were out on loan:
Shares Security Market Value
4,580 China Life Insurance Co. (A.D.R.)* $161,582
2,660 Kookmin Bank (A.D.R.) 198,729
--------
Total $360,311
========
8 The accompanying notes are an integral part of these financial statements.
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
5/1/03 (a)
Year Ended Year Ended to
Class II 12/31/05 12/31/04 12/31/03
Net asset value, beginning of period $ 11.84 $ 10.04 $ 7.76
------- ------- -------
Increase from investment operations:
Net investment income (loss) $ 0.04 $ (0.02) $ 0.05
Net realized and unrealized gain on investments and foreign currency transactions 1.76 1.86 2.29
------- ------- -------
Net increase from investment operations $ 1.80 $ 1.84 $ 2.34
Distributions to shareowners:
Net income (0.01) (0.04) (0.06)
-------- ------- --------
Net increase in net asset value $ 1.79 $ 1.80 $ 2.28
-------- ------- --------
Net asset value, end of period $ 13.63 $ 11.84 $ 10.04
======= ======= =======
Total return* 15.19% 18.42% 30.31%(b)
Ratio of net expenses to average net assets+ 1.84% 2.13% 2.02%* *
Ratio of net investment gain (loss) to average net assets+ 0.36% (0.11)% (0.81)%**
Portfolio turnover rate 108% 129% 99%
Net assets, end of period (in thousands) $ 5,726 $ 4,133 $ 1,081
Ratios assuming no waiver of management fees and assumption of expenses by PIM
and no reduction for fees paid indirectly:
Net expenses 1.84% 2.13% 2.02%* *
Net investment income (loss) 0.36% (0.11)% (0.81)%**
(a) Class II shares were first publicly offered on May 1, 2003.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.)
** Annualized.
+ Ratios with no reduction for fees paid indirectly.
(b) Not annualized.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
The accompanying notes are an integral part of these financial statements. 9
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (including securities loaned of $360,311)
(Cost $21,810,290) $ 27,342,577
Receivables --
Fund shares sold 3,044
Dividends, interest and foreign taxes withheld 32,223
Other 869
------------
Total assets $ 27,378,713
------------
LIABILITIES:
Payables --
Fund shares repurchased $ 7,885
Upon return of securities loaned 372,684
Due to bank 17,439
Due to affiliates 6,479
Accrued expenses 72,502
------------
Total liabilities $ 476,989
------------
NET ASSETS:
Paid-in capital $ 31,131,519
Undistributed net investment income 120,607
Accumulated net realized loss (9,882,195)
Net unrealized gain (loss) on:
Investments 5,532,287
Forward foreign currency contracts and other assets and liabilities denominated
in foreign currencies (494)
------------
Total net assets $ 26,901,724
------------
NET ASSET VALUE PER SHARE:
Class I:
(No par value, unlimited number of shares authorized)
Net assets $ 21,175,902
Shares outstanding 1,544,426
------------
Net asset value per share $ 13.71
Class II:
(No par value, unlimited number of shares authorized)
Net assets $ 5,725,822
Shares outstanding 420,103
------------
Net asset value per share $ 13.63
10 The accompanying notes are an integral part of these financial statements.
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended
12/31/05
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $75,067) $ 541,725
Interest 12,408
Income on securities loaned, net 21,147
----------
Total investment income $ 575,280
----------
EXPENSES:
Management fees $ 258,471
Transfer agent fees and expenses 8,676
Distribution fees (Class II) 12,164
Administrative reimbursements 18,512
Custodian fees 29,895
Professional fees 49,782
Printing expense 12,970
Fees and expenses of nonaffiliated trustees 3,983
Miscellaneous 16,902
----------
Total expenses $ 411,355
----------
Net expenses $ 411,355
----------
Net investment income $ 163,925
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Investments $4,225,791
Forward foreign currency contracts and other assets
and liabilities denominated in foreign currencies (39,160)
----------
$4,186,631
----------
Change in net unrealized gain or loss from:
Investments $ (618,775)
Forward foreign currency contracts and other assets
and liabilities denominated in foreign currencies 841
----------
$ (617,934)
----------
Net gain on investments, futures contracts and foreign currency transactions $3,568,697
==========
Net increase in net assets resulting from operations $3,732,622
==========
The accompanying notes are an integral part of these financial statements. 11
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended Year Ended
12/31/05 12/31/04
FROM OPERATIONS:
Net investment income $ $163,925 $ 93,454
Net realized gain on investments 4,186,631 2,810,326
Change in net unrealized gain or loss on investments, futures contracts
and foreign currency transactions (617,934) 1,310,186
------------ ------------
Net increase in net assets resulting from operations $ 3,732,622 $ 4,213,966
------------ ------------
DISTRIBUTIONS TO SHAREOWNERS:
Net investment income
Class I $ (31,154) $ (113,573)
Class II (3,084) (8,890)
------------ ------------
Total distributions to shareowners $ (34,238) $ (122,463)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 3,244,454 $ 4,380,480
Reinvestment of distributions 34,238 122,460
Cost of shares repurchased (7,067,685) (5,189,620)
------------ ------------
Net decrease in net assets resulting from Fund share transactions $ (3,788,993) $ (686,680)
------------ ------------
Net increase (decrease) in net assets $ (90,609) $ 3,404,823
------------ ------------
NET ASSETS:
Beginning of year $ 26,992,333 $ 23,587,510
------------ ------------
End of year $ 26,901,724 $ 26,992,333
============ ============
Undistributed net investment income, end of year $ 120,607 $ 30,080
============ ============
12 The accompanying notes are an integral part of these financial statements.
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer International Value Portfolio (the Portfolio) is a Portfolio of
Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust
registered under the Investment Company Act of 1940 as an open-end management
investment company. The Trust consists of twenty-nine separate diversified
portfolios, fourteen of which issue both Class I and Class II shares
(collectively, the "Portfolios", individually the "Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares
only)
The Portfolio commenced operations on May 1, 2003.
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts or by
qualified pension and retirement plans.
The financial highlights for the Portfolio's Class I shares are presented in a
separate book.
The investment objective of International Value VCT Portfolio is to seek
long-term capital growth.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
periods. Actual results could differ from those estimates.
Information concerning the Portfolio's principal investment risks is contained
in the Portfolio's prospectus(es). Please refer to those documents when
considering the Portfolio's risks. Investing in foreign and/or emerging markets
securities involves risks relating to interest rates, currency exchange rates,
economic and political conditions.
The following is a summary of significant accounting policies consistently
followed by the Portfolio, in the preparation of its financial statements,
which are
13
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
consistent with those generally accepted in the investment company industry:
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the portfolios are computed once daily, on each day the New York Stock
Exchange (NYSE) is open, as of the close of regular trading on the NYSE. In
computing the net asset values, securities are valued at the last sale
price on the principal exchange where they are traded. Securities that have
not traded on the date of valuation, or securities for which sale prices
are not generally reported, are valued at the mean between the last bid and
asked prices. Trading in foreign equity securities is substantially
completed each day at various times prior to the close of the NYSE. The
value of such securities used in computing the net asset value of the
Portfolio's shares, based on the last sale price on the principal exchange
where they traded, are determined as of such times. The principal exchanges
and markets for such securities have closing times prior to the close of
the NYSE. However, the value of these securities may be influenced by
changes in global markets occurring after the closing times of the local
exchanges and markets up to the time the Portfolio determines its net asset
value. Consequently, the Board of Trustees of the Portfolio has determined
that the use of daily fair valuations as provided by a pricing service is
appropriate for the Portfolio. The Portfolio may also take into
consideration other significant events in determining the fair value of
these securities. Thus, the Portfolio's securities valuations may differ
from prices reported by the various local exchanges and markets. At
December 31, 2005, there were no fair valued securities.
All securities that trade in foreign markets whose closing prices are as of
times prior to the close of the NYSE and that are held by International
Value Portfolio are fair valued using vendor-supplied pricing updates for
each security to the time of the close of the NYSE. Temporary cash
investments and securities held by the Portfolio are valued at amortized
cost.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities where the ex-dividend date may have
passed are recorded as soon as the Portfolio becomes aware of the
ex-dividend data in the exercise of reasonable diligence. Interest income,
including interest on income bearing cash accounts, is recorded on the
accrual basis, net of unrecoverable foreign taxes withheld at the
applicable country rates.
The Portfolio's investments in emerging markets or countries with limited
or developing markets may subject the Portfolio to a greater degree of risk
than in a developed market. Risks associated with these developing markets
include political, social or economic factors and may affect the price of
the Portfolio's investments and income generated by these investments, as
well as the Portfolio's ability to repatriate such amounts.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes on capital gains at
the applicable country rates.
B. Foreign Currency Translation
The books and records of the Portfolio are maintained in U.S. dollars.
Amounts denominated in foreign currencies are translated into U.S. dollars
using current exchange rates.
Net realized gains and losses on foreign currency transactions represent,
the net realized gains and losses on foreign currency contracts,
disposition of foreign currencies, and the difference between the amount of
income accrued and the U.S. dollars actually received. Further, the effects
of changes in foreign currency exchange rates on investments are not
segregated in the statement of operations from the effects of changes in
market price of those securities but are included with the net realized and
unrealized gain or loss on investments.
C. Forward Foreign Currency Contracts
The Portfolio enters into forward foreign currency contracts (contracts)
for the purchase or sale of a specific foreign currency at a fixed price on
a future date as a hedge or cross-hedge against either specific investment
transactions (settlement hedges) or portfolio positions (portfolio hedges).
All contracts are marked to market daily at the applicable exchange rates,
and any resulting unrealized gains or losses are recorded in the
Portfolio's financial statements. The Portfolio records realized gains and
losses at the time a portfolio hedge is offset by entry into a closing
transaction or extinguished by delivery of the currency. Risks may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of the contract and from unanticipated
movements in the value of foreign currencies relative to the U.S. dollar.
As of December 31, 2005, the Portfolio had no outstanding portfolio or
settlement hedges.
D. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all
14
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
of its taxable income and net realized capital gains, if any, to its
shareowners. Therefore, no federal income tax provision is required.
In addition to the requirements of the Internal Revenue Code, the Portfolio
may also be required to pay local taxes on the recognition of capital gains
and/or the repatriation of foreign currencies in certain countries. During
the year ended December 31, 2005, no such taxes were paid.
In determining the daily net asset value, the Portfolio estimates the
reserve for such taxes, if any, associated with investments in certain
countries. The estimated reserve for taxes on capital gains is based on the
net unrealized appreciation on certain portfolio securities, the holding
year of such securities and the related tax rates, tax loss carryforward
(if applicable) and other such factors. The estimated reserve for taxes on
repatriation of foreign currencies is based on principal balances and/or
unrealized appreciation of applicable securities, the holding year of such
investments and the related tax rates and other such factors. As of
December 31, 2005, the Portfolio had no reserves related to taxes on the
repatriation of foreign currencies.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal
income tax rules. Therefore, the source of each Portfolio's distributions
may be shown in the accompanying financial statements as either from, or in
excess of, net investment income or net realized gain on investment
transactions, or from paid-in capital, depending on the type of book/tax
differences that may exist.
Capital loss carryforwards are available to offset future realized capital
gains. At December 31, 2005, International Value VCT Portfolio had a
capital loss carryforward of $9,866,967 of which the following amounts will
expire between 2009 and 2011 if not utilized: $2,426,453 in 2009,
$5,309,516 in 2010 and $2,130,998 in 2011.
At December 31, 2005, the portfolio made reclassifications as described
below. These reclassifications have no impact on the net asset values of
the portfolio and are designed to present the portfolio's capital accounts
on a tax basis.
- --------------------------------------------------------------------------------------------------
Undistributed Net
Investment Accumulated Net Paid-In
Portfolio Income Realized Gain Capital
- --------------------------------------------------------------------------------------------------
Pioneer International Value VCT Portfolio $ (39,160) $39,160 $--
========= ======= ===
- --------------------------------------------------------------------------------------------------
The following chart shows the distributions paid during the years ended
December 31, 2005 and December 31, 2004 and the components of distributable
earnings (accumulated losses) as of December 31, 2005 on a tax basis.
- ------------------------------------------------------------------------------------------
2005 2004
- ------------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ 34,238 $122,463
Long-Term capital gain -- --
------------ --------
$ 34,238 $122,463
Return of Capital -- --
------------ --------
Total distributions $ 34,238 $122,463
============ ========
Distributable Earnings (Accumulated Losses):
Undistributed ordinary income $ 120,607
Undistributed long-term gain/(capital loss carryforward) (9,866,967)
Unrealized appreciation (depreciation) 5,516,565
------------
Total $ (4,229,795)
============
- ------------------------------------------------------------------------------------------
15
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
For the fiscal year ending December 31, 2005, International Value Portfolio
has elected to pass through foreign tax credits of $58,710. The difference
between book-basis and tax-basis unrealized appreciation (depreciation) is
attributable to the tax deferral of losses on wash sales.
E. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Trust and a wholly owned indirect subsidiary
of UniCredito Italiano S.p.A. (UniCredito Italiano), $638,021 in
commissions on the sale of Trust shares for the year ended December 31,
2005. Distribution fees for Class II shares are calculated based on the
average daily net asset values attributable to Class II shares of the
Portfolio. Shareowners of each class share all expenses and fees paid to
the transfer agent, Pioneer Investment Management Shareholder Services,
Inc. (PIMSS), for its services, which are allocated based on the number of
accounts in each class and the ratable allocation of related out-of-pocket
expenses (see Note 3). Income, common expenses (excluding transfer agent
and distribution fees) and realized and unrealized gains and losses are
calculated at the Portfolio level and allocated daily to each class of
shares based on the respective percentage of the adjusted net assets at the
beginning of the day. Dividends and distributions to shareowners are
recorded on the ex-dividend date. Distributions paid by the Portfolio with
respect to each class of shares are calculated in the same manner, at the
same time, and in the same amount, except that Class I and Class II shares
can bear different transfer agent and distribution fees.
F. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees. The Portfolio also continues to receive
payments in lieu of interest or dividends on the securities loaned. Gain or
loss in the fair value of the securities loaned that may occur during the
term of the loan, will be for the account of the Portfolio. The loans are
secured by collateral of at least 102%, at all times, of the fair value of
the securities loaned. The fair value of the collateral will be adjusted
daily to reflect any price fluctuation in the value of the loaned
securities. The Portfolio has the right under the lending agreement to
recover the securities on loan from the borrower on demand. The Portfolio
invests cash collateral in the Securities Lending Investment Fund which is
sponsored by Brown Brothers Harriman & Co., the Portfolio's custodian.
G. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano manages the
portfolio. Management fees are calculated daily at the annual rate of 1.00% of
the Portfolio's average daily net assets.
In addition, under the management and administration agreement, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $1,493 was payable
to PIM related to management fees, administrative fees and certain other
services, and is included in due to affiliates.
3. Transfer Agent
PIMSS, a wholly owned indirect subsidiary of UniCredito Italiano provides
substantially all transfer agent and shareowner services to the Trust at
negotiated rates. Included in due to affiliates is $4,907 in transfer agent
fees payable to PIMSS at December 31, 2005.
4. Distribution Plans
The Portfolio has adopted a plan of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with the Portfolio's Class
II shares. Included in due to affiliates is $79 payable to PFD at December 31,
2005.
16
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- ------------------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- ------------------------------------------------------------------------------------------------------
International Value Portfolio $21,825,518 $5,651,803 $ (134,744) $5,517,059
=========== ========== ========== ==========
- ------------------------------------------------------------------------------------------------------
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were $27,644,939 and $31,089,404, respectively.
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
- -------------------------------------------------------------------------------------------
International Value Portfolio '05 Shares '05 Amount '04 Shares '04 Amount
- -------------------------------------------------------------------------------------------
CLASS I:
Shares sold 48,222 $ 576,930 125,954 $ 1,319,269
Reinvestment of distributions 2,721 31,154 10,994 113,572
Shares repurchased (430,261) (5,229,863) (449,994) (4,643,483)
--------------------------------------------------------
Net increase (decrease) (379,318) $ (4,621,779) (313,046) $ (3,210,642)
========================================================
CLASS II:
Shares sold 218,007 $ 2,667,524 294,244 $ 3,061,211
Reinvestment of distributions 270 3,084 862 8,888
Shares repurchased (147,285) (1,837,822) (53,626) (546,137)
--------------------------------------------------------
Net increase (decrease) 70,992 $ 832,786 241,480 $ 2,523,962
========================================================
- -------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION (unaudited)
The qualifying percentage of certain Portfolios' ordinary income dividends for
the purposes of the corporate dividends received deduction and the percentage
of those ordinary dividends that are subject to a maximum tax rate of 15% as
provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were
as follows:
- ---------------------------------------------------------------
Dividend Qualified
Received Dividend
Deduction Income
- ---------------------------------------------------------------
International Value Portfolio 0.00% 100.00%
- ---------------------------------------------------------------
17
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust and the
Shareowners
of Pioneer International Value VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer International Value VCT Portfolio, one
of the portfolios constituting the Pioneer Variable Contracts Trust (the
"Trust"), as of December 31, 2005, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audit.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005, by correspondence
with the custodian and brokers or by other appropriate auditing procedures
where replies from brokers were not received. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer International Value VCT Portfolio of the Pioneer Variable Contracts
Trust at December 31, 2005, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and financial highlights for the periods indicated therein, in
conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
18
Pioneer International Value VCT Portfolio (the "Fund")
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN
APPROVING THE MANAGEMENT CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three, five and ten year
periods for the Fund and a peer group selected by the Independent Trustees for
this purpose, (2) management fees incurred by a peer group of funds selected by
the Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of break
points in the management fee, reasonable growth expectations for the Fund and
certain of the Fund's expenses that are not incurred as fees based on a
percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objective and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's
19
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN
APPROVING THE MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and the
results of an index, in each case selected by the Independent Trustees for
this purpose. The Fund's performance based upon total return was in the
third quintile of the peer group for the 12 months ended June 30, 2005, the
fourth quintile for the three years ended June 30, 2005, the fifth quintile
for the five years ended June 30, 2005 and the fifth quintile for the ten
year period ended June 30, 2005. (In all quintile rankings referred to
throughout this discussion first quintile is most favorable to the Fund's
shareholders. Thus, highest relative performance would be first quintile
and lowest relative expenses also would be first quintile.) The Trustees
concluded that the performance of the Fund supported the continuation of
the Management Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The
Independent Trustees also have had discussions with senior management of
the Investment Adviser responsible for investment operations and the senior
management of the Investment Adviser's equities group. Among other things,
the Trustees considered the number, education and experience of the
Investment Adviser's investment staff and their use of technology and
emphasis on analytics in view of the risk profile of securities in which
the Fund invests. The Trustees concluded that the Investment Adviser had
the quality and depth of personnel and the well-developed methods essential
to performing its duties under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision
of third party service providers. Based on these considerations, the
Trustees concluded that the nature, quality, cost and extent of such
services are satisfactory and reliable and serve the shareholders of the
Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the fifth
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Investment Adviser agreed to
reduce the management fee to 0.85%, which would be in the third quintile of
the peer group, and to add a break point to the fee schedule. The Trustees
determined that the fee under the Management Contract was reasonable and
fair in light of both the overall nature and quality of services provided
by the Investment Adviser and the fees charged by the funds in the peer
group. The Trustees also considered the Fund's expense ratio for the 12
months ended June 30, 2005 and expense ratios for the comparable period of
a peer group of funds selected by the Independent Trustees for this
purpose. The Fund's expense ratio was in the fifth quintile of this peer
group for the most recent fiscal year.
F. Profitability. The Trustees considered the level of the Investment
Adviser's profits with respect to the management of the Pioneer Funds,
including details with respect to the Fund. This consideration included a
review of the Investment Adviser's methodology in allocating certain of its
costs to the management of each Fund. The Trustees also considered the
financial results realized by the Investment Adviser in connection with the
operation of the Fund. They further considered the profits realized by the
Investment Adviser and its affiliates from non-fund businesses that may
benefit from or be related to the Fund's business. The Trustees considered
the Investment Adviser's profit margins in comparison with the limited
available industry data. The Trustees concluded that the Investment
Adviser's profits from management of the Pioneer Funds, including the
financial results derived from the Fund, bear a reasonable relationship to
the services rendered and are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. Because of break points in
the management fees, the Trustees concluded
20
Pioneer International Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
that any perceived or potential economies of scale would be shared at
future asset levels, in a reasonable manner as the Fund grows in size,
between Fund's shareholders and the Investment Adviser.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund), and
benefits to the Investment Adviser from the use of "soft" commission
dollars to pay for research. The Trustees further considered the revenues
and profitability of the Investment Adviser's businesses other than the
fund business, including the Investment Adviser's institutional investment
advisory business. The Trustees considered the intangible benefits that
accrue to the Investment Adviser and its affiliates by virtue of its
relationship with the Fund and the Pioneer Funds as a group. The Trustees
concluded that all these types of benefits accruing to the Investment
Adviser were reasonable in the context of the overall relationship between
the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
21
Pioneer International Value VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
22
Pioneer International Value VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held
Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance
or earlier services company) (2001-present); company); Director of New York
retirement or Managing Partner, Federal City Mortgage Trust (publicly traded
removal. Capital Advisors (boutique merchant mortgage REIT)
bank) (2002 to 2004); Executive
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products
or earlier manufacturer), Mortgage Guaranty
retirement or Insurance Corporation, and Briggs
removal. & Stratton, Inc. (engine
manufacturer)
- ----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
23
Pioneer International Value VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
24
Pioneer International Value VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, Assistant Vice President - Fund None
Treasurer 2000. Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ---------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ---------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
25
[LOGO]PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company, Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
[LOGO] PIONEER
Investments (R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Mid Cap Value VCT Portfolio -- Class II Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
T a b l e o f C o n t e n t s
- --------------------------------------------------------------------------------
Pioneer Mid Cap Value VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 6
Financial Statements 9
Notes to Financial Statements 13
Report of Independent Registered Public
Accounting Firm 18
Factors Considered by the Independent Trustees
in Approving the Management Contract 19
Trustees, Officers and Service Providers 22
Before investing, consider the Portfolio's investment
objectives, risks, charges and expenses. Contact your
advisor or Pioneer Investments for a prospectus containing
this information. Read it carefully.
The Trust files a complete statement of investments with the
Securities and Exchange Commission for the first and the
third quarters for each fiscal year on Form N-Q. Shareowners
may view the filed Form N-Q by visiting the Commission's web
site at http://www.sec.gov. The filed form may also be
viewed and copied at the Commission's Public Reference Room
in Washington, D.C. Information regarding the operations of
the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 97.3%
Temporary Cash Investment 1.9%
Depositary Receipts for International Stocks 0.8%
Sector Distribution
(As a percentage of equity holdings)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Financials 23.7%
Consumer Discretionary 13.2%
Informational Technology 10.3%
Health Care 19.2%
Industrials 9.9%
Materials 8.8%
Consumer Staples 8.1%
Utilies 7.8%
Energy 6.7%
Telecommunication Services 1.3%
Five Largest Holdings
(As a percentage of equity holdings)
1. Foot Locker, Inc. 2.16%
2. Symbol Technologies, Inc. 2.14
3. Federated Investors, Inc. 2.06
4. W.W. Grainger, Inc. 2.03
5. Republic Services, Inc. 2.00
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 24.72 $ 24.44
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.0519 $ 0.1221 $ 1.3647
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Mid Cap Value VCT Portfolio at net asset value, compared to that of the Russell
Midcap Value Index. Portfolio returns are based on net asset value and do not
reflect any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Russell Pioneer
Mid-Cap Mid Cap
Value Index Value VCT
Portfolio
Dec-95 10000 10000
12026 11290
Dec-97 16159 13943
16981 12609
Dec-99 16962 14218
20215 16944
Dec-01 20685 17998
18690 15950
Dec-03 25805 21866
31922 26626
Dec-05 35960 28661
The Russell Midcap Value Index measures the performance of U.S. mid-cap value
stocks. Index returns are calculated monthly, assume reinvestment of dividends
and, unlike Portfolio returns, do not reflect any fees, expenses or sales
charges. You cannot invest directly in any Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
Net Asset Value
10 Years 11.10%
5 Years 11.08%
1 Year 7.64%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
2
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value [divided by] $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Mid Cap Value VCT Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005
Share Class II
- --------------------------------------------- --------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,033.01
Expenses Paid During Period* $ 4.85
* Expenses are equal to the Portfolio's annualized expense ratio of 0.95% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer Mid Cap Value VCT Portfolio
Based on a hypothetical 5% per year return before expenses, reflecting the
period from July 1, 2005 through December 31, 2005
Share Class II
- --------------------------------------------- --------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,020.36
Expenses Paid During Period* $ 4.82
* Expenses are equal to the Portfolio's annualized expense ratio of 0.95% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
The equity markets exhibited considerable volatility during 2005. Stock
valuations moved up and down without any clear direction for most of the period
before finishing strongly in the final two months of the year on evidence that
the economic recovery was persisting and that corporate profits were continuing
to improve. In the following discussion, Rod Wright, the leader of the team
that manages Pioneer Mid Cap Value VCT Portfolio, provides an update on the
Portfolio and his investment strategies during 2005.
Q. How did the Portfolio perform?
A. Class II shares of Pioneer Mid Cap Value VCT Portfolio had a total return of
7.64% at net asset value during the 12 months ended December 31, 2005.
During the same period, the Standard & Poor's 500 Index returned 4.91%,
while the Russell Midcap Value Index returned 12.65%.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q. What were the principal factors that affected Portfolio performance?
A. The Portfolio's relative performance improved substantially in the final two
months of 2005 as many of the individual stocks that we had favored during
the year finally started to produce good results. Our strategy is to manage
the Portfolio by emphasizing individual security selection rather than
sector weightings based on macro-economic forecasts. We seek to emphasize
better-quality companies with reasonable prices that have potential
catalysts for improved results and better-than-average long-term business
prospects. Our tactical objective is to outperform the overall market, as
reflected by the S&P 500, while seeking superior-long-term results.
Overall, our stock selection was good in most sectors during 2005, with our
holdings in the information technology, industrials, financials and
consumer staples sectors performing particularly well. However, our
selection in the consumer discretionary sector was far less successful, and
we also lagged in the energy, basic materials and health care sectors.
Q. What were some of the investments that helped support Portfolio performance?
A. During a year in which corporate merger-and-acquisition activity picked up,
three holdings that received attractive acquisition proposals were major
contributors: IVAX, a generic pharmaceutical company which is in the
process of being taken over by Teva, another generic manufacturer, at a
premium to its stock valuation; SunGard Data Systems, which provides
software and information technology systems to large enterprises, and was
acquired by a group of private equity investors; and Scientific-Atlanta,
producer of television set-top systems for cable television users, which is
being acquired by Cisco Systems.
Within the energy sector, investments that helped significantly included:
Devon, an exploration and production company; Transocean, a deep-water
drilling corporation; and Occidental Petroleum, an integrated refining,
marketing and distribution company.
Among other stocks that had a positive influence on return were Imation,
which produces tapes for communications networks, and Triad Hospitals, which
operates hospitals and surgery centers in 15 states; and Xerox, the office
equipment company.
A Word About Risk:
Investments in mid-sized companies may offer the potential for higher returns,
but are also subject to greater short-term price fluctuations than larger, more
established companies. Investing in foreign and/or emerging markets securities
involves risks relating to interest rates, currency exchange rates, economic,
and political conditions. At times, the Portfolio's investments may represent
industries or industry sectors that are interrelated or have common risks,
making it more susceptible to any economic, political, or regulatory
developments or other risks affecting those industries and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
Q. What were some of the investments that detracted from results?
A. Our holdings in the consumer discretionary sector had the greatest
detrimental impact on results. The sector in general was affected by both
higher energy costs, which squeezed the budgets of some consumers, and by
investor concerns that high personal debt loads would lead to a downturn in
consumer spending patterns. However, our biggest disappointments also were
affected by their own issues.
The share price of Interpublic Group, which operates a large group of
advertising and marketing agencies, plummeted in the midst of an SEC
investigation of its accounting practices and the resignations of the
company's chief executive and chief financial officers. Another
consumer-related holding that disappointed was Blockbuster. Its movie rental
business received a stiff challenge from on-line competitors at the same
time that revenues from its core business slowed because of a weak schedule
of new films and a change in policy to eliminate late fees. A third
disappointment was Foot Locker, the chain of athletic footwear stores. It
had disappointing earnings because of intense price competition in the
United Kingdom and France.
Outside the consumer area, a noteworthy disappointment was Tenet Health
Care, a hospital chain whose holdings included several hospitals in
Louisiana that were heavily damaged by Hurricane Katrina. Besides reacting
to the physical damage to the hospitals and the loss of revenues, investors
worried about the impact of investigations into how hospitals treated
patients in the days after the onslaught of the hurricane. In addition, the
market was disappointed by the chief financial officer's decision to leave
for an attractive position at the company where he worked prior to Tenet.
Q. What is your investment outlook?
A. As we enter the new year, investors continue to be concerned about the two
overriding issues that held back stock market returns in 2005: rising
short-term interest rates and higher energy prices. However, several
factors are positive - including persistent growth in corporate earnings
helped by a backdrop of rising Gross Domestic Product (GDP), and low
inflation. We are watching for evidence that consumer spending may slacken.
Given these issues, we have adopted a conservative approach in investing,
judging investment opportunities on a stock-by-stock basis and particularly
trying to avoid those companies that are vulnerable to the effects of higher
interest rates.
We believe the Portfolio is well positioned for the investment environment
with positions in quality companies selling at reasonable prices.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
5
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
Shares Value
COMMON STOCKS - 97.5%
Energy - 6.5%
Integrated Oil & Gas - 1.2%
54,709 Occidental Petroleum Corp. $ 4,370,155
------------
Oil & Gas Drilling - 1.9%
49,417 ENSCO International, Inc. $ 2,191,644
30,185 Nabors Industries, Inc.* 2,286,514
38,054 Transocean Offshore Inc.* 2,651,983
------------
$ 7,130,141
------------
Oil & Gas Equipment & Services - 0.6%
62,552 Weatherford International, Inc.* $ 2,264,382
------------
Oil & Gas Exploration & Production - 2.0%
44,700 Apache Corp. $ 3,062,844
74,583 Devon Energy Corp. 4,664,421
------------
$ 7,727,265
------------
Oil & Gas Refining & Marketing - 0.8%
49,004 Tesoro Petroleum Corp. $ 3,016,196
------------
Total Energy $ 24,508,139
------------
Materials - 8.5%
Aluminum - 0.7%
128,762 Novelis, Inc. $ 2,689,838
------------
Diversified Chemical - 2.4%
104,959 Ashland, Inc. $ 6,077,126
52,892 PPG Industries, Inc. 3,062,447
------------
$ 9,139,573
------------
Diversified Metals & Mining - 0.9%
65,617 Freeport-McMoRan Copper & Gold, Inc.
(Class B) $ 3,530,195
------------
Industrial Gases - 1.9%
121,072 Air Products & Chemicals, Inc. $ 7,166,252
------------
Metal & Glass Containers - 1.8%
169,126 Ball Corp. $ 6,717,685
------------
Specialty Chemicals - 0.8%
88,600 International Flavor & Fragrances, Inc. $ 2,968,100
------------
Total Materials $ 32,211,643
------------
Capital Goods - 4.7%
Building Products - 1.1%
107,688 American Standard Companies, Inc. $ 4,302,136
------------
Construction & Farm Machinery &
Heavy Trucks - 1.6%
90,236 Deere & Co. $ 6,145,974
------------
Trading Companies & Distributors - 2.0%
104,736 W.W. Grainger, Inc. $ 7,446,730
------------
Total Capital Goods $ 17,894,840
------------
Shares Value
Commercial Services & Supplies - 4.1%
Commercial Printing - 1.1%
117,383 R.R. Donnelly & Sons Company $ 4,015,672
------------
Diversified Commercial Services - 1.0%
59,311 The Dun & Bradstreet Corp.* $ 3,971,465
------------
Environmental & Facilities Services - 2.0%
196,163 Republic Services, Inc. $ 7,365,921
------------
Total Commercial Services &
Supplies $ 15,353,058
------------
Transportation - 0.8%
Railroads - 0.8%
39,220 Canadian National Railway Co. $ 3,137,208
------------
Total Transportation $ 3,137,208
------------
Consumer Durables & Apparel - 1.6%
Apparel, Accessories & Luxury Goods - 0.6%
65,399 Liz Claiborne, Inc. $ 2,342,592
------------
Photographic Products - 1.0%
153,473 Eastman Kodak Co. $ 3,591,268
------------
Total Consumer Durables &
Apparel $ 5,933,860
------------
Consumer Services - 2.3%
Casinos & Gaming - 1.0%
52,800 Harrah's Entertainment Inc.* $ 3,764,112
------------
Hotels, Resorts & Cruise Lines - 1.3%
105,169 Royal Caribbean Cruises, Ltd. $ 4,738,915
------------
Total Consumer Services $ 8,503,027
------------
Media - 4.3%
Advertising - 1.6%
602,480 The Interpublic Group of Companies,
Inc.* $ 5,813,932
------------
Broadcasting & Cable TV - 2.4%
139,602 Clear Channel Communications, Inc. $ 4,390,483
153,915 Entercom Communications Corp.* 4,566,658
------------
$ 8,957,141
------------
Movies & Entertainment - 0.3%
17,450 CCE Spinco, Inc.* $ 228,598
55,602 Regal Entertainment Group 1,057,550
------------
$ 1,286,148
------------
Total Media $ 16,057,221
------------
Retailing - 4.8%
Apparel Retail - 2.1%
335,943 Foot Locker, Inc. $ 7,924,895
------------
Department Stores - 1.2%
68,861 Federated Department Stores, Inc. $ 4,567,550
------------
6 The accompanying notes are an integral part of these financial statements.
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
Shares Value
Internet Retail - 1.5%
235,308 Expedia, Inc.* $ 5,637,980
------------
Total Retailing $ 18,130,425
------------
Food & Drug Retailing - 4.4%
Drug Retail - 0.9%
137,150 CVS Corp. $ 3,623,503
------------
Food Retail - 1.9%
301,888 Safeway, Inc. $ 7,142,670
------------
Hypermarkets & Supercenters - 1.6%
203,373 BJ'S Wholesale Club, Inc.* $ 6,011,706
------------
Total Food & Drug Retailing $ 16,777,879
------------
Food, Beverage & Tobacco - 3.5%
Brewers - 1.4%
78,521 Molson Coors Brewing Co. (Class B) $ 5,260,122
------------
Packaged Foods & Meats - 0.9%
99,025 H.J. Heinz Co., Inc. $ 3,339,123
------------
Tobacco - 1.2%
108,700 UST, Inc.* $ 4,438,221
------------
Total Food, Beverage & Tobacco $ 13,037,466
------------
Health Care Equipment & Services - 7.7%
Health Care Distributors - 0.5%
39,279 McKesson Corp. $ 2,026,404
------------
Health Care Equipment - 1.4%
223,800 Boston Scientific Corp.* $ 5,480,862
------------
Health Care Facilities - 1.8%
511,379 Tenet Healthcare Corp.* $ 3,917,163
69,324 Triad Hospitals, Inc.* 2,719,581
------------
$ 6,636,744
------------
Health Care Services - 2.6%
99,752 Laboratory Corp. of America Holdings* $ 5,371,645
174,900 IMS Health, Inc. 4,358,508
------------
$ 9,730,153
------------
Managed Health Care - 1.4%
46,104 CIGNA Corp. $ 5,149,817
------------
Total Health Care Equipment &
Services $ 29,023,980
------------
Pharmaceuticals & Biotechnology - 2.2%
Pharmaceuticals - 2.2%
254,423 Perrigo Co. $ 3,793,447
118,356 Shire Pharmaceuticals Group Plc
(A.D.R.) 4,591,029
------------
$ 8,384,476
------------
Total Pharmaceuticals &
Biotechnology $ 8,384,476
------------
Shares Value
Banks - 7.5%
Regional Banks - 5.0%
55,456 City National Corp. $ 4,017,233
138,015 Key Corp. 4,544,834
79,900 Marshall & Ilsley Corp. 3,438,896
124,594 North Fork Bancorporation, Inc. 3,408,892
45,365 Zions Bancorporation 3,427,779
------------
$ 18,837,634
------------
Thrifts & Mortgage Finance - 2.5%
203,001 Hudson City Bancorp, Inc. $ 2,460,372
170,089 The PMI Group, Inc. 6,985,555
------------
$ 9,445,927
------------
Total Banks $ 28,283,561
------------
Diversified Financials - 6.4%
Asset Management & Custody Banks - 3.9%
204,104 Federated Investors, Inc.* $ 7,560,012
205,849 Mellon Bank Corp. 7,050,328
------------
$ 14,610,340
------------
Investment Banking & Brokerage - 2.5%
72,884 A.G. Edwards, Inc. $ 3,415,344
51,391 Bear Stearns Companies Inc. 5,937,202
------------
$ 9,352,546
------------
Total Diversified Financials $ 23,962,886
------------
Insurance - 9.2%
Insurance Brokers - 2.4%
138,300 Marsh & McLennan Co., Inc. $ 4,392,408
122,846 Willis Group Holdings, Ltd. 4,537,931
------------
$ 8,930,339
------------
Life & Health Insurance - 1.6%
263,381 UNUM Corp. $ 5,991,918
------------
Multi-Line Insurance - 2.1%
108,160 Assurant, Inc. $ 4,703,878
92,400 Genworth Financial, Inc. 3,195,192
------------
$ 7,899,070
------------
Property & Casualty Insurance - 2.1%
79,183 Safeco Corp. $ 4,473,840
6,598 White Mountains Insurance Group, Ltd. 3,685,313
------------
$ 8,159,153
------------
Reinsurance - 1.0%
121,292 Platinum Underwriter Holdings Corp. $ 3,768,542
------------
Total Insurance $ 34,749,022
------------
Software & Services - 1.5%
Data Processing & Outsourced Services - 1.5%
401,162 The BISYS Group, Inc.* $ 5,620,280
------------
Total Software & Services $ 5,620,280
------------
The accompanying notes are an integral part of these financial statements. 7
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
Technology Hardware & Equipment - 8.6%
Communications Equipment - 2.0%
79,159 Scientific-Atlanta, Inc. $ 3,409,378
370,949 Tellabs, Inc.* 4,043,344
------------
$ 7,452,722
------------
Computer Hardware - 1.4%
154,000 NCR Corp.* $ 5,226,760
------------
Computer Storage & Peripherals - 1.3%
105,471 Imation Corp. $ 4,859,049
------------
Electronic Equipment & Instruments - 2.1%
612,970 Symbol Technologies, Inc. $ 7,858,275
------------
Office Electronics - 1.8%
470,879 Xerox Corp.* $ 6,898,377
------------
Total Technology Hardware &
Equipment $ 32,295,183
------------
Telecommunication Services - 1.3%
Integrated Telecommunication Services - 1.3%
877,113 Cincinnati Bell, Inc.* $ 3,078,667
59,046 Century Telephone Enterprises, Inc. 1,957,965
------------
$ 5,036,632
------------
Total Telecommunication Services $ 5,036,632
------------
Utilities - 7.6%
Electric Utilities - 2.3%
98,300 Allegheny Energy, Inc.* $ 3,111,195
121,871 Edison Intl. 5,314,794
3,240 Entergy Corp. 222,426
------------
$ 8,648,415
------------
Independent Power Producer &
Energy Traders - 2.8%
95,237 Constellation Energy Group $ 5,485,651
103,656 NRG Energy, Inc.* 4,884,271
------------
$ 10,369,922
------------
Multi-Utilities - 2.5%
144,474 NSTAR $ 4,146,404
146,361 PG&E Corp. 5,432,920
------------
$ 9,579,324
------------
Total Utilities $ 28,597,661
------------
TOTAL COMMON STOCKS
(Cost $321,641,094) $367,498,447
------------
Principal
Amount Value
TEMPORARY CASH INVESTMENT - 1.9%
Repurchase Agreement - 1.9%
$ 7,000,000 UBS Warburg, Inc., 3.25% dated
12/31/05, repurchase price of
$7,000,000 plus accrued interest on
1/3/06 collateralized by $7,297,000
U.S. Treasury Bill, 4.2%, 6/29/06 $ 7,000,000
------------
TOTAL TEMPORARY CASH
INVESTMENT
(Cost $7,000,000) $ 7,000,000
------------
TOTAL INVESTMENT
IN SECURITIES - 99.4%
(Cost $328,641,094) $374,498,447
------------
OTHER ASSETS
AND LIABILITIES - 0.6% $ 2,555,530
------------
TOTAL NET ASSETS - 100.0% $377,053,977
============
* Non-income producing security
(A.D.R.) American Depositary Receipt
8 The accompanying notes are an integral part of these financial statements.
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
Class II 12/30/05 12/31/04 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 24.44 $ 20.32 $ 14.86 $ 17.28 $ 17.75
------- ------- ------- -------- -------
Increase (decrease) from investment operations:
Net investment income $ 0.35 $ 0.01 $ 0.06 $ 0.04 $ 0.14
Net realized and unrealized gain (loss) on investments 1.47 4.38 5.44 (1.96) 0.94
------- ------- ------- -------- -------
Net increase (decrease) from investment operations $ 1.82 $ 4.39 $ 5.50 $ (1.92) $ 1.08
Distributions to shareholders:
Net investment income (0.05) (0.06) (0.04) (0.04) (0.08)
Net realized gain (1.49) (0.21) - (0.46) (1.47)
------- -------- -------- -------- -------
Net increase (decrease) in net asset value $ 0.28 $ 4.12 $ 5.46 $ (2.42) $ (0.47)
------- -------- -------- -------- --------
Net asset value, end of period $ 24.72 $ 24.44 $ 20.32 $ 14.86 $ 17.28
======= ======= ======== ======== ========
Total return* 7.64% 21.77% 37.09% (11.38)% 6.22%
Ratio of net expenses to average net assets+ 0.95% 0.97% 1.00% 1.07% 1.11%
Ratio of net investment income to average net assets+ 0.25% 0.29% 0.60% 0.24% 0.10%
Portfolio turnover rate 42% 55% 52% 68% 95%
Net assets, end of period (in thousands) $88,217 $536,837 $211,120 $ 61,038 $ 10,195
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 0.95% 0.97% 1.00% 1.07% 1.11%
Net investment income 0.25% 0.29% 0.60% 0.24% 0.10%
Ratios with waiver of management fees and assumption of
expenses by PIM and reduction for fees paid indirectly:
Net expenses 0.95% 0.97% 1.00% 1.07% 1.11%
Net investment income 0.25% 0.29% 0.60% 0.24% 0.10%
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of
the investment at net asset value at the end of each period.
+ Ratios with no reduction for fees paid indirectly.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
The accompanying notes are an integral part of these financial statements. 9
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (Cost $328,641,094) $ 374,498,447
Cash 2,963,747
Receivables --
Investment securities sold 542,016
Fund shares sold 175,302
Dividends, interest and foreign taxes withheld 404,805
Other 5,510
-------------
Total assets $ 378,589,827
-------------
LIABILITIES:
Payables --
Investment securities purchased $ 807,739
Fund shares repurchased 577,539
Due to affiliates 22,486
Accrued expenses 128,086
-------------
Total liabilities $ 1,535,850
-------------
NET ASSETS:
Paid-in capital $ 236,779,575
Undistributed net investment income 2,874,732
Accumulated net realized gain 91,542,317
Net unrealized gain on investments 45,857,353
-------------
Total net assets $ 377,053,977
-------------
NET ASSET VALUE PER SHARE:
Class I:
(No par value, unlimited number of shares authorized)
Net assets $ 288,836,624
Shares outstanding 11,553,502
-------------
Net asset value per share $ 25.00
Class II:
(No par value, unlimited number of shares authorized)
Net assets $ 88,217,353
Shares outstanding 3,569,045
-------------
Net asset value per share $ 24.72
10 The accompanying notes are an integral part of these financial statements.
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year
Ended
12/31/05
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $19,183) $ 8,645,128
Interest 431,672
Income on securities loaned, net 88,225
-------------
Total investment income $ 9,165,025
-------------
EXPENSES:
Management fees $ 4,812,824
Transfer agent fees and expenses 7,468
Distribution fees (Class II) 1,087,653
Administrative reimbursements 148,904
Custodian fees 54,824
Professional fees 65,495
Printing expense 92,301
Fees and expenses of nonaffiliated trustees 14,074
Miscellaneous 19,212
-------------
Total expenses $ 6,302,755
Less fees paid indirectly (14,320)
-------------
Net expenses $ 6,288,435
-------------
Net investment income $ 2,876,590
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES
CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain from:
Investments $ 97,033,276
Redemptions in kind 49,200,447
-------------
146,233,723
-------------
Change in net unrealized loss from investments $ (98,298,212)
-------------
Net gain on investments, futures contracts and foreign currency transactions $ 47,935,511
-------------
Net increase in net assets resulting from operations $ 50,812,101
=============
The accompanying notes are an integral part of these financial statements. 11
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Year
Ended Ended
12/31/05 12/31/04
FROM OPERATIONS:
Net investment income $ 2,876,590 $ 2,164,987
Net realized gain on investments and redemptions in kind 146,233,723 53,898,712
Change in net unrealized gain or loss on investments, futures contracts and foreign
currency transactions (98,298,212) 70,310,429
-------------- -------------
Net increase in net assets resulting from operations $ 50,812,101 $ 126,374,128
-------------- -------------
DISTRIBUTIONS TO SHAREOWNERS:
Net investment income
Class I $ (980,182) $ (711,725)
Class II (1,186,576) (1,067,643)
Net realized gain
Class I (18,901,870) (1,863,831)
Class II (33,992,323) (3,740,321)
-------------- -------------
Total distributions to shareowners $ (55,060,951) $ (7,383,520)
-------------- -------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 138,080,446 $ 331,791,818
Class I shares issued in reorganization -- 49,670,328
Reinvestment of distributions 55,060,951 7,383,520
Cost of shares repurchased (163,603,573) (49,217,509)
Redemptions in kind (488,210,933)
-------------- -------------
Net increase (decrease) in net assets
resulting from Fund share transactions $ (458,673,109) $ 339,628,157
-------------- -------------
Net increase (decrease) in net assets $ (462,921,959) $ 458,618,765
-------------- -------------
NET ASSETS:
Beginning of year $ 839,975,936 $ 381,357,171
-------------- -------------
End of year $ 377,053,977 $ 839,975,936
============== =============
Undistributed net investment income, end of year $ 2,874,732 $ 2,164,900
============== =============
12 The accompanying notes are an integral part of these financial statements.
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer Mid Cap Value VCT Portfolio (the Portfolio) is a Portfolio of
Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust
registered under the Investment Company Act of 1940 as an open-end management
investment company. The Trust consists of twenty-nine separate diversified
portfolios, fourteen of which issue both Class I and Class II shares
(collectively, the "Portfolios", individually the "Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares
only)
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts or by
qualified pension and retirement plans.
The investment objective of Mid Cap Value Portfolio is to seek capital
appreciation.
The financial highlights for the Portfolio's Class I shares are presented in a
separate book.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
periods. Actual results could differ from those estimates.
Information concerning the Portfolio's principal investment risks is contained
in the Portfolio's prospectus(es). Please refer to those documents when
considering the Portfolio's risks. Investing in mid-sized companies may offer
the potential for higher returns, but are also subject to greater short-term
price fluctuations than larger, more established companies.
The following is a summary of significant accounting policies consistently
followed by the Portfolio, in the preparation of its financial statements which
are consistent with those generally accepted in the investment company
industry:
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the portfolio are computed once daily, on each day the New York Stock
Exchange (NYSE)
13
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
is open, as of the close of regular trading on the NYSE. In computing the
net asset values, securities are valued at the last sale price on the
principal exchange where they are traded. Securities that have not traded
on the date of valuation, or securities for which sale prices are not
generally reported, are valued at the mean between the last bid and asked
prices. Securities for which market quotations are not readily available
are valued at their fair values as determined by, or under the direction
of, the Board of Trustees. The Portfolio also may use the fair value of a
security, including a non-U.S. security, when the closing market price on
the primary exchange where the security is traded no longer accurately
reflects the value of the security as of the close of the NYSE. At December
31, 2005, there were no fair valued securities. Temporary cash investments
are valued at amortized cost.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities where the ex-dividend date may have
passed are recorded as soon as the Portfolio becomes aware of the
ex-dividend data in the exercise of reasonable diligence. Interest income,
including interest on income bearing cash accounts, is recorded on the
accrual basis.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes on capital gains at
the applicable country rates.
B. Futures Contracts
The Portfolio may enter into futures transactions to hedge against changes
in interest rates, securities prices, and currency rates or to seek to
increase total return. Upon entering into a futures contract, the Portfolio
is required to deposit with a broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the associated futures
exchange. Subsequent payments for futures contracts ("variation margin")
are paid or received by the Portfolio, depending on the daily fluctuation
in the value of the contracts, and are recorded by the Portfolio as
unrealized gains or losses. When the contract is closed, the Portfolio
realize a gain or loss equal to the difference between the opening and
closing value of the contract. The use of futures contracts involves, to
varying degrees, elements of market risk which may exceed the amounts
recognized by the Portfolio. Changes in the value of the contracts may not
directly correlate to the changes in the value of the underlying
securities. These risks may decrease the effectiveness of the Portfolio's
hedging and trading strategies and potentially result in a loss. As of
December 31, 2005, Mid Cap Value Portfolio had no open contracts.
C. Foreign Currency Translation
The books and records of the Portfolio are maintained in U.S. dollars.
Amounts denominated in foreign currencies are translated into U.S. dollars
using current exchange rates.
Net realized gains and losses on foreign currency transactions represent
the net realized gains and losses on foreign currency contracts,
disposition of foreign currencies, and the difference between the amount of
income accrued and the U.S. dollars actually received. Further, the effects
of changes in foreign currency exchange rates on investments are not
segregated in the statement of operations from the effects of changes in
market price of those securities but are included with the net realized and
unrealized gain or loss on investments.
D. Forward Foreign Currency Contracts
The Portfolio enters into forward foreign currency contracts (contracts)
for the purchase or sale of a specific foreign currency at a fixed price on
a future date as a hedge or cross-hedge against either specific investment
transactions (settlement hedges) or portfolio positions (portfolio hedges).
All contracts are marked to market daily at the applicable exchange rates,
and any resulting unrealized gains or losses are recorded in the
Portfolio's financial statements. The Portfolio records realized gains and
losses at the time a portfolio hedge is offset by entry into a closing
transaction or extinguished by delivery of the currency. Risks may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of the contract and from unanticipated
movements in the value of foreign currencies relative to the U.S. dollar.
E. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal
income tax rules. Therefore, the source of each Portfolio's distributions
may be shown in the accompanying financial statements as either from, or in
excess of, net investment income or net realized gain on
14
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
investment transactions, or from paid-in capital, depending on the type of
book/tax differences that may exist.
Capital loss carryforwards are available to offset future realized capital
gains. At December 31, 2005, Mid Cap Value Portfolio had a net capital loss
carryforward of $3,859,922, of which the following amounts will expire
between 2009 and 2010, if not utilized: $1,330,134 in 2009 and $2,529,788
in 2010.
At December 31, 2005, the portfolio made reclassifications as described
below. These reclassifications have no impact on the net asset values of
the portfolio and are designed to present the portfolio's capital accounts
on a tax basis.
- ---------------------------------------------------------------------------------------------------
Undistributed Accumulated
Net Investment Net Realized
Income (Loss) Gain (Loss) Paid-In Capital
- ---------------------------------------------------------------------------------------------------
Pioneer Mid Cap Value VCT Portfolio $-- $(47,572,810) $47,572,810
- ---------------------------------------------------------------------------------------------------
The following chart shows the distributions paid during the years ended
December 31, 2005 and December 31, 2004 and the components of distributable
earnings (accumulated losses) as of December 31, 2005 on a tax basis.
- ---------------------------------------------------------------------------------
2005 2004
- ---------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ 6,510,571 $3,095,474
Long-Term capital gain 48,550,380 4,288,046
------------ ----------
$ 55,060,951 $7,383,520
Return of Capital -- --
------------ ----------
Total distributions $ 55,060,951 $7,383,520
============ ==========
Distributable Earnings (Accumulated Losses):
Undistributed ordinary income $ 30,629,491
Capital loss carryforward from merger (3,859,922)
Undistributed long-term gain 68,794,908
Unrealized appreciation (depreciation) 44,709,925
------------
Total $140,274,402
============
- ---------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation is
primarily attributable to the tax deferral of losses on wash sales.
F. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Trust and a wholly owned indirect subsidiary
of UniCredito Italiano S.p.A. (UniCredito Italiano), $638,021 in
commissions on the sale of Trust shares for the year ended December 31,
2005. Distribution fees for Class II shares are calculated based on the
average daily net asset values attributable to Class II shares of the
Portfolio.
Shareowners of each class share all expenses and fees paid to the transfer
agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS),
for its services, which are allocated based on the number of accounts in
each class and the ratable allocation of related out-of-pocket expenses
(see Note 3). Income, common expenses (excluding transfer agent and
distribution fees) and realized and unrealized gains and losses are
calculated at the Portfolio level and allocated daily to each class of
shares based on the respective percentage of the adjusted net assets at the
beginning of the day. Distributions paid by a Portfolio with respect to
each class of shares are calculated in the same manner, at the same time,
and in the same amount, except that Class I and Class II shares can bear
different transfer agent and distribution fees. Dividends and distributions
to shareowners are recorded on the ex-dividend date.
G. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral which is maintained by the custodian and
15
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
earns income in the form of negotiated lenders' fees. The Portfolio also
continues to receive payments in lieu of interest or dividends on the
securities loaned. Gain or loss in the fair value of the securities loaned
that may occur during the term of the loan will be for the account of the
Portfolio. The loans are secured by collateral of at least 102%, at all
times, of the fair value of the securities loaned. The fair value of the
collateral will be adjusted daily to reflect any price fluctuation in the
value of the loaned securities. The Portfolio has the right under the
lending agreement to recover the securities on loan from the borrower on
demand. The Portfolio invests cash collateral in the Securities Lending
Investment Fund which is sponsored by Brown Brothers Harriman & Co., the
Portfolio's custodian.
H. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano manages the
portfolio. Management fees are calculated daily at the annual rate of 0.65% of
the Portfolio's average daily net assets.
In addition, under the management and administration agreements, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $17,327 was payable
to PIM related to management fees, administrative fees and certain other
services, and is included in due to affiliates.
3. Transfer Agent
PIMSS, a wholly owned indirect subsidiary of UniCredito Italiano provides
substantially all transfer agent and shareowner services to the Trust at
negotiated rates. Included in due to affiliates is $3,949 in transfer agent
fees payable to PIMSS at December 31, 2005.
4. Distribution Plans
The Portfolio has adopted a plan of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with the Portfolio's Class
II shares. Included in due to affiliates is $1,210 payable to PFD at December
31, 2005.
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- ----------------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- ----------------------------------------------------------------------------------------------------
Mid Cap Value Portfolio $329,788,522 $52,846,924 $(8,136,999) $44,709,925
============ =========== ============ ===========
- ----------------------------------------------------------------------------------------------------
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were $552,734,571 and $1,022,270,325, respectively. For the
year ended September 23, 2005, the Portfolio had redemptions in kind which
resulted in redemptions out of the Portfolio totaling $488,210,933.
16
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
- ---------------------------------------------------------------------------------------------------------------
Mid Cap Value Portfolio '05 Shares '05 Amount '04 Shares '04 Amount
- ---------------------------------------------------------------------------------------------------------------
CLASS I:
Shares sold 2,037,703 $ 50,295,966 3,133,632 $ 68,612,090
Class I shares issued in reorganization -- -- 2,087,866 49,670,328
Reinvestment of distributions 821,233 19,882,052 117,982 2,575,556
Shares repurchased (2,727,151) (66,908,971) (1,365,569) (29,591,496)
Redemptions in kind (868,079) (21,000,610)
---------- -------------- ---------- -------------
Net increase (decrease) (736,294) $ (17,731,563) 3,973,911 $ 91,266,478
---------- -------------- ---------- -------------
CLASS II:
Shares sold 3,599,252 $ 87,784,480 12,236,512 $ 263,179,728
Reinvestment of distributions 1,468,235 35,178,899 221,974 4,807,964
Shares repurchased (3,965,242) (96,694,602) (881,455) (19,626,013)
Redemptions in kind (19,499,464) (467,210,323)
----------- -------------- ---------- -------------
Net increase (decrease) (18,397,219) $ (440,941,546) 11,577,031 $ 248,361,679
----------- -------------- ---------- -------------
- ---------------------------------------------------------------------------------------------------------------
8. Merger Information
On December 8, 2004, beneficial owners of Safeco RST Core Equity Portfolio,
Safeco RST Money Market Portfolio and Safeco RST Multi-Cap Core Portfolio,
three of the six portfolios that comprised Safeco Resource Series Trust,
approved a proposed Agreement and Plan of Reorganization that provided for the
mergers listed below. These tax-free reorganizations were accomplished on
December 10, 2004 ("Closing Date"), by exchanging all of the Safeco's net
assets for Class I shares as indicated below, based on Class I shares' ending
net asset value on the Closing Date. The following charts show the details of
the reorganizations as of that Closing Date:
Pioneer Mid Cap Value VCT Portfolio
- --------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Pioneer
Mid Cap Value Safeco RST Multi- Pioneer Mid Cap
VCT Portfolio Cap Core Portfolio Value VCT Portfolio
(Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization)
- ------------------------------------------------------------------------------------------------------
Net Assets $757,206,652 $49,670,328 $858,922,877
Shares Outstanding 32,072,498 $ 2,399,533 34,160,364
Class I Shares Issued 2,087,866
- ------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Unrealized Appreciation Realized Gain (Loss)
on Closing Date on Closing Date
- -----------------------------------------------------------------------------------------------
Safeco RST Multi-Cap Core Portfolio $5,550,191 $7,992,587
- -----------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION (unaudited)
The qualifying percentage of certain Portfolios' ordinary income dividends for
the purposes of the corporate dividends received deduction and the percentage
of those ordinary dividends that are subject to a maximum tax rate of 15% as
provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were
as follows:
- ----------------------------------------------------------------------------
Dividend Received Qualified Dividend
Deduction Income
- ----------------------------------------------------------------------------
Mid Cap Value Portfolio 100.00% 88.84%
- ----------------------------------------------------------------------------
17
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust and the
Shareowners of Pioneer Mid Cap Value VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer Mid Cap Value VCT Portfolio, one of the
portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), as
of December 31, 2005, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audit. The financial highlights for the year ended December 31, 2001 was
audited by other auditors who have ceased operations and whose report, dated
February 8, 2002, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005, by correspondence
with the custodian and brokers or by other appropriate auditing procedures
where replies from brokers were not received. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer Mid Cap Value VCT Portfolio of the Pioneer Variable Contracts Trust at
December 31, 2005, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and financial highlights for each of the four years in the period then ended,
in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
18
Pioneer Mid Cap Value VCT Portfolio(the "Fund") PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three, five and ten year
periods for the Fund and a peer group selected by the Independent Trustees for
this purpose, (2) management fees incurred by a peer group of funds selected by
the Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's
19
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and an index,
in each case selected by the Independent Trustees for this purpose. The
Fund's performance based upon total return was in the first quintile of the
peer group for the 12 months ended June 30, 2005, the second quintile of
the peer group for the three years ended June 30, 2005, the first quintile
for the five years ended June 30, 2005 and the first quintile for the ten
year period ended June 30, 2005. (In all quintile rankings referred to
throughout this discussion first quintile is most favorable to the Fund's
shareholders. Thus, highest relative performance would be first quintile
and lowest relative expenses also would be first quintile.) The Trustees
concluded that the consistent out performance of the Fund supported the
continuation of the Management Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The
Independent Trustees also have had discussions with senior management of
the Investment Adviser responsible for investment operations and the senior
management of the Investment Adviser's equities group. Among other things,
the Trustees considered the number, education and experience of the
Investment Adviser's investment staff and their use of technology and
emphasis on analytics in view of the risk profile of securities in which
the Fund invests. The Trustees concluded that the Investment Adviser had
the quality and depth of personnel and the well-developed methods essential
to performing its duties under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision
of third party service providers. Based on these considerations, the
Trustees concluded that the nature, quality, cost and extent of such
services are satisfactory and reliable and serve the shareholders of the
Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the second
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
considered the Fund's expense ratio and expense ratios of a peer group of
funds selected by the Independent Trustees for this purpose. The Fund's
expense ratio for the 12 months ended June 30, 2005 was in the first
quintile of the applicable peer group for the most recent fiscal year of
the peer group for the comparable period. The Trustees concluded that the
Fund's overall expense ratio was lower than that of comparable funds.
F. Profitability. The Trustees considered the level of the Investment
Adviser's profits with respect to the management of the Pioneer Funds,
including details with respect to the Fund. This consideration included a
review of the Investment Adviser's methodology in allocating certain of its
costs to the management of each Fund. The Trustees also considered the
financial results realized by the Investment Adviser in connection with the
operation of the Fund. They further considered the profits realized by the
Investment Adviser and its affiliates from non-fund businesses that may
benefit from or be related to the Fund's business. The Trustees considered
the Investment Adviser's profit margins in comparison with the limited
available industry data. The Trustees concluded that the Investment
Adviser's profits from management of the Pioneer Funds, including the
financial results derived from the Fund, bear a reasonable relationship to
the services rendered and are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. In light of the fact that
the management fee would remain under the
20
Pioneer Mid Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
median for the peer group at reasonably anticipated asset levels, the
Trustees concluded that break points in the management fee were not
necessary at this time. The Trustees will continue to evaluate annually the
appropriateness of break points.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund), and
benefits to the Investment Adviser from the use of "soft" commission
dollars to pay for research services. The Trustees further considered the
revenues and profitability of the Investment Adviser's businesses other
than the fund business, including the Investment Adviser's institutional
investment advisory business. The Trustees considered the intangible
benefits that accrue to the Investment Adviser and its affiliates by virtue
of its relationship with the Fund and the Pioneer Funds as a group. The
Trustees concluded that all these types of benefits accruing to the
Investment Adviser were reasonable in the context of the overall
relationship between the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
21
Pioneer Mid Cap Value VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
22
Pioneer Mid Cap Value VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held
Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance
or earlier services company) (2001-present); company); Director of New York
retirement or Managing Partner, Federal City Mortgage Trust (publicly traded
removal. Capital Advisors (boutique merchant mortgage REIT)
bank) (2002 to 2004); Executive
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products
or earlier manufacturer), Mortgage Guaranty
retirement or Insurance Corporation, and Briggs
removal. & Stratton, Inc. (engine
manufacturer)
- ----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
23
Pioneer Mid Cap Value VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
24
Pioneer Mid Cap Value VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, None
Treasurer 2000. Serves at the Assistant Vice President - Fund
discretion of the Accounting, Administration and
Board. Custody Services of Pioneer; and
Assistant Treasurer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ---------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ---------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
25
[LOGO]PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company, Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18664-00-0206
[Logo] PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Oak Ridge Large Cap Growth VCT Portfolio -- Class II Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Pioneer Oak Ridge Large Cap Growth VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 6
Financial Statements 8
Notes to Financial Statements 12
Report of Independent Registered Public Accounting Firm 16
Factor Considered by the Independent Trustees in Approving
the Management Contract 17
Trustees, Officers and Service Providers 20
Before investing, consider the Portfolio's investment objectives, risks,
charges and expenses. Contact your advisor or Pioneer Investments for a
prospectus containing this information. Please read it carefully.
The Trust files a complete statement of investments with the Securities and
Exchange Commission for the first and the third quarters for each fiscal year
on Form N-Q. Shareowners may view the filed Form N-Q by visiting the
Commission's web site at http://www.sec.gov. The filed form may also be viewed
and copied at the Commission's Public Reference Room in Washington, D.C.
Information regarding the operations of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Oak Ridge Large Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Portfolio Diversification
(As a percentage of total investment portfolio)
U.S. Common Stocks 86.3%
Depositary Receipts for International Stocks 8.9%
Temporary Cash Investment 4.8%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sector Distribution
(As a percentage of equity holdings)
Health Care 28.2%
Information Technology 20.5%
Industrials 15.0%
Financials 12.3%
Consumer Discretionary 11.4%
Consumer Staples 6.9%
Energy 5.7%
Five Largest Holdings
(As a percentage of equity holdings)
1. General Electric Co. 3.74%
2. Marvell Technology
Group, Ltd. 3.70
3. XTO Energy, Inc. 3.69
4. Genentech, Inc. 3.26
5. Teva Pharmaceutical
Industries, Ltd. 3.16
The Portfolio is actively managed and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $11.98 $11.09
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$0.0156 $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Oak Ridge Large Cap Growth VCT Portfolio at net asset value, compared to that
of the Russell 1000 Growth Index. Portfolio returns are based on net asset
value and do not reflect any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Russell 1000 Growth Index Pioneer Oak Ridge Large Cap Growth VCT Portfolio
Mar-04 10000 10000
Dec-04 10547 10851
Dec-05 11102 11739
The Russell 1000 Growth Index measures the performance of large-cap U.S. growth
stocks. Index returns are calculated monthly, assume reinvestment of dividends
and, unlike Portfolio returns, do not reflect any fees, expenses or sales
charges. You cannot invest directly in any Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Life-of-Class 10.66%
(3/15/04)
1 Year 8.18%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers fund performance would be lower. Waivers
may not be in effect for all funds. Certain fee waivers are contractual through
a specified period. Otherwise, fee waivers can be rescinded at any time. See
the prospectus and financial statements for more information.
2
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Oak Ridge Large Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value [divided by] $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Oak Ridge Large Cap Growth VCT
Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005
Share Class II
- --------------------------------------------------
Beginning Account Value on 7/1/05 $1,000.00
Ending Account Value on 12/31/05 $1,091.07
Expenses Paid During Period* $ 5.01
* Expenses are equal to the Portfolio's annualized expense ratio of 0.95% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different funds. In addition, if
these transaction costs were included, your costs would have been higher.
Expenses Paid on a $1,000 Investment in Pioneer Oak Ridge Large Cap Growth VCT
Portfolio
Based on a hypothetical 5% per year return before expenses, reflecting the
period from July 1, 2005 through December 31, 2005
Share Class II
- --------------------------------------------------
Beginning Account Value on 7/1/05 $1,000.00
Ending Account Value on 12/31/05 $1,020.42
Expenses Paid During Period* $ 4.84
* Expenses are equal to the Portfolio's annualized expense ratio of 0.95% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Oak Ridge Large Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
In the following interview, David Klaskin, Pioneer Oak Ridge Large Cap Growth
VCT Portfolio's Lead Manager, discusses the factors that influenced performance
during the twelve months ended December 31, 2005. The Portfolio is sub-advised
by Oak Ridge Investments.
Q: How did the market and the Portfolio perform during the annual reporting
period?
A: In an investment environment that was characterized by many potential
obstacles to market performance -- such as rising interest rates, a spike in
energy prices, and September's Gulf Coast hurricanes -- the U.S. market
produced solid returns on the strength of steady economic growth and
impressive corporate earnings results. Although large-cap growth stocks
underperformed relative to the broader market, we continued to find a
wealth of compelling investment opportunities within the asset class. With
this as a backdrop, we are pleased to report that the Portfolio
outperformed its benchmark for the period. Class II shares of the Portfolio
produced a total return of 8.18% at net asset value for the annual period,
outpacing the 5.26% return of the Russell 1000 Growth Index.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
While past performance is no guarantee of future results, we believe the
Portfolio's track record since its inception illustrates the effectiveness
of our investment approach. As growth managers, we naturally look for
companies with earnings growth that is both accelerating and sustainable.
However, the stocks we purchase must also be reasonably valued, since even
fast-growing stocks can be unattractive investments if they are purchased at
too rich a price. We believe this approach, known as "growth at a reasonable
price," is very effective at identifying stocks with the ability to perform
well over a three- to five-year time period.
Q: Energy stocks performed very well during the past year. How did your
positioning in this sector affect performance?
A: Energy was the best-performing sector of the market during the past twelve
months, as the rising prices of oil and gas boosted profits for companies
in the industry. The Portfolio held an overweight position -- a weighting
greater than that of the benchmark -- in energy for most of the year, and
this was very helpful to performance. In addition, our stock selection in
the sector was particularly strong. We avoided the largest energy stocks,
whose prices tend to be most closely correlated with the performance of the
underlying commodities. Instead, we owned two smaller, faster-growing
exploration companies -- XTO Energy and Apache -- both of which outperformed
the overall sector by a wide margin. We are maintaining the Portfolio's
positions in these stocks based on what we see as the favorable supply and
demand picture for the industry as a whole. At the same time, as China's
rapid economic expansion continues to fuel rising demand for oil and gas,
supply remains constrained due to the lack of refining capacity that has
been brought on line in recent years. We remain confident that both
companies can continue to execute well in this environment.
Q: How did the Portfolio's positioning in health care affect performance?
A: We added to performance through our stock selection in the sector. We
generally avoided large-cap pharmaceutical stocks -- which underperformed
due to concerns about safety issues and looming patent expirations -- and we
instead concentrated on areas of health care with stronger growth and
better underlying fundamentals. Stocks that performed well included
Genentech, a biotechnology stock that soared as sales of its cancer drug
Avastin came in well above the market's expectations; Teva Pharmaceuticals,
a maker of generic drugs that we believe will benefit as several drugs come
off patent in the year ahead; Alcon, which we believe is positioned to take
advantage of the aging global population through its full line of eye care
solutions; and Caremark Rx, which benefited from the rising demand for its
services as a "middleman" between drug companies and health care plans that
are looking to cut costs.
We remain optimistic on the outlook for the health care sector in general,
and for the Portfolio's holdings in particular. However, we slightly reduced
exposure to this area based on our belief that the sector -- which
historically has been sensitive to political developments -- may be affected
by uncertainty related to the autumn 2006 Congressional elections.
Q: How did your holdings in technology perform?
A: Large-cap technology stocks, as a group, were not particularly strong during
the past year, but here too we added value through security selection. We
emphasized companies with a strong foothold in their specific markets,
rather than those whose products tend to be more commoditized. This
approach led us to invest in Marvell Technology Group, which makes the
chips used in Apple's popular iPod; and Texas Instruments, whose chips are
used primarily in telecommunications and consumer electronics products
rather than the slower-growth personal computer area. Both stocks performed
well, making up for the flat returns of the Portfolio's holdings in Oracle
and Microsoft.
A Word About Risk:
The Portfolio invests in a limited number of securities and, as a result, the
Portfolio's performance may be more volatile than the performance of other
portfolios holding more securities. At times, the Portfolio's investments may
represent industries or industry sectors that are interrelated or have common
risks, making it more susceptible to any economic, political, or regulatory
developments or other risks affecting those industries and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Oak Ridge Large Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Q: What elements of your positioning detracted from performance?
A: Our stock selection in the consumer sector was mixed. Many of the
Portfolio's top-performing stocks of 2004, such as Best Buy, Wal-Mart, and
International Game Technology (all of which have been sold from the
Portfolio), underperformed during 2005. Additionally, eBay -- which soared
in 2004 -- missed estimates for its fourth quarter earnings (released in
January), and the stock lost almost a third of its value in five weeks. The
stock is no longer held in the portfolio. Fortunately, we made up for the
loss in eBay by buying shares in Google, which doubled from our initial
purchase price in the $200 range.
Q: What is your outlook for the stock market?
A: At Oak Ridge Investments, we believe the investment landscape may become
more challenging in 2006. The Fed is likely to end its long series of
interest rate increases, but the lagged effect of the hikes that have
already been enacted could act as a drag on economic growth. The end of
the mortgage financing boom also could slow the economy by causing
consumers to pare back on their spending. However, we believe large-cap
growth stocks, as a group, can withstand a more difficult environment. The
asset class as a whole is trading at very reasonable valuation levels,
with many stocks sporting price-to-earnings ratios in the mid-teens. At
these levels, we believe stocks with better growth characteristics than
the overall market will be well-positioned to outperform. With this as a
backdrop, we believe our emphasis on growth stocks with reasonable
valuations has the potential to enable the Portfolio to continue
delivering strong performance relative to the broader market.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Portfolio's historical or future performance are
statements of the opinion of Portfolio management as of the date of this
report. These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
5
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Oak Ridge Large Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
COMMON STOCKS - 95.6%
Energy - 5.5%
Oil & Gas Exploration & Production - 5.5%
7,385 Apache Corp. $ 506,020
20,815 XTO Energy, Inc. 914,611
-----------
$ 1,420,631
-----------
Total Energy $ 1,420,631
-----------
Capital Goods - 11.4%
Aerospace & Defense - 2.0%
6,895 L-3 Communications Holdings, Inc. $ 512,643
-----------
Electrical Component & Equipment - 2.1%
9,290 Rockwell International Corp. $ 549,596
-----------
Industrial Conglomerates - 3.6%
26,440 General Electric Co. $ 926,722
-----------
Industrial Machinery - 3.7%
8,430 Danaher Corp. (a) $ 470,225
12,435 Ingersoll-Rand Co. 502,001
-----------
$ 972,226
-----------
Total Capital Goods $ 2,961,187
-----------
Transportation - 2.9%
Air Freight & Couriers - 2.9%
7,385 FedEx Corp. $ 763,535
-----------
Total Transportation $ 763,535
-----------
Consumer Durables & Apparel - 2.1%
Apparel, Accessories & Luxury Goods - 2.1%
15,965 Coach, Inc.* $ 532,273
-----------
Total Consumer Durables & Apparel $ 532,273
-----------
Consumer Services - 1.9%
Hotels, Resorts & Cruise Lines - 1.9%
9,345 Carnival Corp. $ 499,677
-----------
Total Consumer Services $ 499,677
-----------
Retailing - 6.9%
General Merchandise Stores - 1.9%
9,085 Target Corp. $ 499,402
-----------
Home Improvement Retail - 2.2%
8,550 Lowe's Companies, Inc. $ 569,943
-----------
Specialty Stores - 2.8%
31,647 Staples, Inc. $ 718,703
-----------
Total Retailing $ 1,788,048
-----------
Food & Drug Retailing - 2.0%
Drug Retail - 2.0%
11,560 Walgreen Co. $ 511,646
-----------
Total Food & Drug Retailing $ 511,646
-----------
Food, Beverage & Tobacco - 2.1%
Soft Drinks - 2.1%
9,405 PepsiCo, Inc. $ 555,647
-----------
Total Food, Beverage & Tobacco $ 555,647
-----------
Shares Value
Household & Personal Products - 2.5%
Household Products - 2.5%
11,140 Procter & Gamble Co. $ 644,783
-----------
Total Household & Personal
Products $ 644,783
-----------
Health Care Equipment & Services - 16.3%
Health Care Equipment - 8.3%
9,190 Medtronic, Inc. $ 529,068
10,725 St. Jude Medical, Inc.* 538,395
12,620 Varian Medical Systems, Inc.* 635,291
6,580 Zimmer Holdings, Inc.* 443,755
-----------
$ 2,146,509
-----------
Health Care Services - 2.9%
14,505 Caremark Rx, Inc.* $ 751,214
-----------
Health Care Supplies - 2.4%
4,720 Alcon, Inc. $ 611,712
-----------
Managed Health Care - 2.7%
11,185 United Healthcare Group, Inc. $ 695,036
-----------
Total Health Care Equipment &
Services $ 4,204,471
-----------
Pharmaceuticals & Biotechnology - 10.7%
Biotechnology - 5.5%
7,945 Amgen, Inc.* $ 626,543
8,730 Genentech, Inc.* 807,525
-----------
$ 1,434,068
-----------
Pharmaceuticals - 5.2%
9,250 Johnson & Johnson $ 555,925
18,205 Teva Pharmaceutical Industries, Ltd. (a) 782,997
-----------
$ 1,338,922
-----------
Total Pharmaceuticals &
Biotechnology $ 2,772,990
-----------
Banks - 2.2%
Diversified Banks - 2.2%
19,055 U.S. Bancorp $ 569,554
-----------
Total Banks $ 569,554
-----------
Diversified Financials - 7.5%
Asset Management & Custody Banks - 2.2%
626 Ameriprise Financial, Inc. $ 25,666
4,570 Legg Mason, Inc. 546,984
-----------
$ 572,650
-----------
Consumer Finance - 3.8%
9,085 American Express Co. $ 467,514
9,505 SLM Corp. 523,630
-----------
$ 991,144
-----------
Diversified Financial Services - 1.5%
7,805 Citigroup, Inc. $ 378,777
-----------
Total Diversified Financials $ 1,942,571
-----------
6 The accompanying notes are an integral part of these financial statements.
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Oak Ridge Large Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Insurance - 2.0%
Life & Health Insurance - 2.0%
11,270 Aflac, Inc. $ 523,153
-----------
Total Insurance $ 523,153
-----------
Software & Services - 8.9%
Internet Software & Services - 2.5%
1,554 Google, Inc.*(a) $ 644,693
-----------
IT Consulting & Other Services - 2.1%
10,910 Cognizant Tech Solutions Corp.* $ 549,319
-----------
Systems Software - 4.3%
24,250 Microsoft Corp. $ 634,138
38,620 Oracle Corp.* 471,550
-----------
$ 1,105,688
-----------
Total Software & Services $ 2,299,700
-----------
Technology Hardware & Equipment - 5.0%
Communications Equipment - 5.0%
19,410 Comverse Technology, Inc.* $ 516,113
17,880 Qualcomm, Inc. 770,270
-----------
$ 1,286,383
-----------
Total Technology Hardware &
Equipment $ 1,286,383
-----------
Semiconductors - 5.7%
Semiconductors - 5.7%
16,310 Marvell Technology Group, Ltd.* $ 914,828
17,625 Texas Instruments, Inc. 565,234
-----------
$ 1,480,062
-----------
Total Semiconductors $ 1,480,062
-----------
TOTAL COMMON STOCKS
(Cost $22,114,524) $24,756,311
-----------
Shares Value
TEMPORARY CASH INVESTMENT - 4.8%
Security Lending Collateral - 4.8%
1,240,610 Securities Lending Investment
Fund - 4.24% $ 1,240,610
-----------
TOTAL TEMPORARY CASH
INVESTMENT
(Cost $1,240,610) $ 1,240,610
-----------
TOTAL INVESTMENT IN
SECURITIES - 100.4%
(Cost $23,355,133) (a) $25,996,921
-----------
OTHER ASSETS AND
LIABILITIES - (0.4)% $ (88,913)
-----------
TOTAL NET ASSETS - 100.0% $25,908,008
===========
* Non-income producing security
(a) At December 31, 2005, the following securities were out on loan:
Shares Security Value
6,369 Danaher Corp. $ 355,263
1,448 Google, Inc. 600,717
5,676 Teva Pharmaceutical Industries, Ltd. 244,125
----------
Total $1,200,105
==========
The accompanying notes are an integral part of these financial statements. 7
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Oak Ridge Large Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended 3/15/04(a)
Class II 12/31/05 to 12/31/04
Net asset value, beginning of period $ 11.09 $10.00
------- ------
Increase (decrease) from investment operations:
Net investment income (loss) $ (0.01) $ 0.03
Net realized and unrealized gain on investments 0.92 1.06
------- ------
Net increase from investment operations $ 0.91 $ 1.09
Distributions to shareowners:
Net investment income (0.02) -
------- ------
Net increase in net asset value $ 0.89 $ 1.09
------- ------
Net asset value, end of period $ 11.98 $11.09
======= ======
Total return* 8.18% 10.90%(b)
Ratio of net expenses to average net assets 0.95% 0.95%**
Ratio of net investment income to average net assets 0.08% 0.79%**
Portfolio turnover rate 131% 21%
Net assets, end of period (in thousands) $25,908 $4,397
Ratios with no waiver of management fees and assumption of expenses by PIM:
Net expenses 1.93% 6.22%**
Net investment loss (0.90)% (4.48)%**
(a) The Portfolio commenced operations on March 15, 2004.
(b) Not annualized.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions, the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
NOTE: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
8 The accompanying notes are an integral part of these financial statements.
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Oak Ridge Large Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (including securities loaned of
$1,200,105) (cost $23,355,133) $25,996,921
Cash 1,359,219
Receivables --
Fund shares sold 25,050
Dividends, interest and foreign taxes withheld 19,792
Other 4
-----------
Total assets $27,400,986
-----------
LIABILITIES:
Payables --
Investment securities purchased $ 198,426
Fund shares repurchased 1,823
Upon return of securities loaned 1,240,610
Due to affiliates 1,121
Accrued expenses 50,998
-----------
Total liabilities $ 1,492,978
-----------
NET ASSETS:
Paid-in capital $23,284,922
Undistributed net investment income 7,828
Accumulated net realized gain on investments (26,530)
Net unrealized gain on:
Investments 2,641,788
-----------
Total net assets $25,908,008
-----------
NET ASSET VALUE PER SHARE:
Class II:
(No par value, unlimited number of shares authorized)
Net assets $25,908,008
Shares outstanding 2,162,284
-----------
Net asset value per share $ 11.98
The accompanying notes are an integral part of these financial statements. 9
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Oak Ridge Large Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended
12/31/05
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $812) $ 81,564
Interest 21,458
Income on securities loaned, net 151
----------
Total investment income $ 103,173
----------
EXPENSES:
Management fees $ 75,262
Transfer agent fees and expenses 1,793
Distribution fees 25,087
Administrative reimbursements 18,512
Custodian fees 33,063
Professional fees 25,345
Printing expense 9,320
Fees and expenses of nonaffiliated trustees 3,572
Miscellaneous 1,965
----------
Total expenses $ 193,919
Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (98,609)
----------
Net expenses $ 95,310
----------
Net investment income $ 7,863
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from:
Investments $ 432,428
----------
Change in net unrealized gain from:
Investments $ 703,415
----------
Net gain on investments $1,135,843
----------
Net increase in net assets resulting from operations $1,143,706
==========
10 The accompanying notes are an integral part of these financial statements.
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Oak Ridge Large Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the period
from 3/15/04
(Commencement
Year Ended of Operations)
12/31/05 to 12/31/04
FROM OPERATIONS:
Net investment income $ 7,863 $ 10,490
Net realized gain (loss) on investments 432,428 (49,269)
Change in net unrealized gain on investments 703,415 347,416
------------ ----------
Net increase in net assets resulting from operations $ 1,143,706 $ 308,637
------------ ----------
DISTRIBUTIONS TO SHAREOWNERS
Net investment income:
Class II $ (10,689) $ --
------------ ----------
Total distributions to shareholders $ (10,689) $ --
------------ ----------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 6,123,375 $4,148,102
Shares issued in reorganization 15,272,045 --
Reinvestment of distributions 10,533 --
Cost of shares repurchased (1,027,637) (60,064)
------------ ----------
Net increase in net assets resulting from
Fund share transactions $ 20,378,316 $4,088,038
------------ ----------
Net increase in net assets $ 21,511,333 $4,396,675
NET ASSETS:
Beginning of period 4,396,675 --
------------ ----------
End of period $ 25,908,008 $4,396,675
============ ==========
Undistributed net investment income, end of period $ 7,828 $ 10,654
============ ==========
The accompanying notes are an integral part of these financial statements. 11
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Oak Ridge Large Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer Oak Ridge Large Cap Growth VCT Portfolio (the Portfolio) is a
Portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory
trust registered under the Investment Company Act of 1940 as an open-end
management investment company. The Trust consists of twenty nine separate
diversified portfolios, fourteen of which issue both Class I and Class II
shares (collectively, the "Portfolios", individually the "Portfolio") as
follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares
only)
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts, or
by qualified pension and retirement plans.
Oak Ridge Large Cap Growth Portfolio seeks capital appreciation.
The financial statements and financial highlights of all other Portfolios are
presented in separate books.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
periods. Actual results could differ from those estimates. The following is a
summary of significant accounting policies consistently followed by the
Portfolio, in the preparation of its financial statements which are consistent
with those generally accepted in the investment company industry:
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the Portfolio are computed once daily, on each day the New York Stock
Exchange (NYSE) is open, as of the close of regular trading on the NYSE. In
computing the net asset values, securities are valued at the last sale
price on the principal exchange where they are traded. Securities that have
not traded on the date of valuation, or securities for which sale prices
are not generally reported, are valued at the mean between the last bid and
asked prices. The Portfolio also may use the fair value of a security,
including a non-U.S. security, when the closing market
12
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Oak Ridge Large Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
price on the primary exchange where the security is traded no longer
accurately reflects the value of the security as of the close of the NYSE.
At December 31, 2005, there were no fair valued securities. Temporary cash
investments are valued at amortized cost.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities where the ex-dividend date may have
passed are recorded as soon as the Portfolio becomes aware of the
ex-dividend data in the exercise of reasonable diligence. Interest income,
including interest on income bearing cash accounts, is recorded on the
accrual basis.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes on capital gains at
the applicable country rates.
Information regarding the Portfolio's principal investment risks is
contained in the Portfolio's prospectus. Please refer to those documents
when considering the Portfolio's risks.
B. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal
income tax rules. Therefore, the source of each Portfolio's distributions
may be shown in the accompanying financial statements as either from, or in
excess of, net investment income or net realized gain on investment
transactions, or from paid-in capital, depending on the type of book/tax
differences that may exist.
Capital loss carryforwards are available to offset future realized capital
gains. At December 31, 2005, Oak Ridge Large Cap Growth Portfolio had a net
capital loss carryforward of $376,066, of which the following amounts will
expire between 2009 and 2013, if not utilized: $295,876 in 2009, $14,739 in
2010, $10,529 in 2011, $16,924 in 2012 and $37,998 in 2013.
The following chart shows the distributions paid during the year ended
December 31, 2005 and the components of distributable earnings (accumulated
losses) as of December 31, 2005. There were no distributions paid during
the fiscal year ended December 31, 2004.
- -------------------------------------------------------------------------------
2005
- -------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ 10,689
Long-Term capital gain --
----------
Total distributions $ 10,689
==========
Distributable Earnings
(Accumulated Losses):
Undistributed ordinary income $ 7,828
Undistributed long-term gain/
(capital loss carryforward) 363,286
Capital loss carryforward from
AmSouth Capital Growth VIF (376,066)
Unrealized appreciation (depreciation) 2,628,038
----------
Total $2,623,086
==========
- -------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation is
primarily attributable to the tax deferral of losses on wash sales.
C. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Trust and a wholly owned indirect subsidiary
of UniCredito Italiano S.p.A. (UniCredito Italiano), $638,021 in
commissions on the sale of Trust shares for the year ended December 31,
2005. Distribution fees for Class II shares are calculated based on the
average daily net asset values attributable to Class II shares of the
Portfolio.
D. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees. The Portfolio also continues to receive
payments in lieu of interest or dividends on the securities loaned. Gain or
loss in the fair value of the securities loaned that may occur during the
term of the loan, will be for the account of the Trust. The loans are
secured by collateral of at least 102%, at all times, of the fair value of
the securities loaned. The fair value of the collateral will be adjusted
daily to reflect any price fluctuation in the value of the loaned
securities. The Trust has the right under the lending agreement to recover
the securities on loan from the borrower on demand. The Trust invests cash
collateral in the Securities Lending Investment Fund which is sponsored by
Brown Brothers Harriman & Co., the Trust's custodian.
13
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Oak Ridge Large Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
E. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano manages the
portfolio. Management fees are calculated daily at the annual rate of 0.75% of
the Portfolio's average daily net assets up to $1 billion and 0.70% on assets
over $1 billion.
Pioneer, and not the Portfolio, pays a portion of the fee it receives from the
Portfolio to Oak Ridge Investments, LLC (Oak Ridge) as compensation for Oak
Ridge's subadvisory services to the Portfolio. Prior to the reorganization, Oak
Ridge Small Cap Equity Fund was advised by Oak Ridge, which received an annual
fee equal to 0.75% of its average daily net assets.
On January 7, 2005 Pioneer Investment Management USA Inc. ("PIMUSA") acquired a
49% ownership interest in Oak Ridge from the existing shareholders of Oak
Ridge. As part of the acquisition, PIMUSA also obtained the right to purchase
from the existing shareholders of Oak Ridge (i) an additional 11% ownership
interest in Oak Ridge two years from the date on which the acquisition was
consummated, and (ii) the remaining ownership interest twelve years from the
date on which the acquisition is consummated. Consequently, the acquisition
provides PIMUSA the ability to own 100% of Oak Ridge over time. PIMUSA is the
direct parent of PIM. On December 28, 2004, shareholders of the Portfolio
approved a new Sub-Advisory Agreement between PIM and Oak Ridge, in
anticipation of the acquisition causing the existing agreement to terminate.
Through May 1, 2006, PIM has agreed not to impose all or a portion of its
management fee and, if necessary, to limit other ordinary operating expenses of
the Portfolio to the extent required to reduce Class II expenses to 0.95% of
the average daily net assets attributable to Class II shares.
In addition, under the management and administration agreements, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $336 is payable to
PIM related to management fees, administrative reimbursements and certain other
services, and is included in due to affiliates.
3. Transfer Agent
PIMSS, a wholly owned indirect subsidiary of UniCredito Italiano provides
substantially all transfer agent and shareowner services to the Trust at
negotiated rates. Included in due to affiliates is $428 in transfer agent fees
payable to PIMSS at December 31, 2005.
4. Distribution Plans
The Portfolio has adopted a plan of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with the Portfolio's Class
II shares. Included in due to affiliates is $357 payable to PFD at December 31,
2005.
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- ------------------------------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- ------------------------------------------------------------------------------------------------------------------
Oak Ridge Large Cap Growth Portfolio $23,368,883 $2,675,465 $(47,427) $2,628,038
=========== ========== ======== ==========
- ------------------------------------------------------------------------------------------------------------------
14
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Oak Ridge Large Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were $16,904,093 and $12,228,549, respectively.
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows for the
fiscal years ended December 31, 2005 and 2004:
- -----------------------------------------------------------------------------------------------------------
Oak Ridge Large Cap Growth Portfolio '05 Shares '05 Amount '04 Shares '04 Amount
- -----------------------------------------------------------------------------------------------------------
CLASS II:
Shares sold 550,434 $ 6,123,375 402,048 $4,148,102
Shares issued in reorganization 1,303,076 15,272,045 -- --
Reinvestment of distributions 957 10,533 -- --
Shares repurchased (88,477) (1,027,637) (5,754) (60,064)
------------------------------------------------------------
Net increase 1,765,990 $20,378,316 396,294 $4,088,038
============================================================
- -----------------------------------------------------------------------------------------------------------
8. Merger Information
On November 4, 2005, beneficial owners of AmSouth VIF Capital Growth Portfolio
approved a proposed Agreement and Plan of Reorganization that provided for the
merger listed below. This tax-free reorganization was accomplished on November
4, 2005, by exchanging all of the AmSouth's net assets for Class II shares as
indicated below, based on Class II share's ending net asset value on the
Closing Date. The following charts show the details of the reorganization as of
that closing date ("Closing Date"):
- -------------------------------------------------------------------------------------------------------
Pioneer Oak Ridge Pioneer Oak Ridge
Large Cap Growth AmSouth VIF Large Cap Growth
VCT Portfolio Capital Growth VCT Portfolio
(Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization)
- -------------------------------------------------------------------------------------------------------
Net Assets $9,574,427 $15,272,045 $24,846,472
Shares Outstanding 816,966 1,726,097 2,120,042
Class II Shares Issued 1,303,076
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Unrealized Appreciation Realized Gain/(Loss) on
on Closing Date Closing Date
- -------------------------------------------------------------------------------------------------------
AmSouth VIF Capital Growth $1,590,957 $(409,691)
========== =========
- -------------------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION (unaudited)
The qualifying percentage of certain Portfolios' ordinary income dividends for
the purposes of the corporate dividends received deduction and the percentage
of those ordinary dividends that are subject to a maximum tax rate of 15% as
provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were
as follows:
- -------------------------------------------------------------------------------------------------------
Dividend Qualified
Received Dividend
Deduction Income
- -------------------------------------------------------------------------------------------------------
Oak Ridge Large Cap Growth Portfolio 100.00% 100.00%
- -------------------------------------------------------------------------------------------------------
15
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Oak Ridge Large Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust and
Shareowners of Pioneer Oak Ridge Large Cap Growth VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer Oak Ridge Large Cap Growth VCT
Portfolio, one of the portfolios constituting the Pioneer Variable Contracts
Trust (the "Trust") as of December 31, 2005, and the related statement of
operations for the year then ended, the statements of changes in net assets and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005, by correspondence
with the custodian and brokers or by other appropriate auditing procedures
where replies from brokers were not received. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer Oak Ridge Large Cap Growth VCT Portfolio of the Pioneer Variable
Contracts Trust at December 31, 2005, the results of its operations for the
year then ended, the changes in its net assets, and financial highlights for
each of the periods indicated therein in conformity with U.S. generally
accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
16
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (the "Fund")
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") voting
separately annually, approve the Fund's management contract (the "Management
Contract") between the Fund and Pioneer Investment Management, Inc., the Fund's
adviser (the "Investment Adviser"). The Investment Adviser has retained Oak
Ridge Investment Management, LLC (the "Sub-adviser") to act as sub-adviser to
the Fund pursuant to a sub-advisory agreement between the Investment Adviser
and the Sub-adviser (the "Sub-advisory Agreement"). The Trustees have
determined that the terms of the Management Contract and the Sub-advisory
Agreement are fair and reasonable and that renewal of these contracts will
enable the Fund to receive quality investment advisory services at a cost
deemed reasonable and in the best interests of the Fund and its shareowners. In
making such determinations, the Independent Trustees relied upon the assistance
of counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
the Investment Adviser, or its affiliates. While the Trustees, including the
Independent Trustees, act on all major matters relating to the Fund, a
significant portion of the activities of the Board of Trustees (including
certain of those described herein) is conducted through committees, the members
of which are comprised exclusively of Independent Trustees. Such committee
meetings are attended by officers of the Fund or the Investment Adviser to the
extent requested by the members of the committee.
In evaluating the Management Contract and Sub-advisory Agreement, the Trustees
conducted a review that was specifically focused upon the renewal of the
Management Contract and Sub-advisory Agreement, and relied upon their
knowledge, resulting from their meetings throughout the year, of the Investment
Adviser, its services and the Fund. Both in meetings specifically dedicated to
renewal of the Management Contract and at other meetings during the course of
the year, the Trustees, including the Independent Trustees, received materials
relating to the Investment Adviser's investment and management services under
the Management Contract. These materials included (i) information on the
investment performance of the Fund, a peer group of funds and an index, in each
case selected by the Independent Trustees for this purpose, (ii) sales and
redemption data in respect of the Fund, (iii) the general investment outlook in
the markets in which the Fund invests, (iv) arrangements in respect of the
distribution of the Fund's shares, (v) the procedures employed to determine the
value of each of the Fund's assets, (vi) the Investment Adviser's management of
the relationships with the Fund's unaffiliated service providers, (vii) the
record of compliance with the Fund's investment policies and restrictions and
with the Fund's Code of Ethics and the structure and responsibilities of the
Investment Adviser's compliance department, (viii) the nature, cost and
character of non-investment management services provided by the Investment
Adviser and its affiliates, (ix) the disclosures included in the Fund's
prospectuses and reports to shareowners and (x) the investment and compliance
staff and operations of the Sub-adviser.
Specifically, in connection with the Independent Trustees' review of the
Management Contract and the Sub-advisory Agreement, the Independent Trustees
requested and the Investment Adviser provided additional information in order
to evaluate the quality of the Investment Adviser's and Sub-adviser's services
and the reasonableness of the fee under the Management Contract and the
Sub-advisory Agreement. Among other items, this information included data or
analyses of (1) investment performance for the life of the Fund and a peer
group selected by the Independent Trustees for this purpose, (2) management and
other fees incurred by a peer group of funds selected by the Independent
Trustees for this purpose, (3) the advisory fees of comparable portfolios of
other clients of the Investment Adviser and the Sub-adviser, (4) expense ratios
for the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser and the
Sub-adviser, (6) the Investment Adviser's and Sub-Adviser's financial results
and condition, including, in the case of the Investment Adviser, its and
certain of its affiliates profitability from services performed for the Fund,
(7) transfer agency fees and administrative reimbursements paid to the
Investment Adviser or affiliates, (8) investment management staffing, and (9)
operating expenses paid to third parties. The Trustees also reviewed
information regarding the potential for the Fund and the Investment Adviser to
benefit from further economies of scale in the management of the Fund in light
of reasonable growth expectations for the Fund; the break points in the Fund's
management fee and of a peer group of funds selected by the Independent
Trustees for this purpose and certain of the Fund's expenses that are not
incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
17
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Oak Ridge Large Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to
shareowners of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareowner services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's performance compared to both
the performance of a peer group and an index, in each case selected by the
Independent Trustees for this purpose. The Fund's performance based upon
total return was in the fourth quintile of the peer group for the twelve
months ended June 30, 2005. (In all quintile rankings referred to throughout
this discussion first quintile is most favorable to the Fund's shareowners.
Thus, highest relative performance would be first quintile and lowest
relative expenses also would be first quintile.) The Trustees also
considered the activities of the Investment Adviser in monitoring the
investment and compliance operations of the Sub-adviser. The Trustees
concluded that the period of investment operations were too short to
evaluate performance.
C. Personnel and Methods. The Trustees reviewed the background of members of
the team responsible for the daily management of the Fund and the Fund's
investment objective and discipline. The Independent Trustees also have had
discussions with senior management of the Investment Adviser responsible for
investment operations. Among other things, the Trustees considered the
number, education and experience of the Sub-adviser's investment staff. The
Trustees concluded that the Investment Adviser and the Sub-adviser have the
quality and depth of personnel and the well-developed methods essential to
performing its duties under the Management Contract and the Sub-advisory
Agreement.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareowners of the
Fund, including administrative and shareowner services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and their supervision
of third party service providers. Based on these considerations, the
Trustees concluded that the nature, quality, cost and extent of such
services are satisfactory and reliable and serve the shareowners of the Fund
well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the period from inception through June 30, 2005 was in
the first quintile (after fee waivers) relative to the management fees paid
by the other funds in that peer group for the comparable period and in the
third quintile without giving effect to fee waivers. The Trustees determined
that the fee under the Management Contract was reasonable and fair in light
of both the overall nature and quality of services provided by the
Investment Adviser and the fees charged by the funds in the peer group. The
Trustees also evaluated the fee under the Sub-advisory Agreement and the
portion of the fee under the Management Contract retained by the Investment
Adviser and determined that they were consistent with other sub-advised
funds. The Trustees also considered the Fund's expense ratio and expense
ratios of a peer group of funds selected by the Independent Trustees for
this purpose. The Fund's expense ratio for the period from inception through
June 30, 2005 (after expense limitations) was in second quintile of the
applicable peer group for the most recent fiscal year of the peer group for
the comparable period. The Trustees concluded that the Fund's overall
expense ratio (after expense limitations) was reasonable compared to that of
comparable funds.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available
18
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Oak Ridge Large Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
industry data. The Trustees concluded that the Investment Adviser's profits
from management of the Pioneer Funds, including the financial results
derived from the Fund, bear a reasonable relationship to the services
rendered and are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. Because of break points in
the management fee, the Trustees concluded that any perceived or potential
economies of scale would be shared at future asset levels, in a reasonable
manner as the Fund grows in size, between the Investment Adviser and the
Fund's shareowners.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareowner services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect of the Pioneer Funds (including the Fund), and
benefits to the Sub-adviser from the use of "soft" commission dollars to pay
for research services. The Trustees further considered the revenues and
profitability of the Investment Adviser's businesses other than the fund
business, including the Investment Adviser's institutional investment
advisory business. The Trustees considered the intangible benefits that
accrue to the Investment Adviser and its affiliates by virtue of its
relationship with the Fund and the Pioneer Funds as a group. The Trustees
concluded that all these types of benefits accruing to the Investment
Adviser were reasonable in the context of the overall relationship between
the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's and
Sub-adviser's overall performance, considered it appropriate to continue to
retain the management services of the Investment Adviser and the Sub-adviser.
Based on their evaluation of all material factors deemed relevant and the
advice of independent counsel, the Trustees concluded that the Management
Contract with the Fund and the Sub-advisory Agreement are fair and reasonable
and voted to approve the continuation of the Management Contract and the
Sub-advisory Agreement for another year.
19
Pioneer Oak Ridge Large Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
20
Pioneer Oak Ridge Large Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held
Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance
or earlier services company) (2001-present); company); Director of New York
retirement or Managing Partner, Federal City Mortgage Trust (publicly traded
removal. Capital Advisors (boutique merchant mortgage REIT)
bank) (2002 to 2004); Executive
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products
or earlier manufacturer), Mortgage Guaranty
retirement or Insurance Corporation, and Briggs
removal. & Stratton, Inc. (engine
manufacturer)
- ----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
21
Pioneer Oak Ridge Large Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
22
Pioneer Oak Ridge Large Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, None
Treasurer 2000. Serves at the Assistant Vice President - Fund
discretion of the Accounting, Administration and
Board. Custody Services of Pioneer; and
Assistant Treasurer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ---------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ---------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
23
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
24
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
25
[Logo] PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company, Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18675-00-0206
[LOGO]PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Real Estate Shares VCT Portfolio -- Class II Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
T a b l e o f C o n t e n t s
- --------------------------------------------------------------------------------
Pioneer Real Estate Shares VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 5
Financial Statements 6
Notes to Financial Statements 10
Report of Independent Registered Public
Accounting Firm 15
Factors Considered by the Independent Trustees
in Approving the Management Contract 16
Trustees, Officers and Service Providers 19
Before investing consider the Portfolio's investment objectives, risks, charges
and expenses. Contact your advisor or Pioneer Investments for a prospectus
containing this information. Read it carefully.
The Trust files a complete statement of investments with the Securities and
Exchange Commission for the first and the third quarters for each fiscal year
on Form N-Q. Shareowners may view the filed Form N-Q by visiting the
Commission's web site at http://www.sec.gov. The filed form may also be viewed
and copied at the Commission's Public Reference Room in Washington, D.C.
Information regarding the operations of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
U.S. Common Stocks 84.9%
Temporary Cash Investment 15.1%S
Sector Distribution
(As a percentage of equity holdings)
Office 19.6%
Apartment 18.5%
Industrial 14.6%
Regional Mall 13.8%
Shopping Center 12.7%
Hotel 10.2%
Self Storage 4.4%
Diversified 4.2%
Triple-Net Lease 1.2%
Manufactured Homes 0.4%
Health Care 0.4%
Five Largest Holdings
(As a percentage of equity holdings)
1. Simon Property Group, Inc. 7.09%
2. ProLogis Trust 6.04
3. Boston Properties, Inc. 5.51
4. AvalonBay Communities, Inc. 4.99
5. Equity Residential Property Trust 4.26
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 26.09 $ 24.26
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.3290 $ 0.0513 $ 1.2587
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Real Estate Shares VCT Portfolio at net asset value, compared to that of the
Wilshire Real Estate Securities Index. Portfolio returns are based on net asset
value and do not reflect applicable insurance fees and surrender charges.
Wilshire Real Estate Pioneer Real Estate
Securities Index Shares VCT Portfolio
12/95 10000 10000
13687 13431
12/97 16397 16206
13540 13070
12/99 13108 12386
17137 16194
12/01 18928 17412
19417 17808
12/03 26615 23943
35879 32417
12/05 40924 37233
The Wilshire Real Estate Securities Index is a market-capitalization weighted
measure of the performance of real estate investment trusts (equity and hybrid)
and real estate operating companies. Index returns are calculated monthly,
assume reinvestment of dividends and, unlike Portfolio returns, do not reflect
any fees, expenses or sales charges. You cannot invest directly in the Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
Net Asset Value
10 Years 14.05%
5 Years 18.12%
1 Year 14.86%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
2
Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other mutual funds. The example is based on an
investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value - $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Real Estate Shares VCT
Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II
-------------------------------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,076.58
Expenses Paid During Period* $ 6.18
* Expenses are equal to the Portfolio's annualized expense ratio of 1.18% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other funds.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different funds. In addition, if
these transaction costs were included, your costs would have been higher.
Expenses Paid on a $1,000 Investment in Pioneer Real Estate Shares VCT
Portfolio
Based on a hypothetical 5% return per year return before expenses, reflecting
the period from July 1, 2005 through December 31, 2005.
Share Class II
------------------------------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,019.26
Expenses Paid During Period* $ 6.01
* Expenses are equal to the Portfolio's annualized expense ratio of 1.18% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
Real estate stocks produced strong returns for 2005 - outperforming the broader
stock market for the sixth year in a row. While this achievement is gratifying,
the real estate market also experienced above-average volatility and
variability across the different property types comprising this asset class. As
Matthew Troxell of AEW Capital Management, L.P., the Portfolio's Sub-advisor,
explains in the following interview, maintaining competitive relative
performance in 2006 will depend on astute stock picking.
Q. How did Pioneer Real Estate Shares VCT Portfolio perform during fiscal 2005?
A. Class II shares posted a total return of 14.86% at net asset value for the
12 months ended December 31, 2005. The performance surpassed the 14.06%
return for the Wilshire Real Estate Securities Index. We attribute the
outperformance to successful stock selection, particularly the Portfolio's
investments in AvalonBay Communities in the apartment sector and Simon
DeBartolo Group in the regional mall sector.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q. What contributed to the increased volatility in the real estate sector?
A. We think the volatility was due in large part to the mixed signals by
investors. On one hand, we saw institutions and private investors willing
to pay more for real estate investments - suggesting that they perceived
the assets to be undervalued. On the other hand, public investors were not
big buyers of the assets because they thought they were overvalued and too
expensive. Despite the seesaw effect of the two opposing views, many
investors believe that the fundamentals of these property types - with the
possible exception of the office sector - are improving and the underlying
assets are underpriced. Hence the 14% return for the benchmark.
Q. Could you comment on the underlying fundamentals of the various property
types that the Portfolio is invested in?
A. Certainly. The regional mall real estate investment trusts (REITs) were a
strong contributor to performance for the fiscal year given their relative
outperformance and considerable weighting in the Portfolio. Healthy
consumer spending supported strong operating results at the property level.
The Portfolio holds mall REITs with high-quality tenants that represent
some of the most recognized and financially solid retailers.
The fundamentals are rapidly improving in the multi-family sector, which
contributed favorably to your Portfolio's results. The impact of these
holdings was magnified by the fact that the Portfolio holds a greater
weighting in the sector than the benchmark. The apartment sector has
remained resilient due to strong economic growth and the resulting
improvement in employment. Should interest rates continue to rise, pinching
potential homeowners out of buying condominiums, presumably more people
would be willing to rent - boosting demand for apartments.
Perhaps the most surprising performance came from the lodging sector, which
we think experienced the best improvement in fundamentals of any property
type during 2005. Hotels saw strong room rate growth and occupancy growth -
two measures of profitability. However, despite the improved profitability
at the corporate level, the lodging sector as a property type still lagged
most sectors of the real estate market as well as the benchmark. We think
that the lodging sector represents good investment value because prices do
not reflect the rapidly improving fundamentals. We think that investor fears
of low non-business demand and rising energy prices are overblown. We
believe prospects for the lodging sector are promising in the foreseeable
future.
We limited the Portfolio's exposure to the office sector during the year
because the fundamentals are improving more slowly than other property
types. The lag is due to the inability of office REITs to reprice as a
result of their longer lease terms, which typically run five to 10 years.
While the longer lease terms can provide protection in a declining market,
office REITs do not tend to respond as quickly to changing market conditions
as other property types with shorter lease terms. Despite our decision to
underweight this sector, the holdings in the office sector performed better
than the benchmark's investments in the same sector.
Q. After a multi-year rally, are you still optimistic about the performance of
real estate stocks looking ahead?
A. Yes. We remain cautiously upbeat in our outlook. We do not expect real
estate stocks to repeat the dramatic returns of recent years, but we would
not be surprised to see these investments earn competitive returns relative
to the rest of the equity markets given their underlying fundamentals.
Astute stock picking will be as important as ever, as we assess the growth
prospects and price valuations of the holdings in your portfolio relative
to the rest of the real estate market.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
A Word About Risk:
The Portfolio invests in REIT securities, the value of which can fall for a
variety of reasons, such as declines in rental income, fluctuating interest
rates, poor property management, environmental liabilities, uninsured damage,
increased competition, or changes in real estate tax laws. At times, the
Portfolio's investments may represent industries or industry sectors that are
interrelated or have common risks, making it more susceptible to any economic,
political, or regulatory developments or other risks affecting those industries
and sectors.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
COMMON STOCKS - 98.8%
Consumer Services - 5.7%
Hotels, Resorts & Cruise Lines - 5.7%
84,300 Hilton Hotels Corp. $ 2,032,473
57,000 Starwood Hotels & Resorts 3,640,020
------------
$ 5,672,493
------------
Total Consumer Services $ 5,672,493
------------
Real Estate - 93.1%
Real Estate Management & Development - 3.6%
122,000 Brookfield Properties Corp. $ 3,589,240
------------
Real Estate Investment Trusts - 89.5%
43,700 AMB Property Corp. (a) $ 2,148,729
31,000 Apartment Investment & Management Co. 1,173,970
95,000 Archstone Communities Trust 3,979,550
9,000 Arden Realty Group, Inc. 403,470
55,000 AvalonBay Communities, Inc. 4,908,750
32,500 BioMed Property Trust, Inc. 793,000
73,000 Boston Properties, Inc. 5,411,490
40,300 Brandywine Realty Trust 1,124,773
45,000 Camden Property Trust 2,606,400
16,000 Carramerica Realty Corp. 554,080
26,500 Corporate Office Properties 941,810
68,900 Developers Diversifies Realty Corp. 3,239,678
35,000 Duke Realty Investments, Inc. 1,169,000
8,000 Equity Lifestyle Properties, Inc. 356,000
46,000 Equity Office Properties Trust 1,395,180
107,000 Equity Residential Property Trust 4,185,840
24,300 Extra Space Storage, Inc.* 374,220
35,000 Federal Realty Investment Trust 2,122,750
15,800 First Potomac Realty Trust 420,280
68,000 General Growth Properties, Inc. (a) 3,195,320
13,500 Healthcare Realty Trust, Inc. 449,145
52,600 Highwoods Properties, Inc. 1,496,470
14,500 Hospitality Properties Trust 581,450
176,800 Host Marriott Corp. (a) 3,350,360
24,500 iStar Financial, Inc. 873,425
12,000 Kilroy Realty Corp. 742,800
67,000 Kimco Realty Corp. (a) 2,149,360
40,900 Kite Realty Group Trust 632,723
84,000 Liberty Property Trust 3,599,400
9,200 The Macerich Co. 617,688
12,500 Mills Corp. 524,250
Shares Value
30,200 Pan Pacific Retail Properties, Inc. $ 2,020,078
45,500 Prentiss Properties Trust 1,850,940
127,000 ProLogis Trust 5,933,440
22,000 PS Business Par, Inc. 1,082,400
44,000 Public Storage, Inc. 2,979,680
39,500 Regency Centers Corp. 2,328,525
17,500 Shurgard Storage Centers, Inc. 992,425
91,000 Simon Property Group, Inc. (a) 6,973,330
27,500 Spirit Finance Corp. 312,125
17,500 Strategic Hotel Capital, Inc. 360,150
67,000 Taubman Centers, Inc. 2,328,250
73,300 Trizec Properties, Inc. 1,680,036
57,000 United Dominion Realty Trust 1,336,080
40,000 Vornado Realty Trust 3,338,800
------------
$ 89,037,620
------------
Total Real Estate $ 92,626,860
------------
TOTAL COMMON STOCKS
(Cost $60,502,235) $ 98,299,353
------------
TEMPORARY CASH INVESTMENT - 17.7%
Security Lending Collateral - 17.7%
17,545,193 Securities Lending Investment
Fund, 4.24% $ 17,545,193
------------
TOTAL TEMPORARY CASH
INVESTMENT
(Cost $17,545,193) $ 17,545,193
------------
TOTAL INVESTMENT
IN SECURITIES - 116.5%
(Cost $78,047,428) $115,844,546
------------
OTHER ASSETS
AND LIABILITIES - (16.5)% $(16,375,292)
------------
TOTAL NET ASSETS - 100.0% $ 99,469,254
============
* Non-income producing security.
(a) At December 31, 2005, the following securities were out on loan:
Shares Security Value
40,650 AMB Property Corp. $ 1,998,761
64,400 General Growth Properties, Inc. 3,026,156
167,460 Host Marriott Corp. 3,173,367
64,350 Kimco Realty Corp. 2,064,348
89,100 Simon Property Group, Inc. 6,827,733
-----------
Total $17,090,365
===========
The accompanying notes are an integral part of these financial statements. 5
Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Class II 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 24.26 $ 18.55 $ 14.45 $ 14.75 $ 14.40
------- ------- ------- ------- -------
Increase from investment operations:
Net investment income $ 0.36 $ 0.44 $ 0.68 $ 0.55 $ 0.41
Net realized and unrealized gain (loss) on investments 3.11 6.00 4.18 (0.20) 0.63
------- ------- ------- ------- -------
Net increase from investment operations $ 3.47 $ 6.44 $ 4.86 $ 0.35 $ 1.04
Distributions to shareholders:
Net investment income (0.33) (0.40) (0.56) (0.65) (0.52)
Net realized gain (1.31) (0.33) -- -- --
Tax Return of Capital -- -- (0.20) -- (0.17)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value $ 1.83 $ 5.71 $ 4.10 $ (0.30) $ 0.35
------- ------- ------- -------- -------
Net asset value, end of period $ 26.09 $ 24.26 $ 18.55 $ 1 4.45 $ 14.75
======= ======= ======= ======== =======
Total return* 14.86% 35.39% 34.45% 2.28% 7.52%
Ratio of net expenses to average net assets 1.18% 1.23% 1.28% 1.32% 1.52%
Ratio of net investment income to average net assets 1.46% 2.20% 4.26% 4.21% 4.36%
Portfolio turnover rate 12% 35% 20% 29% 34%
Net assets, end of period (in thousands) $67,383 $61,799 $39,892 $ 31,985 $11,972
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
NOTE: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
6 The accompanying notes are an integral part of these financial statements.
Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (including securities loaned of $17,090,365) (Cost $ 115,844,546
$78,047,428)
Cash 992,681
Receivables --
Investment securities sold 282,762
Fund shares sold 42,554
Dividends, interest and foreign taxes withheld 494,270
Other 1,934
-------------
Total assets $ 117,658,747
-------------
LIABILITIES:
Payables --
Fund shares repurchased $ 546,900
Upon return for securities loaned 17,545,193
Due to affiliates 9,274
Accrued expenses 88,126
-------------
Total liabilities $ 18,189,493
-------------
NET ASSETS:
Paid-in capital $ 56,459,993
Undistributed net investment income 211,528
Accumulated net realized gain on investments 5,000,615
Net unrealized gain on:
Investments 37,797,118
-------------
Total net assets $ 99,469,254
-------------
NET ASSET VALUE PER SHARE:
Class I:
(No par value, unlimited number of shares authorized)
Net assets $ 32,086,132
Shares outstanding 1,227,893
-------------
Net asset value per share $ 26.13
Class II:
(No par value, unlimited number of shares authorized)
Net assets $ 67,383,122
Shares outstanding 2,583,192
-------------
Net asset value per share $ 26.09
The accompanying notes are an integral part of these financial statements. 7
Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year
Ended
12/31/05
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $10,451) $ 2,522,994
Interest 27,159
Income on securities loaned, net 16,232
-----------
Total investment income $ 2,566,385
-----------
EXPENSES:
Management fees $ 782,628
Transfer agent fees and expenses 3,000
Distribution fees (Class II) 162,146
Administrative reimbursements 18,700
Custodian fees 22,345
Professional fees 41,419
Printing expense 32,568
Fees and expenses of nonaffiliated trustees 4,858
Miscellaneous 9,767
-----------
Total expenses $ 1,077,431
-----------
Net expenses $ 1,077,431
-----------
Net investment income $ 1,488,954
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investments $ 6,859,537
-----------
Change in net unrealized gain from investments $ 5,415,473
-----------
Net gain on investments $12,275,010
===========
Net increase in net assets resulting from operations $13,763,964
===========
8 The accompanying notes are an integral part of these financial statements.
Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Year
Ended Ended
12/31/05 12/31/04
FROM OPERATIONS:
Net investment income $ 1,488,954 $ 1,806,090
Net realized gain on investments 6,859,537 7,508,438
Change in net unrealized gain on investments 5,415,473 15,633,552
------------- -------------
Net increase in net assets resulting from operations $ 13,763,964 $ 24,948,080
------------- -------------
DISTRIBUTIONS TO SHAREOWNERS:
Net investment income
Class I $ (513,835) $ (707,216)
Class II (868,561) (916,414)
Net realized gain
Class I (1,720,481) (493,376)
Class II (3,467,765) (803,210)
------------- -------------
Total distributions to shareowners $ (6,570,642) $ (2,920,216)
------------- -------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 14,850,583 $ 20,027,996
Reinvestment of distributions 6,570,642 2,920,216
Cost of shares repurchased (27,391,461) (18,513,875)
------------- -------------
Net increase (decrease) in net assets
resulting from Fund share transactions $ (5,970,236) $ 4,434,337
------------- -------------
Net increase in net assets $ 1,223,086 $ 26,462,201
------------- -------------
NET ASSETS:
Beginning of year $ 98,246,168 $ 71,783,967
------------- -------------
End of year $ 99,469,254 $ 98,246,168
============= =============
Undistributed net investment income, end of year $ 211,528 $ 286,854
============= =============
The accompanying notes are an integral part of these financial statements. 9
Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer Real Estate Shares VCT Portfolio (the Portfolio) is a Portfolio of
the Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust
registered under the Investment Company Act of 1940 as an open-end management
investment company. The Trust consists of twenty nine separate diversified
portfolios, fourteen of which issue both Class I and Class II shares
(collectively, the "Portfolios", individually the "Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares
only)
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts, or
by qualified pension and retirement plans.
The investment objective of Real Estate Shares Portfolio pursues long-term
capital growth, with current income as a secondary objective.
The financial highlights for the Portfolio's Class I shares are presented in a
separate book.
The Portfolio financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
years. Actual results could differ from those estimates. The following is a
summary of significant accounting policies consistently followed by the
Portfolio, in the preparation of its financial statements which are consistent
with those generally accepted in the investment company industry:
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the Portfolio are computed once daily, on each day the New York Stock
Exchange (NYSE) is open, as of the close of regular trading on the NYSE.
In computing the net asset values, securities are valued at the last sale
price on the principal exchange where they are traded. Securities that
have not traded on the date of valuation, or securities for which sale
prices are not generally reported, are valued at the mean between the last
10
Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
bid and asked prices. Securities for which market quotations are not
readily available are valued at their fair values as determined by, or
under the direction of, the Board of Trustees. The Portfolio also may use
the fair value of a security, including a non-U.S. security, when the
closing market price on the primary exchange where the security is traded
no longer accurately reflects the value of the security as of the close of
the NYSE. At December 31, 2005, there were no fair valued securities.
Temporary cash investments are valued at amortized cost.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities where the ex-dividend date may have
passed are recorded as soon as the Portfolio becomes aware of the
ex-dividend data in the exercise of reasonable diligence. Interest income,
including interest on income bearing cash accounts, is recorded on the
accrual basis.
Gains and losses from sales on investments are calculated on the
identified cost method for both financial reporting and federal income tax
purposes, and, if applicable, are reported net of foreign taxes on capital
gains at the applicable country rates.
Because Real Estate Shares Portfolio invests a substantial portion of its
assets in real estate investment trusts (REITs), the Portfolio may be
subject to certain risks associated with direct investments in REITs.
REITs may be affected by changes in the value of their underlying
properties and by defaults by borrowers or tenants. REITs depend generally
on their ability to generate cash flow to make distributions to
shareowners, and certain REITs have self-liquidation provisions by which
mortgages held may be paid in full and return of capital distributions may
be made at any time. In addition, the performance of a REIT may be
affected by its failure to qualify for tax-free pass-through of income
under the Internal Revenue Code or its failure to maintain exemption from
registration under the Investment Company Act of 1940. Information
regarding the Portfolio's principal investment risks is contained in the
Portfolio's prospectus. Please refer to those documents when considering
the Portfolio's risks.
B. Futures Contracts
The Portfolio may enter into futures transactions to hedge against changes
in interest rates, securities prices, and currency rates or to seek to
increase total return. Upon entering into a futures contract, the
Portfolio is required to deposit with a broker an amount of cash or
securities equal to the minimum "initial margin" requirements of the
associated futures exchange. Subsequent payments for futures contracts
("variation margin") are paid or received by the Portfolio, depending on
the daily fluctuation in the value of the contracts, and are recorded by
the Portfolio as unrealized gains or losses. When the contract is closed,
the Portfolio realize a gain or loss equal to the difference between the
opening and closing value of the contract. The use of futures contracts
involves, to varying degrees, elements of market risk which may exceed the
amounts recognized by the Portfolio. Changes in the value of the contracts
may not directly correlate to the changes in the value of the underlying
securities. These risks may decrease the effectiveness of the Portfolio's
hedging and trading strategies and potentially result in a loss. As of
December 31, 2005, Real Estate Shares had no open contracts.
C. Foreign Currency Translation
The books and records of the Portfolio are maintained in U.S. dollars.
Amounts denominated in foreign currencies are translated into U.S. dollars
using current exchange rates.
Net realized gains and losses on foreign currency transactions represent,
the net realized gains and losses on foreign currency contracts,
disposition of foreign currencies, and the difference between the amount
of income accrued and the U.S. dollars actually received. Further, the
effects of changes in foreign currency exchange rates on investments are
not segregated in the statement of operations from the effects of changes
in market price of those securities but are included with the net realized
and unrealized gain or loss on investments.
D. Forward Foreign Currency Contracts
The Portfolio enters into forward foreign currency contracts (contracts)
for the purchase or sale of a specific foreign currency at a fixed price
on a future date as a hedge or cross-hedge against either specific
investment transactions (settlement hedges) or portfolio positions
(portfolio hedges). All contracts are marked to market daily at the
applicable exchange rates, and any resulting unrealized gains or losses
are recorded in the Portfolio's financial statements. The Portfolio
records realized gains and losses at the time a portfolio hedge is offset
by entry into a closing transaction or extinguished by delivery of the
currency. Risks may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms of the contract
and from unanticipated movements in the value of foreign currencies
relative to the U.S. dollar.
11
Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
E. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal
income tax rules. Therefore, the source of the Portfolio's distributions
may be shown in the accompanying financial statements as either from, or
in excess of, net investment income or net realized gain on investment
transactions, or from paid-in capital, depending on the type of book/tax
differences that may exist.
At December 31, 2005, the Portfolio made reclassifications as described
below. These reclassifications have no impact on the net asset value of
the Portfolio and are designed to present the Portfolio's capital accounts
on a tax basis.
- -------------------------------------------------------------------------------------------
Undistributed Net Accumulated Net
Investment Income Realized
(Loss) Gain (Loss) Paid-In Capital
- -------------------------------------------------------------------------------------------
Real Estate Shares Portfolio $(181,884) $102,715 $79,169
- -------------------------------------------------------------------------------------------
A portion of the dividend income recorded by Real Estate Shares Portfolio
is from distributions by publicly traded REITs, and such distributions for
tax purposes may also consist of capital gains and return of capital. The
actual return of capital and capital gains portions of such distributions
will be determined by formal notifications from the REITs subsequent to
the calendar year-end. Distributions received from the REITs that are
determined to be a return of capital are recorded by the Portfolio as a
reduction of the cost basis of the securities held and those determined to
be capital gain are reflected as such on the statement of operations.
The following chart shows the distributions paid during the years ended
December 31, 2005 and 2004 on a tax basis and the components of
distributable earnings (accumulated losses) as of December 31, 2005.
- -------------------------------------------------------------------------------------
2005 2004
- -------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ 1,584,389 $2,449,917
Long-Term capital gain 4,986,253 470,299
----------- ----------
6,570,642 2,920,216
Return of Capital -- --
----------- ----------
Total distributions $ 6,570,642 $2,920,216
=========== ==========
Distributable Earnings (Accumulated Losses):
Undistributed long-term gain/(capital loss carry forward) $ 5,283,368
REIT Dividend Payable 211,528
Unrealized appreciation (depreciation) 37,514,365
-----------
Total $43,009,261
===========
- -------------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation is
primarily attributable to the tax deferral of losses on wash sales.
12
Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
F. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade
date. Certain insurance companies paid Pioneer Funds Distributor, Inc.
(PFD), the principal underwriter for the Trust and a wholly owned indirect
subsidiary of UniCredito Italiano S.p.A. (Unicredito Italiano), $638,021
in commissions on the sale of Trust shares for the year ended December 31,
2005. Distribution fees for Class II Shares are calculated based on the
average daily net asset values attributable to Class II shares of the
Portfolio.
Shareowners of each class share all expenses and fees paid to the transfer
agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS),
for its services, which are allocated based on the number of accounts in
each class and the ratable allocation of related out-of-pocket expenses
(see Note 3). Income, common expenses (excluding transfer agent and
distribution fees) and realized and unrealized gains and losses are
calculated at the Portfolio level and allocated daily to each class of
shares based on the respective percentage of the adjusted net assets at
the beginning of the day. Distributions paid by a Portfolio with respect
to each class of shares are calculated in the same manner, at the same
time, and in the same amount, except that Class I and Class II shares can
bear different transfer agent and distribution fees.
G. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees. The Portfolio also continues to receive
payments in lieu of interest or dividends on the securities loaned. Gain
or loss in the fair value of the securities loaned that may occur during
the term of the loan, will be for the account of the Trust. The loans are
secured by collateral of at least 102%, at all times, of the fair value of
the securities loaned. The fair value of the collateral will be adjusted
daily to reflect any price fluctuation in the value of the loaned
securities. The Trust has the right under the lending agreement to recover
the securities on loan from the borrower on demand. The Trust invests cash
collateral in the Securities Lending Investment Fund which is sponsored by
Brown Brothers Harriman & Co., the Trust's custodian.
H. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued
interest received from counterparties, is required to be at least equal to
or in excess of the value of the repurchase agreement at the time of
purchase. The collateral for all repurchase agreements is held in
safekeeping in the customer-only account of the Portfolio's custodian, or
subcustodian. The Trust's investment adviser, Pioneer Investment
Management, Inc. (PIM), is responsible for determining that the value of
the collateral remains at least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano manages the
portfolio. Management fees are calculated daily at the annual rate of 0.80% of
the Portfolio's average daily net assets.
In addition, under the management and administration agreements, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $4,397 was payable
to PIM related to management fees, administrative reimbursements and certain
other services, and is included in due to affiliates.
3. Transfer Agent
PIMSS, a wholly owned indirect subsidiary of UniCredito Italiano provides
substantially all transfer agent and shareowner services to the Trust at
negotiated rates. Included in due to affiliates is $3,945 in transfer agent
fees payable to PIMSS at December 31, 2005.
4. Distribution Plans
The Portfolio has adopted a plan of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with the Portfolio's Class
II shares. Included in due to affiliates is $932 payable to PFD at December 31,
2005.
13
Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- ----------------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- ----------------------------------------------------------------------------------------------------
Real Estate Shares Portfolio $78,330,181 $37,800,321 $ (285,956) $37,514,365
=========== =========== ========== ===========
- ----------------------------------------------------------------------------------------------------
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were $11,218,671 and $19,586,688, respectively.
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows for the
year ended December 31, 2005 and the fiscal year ended December 31, 2004.
- --------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Real Estate Shares Portfolio '05 Shares '05 Amount '04 Shares '04 Amount
- --------------------------------------------------------------------------------------------
CLASS I:
Shares sold 57,099 $ 1,401,143 151,466 $ 3,192,487
Reinvestment of distributions 91,076 2,234,316 56,986 1,200,592
Shares repurchased (420,029) (10,198,782) (425,846) (8,497,885)
--------------------------------------------------------
Net increase (271,854) $ (6,563,323) (217,394) $ (4,104,806)
========================================================
CLASS II:
Shares sold 558,332 $ 13,449,440 820,863 $ 16,835,509
Reinvestment of distributions 176,725 4,336,326 81,377 1,719,624
Shares repurchased (699,655) (17,192,679) (505,041) (10,015,990)
--------------------------------------------------------
Net increase 35,402 $ 593,087 397,199 $ 8,539,143
========================================================
- --------------------------------------------------------------------------------------------
14
Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust and
the Shareowners of Pioneer Real Estate Shares VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer Real Estate Shares VCT Portfolio, one
of the portfolios constituting the Pioneer Variable Contracts Trust (the
"Trust"), as of December 31, 2005, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of
the four years in the period then ended. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for the
period ended December 31, 2001 were audited by other auditors who have ceased
operations and whose report, dated February 8, 2002, expressed an unqualified
opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005, by correspondence
with the custodian. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer Real Estate Shares VCT Portfolio of the Pioneer Variable Contracts
Trust at December 31, 2005, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and financial highlights for each of the four years in the period
then ended, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
15
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Real Estate Shares VCT Portfolio (the "Fund")
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING
THE MANAGEMENT CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") voting
separately annually approve the Fund's management contract (the "Management
Contract") between the Fund and Pioneer Investment Management, Inc., the Fund's
adviser (the "Investment Adviser"). The Investment Adviser has retained AEW
Investment Advisers, LLC. (the "Sub-adviser") to act as sub-adviser to the Fund
pursuant to a sub-advisory agreement between the Investment Adviser and the
Sub-adviser (the "Sub-advisory Agreement"). The Trustees have determined that
the terms of the Management Contract and the Sub-advisory Agreement are fair
and reasonable and that renewal of these contracts will enable the Fund to
receive quality investment advisory services at a cost deemed reasonable and in
the best interests of the Fund and its shareowners. In making such
determinations, the Independent Trustees relied upon the assistance of counsel
to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
the Investment Adviser, or its affiliates. While the Trustees, including the
Independent Trustees, act on all major matters relating to the Fund, a
significant portion of the activities of the Board of Trustees (including
certain of those described herein) is conducted through committees, the members
of which are comprised exclusively of Independent Trustees. Such committee
meetings are attended by officers of the Fund or the Investment Adviser to the
extent requested by the members of the committee.
In evaluating the Management Contract and Sub-advisory Agreement, the Trustees
conducted a review that was specifically focused upon the renewal of the
Management Contract and Sub-advisory Agreement, and relied upon their
knowledge, resulting from their meetings throughout the year, of the Investment
Adviser, its services and the Fund. Both in meetings specifically dedicated to
renewal of the Management Contract and at other meetings during the course of
the year, the Trustees, including the Independent Trustees, received materials
relating to the Investment Adviser's investment and management services under
the Management Contract. These materials included (i) information on the
investment performance of the Fund, a peer group of funds and an index, in each
case selected by the Independent Trustees for this purpose, (ii) sales and
redemption data in respect of the Fund, (iii) the general investment outlook in
the markets in which the Fund invests, (iv) arrangements in respect of the
distribution of the Fund's shares, (v) the procedures employed to determine the
value of each of the Fund's assets, (vi) the Investment Adviser's management of
the relationships with the Fund's unaffiliated service providers, (vii) the
record of compliance with the Fund's investment policies and restrictions and
with the Fund's Code of Ethics and the structure and responsibilities of the
Investment Adviser's compliance department, (viii) the nature, cost and
character of non-investment management services provided by the Investment
Adviser and its affiliates, (ix) the disclosures included in the Fund's
prospectuses and reports to shareowners and (x) the investment and compliance
staff and operations of the Subadviser.
Specifically, in connection with the Independent Trustees' review of the
Management Contract and the Sub-advisory Agreement, the Independent Trustees
requested and the Investment Adviser provided additional information in order
to evaluate the quality of the Investment Adviser's and Sub-adviser's services
and the reasonableness of the fee under the Management Contract and the
Sub-advisory Agreement. Among other items, this information included data or
analyses of (1) investment performance for one, three, five and ten year
periods for the Fund and a peer group selected by the Independent Trustees for
this purpose, (2) management and other fees incurred by a peer group of funds
selected by the Independent Trustees for this purpose, (3) the advisory fees of
comparable portfolios of other clients of the Investment Adviser and the
Sub-adviser, (4) expense ratios for the Fund and a peer group of funds selected
by the Independent Trustees for this purpose, (5) the overall organization of
the Investment Adviser and the Sub-adviser, (6) the Investment Adviser's and
Sub-adviser's financial results and condition, including, in the case of the
Investment Adviser, its and certain of its affiliates profitability from
services performed for the Fund, (7) transfer agency fees and administrative
reimbursements paid to the Investment Adviser or affiliates, (8) investment
management staffing, and (9) operating expenses paid to third parties. The
Trustees also reviewed information regarding the potential for each of the Fund
and the Investment Adviser to benefit from further economies of scale in the
management of the Fund in light of reasonable growth expectations for the Fund,
the break points in the Fund's management fee and of a peer group of funds
selected by the Independent Trustees for this purpose and certain of the Fund's
expenses that are not incurred as fees based on a percentage of net assets.
16
Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to
shareowners of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareowner services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory requirements.
The Trustees also reviewed the Fund's investment performance based upon total
return, as well as the Fund's performance compared to both the performance of
a peer group and an index, in each case selected by the Independent Trustees
for this purpose. The Fund's performance based upon total return was in the
first quintile of the peer group for the 12 months ended June 30, 2005, the
first quintile of the peer group for the three years ended June 30, 2005, the
first quintile for the five years ended June 30, 2005 and the first quintile
for the ten year period ended June 30, 2005. (In all quintile rankings
referred to throughout this discussion first quintile is most favorable to
the Fund's shareowners. Thus, highest relative performance would be first
quintile and lowest relative expenses also would be first quintile.) The
Trustees also considered the activities of the Investment Adviser in
monitoring the investment and compliance operations of the Sub-adviser. The
Trustees also considered the yield (gross of expenses of the Class I shares
of the Fund relative to the yield (at June 30, 2005) of the Wilshire Real
Estate Securities Index. The Trustees concluded that the performance of the
Fund supported the continuation of the Management Contract and the
Sub-advisory Agreement.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of the
Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations. Among other things, the
Trustees considered the number, education and experience of the Sub-adviser's
investment staff. The Trustees concluded that the Investment Adviser and the
Sub-adviser have the quality and depth of personnel and the well-developed
methods essential to performing their duties under the Management Contract
and the Sub-advisory Agreement.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareowners of the
Fund, including administrative and shareowner services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareowners of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment Adviser's
fee under the Management Contract relative to the management fees charged by
a peer group of funds selected by the Independent Trustees for this purpose
using data provided by an independent third party. The Fund's management fee
for the 12 months ended June 30, 2005 was in the third quintile relative to
the management fees paid by the other funds in that peer group for the
comparable period. The Trustees determined that the fee under the Management
Contract was reasonable and fair in light of both the overall nature and
quality of services provided by the Investment Adviser and the fees charged
by the funds in the peer group. The Trustees also evaluated the fee under the
Sub-advisory Agreement and the portion of the fee under the Management
Contract retained by the Investment Adviser and determined that they were
consistent with other sub-advised funds. The Trustees also considered the
Fund's expense ratio and expense ratios of a peer group of funds selected by
the Independent Trustees for this purpose. The Fund's expense ratio for the
12 months ended June 30, 2005 was in the third quintile of the applicable
peer group for the most recent fiscal year of the peer group for the
comparable period. The Trustees concluded that the Fund's overall expense
ratio was reasonable compared to that of comparable funds.
17
Pioneer Real Estate Shares VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of the
Investment Adviser's methodology in allocating certain of its costs to the
management of each Fund. The Trustees also considered the financial results
realized by the Investment Adviser in connection with the operation of the
Fund. They further considered the profits realized by the Investment Adviser
and its affiliates from non-fund businesses that may benefit from or be
related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived from
the Fund, bear a reasonable relationship to the services rendered and are
fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. The Trustees concluded that,
given current and anticipated assets levels, a break point in the management
fee was not necessary at this time. As the assets increase, the Trustees will
continue to evaluate annually the appropriateness of break points.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareowner services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect of the Pioneer Funds (including the Fund), and
benefits to the Sub-adviser from the use of "soft" commission dollars to pay
for research and brokerage services. The Trustees further considered the
revenues and profitability of the Investment Adviser's businesses other than
the fund business, including the Investment Adviser's institutional
investment advisory business. The Trustees considered the intangible benefits
that accrue to the Investment Adviser and its affiliates by virtue of its
relationship with the Fund and the Pioneer Funds as a group. The Trustees
concluded that all these types of benefits accruing to the Investment Adviser
were reasonable in the context of the overall relationship between the
Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's and
Sub-adviser's overall performance, considered it appropriate to continue to
retain the management services of the Investment Adviser and the Sub-adviser.
Based on their evaluation of all material factors deemed relevant and the
advice of independent counsel, the Trustees concluded that the Management
Contract with the Fund and the Sub-advisory Agreement are fair and reasonable
and voted to approve the continuation of the Management Contract and the
Sub-advisory Agreement for another year.
18
Pioneer Real Estate Shares VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
19
Pioneer Real Estate Shares VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held
Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance
or earlier services company) (2001-present); company); Director of New York
retirement or Managing Partner, Federal City Mortgage Trust (publicly traded
removal. Capital Advisors (boutique merchant mortgage REIT)
bank) (2002 to 2004); Executive
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ------------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products
or earlier manufacturer), Mortgage Guaranty
retirement or Insurance Corporation, and Briggs
removal. & Stratton, Inc. (engine
manufacturer)
- ------------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ------------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ------------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ------------------------------------------------------------------------------------------------------------------------------------
20
Pioneer Real Estate Shares VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRUST OFFICERS
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- ------------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
21
Pioneer Real Estate Shares VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRUST OFFICERS
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, Assistant Vice President - Fund None
Treasurer 2000. Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ------------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ------------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
22
- --------------------------------------------------------------------------------
This page for your notes.
23
- --------------------------------------------------------------------------------
This page for your notes.
24
- --------------------------------------------------------------------------------
This page for your notes.
25
[LOGO]PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company,
Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18653-00-0206
[LOGO] PIONEER
Investments (R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Small and Mid Cap Growth VCT Portfolio -- Class II Shares
(Formerly Pioneer Papp Small and Mid Cap Growth VCT Portfolio.
Name change effective May 1, 2005.)
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Pioneer Small and Mid Cap Growth VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 6
Financial Statements 8
Notes to Financial Statements 12
Report of Independent Registered Public
Accounting Firm 16
Factors Considered by the Independent Trustees
in Approving the Management Contract 17
Trustees, Officers and Service Providers 20
Before investing, consider the Portfolio's investment
objectives, risks, charges and expenses. Contact your
advisor or Pioneer Investments for a prospectus containing
this information. Please read it carefully.
The Trust files a complete statement of investments with the
Securities and Exchange Commission for the first and the
third quarters for each fiscal year on Form N-Q. Shareowners
may view the filed Form N-Q by visiting the Commission's web
site at http://www.sec.gov. The filed form may also be
viewed and copied at the Commission's Public Reference Room
in Washington, D.C. Information regarding the operations of
the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 89.9%
Temporary Cash Investment 7.3%
Depositary Receipts for International Stocks 2.8%
Sector Distribution
(As a percentage of equity holdings)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Health Care 28.3%
Information Technology 26.5%
Consumer Discretionary 14.8%
Industrials 11.7%
Financials 10.1%
Consumer Staples 6.0%
Materials 2.6%
Five Largest Holdings
(As a percentage of equity holdings)
1. Express Scripts, Inc. 3.66%
2. Techne Corp. 3.43
3. Alberto-Culver Co.
(Class B) 3.10
4. Federated Investors, Inc. 3.07
5. WPP Group Plc 3.06
The Portfolio is actively managed and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 11.37 $ 10.87
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ - $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Small and Mid Cap Growth VCT Portfolio at net asset value, compared to that of
the Russell 2500 Growth Index. Portfolio returns are based on net asset value
and do not reflect any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Russell Pioneer
2500 Growth Small and
Mid Cap Growth
VCT Portfolio*
3/04 10000 10000
12/04 10861 10752
12/05 11749 11246
The Russell 2500 Growth Index measures the performance of U.S. small- and
mid-cap growth stocks. Index returns are calculated monthly, assume
reinvestment of dividends and, unlike Portfolio returns, do not reflect any
fees, expenses or sales charges. You cannot invest directly in any Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- ----------------------------
Net Asset Value
- ----------------------------
Life-of-Class 7.41%
(3/15/04)
1 Year 4.60%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers fund performance would be lower. Waivers
may not be in effect for all funds. Certain fee waivers are contractual through
a specified period. Otherwise, fee waivers can be rescinded at any time. See
the prospectus and financial statements for more information.
2
Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value [divided by] $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Small and Mid Cap Growth VCT
Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005
Share Class II
- ------------------------------------------ --------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,070.62
Expenses Paid During Period* $ 5.22
* Expenses are equal to the Portfolio's annualized expense ratio of 1.00% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer Small and Mid Cap Growth VCT
Portfolio
Based on a hypothetical 5% per year return before expenses, reflecting the
period from July 1, 2005 through December 31, 2005
Share Class II
- ------------------------------------------ --------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,020.16
Expenses Paid During Period* $ 5.09
* Expenses are equal to the Portfolio's annualized expense ratio of 1.00% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
While the U.S. economy and corporate profits registered strong gains during
2005, stock market indexes produced below-average returns for the year.
Investors worried about oil prices, the impact of the Federal Reserve Board's
13 successive interest-rate hikes over 18 months, and the possibility that
federal tax cuts on capital gains and stock dividends might not be made
permanent. Given these concerns, stock valuations failed to keep pace with
increasing corporate earnings and the gross domestic product (GDP). In the
following interview, members of the management team of L. Roy Papp & Associates
- - L. Roy Papp and Rosellen Papp - who are responsible for the Fund's
management, discuss the factors that influenced the performance of Pioneer
Small and Mid Cap Growth VCT Portfolio during the 12 months ended December 31,
2005.
Q: How did the Portfolio perform?
A: For the 12 months ended December 31, 2005, Pioneer Small and Mid Cap Growth
VCT Portfolio returned 4.60% at net asset value. During the same 12 months,
the Russell Midcap Growth Index returned 12.10%.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q: What were the principal factors that affected performance?
A: Our consistent discipline favoring industry-leading stable growth companies
with superior long-term earnings prospects led us to de-emphasize the more
volatile energy sector, where stock performance is closely tied to
commodity prices. However, the extraordinary stock price gains by mid-cap
energy companies - such as oil services companies and exploration and
production companies - drove the mid-cap stock index performance during the
year. As a result, the Portfolio's performance lagged that of market
benchmarks.
Overall, the economy showed persistent, resilient strength during 2005 and
corporate earnings continued to produce impressive gains. The Gross
Domestic Product (GDP) grew briskly throughout the year, and most
corporations were able to report double-digit earnings gains. Despite this
positive economic backdrop, stocks outside the energy sector produced
modest results. Investors worried about higher energy prices, the
tightening of monetary policy by the Federal Reserve and on-going political
controversies and policy stalemates in Washington. As a result, the
performance of non-energy stocks failed to keep pace with underlying
economic fundamentals for the second consecutive year and we saw the market
end 2005 with a gap between corporate profitability and stock valuations.
We kept to our investment philosophy, emphasizing stable growth companies
with superior long-term prospects. We also continued to pursue investment
themes we have developed. As examples, we sought opportunities created by
demographic changes - most notably the aging of the baby-boomer generation
- in sectors such as health care and financial services, and we invested in
companies we thought would benefit from the expanding global economy in
sectors such as information technology and industrials. We did not make any
significant sector changes during the year, although we did increase our
exposure to industrial companies because of our view that one of the
emerging themes in 2006 was likely to be increasing capital expenditures by
corporations. Within information technology, we added companies such as
software companies Adobe Systems and Micros Systems, as well as Trimble
Navigation, producer of a sophisticated global positioning system. At the
same time, we reduced our exposure in the technology hardware area.
Q: What were some of the individual investments that contributed to
performance?
A: In financial services, we focused on companies whose profitability was not
too sensitive to the risks of rising interest rates. Two holdings that
performed particularly well were T. Rowe Price and Federated Investors,
investment management and mutual fund companies that are well positioned to
benefit from the growing need of the baby boom generation for retirement
products and services. Both companies performed exceptionally well during
the year, even as other financial companies were affected by rising
short-term interest rates that potentially could shrink the profit margins
of traditional lending activities.
A Word About Risk:
Investing in small and mid-sized companies may offer the potential for higher
returns, but are also subject to greater short-term price fluctuations than
larger, more established companies. The Portfolio invests in a limited number
of securities and, as a result, the Portfolio's performance may be more
volatile than the performance of other portfolios holding more securities. At
times, the Portfolio's investments may represent industries or industry sectors
that are interrelated or have common risks, making it more susceptible to any
economic, political, or regulatory developments or other risks affecting those
industries and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Among our health-care investments, several selections performed well.
Although we normally de-emphasize the biotechnology industry because of the
volatility of company earnings, we found two interesting opportunities in
corporations that supply the biotechnology industry and have more
consistent earnings history. Both Techne, which produces proteins used by
biotechnology companies, and Molecular Devices, which produces equipment
used by biotech companies, performed very well. In addition, pharmacy
benefit managers Medco Health Solutions and Express Scripts benefited as
managers successfully gained more control over pharmacy expenses.
Our investment in Expeditors International of Washington was a successful
way to play the globalization of world trade theme. The company handles
logistical planning, and directly benefited from the rise in trade between
China and the United States. Its stock declined during the first part of
the year on concerns about its vulnerability to higher energy prices, but
the company's valuation recovered strongly in the second six months.
In the information technology sector, contributors included Adobe Systems
and Microchip Technology.
Q: What types of investments held back results?
A: Our underweight in energy stocks held back results during a year in which
commodity prices rose to record-high levels. Individual holdings that
detracted from results tended to come from a variety of sectors. In
financial services, Investors Financial was hurt by concerns over the
flattening of the yield curve - which occurs when the yield gap between
short-term and long-term fixed income securities narrows. That can squeeze
the profits in traditional lending businesses. However, we have retained
our confidence in Investors Financial for the longer-term. A substantial
part of its business is in operations that provide record-keeping and
financial, custodial and accounting services to retirement plans, and we
think it should benefit from the increasing demand for retirement services.
It also is a leader in issuing exchange traded funds, which are becoming
increasingly popular as investment products.
Several of our holdings were adversely affected by rising energy prices,
including the Family Dollar Stores retail chain and Cintas, which provides
laundry and uniform services to businesses. We have retained our holding in
Cintas because we continue to be impressed by the longer-term fundamentals
of its business, but we have sold our position in Family Dollar.
Other companies that we sold during the year included adult education
company Apollo Group, because we were concerned about its future growth
potential, and Saga Radio, whose advertising revenues from its chain of
radio stations were affected by the increasing popularity of advertising on
the Internet.
Q: What is your investment outlook?
A: We believe that the stock market is inexpensive after two successive years
in which overall stock price performance has failed to keep pace with
growth in the economy and in corporate profitability. As we enter 2006, we
believe that the American economy appears strong, as evidenced by the
overwhelming consensus of 56 economists recently surveyed by the Wall
Street Journal. The average forecast for growth in GDP during 2006 was
between 3% and 3.5%.
In our view, there is a significant valuation gap between company earnings
and company stock valuations, and we think there is potential for favorable
stock performance during the coming year.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Portfolio's historical or future performance are
statements of the opinion of Portfolio management as of the date of this
report. These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
5
Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
COMMON STOCKS - 99.6%
Materials - 2.7%
Specialty Chemicals - 2.7%
1,950 Sigma-Aldrich Corp. $ 123,416
----------
Total Materials $ 123,416
----------
Capital Goods - 2.9%
Building Products - 2.9%
3,600 Simpson Manufacturing Co., Inc. $ 130,860
----------
Total Capital Goods $ 130,860
----------
Commercial Services & Supplies - 5.9%
Diversified Commercial Services - 5.9%
3,150 ChoicePoint, Inc.* $ 140,207
3,198 Cintas Corp. 131,694
----------
$ 271,901
----------
Total Commercial Services &
Supplies $ 271,901
----------
Transportation - 2.9%
Air Freight & Couriers - 2.9%
2,000 Expeditors International of Washington, Inc. $ 135,020
----------
Total Transportation $ 135,020
----------
Consumer Durables & Apparel - 2.0%
Leisure Products - 2.0%
1,800 Polaris Industries, Inc. (a) $ 90,360
----------
Total Consumer Durables & Apparel $ 90,360
----------
Consumer Services - 3.7%
Education Services - 1.5%
3,500 DeVry, Inc.*(a) $ 70,000
----------
Restaurants - 2.2%
2,600 Brinker International, Inc. $ 100,516
----------
Total Consumer Services $ 170,516
----------
Media - 6.0%
Advertising - 6.0%
5,200 Harte-Hanks, Inc. $ 137,228
2,600 WPP Group Plc (A.D.R.) 140,400
----------
$ 277,628
----------
Total Media $ 277,628
----------
Retailing - 3.0%
Automotive Retail - 3.0%
4,300 O'Reilly Automotive, Inc.* $ 137,643
----------
Total Retailing $ 137,643
----------
Household & Personal Products - 5.9%
Household Products - 2.8%
2,300 Clorox Co. $ 130,847
----------
Personal Products - 3.1%
3,100 Alberto-Culver Co. (Class B) $ 141,824
----------
Total Household & Personal
Products $ 272,671
----------
Shares Value
Health Care Equipment & Services - 24.7%
Health Care Distributors - 1.7%
2,300 Patterson Companies* $ 76,820
----------
Health Care Equipment - 12.4%
1,850 C. R. Bard, Inc. $ 121,952
4,800 Molecular Devices Corp.* 138,864
3,200 ResMed, Inc.* 122,592
2,600 Stryker Corp. 115,518
1,900 Waters Corp.* 71,820
----------
$ 570,746
----------
Health Care Services - 7.7%
2,000 Express Scripts, Inc.* $ 167,600
3,990 IMS Health, Inc. 99,431
1,600 Medco Health Solutions, Inc.* 89,280
----------
$ 356,311
----------
Health Care Supplies - 2.9%
2,500 Dentsply International, Inc. $ 134,225
----------
Total Health Care Equipment &
Services $1,138,102
----------
Pharmaceuticals & Biotechnology - 3.4%
Biotechnology - 3.4%
2,800 Techne Corp.* $ 157,220
----------
Total Pharmaceuticals &
Biotechnology $ 157,220
----------
Banks - 2.6%
Regional Banks - 2.6%
6,700 UCBH Holdings, Inc. (a) $ 119,796
----------
Total Banks $ 119,796
----------
Diversified Financials - 7.5%
Asset Management & Custody Banks - 7.5%
3,800 Federated Investors, Inc.* $ 140,752
1,800 Investors Financial Services Corp. (a) 66,294
1,900 T. Rowe Price Associates, Inc. 136,857
----------
$ 343,903
----------
Total Diversified Financials $ 343,903
----------
Software & Services - 9.9%
Application Software - 1.8%
2,200 Adobe Systems, Inc. $ 81,312
----------
Data Processing & Outsourced Services - 5.2%
1,900 DST Systems, Inc.* $ 113,829
2,900 Fiserv, Inc.* 125,483
----------
$ 239,312
----------
Systems Software - 2.9%
2,800 Micros Systems, Inc.* $ 135,296
----------
Total Software & Services $ 455,920
----------
6 The accompanying notes are an integral part of these financial statements.
Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Technology Hardware & Equipment - 7.2%
Communications Equipment - 1.8%
2,900 Plantronics, Inc. $ 82,070
----------
Electronic Equipment & Instruments - 3.6%
2,350 Mettler-Toledo International, Inc.* $ 129,720
1,100 National Instruments Corp. 35,255
----------
$ 164,975
----------
Electronic Manufacturing Services - 1.8%
2,300 Molex, Inc. $ 56,557
700 Trimble Navigation, Ltd.* 24,959
----------
$ 81,516
----------
Total Technology Hardware &
Equipment $ 328,561
----------
Semiconductors - 9.3%
Semiconductor Equipment - 3.6%
2,200 KLA-Tencor Corp. $ 108,525
2,300 Novellus Systems, Inc.* 55,476
----------
$ 164,001
----------
Semiconductors - 5.7%
3,500 Linear Technology Corp. $ 126,245
4,300 Microchip Technology 138,245
----------
$ 264,490
----------
Total Semiconductors $ 428,491
----------
TOTAL COMMON STOCKS
(Cost $4,157,638) $4,582,008
----------
Shares Value
TEMPORARY CASH INVESTMENTS - 7.8%
Security Lending Collateral - 7.8%
360,836 Securities Lending Investment Fund, 4.24% $ 360,836
----------
TOTAL TEMPORARY CASH
INVESTMENTS
(Cost $360,836) $ 360,836
----------
TOTAL INVESTMENT IN
SECURITIES - 107.4%
(Cost $4,518,474) $4,942,844
----------
OTHER ASSETS AND
LIABILITIES - (7.4)% $ (340,477)
----------
TOTAL NET ASSETS - 100.0% $4,602,367
==========
* Non-income producing security.
(A.D.R.) American Depositary Receipt.
(a) At December 31, 2005, the following securities were out on loan:
Shares Security Value
387 Apollo Group, Inc.+ $ 23,398
3,325 DeVry, Inc.* 66,500
1,710 Investors Financial Services Corp. 62,979
1,710 Polaris Industries, Inc. 1,760
5,985 UCBH Holdings, Inc. 107,012
--------
Total $261,649
========
+ Indicates pending sale as of 12/31/05
The accompanying notes are an integral part of these financial statements. 7
Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year 3/15/04(a)
Ended to
Class II 12/31/05 12/31/04
Net asset value, beginning of period $ 10.87 $ 10.00
------- -------
Increase from investment operations:
Net investment loss $ (0.03) $ (0.02)
Net realized and unrealized gain on investments 0.53 0.89
------- --------
Net increase from investment operations $ 0.50 $ 0.87
------- --------
Net increase in net asset value $ 0.50 $ 0.87
------- --------
Net asset value, end of period $ 11.37 $ 10.87
======= =======
Total return* 4.60% 8.70%(b)
Ratio of net expenses to average net assets+ 1.00% 1.00%**
Ratio of net investment loss to average net assets+ (0.36)% (0.51)%**
Portfolio turnover rate 13% 44%
Net assets, end of period (in thousands) $ 4,602 $ 2,579
Ratios with no waiver of management fees and assumption of expenses by PIM and no
reduction for
fees paid indirectly:
Net expenses 3.25% 7.50%**
Net investment loss (2.61)% (7.01)%**
Ratios with waiver of management fees and assumption of expenses by PIM and reduction for
fees
paid indirectly:
Net expenses 1.00% 1.00%**
Net investment loss (0.36)% (0.51)%**
(a) The Portfolio commenced operations on March 15, 2004.
(b) Not annualized.
* Assumes initial investment at net asset value at the beginning of the
period, reinvestment of all distributions and the complete redemption of
the investment at net asset value at the end of the period.
** Annualized.
+ Ratios with no reduction for fees paid indirectly.
NOTE: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
8 The accompanying notes are an integral part of these financial statements.
Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (including securities loaned of $261,649) (cost $4,518,474) $4,942,844
Cash 129,820
Receivables --
Investment securities sold 42,433
Dividends, interest and foreign taxes withheld 1,376
Due from Pioneer Investment Management, Inc. 6,246
----------
Total assets $5,122,719
----------
LIABILITIES:
Payables --
Investment securities purchased $ 79,619
Fund shares repurchased 33,739
Upon return of securities loaned 360,836
Due to affiliates 211
Accrued expenses 45,947
----------
Total liabilities $ 520,352
----------
NET ASSETS:
Paid-in capital $4,287,367
Accumulated net realized loss on investments (109,370)
Net unrealized gain on:
Investments 424,370
----------
Total net assets $4,602,367
----------
NET ASSET VALUE PER SHARE:
Class II:
(No par value, unlimited number of shares authorized)
Net assets $4,602,367
Shares outstanding 404,647
----------
Net asset value per share $ 11.37
The accompanying notes are an integral part of these financial statements. 9
Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended
12/31/05
INVESTMENT INCOME:
Dividends $ 20,662
Interest 3,276
Income on securities loaned, net 53
---------
Total investment income $ 23,991
---------
EXPENSES:
Management fees $ 28,195
Transfer agent fees and expenses 1,500
Distribution fees 9,399
Administrative reimbursements 18,512
Custodian fees 15,462
Professional fees 31,853
Printing expense 11,235
Fees and expenses of nonaffiliated trustees 3,785
Miscellaneous 2,137
---------
Total expenses $ 122,078
Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (84,500)
---------
Net expenses $ 37,578
---------
Net investment loss $ (13,587)
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from:
Investments $ (56,634)
---------
Change in net unrealized gain from:
Investments $ 279,248
---------
Net gain on investments $ 222,614
---------
Net increase in net assets resulting from operations $ 209,027
=========
10 The accompanying notes are an integral part of these financial statements.
Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the period
from 3/15/04
Year (Commencement
Ended of operations)
12/31/05 to 12/31/04
FROM OPERATIONS:
Net investment loss $ (13,587) $ (5,372)
Net realized loss on investments (56,634) (52,736)
Change in net unrealized gain on investments 279,248 145,122
---------- ----------
Net increase in net assets resulting from operations $ 209,027 $ 87,014
---------- ----------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $2,273,067 $3,211,433
Cost of shares repurchased (458,251) (719,923)
---------- ----------
Net increase in net assets resulting from Fund share transactions $1,814,816 $2,491,510
---------- ----------
Net increase in net assets $2,023,843 $2,578,524
NET ASSETS:
Beginning of period 2,578,524 --
---------- ----------
End of period $4,602,367 $2,578,524
========== ==========
The accompanying notes are an integral part of these financial statements. 11
Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer Small and Mid Cap Growth VCT Portfolio (the Portfolio) is a
Portfolio of Pioneer Variable Contracts Trust (the Trust), a Delaware statutory
trust registered under the Investment Company Act of 1940 as an open-end
management investment company. The Trust consists of twenty nine separate
diversified portfolios, fourteen of which issue both Class I and Class II
shares (collectively, the "Portfolios", individually the "Portfolio") as
follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares
only)
The Small and Mid Cap Growth VCT Portfolio commenced operations on March 15,
2004.
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts, or
by qualified pension and retirement plans.
Small and Mid Cap Growth Portfolio seeks long term capital growth.
The financial statements and financial highlights of all other Portfolios are
presented in separate books.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
periods. Actual results could differ from those estimates. The following is a
summary of significant accounting policies consistently followed by the
Portfolio, in the preparation of its financial statements which are consistent
with those generally accepted in the investment company industry:
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the Portfolio are computed once daily, on each day the New York Stock
Exchange (NYSE) is open, as of the close of regular trading on the NYSE. In
computing the net asset values, securities are valued at the last sale
price on the principal exchange where they are traded. Securities that have
not traded on the date of valuation, or securities for which sale
12
Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
prices are not generally reported, are valued at the mean between the last
bid and asked prices. The Portfolio also may use the fair value of a
security, including a non-U.S. security, when the closing market price on
the primary exchange where the security is traded no longer accurately
reflects the value of the security as of the close of the NYSE. At December
31, 2005, there were no securities fair valued. Temporary cash investments
are valued at amortized cost.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities where the ex-dividend date may have
passed are recorded as soon as the Portfolio becomes aware of the
ex-dividend data in the exercise of reasonable diligence. Interest income,
including interest on income bearing cash accounts, is recorded on the
accrual basis.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes on capital gains at
the applicable country rates.
Investing in small and mid-sized companies may offer the potential for
higher returns, but are also subject to greater short-term price
fluctuations than larger, more established companies. Information regarding
the Portfolio's principal investment risks is contained in the Portfolio's
prospectus. Please refer to those documents when considering the
Portfolio's risks.
B. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with income tax
rules. Therefore, the source of each Portfolio's distributions may be shown
in the accompanying financial statements as either from, or in excess of,
net investment income or net realized gain on investment transactions, or
from paid-in capital, depending on the type of book/tax differences that
may exist.
Capital loss carryforwards are available to offset future realized capital
gains. At December 31, 2005, Small and Mid Cap Growth Portfolio had a net
capital loss carryforward of $65,546, of which the following amounts will
expire between 2012 and 2013, if not utilized: $25,641 in 2012 and $39,905
in 2013.
The Portfolio elected to defer $25,174 in capital losses recognized between
November 1, 2005 and December 31, 2005 to its fiscal year ended December
31, 2006.
At December 31, 2005, the Portfolio made reclassifications as described
below. These reclassifications have no impact on the net asset value of the
Portfolio and are designed to present the Portfolio's capital accounts on a
tax basis.
- -----------------------------------------------------------------------------------------------------------------
Undistributed Net Accumulated Net
Portfolio Investment Income (Loss) Realized Gain (Loss) Paid-In Capital
- -----------------------------------------------------------------------------------------------------------------
Small and Mid Cap Growth Portfolio $13,587 $-- $ (13,587)
- -----------------------------------------------------------------------------------------------------------------
13
Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
The following chart shows the components of distributable earnings
(accumulated losses) as of December 31, 2005. There were no distributions
paid during the fiscal years ended December 31, 2005 and 2004.
- --------------------------------------------------------------------------------
2005
- --------------------------------------------------------------------------------
Distributable Earnings (Accumulated Losses):
Undistributed ordinary income $ --
Undistributed long-term gain/(capital loss carryforward) (65,546)
Post-October loss deferred (25,174)
Unrealized appreciation (depreciation) 405,720
--------
Total $315,000
========
- --------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation is
attributable to the tax deferral of losses on wash sales.
C. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Trust and a wholly owned indirect subsidiary
of UniCredito Italiano S.p.A. (Unicredito Italiano), $638,021 in
commissions on the sale of Trust shares for the year ended December 31,
2005. Distribution fees are calculated based on the average daily net asset
values attributable to Class II shares of the Portfolio.
D. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees. The Portfolio also continues to receive
payments in lieu of interest or dividends on the securities loaned. Gain or
loss in the fair value of the securities loaned that may occur during the
term of the loan, will be for the account of the Trust. The loans are
secured by collateral of at least 102%, at all times, of the fair value of
the securities loaned. The fair value of the collateral will be adjusted
daily to reflect any price fluctuation in the value of the loaned
securities. The Trust has the right under the lending agreement to recover
the securities on loan from the borrower on demand. The Trust invests cash
collateral in the Securities Lending Investment Fund which is sponsored by
Brown Brothers Harriman & Co., the Trust's custodian.
E. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano manages the
portfolio. Management fees are calculated daily at the annual rate of 0.75% of
the Portfolio's average daily net assets up to $1 billion and 0.70% on assets
over $1 billion.
Through May 1, 2006, PIM has agreed not to impose all or a portion of its
management fee and, if necessary, to limit other ordinary operating expenses of
the Portfolio to the extent required to reduce Class II expenses to 1.00% of
the average daily net assets attributable to Class II shares.
In addition, under the management and administration agreements, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $12 was payable to
PIM related to management fees, administrative reimbursements and certain other
services, and is included in due to affiliates.
3. Transfer Agent
PIMSS, a wholly owned indirect subsidiary of UniCredito Italiano provides
substantially all transfer agent and shareowner services to the Trust at
negotiated rates. Included in due to affiliates is $135 in transfer agent fees
payable to PIMSS at December 31, 2005.
14
Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. Distribution Plans
The Portfolio has adopted a plan of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with the Portfolio's Class
II shares. Included in due to affiliates is $64 payable to PFD at
December 31, 2005.
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- ---------------------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- ---------------------------------------------------------------------------------------------------------
Small and Mid Cap Growth Portfolio $4,537,124 $537,270 $ (131,550) $405,720
========== ======== ========== ========
- ---------------------------------------------------------------------------------------------------------
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were $2,310,469 and $485,977, respectively.
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows for the
fiscal year ended December 31, 2005 and the period ended December 31, 2004:
- ---------------------------------------------------------------------------------------------------------
Small & Mid Cap Growth Portfolio '05 Shares '05 Amount '04 Shares '04 Amount
- ---------------------------------------------------------------------------------------------------------
CLASS II:
Shares sold 209,164 $2,273,067 308,301 $3,211,433
Shares repurchased (41,774) (458,251) (71,044) (719,923)
-----------------------------------------------------------------
Net increase 167,390 $1,814,816 237,257 $2,491,510
=================================================================
- ---------------------------------------------------------------------------------------------------------
15
Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust and
Shareowners of Pioneer Small & Mid Cap Growth VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer Small & Mid Cap Growth VCT Portfolio
(formerly Pioneer Papp Small & Mid Cap VCT Portfolio), one of the portfolios
constituting the Pioneer Variable Contracts Trust (the "Trust"), as of December
31, 2005, and the related statement of operations for the year then ended and
the statements of changes in net assets and the financial highlights for each
of the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005, by correspondence
with the custodian and brokers or by other appropriate auditing procedures
where replies from brokers were not received. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer Small & Mid Cap Growth VCT Portfolio of the Pioneer Variable Contracts
Trust at December 31, 2005, the results of its operations for the year then
ended, the changes in its net assets, and financial highlights for each of the
periods indicated therein in conformity with U.S. generally accepted accounting
principles.
/S/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
16
Pioneer Small and Mid Cap Growth VCT Portfolio (the "Fund")
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") voting
separately annually, approve the Fund's management contract (the "Management
Contract") between the Fund and Pioneer Investment Management, Inc., the Fund's
adviser (the "Investment Adviser"). The Investment Adviser has retained L. Roy
Papp and Associates, LLC. (the "Sub-adviser") to act as sub-adviser to the Fund
pursuant to a sub-advisory agreement between the Investment Adviser and the
Sub-adviser (the "Sub-advisory Agreement"). The Trustees have determined that
the terms of the Management Contract and the Sub-advisory Agreement are fair
and reasonable and that renewal of these contracts will enable the Fund to
receive quality investment advisory services at a cost deemed reasonable and in
the best interests of the Fund and its shareowners. In making such
determinations, the Independent Trustees relied upon the assistance of counsel
to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
the Investment Adviser, or its affiliates. While the Trustees, including the
Independent Trustees, act on all major matters relating to the Fund, a
significant portion of the activities of the Board of Trustees (including
certain of those described herein) is conducted through committees, the members
of which are comprised exclusively of Independent Trustees. Such committee
meetings are attended by officers of the Fund or the Investment Adviser to the
extent requested by the members of the committee.
In evaluating the Management Contract and Sub-advisory Agreement, the Trustees
conducted a review that was specifically focused upon the renewal of the
Management Contract and Sub-advisory Agreement, and relied upon their
knowledge, resulting from their meetings throughout the year, of the Investment
Adviser, its services and the Fund. Both in meetings specifically dedicated to
renewal of the Management Contract and at other meetings during the course of
the year, the Trustees, including the Independent Trustees, received materials
relating to the Investment Adviser's investment and management services under
the Management Contract. These materials included (i) information on the
investment performance of the Fund, a peer group of funds and an index, in each
case selected by the Independent Trustees for this purpose, (ii) sales and
redemption data in respect of the Fund, (iii) the general investment outlook in
the markets in which the Fund invests, (iv) arrangements in respect of the
distribution of the Fund's shares, (v) the procedures employed to determine the
value of each of the Fund's assets, (vi) the Investment Adviser's management of
the relationships with the Fund's unaffiliated service providers, (vii) the
record of compliance with the Fund's investment policies and restrictions and
with the Fund's Code of Ethics and the structure and responsibilities of the
Investment Adviser's compliance department, (viii) the nature, cost and
character of non-investment management services provided by the Investment
Adviser and its affiliates, (ix) the disclosures included in the Fund's
prospectuses and reports to shareowners and (x) the investment and compliance
staff and operations of the Sub-adviser.
Specifically, in connection with the Independent Trustees' review of the
Management Contract and the Sub-advisory Agreement, the Independent Trustees
requested and the Investment Adviser provided additional information in order
to evaluate the quality of the Investment Adviser's and Sub-adviser's services
and the reasonableness of the fee under the Management Contract and the
Sub-advisory Agreement. Among other items, this information included data or
analyses of (1) investment performance for the twelve months ended June 30,
2005 for the Fund and a peer group selected by the Independent Trustees for
this purpose, (2) management and other fees incurred by a peer group of funds
selected by the Independent Trustees for this purpose, (3) the advisory fees of
comparable portfolios of other clients of the Investment Adviser, (4) expense
ratios for the Fund and a peer group of funds selected by the Independent
Trustees for this purpose, (5) the overall organization of the Investment
Adviser, (6) the Investment Adviser's financial results and condition,
including its and certain of its affiliates profitability from services
performed for the Fund, (7) transfer agency fees and administrative
reimbursements paid to the Investment Adviser or affiliates, (8) investment
management staffing, and (9) operating expenses paid to third parties. The
Trustees also reviewed information regarding the potential for the Fund and the
Investment Adviser to benefit from further economies of scale in the management
of the Fund in light of reasonable growth expectations for the Fund; the break
points in the Fund's management fee and of a peer group of funds selected by
the Independent Trustees for this purpose and certain of the Fund's expenses
that are not incurred as fees based on a percentage of net assets.
The following summarizes matters considered by the Trustees in connection with
their renewal of the Fund's Management Contract and Sub-advisory Agreement. The
Trustees did not identify any single factor as all-important or controlling,
and the summary does not detail all the matters that were considered.
17
Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to
shareowners of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareowner services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's performance compared to both
the performance of a peer group and an index, in each case selected by the
Independent Trustees for this purpose. The Fund's performance based upon
total return was in the fifth quintile of the peer group for the twelve
months ended June 30, 2005. (In all quintile rankings referred to
throughout this discussion first quintile is most favorable to the Fund's
shareowners. Thus, highest relative performance would be first quintile and
lowest relative expenses also would be first quintile.) The Trustees also
considered the activities of the Investment Adviser in monitoring the
investment and compliance operations of the Sub-adviser. The Trustees
concluded that the period of investment operations was too short to
evaluate performance.
C. Personnel and Methods. The Trustees reviewed the background of members of
the team responsible for the daily management of the Fund and the Fund's
investment objective and discipline. The Independent Trustees also have had
discussions with senior management of the Investment Adviser responsible
for investment operations. Among other things, the Trustees considered the
number, education and experience of the Sub-adviser's investment staff. The
Trustees concluded that the Investment Adviser and the Sub-adviser have the
quality and depth of personnel and the well-developed methods essential to
performing their duties under the Management Contract and the Sub-advisory
Agreement.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareowners of the
Fund, including administrative and shareowner services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision
of third party service providers. Based on these considerations, the
Trustees concluded that the nature, quality, cost and extent of such
services are satisfactory and reliable and serve the shareowners of the
Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the first
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
evaluated the fee under the Sub-advisory Agreement and the portion of the
fee under the Management Contract retained by the Investment Adviser and
determined that they were consistent with other sub-advised funds. The
Trustees also considered the Fund's expense ratio and expense ratios of a
peer group of funds selected by the Independent Trustees for this purpose.
The Fund's expense ratio for the 12 months ended June 30, 2005 (after
expense limitations) was in the second quintile of the applicable peer
group for the most recent fiscal year of the peer group for the comparable
period. The Trustees concluded that the Fund's overall expense ratio (after
expense limitations) was reasonable compared to that of comparable funds.
F. Profitability. The Trustees considered the level of the Investment
Adviser's profits with respect to the management of the Pioneer Funds,
including details with respect to the Fund. This consideration included a
review of the Investment Adviser's methodology in allocating certain of its
costs to the management of each Fund. The Trustees also considered the
financial results realized by the Investment Adviser in connection with the
operation of the Fund. They further considered the profits realized by the
Investment Adviser and its affiliates from non-fund businesses that may
benefit from or be related to the Fund's business. The Trustees considered
the Investment Adviser's profit margins in comparison with the limited
available industry data. The Trustees concluded that the Investment
Adviser's profits from
18
Pioneer Small and Mid Cap Growth VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. Because of break points in
the management fee, the Trustees concluded that any perceived or potential
economies of scale would be shared at future asset levels, in a reasonable
manner as the Fund grows in size, between the Investment Adviser and the
Fund's shareowners.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareowner services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect of the Pioneer Funds (including the Fund), and
benefits to the Sub-adviser from the use of "soft" commission dollars to
pay for research. The Trustees further considered the revenues and
profitability of the Investment Adviser's businesses other than the fund
business, including the Investment Adviser's institutional investment
advisory business. The Trustees considered the intangible benefits that
accrue to the Investment Adviser and its affiliates by virtue of its
relationship with the Fund and the Pioneer Funds as a group. The Trustees
concluded that all these types of benefits accruing to the Investment
Adviser were reasonable in the context of the overall relationship between
the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's and
Sub-adviser's overall performance, considered it appropriate to continue to
retain the management services of the Investment Adviser and the Sub-adviser.
Based on their evaluation of all material factors deemed relevant and the
advice of independent counsel, the Trustees concluded that the Management
Contract with the Fund and the Sub-advisory Agreement are fair and reasonable
and voted to approve the continuation of the Management Contract and the
Sub-advisory Agreement for another year.
19
Pioneer Small and Mid Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
20
Pioneer Small and Mid Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held
Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance
or earlier services company) (2001-present); company); Director of New York
retirement or Managing Partner, Federal City Mortgage Trust (publicly traded
removal. Capital Advisors (boutique merchant mortgage REIT)
bank) (2002 to 2004); Executive
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products
or earlier manufacturer), Mortgage Guaranty
retirement or Insurance Corporation, and Briggs
removal. & Stratton, Inc. (engine
manufacturer)
- ----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
21
Pioneer Small and Mid Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
22
Pioneer Small and Mid Cap Growth VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, None
Treasurer 2000. Serves at the Assistant Vice President - Fund
discretion of the Accounting, Administration and
Board. Custody Services of Pioneer; and
Assistant Treasurer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ---------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ---------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
23
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
24
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
25
[LOGO]PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company, Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18674-00-0206
[LOGO] PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Small Cap Value VCT Portfolio -- Class II Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Pioneer Small Cap Value VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 5
Financial Statements 9
Notes to Financial Statements 13
Report of Independent Registered Public
Accounting Firm 18
Factors Considered by the Independent Trustees
in Approving the Management Contract 19
Trustees, Officers and Service Providers 22
Before investing, consider the Portfolio's investment
objectives, risks, charges and expenses. Contact your
advisor or Pioneer Investments for a prospectus containing
this information. Read it carefully.
The Trust files a complete statement of investments with the
Securities and Exchange Commission for the first and the
third quarters for each fiscal year on Form N-Q. Shareowners
may view the filed Form N-Q by visiting the Commission's web
site at http://www.sec.gov. The filed form may also be
viewed and copied at the Commission's Public Reference Room
in Washington, D.C. Information regarding the operations of
the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 77.6%
Temporary Cash Investment 15.5%
International Common Stocks 2.5%
Depositary Receipts for International Stocks 2.5%
Exchange Traded Fund 1.9%
Sector Distribution
(As a percentage of equity holdings)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Financials 28.7%
Industrials 18.6%
Information Technology 16.3%
Energy 13.9%
Health Care 6.6%
Comsumer Discretionary 6.3%
Consumer Staples 3.3%
Materials 3.3%
Utilities 2.0%
Telecommunication Services 1.0%
Five Largest Holdings
(As a percentage of equity holdings)
1. Southwestern Energy Co. 2.47%
2. Avid Technology, Inc. 1.90
3. Insight Enterprises, Inc. 1.81
4. Sterling Bancshares, Inc. 1.61
5. On Assignment, Inc. 1.45
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 16.07 $ 14.95
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ - $ - $ 0.4861
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Small Cap Value VCT Portfolio at net asset value, compared to that of the
Russell 2000 Value Index. Portfolio returns are based on net asset value and do
not reflect any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Small
Cap Value VCT Russell 2000
Portfolio Value Index
Nov-01 10000 10000
10572 10612
8980 9400
Dec-03 12132 13726
14545 16780
Dec-05 16159 17570
The Russell 2000 Value Index measures the performance of U.S. small-cap value
stocks. Index returns are calculated monthly, assume reinvestment of dividends
and, unlike Portfolio returns, do not reflect any fees, expenses or sales
charges. You cannot invest directly in the Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
Net Asset Value
Life-of-Class 13.01%
(11/8/01)
1 Year 11.10%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
2
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value [divided by] $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Small Cap Value VCT Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II
- ------------------------------------------ --------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,093.93
Expenses Paid During Period* $ 7.34
* Expenses are equal to the Portfolio's annualized expense ratio of 1.39% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer Small Cap Value VCT Portfolio
Based on a hypothetical 5% return per year before expenses, reflecting the
period from July 1, 2005 through December 31, 2005.
Share Class II
- ------------------------------------------ --------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,018.20
Expenses Paid During Period* $ 7.07
* Expenses are equal to the Portfolio's annualized expense ratio of 1.39% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
Continued adherence to established disciplines enabled Pioneer Small Cap Value
VCT Portfolio to outperform its benchmark index over this period. In the
following discussion, portfolio manager David Adams and assistant portfolio
manager John McPherson review the economic background and describe some of the
decisions that aided fund performance.
Q. How did the Portfolio perform over this period?
A. For the twelve months ended December 31, 2005, Class II shares of the
Portfolio returned 11.10% at net asset value. The results comfortably
outdistanced the 4.71% return on the Russell 2000 Value Index, the
benchmark over the same period.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q. Please describe the investment background over the past year and how it
affected small-cap stocks.
A. It was a year in which small-caps outpaced large, value and growth were
essentially in line, and stocks of better-quality companies trumped
lower-quality issues. Rising energy prices and shifting views on the
economy, the dollar, and interest rates kept equity markets in a narrow
range.
Solid earnings growth gave smaller-company stocks renewed impetus after
large caps briefly outperformed early in the year. The Portfolio's positive
results validated our longstanding investment thesis that, despite higher
interest rates and record energy prices, the healthy economy would enable
well-managed small companies to boost operating results.
Q. Which of your investment decisions had the most favorable impact on results?
A. Our bottom-up stock selection process led us to overweight energy stocks for
some time. The resulting overweight stance compared with the benchmark was
an important contributor to the period's strong results, as prices for oil
and natural gas reached record levels. We were also overweight and
outperformed the benchmark in health care. Successful stock selection
allowed the Portfolio to better the index's results among financial issues
despite our underweight position. Results were also favorable in the
information technology sector, where the Portfolio's exposure was about
equal to the benchmark's.
Southwestern Energy, an independent oil and gas producer operating in
Arkansas and Oklahoma, was one of the period's top performers, thanks to
continued strong financial performance and the possibility that a new gas
field may yield significant reserves. We have been taking profits in this
long-term holding, bearing out our patient approach.
In energy services, TODCO, which operates drilling rigs in the Gulf of
Mexico, benefited when competitors sought better conditions elsewhere. That
shrank the number of available rigs just prior to a surge in demand for
natural gas that allowed TODCO to hike its billing rates. Similarly, the
demand for Gulfmark Offshore's supply boats rose as worldwide energy demand
stimulated North Sea drilling activity.
In health care, shares of Kendle International rose due to healthy demand
for laboratory services tied to the search for new drug compounds.
We took partial profits in shares of NASDAQ Stock Market, the Portfolio's
biggest financial sector gainer over the period. NASDAQ has successfully
leveraged its core trading business by offering a series of new products and
services to its customers as the investment business continues to become
more electronically based. Apollo Investment, which provides financing for
mid-sized businesses, recorded a gain thanks to its solid underwriting
capabilities, management and network of funding sources. And our patience
was rewarded when municipal bond insurer Assured Guaranty saw its credit
rating strengthen, providing better entree to business opportunities.
In technology, SPSS, makers of analytical software for researchers, enjoyed
an uptick in results thanks to better planning and new initiatives. Video
specialist Avid Technology continued to ride the move from film-based,
analog editing to digital formats in TV newsrooms and elsewhere. Avid is
also poised to benefit as high-definition broadcasts become the television
norm.
Q. Which of your choices held back results?
A. AMERIGROUP, a Medicaid HMO and for some time a successful holding revisited
earlier financial results, citing unexpectedly high costs for patient care.
Specialty insurer Quanta Capital Holdings, a recent entrant to the
business, suffered a terrible sequence of hurricane losses over the past
two years. New management and revised business practices encouraged us to
add to this holding when prices fell.
Montreal-based Domtar suffered from the slowing demand that has plagued the
paper industry. Strength in the Canadian dollar also reduced the exchange
value of U.S. assets. Retailer Hancock Fabrics is trying to reinvigorate
sales at its home decor and sewing outlets after a series of problems,
including the lack of up-to-date inventory systems and damaged relationships
with store managers. Shares fell further when the company eliminated its
dividend. A new infrastructure and merchandising approach encourage us to
maintain this small position.
Q. What is your outlook for the economy and how have you positioned the
Portfolio?
A. We think that good stocks bought at prices that appear reasonable should do
well in the moderate-growth environment that we foresee. Compelling ideas
continue to emerge in the technology arena, where we have increased the
Portfolio's exposure. We are also adding some financial stocks while
scaling back others. On the other hand, we are not finding good value among
consumer-discretionary issues, a sector that could feel pressure if
households reduce spending in the face of big energy bills and rising
interest rates. Persistent demand and high prices make us comfortable with
our current large exposure to energy stocks; we would view any sharp
decline in this sector as an opportunity. Finally, we will continue to
employ our proven discipline in an effort to ferret out superior
opportunities, and take profits as valuations approach our targets.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
A Word About Risk:
Investments in small companies may offer the potential for higher returns, but
are also subject to greater short-term price fluctuations than larger, more
established companies. The Portfolio invests in REIT securities, the value of
which can fall for a variety of reasons, such as declines in rental income,
fluctuating interest rates, poor property management, environmental
liabilities, uninsured damage, increased competition, or changes in real estate
tax laws. At times, the Portfolio's investments may represent industries or
industry sectors that are interrelated or have common risks, making it more
susceptible to any economic, political, or regulatory developments or other
risks affecting those industries and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
COMMON STOCKS - 88.8%
Energy - 12.6%
Coal & Consumable Fuels - 1.5%
8,100 Alpha Natural Resources, Inc.* $ 155,601
12,164 Massey Energy Co.(a) 460,651
-----------
$ 616,252
-----------
Integrated Oil & Gas - 0.5%
10,700 CNX Gas Corp. (144A)* $ 222,025
-----------
Oil & Gas Drilling - 2.4%
7,500 Bronco Drilling Co., Inc.* $ 172,575
11,775 Todco 448,157
7,019 Unit Corp.* 386,256
-----------
$ 1,006,988
-----------
Oil & Gas Equipment & Services - 2.7%
15,325 Gulfmark Offshore, Inc.* $ 453,927
32,661 Key Energy Services, Inc.* 439,944
6,440 Maverick Tube Corp.*(a) 256,698
-----------
$ 1,150,569
-----------
Oil & Gas Exploration & Production - 5.3%
5,075 Forest Oil Corp.* $ 231,268
7,200 Penn Virginia Corp. 413,280
17,500 Riata Energy, Inc. (144A)* 266,875
16,900 Rosetta Resources, Inc. (144A)* 304,200
26,346 Southwestern Energy Co.* 946,875
2,145 Swift Energy Co.* 96,675
-----------
$ 2,259,173
-----------
Oil & Gas Storage & Transportation - 0.2%
3,050 Arlington Tankers, Ltd. $ 66,338
-----------
Total Energy $ 5,321,345
-----------
Materials - 3.0%
Gold - 1.3%
34,450 Cambior, Inc.* $ 96,460
8,950 Glamis Gold, Ltd.* 245,946
29,700 IAMGOLD Corp. 232,254
-----------
$ 574,660
-----------
Paper Products - 0.4%
27,793 Domtar, Inc. $ 160,644
-----------
Specialty Chemicals - 0.3%
9,281 Chemtura Corp. $ 117,869
-----------
Steel - 1.0%
4,350 Carpenter Technology $ 306,545
9,571 NN, Inc. 101,453
-----------
$ 407,998
-----------
Total Materials $ 1,261,171
-----------
Shares Value
Capital Goods - 8.1%
Aerospace & Defense - 0.2%
6,633 NCI, Inc.* $ 91,071
-----------
Construction & Engineering - 0.9%
19,900 Insituform Technologies, Inc.* $ 385,463
-----------
Construction, Farm Machinery &
Heavy Trucks - 3.6%
13,400 Commercial Vehicle Group, Inc.* $ 251,652
12,720 Federal Signal Corp. 190,927
8,670 Joy Global, Inc. 346,800
2,344 Nacco Industries, Inc. 274,600
17,725 Wabtec Corp. 476,803
-----------
$ 1,540,782
-----------
Electrical Component & Equipment - 1.9%
13,700 C&D Technologies, Inc. $ 104,394
56,468 Graftech International, Ltd.*(a) 351,231
56,979 Power-One, Inc.* 343,014
-----------
$ 798,639
-----------
Industrial Machinery - 1.0%
10,775 Flowserve Corp.* $ 426,259
-----------
Trading Companies & Distributors - 0.5%
5,879 Applied Industrial Technologies, Inc. $ 198,064
-----------
Total Capital Goods $ 3,440,278
-----------
Commercial Services & Supplies - 4.5%
Diversified Commercial Services - 2.0%
25,385 Cornell Companies, Inc.* $ 350,821
4,700 Corrections Corporation of America* 211,359
35 Profit Recovery Group International* 21
7,823 School Specialty, Inc.* 285,070
-----------
$ 847,271
-----------
Human Resource & Employment Services - 2.5%
9,345 Korn/Ferry International* $ 174,658
51,175 On Assignment, Inc.* 558,319
11,700 Watson Wyatt Worldwide, Inc. 326,430
-----------
$ 1,059,407
-----------
Total Commercial Services &
Supplies $ 1,906,678
-----------
Transportation - 4.2%
Air Freight & Couriers - 0.8%
5,175 Forward Air Corp. $ 189,664
5,500 Pacer International, Inc. 143,330
-----------
$ 332,994
-----------
The accompanying notes are an integral part of these financial statements. 5
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
Marine - 1.4%
5,800 Dryships, Inc.(a) $ 70,875
6,400 Eagle Bulk Shipping, Inc. 101,888
11,050 Excel Maritime Carriers, Ltd.* 126,523
5,450 Genco Shipping & Trading, Ltd. 95,048
18,900 Quintana Maritime, Ltd. 192,402
-----------
$ 586,736
-----------
Railroads - 1.0%
11,918 Genesee & Wyoming, Inc.* $ 446,925
-----------
Trucking - 1.0%
4,793 Dollar Thrifty Automotive Group* $ 172,882
10,750 Universal Truckload Services, Inc.* 247,250
-----------
$ 420,132
-----------
Total Transportation $ 1,786,787
-----------
Automobiles & Components - 0.4%
Tires & Rubber - 0.4%
10,900 Cooper Tire & Rubber* $ 166,988
-----------
Total Automobiles & Components $ 166,988
-----------
Consumer Durables & Apparel - 0.6%
Housewares & Specialties - 0.6%
8,505 Jarden Corp.*(a) $ 256,426
-----------
Total Consumer Durables & Apparel $ 256,426
-----------
Consumer Services - 0.8%
Casinos & Gaming - 0.4%
12,375 Alliance Gaming Corp.*(a) $ 161,123
-----------
Restaurants - 0.4%
11,719 O'Charley's, Inc.* $ 181,762
-----------
Total Consumer Services $ 342,885
-----------
Retailing - 3.9%
Apparel Retail - 0.4%
6,280 Stage Stores, Inc. $ 187,018
-----------
Catalog Retail - 1.7%
35,425 Insight Enterprises, Inc.* $ 694,684
-----------
Computer & Electronics Retail - 0.3%
21,650 Tweeter Home Entertainment Group, Inc.* $ 123,838
-----------
General Merchandise Stores - 0.6%
15,525 Fred's, Inc.(a) $ 252,592
-----------
Specialty Stores - 0.9%
28,582 Hancock Fabrics, Inc.(a) $ 116,329
41,355 Rent-Way, Inc.* 264,258
-----------
$ 380,587
-----------
Total Retailing $ 1,638,719
-----------
Shares Value
Food, Beverage & Tobacco - 1.2%
Agricultural Products - 0.6%
11,258 Fresh Del Monte Produce, Inc. (a) $ 256,345
-----------
Packaged Foods & Meats - 0.6%
18,175 B & G Foods, Inc. $ 263,901
-----------
Total Food, Beverage & Tobacco $ 520,246
-----------
Household & Personal Products - 1.8%
Personal Products - 1.8%
4,400 Herbalife, Ltd.* $ 143,088
5,875 NBTY, Inc.* 95,469
29,629 Nu Skin Enterprises, Inc. 520,876
-----------
$ 759,433
-----------
Total Household & Personal
Products $ 759,433
-----------
Health Care Equipment & Services - 5.8%
Health Care Equipment - 1.0%
9,100 Analogic Corp. $ 435,435
-----------
Health Care Facilities - 0.3%
3,358 Triad Hospitals, Inc.* $ 131,734
-----------
Health Care Services - 3.4%
7,106 Chemed Corp. $ 353,026
24,225 Cross Country Healthcares, Inc.* 430,721
3,527 Pediatrix Medical Group, Inc.* 312,386
12,350 Providence Service Corp.* 355,557
-----------
$ 1,451,690
-----------
Health Care Supplies - 0.4%
13,700 Merit Medical Systems, Inc.* $ 166,318
-----------
Managed Health Care - 0.7%
14,420 AMERIGROUP Corp.* $ 280,613
-----------
Total Health Care Equipment &
Services $ 2,465,790
-----------
Pharmaceuticals & Biotechnology - 0.2%
Biotechnology - 0.2%
2,455 Kendle International, Inc.* $ 63,192
-----------
Total Pharmaceuticals &
Biotechnology $ 63,192
-----------
Banks - 6.7%
Regional Banks - 4.9%
7,875 Alliance Bankshares Corp.* $ 126,079
33,550 Cardinal Financial Corp. 369,050
4,700 City National Corp. 340,468
5,650 Signature Bank* 158,596
3,100 Southwest Bancorp, Inc.* 62,000
40,100 Sterling Bancshares, Inc. 619,144
17,225 Texas Capital Bancshares, Inc.* 386,012
-----------
$ 2,061,349
-----------
6 The accompanying notes are an integral part of these financial statements.
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Thrifts & Mortgage Finance - 1.8%
16,505 BankAtlantic Bancorp, Inc. $ 231,070
5,150 BankUnited Financial Corp.(a) 136,833
11,550 First Niagara Financial Group, Inc. 167,129
13,550 Provident Financial Services, Inc. 250,811
-----------
$ 785,843
-----------
Total Banks $ 2,847,192
-----------
Diversified Financials - 7.3%
Asset Management & Custody Banks - 1.2%
28,385 Apollo Investment Corp. $ 508,943
-----------
Consumer Finance - 2.5%
8,575 Advanta Corp. $ 258,365
9,203 Advanta Corp. (Class B) 298,545
10,025 Cash America International, Inc. 232,480
7,900 The First Marblehead Corp.(a) 259,594
-----------
$ 1,048,984
-----------
Investment Banking & Brokerage - 2.4%
7,550 A.G. Edwards, Inc. $ 353,793
12,600 OptionsXpress Holdings, Inc.(a) 309,330
9,175 Piper Jaffray Co's.* 370,670
-----------
$ 1,033,793
-----------
Specialized Finance - 1.2%
7,143 Financial Federal Corp. $ 317,506
5,075 Nasdaq Stock Market, Inc.* 178,539
-----------
$ 496,045
-----------
Total Diversified Financials $ 3,087,765
-----------
Insurance - 6.4%
Life & Health Insurance - 0.2%
6,600 American Equity Investment Life Holding* $ 86,130
-----------
Multi-Line Insurance - 1.4%
66,775 Quanta Capital Holdings (144A)* $ 340,553
10,200 Quanta Capital Holdings* 260,100
-----------
$ 600,653
-----------
Property & Casualty Insurance - 1.9%
21,575 Assured Guaranty, Ltd. $ 547,789
4,525 National Interstate Corp. 86,292
3,075 Selective Insurance Group, Inc. 163,283
-----------
$ 797,364
-----------
Reinsurance - 2.9%
18,126 IPC Holdings, Ltd. $ 496,290
11,700 Max Re Capital, Ltd. 303,846
8,500 Odyssey Re Holdings Corp.(a) 213,180
6,125 Platinum Underwriter Holdings, Ltd. 190,304
-----------
$ 1,203,620
-----------
Total Insurance $ 2,687,767
-----------
Shares Value
Real Estate - 3.6%
Real Estate Management & Development - 1.0%
32,300 Deerfield Triarc Capital Corp. $ 442,510
-----------
Real Estate Investment Trusts - 2.6%
15,913 BioMed Property Trust, Inc. $ 388,277
13,000 Capital Trust, Inc. 380,640
26,350 Feldman Mall Properties, Inc. 316,464
-----------
$ 1,085,381
-----------
Total Real Estate $ 1,527,891
-----------
Software & Services - 6.6%
Application Software - 3.5%
57,000 Aspen Technology, Inc.* $ 447,450
16,570 Bottomline Technologies, Inc.* 182,601
11,500 Sonic Solutions* 173,765
14,054 SPSS, Inc.* 434,690
34,200 TIBCO Software, Inc.* 255,474
-----------
$ 1,493,980
-----------
Data Processing & Outsourced Services - 0.7%
5,925 Intrado, Inc.* $ 136,394
19,742 Pegusus Systems, Inc.*(a) 177,086
-----------
$ 313,480
-----------
IT Consulting & Other Services - 0.4%
12,275 Gartner Group, Inc.* $ 158,348
-----------
Systems Software - 2.0%
56,450 Borland Software Corp.* $ 368,619
12,725 Internet Security Systems, Inc.* 266,589
8,575 Sybase, Inc.* 187,450
-----------
$ 822,658
-----------
Total Software & Services $ 2,788,466
-----------
Technology Hardware & Equipment - 7.5%
Communications Equipment - 2.8%
10,425 Black Box Corp. $ 493,937
13,250 Dycom Industries, Inc.* 291,500
1 Powerwave Technologies, Inc.* 13
46,500 Symmetricom, Inc.* 393,853
-----------
$ 1,179,303
-----------
Computer Hardware - 1.7%
13,300 Avid Technology, Inc.* $ 728,308
-----------
Computer Storage & Peripherals - 0.4%
6,160 Electronics for Imaging, Inc.* $ 163,918
-----------
Electronic Equipment & Instruments - 2.1%
17,600 Electro Scientific Industrials* $ 425,040
16,900 Planar Systems, Inc.*(a) 141,453
18,175 Technitrol, Inc. 310,793
-----------
$ 877,286
-----------
The accompanying notes are an integral part of these financial statements. 7
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
Electronic Manufacturing Services - 0.5%
10,300 Mercury Computer Systems, Inc.* $ 212,489
-----------
Total Technology Hardware &
Equipment $ 3,161,304
-----------
Semiconductors - 0.8%
Semiconductor Equipment - 0.4%
11,000 Brooks Automation, Inc.* $ 137,830
-----------
Semiconductors - 0.4%
41,350 Lattice Semiconductor Corp.* $ 178,632
-----------
Total Semiconductors $ 316,462
-----------
Telecommunication Services - 1.0%
Integrated Telecommunication Services - 1.0%
40,200 Alaska Communications Systems
Group, Inc. $ 408,432
-----------
Total Telecommunication Services $ 408,432
-----------
Utilities - 1.8%
Gas Utilities - 1.8%
7,975 AGL Resources, Inc. $ 277,607
5,750 Energen Corp. 208,840
8,005 People's Energy Corp. 280,735
-----------
$ 767,182
-----------
Total Utilities $ 767,182
-----------
TOTAL COMMON STOCKS
(Cost $31,436,831) $37,522,399
-----------
EXCHANGE TRADED FUNDS - 2.1%
4,500 Russell 2000 Exchange Traded Fund (a) $ 300,105
4,500 Russell 2000 Growth Exchange
Traded Fund (a) 313,335
3,875 Russell 2000 Value Exchange
Traded Fund (a) 255,789
-----------
$ 869,229
-----------
TOTAL EXCHANGE TRADED FUNDS
(Cost $792,156) $ 869,229
-----------
Principal
Amount Value
TEMPORARY CASH INVESTMENTS - 16.6%
Repurchase Agreement - 7.5%
$ 3,200,000 UBS Warburg, Inc., 3.25%, dated
12/30/05, repurchase price of
$3,200,000 plus accrued interest on
1/3/06 collateralized by $3,336,000
U.S. Treasury Bill, 4.36%, 6/29/06 $ 3,200,000
-----------
Shares
Security Lending Collateral - 9.1%
3,838,966 Securities Lending Investment
Fund, 4.24% $ 3,838,966
-----------
TOTAL TEMPORARY CASH
INVESTMENTS
(Cost $7,038,966) $ 7,038,966
-----------
TOTAL INVESTMENT
IN SECURITIES - 107.5%
(Cost $39,267,953) $45,430,594
-----------
OTHER ASSETS
AND LIABILITIES - (7.5)% $(3,176,387)
-----------
TOTAL NET ASSETS - 100.0% $42,254,207
===========
* Non-income producing security.
144A Security is exempt from registration under Rule 144A of the Securities
Act of 1933. Such securities may be resold normally to qualified
institutional buyers in a transaction exempt from registration. At
December 31, 2005, the value of these securities amounted to $1,133,653
or 2.7% of total net assets.
(a) At December 31, 2005, the following securities were out on loan:
Shares Security Value
11,756 Alliance Gaming Corp.* $ 153,063
129 BankUnited Financial Corp. 3,428
5,460 Dryships, Inc. 66,721
10,720 The First Marblehead Corp. 352,259
14,749 Fred's, Inc. 239,966
8,260 Fresh Del Monte Produce, Inc. 188,080
25,380 Graftech International, Ltd.* 157,864
27,153 Hancock Fabrics, Inc. 110,513
8,080 Jarden Corp.* 243,612
11,556 Massey Energy Co. 437,626
6,118 Maverick Tube Corp.* 243,863
8,075 Odyssey Re Holdings Corp. 202,521
11,878 OptionsXpress Holdings, Inc. 291,605
14,301 Pegusus Systems, Inc.* 128,280
10,830 Planar Systems, Inc.* 90,647
4,225 Russell 2000 Exchange Traded Fund 281,765
Russell 2000 Growth Exchange
4,275 Traded Fund 297,668
Russell 2000 Value Exchange
3,276 Traded Fund 216,249
----------
Total $3,705,730
==========
8 The accompanying notes are an integral part of these financial statements.
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Year 5/1/03(a)
Ended Ended to
Class II 12/31/05 12/31/04 12/31/03
Net asset value, beginning of period $ 14.95 $ 12.47 $ 9.11
------- ------- -------
Increase (decrease) from investment operations:
Net investment income (loss) $ 0.02 $ (0.03) $ (0.00)
Net realized and unrealized gain on investments and foreign currency transactions 1.59 2.51 3.37
------- ------- --------
Net increase from investment operations $ 1.61 $ 2.48 $ 3.36
Distributions to shareowners:
Net realized gain (0.49) -- --
------- ------- --------
Net increase in net asset value $ 1.12 $ 2.48 $ 3.36
------- ------- --------
Net asset value, end of period $ 16.07 $ 14.95 $ 12.47
======= ======= =======
Total return* 11.10% 19.89% 36.88%(b)
Ratio of net expenses to average net assets+ 1.39% 1.54% 1.58%* *
Ratio of net investment income (loss) to average net assets+ 0.16% (0.41)% (0.15)%**
Portfolio turnover rate 38% 36% 74%
Net assets, end of period (in thousands) $21,700 $10,845 $ 2,760
Ratios with no waiver of management fees and
assumption of expenses by PIM and no reductionfor fees paid indirectly:
Net expenses 1.39% 1.59% 2.65%* *
Net investment income (loss) 0.16% (0.46)% (1.22)%**
Ratios with waiver of management fees and assumption of expenses by PIM and
no reduction for fees paid indirectly:
Net expenses 1.39% 1.54% 1.58%* *
Net investment income (loss) 0.16% (0.41)% (0.15)%**
(a) Class II shares were first publicly offered on May 1, 2003.
(b) Not annualized.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of
the investment at the net asset value at the end of each period.
** Annualized.
+ Ratios with no reduction for fees paid indirectly.
NOTE: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
The accompanying notes are an integral part of these financial statements. 9
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (including securities loaned of $3,705,730) (Cost $45,430,594
$39,267,953)
Cash 854,630
Receivables --
Investment securities sold 105,024
Fund shares sold 40,895
Dividends, interest and foreign taxes withheld 66,521
Other 324
-----------
Total assets $46,497,988
-----------
LIABILITIES:
Payables --
Investment securities purchased $ 207,694
Fund shares repurchased 100,575
Upon return of securities loaned 3,838,966
Variation Margin 3,800
Due to affiliates 8,104
Accrued expenses 84,642
-----------
Total liabilities $ 4,243,781
-----------
NET ASSETS:
Paid-in capital $33,361,929
Undistributed net investment income 94,683
Accumulated net realized gain on investments 2,652,682
Net unrealized gain (loss) on:
Investments 6,162,641
Futures contracts (17,728)
-----------
Total net assets $42,254,207
-----------
NET ASSET VALUE PER SHARE:
Class I:
(No par value, unlimited number of shares authorized)
Net assets $20,554,697
Shares outstanding 1,269,643
-----------
Net asset value per share $ 16.19
Class II:
(No par value, unlimited number of shares authorized)
Net assets $21,699,510
Shares outstanding 1,350,250
-----------
Net asset value per share $ 16.07
10 The accompanying notes are an integral part of these financial statements.
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year
Ended
12/31/05
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $884) $ 418,320
Interest 102,972
Income on securities loaned, net 11,006
----------
Total investment income $ 532,298
----------
EXPENSES:
Management fees $ 262,583
Transfer agent fees and expenses 3,000
Distribution fees (Class II) 39,927
Administrative reimbursements 18,512
Custodian fees 33,950
Professional fees 45,919
Printing expense 28,855
Fees and expenses of nonaffiliated trustees 4,025
Miscellaneous 3,277
----------
Total expenses $ 440,048
----------
Net investment income $ 92,250
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FUTURES CONTRACTS:
Net realized gain from:
Investments $2,937,296
Futures contracts 87,722
----------
$3,025,018
----------
Change in net unrealized gain or loss from:
Investments $1,061,614
Futures contracts (50,893)
----------
$1,010,721
----------
Net gain on investments and futures contracts $4,035,739
==========
Net increase in net assets resulting from operations $4,127,989
==========
The accompanying notes are an integral part of these financial statements. 11
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Year
Ended Ended
12/31/05 12/31/04
FROM OPERATIONS:
Net investment income (loss) $ 92,250 $ (55,495)
Net realized gain on investments 3,025,018 1,744,190
Change in net unrealized gain or loss on investments and futures contracts 1,010,721 2,532,121
------------ ------------
Net increase in net assets resulting
from operations $ 4,127,989 $ 4,220,816
------------ ------------
DISTRIBUTIONS TO SHAREOWNERS:
Net realized gain
Class I $ (593,880) $ --
Class II (497,417) --
------------ ------------
Total distributions to shareowners $ (1,091,297) $ --
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 20,346,152 $ 14,302,057
Cost of shares repurchased (9,966,656) (4,493,153)
------------ ------------
Net increase in net assets resulting from Fund share transactions $ 10,379,496 $ 9,808,904
------------ ------------
Net increase in net assets $ 13,416,188 $ 14,029,720
------------ ------------
NET ASSETS:
Beginning of year $ 28,838,019 $ 14,808,299
------------ ------------
End of year $ 42,254,207 $ 28,838,019
------------ ------------
Undistributed net investment income,
end of year $ 94,683 $ 260
------------ ------------
12 The accompanying notes are an integral part of these financial statements.
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer Small Cap Value VCT Portfolio (the Portfolio) is a Portfolio of
Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust
registered under the Investment Company Act of 1940 as an open-end management
investment company. The Trust consists of twenty nine separate diversified
portfolios, fourteen of which issue both Class I and Class II shares
(collectively, the "Portfolios", individually the "Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio
(Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio)
(Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio)
(Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio)
(Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares
only)
Portfolio shares may only be purchased by insurance companies for the purpose
of funding variable annuity or variable life insurance contracts, and may also
be purchased by qualified pension and retirement plans.
The investment objective of Small Cap Value Portfolio is to seek capital
appreciation.
The financial highlights for the Portfolio's Class I shares are presented in a
separate book.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
periods. Actual results could differ from those estimates. The following is a
summary of significant accounting policies consistently followed by the
Portfolio, in the preparation of its financial statements, which are consistent
with those generally accepted in the investment company industry:
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the Portfolio are computed once daily, on each day the New York Stock
Exchange (NYSE) is open, as of the close of regular trading on the NYSE. In
computing the net asset values, securities are valued at the last sale
price on the principal exchange where they are traded. Securities that have
not traded on the date of valuation, or securities for which sale prices
are not generally reported, are valued at the mean between the last bid and
asked prices.
13
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Securities for which market quotations are not readily available are valued
at their fair values as determined by, or under the direction of, the Board
of Trustees. The Portfolio also may use the fair value of a security,
including a non-U.S. security, when the closing market price on the primary
exchange where the security is traded no longer accurately reflects the
value of the security as of the close of the NYSE. At December 31, 2005,
there were no securities fair valued. Temporary cash investments are valued
at amortized cost.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities where the ex-dividend date may have
passed are recorded as soon as the Portfolio becomes aware of the
ex-dividend data in the exercise of reasonable diligence. Interest income,
including interest on income bearing cash accounts, is recorded on the
accrual basis.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes withheld on capital
gains at the applicable country rates.
Small capitalization stocks, while offering the potential for higher
returns, such as those held by the portfolio may be subject to greater
short-term price fluctuations than securities of larger companies.
Information regarding the Portfolio's principal investment risks is
contained in the Portfolio's prospectus. Please refer to those documents
when considering the Portfolio's risks.
B. Futures Contracts
The Portfolio may enter into futures transactions to hedge against changes
in interest rates, securities prices, and currency rates or to seek to
increase total return. Upon entering into a futures contract, the Portfolio
is required to deposit with a broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the associated futures
exchange. Subsequent payments for futures contracts ("variation margin")
are paid or received by the Portfolio, depending on the daily fluctuation
in the value of the contracts, and are recorded by the Portfolio as
unrealized gains or losses. When the contract is closed, the Portfolio
realize a gain or loss equal to the difference between the opening and
closing value of the contract. The use of futures contracts involves, to
varying degrees, elements of market risk which may exceed the amounts
recognized by the Portfolio. Changes in the value of the contracts may not
directly correlate to the changes in the value of the underlying
securities. These risks may decrease the effectiveness of the Portfolio's
hedging and trading strategies and potentially result in a loss. As of
December 31, 2005, Small Cap Value Portfolio had the following open
contracts:
- --------------------------------------------------------------------------------------------------------------
Number of
Contracts Settlement Market Unrealized
Future Contracts Type Long/(Short) Month Value Gain/(Loss)
- --------------------------------------------------------------------------------------------------------------
Small Cap Value Portfolio Russell 2000 4 March 2006 $1,356,600 $(17,728)
- --------------------------------------------------------------------------------------------------------------
C. Foreign Currency Translation
The books and records of the Portfolio are maintained in U.S. dollars.
Amounts denominated in foreign currencies are translated into U.S. dollars
using current exchange rates.
Net realized gains and losses on foreign currency transactions represent,
the net realized gains and losses on foreign currency contracts,
disposition of foreign currencies, and the difference between the amount of
income accrued and the U.S. dollars actually received. Further, the effects
of changes in foreign currency exchange rates on investments are not
segregated in the statement of operations from the effects of changes in
market price of those securities but are included with the net realized and
unrealized gain or loss on investments.
D. Forward Foreign Currency Contracts
The Portfolio enters into forward foreign currency contracts (contracts)
for the purchase or sale of a specific foreign currency at a fixed price on
a future date as a hedge or cross-hedge against either specific investment
transactions (settlement hedges) or portfolio positions (portfolio hedges).
All contracts are marked to market daily at the applicable exchange rates,
and any resulting unrealized gains or losses are recorded in the
Portfolio's financial statements. The Portfolio records realized gains and
losses at the time a portfolio hedge is offset by entry into a closing
transaction or extinguished by delivery of the currency. Risks may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of the contract and from unanticipated
movements in the value of foreign currencies relative to the U.S. dollar.
14
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
E. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal
income tax rules. Therefore, the source of the Portfolio's distributions
may be shown in the accompanying financial statements as either from, or in
excess of, net investment income or net realized gain on investment
transactions, or from paid-in capital, depending on the type of book/tax
differences that may exist.
At December 31, 2005, the Portfolio made reclassifications as described
below. These reclassifications have no impact on the net asset value of the
Portfolio and are designed to present the Portfolio's capital accounts on a
tax basis.
- --------------------------------------------------------------------------------------------------
Undistributed Net
Investment Income Accumulated Net
Portfolio (Loss) Realized Gain (Loss) Paid-In Capital
- --------------------------------------------------------------------------------------------------
Small Cap Value Portfolio $2,173 $5,404 $ (7,577)
- --------------------------------------------------------------------------------------------------
The following chart shows the distributions paid during the year ended
December 31, 2005 and the components of distributable earnings (accumulated
losses) as of December 31, 2005. There were no distributions paid during
the fiscal year ended December 31, 2004.
- ----------------------------------------------------------------------------
2005
- ----------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ --
Long-Term Capital Gain 1,091,297
----------
$1,091,297
Return of Capital --
----------
Total Distributions $1,091,297
----------
Distributable Earnings (Accumulated Losses):
Undistributed ordinary income $ 646,863
Undistributed long-term gain/(Capital loss carryforward) 2,238,710
Unrealized appreciation (depreciation) 6,006,705
----------
Total $8,892,278
==========
- ----------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation is
primarily attributable to the tax deferral of losses on wash sales.
F. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Trust and a wholly owned indirect subsidiary
of UniCredito Italiano S.p.A. (Unicredito Italiano), 638,021 in commissions
on the sale of Trust shares for the year ended December 31, 2005.
Distribution fees are calculated based on the average daily net asset
values attributable to Class II shares of the Portfolio.
Shareowners of each class share all expenses and fees paid to the transfer
agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS),
for its services, which are allocated based on the number of accounts in
each class and the ratable allocation of related out-of-pocket expenses
(see Note 3). Income, common expenses (excluding transfer agent and
distribution fees) and realized and unrealized gains and losses are
calculated at the Portfolio level and allocated daily to each class of
shares based on the respective percentage of the adjusted net assets at the
beginning of the day. Distributions paid by a Portfolio with respect to
each class of shares are calculated in the same manner, at the same time,
and in the same amount, except that Class I and Class II shares can bear
different transfer agent and distribution fees.
15
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
G. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees. The Portfolio also continues to receive
payments in lieu of interest or dividends on the securities loaned. Gain or
loss in the fair value of the securities loaned that may occur during the
term of the loan, will be for the account of the Trust. The loans are
secured by collateral of at least 102%, at all times, of the fair value of
the securities loaned. The fair value of the collateral will be adjusted
daily to reflect any price fluctuation in the value of the loaned
securities. The Trust has the right under the lending agreement to recover
the securities on loan from the borrower on demand. The Trust invests cash
collateral in the Securities Lending Investment Fund which is sponsored by
Brown Brothers Harriman & Co., the Trust's custodian.
H. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano, manages the
portfolios. Management fees are calculated daily at the annual rate of 0.75% of
the Portfolio's average daily net assets.
Through May 1, 2006, PIM has agreed not to impose all or a portion of its
management fee and, if necessary, to limit other ordinary operating expenses of
the Portfolio to the extent required to reduce Class I expenses to 1.25% of the
average daily net assets attributable to Class I shares.
In addition, under the management and administration agreements, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $3,108 was payable
to PIM related to management fees, administrative reimbursements and certain
other services, and is included in due to affiliates.
3. Transfer Agent
PIMSS, a wholly owned indirect subsidiary of UniCredito Italiano, provides
substantially all transfer agent and shareowner services to the Trust at
negotiated rates. Included in due to affiliates is $268 in transfer agent fees
payable to PIMSS at December 31, 2005.
4. Distribution Plans
The Portfolio has adopted a plan of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with the Portfolio's Class
II shares. Included in due to affiliates is $4,728 payable to PFD at December
31, 2005.
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- ------------------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- ------------------------------------------------------------------------------------------------------
Small Cap Value Portfolio $39,423,889 $7,724,253 $ (1,717,548) $6,006,705
=========== ========== ============ ==========
- ------------------------------------------------------------------------------------------------------
16
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were $20,116,602 and $11,968,562, respectively.
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows for the
fiscal year ended December 31, 2005 and the fiscal year ended
December 31, 2004.
- --------------------------------------------------------------------------------------------------
Small Cap Value Portfolio '05 Shares '05 Amount '04 Shares '04 Amount
- --------------------------------------------------------------------------------------------------
CLASS I:
Shares sold 571,103 $ 8,553,972 510,952 $ 6,774,823
Reinvestment of distributions 40,427 589,019 -- --
Shares repurchased (539,585) (8,145,222) (277,189) (3,672,701)
------------------------------------------------------------
Net increase 71,945 $ 997,769 233,763 $ 3,102,122
============================================================
CLASS II:
Shares sold 712,018 $ 10,705,770 566,136 $ 7,527,234
Reinvestment of distributions 34,350 497,391 -- --
Shares repurchased (121,596) (1,821,434) (61,897) (820,452)
------------------------------------------------------------
Net increase 624,772 $ 9,381,727 504,239 $ 6,706,782
============================================================
- --------------------------------------------------------------------------------------------------
17
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust
and the Shareholders of Pioneer Small Cap Value VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer Small Cap Value VCT Portfolio, one of
the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"),
as of December 31, 2005, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the two years
in the period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005, by correspondence
with the custodian and brokers or by other appropriate auditing procedures
where replies from brokers were not received. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer Small Cap Value VCT Portfolio of the Pioneer Variable Contracts Trust
at December 31, 2005, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and financial highlights for each of the periods indicated therein, in
conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
18
Pioneer Small Cap Value VCT Portfolio (the "Fund")
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one and three year periods for the
Fund and a peer group selected by the Independent Trustees for this purpose,
(2) management fees incurred by a peer group of funds selected by the
Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's
19
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and an index,
in each case selected by the Independent Trustees for this purpose. The
Fund's performance based upon total return was in the second quintile of
the peer group for the 12 months ended June 30, 2005 and the second
quintile for the three years ended June 30, 2005. (In all quintile rankings
referred to throughout this discussion first quintile is most favorable to
the Fund's shareholders. Thus, highest relative performance would be first
quintile and lowest relative expenses also would be first quintile.) The
Trustees concluded that the performance of the Fund supported the
continuation of the Management Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The
Independent Trustees also have had discussions with senior management of
the Investment Adviser responsible for investment operations and the senior
management of the Investment Adviser's equities group. Among other things,
the Trustees considered the number, education and experience of the
Investment Adviser's investment staff and their use of technology and
emphasis on analytics in view of the risk profile of securities in which
the Fund invests. The Trustees concluded that the Investment Adviser had
the quality and depth of personnel and the well-developed methods essential
to performing its duties under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision
of third party service providers. Based on these considerations, the
Trustees concluded that the nature, quality, cost and extent of such
services are satisfactory and reliable and serve the shareholders of the
Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the second
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
considered the Fund's expense ratio and expense ratios of a peer group of
funds selected by the Independent Trustees for this purpose. The Fund's
expense ratio (after giving effect to the expense limitation) for the 12
months ended June 30, 2005 was in the fifth quintile of the applicable peer
group for the most recent fiscal year of the peer group for the comparable
period.
F. Profitability. The Trustees considered the level of the Investment
Adviser's profits with respect to the management of the Pioneer Funds,
including details with respect to the Fund. This consideration included a
review of the Investment Adviser's methodology in allocating certain of its
costs to the management of each Fund. The Trustees also considered the
financial results realized by the Investment Adviser in connection with the
operation of the Fund. They further considered the profits realized by the
Investment Adviser and its affiliates from non-fund businesses that may
benefit from or be related to the Fund's business. The Trustees considered
the Investment Adviser's profit margins in comparison with the limited
available industry data. The Trustees concluded that the Investment
Adviser's profits from management of the Pioneer Funds, including the
financial results derived from the Fund, bear a reasonable relationship to
the services rendered and are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. The Trustees concluded that,
given current and anticipated asset levels, a break point in the management
fee was not necessary at this time. As assets increase, the Trustees will
continue to evaluate annually the appropriateness of break points.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates,
20
Pioneer Small Cap Value VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
including fees for services such as shareholder services. The Trustees also
considered the receipt of sales loads and payments under Rule 12b-1 plans
in respect to the Pioneer Funds (including the Fund), and benefits to the
Investment Adviser from the use of "soft" commission dollars to pay for
research services. The Trustees further considered the revenues and
profitability of the Investment Adviser's businesses other than the fund
business, including the Investment Adviser's institutional investment
advisory business. The Trustees considered the intangible benefits that
accrue to the Investment Adviser and its affiliates by virtue of its
relationship with the Fund and the Pioneer Funds as a group. The Trustees
concluded that all these types of benefits accruing to the Investment
Adviser were reasonable in the context of the overall relationship between
the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
21
Pioneer Small Cap Value VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
22
Pioneer Small Cap Value VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held
Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance
or earlier services company) (2001-present); company); Director of New York
retirement or Managing Partner, Federal City Mortgage Trust (publicly traded
removal. Capital Advisors (boutique merchant mortgage REIT)
bank) (2002 to 2004); Executive
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products
or earlier manufacturer), Mortgage Guaranty
retirement or Insurance Corporation, and Briggs
removal. & Stratton, Inc. (engine
manufacturer)
- ----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
23
Pioneer Small Cap Value VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
24
Pioneer Small Cap Value VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, None
Treasurer 2000. Serves at the Assistant Vice President - Fund
discretion of the Accounting, Administration and
Board. Custody Services of Pioneer; and
Assistant Treasurer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ---------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ---------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
26
[LOGO]PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company, Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18669-00-0206
[LOGO] PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Small Company VCT Portfolio -- Class II Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Pioneer Small Company VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 5
Financial Statements 9
Notes to Financial Statements 13
Report of Independent Registered Public
Accounting Firm 18
Factors Considered by the Independent Trustees in
Approving the Management Contract 19
Trustees, Officers and Service Providers 22
Before investing, consider the Portfolio's investment objectives, risks,
charges and expenses. Contact your advisor or Pioneer Investments for a
prospectus containing this information. Read it carefully.
The Trust files a complete statement of investments with the Securities and
Exchange Commission for the first and the third quarters for each fiscal year
on Form N-Q. Shareowners may view the filed Form N-Q by visiting the
Commission's web site at http://www.sec.gov. The filed form may also be viewed
and copied at the Commission's Public Reference Room in Washington, D.C.
Information regarding the operations of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Common Stocks 85.0%
Temporary Cash Investment 10.0%
Depositary Receipts for Internationl Stocks 2.6%
International Common Stocks 1.6%
Exchange Traded Fund 0.8%
Sector Distribution
(As a percentage of equity holdings)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Industrials 19.5%
Financials 18.9%
Health Care 15.4%
Information Technology 14.3%
Consumer Discretionary 10.4%
Energy 9.2%
Materials 5.6%
Consumer Staples 3.0%
Utilities 2.9%
Telecommunication Services 0.8%
Five Largest Holdings
(As a percentage of equity holdings)
1. Swift Transportation Co., Inc. 1.47%
2. Cerner Corp. 1.45
3. Stage Stores, Inc. 1.39
4. Skechers U.S.A. 1.32
5. Cubist Pharmaceuticals, Inc. 1.26
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 11.71 $ 12.85
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ - $ - $ 1.2777
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Small Company VCT Portfolio at net asset value, compared to that of the Russell
2000 Index. Portfolio returns are based on net asset value and do not reflect
any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Russell 2000
Small Company Index
VCT Portfolio
01/01 10000 10000
10479 9741
8683 7746
12/03 10865 11406
12301 13497
12/05 12504 14112
Index comparison begins 1/31/01. The Russell 2000 Index measures U.S. small-cap
stocks. Index returns are calculated monthly, assume reinvestment of dividends
and, unlike Portfolio returns do not reflect any fees, expenses or sales
charges. You cannot invest directly in the Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Life-of-Class 5.55%
(1/19/01)
1 Year 1.65%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
2
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value - $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Small Company VCT Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 984.79
Expenses Paid During Period* $ 7.35
* Expenses are equal to the Portfolio's annualized expense ratio of 1.47% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer Small Company VCT Portfolio
Based on a hypothetical 5% return per year before expenses, reflecting the
period from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,017.80
Expenses Paid During Period* $ 7.48
* Expenses are equal to the Portfolio's annualized expense ratio of 1.47% for
Class II shares, respectively, multiplied by the average account value over
the period, multiplied by 184/365 (to reflect the one-half year period).
3
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
Co-managers Diego Franzin and Michael Rega describe conditions in the
small-company universe for 2005, and the stocks that affected the Portfolio's
performance.
Q. How did Pioneer Small Company VCT Portfolio perform over this period?
A. For the twelve months ended December 31, 2005, Class II shares of the
Portfolio returned 1.65% at net asset value. The result trailed the
Portfolio's benchmark, the Russell 2000 Index, which returned 4.55% over
the same period.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q. Please describe the background for small-company stocks over this period.
A. Whether - or when - escalating energy prices and higher interest rates might
cause consumers to retrench was a major investor preoccupation in 2005. A
fall-off in consumer spending, which represents the bulk of U.S. economic
activity, could signal trouble for the ongoing economic expansion. In fact,
a slide in energy prices following post-hurricane peaks boosted consumer
confidence and spending levels stayed healthy. Through the year, value and
growth stocks vied for small-cap leadership, with value holding an edge at
year's end.
Q. Which stocks or sectors affected Portfolio performance?
A. Energy was the year's top sector. High prices for oil and gas stimulated
drilling activity, boosting earnings for NSS Services, which manufactures
seamless piping used in oil wells. Forest Oil, a North American oil and gas
exploration company, also rose.
In health care, strength in Cubist Pharmaceuticals reflected rising sales of
Cubicin, a drug whose effectiveness is making it the treatment of choice for
hospital-based staph infections. Sales of Cerner's software, which lets
medical professionals view x-rays and lab results on their computers, also
grew. Hospitals are increasingly adopting systems that provide current
patient data at the point of care. We took losses in generic drug maker Able
Laboratories when failure to follow standardized lab procedures led to
inventory recalls and cessation of manufacturing. We are still holding
Seralogicals despite slowing sales of its culture media and other laboratory
products at a time of payroll expansion.
Among consumer discretionary issues, Guess?, makers of jeans and other
casual wear for children, teens and adults, benefited from skilled
management and successful execution of its business plan. But teen retailer
Aeropostale stumbled. Poor product choices led to markdowns that ate into
profit margins, and a new store concept failed to gain traction. We also
took losses in Rewards Network when discount dining programs saw shrinking
membership and investors lost confidence. Elsewhere, we took profits in
Administaff, whose human resources services found growing acceptance among
smaller companies lacking staff to deal with regulatory requirements.
Boston Communications Group, one of our holdings in the telecommunications
services sector, provides a product that allows consumers to purchase
pre-paid wireless service. The company learned in May that the technology
used to provide the service was in violation of a patent held by a
competitor. This news led to a decline in the company's stock price. We sold
the stock after the announcement, and in hindsight this was the right move
as the stock price continued to fall further. Connectics, a specialty
pharmaceutical company declined after receiving a Non-Approvable letter from
the FDA for one of its products in development. We think the market
over-reacted to this news, and we believe that the company's past history of
developing well received products, as well as their aggressive sales force
provide what we see as a solid foundation for growth.
Q. What is your outlook for the months ahead?
A. We think high energy prices will persist and that the Federal Reserve Board
will hike rates a bit more. With little clear consensus on the economy's
direction, however, stock selections may be more important than sector
weightings in the period ahead. Our goal is to maintain a well-diversified
portfolio that limits exposure to any one security, basing our selections
on a combination of quantitative and fundamental analysis. Using that
process, we believe prospects for many health care companies are better
than current valuations might imply. In the volatile technology sector, we
favor companies whose products can bolster business efficiency. An eventual
end to rate hikes could revitalize housing stocks for a time, but we cut
exposure to that sector in 2005 and remain wary of it for now.
Any information in this shareholder report regarding market or economic
trends or the factors influencing the Portfolio's historical or future
performance are statements of the opinion of Portfolio management as of the
date of this report. These statements should not be relied upon for any
other purposes. Past performance is no guarantee of future results, and
there is no guarantee that market forecasts discussed will be realized.
A Word About Risk:
Investments in small companies may offer the potential for higher returns, but
are also subject to greater short-term price fluctuations than larger, more
established companies. The Portfolio invests in REIT securities, the value of
which can fall for a variety of reasons, such as declines in rental income,
fluctuating interest rates, poor property management, environmental
liabilities, uninsured damage, increased competition, or changes in real estate
tax laws. Investing in foreign and/or emerging markets securities involves
risks relating to interest rates, currency exchange rates, economic, and
political conditions. At times, the Portfolio's investments may represent
industries or industry sectors that are interrelated or have common risks,
making it more susceptible to any economic, political, or regulatory
developments or other risks affecting those industries and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
COMMON STOCK - 96.5%
Energy - 8.8%
Oil & Gas Equipment & Services - 4.9%
4,400 Gulfmark Offshore, Inc.* $ 130,328
2,900 Lone Star Technologies, Inc.* 149,814
3,500 Maverick Tube Corp.*(a) 139,510
3,200 NS Group, Inc.* 133,792
3,100 Offshore Logistics, Inc.* 90,520
-----------
$ 643,964
-----------
Oil & Gas Exploration & Production - 3.4%
2,425 Forest Oil Corp.* $ 110,507
2,900 Swift Energy Co.* 130,703
2,100 Stone Energy Corp.* 95,613
2,000 Houston Exploration Co.* 105,600
-----------
$ 442,423
-----------
Oil & Gas Storage & Transporation - 0.5%
1,300 Overseas Shipholding Group, Inc. $ 65,507
-----------
Total Energy $ 1,151,894
-----------
Materials - 5.4%
Aluminum - 0.9%
4,500 Century Aluminum Co.* $ 117,945
-----------
Construction Materials - 1.0%
2,950 Mega Bloks, Inc. (144A)* $ 70,068
1,200 Texas Industries, Inc. 59,808
-----------
$ 129,876
-----------
Diversified Chemical - 0.8%
2,100 FMC Corp.* $ 111,657
-----------
Diversified Metals & Mining - 0.6%
4,900 Brush Engineered Materials, Inc.* $ 77,910
-----------
Specialty Chemicals - 1.2%
2,800 H.B. Fuller Co. $ 89,796
9,700 PolyOne Corp.* 62,371
-----------
$ 152,167
-----------
Steel - 0.9%
1,600 Carpenter Technology $ 112,752
-----------
Total Materials $ 702,307
-----------
Capital Goods - 10.8%
Aerospace & Defense - 1.5%
5,600 Hexcel Corp.* $ 101,080
7,300 Orbital Sciences Corp.* 93,732
-----------
$ 194,812
-----------
Shares Value
Construction & Farm Machinery &
Heavy Trucks - 5.5%
4,500 AGCO Corp.* $ 74,565
6,700 Commercial Vehicle Group, Inc.* 125,826
5,100 Federal Signal Corp. 76,551
800 Nacco Industries, Inc. 93,720
2,000 Terex Corp.* 118,800
2,400 The Toro Co. 105,048
4,400 Wabtec Corp. 118,360
-----------
$ 712,870
-----------
Electrical Component & Equipment - 1.1%
23,700 Power-One, Inc.* $ 142,674
-----------
Industrial Machinery - 2.7%
3,200 Albany International Corp. $ 115,712
3,100 Flowserve Corp.* 122,636
2,175 Kennametal, Inc. 111,012
-----------
$ 349,360
-----------
Total Capital Goods $ 1,399,716
-----------
Commercial Services & Supplies - 3.9%
Commercial Printing - 1.4%
1,800 Consolidated Graphics, Inc.* $ 85,212
2,575 John H. Harland Co. 96,820
-----------
$ 182,032
-----------
Diversified Commercial Services - 0.8%
2,301 The Brinks Co. $ 110,241
-----------
Human Resource & Employment Services - 1.7%
3,200 Administaff, Inc.(a) $ 134,560
4,400 Korn/Ferry International* 82,236
-----------
$ 216,796
-----------
Total Commercial Services &
Supplies $ 509,069
-----------
Transportation - 4.2%
Air Freight & Couriers - 0.4%
2,100 Pacer International, Inc. $ 54,726
-----------
Railroads - 1.6%
3,400 Genesee & Wyoming, Inc.* $ 127,500
6,900 RailAmerica, Inc.* 75,831
-----------
$ 203,331
-----------
Trucking - 2.2%
2,300 Arkansas Best Corp.(a) $ 100,464
9,100 Swift Transportation Co., Inc.* 184,730
-----------
$ 285,194
-----------
Total Transportation $ 543,251
-----------
The accompanying notes are an integral part of these financial statements. 5
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
Automobiles & Components - 0.8%
Auto Parts & Equipment - 0.8%
5,400 Aftermarket Technology Corp.* $ 104,976
-----------
Total Automobiles & Components $ 104,976
-----------
Consumer Durables & Apparel - 3.5%
Footwear - 2.2%
10,800 Skechers U.S.A.* $ 165,456
5,450 Wolverine World Wide, Inc. 122,407
-----------
$ 287,863
-----------
Housewares & Specialties - 1.2%
3,000 American Greetings Corp.(a) $ 65,910
3,375 Yankee Candle Co. 86,400
-----------
$ 152,310
-----------
Leisure Products - 0.1%
625 Mega Blocks* $ 14,845
-----------
Total Consumer Durables & Apparel $ 455,018
-----------
Consumer Services - 2.2%
Casinos & Gaming - 0.8%
3,900 Scientific Games Corp.* $ 106,392
-----------
Restaurants - 1.4%
5,000 O'Charley's, Inc.* $ 77,550
3,400 Rare Hospitality International, Inc.* 103,326
-----------
$ 180,876
-----------
Total Consumer Services $ 287,268
-----------
Media - 0.9%
Advertising - 0.9%
1,800 R.H. Donnelley Corp.* $ 110,916
-----------
Total Media $ 110,916
-----------
Retailing - 2.7%
Apparel Retail - 2.7%
7,100 Charming Shoppes, Inc.* $ 93,720
2,300 Guess?, Inc.* 81,880
5,850 Stage Stores, Inc. 174,213
-----------
$ 349,813
-----------
Total Retailing $ 349,813
-----------
Food, Beverage & Tobacco - 1.4%
Packaged Foods & Meats - 1.4%
2,400 Lancaster Colony Corp. $ 88,920
2,139 The J.M. Smucker Co. 94,116
-----------
$ 183,036
-----------
Total Food, Beverage & Tobacco $ 183,036
-----------
Household & Personal Products - 1.5%
Household Products - 0.8%
2,300 Central Garden & Pet Co.* $ 105,662
-----------
Shares Value
Personal Products - 0.7%
5,050 Nu Skin Enterprises, Inc. $ 88,779
-----------
Total Household & Personal
Products $ 194,441
-----------
Health Care Equipment & Services - 11.1%
Health Care Equipment - 0.8%
4,300 Steris Corp. $ 107,586
-----------
Health Care Facilities - 3.0%
2,500 Kindred Healthcare, Inc.* $ 64,400
2,500 Lifepoint Hospitals, Inc.* 93,750
3,804 Sunrise Senior Living, Inc.*(a) 128,233
2,100 Universal Health Services, Inc. (Class B) 98,154
-----------
$ 384,537
-----------
Health Care Services - 4.9%
2,000 Cerner Corp.*(a) $ 181,820
1,200 Chemed Corp. 59,616
9,000 eResearch Technology, Inc.*(a) 135,900
3,900 Lifeline Systems, Inc.* 142,584
1,325 Pediatrix Medical Group, Inc.* 117,355
-----------
$ 637,275
-----------
Health Care Supplies - 1.3%
1,975 Haemonetics Corp.* $ 96,499
5,800 Merit Medical Systems, Inc.* 70,412
-----------
$ 166,911
-----------
Managed Health Care - 1.1%
3,500 Amerigroup Corp.* $ 68,110
1,356 Coventry Health Care, Inc* 77,238
-----------
$ 145,348
-----------
Total Health Care Equipment &
Services $ 1,441,657
-----------
Pharmaceuticals & Biotechnology - 3.8%
Biotechnology - 3.2%
7,425 Cubist Pharmaceuticals, Inc.* $ 157,781
7,300 InterMune, Inc.*(a) 122,640
7,100 Serologicals Corp.*(a) 140,154
-----------
$ 420,575
-----------
Pharmaceuticals - 0.6%
5,100 Connetics Corp.* $ 73,695
-----------
Total Pharmaceuticals &
Biotechnology $ 494,270
-----------
Banks - 7.1%
Regional Banks - 2.4%
4,700 Community Bank System, Inc. $ 105,985
3,200 Provident Bankshares Corp. 108,064
4,400 Susquehanna Bancshares, Inc. 104,192
-----------
$ 318,241
-----------
6 The accompanying notes are an integral part of these financial statements.
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Value
Thrifts & Mortgage Finance - 4.7%
4,300 BankAtlantic Bancorp, Inc. $ 60,200
3,100 BankUnited Financial Corp.(a) 82,367
5,000 Commercial Capital Bankcorp, Inc. 85,600
4,500 Charter Municipal Mortgage
Acceptance Co. 95,310
6,800 First Niagara Financial Group, Inc. 98,396
4,800 Provident Financial Services, Inc. 88,848
2,125 Webster Financial Corp. 99,663
-----------
$ 610,384
-----------
Total Banks $ 928,625
-----------
Diversified Financials - 1.8%
Asset Management & Custody Banks - 0.8%
6,078 Apollo Investment Corp. $ 108,979
-----------
Consumer Finance - 1.0%
4,078 Advanta Corp. (Class B) $ 132,290
-----------
Total Diversified Financials $ 241,269
-----------
Insurance - 3.9%
Life & Health Insurance - 0.3%
3,000 American Equity Investment Life Holding* $ 39,150
-----------
Property & Casualty Insurance - 1.9%
5,600 Assured Guaranty, Ltd. $ 142,184
2,900 Infinity Property & Casualty Corp. 107,909
-----------
$ 250,093
-----------
Reinsurance - 1.7%
4,800 IPC Holdings, Ltd. $ 131,424
3,400 Max Re Capital, Ltd. 88,298
-----------
$ 219,722
-----------
Total Insurance $ 508,965
-----------
Real Estate - 5.4%
Real Estate Management & Development - 0.8%
7,000 Deerfield Triarc Capital Corp. $ 95,900
-----------
Real Estate Investment Trusts - 4.6%
8,500 Anworth Mortgage Asset Corp. $ 62,050
4,577 BioMed Property Trust, Inc. 111,679
2,550 Capital Trust, Inc. 74,664
2,800 Heritage Property Investment Trust(a) 93,520
10,000 MFA Mortgage Investments, Inc. 57,000
2,800 Newcastle Investment Corp. 69,580
1,600 Redwood Trust, Inc.(a) 66,016
5,900 Saxon Capital, Inc. 66,847
-----------
$ 601,356
-----------
Total Real Estate $ 697,256
-----------
Shares Value
Software & Services - 7.3%
Application Software - 4.0%
16,600 Parametric Technology Co.* $ 101,260
8,500 Sonic Solutions* 128,435
5,000 SPSS, Inc.* 154,650
10,400 TIBCO Software, Inc.* 77,688
2,300 Net 1 UEPS Technologies, Inc.* 66,355
-----------
$ 528,388
-----------
Data Processing & Outsourced Services - 0.6%
5,700 The BISYS Group, Inc.* $ 79,857
-----------
Internet Software & Services - 1.1%
7,000 Earthlink, Inc.*(a) $ 77,770
12,300 Skillsoft PLC* 67,650
-----------
$ 145,420
-----------
IT Consulting & Other Services - 1.0%
9,900 Gartner Group, Inc.* $ 127,710
-----------
Systems Software - 0.6%
3,500 Internet Security Systems, Inc* $ 73,325
-----------
Total Software & Services $ 954,700
-----------
Technology Hardware & Equipment - 4.7%
Communications Equipment - 2.8%
6,300 AudioCodes, Ltd.* $ 69,930
2,800 Black Box Corp. 132,664
4,800 CommScope, Inc.* 96,624
7,700 Packeteer, Inc.* 59,829
-----------
$ 359,047
-----------
Electronic Equipment & Instruments - 1.3%
7,575 Aeroflex, Inc.* $ 81,431
5,400 Technitrol, Inc. 92,340
-----------
$ 173,771
-----------
Technology Distributors - 0.6%
4,400 Agilysys, Inc. $ 80,168
-----------
Total Technology Hardware &
Equipment $ 612,986
-----------
Semiconductors - 1.8%
Semiconductor Equipment - 0.5%
2,500 ADE Corp.* $ 60,150
-----------
Semiconductors - 1.3%
22,000 Lattice Semiconductor Corp.* $ 95,040
500 PortalPlayer, Inc.* 14,160
3,300 Semtech Corp.* 60,258
-----------
$ 169,458
-----------
Total Semiconductors $ 229,608
-----------
The accompanying notes are an integral part of these financial statements. 7
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
Telecommunication Services - 0.7%
Integrated Telecommunication Services - 0.7%
9,400 Alaska Communications Systems
Group, Inc. $ 95,504
-----------
Total Telecommunication Services $ 95,504
-----------
Utilities - 2.8%
Electric Utilities - 0.7%
3,100 IDACORP, Inc. $ 90,830
-----------
Gas Utilities - 1.3%
4,600 Atmos Energy Corp. $ 120,336
1,500 People's Energy Corp. 52,605
-----------
$ 172,941
-----------
Multi-Utilities - 0.8%
2,100 CH Energy Group, Inc. $ 96,389
-----------
Total Utilities $ 360,160
-----------
TOTAL COMMON STOCKS
(Cost $11,616,160) $12,556,705
-----------
TEMPORARY CASH INVESTMENT - 10.7%
Security Lending Collateral - 10.7%
1,399,038 Securities Lending Investment
Fund, 4.24% $ 1,399,038
-----------
TOTAL TEMPORARY CASH
INVESTMENT
(Cost $1,399,038) $ 1,399,038
-----------
TOTAL INVESTMENT
IN SECURITIES - 107.2%
(Cost $13,015,198) $13,955,743
-----------
OTHER ASSETS
AND LIABILITIES - (7.2)% $ (939,304)
-----------
TOTAL NET ASSETS - 100.0% $13,016,439
===========
* Non-income producing security
144A Security is exempt from registration under Rule 144A of the Securities
Act of 1933. Such securities may be resold normally to qualified
institutional buyers in a transaction exempt from registration. At
December 31, 2005, the value of these securities amounted to $70,068 or
0.5% of net assets.
(a) At December 31, 2005, the following securities were out on loan:
Shares Security Market Value
3,040 Administaff, Inc. $ 127,832
2,850 American Greetings Corp. 62,615
2,185 Arkansas Best Corp. 95,441
2,945 BankUnited Financial Corp. 78,249
1,900 Cerner Corp.* 172,729
6,650 Earthlink, Inc.* 73,882
8,550 eResearch Technology, Inc.* 129,105
2,660 Heritage Property Investment Trust 88,844
6,935 InterMune, Inc.* 116,508
3,325 Maverick Tube Corp.* 132,535
1,520 Redwood Trust, Inc. 62,715
4,370 Serologicals Corp.* 86,264
3,614 Sunrise Senior Living, Inc.* 121,828
----------
Total $1,348,547
==========
8 The accompanying notes are an integral part of these financial statements.
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended 8/1/01 to
Class II 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01
Net asset value, beginning of period $ 12.85 $ 11.35 $ 9.07 $ 10.95 $ 11.18
------- ------- ------- -------- -------
Increase (decrease) from investment operations:
Net investment income (loss) $ -- $ (0.05) $ (0.01) $ (0.01) $ --
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 0.14 1.55 2.29 (1.87) (0.23)
------- ------- ------- -------- --------
Net increase (decrease) from investment operations $ 0.14 $ 1.50 $ 2.28 $ (1.88) $ (0.23)
------- ------- ------- -------- --------
Distributions to shareowners:
Net income -- -- -- -- --
Net realized gain (1.28) -- -- -- --
------- ------- ------- -------- --------
Net increase (decrease) in net asset value $ (1.14) $ 1.50 $ 2.28 $ (1.88) $ (0.23)
------- ------- ------- -------- --------
Net asset value, end of period $ 11.71 $ 12.85 $ 11.35 $ 9.07 $ 10.95
======= ======= ======= ======== ========
Total return* 1.65% 13.22% 25.14% (17.14)% (2.06)%
Ratio of net expenses to average net assets+ 1.47% 1.48% 1.52% 1.58% 1.68%**
Ratio of net investment income (loss) to average net assets+ (0.05)% (0.44)% (0.23)% (0.18)% 0.01%**
Portfolio turnover rate 65% 114% 38% 53% 72%
Net assets, end of period (in thousands) $ 9,732 $10,086 $ 7,095 $ 3,419 $ 938
Ratios assuming no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses 1.83% 1.76% 2.67% 2.98% 6.71%**
Net investment income (loss) (0.41)% (0.72)% (1.38)% (1.58)% 5.02%**
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.)
** Annualized.
+ Ratios assuming no reduction for fees paid indirectly.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
The accompanying notes are an integral part of these financial statements. 9
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (including securities loaned of $1,348,547) (Cost $ 13,995,743
$13,015,198)
Cash 545,788
Receivables --
Investment securities sold 9,459
Fund shares sold 1,621
Dividends, interest and foreign taxes withheld 21,524
------------
Total assets $ 14,534,135
------------
LIABILITIES:
Payables --
Fund shares repurchased $ 41,334
Upon return of securities loaned 1,399,038
Due to affiliates 9,766
Accrued expenses 67,558
------------
Total liabilities $ 1,517,696
------------
NET ASSETS:
Paid-in capital $ 11,957,445
Undistributed net investment income 1,307
Accumulated net realized gain 117,142
Net unrealized gain on: investments 940,545
------------
Total net assets $ 13,016,439
------------
NET ASSET VALUE PER SHARE:
Class I:
(No par value, unlimited number of shares authorized)
Net assets $ 3,284,702
Shares outstanding 277,175
------------
Net asset value per share $ 11.85
Class II:
(No par value, unlimited number of shares authorized)
Net assets $ 9,731,737
Shares outstanding 831,281
------------
Net asset value per share $ 11.71
10 The accompanying notes are an integral part of these financial statements.
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year
Ended
12/31/05
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $74) $ 163,632
Interest 15,206
Income on securities loaned, net 8,882
---------
Total investment income $ 187,720
---------
EXPENSES:
Management fees $ 99,091
Transfer agent fees and expenses 7,715
Distribution fees (Class II) 24,684
Administrative reimbursements 18,512
Custodian fees 26,871
Professional fees 33,845
Printing expense 17,234
Fees and expenses of nonaffiliated trustees 3,901
Miscellaneous 2,955
---------
Total expenses $ 234,808
Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (47,244)
Less fees paid indirectly (139)
---------
Net expenses $ 187,425
---------
Net investment income $ 295
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain from investments $ 167,549
---------
Change in net unrealized gain or loss from investments $ 39,771
---------
Net gain on investments, futures contracts and foreign currency transactions $ 207,320
=========
Net increase in net assets resulting from operations $ 207,615
=========
The accompanying notes are an integral part of these financial statements. 11
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Year
Ended Ended
12/31/05 12/31/04
FROM OPERATIONS:
Net investment income (loss) $ 295 $ (46,684)
Net realized gain on investments 167,549 2,015,360
Change in net unrealized gain or loss on investments, futures contracts and foreign
currency transactions 39,771 (384,806)
------------ ------------
Net increase in net assets resulting from operations $ 207,615 $ 1,583,870
------------ ------------
DISTRIBUTIONS TO SHAREOWNERS:
Net realized gain
Class I $ (336,596) $ --
Class II (1,039,487) --
------------ ------------
Total distributions to shareowners $ (1,376,083) $ --
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 1,818,697 $ 4,450,765
Reinvestment of distributions 1,363,305 --
Cost of shares repurchased (2,867,211) (3,135,048)
------------ ------------
Net increase in net assets resulting from Fund share transactions $ 314,791 $ 1,315,717
------------ ------------
Net increase in net assets $ (853,677) $ 2,899,587
------------ ------------
NET ASSETS:
Beginning of year $ 13,870,116 $ 10,970,529
------------ ------------
End of year $ 13,016,439 $ 13,870,116
============ ============
Undistributed net investment income, end of year $ 1,307 $ --
============ ============
12 The accompanying notes are an integral part of these financial statements.
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer Small Company VCT Portfolio (the Portfolio) is a Portfolio of
Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust
registered under the Investment Company Act of 1940 as an open-end management
investment company. The Trust consists of twenty-nine separate diversified
portfolios, fourteen of which issue both Class I and Class II shares
(collectively, the "Portfolios", individually the "Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares only)
The investment objective of Small Company Portfolio is to seek capital
appreciation.
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts or by
qualified pension and retirement plans.
The financial highlights for the Portfolio's Class I shares are presented in a
separate book.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
periods. Actual results could differ from those estimates.
Information concerning the Portfolio's principal investment risks is contained
in the Portfolio's prospectus(es). Please refer to those documents when
considering the Portfolio's risks. Investing in small companies may offer the
potential for higher returns, but are also subject to greater short-term price
fluctuations than larger, more established companies.
The following is a summary of significant accounting policies consistently
followed by the Portfolio, in the preparation of its financial statements which
are consistent with those generally accepted in the investment company
industry:
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the portfolio are computed once
13
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
daily, on each day the New York Stock Exchange (NYSE) is open, as of the
close of regular trading on the NYSE. In computing the net asset values,
securities are valued at the last sale price on the principal exchange
where they are traded. Securities that have not traded on the date of
valuation, or securities for which sale prices are not generally reported,
are valued at the mean between the last bid and asked prices. Securities
for which market quotations are not readily available are valued at their
fair values as determined by, or under the direction of, the Board of
Trustees. The Portfolio also may use the fair value of a security,
including a non-U.S. security, when the closing market price on the primary
exchange where the security is traded no longer accurately reflects the
value of the security as of the close of the NYSE. At December 31, 2005,
there were no fair valued securities. Temporary cash investments are valued
at amortized cost.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities where the ex-dividend date may have
passed are recorded as soon as the Portfolio becomes aware of the
ex-dividend data in the exercise of reasonable diligence. Interest income,
including interest on income bearing cash accounts, is recorded on the
accrual basis.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes withheld on capital
gains at the applicable country rates.
Small capitalization stocks, while offering the potential for higher
returns, such as those in the portfolio may be subject to greater
short-term price fluctuations than securities of larger companies.
B. Futures Contracts
The Portfolio may enter into futures transactions to hedge against changes
in interest rates, securities prices, and currency rates or to seek to
increase total return. Upon entering into a futures contract, the Portfolio
is required to deposit with a broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the associated futures
exchange. Subsequent payments for futures contracts ("variation margin")
are paid or received by the Portfolio, depending on the daily fluctuation
in the value of the contracts, and are recorded by the Portfolio as
unrealized gains or losses. When the contract is closed, the Portfolio
realize a gain or loss equal to the difference between the opening and
closing value of the contract. The use of futures contracts involves, to
varying degrees, elements of market risk which may exceed the amounts
recognized by the Portfolio. Changes in the value of the contracts may not
directly correlate to the changes in the value of the underlying
securities. These risks may decrease the effectiveness of the Portfolio's
hedging and trading strategies and potentially result in a loss. As of
December 31, 2005, Small Company Portfolio had no open contracts.
C. Foreign Currency Translation
The books and records of the Portfolio are maintained in U.S. dollars.
Amounts denominated in foreign currencies are translated into U.S. dollars
using current exchange rates.
Net realized gains and losses on foreign currency transactions represent,
the net realized gains and losses on foreign currency contracts,
disposition of foreign currencies, and the difference between the amount of
income accrued and the U.S. dollars actually received. Further, the effects
of changes in foreign currency exchange rates on investments are not
segregated in the statement of operations from the effects of changes in
market price of those securities but are included with the net realized and
unrealized gain or loss on investments.
D. Forward Foreign Currency Contracts
The Portfolio enters into forward foreign currency contracts (contracts)
for the purchase or sale of a specific foreign currency at a fixed price on
a future date as a hedge or cross-hedge against either specific investment
transactions (settlement hedges) or portfolio positions (portfolio hedges).
All contracts are marked to market daily at the applicable exchange rates,
and any resulting unrealized gains or losses are recorded in the
Portfolio's financial statements. The Portfolio records realized gains and
losses at the time a portfolio hedge is offset by entry into a closing
transaction or extinguished by delivery of the currency. Risks may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of the contract and from unanticipated
movements in the value of foreign currencies relative to the U.S. dollar.
E. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
14
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Small Company VCT Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal
income tax rules. Therefore, the source of each Portfolio's distributions
may be shown in the accompanying financial statements as either from or in
excess of net investment income or net realized gain on investment
transactions, or from paid-in capital, depending on the type of book/tax
differences that may exist.
At December 31, 2005, the Portfolio made reclassifications as described
below. These reclassifications have no impact on the net asset value of the
Portfolio and are designed to present the Portfolio's capital accounts on a
tax basis.
- -----------------------------------------------------------------------------------------------------
Undistributed Net
Investment Income Accumulated Net Paid-In
(Loss) Realized Gain (Loss) Capital
- -----------------------------------------------------------------------------------------------------
Pioneer Small Company VCT Portfolio $1,012 $11,033 $(12,045)
- -----------------------------------------------------------------------------------------------------
The following chart shows the distributions paid during the fiscal years
ended December 31, 2005 and 2004 and the components of distributable
earnings (accumulated losses) as of December 31, 2005, on a tax basis.
- --------------------------------------------------------------------------------
2005 2004
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $ -- $ --
Long-term capital gain 1,376,083 --
---------- ----------
$1,376,083 $ --
Return of Capital -- --
---------- ----------
Total distributions $1,376,083 $ --
========== ==========
Distributable Earnings (Accumulated Losses):
Undistributed ordinary income $ 918
Undistributed long-term gain/(capital loss
carryforward) 124,956
Unrealized appreciation (depreciation) 933,120
----------
Total $1,058,994
==========
- --------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation is
primarily attributable to the tax deferral of losses on wash sales.
F. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Trust and a wholly owned indirect subsidiary
of UniCredito Italiano S.p.A. (UniCredito Italiano), $638,021 in
commissions on the sale of Trust shares for the year ended December 31,
2005. Distribution fees for Class II Shares are calculated based on the
average daily net asset values attributable to Class II shares of the
Portfolio.
Shareowners of each class share all expenses and fees paid to the transfer
agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS),
for its services, which are allocated based on the number of accounts in
each class and the ratable allocation of related out-of-pocket expenses
(see Note 3). Income, common expenses (excluding transfer agent and
distribution fees) and realized and unrealized gains and losses are
calculated at the Portfolio level and allocated daily to each class of
shares based on the respective percentage of the adjusted net assets at the
beginning of the day. Distributions paid by the Portfolio with respect to
each class of shares are calculated in the same manner, at the same time,
and in the same amount, except that Class I and Class II shares can bear
different transfer agent and distribution fees. Dividends and distributions
to shareowners are recorded on the ex-dividend date.
15
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
G. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees. The Portfolio also continues to receive
payments in lieu of interest or dividends on the securities loaned. Gain or
loss in the fair value of the securities loaned that may occur during the
term of the loan, will be for the account of the Portfolio. The loans are
secured by collateral of at least 102%, at all times, of the fair value of
the securities loaned. The fair value of the collateral will be adjusted
daily to reflect any price fluctuation in the value of the loaned
securities. The Portfolio has the right under the lending agreement to
recover the securities on loan from the borrower on demand. The Portfolio
invests cash collateral in the Securities Lending Investment Fund which is
sponsored by Brown Brothers Harriman & Co., the Portfolio's custodian.
H. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano, manages the
portfolio. Management fees are calculated daily at the annual rate of 0.75% of
the Portfolio's average daily net assets.
Through May 1, 2006, PIM has agreed not to impose a portion of its management
fees and to limit other operating expenses to the extent required to limit
expenses of Class I shares to 1.25% of the average daily net assets
attributable to Class I shares; the portion of portfolio expenses attributable
to Class II shares will be reduced only to the extent such expenses are reduced
for Class I shares.
In addition, under the management and administration agreements, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $3,662 was payable
to PIM related to management fees, administrative fees and certain other
services, and is included in due to affiliates.
3. Transfer Agent
PIMSS, a wholly owned indirect subsidiary of UniCredito Italiano provides
substantially all transfer agent and shareowner services to the Trust at
negotiated rates. Included in due to affiliates is $3,942 in transfer agent
fees payable to PIMSS at December 31, 2005.
4. Distribution Plans
The Portfolio has adopted a plan of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with the Portfolio's Class
II shares. Included in due to affiliates is $2,162 payable to PFD at December
31, 2005.
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- ----------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- ----------------------------------------------------------------------------------------------
Small Company Portfolio $13,022,623 $1,568,897 $ (635,777) $933,120
=========== ========== =========== ========
- ----------------------------------------------------------------------------------------------
16
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were $8,231,411 and $9,545,681, respectively.
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Small Company Portfolio '05 Shares '05 Amount '04 Shares '04 Amount
- ------------------------------------------------------------------------------------------
CLASS I:
Shares sold 28,888 $ 341,646 56,890 $ 670,369
Reinvestment of distributions 28,887 323,819 -- --
Shares repurchased (72,370) (872,188) (103,931) (1,215,329)
-----------------------------------------------------
Net increase (14,595) $ (206,723) (47,041) $ (544,960)
=====================================================
CLASS II:
Shares sold 122,621 $ 1,477,051 320,212 $ 3,780,396
Reinvestment of distributions 93,902 1,039,486 -- --
Shares repurchased (169,970) (1,995,023) (160,864) (1,919,719)
------------------------------------------------------
Net increase 46,553 $ 521,514 159,348 $ 1,860,677
=====================================================
- ------------------------------------------------------------------------------------------
17
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust and
the Shareowners of Pioneer Small Company VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer Small Company VCT Portfolio, one of the
portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), as
of December 31, 2005, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audit. The financial highlights for the year ended December 31, 2001 was
audited by other auditors who have ceased operations and whose report, dated
February 8, 2002, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005, by correspondence
with the custodian and brokers or by other appropriate auditing procedures
where replies from brokers were not received. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer Small Company VCT Portfolio of the Pioneer Variable Contracts Trust at
December 31, 2005, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and financial highlights for each of the four years in the period then ended,
in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
18
Pioneer Small Company VCT Portfolio (the "Fund")
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING
THE MANAGEMENT CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one and three year periods for the
Fund and a peer group selected by the Independent Trustees for this purpose,
(2) management fees incurred by a peer group of funds selected by the
Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's
19
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and an index,
in each case selected by the Independent Trustees for this purpose. The
Fund's performance based upon total return was in the fifth quintile of the
peer group for the 12 months ended June 30, 2005 and the fifth quintile for
the three year period ended June 30, 2005. (In all quintile rankings
referred to throughout this discussion first quintile is most favorable to
the Fund's shareholders. Thus, highest relative performance would be first
quintile and lowest relative expenses also would be fifth quintile.)
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's equities group. Among other things, the Trustees
considered the number, education and experience of the Investment Adviser's
investment staff and their use of technology and emphasis on analytics in
view of the risk profile of securities in which the Fund invests. The
Trustees concluded that the Investment Adviser had the quality and depth of
personnel and the well-developed methods essential to performing its duties
under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 was in the first
quintile relative to the management fees paid by the other funds in that
peer group for the comparable period. The Trustees determined that the fee
under the Management Contract was reasonable and fair in light of both the
overall nature and quality of services provided by the Investment Adviser
and the fees charged by the funds in the peer group. The Trustees also
considered the Fund's expense ratio and expense ratios of a peer group of
funds selected by the Independent Trustees for this purpose. The Fund's
expense ratio (before and after giving effect to the expense limitation) for
the 12 months ended June 30, 2005 was in the fifth quintile of the
applicable peer group for the most recent fiscal year of the peer group for
the comparable period.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there is potential for
realization of any further economies of scale. The Trustees concluded that,
given current and anticipated asset levels, break points in the management
fees were not necessary at this time. As assets increase, the Trustees would
continue to evaluate annually the appropriateness of break points.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and
20
Pioneer Small Company VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
payments under Rule 12b-1 plans in respect to the Pioneer Funds (including
the Fund), and benefits to the Investment Adviser from the use of "soft"
commission dollars to pay for research services. The Trustees further
considered the revenues and profitability of the Investment Adviser's
businesses other than the fund business, including the Investment Adviser's
institutional investment advisory business. The Trustees considered the
intangible benefits that accrue to the Investment Adviser and its affiliates
by virtue of its relationship with the Fund and the Pioneer Funds as a
group. The Trustees concluded that all these types of benefits accruing to
the Investment Adviser were reasonable in the context of the overall
relationship between the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
21
Pioneer Small Company VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
22
Pioneer Small Company VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held
Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance
or earlier services company) (2001-present); company); Director of New York
retirement or Managing Partner, Federal City Mortgage Trust (publicly traded
removal. Capital Advisors (boutique merchant mortgage REIT)
bank) (2002 to 2004); Executive
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products
or earlier manufacturer), Mortgage Guaranty
retirement or Insurance Corporation, and Briggs
removal. & Stratton, Inc. (engine
manufacturer)
- ----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
23
Pioneer Small Company VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
24
Pioneer Small Company VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, None
Treasurer 2000. Serves at the Assistant Vice President - Fund
discretion of the Accounting, Administration and
Board. Custody Services of Pioneer; and
Assistant Treasurer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ---------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ---------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
25
[LOGO] PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company, Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18668-00-0206
[LOGO] PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Strategic Income VCT Portfolio -- Class II Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table of Contents
- -----------------------------------------------------------------------
Pioneer Strategic Income VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 5
Financial Statements 17
Notes to Financial Statements 21
Report of Independent Registered Public
Accounting Firm 26
Factors Considered by the Independent Trustees in
Approving the Management Contract 27
Trustees, Officers and Service Providers 30
Before investing consider the fund's investment objectives, risks, charges and
expenses. Contact your advisor or Pioneer Investments for a prospectus
containing this information. Read it carefully.
The Trust files a complete statement of investments with the Securities and
Exchange Commission for the first and the third quarters for each fiscal year
on Form N-Q. Shareowners may view the filed Form N-Q by visiting the
Commission's web site at http://www.sec.gov. The filed form may also be viewed
and copied at the Commission's Public Reference Room in Washington, D.C.
Information regarding the operations of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Corporate Bonds 45.0%
U.S. Government Securities 41.3%
Foreign Government Bonds 7.9%
Asset Backed Securities 2.9%
Municipal Bonds 1.0%
Temporary Cash Investment 0.9%
Collateralized Mortgage Obligations 0.7%
Convertible Corporate Bonds 0.3%
Maturity Distribution
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
0-1 year 7.6%
1-3 years 15.3%
3-4 years 15.8%
4-6 years 39.9%
6-8 years 14.3%
8+ years 7.1%
Five Largest Holdings
(As a percentage of long-term holdings)
1. U.S. Treasury Inflation
Protected Security,
3.5%, 1/15/11 6.54%
2. U.S. Treasury Bonds,
5.25%, 11/15/28 2.54
3. U.S. Treasury Strip,
0.0%, 11/15/13 2.21
4. U.S. Treasury Inflation
Protected Security,
3.0%, 7/15/12 1.53
5. Federal Home Loan Mortgage
Corp., 4.5%, 4/1/20 1.44
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $10.76 $11.26
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$0.6128 $0.0045 $0.1523
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Strategic Income VCT Portfolio at net asset value, compared to that of the
Lehman Brothers U.S. Universal Index. Portfolio returns are based on net asset
value and do not reflect any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Strategic Lehman Brothers
Income VCT Portfolio U.S. Universal Index
7/99 $10,000 $10,000
$10,060 $10,136
$10,488 $11,234
12/01 $11,184 $12,144
$12,352 $13,338
12/03 $15,073 $14,117
$16,574 $14,817
12/05 $16,986 $15,219
Index comparison begins July 31, 1999. The Lehman Brothers U.S. Universal Index
is the union of the U.S. Aggregate Index, the U.S. High Yield Corporate Index,
the 144A Index, the Eurodollar Index, the Emerging Markets Index, the non-ERISA
portion of the CMBS Index and the CMBS High Yield Index. Municipal debt,
private placements and non-dollar-denominated issues are excluded from the
Index. Index returns are calculated monthly, assume reinvestment of dividends
and, unlike Portfolio returns, do not reflect any fees, expenses or sales
charges. You cannot invest directly in the Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Life-of-Class 8.59%
(7/29/99)
5 Years 10.12%
1 Year 2.49%
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charges. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
2
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value [divided by] $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Strategic Income VCT Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II
----------------------------------------------------------------
Beginning Account Value on 7/1/05 $1,000.00
Ending Account Value on 12/31/05 $1,009.36
Expenses Paid During Period* $ 5.77
* Expenses are equal to the Portfolio's annualized expense ratio of 1.14% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer Strategic Income VCT Portfolio
Based on a hypothetical 5% return per year before expenses, reflecting the
period from July 1, 2005 through December 31, 2005.
Share Class II
----------------------------------------------------------------
Beginning Account Value on 7/1/05 $1,000.00
Ending Account Value on 12/31/05 $1,019.46
Expenses Paid During Period* $ 5.80
* Expenses are equal to the Portfolio's annualized expense ratio of 1.14% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
Most sectors in the fixed income market produced positive, if modest, results
during 2005. The most noteworthy exception to this overall trend was in
emerging market debt, which outperformed other parts of the global bond markets
as the worldwide recovery persisted. Within the U.S., rising interest rates for
bonds of most maturities caused some price erosion, although not enough to
erase the positive benefits of income produced by bonds. In the following
interview, Kenneth J. Taubes discusses the factors that influenced the
Strategic Income Portfolio's performance during the 12 months. Mr. Taubes,
Director of Pioneer's Fixed Income Group, oversees the team responsible for the
daily management of the Portfolio.
Q: How did the Portfolio perform during the 12 months ended December 31, 2005?
A: The Portfolio performed relatively well. Strategic Income Portfolio Class II
Shares had a total return of 2.49% at net asset value for the year. During
the same 12 months, the benchmark Lehman U.S. Universal Bond Index returned
2.61%. The Portfolio also continued to deliver a competitive stream of
income. On December 31, 2005, the SEC standardized 30-day yield for Class
II shares was 4.69%.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q: How would you describe the overall investment environment during the year?
A: Against a backdrop of persistent economic growth, the Federal Reserve Board
continued to tighten monetary policy in the United States. The central bank
raised the key fed funds rate eight different times during the period as
the rate rose from 2.25% to 4.25% by the end of 2005. While the rate hikes
were widely expected, they nevertheless had an impact on the financial
markets. Yields on securities of most maturities rose, and prices declined.
That affected, for example, two-year, five-year and 10-year Treasuries. The
principal exception was the 30-year Treasury bond, where the yields
actually declined. Over the year, the difference between the yields of
shorter- and longer-term securities grew smaller, which means the yield
curve flattened. At year's end, the yield curve had inverted in some
places. This phenomenon, when interest rates of shorter maturity securities
become higher than some longer maturity securities, is a reversal of the
usual relationships. Because of the flattening yield curve, performance of
fixed income portfolios was heavily influenced by the distribution of
maturities in the portfolio. Intermediate term bonds - those in the middle
of the yield curve - tended to perform relatively poorly. Corporate bonds
delivered modestly positive results, with both investment grade and high
yield producing similar results on a total return basis. The primary
difference was that high yield bonds tended to lose more principal,
although the higher income of those lower-rated securities made up the
difference on a total return basis. Mortgages generally outperformed
corporate bonds as well as Treasuries, as they offered relatively good
yield with less principal loss than other sectors.
High yield corporate bonds from developed nations, in local currencies,
outperformed U.S. high yield debt, but returns were eroded by the strength
of the dollar. Helped by a yield advantage of U.S. short-term securities
over comparable maturity debt from other countries, the U.S. dollar
appreciated more than 10% against major foreign currencies during 2005.
Emerging market securities were by far the best-performing part of the fixed
income market. Benchmarks for emerging market debt were about 12% for the
year, as the continuing global economic recovery raised commodity prices,
including oil and other basic materials, supporting the economies of many
developing nations.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Portfolio's historical or future performance are
statements of the opinion of Portfolio management as of the date of this
report. These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
A Word About Risk:
When interest rates rise, the prices of fixed-income securities in the
Portfolio will generally fall. Conversely, when interest rates fall the prices
of fixed-income securities in the Portfolio will generally rise. Investments in
the Portfolio are subject to possible loss due to the financial failure of
underlying securities and their inability to meet their debt obligations.
Prepayment risk is the chance that mortgage-backed bonds will be paid off early
if falling interest rates prompt homeowners to refinance their mortgages.
Forced to reinvest the unanticipated proceeds at lower interest rates, the
Portfolio would experience a decline in income and lose the opportunity for
additional price appreciation associated with falling interest rates. The
securities issued by U.S. Government sponsored entities (i.e., FNMA, Freddie
Mac) are neither guaranteed nor issued by the U.S. Government. The Portfolio
may invest in mortgage-backed securities, which during times of fluctuating
interest rates may increase or decrease more than other fixed-income
securities. Mortgage-Backed securities are also subject to pre-payments.
Investments in high yield or lower-rated securities are subject to
greater-than-average risk. Investing in foreign and/or emerging markets
securities involves risks relating to interest rates, currency exchange rates,
economic, and political conditions. At times, the Portfolio's investments may
represent industries or industry sectors that are interrelated or have common
risks, making it more susceptible to any economic, political, or regulatory
developments or other risks affecting those industries and sectors.
4
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Q: What types of investments most influenced Portfolio performance?
A: We continued to maintain a well-diversified portfolio and our investments in
emerging market debt had a substantial positive impact on results. We
typically had about 12% of Portfolio assets invested in developing nation
securities. They were a primary contributor to results. We also had a
healthy allocation to investment-grade corporate and government bonds
denominated in major foreign currencies. They accounted for about 11% of
Portfolio assets at year-end. While those securities outperformed
comparable U.S. debt in their local currencies, the effect of the
strengthening of the U.S. dollar held back the final results to the
Portfolio. However, we did hedge part of our foreign currency exposure,
partially easing the effects of the dollar's appreciation on Portfolio
performance.
Within the U.S., we tended to focus on securities with a yield advantage. In
investing in government debt, we favored mortgages over Treasuries, and that
helped performance. On December 31, 2005, approximately 22.3% of Portfolio
assets were invested in mortgage-backed securities, 18.2% invested in
Treasuries, with a growing allocation to Treasury Inflation-Protected
Securities (TIPS) that tended to perform well. In addition, we were well
positioned on the yield curve, with a greater emphasis on higher-yielding,
longer-maturity bonds that outperformed intermediates. Although we upgraded
overall credit quality during the year and reduced our investment in
domestic high-yield corporate bonds, we still maintained a healthy
allocation to this sector, which comprised about 25.5% of Portfolio assets
on December 31, 2005, compared to 29.3% one year earlier.
Overall, average credit quality stood at A- at the end of 2005. Effective
duration - a measure of sensitivity to changes in interest rates - was 4.72
years on December 31, 2005, while the average maturity of Portfolio holdings
was 6.75 years.
Individual contributors to performance included bonds issued by:
UnumProvident, a major disability insurer that underwent a successful
restructuring; J. Ray McDermott, an oil and gas drilling company; and VALE
Overseas, the Brazilian company which is the world's largest iron mine
operator and which announced a tender offer for part of its high-yield debt.
While we underweighted bonds of the poor-performing automotive industry
within our domestic portfolio, we did own bonds issued by Delphi, the major
auto components company that filed for bankruptcy protection. We have sold
that position. However, we have retained a position in another disappointing
investment, bonds of Northwest Airlines, which also filed for bankruptcy
during 2005.
Q: What is your investment outlook?
A: We expect to continue to upgrade the overall credit quality of our Portfolio
while keeping it well-diversified to take advantage of opportunities
throughout the world. Overall, economic growth may continue, but values of
debt securities could be less attractive than last year.
The continued dynamic expansion of the economy in China should drive the
growth of emerging markets throughout the globe as well as in Asia, which
could also be affected by recovery in Japan. This could be felt most in
countries rich in commodities such as iron, copper, nickel and oil. However,
emerging market bonds do not offer compelling values, as their prices
already reflect an optimistic outlook. Interest rates offered by foreign,
high-yield corporate bonds also are not as attractive as they were earlier
in light of their strong performance in local currencies over the year.
However, we think the U.S. dollar may begin to weaken again against foreign
currencies, which could improve the returns available to U.S.-based
investors in foreign corporate and government bonds.
Within the U.S., we expect that the pace of economic growth may slow in
2006, but the economy should continue to expand. The Federal Reserve Board
may continue to raise short-term rates in the early part of the year, but we
do not anticipate that monetary policy will become so restrictive as to push
the economy into recession.
At a time when spreads - or the differences between yields - are tight
between yields of fixed income securities of different credit quality, we
expect to continue to upgrade overall credit quality. We anticipate
maintaining an emphasis on mortgage-backed securities over corporate bonds.
Within our Treasury holdings, we expect to continue to focus on TIPS.
Increased corporate merger-and-acquisition activity poses a potential threat
to holders of investment grade, corporate bonds, as many merger deals
benefit shareholders more than bondholders.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
5
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
CONVERTIBLE CORPORATE BONDS - 0.3%
Semiconductors - 0.3%
Semiconductor Equipment - 0.3%
170,000 NR/NR Brooks Automation, Inc., 4.75%, 6/1/08 $ 163,413
-----------
Total Semiconductors $ 163,413
-----------
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost $155,654) $ 163,413
-----------
ASSET BACKED SECURITIES - 2.7%
Diversified Financials - 1.0%
Consumer Finance - 0.0%
DKK 27,955 AA+/Aa1 Realkredit Danmark, 7.0%, 10/1/32 $ 4,766
-----------
Diversified Financial Services - 1.0%
277,230 BB-/Ba2 Caithness Coso Fund Corp., 6.263%, 6/15/14 (144A) $ 282,897
195,478 BBB-/Baa2 PF Export Receivable Master Trust, 6.436%, 6/1/15 (144A) 195,177
151,798 BBB/Baa2 Power Receivables Finance, 6.29%, 1/1/12 (144A) 154,309
-----------
$ 632,383
-----------
Total Diversified Financials $ 637,149
-----------
Utilities - 1.7%
Electric Utilities - 1.7%
174,150 BBB-/Baa3 Empresa Electric, 8.625%, 4/30/13 (144A) $ 195,128
339,690 BB-/Ba2 FPL Energy Wind Funding, 6.876%, 6/27/17 (144A) 339,265
392,644 NR/NR Ormat Funding Corp., 8.25%, 12/30/20 396,571
84,715 B+/B1 Tenaska Alabama, Floating Rate Note, 6/30/21 (144A) (b) 85,226
-----------
$ 1,016,190
-----------
Total Utilities $ 1,016,190
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $1,640,571) $ 1,653,339
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.7%
Diversified Financials - 0.7%
Diversified Financial Services - 0.7%
160,000 BBB-/Baa3 Tower 2004-1A E, 5.395%, 1/15/34 $ 153,941
265,000 NR/Ba2 Tower 2004-2A F, 6.376%, 12/15/14 264,266
-----------
$ 418,207
-----------
Total Diversified Financials $ 418,207
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $425,000) $ 418,207
-----------
CORPORATE BONDS - 43.0%
Energy - 5.1%
Coal & Consumable Fuels - 0.5%
283,924 BBB-/NR Indocoal Exports Cayman, 7.134%, 7/6/12 (144A) $ 283,214
-----------
Oil & Gas Equipment & Services - 1.2%
350,000 CCC+/Caa1 J. Ray McDermott SA, 11.0%, 12/15/13 (144A) $ 413,000
170,000 B-/B2 Targa Resources, Inc., 8.5%, 11/1/13 (144A) 175,321
150,000 B+/B1 Semgroup LP, 8.75%, 11/15/15 (144A) 153,375
-----------
$ 741,696
-----------
6 The accompanying notes are an integral part of these financial statements.
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
Oil & Gas Exploration & Production - 3.1%
70,000 B+/B1 Atlas Pipeline Partners, 8.125%, 12/15/15 (144A) $ 70,613
210,000 B-/B3 Baytex Energy, Ltd., 9.625%, 7/15/10 220,500
200,000 B-/B3 Clayton Williams Energy, 7.75%, 8/1/13 192,000
145,000 B/B2 Compton Petroleum Corp., 7.625%, 12/1/13 (144A) 148,263
75,000 B-/B3 Delta Petroleum Corp., 7.0%, 4/1/15 69,187
500,000 BBB-/Baa3 Gazprom International SA, 7.201%, 2/1/20 (144A) 534,250
ITL 275,000,000 BBB-/Baa2 Petroleos Mexicanos, 7.375%, 8/13/07 178,603
300,000 CCC+/Caa1 Petroquest Energy, Inc., 10.375%, 5/15/12 313,500
200,000 B+/B2 Stone Energy Corp., 6.75%, 12/15/14 189,500
-----------
$ 1,916,416
-----------
Oil & Gas Storage & Transporation - 0.3%
176,000 B/B3 Transmontaigne, Inc., 9.125%, 6/1/10 $ 172,920
-----------
Total Energy $ 3,114,246
-----------
Materials - 8.2%
Aluminum - 0.8%
370,000 BB/Ba3 Asia Aluminum Holdings, 8.0%, 12/23/11 (144A) $ 361,213
140,000 B/B1 Novelis, Inc., 7.25%, 2/15/15 130,550
-----------
$ 491,763
-----------
Commodity Chemicals - 1.0%
110,000 BB-/B1 Arco Chemical Co., 9.8%, 2/1/20 $ 123,475
125,000 CCC+/B3 Aventine Renewable Energy, Floating Rate Note, 12/15/11 (b) 129,375
300,000 B+/B1 Invista, 9.25%, 5/1/12 (144A) 320,250
-----------
$ 573,100
-----------
Diversified Chemical - 0.7%
100,000 BB-/Ba3 Braskem International, Ltd., 9.375%, 6/1/15 (144A) $ 110,000
150,000 BB+/NR LPG International, Inc., 7.25%, 12/20/15 (144A) 148,050
EURO 145,000 B-/B2 Nell AF Sarl, 8.375%, 8/15/15 (144A) 174,138
-----------
$ 432,188
-----------
Diversified Metals & Mining - 1.5%
200,000 B+/B1 Freeport-McMoran Copper & Gold, 6.875%, 2/1/09 $ 202,000
400,000 NR/Ba1 Vale Overseas, Ltd., 8.25%, 1/17/34 460,500
280,000 BB+/Ba2 Vedenta Resources Plc, 6.625%, 2/22/10 (144A) 272,393
-----------
$ 934,893
-----------
Forest Products - 1.2%
505,000 B+/B1 Ainsworth Lumber, 6.75%, 3/15/14 $ 433,038
290,000 BB-/Ba2 Sino Forest Corp., 9.125%, 8/17/11 (144A) 311,025
-----------
$ 744,063
-----------
Metal & Glass Containers - 0.2%
130,000 BB-/B1 Greif Brothers Corp., 8.875%, 8/1/12 $ 138,450
-----------
Paper Packaging - 0.3%
160,000 CCC+/Caa2 Graham Packaging Co., 9.875%, 10/15/14 $ 156,000
-----------
The accompanying notes are an integral part of these financial statements. 7
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
Paper Products - 0.5%
100,000 BB-/Ba3 Abitibi-Consolidated, Inc., 6.0%, 6/20/13 $ 84,750
200,000 BB-/Ba3 Bowater, Inc., 6.5%, 6/15/13 179,000
55,000 B/Caa1 Mercer International, Inc., 9.25%, 2/15/13 46,338
-----------
$ 310,088
-----------
Specialty Chemicals - 1.5%
130,000 BBB-/Baa3 Basell Finance Co., 8.1%, 3/15/27 (144A) $ 118,950
350,000 B-/Caa2 Crystal US Holdings, Inc., Floating Rate Note, 10/1/14 (b) 255,500
300,000 BB/Ba1 Ferro Corp., 7.125%, 4/1/28 305,171
25,000 BB/Ba1 Ferro Corp., 7.625%, 5/1/13 25,527
EURO 140,000 CCC+/B3 Rhodia SA, 8.0%, 6/1/10 173,931
EURO 45,000 CCC+/Caa1 Rhodia SA, 9.25%, 6/1/11 56,705
-----------
$ 935,784
-----------
Steel - 0.4%
105,000 BB/Ba2 International Steel Group, 6.5%, 4/15/14 $ 105,000
135,000 BBB/Ba1 Ispat Inland ULC, Floating Rate Note, 4/1/10 (b) 140,400
-----------
$ 245,400
-----------
Total Materials $ 4,961,729
-----------
Capital Goods - 3.7%
Building Products - 2.1%
355,000 B-/B3 Builders Firstsource, Inc., Floating Rate Note, 2/15/12 (b) $ 361,213
180,000 BB-/B1 Caue Finance, Ltd., 8.875%, 8/1/15 (144A) 196,200
250,000 BB-/Ba3 Desarrolladora Homex SA, 7.5%, 9/28/15 (144A) 245,625
195,000 B+/B2 Resolution Perform Production, 8.0%, 12/15/09 198,900
275,000 B-/B3 U.S. Concrete, Inc., 8.375%, 4/1/14 274,313
-----------
$ 1,276,251
-----------
Construction & Engineering - 0.3%
160,000 B+/Ba2 Dycom Industries, 8.125%, 10/15/15 (144A) $ 160,000
-----------
Construction, Farm Machinery & Heavy Trucks - 0.3%
70,000 B-/B3 American Rock Salt Co., 9.5%, 3/15/14 $ 70,700
115,000 BB-/Ba3 Navistar International, 6.25%, 3/1/12 102,924
-----------
$ 173,624
-----------
Industrial Machinery - 0.3%
150,000 B/B2 Gardner Denver, Inc., 8.0%, 5/1/13 (144A) $ 157,500
53,000 B/B3 JLG Industries, Inc., 8.375%, 6/15/12 55,915
-----------
$ 213,415
-----------
Trading Companies & Distributors - 0.7%
475,000 BB+/Ba1 Noble Group, Ltd., 6.625%, 3/17/15 (144A) $ 437,421
-----------
Total Capital Goods $ 2,260,711
-----------
Commercial Services & Supplies - 1.8%
Diversified Commercial Services - 1.2%
205,000 B+/Ba2 FTI Consulting, 7.625%, 6/15/13 (144A) $ 211,150
290,000 CCC+/Caa1 Park-Ohio Industries, Inc., 8.375%, 11/15/14 253,750
275,000 B+/B2 United Rentals NA, Inc., 7.75%, 11/15/13 268,125
-----------
$ 733,025
-----------
8 The accompanying notes are an integral part of these financial statements.
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
Environmental & Facilities Services - 0.6%
130,000 B/B3 Clean Harbors, Inc., 11.25%, 7/15/12 (144A) $ 146,250
240,000 B-/Caa1 Hydrochem Industrial Service, 9.25%, 2/15/13 (144A) 230,400
-----------
$ 376,650
-----------
Total Commercial Services & Supplies $ 1,109,675
-----------
Transportation - 3.6%
Air Freight & Couriers - 0.2%
130,000 BB-/B1 Petroleum Helicopters, 9.375%, 5/1/09 $ 136,988
-----------
Airlines - 0.4%
85,000 CCC/Caa2 AMR Corp., 9.8%, 10/1/21 $ 63,538
150,000 B/B3 Continental Air, Inc., 7.568%, 12/1/06 147,797
-----------
$ 211,335
-----------
Airport Services - 0.1%
55,000 B-/Caa1 K&F Acquisition, Inc., 7.75%, 11/15/14 $ 55,688
-----------
Marine - 1.9%
NOK 3,530,000 NR/NR Kvaerner ASA, 0.0%, 10/30/11 $ 531,993
325,000 B/B2 Ship Finance International, Ltd., 8.5%, 12/15/13 303,875
315,000 BB-/Ba3 Stena AB, 7.0%, 12/1/16 288,225
40,000 B-/B3 Trailer Bridge, Inc., 9.25%, 11/15/11 41,150
-----------
$ 1,165,243
-----------
Railroads - 0.5%
210,000 CCC+/B3 Atlantic Express Transport, 12.0%, 4/15/08 $ 182,700
130,000 B+/B2 TFM SA De CV, 9.375%, 5/1/12 (144A) 142,350
-----------
$ 325,050
-----------
Trucking - 0.5%
320,000 B+/B1 Greenbrier Co., Inc., 8.375%, 5/15/15 $ 326,400
-----------
Total Transportation $ 2,220,704
-----------
Automobiles & Components - 0.9%
Auto Parts & Equipment - 0.4%
130,000 B+/Ba3 Commercial Vehicle Group, 8.0%, 7/1/13 $ 128,700
125,000 B+/Ba2 Sun Sage BV, 8.25%, 3/26/09 (144A) 131,718
-----------
$ 260,418
-----------
Tires & Rubber - 0.5%
280,000 B-/B3 Goodyear Tire & Rubber, 9.0%, 7/1/15 (144A) $ 276,500
-----------
Total Automobiles & Components $ 536,918
-----------
Consumer Durables & Apparel - 1.1%
Footwear - 0.3%
153,000 BB-/B1 Brown Shoe Co., Inc., 8.75%, 5/1/12 $ 159,885
-----------
Homebuilding - 0.8%
148,000 BB-/Ba3 Meritage Homes Corp., 6.25%, 3/15/15 $ 134,680
250,000 B+/Ba3 WCI Communities, Inc., 6.625%, 3/15/15 217,500
150,000 B+/Ba3 WCI Communities, Inc., 7.875%, 10/1/13 141,375
-----------
$ 493,555
-----------
Total Consumer Durables & Apparel $ 653,440
-----------
The accompanying notes are an integral part of these financial statements. 9
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
Consumer Services - 0.2%
Hotels, Resorts & Cruise Lines - 0.2%
100,000 B-/Caa1 Trump Entertainment Resorts, 8.5%, 6/1/15 $ 97,500
-----------
Total Consumer Services $ 97,500
-----------
Media - 1.5%
Broadcasting & Cable TV - 0.6%
145,000 B-/B3 Innova S De R.L., 9.375%, 9/19/13 $ 160,950
200,000 B-/B2 Kabel Deutschland GMBH, 10.625%, 7/1/14 210,500
-----------
$ 371,450
-----------
Movies & Entertainment - 0.6%
335,000 B+/Ba2 Corp Interamer De Entret, 8.875%, 6/14/15 (144A) $ 328,300
-----------
Publishing - 0.3%
200,000 B/B1 Sheridan Acquisition Corp., 10.25%, 8/15/11 $ 205,750
-----------
Total Media $ 905,500
-----------
Retailing - 0.9%
Automotive Retail - 0.1%
35,000 B/B3 Pep Boys-Manny Moe Jack, 7.5%, 12/15/14 $ 31,150
-----------
Computer & Electronics Retail - 0.1%
95,000 B+/Ba3 GSC Holdings Corp., 8.0%, 10/1/12 (144A) $ 89,538
-----------
Distributors - 0.5%
EURO 215,000 B-/B2 Central Eur Distribution Corp., 8.0%, 7/25/12 (144A) $ 275,374
-----------
Specialty Stores - 0.2%
145,000 B/B3 Asbury Automotive Group, 8.0%, 3/15/14 $ 138,475
-----------
Total Retailing $ 534,537
-----------
Food & Drug Retailing - 0.3%
Drug Retail - 0.3%
145,000 CCC+/Caa1 Duane Reade, Inc., 9.75%, 8/1/11 (a) $ 97,150
110,000 B-/B2 Duane Reade, Inc., Floating Rate Note, 12/15/10 (b) 102,300
-----------
$ 199,450
-----------
Total Food & Drug Retailing $ 199,450
-----------
Food, Beverage & Tobacco - 0.9%
Brewers - 0.7%
202,000 B-/B3 Argentine Beverages, 7.375%, 3/22/12 (144A) $ 203,010
220,000 BBB-/Baa3 Cia Brasileira de Bebida, 8.75%, 9/15/13 257,125
-----------
$ 460,135
-----------
Soft Drinks - 0.2%
80,000 BBB-/Baa3 Cia Brasileira de Bebida, 10.5%, 12/15/11 $ 98,400
-----------
Total Food, Beverage & Tobacco $ 558,535
-----------
Health Care Equipment & Services - 0.8%
Health Care Distributors - 0.1%
60,000 BB+/Ba2 Omnicare, Inc., 6.125%, 6/1/13 $ 58,950
-----------
Health Care Equipment - 0.2%
165,000 B-/B3 Medical Services Co., Floating Rate Note, 10/15/11 (144A) (b) $ 127,050
-----------
10 The accompanying notes are an integral part of these financial statements.
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
Health Care Services - 0.3%
175,000 CCC+/Caa1 Rural/Metro Corp., 9.875%, 3/15/15 (144A) $ 178,500
-----------
Health Care Supplies - 0.2%
125,000 CCC+/Caa1 Inverness Medical Innovation, 8.75%, 2/15/12 $ 126,874
-----------
Total Health Care Equipment & Services $ 491,374
-----------
Pharmaceuticals & Biotechnology - 0.3%
Pharmaceuticals - 0.3%
180,000 CCC+/Caa1 Warner Chilcott Corp., 8.75%, 2/1/15 (144A) $ 165,600
-----------
Total Pharmaceuticals & Biotechnology $ 165,600
-----------
Banks - 1.2%
Diversified Banks - 1.2%
185,000 B/Ba1 ATF Bank JSC, 9.25%, 4/12/12 (144A) $ 195,564
170,000 BB/Baa2 Kazkommerts International BV, 8.0%, 11/3/15 180,200
150,000 B+/Ba2 Russian Stand Bank, 7.5%, 10/7/10 (144A) 146,625
15,000 BBB+/A1 Skandinaviska Enskilda Bank, 8.125%, 9/6/49 (144A) 15,333
175,000 NR/Baa2 Turanalem Finance BV, 8.5%, 2/10/15 (144A) 188,020
-----------
$ 725,742
-----------
Total Banks $ 725,742
-----------
Diversified Financials - 2.7%
Consumer Finance - 1.0%
340,000 BB+/Baa2 Ford Motor Credit Co., 5.7%, 1/15/10 (a) $ 289,021
35,000 BB+/Baa2 Ford Motor Credit Co., 5.8%, 1/12/09 30,537
320,000 A/A2 SLM Corp., Floating Rate Note, 7/25/14 (b) 300,886
-----------
$ 620,444
-----------
Investment Banking & Brokerage - 0.6%
325,000 B+/B1 E*Trade Financial Corp., 8.0%, 6/15/11 $ 338,000
-----------
Diversified Financial Services - 1.1%
210,000 B/B3 Dollar Financial Group, 9.75%, 11/15/11 $ 216,300
325,000 BBB-/Baa3 Glencore Funding LLC, 6.0%, 4/15/14 (144A) 305,676
170,000 B-/B3 Harvest Operations Corp., 7.875%, 10/15/11 169,150
-----------
$ 691,126
-----------
Total Diversified Financials $ 1,649,570
-----------
Insurance - 3.6%
Life & Health Insurance - 1.0%
390,000 B-/B2 Presidential Life Corp., 7.875%, 2/15/09 $ 386,100
200,000 BB+/Ba1 Provident Companies., Inc., 7.0%, 7/15/18 206,811
-----------
$ 592,911
-----------
Multi-Line Insurance - 0.5%
325,000 BB/Ba1 Hanover Insurance Group, 7.625%, 10/15/25 $ 333,297
-----------
Property & Casualty Insurance - 1.1%
285,000 BBB-/NR Kingsway America, Inc., 7.5%, 2/1/14 $ 293,652
350,000 BB/Baa3 Ohio Casualty Corp., 7.3%, 6/15/14 376,187
-----------
$ 669,839
-----------
The accompanying notes are an integral part of these financial statements. 11
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
Reinsurance - 1.0%
200,000 BBB-/Baa3 Odyssey Re Holdings, 7.65%, 11/1/13 $ 208,981
365,000 BBB/Baa2 Platinum Underwriters Financial, 7.5%, 6/1/17 371,963
-----------
$ 580,944
-----------
Total Insurance $ 2,176,991
-----------
Real Estate - 2.1%
Real Estate Management & Development - 0.2%
125,000 BB-/Ba3 Forest City Enterprises, 7.625%, 6/1/15 $ 132,500
-----------
Real Estate Investment Trusts - 1.9%
120,000 B+/B3 BF Saul Real Estate Investment Trust, 7.5%, 3/1/14 $ 122,100
95,000 B+/B1 Crescent Real Estate, 9.25%, 4/15/09 99,987
374,000 B+/Ba3 Host Marriott LP, 6.375%, 3/15/15 373,065
340,000 B+/B1 Trustreet Properties, Inc., 7.5%, 4/1/15 340,000
180,000 BB/Ba3 Ventas Realty Capital Corp., 7.125%, 6/1/15 (144A) 189,000
-----------
$ 1,124,152
-----------
Total Real Estate $ 1,256,652
-----------
Software & Services - 0.4%
Internet Software & Services - 0.4%
250,000 BB/Ba2 Hanarotelecom, Inc., 7.0%, 2/1/12 (144A) $ 246,282
-----------
Total Software & Services $ 246,282
-----------
Technology Hardware & Equipment - 0.7%
Communications Equipment - 0.1%
50,000 BB+/Ba2 Corning, Inc., 5.9%, 3/15/14 $ 50,480
-----------
Electronic Manufacturing Services - 0.2%
125,000 B/B1 Sanmina-Sci Corp., 6.75%, 3/1/13 (a) $ 118,906
-----------
Technology Distributors - 0.4%
256,000 BB+/Ba1 Anixter International Corp., 5.95%, 3/1/15 $ 231,661
-----------
Total Technology Hardware & Equipment $ 401,047
-----------
Semiconductors - 0.3%
Semiconductors - 0.3%
175,000 BBB-/Baa3 Chartered Semiconductor, 6.375%, 8/3/15 $ 173,987
-----------
Total Semiconductors $ 173,987
-----------
Telecommunication Services - 1.3%
Integrated Telecommunication Services - 0.3%
315,000 B/B3 Zeus Special Sub, Ltd., Floating Rate Note, 2/1/15 (144A) (b) $ 207,113
-----------
Wireless Telecommunication Services - 1.0%
115,000 BB-/Ba3 Mobile Telesystems Finance, 8.375%, 10/14/10 (144A) $ 120,014
CAD 240,000 BB/Ba3 Rogers Cantel, Inc., 10.5%, 6/1/06 211,638
CAD 200,000 BB/Ba3 Rogers Wireless, Inc., 7.625%, 12/15/11 184,031
63,000 NR/Baa3 Tele Norte Leste Participacoes , 8.0%, 12/18/13 66,780
-----------
$ 582,463
-----------
Total Telecommunication Services $ 789,576
-----------
12 The accompanying notes are an integral part of these financial statements.
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
Utilities - 1.4%
Electric Utilities - 1.3%
331,771 NR/NR Juniper Generation, 6.79%, 12/31/14 (144A) $ 323,225
250,000 BBB-/Baa3 Kiowa Power Partners LLC, 5.737%, 3/30/21 (144A) 250,735
190,000 BB-/Ba3 MSW Energy Holdings, 7.375%, 9/1/10 195,225
-----------
$ 769,185
-----------
Multi-Utilities - 0.1%
120,000 B+/B1 Reliant Energy, Inc., 6.75%, 12/15/14 $ 104,700
-----------
Total Utilities $ 873,885
-----------
TOTAL CORPORATE BONDS
(Cost $25,608,281) $26,103,651
-----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 39.5%
848,109 Federal Home Loan Mortgage Corp., 4.5%, 4/1/20 $ 825,301
485,131 Federal Home Loan Mortgage Corp., 4.5%, 7/1/20 472,084
287,205 Federal Home Loan Mortgage Corp., 4.5%, 4/1/35 270,212
42,819 Federal Home Loan Mortgage Corp., 5.0%, 5/1/34 41,539
148,818 Federal Home Loan Mortgage Corp., 5.0%, 6/1/35 144,074
53,779 Federal Home Loan Mortgage Corp., 5.5%, 10/1/16 54,160
822,876 Federal Home Loan Mortgage Corp., 5.5%, 11/1/34 816,533
357,027 Federal Home Loan Mortgage Corp., 5.5%, 1/1/35 354,100
265,061 Federal Home Loan Mortgage Corp., 6.0%, 6/1/17 270,577
14,901 Federal Home Loan Mortgage Corp., 6.0%, 1/1/33 15,075
10,769 Federal Home Loan Mortgage Corp., 6.0%, 2/1/33 10,896
265,910 Federal Home Loan Mortgage Corp., 6.0% 11/1/33 268,879
224,757 Federal Home Loan Mortgage Corp., 6.0%, 1/1/34 227,022
241,850 Federal Home Loan Mortgage Corp., 6.0%, 4/1/35 244,294
248,106 Federal Home Loan Mortgage Corp., 6.0%, 6/1/35 250,613
304,298 Federal National Mortgage Association, 4.5%, 5/1/20 296,114
195,471 Federal National Mortgage Association, 4.5%, 9/1/20 190,214
154,126 Federal National Mortgage Association, 4.5%, 3/1/35 145,151
183,714 Federal National Mortgage Association, 5.0%, 2/1/20 181,759
205,883 Federal National Mortgage Association, 5.0%, 10/1/20 203,692
43,118 Federal National Mortgage Association, 5.5%, 3/1/18 43,404
86,632 Federal National Mortgage Association, 5.5%, 12/1/18 87,207
98,590 Federal National Mortgage Association, 5.5%, 4/1/19 99,271
187,500 Federal National Mortgage Association, 5.5%, 5/1/34 185,843
91,701 Federal National Mortgage Association, 6.0%, 7/1/17 93,738
4,573 Federal National Mortgage Association, 6.0%, 12/1/31 4,627
10,140 Federal National Mortgage Association, 6.0%, 2/1/32 10,260
6,330 Federal National Mortgage Association, 6.0% 11/1/32 6,401
324,814 Federal National Mortgage Association, 6.0%, 11/1/33 328,206
219,147 Federal National Mortgage Association, 6.0%, 12/1/33 221,435
117,794 Federal National Mortgage Association, 6.0%, 1/1/34 118,907
800,000 Federal National Mortgage Association, 6.375%, 8/15/07 592,998
1,449 Federal National Mortgage Association, 6.5%, 7/1/31 1,491
4,872 Federal National Mortgage Association, 6.5%, 10/1/31 5,008
9,385 Federal National Mortgage Association, 6.5%, 2/1/32 9,648
1,011 Federal National Mortgage Association, 7.0%, 9/1/29 1,056
224,302 Government National Mortgage Association, 4.5%, 9/15/33 215,266
175,062 Government National Mortgage Association, 4.5%, 5/15/34 167,980
The accompanying notes are an integral part of these financial statements. 13
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Principal
Amount
USD ($) Value
U.S. Government & Agency Obligations (Cont.)
676,875 Government National Mortgage Association, 4.5%, 4/15/35 $ 649,589
222,697 Government National Mortgage Association, 5.0%, 12/15/34 220,037
479,134 Government National Mortgage Association, 5.0%, 4/15/35 473,145
391,182 Government National Mortgage Association, 5.5%, 10/15/19 396,957
224,837 Government National Mortgage Association, 5.5%, 1/15/34 226,382
427,099 Government National Mortgage Association, 5.5%, 4/15/34 430,033
146,159 Government National Mortgage Association, 5.5%, 4/20/34 146,798
54,870 Government National Mortgage Association, 5.5%, 7/15/34 55,247
421,840 Government National Mortgage Association, 5.5%, 10/15/34 424,739
397,578 Government National Mortgage Association, 5.5%, 6/15/35 400,312
465,258 Government National Mortgage Association, 6.0%, 8/15/16 477,883
25,835 Government National Mortgage Association, 6.0%, 5/15/17 26,537
228,059 Government National Mortgage Association, 6.0%, 6/15/17 234,255
262,225 Government National Mortgage Association, 6.0%, 2/15/18 269,356
169,092 Government National Mortgage Association, 6.0%, 8/15/19 173,687
30,408 Government National Mortgage Association, 6.0%, 2/15/33 31,171
108,048 Government National Mortgage Association, 6.0%, 3/15/33 110,758
52,775 Government National Mortgage Association, 6.0%, 6/15/33 54,099
113,469 Government National Mortgage Association, 6.0%, 7/15/33 116,315
194,584 Government National Mortgage Association, 6.0%, 9/15/33 199,465
71,144 Government National Mortgage Association, 6.0%, 10/15/33 72,928
244,010 Government National Mortgage Association, 6.0%, 8/15/34 249,888
30,862 Government National Mortgage Association, 6.5%, 3/15/29 32,295
7,128 Government National Mortgage Association, 6.5%, 1/15/30 7,453
2,080 Government National Mortgage Association, 6.5%, 6/15/31 2,174
21,864 Government National Mortgage Association, 6.5%, 2/15/32 22,846
24,442 Government National Mortgage Association, 6.5%, 3/15/32 25,540
30,214 Government National Mortgage Association, 6.5%, 11/15/32 31,578
25,396 Government National Mortgage Association, 6.5%, 1/15/33 26,531
41,189 Government National Mortgage Association, 6.5%, 5/15/33 43,031
77,333 Government National Mortgage Association, 6.5%, 1/15/34 80,729
821 Government National Mortgage Association, 7.0%, 3/15/31 862
9,147 Government National Mortgage Association, 7.5%, 5/15/23 9,631
2,787 Government National Mortgage Association, I, 7.0%, 3/15/31 2,926
138,615 Government National Mortgage Association II, 5.5%, 3/20/34 139,221
267,730 Government National Mortgage Association II, 6.0%, 11/20/33 273,861
1,340,000 U.S. Treasury Bonds, 5.25%, 11/15/28 1,461,542
125,000 U.S. Treasury Bonds, 6.25%, 8/15/23 149,268
580,000 U.S. Treasury Bonds, 7.25%, 5/15/16 712,177
830,813 U.S. Treasury Inflation Protected Security, 3.0%, 7/15/12 878,455
431,855 U.S. Treasury Inflation Protected Security, 3.375%, 1/15/12 464,361
3,518,969 U.S. Treasury Inflation Protected Security, 3.5%, 1/15/11 3,760,898
700,000 U.S. Treasury Notes, 4.0%, 2/15/15 678,672
275,000 U.S. Treasury Notes, 4.25%, 11/15/14 271,799
265,000 U.S. Treasury Notes, 4.875%, 2/15/12 272,070
255,000 U.S. Treasury Notes, 5.25%, 2/15/29 278,259
14 The accompanying notes are an integral part of these financial statements.
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal S&P/Moody's
Amount Ratings
USD ($) (unaudited) Value
U.S. Government & Agency Obligations (Cont.)
150,000 U.S. Treasury Notes, 5.375%, 2/15/31 $ 168,492
1,800,000 U.S. Treasury Strip, 0.0%, 11/15/13 1,270,139
-----------
$23,979,426
-----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $24,113,594) $23,979,426
-----------
FOREIGN GOVERNMENT BONDS - 7.6%
ITL 195,000,000 B+/B1 Banco Nac De Desen Econo, 8.0%, 4/28/10 $ 132,283
CAD 399,000 AAA/Aaa Government of Canada, 4.25%, 9/1/09 347,158
CAD 315,000 AAA/Aaa Government of Canada, 5.25%, 6/1/12 291,029
EURO 343,000 AAA/Aaa Government of France, 3.0%, 7/25/09 484,375
SEK 3,445,000 TSY/Aaa Government of Sweden, 5.25%, 3/15/11 476,353
SEK 2,955,000 TSY/Aaa Government of Sweden, 5.5%, 10/8/12 421,978
SEK 2,150,000 TSY/Aaa Government of Sweden, 8.0%, 8/15/07 293,367
NOK 1,500,000 AAA/Aaa Norwegian Government, 5.5%, 5/15/09 237,245
NOK 1,320,000 TSY/Aaa Norwegian Government 6.0%, 5/16/11 218,945
NOK 3,410,000 TSY/Aaa Norwegian Government, 6.75%, 1/15/07 525,093
AUD 532,000 AA/Aa2 Ontario Province, 5.5%, 4/23/13 386,160
AUD 207,000 NR/Aaa Queensland Treasury, 6.0%, 8/14/13 158,025
444,768 BB+/Ba2 Republic of Columbia, 9.75%, 4/9/11 500,364
DEM 180,000 BBB-/Baa3 United Mexican States, 8.25%, 2/24/09 124,571
-----------
$ 4,596,946
-----------
TOTAL FOREIGN GOVERNMENT BONDS
(Cost $4,223,559) $ 4,596,946
-----------
MUNICIPAL BONDS - 0.9%
Muni Airport - 0.4%
50,000 B/Caa2 New Jersey Economic Development Authority, 6.25%, 9/15/29 $ 46,501
175,000 B/Caa2 New Jersey Economic Development Authority Special Facility
Revenue, 7.0%, 11/15/30 170,168
100,000 NR/NR Wayne Charter County SPL, 6.75%, 12/1/15 52,384
-----------
$ 269,053
-----------
Muni Tobacco - 0.5%
90,000 BBB/Baa3 Golden State Tobacco Securitization, 6.75%, 6/1/39 $ 101,140
105,000 BBB/Baa3 Tobacco Settlement Authority Washington, 6.625%, 6/1/32 113,304
60,000 BBB/Baa3 Tobacco Settlement Financing Corp., 7.0%, 6/1/41 68,396
-----------
$ 282,840
-----------
TOTAL MUNICIPAL BONDS
(Cost $483,225) $ 551,893
-----------
The accompanying notes are an integral part of these financial statements. 15
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Shares Value
RIGHTS/WARRANTS - 0.0%
Transportation - 0.0%
Railroads - 0.0%
210 Atlantic Express Transportation, Exp. 4/15/08* $ --
-----------
Total Transportation $ --
-----------
TOTAL RIGHTS/WARRANTS
(Cost $0) $ --
-----------
TEMPORARY CASH INVESTMENTS - 0.8%
Security Lending Collateral - 0.8%
508,725 Securities Lending Investment Fund, 4.24% $ 508,725
-----------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $508,725) $ 508,725
-----------
TOTAL INVESTMENT IN SECURITIES - 95.5%
(Cost $57,158,609) $57,975,600
-----------
OTHER ASSETS AND LIABILITIES - 4.5% $ 2,731,811
-----------
TOTAL NET ASSETS - 100.0% $60,707,411
===========
* Non-income producing.
144A Security is exempt from registration under Rule 144A of the Securities Act
of 1933. Such securities may be resold normally to qualified institutional
buyers in a transaction exempt from registration. At December 31, 2005,
the value of these securities amounted to $11,574,898 or 19.1% of total
net assets.
TSY Treasury Security
NR Not rated by either S&P or Moody's.
(a) At December 31, 2005, the following securities were out on loan:
Principal
Amount Security Value
$137,750 Duane Reade, Inc., 9.75%, 8/1/11 $ 92,293
323,000 Ford Motor Credit Co., 5.7%, 1/15/10 274,570
118,750 Sanmina-Sci Corp., 6.75%, 3/1/13 112,961
--------
Total $479,824
========
(b) Debt obligation initially issued at one coupon which converts to a higher
coupon at a specified date. The rate shown is the rate at period end.
NOTE: Principal amounts are denominated in U.S. dollars unless otherwise noted.
DEM Deutsche Marks
EURO Euro
SEK Swedish Krona
NOK Norwegian Kroner
ITL Italian Lira
CAD Canadian Dollar
AUD Australian Dollar
DKK Danish Kroner
16 The accompanying notes are an integral part of these financial statements.
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
5/1/03 (a)
Year Ended Year Ended to
Class II 12/32/05 12/31/04 12/31/03
Net asset value, beginning of period $ 11.26 $ 11.01 $10.41
------- ------- ------
Increase (decrease) from investment operations:
Net investment income $ 0.55 $ 0.55 $ 0.41
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.28) 0.49 0.62
------- ------- ------
Net increase from investment operations $ 0.27 $ 1.04 $ 1.03
Distributions to shareholders:
Net investment income (0.61) (0.63) (0.43)
Net realized gain (0.16) (0.16) --
------- ------- ------
Net increase (decrease) in net asset value $ (0.50) $ 0.25 $ 0.60
-------- ------- ------
Net asset value, end of period $ 10.76 $ 11.26 $11.01
======= ======= ======
Total return* 2.49% 9.95% 10.90%(b)
Ratio of net expenses to average net assets+ 1.14% 1.29% 1.49%**
Ratio of net investment income to average net assets+ 5.30% 5.49% 5.08%**
Portfolio turnover rate 46% 53% 68%
Net assets, end of period (in thousands) $40,045 $25,027 $3,663
Ratios with no waiver of management fees and assumption of expenses by
PIM and no reduction for fees paid indirectly:
Net expenses 1.14% 1.29% 1.49%**
Net investment income 5.30% 5.49% 5.08%**
(a) Class II shares were first publicly offered on May 1, 2003.
(b) Not annualized.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the completeredemption of the
investment at net asset value at the end of each period.
** Annualized.
+ Ratios with no reduction for fees paid indirectly.
NOTE: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
The accompanying notes are an integral part of these financial statements. 17
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (including securities loaned of $479,824)
(Cost $57,158,609) $ 57,975,600
Cash 2,421,786
Foreign currencies, at value (Cost $9,491) 9,479
Receivables --
Investment securities sold 82,733
Fund shares sold 50,370
Dividends, interest and foreign taxes withheld 852,240
Forward foreign currency portfolio hedge contracts, open -- net 13,826
------------
Total assets $ 61,406,034
------------
LIABILITIES:
Payables --
Investment securities purchased $ 55,611
Fund shares repurchased 58,139
Upon return for securities loaned 508,725
Due to affiliates 6,656
Accrued expenses 69,492
------------
Total liabilities $ 698,623
------------
NET ASSETS:
Paid-in capital $ 59,217,713
Undistributed net investment income 397,503
Accumulated net realized gain on investments 265,546
Net unrealized gain on:
Investments 816,991
Forward foreign currency contracts and other assets and liabilities denominated
in foreign currencies 9,658
------------
Total net assets $ 60,707,411
------------
NET ASSET VALUE PER SHARE:
Class I:
(No par value, unlimited number of shares authorized)
Net assets $ 20,662,447
Shares outstanding 1,920,286
------------
Net asset value per share $ 10.76
Class II:
(No par value, unlimited number of shares authorized)
Net assets $ 40,044,964
Shares outstanding 3,721,336
------------
Net asset value per share $ 10.76
18 The accompanying notes are an integral part of these financial statements.
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year
Ended
12/31/05
INVESTMENT INCOME:
Dividends $ 3,555,083
Interest 7,305
------------
Total investment income $ 3,562,388
------------
EXPENSES:
Management fees $ 359,166
Transfer agent fees and expenses 7,715
Distribution fees (Class II) 85,494
Administrative reimbursements 18,512
Custodian fees 22,421
Professional fees 50,166
Printing expense 15,635
Fees and expenses of nonaffiliated trustees 4,888
Miscellaneous 13,040
------------
Total expenses $ 577,037
------------
Net expenses $ 577,037
------------
Net investment income $ 2,985,351
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain from:
Investments $ 482,520
Forward foreign currency contracts and other assets
and liabilities denominated in foreign currencies 28,986
------------
$ 511,506
------------
Change in net unrealized gain or loss from:
Investments $ (2,112,657)
Forward foreign currency contracts and other assets
and liabilities denominated in foreign currencies 77,046
------------
$ (2,035,611)
------------
Net loss on investments, futures contracts
and foreign currency transactions $ (1,524,105)
============
Net increase in net assets resulting
from operations $ 1,461,246
============
The accompanying notes are an integral part of these financial statements. 19
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended Year Ended
12/31/05 12/31/04
FROM OPERATIONS:
Net investment income $ 2,985,351 $ 1,817,102
Net realized gain on investments 511,506 1,081,207
Change in net unrealized gain or loss on investments, futures contracts and foreign
currency transactions (2,035,611) 767,697
------------ ------------
Net increase in net assets
resulting from operations $ 1,461,246 $ 3,666,006
------------ ------------
DISTRIBUTIONS TO SHAREOWNERS:
Net investment income
Class I $ (1,227,712) $ (1,210,066)
Class II (1,916,310) (733,628)
Net realized gain
Class I (308,227) (294,736)
Class II (487,951) (171,204)
------------ ------------
Total distributions to shareowners $ (3,940,200) $ (2,409,634)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 19,663,891 $ 25,764,732
Reinvestment of distributions 3,902,297 2,367,418
Cost of shares repurchased (6,220,715) (6,523,479)
------------ ------------
Net increase in net assets resulting from Fund share transactions $ 17,345,473 $ 21,608,671
------------ ------------
Net increase in net assets $ 14,866,519 $ 22,865,043
------------ ------------
NET ASSETS:
Beginning of year $ 45,840,892 $ 22,975,849
------------ ------------
End of year $ 60,707,411 $ 45,840,892
============ ============
Undistributed net investment income, end of year $ 397,503 $ 311,542
============ ============
20 The accompanying notes are an integral part of these financial statements.
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
1. Organization and Significant Accounting Policies
The Pioneer Strategic Income VCT Portfolio (The Portfolio) is a portfolio of
Pioneer Variable Contracts Trust (the Trust), a Delaware statutory trust
registered under the Investment Company Act of 1940 as an open-end management
investment company. The Trust consists of twenty nine separate diversified
portfolios, fourteen of which issue both Class I and Class II shares
(collectively, the "Portfolios", individually the "Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares
only)
The portfolio commenced operations on May 1, 2003. Portfolio shares may only be
purchased by insurance companies for the purpose of funding variable annuity or
variable life insurance contracts, and may also be purchased by qualified
pension and retirement plans.
The investment objective of Strategic Income Portfolio is to produce a high
level of current income.
The financial highlights for the Portfolio's Class I shares are presented in a
separate book.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
years. Actual results could differ from those estimates. The following is a
summary of significant accounting policies consistently followed by the
Portfolio in the preparation of its financial statements, which are consistent
with those generally accepted in the investment company industry:
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the Portfolios are computed once daily, on each day the New York Stock
Exchange (NYSE) is open, as of the close of regular trading on the NYSE. In
computing the net asset values, securities are valued at the last sale
price on the principal exchange where they are traded. Securities that have
not traded on the date of valuation, or securities for which sale prices
are not generally reported, are valued at the
21
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
mean between the last bid and asked prices. Trading in foreign equity
securities is substantially completed each day at various times prior to
the close of the NYSE. The value of such securities used in computing the
net asset value of the Portfolio's shares is based on the last sale price
on the principal exchange where they traded. The Portfolio also may use the
fair value of a security, including a non-U.S. security, when the closing
market price on the primary exchange where the security is traded no longer
accurately reflects the value of the security as of the close of the
exchange.
At December 31, 2005, there were no fair valued securities. Temporary cash
investments are valued at amortized cost.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities where the ex-dividend date may have
passed are recorded as soon as the Portfolio becomes aware of the
ex-dividend data in the exercise of reasonable diligence. Interest income,
including interest on income bearing cash accounts, is recorded on the
accrual basis. Discounts and premiums on fixed income securities are
accreted and amortized, respectively, on a yield-to-maturity basis and are
included in interest income. Dividend and interest income from foreign
securities are reported net of unrecoverable foreign taxes withheld at the
applicable country rates.
Fixed income securities are valued at prices supplied by independent
pricing services, which consider such factors as Treasury spreads, yields,
maturities and ratings. Valuations may be supplemented by dealers and other
sources, as required. Securities for which market quotations are not
readily available are valued at their fair values as determined by, or
under the direction of, the Board of Trustees.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes on capital gains at
the applicable country rates.
When interest rates rise, the prices of fixed income securities in the
Portfolio will generally fall. Conversely, when interest rates fall, the
prices of fixed income securities in the Portfolio will generally rise.
Investments in the Portfolio are subject to possible loss due to the
financial failure of underlying securities and their inability to meet
their debt obligations. Prepayment risk is the chance that mortgage-backed
bonds will be paid off early if falling interest rates prompt homeowners to
refinance their mortgages. Information regarding the Portfolio's principal
investment risks is contained in the Portfolio's prospectus. Please refer
to those documents when considering the Portfolio's risks.
B. Foreign Currency Translation
The books and records of the Portfolio are maintained in U.S. dollars.
Amounts denominated in foreign currencies are translated into U.S. dollars
using current exchange rates.
Net realized gains and losses on foreign currency transactions represent,
the net realized gains and losses on foreign currency contracts,
disposition of foreign currencies, and the difference between the amount of
income accrued and the U.S. dollars actually received. Further, the effects
of changes in foreign currency exchange rates on investments are not
segregated in the statement of operations from the effects of changes in
market price of those securities but are included with the net realized and
unrealized gain or loss on investments.
C. Forward Foreign Currency Contracts
The Portfolio enters into forward foreign currency contracts (contracts)
for the purchase or sale of a specific foreign currency at a fixed price on
a future date as a hedge or cross-hedge against either specific investment
transactions (settlement hedges) or portfolio positions (portfolio hedges).
All contracts are marked to market daily at the applicable exchange rates,
and any resulting unrealized gains or losses are recorded in the
Portfolio's financial statements. The Portfolio records realized gains and
losses at the time a portfolio hedge is offset by entry into a closing
transaction or extinguished by delivery of the currency. Risks may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of the contract and from unanticipated
movements in the value of foreign currencies relative to the U.S. dollar.
D. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
In addition to the requirements of the Internal Revenue Code, the Portfolio
may also be required to pay local taxes on the recognition of capital gains
and/or the repatriation of foreign currencies in certain countries. During
the year ended December 31, 2004, no such taxes were paid.
22
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal
income tax rules. Therefore, the source of the Portfolio's distributions
may be shown in the accompanying financial statements as either from or in
excess of net investment income or net realized gain on investment
transactions, or from paid-in capital, depending on the type of book/tax
differences that may exist.
The Portfolio elected to defer $40,713 in capital losses recognized between
November 1, 2005 and December 31, 2005 to its fiscal year ending December
31, 2006.
At December 31, 2005, the Portfolio made reclassifications as described
below. These reclassifications have no impact on the net asset value of the
Portfolio and are designed to present the Portfolio's capital accounts on a
tax basis.
- --------------------------------------------------------------------------------------------
Undistributed Net Accumulated Net
Investment Income Realized
Portfolio (Loss) Gain (Loss) Paid-In Capital
- --------------------------------------------------------------------------------------------
Strategic Income Portfolio $244,632 $(244,632) $--
- --------------------------------------------------------------------------------------------
The following chart shows the distributions paid during the years ended
December 31, 2005 and 2004 on a tax basis and the components of
distributable earnings (accumulated losses) as of December 31, 2005.
- --------------------------------------------------------------------------------------------
2005 2004
- --------------------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income $3,166,871 $2,196,847
Long-Term capital gain 773,329 212,787
---------- ----------
$3,940,200 $2,409,634
Return of Capital -- --
---------- ----------
Total distributions $3,940,200 $2,409,634
========== ==========
Distributable Earnings (Accumulated Losses):
Undistributed ordinary income $ 573,117
Undistributed long-term gain/(capital loss carryforward) 148,610
Post-October Loss Deferral (40,713)
Unrealized appreciation (depreciation) 808,684
----------
Total $1,489,698
==========
- --------------------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is attributable to the tax deferral of losses on wash sales,
the mark to market of foreign currency contracts and accrued interest on
defaulted bonds.
E. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Trust and a wholly owned indirect subsidiary
of UniCredito Italiano S.p.A. (UniCredito Italiano), $638,021 in
commissions on the sale of Trust shares for the year ended December 31,
2005. Distribution fees for Class II shares are calculated based on the
average daily net asset values attributable to Class II shares of the
Portfolio. Shareowners of each class share all expenses and fees paid to
the transfer agent, Pioneer Investment Management Shareholder Services,
Inc. (PIMSS), for its services, which are allocated based on the number of
accounts in each class and the ratable allocation of related out-of-pocket
expenses (see Note 3). Income, common expenses (excluding transfer agent
and distribution fees) and realized and unrealized gains and losses are
calculated at the Portfolio level and allocated daily to each class of
shares based on the respective percentage of the adjusted net assets at the
beginning of the day. The Portfolio declares as daily dividends
substantially all of its respective net investment income. All dividends
are paid on a monthly basis. Short-term capital gain distributions, if any,
may be declared with the daily dividends. Distributions paid by the
Portfolio with respect to each class of shares
23
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
are calculated in the same manner, at the same time, and in the same
amount, except that Class I and Class II shares can bear different transfer
agent and distribution fees. Dividends and distributions to shareowners are
recorded on the ex-dividend date.
F. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees. The Portfolio also continues to receive
payments in lieu of interest or dividends on the securities loaned. Gain or
loss in the fair value of the securities loaned that may occur during the
term of the loan, will be for the account of the Trust. The loans are
secured by collateral of at least 102%, at all times, of the fair value of
the securities loaned. The fair value of the collateral will be adjusted
daily to reflect any price fluctuation in the value of the loaned
securities. The Trust has the right under the lending agreement to recover
the securities on loan from the borrower on demand. The Trust invests cash
collateral in the Securities Lending Investment Fund which is sponsored by
Brown Brothers Harriman & Co., the Trust's custodian.
G. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano manages the
portfolio. Management fees are calculated daily at the annual rate of 0.65% of
the Portfolio's average daily net assets.
Through May 1, 2006, PIM has agreed not to impose all or a portion of its
management fee and, if necessary, to limit other ordinary operating expenses of
the Portfolio to the extent required to reduce Class I expenses to 1.25% of the
average daily net assets attributable to Class I shares; the portion of the
Portfolio's expenses attributable to Class II shares will be reduced only to
the extent such expenses are reduced for Class I shares (or Class II shares).
In addition, under the management and administration agreement, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $2,164 was payable
to PIM related to management fees, administrative reimbursements and certain
other services, and is included in due to affiliates.
3. Transfer Agent
(PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano provides
substantially all transfer agent and shareowner services to the Trust at
negotiated rates. Included in due to affiliates is $3,947 in transfer agent
fees payable to PIMSS at December 31, 2005.
4. Distribution Plans
The Portfolio has adopted a plan of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with the Portfolio's Class
II shares. Included in due to affiliates is $545 payable to PFD at December 31,
2005.
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- ---------------------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- ---------------------------------------------------------------------------------------------------
Strategic Income Portfolio $57,162,749 $1,658,270 $(845,419) $812,851
----------- ---------- --------- --------
- ---------------------------------------------------------------------------------------------------
24
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were $19,322,786 and $17,662,141, respectively. The cost of
purchases and the proceeds from sales of U.S. Government obligations were
$ 19,830,091 and $ 6,662,830, respectively.
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares for the years ended
December 31, 2005 and December 31, 2004 were as follows:
- ---------------------------------------------------------------------------------------------------
Strategic Income Portfolio '05 Shares '05 Amount '04 Shares '04 Amount
- ---------------------------------------------------------------------------------------------------
CLASS I:
Shares sold 299,475 $ 3,285,765 453,590 $ 4,955,590
Reinvestment of distributions 136,735 1,498,145 134,927 1,462,624
Shares repurchased (364,351) (3,995,330) (494,192) (5,414,640)
----------------------------------------------------------------
Net increase 71,859 $ 788,580 94,325 $ 1,003,574
================================================================
CLASS II:
Shares sold 1,483,721 $16,378,126 1,907,997 $20,809,730
Reinvestment of distributions 219,709 2,404,152 83,281 904,794
Shares repurchased (204,670) (2,225,385) (101,494) (1,108,839)
----------------------------------------------------------------
Net increase 1,498,760 $16,556,893 1,889,784 $20,605,685
================================================================
- ---------------------------------------------------------------------------------------------------
8. Forward Foreign Currency Contracts
During the year ended December 31, 2005, certain Portfolios had entered into
various contracts that obligate the Portfolios to deliver currencies at
specified future dates. At the maturity of a contract, the Portfolios must make
delivery of the foreign currency. Alternatively, prior to the settlement date
of a portfolio hedge, the Portfolio may close out such contracts by entering
into an offsetting hedge contract.
Outstanding forward portfolio hedge contracts were as follows:
- --------------------------------------------------------------------------------------------------------------
Net
Contracts to In Exchange Settlement Unrealized
Portfolio Deliver For Date Value Gain (Loss)
- --------------------------------------------------------------------------------------------------------------
Strategic Income Portfolio AUD (1,206,000) $ (881,586) 3/23/06 $ (883,432) $(1,846)
Strategic Income Portfolio CAD (330,000) (283,505) 3/1/06 (284,225) (720)
Strategic Income Portfolio EUR (334,000) (396,021) 3/2/06 (396,654) (633)
Strategic Income Portfolio JPY (22,000,000) (190,451) 3/2/06 (187,792) 2,659
Strategic Income Portfolio JPY (35,000,000) (297,865) 1/27/06 (297,535) 330
Strategic Income Portfolio JPY 166,000,000 1,402,027 3/2/06 1,417,640 15,613
Strategic Income Portfolio JPY 35,000,000 299,217 1/27/06 297,640 (1,577)
- --------------------------------------------------------------------------------------------------------------
25
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust and
the Shareholders of Pioneer Strategic Income VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer Strategic Income VCT Portfolio, one of
the portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"),
as of December 31, 2005, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the two years
in the period then ended, and the financial highlights for the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005, by correspondence
with the custodian and brokers or by other appropriate auditing procedures
where replies from brokers were not received. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer Strategic Income VCT Portfolio of the Pioneer Variable Contracts Trust
at December 31, 2005, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for the periods indicated therein, in
conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
26
Pioneer Strategic Income VCT Portfolio
(the "Fund") PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management Contract and at other meetings during
the course of the year, the Trustees, including the Independent Trustees,
received materials relating to the Investment Adviser's investment and
management services under the Management Contract. These materials included (i)
information on the investment performance of the Fund, a peer group of funds
and an index, in each case selected by the Independent Trustees for this
purpose, (ii) sales and redemption data in respect to the Fund, (iii) the
general investment outlook in the markets in which the Fund invests, (iv)
arrangements in respect of the distribution of the Fund's shares, (v) the
procedures employed to determine the value of each of the Fund's assets, (vi)
the Investment Adviser's management of the relationships with the Fund's
unaffiliated service providers, (vii) the record of compliance with the Fund's
investment policies and restrictions and with the Fund's Code of Ethics and the
structure and responsibilities of the Investment Adviser's compliance
department, (viii) the nature, cost and character of non-investment management
services provided by the Investment Adviser and its affiliates and (ix) the
disclosures included in the Fund's prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one, three and five year periods for
the Fund and a peer group selected by the Independent Trustees for this
purpose, (2) management fees incurred by a peer group of funds selected by the
Independent Trustees for this purpose, (3) the advisory fees of comparable
portfolios of other clients of the Investment Adviser, (4) expense ratios for
the Fund and a peer group of funds selected by the Independent Trustees for
this purpose, (5) the overall organization of the Investment Adviser, (6) the
Investment Adviser's financial results and condition, including its and certain
of its affiliates profitability from services performed for the Fund, (7)
transfer agency fees and administrative reimbursements paid to the Investment
Adviser or affiliates, (8) investment management staffing, and (9) operating
expenses paid to third parties. The Trustees also reviewed information
regarding the potential for the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. The Trustees also reviewed the Fund's investment performance
based upon total return, as well as the Fund's
27
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
performance compared to both the performance of a peer group and two
relevant indices, in each case selected by the Independent Trustees for this
purpose. The Fund's performance based upon total return was in the second
quintile of the peer group for the 12 months ended June 30, 2005, the second
quintile for the three years ended June 30, 2005, and the second quintile
for the five years ended June 30, 2005. (In all quintile rankings referred
to throughout this discussion first quintile is most favorable to the Fund's
shareholders. Thus, highest relative performance would be first quintile and
lowest relative expenses also would be first quintile.) The Trustees also
considered that the yield (gross of expenses) of the Fund's Class 1 shares
relative to the yield (at June 30, 2005) of the Lehman Universal Bond Index.
The Trustees concluded that the performance of the Fund supported the
continuation of the Management Contract.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's equities group. Among other things, the Trustees
considered the number, education and experience of the Investment Adviser's
investment staff and their use of technology and emphasis on analytics in
view of the risk profile of securities in which the Fund invests. The
Trustees concluded that the Investment Adviser had the quality and depth of
personnel and the well-developed methods essential to performing its duties
under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee for the 12 months ended June 30, 2005 at the median relative
to the management fees paid by the other funds in that peer group for the
comparable period. The Trustees determined that the fee under the Management
Contract was reasonable and fair in light of both the overall nature and
quality of services provided by the Investment Adviser and the fees charged
by the funds in the peer group. The Trustees also considered the Fund's
expense ratio and expense ratios of a peer group of funds selected by the
Independent Trustees for this purpose. The Fund's expense ratio for the 12
months ended June 30, 2005 was in the fifth quintile of the applicable peer
group for the most recent fiscal year of the peer group for the comparable
period.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. The Trustees concluded that,
given current and anticipated asset lev-
28
Pioneer Strategic Income VCT Portfolio PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
els, break points in the management fee are not necessary at this time. The
Trustees will continue to evaluate annually the appropriateness of break
points.
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund). The
Trustees further considered the revenues and profitability of the Investment
Adviser's businesses other than the fund business, including the Investment
Adviser's institutional investment advisory business. The Trustees
considered the intangible benefits that accrue to the Investment Adviser and
its affiliates by virtue of its relationship with the Fund and the Pioneer
Funds as a group. The Trustees concluded that all these types of benefits
accruing to the Investment Adviser were reasonable in the context of the
overall relationship between the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
29
Pioneer Strategic Income VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
===================================================================================================================================
30
Pioneer Strategic Income VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company
Washington, DC 20007 trustee is elected (publicly traded health care (privately-held affordable
or earlier services company) (2001-present); housing finance company);
retirement or Managing Partner, Federal City Director of New York Mortgage
removal. Capital Advisors (boutique merchant Trust (publicly traded mortgage
bank) (2002 to 2004); Executive REIT)
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
===================================================================================================================================
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material
or earlier products manufacturer), Mortgage
retirement or Guaranty Insurance Corporation,
removal. and Briggs & Stratton, Inc.
(engine manufacturer)
===================================================================================================================================
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
===================================================================================================================================
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
===================================================================================================================================
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
===================================================================================================================================
31
Pioneer Strategic Income VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
===================================================================================================================================
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
===================================================================================================================================
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
===================================================================================================================================
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
===================================================================================================================================
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
===================================================================================================================================
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
===================================================================================================================================
32
Pioneer Strategic Income VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, Assistant Vice President - Fund None
Treasurer 2000. Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds.
===================================================================================================================================
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
===================================================================================================================================
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
===================================================================================================================================
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
===================================================================================================================================
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
33
[LOGO] PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company, Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18677-00-0206
[LOGO]PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Value VCT Portfolio -- Class II Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
T a b l e o f C o n t e n t s
- --------------------------------------------------------------------------------
Pioneer Value VCT Portfolio
Portfolio and Performance Update 2
Comparing Ongoing Portfolio Expenses 3
Portfolio Management Discussion 4
Schedule of Investments 5
Financial Statements 7
Notes to Financial Statements 11
Report of Independent Registered Public
Accounting Firm 16
Factors Considered by the Independent Trustees
in Approving the Management Contract 17
Trustees, Officers and Service Providers 20
Before investing, consider the Portfolio's investment objectives, risks,
charges and expenses. Contact your advisor or Pioneer Investments for a
prospectus containing this information. Please read it carefully.
The Trust files a complete statement of investments with the Securities and
Exchange Commission for the first and the third quarters for each fiscal year
on Form N-Q. Shareowners may view the filed Form N-Q by visiting the
Commission's web site at http://www.sec.gov. The filed form may also be viewed
and copied at the Commission's Public Reference Room in Washington, D.C.
Information regarding the operations of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Value VCT Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
Portfolio Diversification
(As a percentage of total investment portfolio)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
International Common Stocks 0.4%
Depositary Receipts for Internationl Stocks 3.5%
U.S. Common Stocks 96.1%
Sector Distribution
(As a percentage of equity holdings)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Materials 3.9%
Telecommunication Services 5.5%
Consumer Staples 5.8%
Utilities 6.1%
Industrials 7.1%
Consumer Discretionary 8.2%
Health Care 9.5%
Information Technology 9.7%
Energy 18.6%
Financials 25.6%
Five Largest Holdings
(As a percentage of equity holdings)
1. Citigroup, Inc. 4.14%
2. Altria Group, Inc. 3.69
3. Merrill Lynch & Co., Inc. 3.41
4. Bank of America Corp. 3.05
5. ConocoPhillips 2.95
The Portfolio is actively managed, and current holdings may be different.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 12/31/04
Net Asset Value per Share $ 13.92 $ 13.40
Net
Distributions per Share Investment Short-Term Long-Term
(1/1/05 - 12/31/05) Income Capital Gains Capital Gains
$ 0.0119 $ 0.0073 $ 0.0828
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Value VCT Portfolio at net asset value, compared to that of the Russell 1000
Value Index. Portfolio returns are based on net asset value and do not reflect
any applicable insurance fees or surrender charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
Pioneer Value Russell 1000
VCT Portfolio Value Index
5/03 10000 10000
12/03 11633 11800
12/04 12959 13747
12/05 13564 14716
The Russell 1000 Value Index measures the performance of the value-oriented
stocks in the Russell 1000 Index. Index returns are calculated monthly, assume
reinvestment of dividends and, unlike Portfolio returns, do not reflect any
fees, expenses or sales charges. You cannot invest directly in any Index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Life-of-Class 13.56%
(5/1/03)
1 Year 4.67
All total returns shown assume reinvestment of distributions at net asset
value.
Please refer to the variable product's report wrapper for performance that
reflects the deduction of the variable product's fees and charge. The
performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all funds. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
2
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Value VCT Portfolio
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value - $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Value VCT Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,046.60
Expenses Paid During Period* $ 6.91
* Expenses are equal to the Portfolio's annualized expense ratio of 1.34% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) that are charged at the time of the transaction. Therefore, the
table below is useful in comparing ongoing costs only and will not help you
determine the relative total costs of owning different variable annuities. In
addition, if these transaction costs were included, your costs would have been
higher.
Expenses Paid on a $1,000 Investment in Pioneer Value VCT Portfolio
Based on a hypothetical 5% return per year before expenses, reflecting the
period from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,018.45
Expenses Paid During Period* $ 6.82
* Expenses are equal to the Portfolio's annualized expense ratio of 1.34% for
Class II shares, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
3
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Value VCT Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/05
- --------------------------------------------------------------------------------
Portfolio Manager J. Rodman Wright describes the economic background and
investment strategies that affected results for Pioneer Value VCT Portfolio for
the twelve months ended December 31, 2005.
Q. What was the investment background and how did the Portfolio perform during
this period?
A. Market returns were somewhat restrained in 2005 as investors tried to assess
the economic impact of record energy prices and higher interest rates. But
the economy met those challenges as well as others that arose, such as the
devastating hurricane season. Corporate earnings moved ahead smartly,
although stronger profits were not always reflected in stock prices. Value
stocks continued to outperform growth. For the twelve months ended December
31, 2005, the Portfolio returned 4.67% at net asset value. This result
trailed the Portfolio's benchmark, the Russell 1000 Value Index, which
returned 7.05% over the same period.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent
month-end performance results. Current performance may be lower or higher
than the performance data quoted.
The performance data quoted represents past performance, which is no
guarantee of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Q. Which sectors or stocks had the greatest impact on results?
A. Energy stocks were the period's biggest story and our slightly overweight
stance in this strong sector boosted results. Significant contributions
came from Occidental Petroleum and ConocoPhillips, as well as exploration
company Devon Energy, drilling rig contractor Transocean, and Suncor, which
extracts oil from sands in Canada.
In health care, we avoided Pfizer during a long downslide, initiating a
position late in the year; shares later moved higher following a favorable
court ruling. IVAX, a maker of generic drugs, was purchased by Teva
Pharmaceuticals. Shares of HCA rose as prices for hospital services firmed
and management brought bad debt under control. Late in the year, we took
profits in health care products distributor Cardinal Health. Mining company
Freeport-McMoRan saw earnings expand thanks to strong global demand that
drove up prices of copper and gold.
We were underweight compared to the benchmark in utilities, another area
that performed well last year. In financials, a rise in the shares of
Merrill Lynch reflected successful initiatives by new management. Margins
expanded in several areas, including the highly profitable brokerage
division, after a period of poor results. Shares of Freddie Mac fell as the
company was plagued by uncertainty as it was unable to provide current
financial statements, and we eliminated this slumping stock. Fifth Third
Bancorp, a bank holding company in the Midwest, declined following
disappointing financial results.
Tyco, an industrial conglomerate, declined as a result of missing its
financial forecasts and lowering expectations. We are retaining Tyco because
of its attractive current valuation. In addition, management is cutting debt
and buying back stock, and more recently has announced it will break up the
company, which we think will allow shareholders to realize the value we see
in the company. Shares of farm equipment maker Deere fell slightly, but the
Portfolio's sizeable position amplified the impact of the decline. Our
commitment to the sluggish media sector, including Viacom, Time Warner and
Comcast, also held back returns.
Q. What is your current outlook?
A. We are guardedly optimistic for the months ahead as several crosscurrents
play out. Interest rates and energy prices will continue to dominate
investors' thinking, and the likely outcome of mid-term elections will
capture more headlines as the year moves on. The possible devaluation of
China's currency would hurt the dollar and unsettle financial markets, but
work to the benefit of manufacturers by making American goods less
expensive for overseas buyers. In the meantime, the economy's brisk
expansion may slow somewhat and the Federal Reserve Board could be nearing
an end to its long string of interest rates hikes. As things stand, rates
are still manageable for consumers and corporations and corporate balance
sheets are the healthiest they've been in some time and are holding a lot
of cash. The market is not cheap from our value perspective, but we are
continuing to search for companies whose favorable potential is not fully
reflected in current market valuations.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Portfolio's historical or future performance are
statements of the opinion of Portfolio management as of the date of this
report. These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
A Word About Risk:
Investing in foreign and/or emerging markets securities involves risks relating
to interest rates, currency exchange rates, economic, and political conditions.
At times, the Portfolio's investments may represent industries or industry
sectors that are interrelated or have common risks, making it more susceptible
to any economic, political, or regulatory developments or other risks affecting
those industries and sectors.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Value VCT Portfolio
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
COMMON STOCKS - 99.3%
Energy - 18.6%
Integrated Oil & Gas - 10.9%
24,024 Chevron Corp. $ 1,363,842
35,856 ConocoPhillips 2,086,102
33,830 Exxon Mobil Corp. 1,900,231
17,811 Occidental Petroleum Corp. 1,422,743
15,331 Suncor Energy, Inc. 967,846
-----------
$ 7,740,764
-----------
Oil & Gas Drilling - 2.7%
12,570 ENSCO International, Inc. $ 557,480
8,562 Nabors Industries, Inc.* 648,572
9,965 Transocean Offshore, Inc.* 694,461
-----------
$ 1,900,513
-----------
Oil & Gas Equipment & Services - 0.9%
9,770 Halliburton Co. $ 605,349
-----------
Oil & Gas Exploration & Production - 4.1%
8,127 Anadarko Petroleum Corp. $ 770,033
10,980 Apache Corp. 752,350
22,122 Devon Energy Corp. 1,383,510
-----------
$ 2,905,893
-----------
Total Energy $13,152,519
-----------
Materials - 3.8%
Diversified Metals & Mining - 1.4%
18,197 Freeport-McMoRan Copper & Gold, Inc.
(Class B) $ 978,999
-----------
Forest Products - 1.1%
12,500 Weyerhaeuser Co. $ 829,250
-----------
Industrial Gases - 1.3%
17,314 Praxair, Inc. $ 916,949
-----------
Total Materials $ 2,725,198
-----------
Capital Goods - 7.1%
Aerospace & Defense - 1.4%
17,430 United Technologies Corp. $ 974,512
-----------
Construction & Farm Machinery &
Heavy Trucks - 2.8%
29,180 Deere & Co. $ 1,987,450
-----------
Industrial Conglomerates - 2.9%
71,723 Tyco International, Ltd. $ 2,069,926
-----------
Total Capital Goods $ 5,031,888
-----------
Media - 7.4%
Broadcasting & Cable Television - 5.3%
48,890 Clear Channel Communications, Inc. $ 1,537,591
46,474 Comcast Corp.* 1,206,465
31,687 Viacom, Inc. (Class B) 1,032,996
-----------
$ 3,777,052
-----------
Shares Value
Movies & Entertainment - 2.1%
6,111 CCE Spinco, Inc.* $ 80,054
82,563 Time Warner, Inc. 1,439,899
-----------
$ 1,519,953
-----------
Total Media $ 5,297,005
-----------
Retailing - 0.7%
Apparel Retail - 0.7%
21,880 Foot Locker, Inc. $ 516,149
-----------
Total Retailing $ 516,149
-----------
Food, Beverage & Tobacco - 5.7%
Soft Drinks - 2.1%
15,735 Coca-Cola Co. $ 634,278
14,093 PepsiCo, Inc. 832,614
-----------
$ 1,466,892
-----------
Tobacco - 3.6%
34,840 Altria Group, Inc. $ 2,603,245
-----------
Total Food, Beverage & Tobacco $ 4,070,137
-----------
Health Care Equipment & Services - 3.9%
Health Care Equipment - 0.8%
22,560 Boston Scientific Corp.* $ 552,494
-----------
Health Care Facilities - 1.7%
13,007 HCA, Inc. $ 656,854
72,861 Tenet Healthcare Corp.* 558,115
-----------
$ 1,214,969
-----------
Managed Health Care - 1.4%
12,740 Wellpoint Inc.* $ 1,016,525
-----------
Total Health Care Equipment &
Services $ 2,783,988
-----------
Pharmaceuticals & Biotechnology - 5.5%
Pharmaceuticals - 5.5%
33,160 Bristol-Myers Squibb Co. $ 762,017
72,500 Pfizer, Inc. 1,690,700
44,050 Schering-Plough Corp. 918,443
12,390 Wyeth 570,807
-----------
Total Pharmaceuticals &
Biotechnology $ 3,941,967
-----------
Banks - 6.7%
Diversified Banks - 4.4%
46,734 Bank of America Corp. $ 2,156,774
18,570 Wachovia Corp. 981,610
-----------
$ 3,138,384
-----------
Thrifts & Mortgage Finance - 2.3%
37,488 Washington Mutual, Inc. $ 1,630,728
-----------
Total Banks $ 4,769,112
-----------
Diversified Financials - 12.8%
Asset Management & Custody Banks - 1.5%
33,933 The Bank of New York Co., Inc. $ 1,080,766
-----------
The accompanying notes are an integral part of these financial statements. 5
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Value VCT Portfolio
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
Investment Banking & Brokerage - 7.2%
13,195 Goldman Sachs Group, Inc. $ 1,685,133
8,074 Lehman Brothers Holdings, Inc. 1,034,845
35,600 Merrill Lynch & Co., Inc. 2,411,188
-----------
$ 5,131,166
-----------
Other Diversified Finance Services - 4.1%
60,264 Citigroup, Inc. $ 2,924,612
-----------
Total Diversified Financials $ 9,136,544
-----------
Insurance - 5.8%
Life & Health Insurance - 1.3%
41,655 UNUM Corp. $ 947,651
-----------
Multi-Line Insurance - 2.7%
28,578 American International Group, Inc. $ 1,949,877
-----------
Property & Casualty Insurance - 1.8%
23,169 Allstate Corp. $ 1,252,748
-----------
Total Insurance $ 4,150,276
-----------
Software & Services - 6.7%
Data Processing & Outsourced Services - 2.7%
43,716 First Data Corp. $ 1,880,225
-----------
IT Consulting & Other Services - 1.3%
31,860 Accenture, Ltd. $ 919,798
-----------
Systems Software - 2.7%
49,900 Microsoft Corp. $ 1,304,885
36,388 Symantec Corp.* 636,790
-----------
$ 1,941,675
-----------
Total Software & Services $ 4,741,698
-----------
Technology Hardware & Equipment - 3.0%
Communications Equipment - 2.1%
25,353 Motorola, Inc. $ 572,724
49,148 Nokia Corp. (A.D.R.) 899,408
-----------
$ 1,472,132
-----------
Computer Hardware - 0.9%
22,510 Hewlett-Packard Co. $ 644,461
-----------
Total Technology Hardware &
Equipment $ 2,116,593
-----------
Shares Value
Telecommunication Services - 5.5%
Integrated Telecom Services - 1.5%
38,689 BellSouth Corp. $ 1,048,472
-----------
Wireless Telecommunication Services - 4.0%
9,733 Alltel Corp. $ 614,152
56,654 Sprint Nextel Corp. 1,323,437
130,741 Vodafone Group Plc 283,808
28,815 Vodafone Group Plc (A.D.R.) 618,658
-----------
$ 2,840,055
-----------
Total Telecommunication Services $ 3,888,527
-----------
Utilities - 6.1%
Electric Utilities - 3.2%
21,460 Edison International $ 935,871
7,480 Entergy Corp. 513,502
15,500 Exelon Corp. 823,670
-----------
$ 2,273,043
-----------
Independent Power Producer &
Energy Traders - 2.4%
7,830 Constellation Energy Group $ 451,008
24,680 TXU Corp. 1,238,689
-----------
$ 1,689,697
-----------
Multi-Utilities - 0.5%
4,470 Dominion Resources, Inc. $ 345,084
-----------
Total Utilities $ 4,307,824
-----------
TOTAL COMMON STOCKS
(Cost $64,702,563) $70,629,425
-----------
TOTAL INVESTMENT IN SECURITIES - 99.3%
(Cost $64,702,563) $70,629,425
-----------
OTHER ASSETS
AND LIABILITIES - 0.7% $ 506,515
-----------
TOTAL NET ASSETS - 100.0% $71,135,940
===========
(A.D.R.) American Depositary Receipt
* Non-income producing security
6 The accompanying notes are an integral part of these financial statements.
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Value VCT Portfolio
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
5/1/03(a)
Year Ended Year Ended to
Class II 12/31/05 12/31/04 12/31/03
Net asset value, beginning of period $ 13.40 $ 12.04 $ 10.00
------- ------- -------
Increase from investment operations:
Net investment income $ 0.02 $ 0.02 $ 0.01
Net realized and unrealized gain on investments and foreign currency transactions 0.60 1.36 2.03
------- ------- -------
Net increase from investment operations $ 0.62 $ 1.38 $ 2.04
Distributions to shareholders:
Net investment income (0.01) (0.01) -
Net realized gain (0.09) (0.01) -
------- ------- -------
Net increase in net asset value $ 0.52 $ 1.36 $ 2.04
------- ------- -------
Net asset value, end of period $ 13.92 $ 13.40 $ 12.04
======= ======= =======
Total return* 4.67% 11.40% 20.40%
Ratio of net expenses to average net assets+ 1.34% 1.50% 1.50%**
Ratio of net investment income to average net assets+ 0.63% 0.27% 0.27%**
Portfolio turnover rate 208% 52% 24%
Net assets, end of period (in thousands) $71,136 $10,879 $ 1,695
Ratios assuming no waiver of management fees and assumption of expenses by PIM and no
reduction for fees paid indirectly:
Net expenses 1.43% 3.61% 10.93%**
Net investment income (loss) 0.54% (1.85)% (9.16)%**
Ratios assuming waiver of management fees and assumption of expenses by PIM and reduction
for fees paid indirectly:
Net expenses 1.34% 1.50% 1.50%**
Net investment income 0.63% 0.27% 0.27%**
+ Ratios with no reduction for fees paid indirectly.
(a) Class II shares were first publicly offered on May 1, 2003.
* Assumes initial investment at net asset value at the beginning of the
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of the period.
** Annualized.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
The accompanying notes are an integral part of these financial statements. 7
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Value VCT Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
ASSETS:
Investment in securities, at value (cost $64,702,563) $70,629,425
Cash 563,009
Receivable for dividends, interest and foreign taxes withheld 116,930
Other 567
------------
Total assets $71,309,931
------------
LIABILITIES:
Payable for fund shares repurchased $ 95,508
Due to affiliates 5,009
Accrued expenses 73,474
------------
Total liabilities $ 173,991
------------
NET ASSETS:
Paid-in capital $69,260,461
Undistributed net investment income 144,926
Accumulated undistributed net realized gain (4,196,305)
Net unrealized gain (loss) on:
Investments 5,926,862
Forward foreign currency contracts and other assets and liabilities denominated in
foreign currencies (4)
------------
Total net assets $71,135,940
------------
NET ASSET VALUE PER SHARE:
Class II:
No par value (unlimited number of shares authorized)
Net assets $71,135,940
Shares outstanding 5,110,424
-----------
Net asset value per share $ 13.92
8 The accompanying notes are an integral part of these financial statements.
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Value VCT Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended
12/31/05
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $2,218) $ 433,685
Interest 12,995
------------
Total investment income $ 446,680
------------
EXPENSES:
Management fees $ 170,163
Transfer agent fees 1,850
Distribution fees (Class II) 56,721
Administrative reimbursements 18,512
Custodian fees 31,442
Professional fees 31,632
Printing 8,537
Fees and expenses of nonaffiliated trustees 3,889
Miscellaneous 2,320
------------
Total expenses $ 325,066
Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (22,145)
------------
Net expenses $ 302,921
------------
Net investment income $ 143,759
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain from:
Investments $ 3,977,968
Forward foreign currency contracts and other assets and liabilities denominated in
foreign currencies 1,262
------------
$ 3,979,230
------------
Change in net unrealized gain or (loss) from:
Investments $ (2,014,631)
Forward foreign currency contracts and other assets and liabilities denominated in
foreign currencies (52)
------------
$ (2,014,683)
------------
Net gain on investments and foreign currency transactions $ 1,964,547
------------
Net increase in net assets resulting from operations $ 2,108,306
============
The accompanying notes are an integral part of these financial statements. 9
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Value VCT Portfolio
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Year
Ended Ended
12/31/05 12/31/04
FROM OPERATIONS:
Net investment income $ 143,759 $ 14,601
Net realized gain on investments 3,979,230 56,068
Change in net unrealized gain or (loss) on investments and foreign currency transactions (2,014,683) 807,158
------------ -----------
Net increase in net assets resulting from operations $ 2,108,306 $ 877,827
------------ -----------
DISTRIBUTIONS TO SHAREOWNERS
Net investment income:
Class II $ (12,530) $ (2,607)
Net realized gain
Class II (94,867) (2,047)
------------ -----------
Total distributions to shareholders $ (107,397) $ (4,654)
------------ -----------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 4,536,146 $ 8,460,112
Shares issued in reorganization 56,877,053 -
Reinvestment of distributions 104,862 4,364
Cost of shares repurchased (3,262,015) (154,122)
------------ -----------
Net increase in net assets resulting from fund share transactions $ 58,256,046 $ 8,310,354
------------ -----------
Net increase in net assets $ 60,256,955 $ 9,183,527
NET ASSETS:
Beginning of period 10,878,985 1,695,458
------------ -----------
End of period $ 71,135,940 $10,878,985
============ ============
Undistributed net investment income, end of period $ 144,926 $ 12,435
============ ============
10 The accompanying notes are an integral part of these financial statements.
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Value VCT Portfolio
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer Value VCT Portfolio (the Portfolio), is a Portfolio of Pioneer
Variable Contracts Trust (the Trust), a Delaware statutory trust registered
under the Investment Company Act of 1940 as an open-end management investment
company. The Trust consists of twenty nine separate diversified portfolios,
sixteen of which issue both Class I and Class II shares (collectively, the
"Portfolios", individually the "Portfolio") as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer AmPac Growth VCT Portfolio (AmPac Growth Portfolio) (Class II
shares only)
Pioneer Small and Mid Cap Growth VCT Portfolio (Small and Mid Cap Growth
Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Ibbotson Aggressive
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Ibbotson Moderate
Allocation Portfolio) (Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Ibbotson Growth
Allocation Portfolio) (Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II shares
only)
The Value VCT Portfolio commenced operations on May 1, 2003.
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts or by
qualified pension and retirement plans.
The Value Portfolio seeks reasonable income and capital growth.
The financial statements and financial highlights of all other Portfolios are
presented in separate books.
The Portfolio's financial statements have been prepared in conformity with U.S.
generally accepted accounting principles that require the management of the
Portfolio to, among other things, make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of income, expenses, gains and losses during the reporting
periods. Actual results could differ from those estimates.
Information concerning the Portfolio's principal investment risk is contained
in the Portfolio's prospectus(es). Please refer to those documents when
considering the Portfolio's risks. Investing in foreign and/or emerging markets
securities involves risks relating to interest rates, currency exchange rates,
economic and political conditions.
The following is a summary of significant accounting policies consistently
followed by the Trust, in the preparation of its financial statements which are
consistent with those generally accepted in the investment company industry:
11
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Value VCT Portfolio
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
A. Security Valuation
Security transactions are recorded as of trade date. Net asset values for
the portfolio are computed once daily, on each day the New York Stock
Exchange (NYSE) is open, as of the close of regular trading on the NYSE. In
computing the net asset values, securities are valued at the last sale
price on the principal exchange where they are traded. Securities that have
not traded on the date of valuation, or securities for which sale prices
are not generally reported, are valued at the mean between the last bid and
asked prices. The Portfolio also may use the fair value of a security,
including a non-U.S. security, when the closing market price on the primary
exchange where the security is traded no longer accurately reflects the
value of the security as of the close of the NYSE. At December 31, 2005,
there were no fair valued securities. Temporary cash investments are valued
at amortized cost.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities where the ex-dividend date may have
passed are recorded as soon as the Portfolio becomes aware of the
ex-dividend data in the exercise of reasonable diligence. Interest income,
including interest on income bearing cash accounts, is recorded on the
accrual basis.
Gains and losses from sales on investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes,
and, if applicable, are reported net of foreign taxes on capital gains at
the applicable country rates.
B. Foreign Currency Translation
The books and records of the Portfolio are maintained in U.S. dollars.
Amounts denominated in foreign currencies are translated into U.S. dollars
using current exchange rates.
Net realized gains and losses on foreign currency transactions represent,
the net realized gains and losses on foreign currency contracts,
disposition of foreign currencies, and the difference between the amount of
income accrued and the U.S. dollars actually received. Further, the effects
of changes in foreign currency exchange rates on investments are not
segregated in the statement of operations from the effects of changes in
market price of those securities but are included with the net realized and
unrealized gain or loss on investments.
C. Forward Foreign Currency Contracts
The Portfolio enters into forward foreign currency contracts (contracts)
for the purchase or sale of a specific foreign currency at a fixed price on
a future date as a hedge or cross-hedge against either specific investment
transactions (settlement hedges) or portfolio positions (portfolio hedges).
All contracts are marked to market daily at the applicable exchange rates,
and any resulting unrealized gains or losses are recorded in the
Portfolio's financial statements. The Portfolio records realized gains and
losses at the time a portfolio hedge is offset by entry into a closing
transaction or extinguished by delivery of the currency. Risks may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of the contract and from unanticipated
movements in the value of foreign currencies relative to the U.S. dollar.
At December 31, 2005, there were no open forward foreign currency
contracts.
D. Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareowners. Therefore, no federal income tax provision is
required.
The amounts and characterizations of distributions to shareowners for
financial reporting purposes are determined in accordance with federal
income tax rules. Therefore, the source of each Portfolio's distributions
may be shown in the accompanying financial statements as either from, or in
excess of, net investment income or net realized gain on investment
transactions, or from paid-in capital, depending on the type of book/tax
differences that may exist.
Capital loss carryforwards are available to offset future realized capital
gains. At December 31, 2005, Value Portfolio had a net capital loss
carryforward of $7,737,092, of which the following amounts will expire in
between 2009 and 2010, if not utilized: $5,070,587 in 2009 and $2,666,505
in 2010.
12
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Value VCT Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At December 31, 2005, the Portfolio made reclassifications as described
below. These reclassifications have no impact on the net asset value of the
Portfolio and are designed to present the Portfolio's capital accounts on a
tax basis.
- --------------------------------------------------------------------------------
Undistributed Accumulated
Net Investment Net Realized Paid-In
Portfolio Income (Loss) Gain (Loss) Capital
- --------------------------------------------------------------------------------
Pioneer Value
VCT Portfolio (2,395) 2,395 --
- --------------------------------------------------------------------------------
The following chart shows the distributions paid during the years ended
December 31, 2005 and December 31, 2004 and the components of distributable
earnings (accumulated losses) as of December 31, 2005 on a tax basis.
- --------------------------------------------------------------------------------
2005 2004
- --------------------------------------------------------------------------------
Distributions paid
from:
Ordinary Income $ 20,216 $4,654
Long-Term capital
gain 87,181 --
Return of Capital -- --
---------- ------
Total distributions $ 107,397 $4,654
========== ======
Distributable
Earnings
(Accumulated
Losses):
Undistributed
ordinary income $ 144,926
Undistributed
long-term gain/
(capital loss
carryforward) 3,614,768
Capital loss
carryforward from
AmSouth merger (7,737,092)
Unrealized
appreciation
(depreciation) 5,852,878
----------
Total $1,875,480
==========
- --------------------------------------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation is
primarily attributable to the tax deferral of losses on wash sales.
E. Portfolio Shares
The Portfolio records sales and repurchases of its shares as of trade date.
Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the
principal underwriter for the Trust and a wholly owned indirect subsidiary
of UniCredito Italiano S.p.A. (Unicredito Italiano), $638,021 in
commissions on the sale of Trust shares for the year ended December 31,
2005. Distribution fees for Class II shares are calculated based on the
average daily net asset values attributable to Class II shares of the
Portfolio.
F. Securities Lending
The Portfolio lends securities in its portfolio to certain broker-dealers
or other institutional investors, with the Portfolio's custodian acting as
the lending agent. When entering into a loan, the Portfolio receives
collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees. The Portfolio also continues to receive
payments in lieu of interest or dividends on the securities loaned. Gain or
loss in the fair value of the securities loaned that may occur during the
term of the loan, will be for the account of the Trust. The loans are
secured by collateral of at least 102%, at all times, of the fair value of
the securities loaned. The fair value of the collateral will be adjusted
daily to reflect any price fluctuation in the value of the loaned
securities. The Portfolio has the right under the lending agreement to
recover the securities on loan from the borrower on demand. The Portfolio
invests cash collateral in the Securities Lending Investment Fund which is
sponsored by Brown Brothers Harriman & Co., the Trust's custodian.
G. Repurchase Agreements
With respect to repurchase agreements entered into by the Portfolio, the
value of the underlying securities (collateral), including accrued interest
received from counterparties, is required to be at least equal to or in
excess of the value of the repurchase agreement at the time of purchase.
The collateral for all repurchase agreements is held in safekeeping in the
customer-only account of the Portfolio's custodian, or subcustodian. The
Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is
responsible for determining that the value of the collateral remains at
least equal to the repurchase price.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano manages the
portfolio. Management fees are calculated daily at the annual rate of 0.75% of
the Portfolio's average daily net assets.
In addition, under the management and administration agreements, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, are paid by the Portfolio. At December 31, 2005, $3,544 was payable
to PIM related to management fees, administrative fees and certain other
services, and is included in due to affiliates.
13
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Value VCT Portfolio
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
Through May 1, 2006, PIM has agreed not to impose all or a portion of its
management fee and, if necessary, to limit other ordinary operating expenses to
the extent required to reduce Class II expenses to 1.50% of the average daily
net assets attributable to class II shares.
3. Transfer Agent
Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly
owned indirect subsidiary of UniCredito Italiano provides substantially all
transfer agent and shareowner services to the Trust at negotiated rates.
Included in due to affiliates is $484 in transfer agent fees payable to PIMSS
at December 31, 2005.
4. Distribution Plans
The Portfolio has adopted a plan of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the
plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily
net assets attributable to Class II shares to compensate PFD for (1)
distribution services and (2) personal and account maintenance services
performed and expenses incurred by PFD in connection with the Portfolio's Class
II shares.
Included in due to affiliates is $981 payable to PFD at December 31, 2005.
5. Aggregate Unrealized Appreciation and Depreciation
At December 31, 2005, the Portfolio's aggregate unrealized appreciation and
depreciation based on cost for federal income tax purposes was as follows:
- ---------------------------------------------------------------------------------------
Net
Gross Gross Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
- ---------------------------------------------------------------------------------------
Value Portfolio $64,776,543 $6,521,386 $ (668,504) $5,852,882
=========== ========== =========== ===========
- ---------------------------------------------------------------------------------------
6. Portfolio Transactions
The cost of purchases and the proceeds from sales of investments other than
U.S. Government obligations and temporary cash investments for the year ended
December 31, 2005, were $49,924,893 and $45,764,398, respectively.
7. Capital Shares
At December 31, 2005, there were an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
- --------------------------------------------------------------------------------------------------
Value Portfolio '05 Shares '05 Amount '04 Shares '04 Amount
- --------------------------------------------------------------------------------------------------
CLASS II:
Shares sold 338,599 $ 4,536,146 683,440 $8,460,112
Shares issued in reorganization 4,188,296 56,877,053
Reinvestment of distributions 7,796 104,862 353 4,364
Shares repurchased (236,328) (3,262,015) (12,576) (154,122)
--------- ------------ ------- ----------
Net increase 4,298,363 $ 58,256,046 671,217 $8,310,354
========= ============ ======= ==========
- --------------------------------------------------------------------------------------------------
14
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Value VCT Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. Merger Information
On November 4, 2005, beneficial owners of AmSouth VIF Value Portfolio approved
a proposed Agreement and Plan of Reorganization that provided for the merger
listed below. This tax-free reorganization was accomplished on November 4,
2005, by exchanging all of the AmSouth Fund's net assets for Class II shares as
indicated below, based on Class II share's ending net asset value on the
Closing Date. The following charts show the details of the reorganization as of
that closing date ("Closing Date"):
- ------------------------------------------------------------------------------------------------
Pioneer Pioneer
Value VCT AmSouth Value VCT
Portfolio VIF Value Portfolio
(Pre-Reorganization) (Pre-Reorganization) (Post-Reorganization)
- ------------------------------------------------------------------------------------------------
Net Assets $14,728,843 $56,877,053 $71,605,896
Shares Outstanding 1,084,731 3,957,885 5,273,027
Class II Shares
Issued 4,188,296
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Unrealized
Appreciation Realized (Loss)
on Closing Date on Closing Date
- ------------------------------------------------------------------------------------------------
AmSouth VIF Value $6,995,580 $ (8,135,854)
========== =============
- ------------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION (unaudited)
The qualifying percentage of certain Portfolios' ordinary income dividends for
the purposes of the corporate dividends received deduction and the percentage
of those ordinary dividends that are subject to a maximum tax rate of 15% as
provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 were
as follows:
- ------------------------------------------------------------------------------------------------
Dividend Qualified
Received Dividend
Deduction Income
- ------------------------------------------------------------------------------------------------
Value Portfolio 100.00% 100.00%
- ------------------------------------------------------------------------------------------------
15
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Value VCT Portfolio
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust
and the Shareowners of Pioneer Value VCT Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Pioneer Value VCT Portfolio, one of the
portfolios constituting the Pioneer Variable Contracts Trust (the "Trust"), as
of December 31, 2005, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Trust's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005, by correspondence
with the custodian. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer Value VCT Portfolio of the Pioneer Variable Contracts Trust at December
31, 2005, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and
financial highlights for the periods indicated therein, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 10, 2006
16
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Value VCT Portfolio (the "Fund")
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE MANAGEMENT
CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") vote
separately annually to approve the Fund's management contract (the "Management
Contract"). The Trustees have determined that the terms of the Management
Contract are fair and reasonable and that renewal of the contract will enable
the Fund to receive quality investment advisory services at a cost deemed
reasonable and in the best interests of the Fund and its shareowners. In making
such determinations, the Independent Trustees relied upon the assistance of
counsel to the Independent Trustees and counsel to the Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
Pioneer Investment Management, Inc., the Fund's adviser (the "Investment
Adviser"), or its affiliates. While the Trustees, including the Independent
Trustees, act on all major matters relating to the Fund, a significant portion
of the activities of the Board of Trustees (including certain of those
described herein) is conducted through committees, the members of which are
comprised exclusively of Independent Trustees. Such committee meetings are
attended by officers of the Fund or the Investment Adviser to the extent
requested by the members of the committee.
In evaluating the Management Contract, the Trustees conducted a review that was
specifically focused upon the renewal of the Management Contract, and relied
upon their knowledge, resulting from their meetings throughout the year, of the
Investment Adviser, its services and the Fund. Both in meetings specifically
dedicated to renewal of the Management
Contract and at other meetings during the course of the year, the Trustees,
including the Independent Trustees, received materials relating to the
Investment Adviser's investment and management services under the Management
Contract. These materials included (i) information on the investment
performance of the Fund, a peer group of funds and an index, in each case
selected by the Independent Trustees for this purpose, (ii) sales and
redemption data in respect to the Fund, (iii) the general investment outlook in
the markets in which the Fund invests, (iv) arrangements in respect of the
distribution of the Fund's shares, (v) the procedures employed to determine the
value of each of the Fund's assets, (vi) the Investment Adviser's management of
the relationships with the Fund's unaffiliated service providers, (vii) the
record of compliance with the Fund's investment policies and restrictions and
with the Fund's Code of Ethics and the structure and responsibilities of the
Investment Adviser's compliance department, (viii) the nature, cost and
character of non-investment management services provided by the Investment
Adviser and its affiliates and (ix) the disclosures included in the Fund's
prospectuses and reports to shareholders.
Specifically in connection with the Independent Trustees' review of the
Management Contract, the Independent Trustees requested and the Investment
Adviser provided additional information in order to evaluate the quality of the
Investment Adviser's services and the reasonableness of the fee under the
Management Contract. Among other items, this information included data or
analyses of (1) investment performance for one year period for the Fund and a
peer group selected by the Independent Trustees for this purpose, (2)
management fees incurred by a peer group of funds selected by the Independent
Trustees for this purpose, (3) the advisory fees of comparable portfolios of
other clients of the Investment Adviser, (4) expense ratios for the Fund and a
peer group of funds selected by the Independent Trustees for this purpose, (5)
the overall organization of the Investment Adviser, (6) the Investment
Adviser's financial results and condition, including its and certain of its
affiliates profitability from services performed for the Fund, (7) transfer
agency fees and administrative reimbursements paid to the Investment Adviser or
affiliates, (8) investment management staffing, and (9) operating expenses paid
to third parties. The Trustees also reviewed information regarding the
potential for the Fund and the Investment Adviser to benefit from further
economies of scale in the management of the Fund in light of reasonable growth
expectations for the Fund and certain of the Fund's expenses that are not
incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
A. Ancillary Benefits to Shareholders. The Trustees considered the benefits to
shareholders of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareholder services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objective and regulatory requirements.
The Trustees also reviewed the Fund's investment performance based upon
total return, as well as the Fund's performance
17
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Value VCT Portfolio
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
compared to both the performance of a peer group and the results of an
index, in each case selected by the Independent Trustees for this purpose.
(In all quintile rankings referred to throughout this discussion first
quintile is most favorable to the Fund's shareholders. Thus, highest
relative performance would be first quintile and lowest relative expenses
also would be first quintile.) The Trustees concluded that the period of
investment was too short to evaluate performance.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations and the senior management of
the Investment Adviser's equities group. Among other things, the Trustees
considered the number, education and experience of the Investment Adviser's
investment staff and their use of technology and emphasis on analytics in
view of the risk profile of securities in which the Fund invests. The
Trustees concluded that the Investment Adviser had the quality and depth of
personnel and the well-developed methods essential to performing its duties
under the Management Contract.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareholders of the
Fund, including administrative and shareholder services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareholders of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee was in the first quintile (after fee waivers) for the 12
months ended June 30, 2005 relative to the management fees paid by the other
funds in that peer group for the comparable period and in the second
quintile after giving effect to fee waivers. The Trustees also evaluated the
fee relative to the median fee of the peer group. In light of the tight
range of fees in the peer group, the Trustees determined that the fee under
the Management Contract was reasonable and fair in light of both the overall
nature and quality of services provided by the Investment Adviser and the
fees charged by the funds in the peer group. The Trustees also considered
the Fund's expense ratio (both before and after expense limitation) for the
12 months ended June 30, 2005 and expense ratios for the comparable period
of an applicable peer group of funds. The Fund's expense ratio (both before
and after expense limitation) was in the fifth quintile of the applicable
peer group for the most recent fiscal year of the peer group. The Trustees
concluded that the Fund's overall expense ratio, although higher than the
peer group, was reasonable compared to that of most of the comparably sized
funds.
F. Profitability. The Trustees considered the level of the Investment Adviser's
profits with respect to the management of the Pioneer Funds, including
details with respect to the Fund. This consideration included a review of
the Investment Adviser's methodology in allocating certain of its costs to
the management of each Fund. The Trustees also considered the financial
results realized by the Investment Adviser in connection with the operation
of the Fund. They further considered the profits realized by the Investment
Adviser and its affiliates from non-fund businesses that may benefit from or
be related to the Fund's business. The Trustees considered the Investment
Adviser's profit margins in comparison with the limited available industry
data. The Trustees concluded that the Investment Adviser's profits from
management of the Pioneer Funds, including the financial results derived
from the Fund, bear a reasonable relationship to the services rendered and
are fair for the management of the Fund.
G. Economies of Scale. The Trustees considered the economies of scale with
respect to the management of the Fund, whether the Fund had appropriately
benefited from any economies of scale, and whether there was potential for
realization of any further economies of scale. The Trustees concluded that,
given current and anticipated asset levels, a break point in the management
fee was not necessary at this time. The Trustees will continue to evaluate
annually the appropriateness of break points.
18
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Value VCT Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
H. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareholder services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect to the Pioneer Funds (including the Fund), and
benefits to the Investment Adviser from the use of "soft" commission dollars
to pay for research services. The Trustees further considered the revenues
and profitability of the Investment Adviser's businesses other than the fund
business, including the Investment Adviser's institutional investment
advisory business. The Trustees considered the intangible benefits that
accrue to the Investment Adviser and its affiliates by virtue of its
relationship with the Fund and the Pioneer Funds as a group. The Trustees
concluded that all these types of benefits accruing to the Investment
Adviser were reasonable in the context of the overall relationship between
the Investment Adviser and the Fund.
Conclusion. The Trustees, in light of the Investment Adviser's overall
performance, considered it appropriate to continue to retain the management
services of the Investment Adviser. Based on their evaluation of all material
factors deemed relevant and the advice of independent counsel, the Trustees
concluded that the Management Contract with the Fund is fair and reasonable and
voted to approve the continuation of the Management Contract for another year.
19
- --------------------------------------------------------------------------------
Pioneer Value VCT Portfolio
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Trustees and Officers
Investment Adviser The Trust's Board of Trustees provides broad supervision over the
Pioneer Investment Management, Inc. affairs of the Trust. The officers of the Trust are responsible
for the Trust's operations. The Trust's Trustees and officers are
Custodian listed below, together with their principal occupations during
Brown Brothers Harriman & Co. the past five years. Trustees who are interested persons of the
Portfolio within the meaning of the Investment Company Act of
Independent Registered Public Accounting Firm 1940 are referred to as Interested Trustees. Trustees who are not
Ernst & Young LLP interested persons of the Trust are referred to as Independent
Trustees. Each of the Trustees may serve as a trustee of each of
Principal Underwriter the 91 U.S. registered investment portfolios for which Pioneer
Pioneer Funds Distributor, Inc. Investment Management, Inc. ("Pioneer") serves as investment
adviser (the "Trust"). The address for all Interested Trustees
Legal Counsel and all officers of the Portfolio is 60 State Street, Boston,
Wilmer Cutler Pickering Hale and Dorr LLP Massachusetts 02109.
Shareowner Services and Transfer The Trust's statement of additional information provides more
Pioneer Investment Management Shareholder Services, Inc. detailed information regarding the Trust's Trustees and is
available upon request, without charge, by calling
1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust are available
without charge, upon Agent request, by calling our toll free
number (1-800-225-6292). This information is also available online
at pioneerfunds.com.
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Chairman and
Board, Trustee until successor Pioneer Global Asset Management Directors of ICI
and President trustee is elected S.p.A. ("PGAM"); Non-Executive Mutual Insurance
or earlier Chairman and a Director of Pioneer Company; Director of
retirement or Investment Management USA Inc. Harbor Global
removal. ("PIM-USA"); Chairman and a Company, Ltd.
Director of Pioneer; Director of
Pioneer Alternative Investment
Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated
funds; Director of PIOGLOBAL Real
Estate Investment Fund (Russia);
Director of Nano-C, Inc. (since
2003); Director of Cole Investment
Corporation (since 2004); Director
of Fiduciary Counseling Inc.;
President and Director of Pioneer
Funds Distributor, Inc. ("PFD");
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
20
Pioneer Value VCT Portfolio
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Director of The Enterprise Social
3050 K. Street NW, until a successor Financial Officer, I-trax, Inc. Investment Company (privately-held
Washington, DC 20007 trustee is elected (publicly traded health care affordable housing finance
or earlier services company) (2001-present); company); Director of New York
retirement or Managing Partner, Federal City Mortgage Trust (publicly traded
removal. Capital Advisors (boutique merchant mortgage REIT)
bank) (2002 to 2004); Executive
Vice President and Chief Financial
Officer, Pedestal Inc.
(internet-based mortgage trading
company) (2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ----------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady Corporation
3509 Woodbine Street, until successor (international financial advisory (industrial identification and
Chevy Chase, MD 20815 trustee is elected firm). specialty coated material products
or earlier manufacturer), Mortgage Guaranty
retirement or Insurance Corporation, and Briggs
removal. & Stratton, Inc. (engine
manufacturer)
- ----------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Serves Founding Director, The Winthrop None
1001 Sherbrooke Street until successor Group, Inc. (consulting firm);
West, Montreal, Quebec, trustee is elected Desautels, Faculty of Management,
Canada H3A 1G5 or earlier McGill University.
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. Serves President and Chief Executive Director of New America High
One Boston Place, until successor Officer, Newbury, Piret & Company, Income Fund, Inc. (closed-end
28th Floor, trustee is elected Inc. (investment banking firm). investment company)
Boston, MA 02108 or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., None
One North Adgers Wharf, 2000. Serves until Inc. (private investment firm).
Charleston, SC 29401 successor trustee is
elected or earlier
retirement or
removal.
- ----------------------------------------------------------------------------------------------------------------------------------
21
- --------------------------------------------------------------------------------
Pioneer Value VCT Portfolio
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Trustee of certain
President at the discretion of Officer, PIM-USA since May 2003 Pioneer funds
Board. (Director since January 2001);
President and Director of Pioneer
since May 2003; Chairman and
Director of Pioneer Investment
Management Shareholder Services,
Inc. ("PIMSS") since May 2003;
Executive Vice President of all of
the Pioneer Funds since June 2003;
Executive Vice President and Chief
Operating Officer of PIM-USA,
November 2000 to May 2003;
Executive Vice President, Chief
Financial Officer and Treasurer,
John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to
November 2000; Senior Vice
President and Chief Financial
Officer, John Hancock Advisers,
L.L.C., April 1997 to November
1999.
- -----------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, Secretary of PIM-USA; Senior Vice None
2003. Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of
Board. PIM-USA's subsidiaries; Secretary
of all of the Pioneer Funds since
September 2003 (Assistant Secretary
from November 2000 to September
2003).
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and Senior None
Kelley (41) Secretary 2003. Serves at the Counsel of Pioneer since July 2002;
discretion of the Vice President and Senior Counsel
Board. of BISYS Fund Services, Inc. (April
2001 to June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor, Inc.
(July 2000 to April 2001) and
Assistant Secretary of all Pioneer
Funds since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, Partner, Wilmer Cutler Pickering None
Secretary 2003. Serves at the Hale and Dorr LLP; Assistant
discretion of the Secretary of all Pioneer Funds
Board. since September 2003.
- -----------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, Vice President - Fund Accounting, None
2000. Serves at the Administration and Custody Services
discretion of the of Pioneer; and Treasurer of all of
Board. the Pioneer Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, Deputy Treasurer of Pioneer since None
Treasurer 2004. Serves at the 2004; Treasurer and Senior Vice
discretion of the President, CDC IXIS Asset
Board. Management Services from 2002 to
2003; Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002; and
Assistant Treasurer of all of the
Pioneer Funds since November 2004.
- -----------------------------------------------------------------------------------------------------------------------------------
22
- --------------------------------------------------------------------------------
Pioneer Value VCT Portfolio
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER
Luis I. Presutti (40) Assistant Since November, None
Treasurer 2000. Serves at the Assistant Vice President - Fund
discretion of the Accounting, Administration and
Board. Custody Services of Pioneer; and
Assistant Treasurer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of the Custody Services of Pioneer; and
Board. Assistant Treasurer of all of the
Pioneer Funds since May 2002.
- ---------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, Fund Administration Manager - Fund None
Sullivan (32) Treasurer 2003. Serves at the Accounting, Administration and
discretion of the Custody Services since June 2003;
Board. Assistant Vice President - Mutual
Fund Operations of State Street
Corporation from June 2002 to June
2003 (formerly Deutsche Bank Asset
Management); Pioneer Fund
Accounting, Administration and
Custody Services (Fund Accounting
Manager from August 1999 to May
2002); and Assistant Treasurer of
all Pioneer Funds since September
2003.
- ---------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to
Board. September 2004); and Chief
Compliance Officer of all of the
Pioneer Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
23
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
24
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page for your notes.
25
[LOGO]PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company,
Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18670-00-0206
[LOGO] PIONEER
Investments(R)
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Asset Allocation Series VCT Portfolios -- Class II Shares
ANNUAL REPORT
December 31, 2005
PIONEER VARIABLE CONTRACTS TRUST
- --------------------------------------------------------------------------------
T a b l e o f C o n t e n t s
- --------------------------------------------------------------------------------
Pioneer Ibbotson Asset Allocation Series VCT Portfolios
Moderate Allocation Portfolio - Portfolio and
Performance Update 2
Growth Allocation Portfolio - Portfolio and
Performance Update 3
Aggressive Allocation Portfolio - Portfolio and
Performance Update 4
Comparing Ongoing Portfolio Expenses 5
Market Overview and Strategy 8
Portfolio Reviews 9
Schedule of Investments 10
Financial Statements 13
Notes to Financial Statements 20
Report of Independent Registered Public
Accounting Firm 23
Factors Considered by the Independent Trustees
in Approving the Management Contract 24
Trustees, Officers and Service Providers 30
Before investing, consider the Portfolio's investment objectives, risks,
charges and expenses. Contact your advisor or Pioneer Investments for a
prospectus containing this information. Read it carefully.
The Trust files a complete statement of investments with the Securities and
Exchange Commission for the first and the third quarters for each fiscal year
on Form N-Q. Shareowners may view the filed Form N-Q by visiting the
Commission's web site at http://www.sec.gov. The filed form may also be viewed
and copied at the Commission's Public Reference Room in Washington, D.C.
Information regarding the operations of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Moderate Allocation VCT Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Target Asset Allocations
Equity 60%
Fixed Income 40%
Large Cap Growth Stocks 15.5%
- ----------------------------------
Large Cap Value Stocks 15.5
- ----------------------------------
Mid/Small Cap Growth Stocks 6.0
- ----------------------------------
Mid/Small Cap Value Stocks 6.0
- ----------------------------------
International Stocks 12.0
- ----------------------------------
Emerging Markets 2.0
- ----------------------------------
Real Estate (REITS) 3.0
- ----------------------------------
High Yield Bonds 8.0
- ----------------------------------
Bonds 11.0
- ----------------------------------
Short Term Bonds 15.0
- ----------------------------------
Cash Equivalents 6.0
- ----------------------------------
Actual Portfolio Holdings (Based on total portfolio)
U.S. Stocks Pioneer Real Estate 3.13%
- ------------------------------------------------------------------------------------------
Pioneer Fund 6.22% Pioneer Growth Opportunities 2.06
- ------------------------------------------------------------------------------------------
Pioneer Research 10.34 International Stocks
- ------------------------------------------------------------------------------------------
Pioneer Oak Ridge Large Pioneer International Equity 12.61%
Cap Growth 14.41 ------------------------------------
Pioneer Emerging Markets 1.24
- ------------------------------------------------------------------------------------------
Pioneer Value 3.10 Bonds
- ------------------------------------------------------------------------------------------
Pioneer Cullen Value Fund 3.13 Pioneer High Yield 6.31%
- ------------------------------------------------------------------------------------------
Pioneer Mid Cap Growth 3.14 Pioneer Bond 10.55
- ------------------------------------------------------------------------------------------
Pioneer Mid Cap Value 1.73 Pioneer ST Income 14.71
- ------------------------------------------------------------------------------------------
Pioneer Small Cap Value 3.11 Pioneer Government Income 4.21
- ------------------------------------------------------------------------------------------
This list excludes temporary cash and derivative instruments. Portfolio
holdings will vary for other periods.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
Prices and Distributions
12/31/05 3/18/05
Net Asset Value per Share $ 10.63 $ 10.00
Net
Distributions per Share Investment Short-Term Long-Term
(3/18/05 - 12/31/05) Income Capital Gains Capital Gains
$ - $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Ibbotson Moderate Allocation VCT Portfolio at net asset value, compared to that
of the Standard & Poor's 500 Stock Index. Portfolio returns are based on net
asset value and do not reflect any applicable insurance fees or surrender
charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Ibbotson
Moderate Allocation LB Aggregate
VCT Portfolio S&P 500 Bond
Mar-05 10,000 10,000 10,000
Dec-05 10,721 10,683 10,292
The Lehman Brothers Aggregate Bond Index is a measure of the U.S. bond market.
The Standard & Poor's Stock Index (the S&P 500) is a commonly used measure of
the broad U.S. stock market. Index returns are calculated monthly, assume
reinvestment of dividends and, unlike Fund returns, do not reflect any fees,
expenses or sales charges. You cannot invest directly in the index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Life-of-Class 6.30%
(3/18/05)
All total returns shown assume reinvestment of distributions at net asset
value.
The performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown. Please refer to variable product's semiannual report for
performance that reflects the deduction of the variable products fees and
charges.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
2
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Growth Allocation VCT Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Target Asset Allocations
Equity 75%
Fixed Income 25%
Large Cap Growth Stocks 16.5%
- ----------------------------------------
Large Cap Value Stocks 17.5
- ----------------------------------------
Mid/Small Cap Growth Stocks 8.0
- ----------------------------------------
Mid/Small Cap Value Stocks 9.0
- ----------------------------------------
International Stocks 16.0
- ----------------------------------------
Emerging Markets 4.0
- ----------------------------------------
Real Estate (REITs) 4.0
- ----------------------------------------
High Yield Bonds 5.0
- ----------------------------------------
Bonds 9.5
- ----------------------------------------
Short Term Bonds 10.5
- ----------------------------------------
Cash Equivalents 0.0
Actual Portfolio Holdings (Based on total portfolio)
U.S. Stocks Pioneer Real Estate 3.99%
- ----------------------------------------------------------------------------------------------------
Pioneer Fund 6.97% Pioneer Growth Opportunities 3.98
- ----------------------------------------------------------------------------------------------------
Pioneer Research 10.97 International Stocks
- ----------------------------------------------------------------------------------------------------
Pioneer Oak Ridge Large Pioneer International Equity 15.95%
Cap Growth 13.93 --------------------------------------
Pioneer Emerging Markets 3.12
- ----------------------------------------------------------------------------------------------------
Pioneer Value 3.99 Bonds
- ----------------------------------------------------------------------------------------------------
Pioneer Cullen Value Fund 3.98 Pioneer High Yield 3.02%
- ----------------------------------------------------------------------------------------------------
Pioneer Mid Cap Growth 3.99 Pioneer Bond 9.04
- ----------------------------------------------------------------------------------------------------
Pioneer Mid Cap Value 2.05 Pioneer ST Income 10.03
- ----------------------------------------------------------------------------------------------------
Pioneer Small Cap Value 2.99 Pioneer Government Income 2.00
- ----------------------------------------------------------------------------------------------------
This list excludes temporary cash and derivative instruments. Portfolio
holdings will vary for other periods.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 3/18/05
Net Asset Value per Share $ 10.78 $ 10.00
Net
Distributions per Share Investment Short-Term Long-Term
(3/18/05 - 12/31/05) Income Capital Gains Capital Gains
$ - $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Ibbotson Growth Allocation VCT Portfolio at net asset value, compared to that
of the Standard & Peer's 500 Stock Index. Portfolio returns are based on net
asset value and do not reflect any applicable insurance fees or surrender
charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Ibbotson
Growth Allocation LB Aggregate
VCT Portfolio S&P 500 Bond
Mar-05 10,000 10,000 10,000
Dec-05 10,878 10,721 10,292
The Lehman Brothers Aggregate Bond Index is a measure of the U.S. bond market.
The Standard & Poor's Stock Index (the S&P 500) is a commonly used measure of
the broad U.S. stock market. Index returns are calculated monthly, assume
reinvestment of dividends and, unlike Fund returns, do not reflect any fees,
expenses or sales charges. You cannot invest directly in the index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Life-of-Class 7.80%
(3/18/05)
All total returns shown assume reinvestment of distributions at net asset
value.
The performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown. Please refer to variable product's semiannual report for
performance that reflects the deduction of the variable products fees and
charges.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
3
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Aggressive Allocation VCT Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO UPDATE 12/31/05
- --------------------------------------------------------------------------------
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Target Asset Allocations
Equity 90%
Fixed Income 10%
Large Cap Growth Stocks 19.0%
- -----------------------------------
Large Cap Value Stocks 19.0
- -----------------------------------
Mid/Small Cap Growth Stocks 10.0
- -----------------------------------
Mid/Small Cap Value Stocks 11.0
- -----------------------------------
International Stocks 21.0
- -----------------------------------
Emerging Markets 5.0
- -----------------------------------
Real Estate (REITs) 5.0
- -----------------------------------
High Yield Bonds 0.0
- -----------------------------------
Bonds 10.0
- -----------------------------------
Short Term Bonds 0.0
- -----------------------------------
Cash Equivalents 0.0
- -----------------------------------
Actual Portfolio Holdings (Based on total portfolio)
- ----------------------------------------------------------------------------------------------------------
U.S. Stocks Pioneer Small Cap Value 3.69%
- ----------------------------------------------------------------------------------------------------------
Pioneer Fund 6.90% Pioneer Real Estate 4.94
- ----------------------------------------------------------------------------------------------------------
Pioneer Research 10.85 Pioneer Growth Opportunities 4.91
- ----------------------------------------------------------------------------------------------------------
Pioneer Oak Ridge Large International Stocks
Cap Growth 17.71 -------------------------------------
Pioneer International Equity 20.77%
- ----------------------------------------------------------------------------------------------------------
Pioneer Value 4.13 Pioneer Emerging Markets 4.04
- ----------------------------------------------------------------------------------------------------------
Pioneer Cullen Value Fund 4.93 Bonds
- ----------------------------------------------------------------------------------------------------------
Pioneer Mid Cap Growth 4.94 Pioneer Bond 8.96
- ----------------------------------------------------------------------------------------------------------
Pioneer Mid Cap Value 3.23
- ---------------------------------------------
This list excludes temporary cash and derivative instruments. Portfolio holdings
will vary for other periods.
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE 12/31/05
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/05 3/18/05
Net Asset Value per Share $ 10.98 $ 10.00
Net
Distributions per Share Investment Short-Term Long-Term
(3/18/05 - 12/31/05) Income Capital Gains Capital Gains
$ - $ - $ -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the change in value of an investment made in Pioneer
Ibbotson Aggressive Allocation VCT Portfolio at net asset value, compared to
that of the Standard & Poor's 500 Stock Index. Portfolio returns are based on
net asset value and do not reflect any applicable insurance fees or surrender
charges.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Pioneer Ibbotson
Aggressive Allocation LB Aggregate
VCT Portfolio S&P 500 Bond
Mar-05 10,000 10,000 10,000
Dec-05 11,024 10,721 10,292
The Lehman Brothers Aggregate Bond Index is a measure of the U.S. bond market.
The Standard & Poor's Stock Index (the S&P 500) is a commonly used measure of
the broad U.S. stock market. Index returns are calculated monthly, assume
reinvestment of dividends and, unlike Fund returns, do not reflect any fees,
expenses or sales charges. You cannot invest directly in the index.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(As of December 31, 2005)
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
Life-of-Class 9.80%
(3/18/05)
All total returns shown assume reinvestment of distributions at net asset
value.
The performance table does not reflect the deduction of taxes that a shareowner
would pay on distributions or the redemption of shares.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown. Please refer to variable product's semiannual report for
performance that reflects the deduction of the variable products fees and
charges.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
4
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Moderate Allocation VCT Portfolio
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value - $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Ibbotson Moderate Allocation
VCT Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,056.66
Expenses Paid During Period* $ 7.98
* Expenses are equal to the Portfolio's annualized expense ratio of 1.54%
multiplied by the average account value over the period, multiplied by 184/365
(to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads). Therefore, the table below is useful in comparing ongoing
costs only and will not help you determine the relative total costs of owning
different variable annuities. In addition, if these transaction costs were
included, your costs would have been higher.
Expenses Paid on a $1,000 Investment in Pioneer Ibbotson Moderate Allocation
VCT Portfolio
Based on a hypothetical 5% return per year before expenses, reflecting the
period from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,017.44
Expenses Paid During Period* $ 7.83
* Expenses are equal to the Portfolio's annualized expense ratio of 1.54%
multiplied by the average account value over the period, multiplied by 184/365
(to reflect the one-half year period).
5
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Growth Allocation VCT Portfolio
- --------------------------------------------------------------------------------
COMPARING ONGOING PORTFOLIO EXPENSES (continued)
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value - $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Ibbotson Growth Allocation VCT
Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,070.51
Expenses Paid During Period* $ 8.25
* Expenses are equal to the Portfolio's annualized expense ratio of 1.58%
multiplied by the average account value over the period, multiplied by 184/365
(to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads). Therefore, the table below is useful in comparing ongoing
costs only and will not help you determine the relative total costs of owning
different variable annuities. In addition, if these transaction costs were
included, your costs would have been higher.
Expenses Paid on a $1,000 Investment in Pioneer Ibbotson Growth Allocation VCT
Portfolio
Based on a hypothetical 5% return per year before expenses, reflecting the
period from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,017.24
Expenses Paid During Period* $ 8.03
* Expenses are equal to the Portfolio's annualized expense ratio of 1.58%
multiplied by the average account value over the period, multiplied by 184/365
(to reflect the one-half year period).
6
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Aggressive Allocation VCT Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a shareowner in the Portfolio, you incur two types of costs:
(1) ongoing costs, including management fees, distribution and/or service
(12b-1) fees, and other Portfolio expenses; and
(2) transaction costs, including sales charges (loads) on purchase payments.
This example is intended to help you understand your ongoing expenses (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other variable annuities. The example is based on
an investment of $1,000 at the beginning of the Portfolio's latest six-month
period and held throughout the six months.
Using the Tables
Actual Expenses
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period as
follows:
1. Divide your account value by $1,000
Example: an $8,600 account value - $1,000 = 8.6
2. Multiply the result in (1) above by the corresponding share class's number
in the third row under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Expenses Paid on a $1,000 Investment in Pioneer Ibbotson Aggressive Allocation
VCT Portfolio
Based on actual returns from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,086.05
Expenses Paid During Period* $ 8.52
* Expenses are equal to the Portfolio's annualized expense ratio of 1.62%
multiplied by the average account value over the period, multiplied by 184/365
(to reflect the one-half year period).
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and
hypothetical expenses based on the Portfolio's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the
Portfolio's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period.
You may use this information to compare the ongoing costs of investing in the
Portfolio and other variable annuities. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other variable annuities.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads). Therefore, the table below is useful in comparing ongoing
costs only and will not help you determine the relative total costs of owning
different variable annuities. In addition, if these transaction costs were
included, your costs would have been higher.
Expenses Paid on a $1,000 Investment in Pioneer Ibbotson Aggressive Allocation
VCT Portfolio
Based on a hypothetical 5% return per year before expenses, reflecting the
period from July 1, 2005 through December 31, 2005.
Share Class II
- --------------------------------------------------
Beginning Account Value on 7/1/05 $ 1,000.00
Ending Account Value on 12/31/05 $ 1,017.04
Expenses Paid During Period* $ 8.24
* Expenses are equal to the Portfolio's annualized expense ratio of 1.62%
multiplied by the average account value over the period, multiplied by 184/365
(to reflect the one-half year period).
7
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Asset Allocation Series VCT Portfolios
- --------------------------------------------------------------------------------
MARKET OVERVIEW AND STRATEGY 12/31/05
- --------------------------------------------------------------------------------
In the following interview, portfolio manager Peng Chen, Chief Investment
Officer for Ibbotson Associates, discusses the market environment and
investment strategies that applied to the three portfolios in the Pioneer
Ibbotson Allocation VCT Portfolio Series since they began operations on March
18, 2005.
Q. Could you characterize the economic backdrop against which the three
portfolios began investment operations?
A. The U.S. economy grew at a healthy pace in 2005, if somewhat more slowly
than in 2004. Inflation has shown signs of picking up, driven primarily by
high energy prices, although core inflation (which excludes energy and
food) has remained relatively subdued. A major development during the
period was the widespread damage that ensued as Hurricanes Katrina and Rita
hit the Gulf Coast in late August and September. The short-term economic
impact of this year's catastrophic hurricane season is expected to be a
modest drag on growth. On the interest-rate front, the Federal Reserve
began to raise short-term rates in 2004 and maintained a policy of gradual
tightening throughout 2005 to keep economic growth in check. Surprisingly,
long-term interest rates have been relatively stable for much of this cycle
of Fed tightening, although they did finally begin to show signs of
trending upwards in the third quarter of 2005. In this environment, equity
markets overall have basically fluctuated within a range, while posting
respectable gains in the fourth quarter. The long-term bonds and credit
sensitive sectors of the bond market have generally also made meaningful
contributions.
Q. What were the strategic considerations that you applied to the three
portfolios in allocating assets?
A. As the three portfolios in the series were launched and initial investor
dollars were received, assets were invested in keeping with the respective
broad asset allocation and specific mutual fund targets established prior
to the launch of the portfolios. In addition, we implemented three
strategies across all the portfolios.
First, within the U.S. stock portion of the portfolios, we implemented a
moderate emphasis on value stocks and a corresponding underweighting of more
growth-oriented investments. This was done because we believed that the U.S.
economy had entered into a slowing growth cycle that would favor value
equities with relatively stable earnings prospects. We also believed that
the potential for higher inflation and interest rates favored the value
investment style over growth. Our equity valuation and momentum models
further supported that assessment. Late in the period, we removed the
overweighting of value stocks in favor of a neutral position between the
growth and value categories. This reflects our current view that there is no
clear direction with respect to leadership within the U.S. equity market
that would support an overweighting of either category, especially given the
additional uncertainty in the aftermath of Katrina and Rita. With respect to
the other equity asset classes, the portfolios' targeted exposure across
large-, mid-, and small-cap equities remained neutral throughout the period.
We have also maintained neutral target weightings in the non-US equity
market alternatives, both developed and emerging.
The second strategic emphasis has been within the bond portion of the
portfolios, where we implemented an underweighting of the long-term bond
vehicle, with the difference allocated to the shorter-term fixed-income
alternative. We believe that, given the prospect of higher interest rates,
shorter duration fixed income investments are more attractive. While that
positioning has not helped our performance over the short term, we continue
to believe that long-term rates will exhibit upward trends, and we are
maintaining the allocation. Elsewhere within fixed income, we have
maintained neutral positions in the high yield bond offering, as well as in
the non-U.S. fixed income option.
Finally, we are underweighting REITs (Real Estate Investment Trusts) in view
of their extended run of outperformance and the prospect of higher market
interest rate levels. REITs have provided exceptional returns over most of
the past several years and are fully valued in our view, especially given
our expectation for continued cooling in the real estate sector. In
addition, REITs are traditionally most attractive to investors seeking
income return and have benefited from low interest rates. As rates
eventually move up, that supporting factor will no longer be in place.
Going forward, we will continue to monitor economic indicators and interest
rates to evaluate whether we need to adjust the views underlying our
strategic allocations. In that vein, U.S. consumer sentiment has recently
shown signs of weakening while inflation has strengthened somewhat, in both
cases reflecting to a degree higher energy prices. The impact on consumer
spending of the slowing housing market, driven in part by the Fed's recent
tightening, will also bear close watching. We continue to view the financial
markets as lacking in clear direction, making appropriate diversification
across asset classes more important than ever as we enter a new calendar
year.
Please see Portfolio Reviews beginning on page 9 for information on specific
weightings and performance for each of the three portfolios in the Pioneer
Ibbotson Asset Allocation Series VCT Portfolios.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Portfolio's historical or future performance are
statements of the opinion of Portfolio management as of the date of this
report. These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
A Word About Risk:
The Portfolio's performance depends on the adviser's skill in determining the
strategic asset class allocations, the mix of underlying Pioneer funds, as well
as the performance of those underlying funds. The underlying funds' performance
may be lower than the performance of the asset class that they were selected to
represent. Stocks and bonds can decline due to adverse issuer, market,
regulatory, or economic developments. International markets may be less liquid
and can be more volatile than U.S. markets. These risk factors, including those
associated with currency exchange rates, also apply to investments in
international markets, all of which make international markets more volatile
and less liquid than investments in domestic markets. Some of the underlying
portfolios can invest in either high-yield securities or small/emerging growth
companies. Investments in these types of securities generally are subject to
greater volatility than either higher-grade securities or more-established
companies, respectively. Before making an investment in the portfolio, you
should consider all the risks associated with it.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
8
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Asset Allocation Series VCT Portfolios
- --------------------------------------------------------------------------------
PORTFOLIO REVIEWS 12/31/05
- --------------------------------------------------------------------------------
Moderate Allocation
The Portfolio's total return for the abbreviated fiscal period beginning March
18, 2005 and ending December 31, 2005, was 6.30% for Class II shares.
The Fund targeted an asset allocation of 60% equities, 40% fixed income during
the period. Within the equity portion of the Portfolio, Pioneer Oak Ridge Large
Cap Growth Fund was the largest holding at 13.7% of assets on December 31,
2005. Pioneer International Equity Fund was the next largest equity holding at
12.0% of assets. Within the fixed income portion of the Portfolio, the largest
holding at the end of the period was in a shorter duration bond fund, Pioneer
Short Term Income Fund, at 13.9%, followed by Pioneer Bond Fund at 10.0% of
assets.
Growth Allocation
The Portfolio's total return for the abbreviated fiscal period beginning March
18, 2005 and ending December 31, 2005, was 7.80% for Class II shares.
The Fund targeted an asset allocation of 75% equities, 25% fixed income during
the period. Within the equity portion of the fund, Pioneer International Equity
Fund was the largest holding at 16.0% of assets on December 31, 2005. The
largest domestic equity allocation was to Pioneer Oak Ridge Large Cap Growth
Fund 13.9% followed by Pioneer Research Fund 11.0%. Value holdings were
weighted slightly above target for much of the period, reflecting management's
view that value stocks were more attractive than their growth counterparts.
However, at the end of the period the Portfolio was targeting a neutral posture
with respect to its growth versus value allocation. Within the fixed income
portion of the Portfolio, the largest holding at the end of the period was in a
shorter term bond fund, Pioneer Short Term Income Fund, at 10.1% of assets,
while a longer duration bond fund, Pioneer Bond Fund represented 9.1% of
assets.
Aggressive Allocation
The Portfolio's total return for the abbreviated fiscal period beginning March
18, 2005 and ending December 31, 2005, was 9.8% for Class II shares.
The Fund targeted an asset allocation of 90% equities, 10% fixed income during
the period. Within the equity portion of the fund, Pioneer International Equity
Fund was the largest holding at 21.1% of assets on December 31, 2005. On the
domestic side, Pioneer Oak Ridge Large Cap Growth Fund 18.0% and Pioneer
Research Fund 11.0% were the largest holdings. Value holdings were weighted
slightly above target for much of the period, reflecting management's view that
value stocks were more attractive than their growth counterparts. However, at
the end of the period the Portfolio was targeting a neutral posture with
respect to its growth versus value allocation. The fixed income portion of the
Portfolio was invested in a long-term bond fund, Pioneer Bond Fund, at 9.1% of
assets.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
Call 1-800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Portfolio's historical or future performance are
statements of the opinion of Portfolio management as of the date of this
report. These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
A Word About Risk:
The Portfolio's performance depends on the adviser's skill in determining the
strategic asset class allocations, the mix of underlying Pioneer funds, as well
as the performance of those underlying funds. The underlying funds' performance
may be lower than the performance of the asset class that they were selected to
represent. Stocks and bonds can decline due to adverse issuer, market,
regulatory, or economic developments. International markets may be less liquid
and can be more volatile than U.S. markets. These risk factors, including those
associated with currency exchange rates, also apply to investments in
international markets, all of which make international markets more volatile
and less liquid than investments in domestic markets. Some of the underlying
portfolios can invest in either high-yield securities or small/emerging growth
companies. Investments in these types of securities generally are subject to
greater volatility than either higher-grade securities or more-established
companies, respectively. Before making an investment in the portfolio, you
should consider all the risks associated with it.
Call 800-688-9915 or visit www.pioneerfunds.com for the most recent month-end
performance results. Current performance may be lower or higher than the
performance data quoted.
The performance data quoted represents past performance, which is no guarantee
of future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
The returns for the Portfolio do not reflect the deduction of expenses
associated with variable products, such as mortality and expense risk charges,
separate account charges, and sales charges. These expenses would reduce the
overall returns shown.
Performance results reflect any applicable expense waivers in effect during the
periods shown. Without such waivers performance would be lower. Waivers may not
be in effect for all portfolios. Certain fee waivers are contractual through a
specified period. Otherwise, fee waivers can be rescinded at any time. See the
prospectus and financial statements for more information.
9
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Moderate Allocation VCT Portfolios
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
MUTUAL FUNDS - 95.0%
PIONEER FUNDS - 95.0%
220,583 Pioneer Bond Fund Class Y $ 2,009,508
-----------
34,364 Pioneer Cullen Value Fund Class Y 595,521
-----------
8,906 Pioneer Emerging Markets Fund Class Y 235,218
-----------
26,729 Pioneer Fund Class Y 1,184,349
-----------
84,966 Pioneer Government Income Fund Class Y 802,931
-----------
12,604 Pioneer Growth Opportunities Fund
Class Y 393,114
-----------
112,070 Pioneer High Yield Fund Class Y 1,202,516
-----------
104,592 Pioneer International Equity Fund Class Y 2,402,472
-----------
39,919 Pioneer Mid-Cap Growth Fund Class Y 597,589
-----------
13,643 Pioneer Mid-Cap Value Fund Class Y 329,350
-----------
202,958 Pioneer Oak Ridge Large Cap Growth Fund
Class Y 2,746,021
-----------
23,105 Pioneer Real Estate Shares Fund Class Y 597,025
-----------
199,641 Pioneer Research Fund Class Y 1,970,458
-----------
287,267 Pioneer Short Term Income Fund Class Y 2,803,724
-----------
18,331 Pioneer Small Cap Value Fund Class Y 593,386
-----------
33,640 Pioneer Value Fund Class Y 591,392
-----------
TOTAL INVESTMENTS IN SECURITIES - 95.0%
(Cost $18,839,354)(a) $19,054,574
-----------
OTHER ASSETS AND
LIABILITIES - 5.0% 1,012,492
-----------
TOTAL NET ASSETS - 100.0% $20,067,066
===========
(a) At December 31, 2005, the net unrealized gain on investments based on
cost for federal tax purposes of $18,903,417 was as follows:
Aggregate gross unrealized gain for all investments in which
there is an excess of value over tax cost $256,210
Aggregate gross unrealized loss for all investments in which
there is an excess of tax cost over value (105,053)
--------
Net unrealized gain $151,157
========
Purchases and sales of securities (excluding temporary cash investments) for
the period ended December 31, 2005 aggregated $20,646,249 and $1,740,034,
respectively.
10 The accompanying notes are an integral part of these financial statements.
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Growth Allocation VCT Portfolios
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
MUTUAL FUNDS - 100.4%
PIONEER FUNDS - 100.4%
131,915 Pioneer Bond Fund Class Y $ 1,201,743
-----------
30,567 Pioneer Cullen Value Fund Class Y 529,718
-----------
15,694 Pioneer Emerging Markets Fund Class Y 414,490
-----------
20,909 Pioneer Fund Class Y 926,470
-----------
28,232 Pioneer Government Income Fund Class Y 266,793
-----------
16,948 Pioneer Growth Opportunities Fund
Class Y 528,621
-----------
37,415 Pioneer High Yield Fund Class Y 401,467
-----------
92,332 Pioneer International Equity Fund Class Y 2,120,875
-----------
35,457 Pioneer Mid-Cap Growth Fund Class Y 530,788
-----------
11,299 Pioneer Mid-Cap Value Fund Class Y 272,765
-----------
136,940 Pioneer Oak Ridge Large Cap Growth Fund
Class Y 1,852,793
-----------
20,552 Pioneer Real Estate Shares Fund Class Y 531,064
-----------
147,779 Pioneer Research Fund Class Y 1,458,583
-----------
136,643 Pioneer Short Term Income Fund Class Y 1,333,639
-----------
12,296 Pioneer Small Cap Value Fund Class Y 398,018
-----------
30,170 Pioneer Value Fund Class Y 530,395
-----------
TOTAL INVESTMENTS IN SECURITIES - 100.4%
(Cost $13,044,963 )(a) $13,298,222
-----------
OTHER ASSETS AND
LIABILITIES - ( 0.4%) (53,609)
-----------
TOTAL NET ASSETS - 100.0% $13,244,613
===========
(a) At December 31, 2005, the net unrealized gain on investments based on
cost for federal tax purposes of $13,086,147 was as follows:
Aggregate gross unrealized gain for all investments in which
there is an excess of value over tax cost $261,233
Aggregate gross unrealized loss for all investments in which
there is an excess of tax cost over value (49,158)
--------
Net unrealized gain $212,075
========
Purchases and sales of securities (excluding temporary cash investments) for
the period ended December 31, 2005 aggregated $14,124,084 and $1,016,443,
respectively.
The accompanying notes are an integral part of these financial statements. 11
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Aggressive Allocation VCT Portfolios
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/05
- --------------------------------------------------------------------------------
Shares Value
MUTUAL FUNDS - 101.6%
PIONEER FUNDS - 101.6%
30,742 Pioneer Bond Fund Class Y $ 280,061
----------
8,900 Pioneer Cullen Value Fund Class Y 154,232
----------
4,786 Pioneer Emerging Markets Fund Class Y 126,410
----------
4,868 Pioneer Fund Class Y 215,685
----------
4,921 Pioneer Growth Opportunities Fund
Class Y 153,490
----------
28,266 Pioneer International Equity Fund Class Y 649,281
----------
10,315 Pioneer Mid-Cap Growth Fund Class Y 154,423
----------
4,183 Pioneer Mid-Cap Value Fund Class Y 100,988
----------
40,917 Pioneer Oak Ridge Large Cap Growth Fund
Class Y 553,609
----------
5,981 Pioneer Real Estate Shares Fund Class Y 154,562
----------
34,373 Pioneer Research Fund Class Y 339,259
----------
3,568 Pioneer Small Cap Value Fund Class Y 115,489
----------
7,342 Pioneer Value Fund Class Y 129,079
----------
TOTAL INVESTMENTS IN SECURITIES - 101.6%
(Cost $3,039,813)(a) $3,126,568
----------
OTHER ASSETS AND
LIABILITIES - (1.6%) (49,319)
----------
TOTAL NET ASSETS - 100.0% $3,077,249
==========
(a) At December, 31, 2005, the net unrealized gain on investments based on
cost for federal tax purposes of $3,051,419 was as follows:
Aggregate gross unrealized gain for all investments in which
there is an excess of value over tax cost $83,768
Aggregate gross unrealized loss for all investments in which
there is an excess of tax cost over value (8,619)
-------
Net unrealized gain $75,149
=======
Purchases and sales of securities (excluding temporary cash investments) for
the period ended December 31, 2005 aggregated $3,267,797 and $212,088,
respectively.
12 The accompanying notes are an integral part of these financial statements.
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Asset Allocation Series VCT Portfolios
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For the period
3/18/05(a)
to
12/31/05
---------------
Moderate Allocation VCT Portfolio Class II
Net asset value, beginning of period $ 10.00
--------
Increase from investment operations:
Net investment income (b) $ 0.15
Net realized and unrealized gain on investments 0.48
--------
Net increase from investment operations $ 0.63
--------
Net increase in net asset value $ 0.63
--------
Net asset value, end of period $ 10.63
========
Total return* 6.30%(c)
Ratio of net expenses to average net assets**++ 0.74%
Ratio of net investment income to average net assets** 1.73%
Portfolio turnover rate 27%(c)
Net assets, end of period (in thousands) $ 20,067
(a) Commencement of operations.
(b) Calculated using average shares outstanding for the period.
(c) Not Annualized.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
++ In the absence of expense reimbursement, expenses on an annualized basis
would have been 1.42% of average net assets for Class II shares.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
The accompanying notes are an integral part of these financial statements. 13
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Asset Allocation Series VCT Portfolios
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For the period
3/18/05(a)
to
12/31/05
---------------
Growth Allocation VCT Portfolio Class II
Net asset value, beginning of period $ 10.00
--------
Increase from investment operations:
Net investment income (b) $ 0.11
Net realized and unrealized gain on investments 0.67
--------
Net increase from investment operations $ 0.78
--------
Net increase in net asset value $ 0.78
--------
Net asset value, end of period $ 10.78
========
Total return* 7.80%(c)
Ratio of net expenses to average net assets**++ 0.74%
Ratio of net investment income to average net assets** 1.34%
Portfolio turnover rate 20%(c)
Net assets, end of period (in thousands) $ 13,245
(a) Commencement of operations.
(b) Calculated using average shares outstanding for the period.
(c) Not Annualized.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
++ In the absence of expense reimbursement, expenses on an annualized basis
would have been 1.74% of average net assets for Class II shares.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
14 The accompanying notes are an integral part of these financial statements.
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Asset Allocation Series VCT Portfolios
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For the period
3/18/05(a)
to
12/31/05
---------------
Aggressive Allocation VCT Portfolio Class II
Net asset value, beginning of period $ 10.00
--------
Increase from investment operations:
Net investment income (b) $ 0.08
Net realized and unrealized gain on investments 0.90
--------
Net increase from investment operations $ 0.98
--------
Net increase in net asset value $ 0.98
--------
Net asset value, end of period $ 10.98
========
Total return* 9.80%(c)
Ratio of net expenses to average net assets**++ 0.74%
Ratio of net investment income to average net assets** 0.90%
Portfolio turnover rate 17%(c)
Net assets, end of period (in thousands) $ 3,077
(a) Commencement of operations.
(b) Calculated using average shares outstanding for the period.
(c) Not Annualized.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
++ In the absence of expense reimbursement, expenses on an annualized basis
would have been 5.94% of average net assets for Class II shares.
Note: The above financial highlights do not reflect the deduction of non-fund
expenses associated with variable insurance products, such as mortality and
expense risk charges, separate account charges, and sales charges.
The accompanying notes are an integral part of these financial statements. 15
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Asset Allocation Series VCT Portfolios
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 12/31/05
- --------------------------------------------------------------------------------
Moderate Growth Aggressive
Allocation Allocation Allocation
VCT Portfolio VCT Portfolio VCT Portfolio
ASSETS:
Investments in securities of affiliated issuers, at value
(at cost $18,839,354, $13,044,963 and $3,039,813, respectively) $ 19,054,574 $ 13,298,222 $ 3,126,568
Cash 1,072,582 220,797 112,335
Receivable for:
Fund shares sold 6,215 7,394 --
------------ ------------ -----------
Total assets $ 20,133,371 $ 13,526,413 $ 3,238,903
------------ ------------ -----------
LIABILITIES:
Payables for:
Securities purchased $ -- $ 221,324 $ 111,873
Fund shares redeemed 4,644 2,417 1,156
Due to affiliates 6,823 4,584 1,331
Accrued expenses and other liabilities 43,764 40,219 39,529
Due to Pioneer Investment Management, Inc. 11,074 13,256 7,765
------------ ------------ -----------
Total liabilities $ 66,305 $ 281,800 $ 161,654
------------ ------------ -----------
NET ASSETS:
Paid-in capital $ 19,458,299 $ 12,716,032 $ 2,917,337
Undistributed net investment income 134,872 86,495 17,928
Accumulated net realized gain on investments 258,675 188,827 55,229
Net unrealized gain on investments 215,220 253,259 86,755
------------ ------------ -----------
Total net assets $ 20,067,066 $ 13,244,613 $ 3,077,249
============ ============ ===========
NET ASSET VALUE PER SHARE:
(No par value, unlimited number of shares authorized)
Net Assets of Class II Shares $ 20,067,066 $ 13,244,613 $ 3,077,249
Class II Shares outstanding 1,887,510 1,228,346 280,299
------------ ------------ -----------
Net Asset Value -- Class II Shares $ 10.63 $ 10.78 $ 10.98
16 The accompanying notes are an integral part of these financial statements.
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Asset Allocation Series VCT Portfolios
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Period 3/18/05* to 12/31/05
Moderate Growth Aggressive
Allocation Allocation Allocation
VCT Portfolio VCT Portfolio VCT Portfolio
INVESTMENT INCOME:
Dividend income received from securities of affiliated issuers $ 124,821 $ 79,996 $ 15,212
Interest 17,352 5,961 1,412
--------- --------- ---------
Total investment income $ 142,173 $ 85,957 $ 16,624
--------- --------- ---------
EXPENSES:
Management fees $ 7,490 $ 5,380 $ 1,315
Transfer agent fees 1,500 1,500 1,500
Distribution fees 14,403 10,345 2,529
Custodian fees 18,500 15,000 15,000
Professional fees 32,200 32,200 32,200
Printing fees 4,000 4,000 4,000
Fees and expenses of nonaffiliated trustees 2,000 2,000 2,000
Miscellaneous 1,500 1,500 1,500
--------- --------- ---------
Total expenses $ 81,593 $ 71,925 $ 60,044
--------- --------- ---------
Less expenses reimbursed by Pioneer Investment Management, Inc. (38,959) (41,303) (52,558)
--------- --------- ---------
Net expenses $ 42,634 $ 30,622 $ 7,486
--------- --------- ---------
Net investment income $ 99,539 $ 55,335 $ 9,138
--------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
IN SECURITIES OF AFFILIATED ISSUERS:
Net realized loss on investments $ (66,861) $ (62,679) $ (15,895)
Realized gain distributions received from investment company shares 360,171 282,077 79,752
Change in net unrealized gain on investments 215,220 253,259 86,755
--------- --------- ---------
Net gain on investments $ 508,530 $ 472,657 $ 150,612
--------- --------- ---------
Net increase in net assets resulting from operations $ 608,069 $ 527,992 $ 159,750
========= ========= =========
* Commencement of operations.
The accompanying notes are an integral part of these financial statements. 17
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Asset Allocation Series VCT Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Period 3/18/05* to 12/31/05
Moderate Growth Aggressive
Allocation Allocation Allocation
VCT Portfolio VCT Portfolio VCT Portfolio
FROM OPERATIONS:
Net investment income $ 99,539 $ 55,335 $ 9,138
Net realized gain on investments 293,310 219,398 63,857
Change in net unrealized gain on investments 215,220 253,259 86,755
----------- ----------- ----------
Net increase in net assets resulting from operations $ 608,069 $ 527,992 $ 159,750
----------- ----------- ----------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $20,272,067 $13,118,169 $2,893,199
Cost of shares repurchased (913,070) (501,548) (75,700)
----------- ----------- ----------
Net increase in net assets resulting from fund share transactions $19,358,997 $12,616,621 $2,817,499
----------- ----------- ----------
Net increase in net assets $19,967,066 $13,144,613 $2,977,249
NET ASSETS:
Beginning of period (Initial capitalization -- 10,000 shares per fund) $ 100,000 $ 100,000 $ 100,000
----------- ----------- ----------
End of period (including undistributed net investment income of
$134,872, $86,495 and $17,928, respectively) $20,067,066 $13,244,613 $3,077,249
=========== =========== ==========
* Commencement of operations.
18 The accompanying notes are an integral part of these financial statements.
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Asset Allocation Series VCT Portfolios
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the Period 3/18/05* to 12/31/05
Moderate Allocation Growth Allocation Aggressive Allocation
VCT Portfolio VCT Portfolio VCT Portfolio
------------------------------ ------------------------------ ---------------------------
Shares Amount Shares Amount Shares Amount
Class II
Shares sold 1,965,325 $20,272,067 1,266,361 $13,118,169 277,535 $2,893,199
Less shares repurchased (87,815) (913,070) (48,015) (501,548) (7,236) (75,700)
--------- ----------- --------- ----------- ------- ----------
Net increase 1,877,510 $19,358,997 1,218,346 $12,616,621 270,299 $2,817,499
========= =========== ========= =========== ======== ==========
* Commencement of operations.
The accompanying notes are an integral part of these financial statements. 19
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Asset Allocation Series VCT Portfolios
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Pioneer Ibbotson Moderate Allocation VCT Portfolio, Pioneer Ibbotson Growth
Allocation VCT Portfolio and Pioneer Ibbotson Aggressive Allocation VCT
Portfolio (the Portfolios) are Portfolios of the Pioneer Variable Contracts
Trust (the Trust) which is a Delaware business trust registered under the
Investment Company Act of 1940 as an open-end management investment company.
Each of these Portfolios is a "fund of funds" which means that it seeks to
achieve its investment objective by investing in other funds ("underlying
funds") rather than direct investment in securities. These Portfolios
indirectly pay a portion of the expenses incurred by the underlying funds.
Consequently, an investment in these Portfolios entails more direct and
indirect expenses than direct investment in the underlying funds. The Trust
consists of twenty nine separate portfolios, fourteen of which issue both Class
I and Class II shares (collectively, the Portfolios, individually the
Portfolio) as follows:
Portfolios:
Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio)
Pioneer Europe VCT Portfolio (Europe Portfolio)
Pioneer International Value VCT Portfolio (International Value Portfolio)
Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio)
Pioneer Small Company VCT Portfolio (Small Company Portfolio)
Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio)
Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio)
Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio)
Pioneer Fund VCT Portfolio (Fund Portfolio)
Pioneer Equity Income VCT Portfolio (Equity Income Portfolio)
Pioneer Balanced VCT Portfolio (Balanced Portfolio)
Pioneer High Yield VCT Portfolio (High Yield Portfolio)
Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio)
Pioneer America Income VCT Portfolio (America Income Portfolio)
Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares
only)
Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only)
Pioneer Papp America-Pacific Rim VCT Portfolio (Papp America-Pacific Rim
Portfolio) (Class II shares only)
Pioneer Papp Small and Mid Cap Growth VCT Portfolio (Papp Small and Mid Cap
Growth Portfolio) (Class II shares only)
Pioneer Oak Ridge Large Cap Growth VCT Portfolio (Oak Ridge Large Cap
Growth Portfolio) (Class II shares only)
Pioneer Growth Opportunities VCT Portfolio (Growth Opportunities Portfolio)
(Class I shares only)
Pioneer Small Cap Value II VCT Portfolio (Small Cap Value II Portfolio)
(Class I shares only)
Pioneer Bond VCT Portfolio (Bond Portfolio) (Class I shares only)
Pioneer Cullen Value VCT Portfolio (Cullen Value Portfolio) (Class II
shares only)
Pioneer Equity Opportunity VCT Portfolio (Equity Opportunity Portfolio)
(Class II shares only)
Pioneer Global High Yield VCT Portfolio (Global High Yield Portfolio)
(Class II shares only)
Pioneer Ibbotson Moderate Allocation VCT Portfolio (Moderate Portfolio)
(Class II shares only)
Pioneer Ibbotson Growth Allocation VCT Portfolio (Growth Portfolio) (Class
II shares only)
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (Aggressive Portfolio)
(Class II shares only)
Pioneer Core Bond VCT Portfolio (Core Bond Portfolio) (Class II Shares
only)
Portfolio shares may be purchased only by either insurance companies for the
purpose of funding variable annuity and variable life insurance contracts or by
qualified pension and retirement plans.
The investment objective of the Moderate Portfolio is to seek a balance between
long-term capital growth and current income. The Growth Portfolio seeks a
balance between long-term capital growth and current income. The Aggressive
Portfolio seeks long-term capital growth.
The financial statements and financial highlights of all other Portfolios are
presented in separate books.
The financial statements have been prepared in accordance with United States
generally accepted accounting principles that require the management of the
Portfolios to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of income and expenses during the reporting period. Actual
results could differ from these estimates. The following is a summary of
significant accounting policies consistently followed by the Trust in the
preparation of its financial statements, which are in conformity with those
generally accepted in the investment company industry.
20
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Asset Allocation Series VCT Portfolios
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A. Security Valuation
Security transactions are recorded as of the trade date. The net asset
value is computed once daily, on each day the New York Stock Exchange is
open, as of the close of regular trading on the NYSE. In computing the net
asset value, holdings of mutual fund shares are valued at net asset value.
Dividend income is recorded on the ex-dividend date. Temporary cash
investments are valued at amortized cost.
Gains and losses on sales of investments are calculated on the identified
cost method for both financial reporting and Federal income tax purposes.
B. Federal Income Taxes
It is the Portfolios' policy to comply with the requirements of the
Internal Revenue Service Code applicable to regulated investment companies
and to distribute all taxable income and net realized capital gains, if
any, to its shareholders. Therefore, no federal income tax provisions are
required.
The amount and characterization of distributions to shareowners for
financial reporting purposes is determined in accordance with federal
income tax rules. Therefore, the source of the Portfolios' distributions
may be shown in the accompanying financial statements as either from or in
excess of net investment income or net realized gain on investment
transactions, or from paid-in capital, depending on the type of book/tax
differences that may exist. During the period the Portfolios made no
distributions.
At December 31, 2005, certain Portfolios made reclassifications as
described below. These reclassifications have no impact on the net asset
values of the respective Portfolios and are designed to present the
Portfolios' capital accounts on a tax basis.
- --------------------------------------------------------------------------------
Undistributed
Net Investment Accumulated Paid-In
Portfolio Income (Loss) Realized Gain/(Loss) Capital
- --------------------------------------------------------------------------------
Moderate Portfolio $35,333 $ (34,635) $(698)
Growth Portfolio $31,160 $ (30,571) $(589)
Aggressive Portfolio $ 8,790 $ (8,628) $(162)
- --------------------------------------------------------------------------------
The following shows the components of distributable earnings on a federal income
tax basis at December 31, 2005:
- --------------------------------------------------------------------------------
Undistributed Undistributed Net Unrealized
Ordinary Long-Term Appreciation
Portfolio Income Capital Gains (Depreciation)
- --------------------------------------------------------------------------------
Moderate Portfolio $134,872 $322,738 $151,157
Growth Portfolio $ 86,495 $230,011 $212,075
Aggressive Portfolio $ 17,928 $ 66,835 $ 75,149
- --------------------------------------------------------------------------------
C. Portfolio Shares
The Portfolios record sales and repurchases of each of their shares as of
trade date. Certain insurance companies paid Pioneer Funds Distributor,
Inc. (PFD), the principal underwriter for the Trust and a wholly owned
indirect subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano),
$638,021 in commissions on the sale of Trust shares for the year ended
December 31, 2005. Distribution fees for Class II shares are calculated
based on the average daily net asset values attributable to Class II shares
of each Portfolio. Dividends and distributions to shareowners are recorded
on the ex-dividend date.
2. Management Agreement
PIM, a wholly owned indirect subsidiary of UniCredito Italiano, is the
Portfolios' investment adviser, and manages the Portfolios. Management fees are
calculated daily at the following annual rates on Pioneer managed assets:
21
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Asset Allocation Series VCT Portfolios
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12/31/05 (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Management Fee as a Percentage
of each Fund's Average
Fund Daily Net Assets
- --------------------------------------------------------------------------------
Moderate Portfolio 0.13%
Growth Portfolio 0.13%
Aggressive Portfolio 0.13%
- --------------------------------------------------------------------------------
PIM has entered into a sub-advisory agreement with Ibbotson Associates, LLC.
PIM, not the Portfolios, pays a portion of the fee it receives from each
Portfolio to Ibbotson Associates as compensation for its services to the
Portfolios.
In addition, under the management and administration agreements, certain other
services and costs, including accounting, regulatory reporting and insurance
premiums, will be paid by the Portfolios. At December 31, 2005, the following
fees were payable to PIM relating to management fees and certain other services
and are included in due to affiliates:
- --------------------------------------------------------------------------------
Fund Amount
- --------------------------------------------------------------------------------
Moderate Portfolio $2,206
Growth Portfolio $1,440
Aggressive Portfolio $ 327
- --------------------------------------------------------------------------------
From March 18, 2005 through December 31, 2005, PIM did not impose all or a
portion of its management fees and assumed other operating expenses of the
Portfolios to the extent necessary to limit expenses to the following annual
expense limitations:
- --------------------------------------------------------------------------------
Fund Class II
- --------------------------------------------------------------------------------
Moderate Portfolio .74%
Growth Portfolio .74%
Aggressive Portfolio .74%
- --------------------------------------------------------------------------------
3. Transfer Agent
PIMSS, a wholly owned indirect subsidiary of UniCredito Italiano, provides
substantially all transfer agent and shareowner services to the Portfolios at
negotiated rates. Included in due to affiliates are the following amounts of
transfer agent fees payable to PIMSS at December 31, 2005:
- --------------------------------------------------------------------------------
Fund Amount
- --------------------------------------------------------------------------------
Moderate Portfolio $375
Growth Portfolio $375
Aggressive Portfolio $375
- --------------------------------------------------------------------------------
4. Distribution Plans
The Portfolios have adopted a Plan of Distribution with respect to Class II
shares (Class II Plan) in accordance with Rule 12b-1 of the Investment Company
Act of 1940. Pursuant to the Class II Plan, the Portfolios will pay PFD a
service fee of up to 0.25% of the Fund's average daily net assets attributable
to Class II shares in reimbursement of its actual expenditures to finance
activities primarily intended to result in the sale of Class II shares. At
December 31, 2005, the following fees were payable to PFD relating to service
fees and are included in due to affiliates:
- --------------------------------------------------------------------------------
Fund Amount
- --------------------------------------------------------------------------------
Moderate Portfolio $4,242
Growth Portfolio $2,769
Aggressive Portfolio $ 629
- --------------------------------------------------------------------------------
22
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Asset Allocation Series VCT Portfolios
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees of Pioneer Variable Contracts Trust and Shareowners of
Pioneer Ibbotson Moderate, Growth, and Aggressive Allocation VCT Portfolios:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Pioneer Ibbotson Moderate Allocation
VCT Portfolio, Pioneer Ibbotson Growth Allocation VCT Portfolio and Pioneer
Aggressive Allocation VCT Portfolio, (the "Portfolios", three of the portfolios
constituting the Pioneer Variable Contracts Trust), as of December 31, 2005,
and the related statements of operations, changes in net assets and financial
highlights for the period from March 18, 2005 (commencement of operations) to
December 31, 2005. These financial statements and financial highlights are the
responsibility of the Portfolios' management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Portfolios'
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Portfolios' internal
control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements and financial highlights, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of December 31, 2005, by
correspondence with the Portfolios' custodian and the transfer agent of the
underlying funds. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Pioneer Ibbotson Moderate Allocation, Pioneer Ibbotson Growth Allocation and
Pioneer Ibbotson Aggressive Allocation VCT Portfolios of Pioneer Variable
Contracts Trust at December 31, 2005, the results of their operations, the
changes in their net assets and the financial highlights for the period from
March 18, 2005 (commencement of operations) to December 31, 2005, in conformity
with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLp
Boston, Massachusetts
February 10, 2006
23
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Moderate Allocation VCT Portfolio (the "Fund")
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") voting
separately initially and annually thereafter approve the Fund's management
contract (the "Management Contract") between the Fund and Pioneer Investment
Management, Inc., the Fund's adviser (the "Investment Adviser"). The Investment
Adviser has retained Ibbotson Associates Advisors LLC. (the "Sub-adviser") to
act as sub-adviser to the Fund pursuant to a sub-advisory agreement between the
Investment Adviser and the Sub-adviser (the "Sub-advisory Agreement"). The
Trustees have determined that the terms of the Management Contract and the
Sub-advisory Agreement are fair and reasonable and that approval of these
contracts will enable the Fund to receive quality investment advisory services
at a cost deemed reasonable and in the best interests of the Fund and its
shareowners. In making such determinations, the Independent Trustees relied
upon the assistance of counsel to the Independent Trustees and counsel to the
Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
the Investment Adviser, or its affiliates. While the Trustees, including the
Independent Trustees, act on all major matters relating to the Fund, a
significant portion of the activities of the Board of Trustees (including
certain of those described herein) is conducted through committees, the members
of which are comprised exclusively of Independent Trustees. Such committee
meetings are attended by officers of the Fund or the Investment Adviser to the
extent requested by the members of the committee.
In evaluating the Management Contract and Sub-advisory Agreement, the Trustees
conducted a review that was specifically focused upon the renewal of the
Management Contract and Sub-advisory Agreement, and relied upon their
knowledge, resulting from their meetings throughout the year, of the Investment
Adviser, its services and the Fund. Both in meetings specifically dedicated to
renewal of the Management Contract and at other meetings during the course of
the year, the Trustees, including the Independent Trustees, received materials
relating to the Investment Adviser's investment and management services under
the Management Contract. These materials included (i) arrangements in respect
of the distribution of the Fund's shares, (ii) the procedures employed to
determine the value of each of the Fund's assets, (iii) the Investment
Adviser's management of the relationships with the Fund's unaffiliated service
providers, (iv) the record of compliance with the Fund's investment policies
and restrictions and with the Fund's Code of Ethics and the structure and
responsibilities of the Investment Adviser's compliance department, (v) the
nature, cost and character of non-investment management services provided by
the Investment Adviser and its affiliates, (vi) the disclosures included in the
Fund's prospectuses and reports to shareowners and (vii) the investment and
compliance staff and operations of the Subadviser.
Specifically, in connection with the Independent Trustees' review of the
Management Contract and the Sub-advisory Agreement, the Independent Trustees
requested and the Investment Adviser provided additional information in order
to evaluate the quality of the Investment Adviser's and Sub-adviser's services
and the reasonableness of the fee under the Management Contract and the
Sub-advisory Agreement. Among other items, this information included data or
analyses of (1) the investment performance for the period from commencement of
operations through June 30, 2005, (2) management and other fees incurred by a
peer group of funds selected by the Independent Trustees for this purpose, (3)
the advisory fees of comparable portfolios of other clients of the Investment
Adviser and the Sub-adviser, (4) estimated expense ratios for the Fund and a
peer group of funds selected by the Independent Trustees for this purpose, (5)
the overall organization of the Investment Adviser and the Sub-adviser, (6) the
Investment Adviser's and Sub-adviser's financial results and condition,
including, in the case of the Investment Adviser, its and certain of its
affiliates profitability from services performed for the Fund, (7) transfer
agency fees and administrative reimbursements paid to the Investment Adviser or
affiliates, (8) investment management staffing, and (9) operating expenses paid
to third parties. The Trustees also reviewed information regarding the
potential for each of the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
24
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Moderate Allocation VCT Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to
shareowners of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareowner services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. Since the Fund had not conducted investment operations for a
meaningful period, the Trustees did not evaluate investment performance.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations. Among other things, the
Trustees considered the number, education and experience of the
Sub-adviser's investment staff. The Trustees concluded that the Investment
Adviser and the Sub-adviser have the quality and depth of personnel and the
well-developed methods essential to performing their duties under the
Management Contract and the Sub-advisory Agreement.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareowners of the
Fund, including administrative and shareowner services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareowners of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee is consistent with the management fee for other asset
allocation funds.
F. Economies of Scale. Since the Fund had not commenced investment operations,
the Trustees did not consider the economies of scale with respect to the
management of the Fund a relevant factor at this time.
G. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareowner services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect of the Pioneer Funds (including the Fund). The
Trustees further considered the revenues and profitability of the Investment
Adviser's businesses other than the fund business, including the Investment
Adviser's institutional investment advisory business. The Trustees
considered the intangible benefits that accrue to the Investment Adviser and
its affiliates by virtue of its relationship with the Fund and the Pioneer
Funds as a group. The Trustees concluded that all these types of benefits
accruing to the Investment Adviser were reasonable in the context of the
overall relationship between the Investment Adviser and the Fund.
Conclusion. Based on their evaluation of all material factors deemed relevant
and the advice of independent counsel, the Trustees concluded that the
Management Contract with the Fund and the Sub-advisory Agreement are fair and
reasonable and voted to approve the continuation of the the Management Contract
and the Sub-advisory Agreement.
25
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Growth Allocation VCT Portfolio (the "Fund")
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") voting
separately initially and annually thereafter approve the Fund's management
contract (the "Management Contract") between the Fund and Pioneer Investment
Management, Inc., the Fund's adviser (the "Investment Adviser"). The Investment
Adviser has retained Ibbotson Associates Advisors LLC. (the "Sub-adviser") to
act as sub-adviser to the Fund pursuant to a sub-advisory agreement between the
Investment Adviser and the Sub-adviser (the "Sub-advisory Agreement"). The
Trustees have determined that the terms of the Management Contract and the
Sub-advisory Agreement are fair and reasonable and that approval of these
contracts will enable the Fund to receive quality investment advisory services
at a cost deemed reasonable and in the best interests of the Fund and its
shareowners. In making such determinations, the Independent Trustees relied
upon the assistance of counsel to the Independent Trustees and counsel to the
Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
the Investment Adviser, or its affiliates. While the Trustees, including the
Independent Trustees, act on all major matters relating to the Fund, a
significant portion of the activities of the Board of Trustees (including
certain of those described herein) is conducted through committees, the members
of which are comprised exclusively of Independent Trustees. Such committee
meetings are attended by officers of the Fund or the Investment Adviser to the
extent requested by the members of the committee.
In evaluating the Management Contract and Sub-advisory Agreement, the Trustees
conducted a review that was specifically focused upon the renewal of the
Management Contract and Sub-advisory Agreement, and relied upon their
knowledge, resulting from their meetings throughout the year, of the Investment
Adviser, its services and the Fund. Both in meetings specifically dedicated to
renewal of the Management Contract and at other meetings during the course of
the year, the Trustees, including the Independent Trustees, received materials
relating to the Investment Adviser's investment and management services under
the Management Contract. These materials included (i) arrangements in respect
of the distribution of the Fund's shares, (ii) the procedures employed to
determine the value of each of the Fund's assets, (iii) the Investment
Adviser's management of the relationships with the Fund's unaffiliated service
providers, (iv) the record of compliance with the Fund's investment policies
and restrictions and with the Fund's Code of Ethics and the structure and
responsibilities of the Investment Adviser's compliance department, (v) the
nature, cost and character of non-investment management services provided by
the Investment Adviser and its affiliates, (vi) the disclosures included in the
Fund's prospectuses and reports to shareowners and (vii) the investment and
compliance staff and operations of the Subadviser.
Specifically, in connection with the Independent Trustees' review of the
Management Contract and the Sub-advisory Agreement, the Independent Trustees
requested and the Investment Adviser provided additional information in order
to evaluate the quality of the Investment Adviser's and Sub-adviser's services
and the reasonableness of the fee under the Management Contract and the
Sub-advisory Agreement. Among other items, this information included data or
analyses of (1) the investment performance for the period from commencement of
operations through June 30, 2005, (2) management and other fees incurred by a
peer group of funds selected by the Independent Trustees for this purpose, (3)
the advisory fees of comparable portfolios of other clients of the Investment
Adviser and the Sub-adviser, (4) estimated expense ratios for the Fund and a
peer group of funds selected by the Independent Trustees for this purpose, (5)
the overall organization of the Investment Adviser and the Sub-adviser, (6) the
Investment Adviser's and Sub-adviser's financial results and condition,
including, in the case of the Investment Adviser, its and certain of its
affiliates profitability from services performed for the Fund, (7) transfer
agency fees and administrative reimbursements paid to the Investment Adviser or
affiliates, (8) investment management staffing, and (9) operating expenses paid
to third parties. The Trustees also reviewed information regarding the
potential for each of the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
26
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Growth Allocation VCT Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to
shareowners of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareowner services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. Since the Fund had not conducted investment operations for a
meaningful period, the Trustees did not evaluate investment performance.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations. Among other things, the
Trustees considered the number, education and experience of the
Sub-adviser's investment staff. The Trustees concluded that the Investment
Adviser and the Sub-adviser have the quality and depth of personnel and the
well-developed methods essential to performing their duties under the
Management Contract and the Sub-advisory Agreement.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareowners of the
Fund, including administrative and shareowner services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareowners of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee is consistent with the management fee for other asset
allocation funds.
F. Economies of Scale. Since the Fund had not commenced investment operations,
the Trustees did not consider the economies of scale with respect to the
management of the Fund a relevant factor at this time.
G. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareowner services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect of the Pioneer Funds (including the Fund). The
Trustees further considered the revenues and profitability of the Investment
Adviser's businesses other than the fund business, including the Investment
Adviser's institutional investment advisory business. The Trustees
considered the intangible benefits that accrue to the Investment Adviser and
its affiliates by virtue of its relationship with the Fund and the Pioneer
Funds as a group. The Trustees concluded that all these types of benefits
accruing to the Investment Adviser were reasonable in the context of the
overall relationship between the Investment Adviser and the Fund.
Conclusion. Based on their evaluation of all material factors deemed relevant
and the advice of independent counsel, the Trustees concluded that the
Management Contract with the Fund and the Sub-advisory Agreement are fair and
reasonable and voted to approve the continuation of the the Management Contract
and the Sub-advisory Agreement.
27
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Aggressive Allocation VCT Portfolio (the "Fund")
- --------------------------------------------------------------------------------
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE
MANAGEMENT CONTRACT (continued)
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that both the Board of Trustees and
a majority of the Independent Trustees (collectively "the Trustees") voting
separately initially and annually thereafter approve the Fund's management
contract (the "Management Contract") between the Fund and Pioneer Investment
Management, Inc., the Fund's adviser (the "Investment Adviser"). The Investment
Adviser has retained Ibbotson Associates Advisors LLC. (the "Sub-adviser") to
act as sub-adviser to the Fund pursuant to a sub-advisory agreement between the
Investment Adviser and the Sub-adviser (the "Sub-advisory Agreement"). The
Trustees have determined that the terms of the Management Contract and the
Sub-advisory Agreement are fair and reasonable and that approval of these
contracts will enable the Fund to receive quality investment advisory services
at a cost deemed reasonable and in the best interests of the Fund and its
shareowners. In making such determinations, the Independent Trustees relied
upon the assistance of counsel to the Independent Trustees and counsel to the
Fund.
Throughout the year, the Independent Trustees regularly met in executive
session separately from the Interested Trustees of the Fund and any officer of
the Investment Adviser, or its affiliates. While the Trustees, including the
Independent Trustees, act on all major matters relating to the Fund, a
significant portion of the activities of the Board of Trustees (including
certain of those described herein) is conducted through committees, the members
of which are comprised exclusively of Independent Trustees. Such committee
meetings are attended by officers of the Fund or the Investment Adviser to the
extent requested by the members of the committee.
In evaluating the Management Contract and Sub-advisory Agreement, the Trustees
conducted a review that was specifically focused upon the renewal of the
Management Contract and Sub-advisory Agreement, and relied upon their
knowledge, resulting from their meetings throughout the year, of the Investment
Adviser, its services and the Fund. Both in meetings specifically dedicated to
renewal of the Management Contract and at other meetings during the course of
the year, the Trustees, including the Independent Trustees, received materials
relating to the Investment Adviser's investment and management services under
the Management Contract. These materials included (i) arrangements in respect
of the distribution of the Fund's shares, (ii) the procedures employed to
determine the value of each of the Fund's assets, (iii) the Investment
Adviser's management of the relationships with the Fund's unaffiliated service
providers, (iv) the record of compliance with the Fund's investment policies
and restrictions and with the Fund's Code of Ethics and the structure and
responsibilities of the Investment Adviser's compliance department, (v) the
nature, cost and character of non-investment management services provided by
the Investment Adviser and its affiliates, (vi) the disclosures included in the
Fund's prospectuses and reports to shareowners and (vii) the investment and
compliance staff and operations of the Subadviser.
Specifically, in connection with the Independent Trustees' review of the
Management Contract and the Sub-advisory Agreement, the Independent Trustees
requested and the Investment Adviser provided additional information in order
to evaluate the quality of the Investment Adviser's and Sub-adviser's services
and the reasonableness of the fee under the Management Contract and the
Sub-advisory Agreement. Among other items, this information included data or
analyses of (1) the investment performance for the period from commencement of
operations through June 30, 2005, (2) management and other fees incurred by a
peer group of funds selected by the Independent Trustees for this purpose, (3)
the advisory fees of comparable portfolios of other clients of the Investment
Adviser and the Sub-adviser, (4) estimated expense ratios for the Fund and a
peer group of funds selected by the Independent Trustees for this purpose, (5)
the overall organization of the Investment Adviser and the Sub-adviser, (6) the
Investment Adviser's and Sub-adviser's financial results and condition,
including, in the case of the Investment Adviser, its and certain of its
affiliates profitability from services performed for the Fund, (7) transfer
agency fees and administrative reimbursements paid to the Investment Adviser or
affiliates, (8) investment management staffing, and (9) operating expenses paid
to third parties. The Trustees also reviewed information regarding the
potential for each of the Fund and the Investment Adviser to benefit from
further economies of scale in the management of the Fund in light of reasonable
growth expectations for the Fund and certain of the Fund's expenses that are
not incurred as fees based on a percentage of net assets.
The following summarizes factors considered by the Trustees in connection with
reviewing the information described above and their renewal of the Fund's
Management Contract. The Trustees did not identify any single factor as
all-important or controlling, and the summary does not detail all the matters
that were considered.
28
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Ibbotson Aggressive Allocation VCT Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A. Ancillary Benefits to Shareowners. The Trustees considered the benefits to
shareowners of investing in a Fund that is part of a large number of
investment companies offering a variety of investment disciplines and
providing for a large variety of Fund and shareowner services.
B. Compliance and Investment Performance. The Trustees determined that the
Investment Adviser had policies and systems reasonably designed to achieve
compliance with the Fund's investment objectives and regulatory
requirements. Since the Fund had not conducted investment operations for a
meaningful period, the Trustees did not evaluate investment performance.
C. The Investment Adviser's Personnel and Methods. The Trustees reviewed the
background of members of the team responsible for the daily management of
the Fund and the Fund's investment objective and discipline. The Independent
Trustees also have had discussions with senior management of the Investment
Adviser responsible for investment operations. Among other things, the
Trustees considered the number, education and experience of the
Sub-adviser's investment staff. The Trustees concluded that the Investment
Adviser and the Sub-adviser have the quality and depth of personnel and the
well-developed methods essential to performing their duties under the
Management Contract and the Sub-advisory Agreement.
D. Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to shareowners of the
Fund, including administrative and shareowner services performed by the
Investment Adviser under the Management Contract. The Trustees also
considered the reasonableness of the arrangements for reimbursement of the
Investment Adviser's out-of-pocket costs and expenses, including overhead,
for certain administrative services that the Investment Adviser is not
required to provide under the Management Contract. The Trustees also
considered the nature and extent of the other services provided by the
Investment Adviser's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services are
satisfactory and reliable and serve the shareowners of the Fund well.
E. Management Fee and Expenses. The Trustees considered the Investment
Adviser's fee under the Management Contract relative to the management fees
charged by a peer group of funds selected by the Independent Trustees for
this purpose using data provided by an independent third party. The Fund's
management fee is consistent with the management fee for other asset
allocation funds.
F. Economies of Scale. Since the Fund had not commenced investment operations,
the Trustees did not consider the economies of scale with respect to the
management of the Fund a relevant factor at this time.
G. Other Benefits to the Investment Adviser. The Trustees also considered the
character and amount of fees paid by the Fund, other than under the
Management Contract, for services provided by the Investment Adviser and
affiliates, including fees for services such as shareowner services. The
Trustees also considered the receipt of sales loads and payments under Rule
12b-1 plans in respect of the Pioneer Funds (including the Fund). The
Trustees further considered the revenues and profitability of the Investment
Adviser's businesses other than the fund business, including the Investment
Adviser's institutional investment advisory business. The Trustees
considered the intangible benefits that accrue to the Investment Adviser and
its affiliates by virtue of its relationship with the Fund and the Pioneer
Funds as a group. The Trustees concluded that all these types of benefits
accruing to the Investment Adviser were reasonable in the context of the
overall relationship between the Investment Adviser and the Fund.
Conclusion. Based on their evaluation of all material factors deemed relevant
and the advice of independent counsel, the Trustees concluded that the
Management Contract with the Fund and the Sub-advisory Agreement are fair and
reasonable and voted to approve the continuation of the the Management Contract
and the Sub-advisory Agreement.
29
Pioneer Ibbotson Asset Allocation Series VCT Portfolios
- ------------------------------------------------------------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Adviser Trustees and Officers
Pioneer Investment Management, Inc. The Trust's Board of Trustees provides broad
supervision over the affairs of the Trust. The
Custodian officers of the Trust are responsible for the Trust's
Brown Brothers Harriman & Co. operations. The Trust's Trustees and officers are
listed below, together with their principal
Independent Registered Public Accounting Firm occupations during the past five years. Trustees who
Ernst & Young LLP are interested persons of the Portfolio within the
meaning of the Investment Company Act of 1940 are
Principal Underwriter referred to as Interested Trustees. Trustees are not
Pioneer Funds Distributor, Inc. interested persons of the Trust are referred to as
Independent Trustees. Each of the Trustees (except Mr.
Legal Counsel Hood) serves as a Trustee of the 91 U.S. registered
Wilmer Cutler Pickering Hale and Dorr LLP investment portfolios for which Pioneer Investment
Management, Inc. ("Pioneer") serves as investment
Shareowner Services and Transfer adviser (the "Trust"). Mr. Hood serves as Trustee for
Pioneer Investment Management Shareholder Services, Inc. 35 of the 91 Pioneer Funds. The address for all
Interested Trustees and all officers of the Portfolio
is 60 State Street, Boston, Massachusetts 02109.
The Trust's statement of additional information
provides more detailed information regarding the
Trust's Trustees and is available upon request,
without charge, by calling 1-800-225-6292.
Proxy Voting Policies and Procedures of the Trust
are available without charge, upon Agent request, by
calling our toll free number (1-800-225-6292). This
information is also available online at pioneerfunds.com.
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE
John F. Cogan, Jr. (79)* Chairman of the Since 1994. Serves Deputy Chairman and a Director of Pioneer Chairman and Directors
Board, Trustee until successor Global Asset Management S.p.A. ("PGAM"); of ICI Mutual Insurance
and President trustee is elected Non-Executive Chairman and a Director of Company; Director of
or earlier Pioneer Investment Management USA Inc. Harbor Global Company,
retirement ("PIM-USA"); Chairman and a Director of Ltd.
or removal. Pioneer; Director of Pioneer Alternative
Investment Management Limited (Dublin);
President and a Director of Pioneer
Alternative Investment Management
(Bermuda) Limited and affiliated funds;
Director of PIOGLOBAL Real Estate
Investment Fund (Russia); Director of
Nano-C, Inc. (since 2003); Director of
Cole Investment Corporation (since 2004);
Director of Fiduciary Counseling Inc.;
President and Director of Pioneer Funds
Distributor, Inc. ("PFD"); President of
all of the Pioneer Funds; and Of Counsel,
Wilmer Cutler Pickering Hale and Dorr LLP
(counsel to PIM-USA and the Pioneer
Funds).
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
30
Pioneer Ibbotson Asset Allocation Series VCT Portfolios
- ------------------------------------------------------------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE
David R. Bock** (62) Trustee Since 2005. Serves Senior Vice President and Chief Financial Director of The Enterprise
3050 K. Street NW, until a successor Officer, I-trax, Inc. (publicly traded Social Investment Company
Washington, DC 20007 trustee is elected health care services company) (privately-held affordable
or earlier (2001-present); Managing Partner, Federal housing finance company);
retirement or City Capital Advisors (boutique merchant Director of New York
removal. bank) (2002 to 2004); Executive Vice Mortgage Trust (publicly
President and Chief Financial Officer, traded mortgage REIT)
Pedestal Inc. (internet-based mortgage
trading company) ( 2000-2002).
** Mr. Bock became a Trustee of the Trust on January 1, 2005.
- ------------------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (57) Trustee Since 2000. Serves President, Bush International Director of Brady
3509 Woodbine Street, until successor (international financial advisory firm). Corporation (industrial
Chevy Chase, MD 20815 trustee is elected identification and specialty
or earlier coated material products
retirement manufacturer), Mortgage
or removal. Guaranty Insurance
Corporation, and Briggs &
Stratton, Inc. (engine
manufacturer)
- ------------------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham (58) Trustee Since 2000. Founding Director, The Winthrop Group, None
1001 Sherbrooke Street Serves until Inc. (consulting firm); Desautels,
West, Montreal, Quebec, successor trustee Faculty of Management, McGill University.
Canada H3A 1G5 is elected or
earlier
retirement or
removal.
- ------------------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret (57) Trustee Since 1995. President and Chief Executive Officer, Director of New America High
One Boston Place, Serves until Newbury, Piret & Company, Inc. Income Fund, Inc.
28th Floor, successor trustee (investment banking firm). (closed-end investment
Boston, MA 02108 is elected company)
or earlier
retirement
or removal.
- ------------------------------------------------------------------------------------------------------------------------------------
John Winthrop (69) Trustee Since September, President, John Winthrop & Co., Inc. None
One North Adgers Wharf, 2000. Serves until (private investment firm).
Charleston, SC 29401 successor trustee
is elected or
earlier retirement
or removal.
- ------------------------------------------------------------------------------------------------------------------------------------
31
Pioneer Ibbotson Asset Allocation Series VCT Portfolios
- ------------------------------------------------------------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE
Osbert M. Hood (53)** Executive Vice Since 2005. Serves President and Chief Executive Officer, Trustee of certain Pioneer
President at the discretion of PIM-USA since May 2003 (Director since funds
Board. January 2001); President and Director of
Pioneer since May 2003; Chairman and
Director of Pioneer Investment Management
Shareholder Services, Inc. ("PIMSS")
since May 2003; Executive Vice President
of all of the Pioneer Funds since June
2003; Executive Vice President and Chief
Operating Officer of PIM-USA, November
2000 to May 2003; Executive Vice
President, Chief Financial Officer and
Treasurer, John Hancock Advisers, L.L.C.,
Boston, MA, November 1999 to November
2000; Senior Vice President and Chief
Financial Officer, John Hancock Advisers,
L.L.C., April 1997 to November 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Dorothy E. Bourassa (58) Secretary Since September, 2003. Secretary of PIM-USA; Senior Vice None
Serves at the President - Legal of Pioneer; and
discretion of the Secretary/Clerk of most of PIM-USA's
Board. subsidiaries; Secretary of all of the
Pioneer Funds since September 2003
(Assistant Secretary from November 2000
to September 2003).
- ------------------------------------------------------------------------------------------------------------------------------------
Christopher J. Kelley (41) Assistant Since September, 2003. Assistant Vice President and Senior None
Secretary Serves at the Counsel of Pioneer since July 2002; Vice
discretion of the President and Senior Counsel of BISYS
Board. Fund Services, Inc. (April 2001 to June
2002); Senior Vice President and Deputy
General Counsel of Funds Distributor,
Inc. (July 2000 to April 2001) and
Assistant Secretary of all Pioneer Funds
since September 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
David C. Phelan (48) Assistant Since September, 2003. Partner, Wilmer Cutler Pickering Hale and None
Secretary Serves at the Dorr LLP; Assistant Secretary of all
discretion of the Pioneer Funds since September 2003.
Board.
- ------------------------------------------------------------------------------------------------------------------------------------
Vincent Nave (60) Treasurer Since November, 2000. Vice President - Fund Accounting, None
Serves at the Administration and Custody Services of
discretion of the Pioneer; and Treasurer of all of the
Board. Pioneer Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Mark E. Bradley (46) Assistant Since November, 2004. Deputy Treasurer of Pioneer since 2004; None
Treasurer Serves at the Treasurer and Senior Vice President, CDC
discretion of the IXIS Asset Management Services from 2002
Board. to 2003; Assistant Treasurer and Vice
President, MFS Investment Management from
1997 to 2002; and Assistant Treasurer of
all of the Pioneer Funds since November
2004.
- ------------------------------------------------------------------------------------------------------------------------------------
32
Pioneer Ibbotson Asset Allocation Series VCT Portfolios
- ------------------------------------------------------------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
TRUST OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
POSITIONS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS
NAME AND AGE WITH THE TRUST LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE
Luis I. Presutti (40) Assistant Since November, 2000. Assistant Vice President - Fund None
Treasurer Serves at the Accounting, Administration and Custody
discretion of the Services of Pioneer; and Assistant
Board. Treasurer of all of the Pioneer Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (47) Assistant Since May, 2002. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and Custody
discretion of the Services of Pioneer; and Assistant
Board. Treasurer of all of the Pioneer Funds
since May 2002.
- ------------------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since September, 2003. Fund Administration Manager - Fund None
Sullivan (32) Treasurer Serves at the Accounting, Administration and Custody
discretion of the Services since June 2003; Assistant Vice
Board. President - Mutual Fund Operations of
State Street Corporation from June 2002
to June 2003 (formerly Deutsche Bank
Asset Management); Pioneer Fund
Accounting, Administration and Custody
Services (Fund Accounting Manager from
August 1999 to May 2002); and Assistant
Treasurer of all Pioneer Funds since
September 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
Martin J. Wolin (38) Chief Compliance Since October, 2004. Chief Compliance Officer of Pioneer None
Officer Serves at the (Director of Compliance and Senior
discretion of the Counsel from November 2000 to September
Board. 2004); and Chief Compliance Officer of
all of the Pioneer Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
The outstanding capital stock of PFD, PIM and PIMSS is indirectly wholly owned
by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. PIM, the Trust's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
33
[LOGO] PIONEER
Investments(R)
Pioneer Variable Contracts Trust
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company, Contract Form A3025-96 GRC
General Distributor
Veravest Investments, Inc.
400 Lincoln Street
Worcester, MA 01653
Please consider a Portfolio's investment objective, risks, charges and expenses
carefully before investing. The prospectus contains this and other information
about a Portfolio and should be read carefully before you invest or send money.
To obtain a prospectus and for other information on any Pioneer Portfolio,
contact your adviser, call 1-800-225-6292 or visit our web site at
www.pioneerfunds.com.
18685-00-0206
ITEM 2. CODE OF ETHICS.
(a) Disclose whether, as of the end of the period covered by the report, the
registrant has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, regardless of
whether these individuals are employed by the registrant or a third party. If
the registrant has not adopted such a code of ethics, explain why it has not
done so.
The registrant has adopted, as of the end of the period covered by this report,
a code of ethics that applies to the registrant's principal executive officer,
principal financial officer, principal accounting officer and controller.
(b) For purposes of this Item, the term "code of ethics" means written standards
that are reasonably designed to deter wrongdoing and to promote:
(1) Honest and ethical conduct, including the ethical handling of actual
or apparent conflicts of interest between personal and professional
relationships;
(2) Full, fair, accurate, timely, and understandable disclosure in
reports and documents that a registrant files with, or submits to, the
Commission and in other public communications made by the registrant;
(3) Compliance with applicable governmental laws, rules, and
regulations;
(4) The prompt internal reporting of violations of the code to an
appropriate person or persons identified in the code; and
(5) Accountability for adherence to the code.
(c) The registrant must briefly describe the nature of any amendment, during the
period covered by the report, to a provision of its code of ethics that applies
to the registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party, and that relates to any element of the code of
ethics definition enumerated in paragraph (b) of this Item. The registrant must
file a copy of any such amendment as an exhibit pursuant to Item 10(a), unless
the registrant has elected to satisfy paragraph (f) of this Item by posting its
code of ethics on its website pursuant to paragraph (f)(2) of this Item, or by
undertaking to provide its code of ethics to any person without charge, upon
request, pursuant to paragraph (f)(3) of this Item.
The registrant has made no amendments to the code of ethics during the period
covered by this report.
(d) If the registrant has, during the period covered by the report, granted a
waiver, including an implicit waiver, from a provision of the code of ethics to
the registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party, that relates to one or more of the items set forth
in paragraph (b) of this Item, the registrant must briefly describe the nature
of the waiver, the name of the person to whom the waiver was granted, and the
date of the waiver.
Not applicable.
(e) If the registrant intends to satisfy the disclosure requirement under
paragraph (c) or (d) of this Item regarding an amendment to, or a waiver from,
a provision of its code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions and that relates to any
element of the code of ethics definition enumerated in paragraph (b) of this
Item by posting such information on its Internet website, disclose the
registrant's Internet address and such intention.
Not applicable.
(f) The registrant must:
(1) File with the Commission, pursuant to Item 10(a), a copy of its code
of ethics that applies to the registrant's principal executive officer,
principal financial officer, principal accounting officer or controller,
or persons performing similar functions, as an exhibit to its annual
report on this Form N-CSR;
(2) Post the text of such code of ethics on its Internet website and
disclose, in its most recent report on this Form N-CSR, its Internet
address and the fact that it has posted such code of ethics on its
Internet website; or
(3) Undertake in its most recent report on this Form N-CSR to provide to
any person without charge, upon request, a copy of such code of ethics
and explain the manner in which such request may be made.
See Item 10(2)
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a) (1) Disclose that the registrant's board of trustees has determined that
the registrant either:
(i) Has at least one audit committee financial expert serving on its audit
committee; or
(ii) Does not have an audit committee financial expert serving on its audit
committee.
The registrant's Board of Trustees has determined that the registrant has at
least one audit committee financial expert.
(2) If the registrant provides the disclosure required by paragraph
(a)(1)(i) of this Item, it must disclose the name of the audit committee
financial expert and whether that person is "independent." In order to be
considered "independent" for purposes of this Item, a member of an audit
committee may not, other than in his or her capacity as a member of the audit
committee, the board of trustees, or any other board committee:
(i) Accept directly or indirectly any consulting, advisory, or other
compensatory fee from the issuer; or
(ii) Be an "interested person" of the investment company as defined in
Section 2(a)(19) of the Act (15 U.S.C. 80a-2(a)(19)).
Ms. Marguerite A. Piret, an independent trustee, is such an audit committee
financial expert.
(3) If the registrant provides the disclosure required by paragraph (a)(1)
(ii) of this Item, it must explain why it does not have an audit committee
financial expert.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Disclose, under the caption AUDIT FEES, the aggregate fees billed for each
of the last two fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial statements or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements for those fiscal years.
Audit Fees
Fees for audit services provided to the Trust, including
fees associated with routine and non routine filings of its
Form N-1A, totaled approximately $775,150 in 2005 and
$521,000 in 2004 for the Trust's 29 portfolios and 22 of
the 29 portfolios at that time, respectively.
(b) Disclose, under the caption AUDIT-RELATED FEES, the aggregate fees billed in
each of the last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance of the audit
of the registrant's financial statements and are not reported under
paragraph (a) of this Item. Registrants shall describe the nature of the
services comprising the fees disclosed under this category.
Audit-Related Fees
There were no other audit related services provided to the
Trust during the fiscal years ended December 31, 2005 and
2004.
(c) Disclose, under the caption TAX FEES, the aggregate fees billed in each of
the last two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning. Registrants shall
describe the nature of the services comprising the fees disclosed under this
category.
Tax Fees
Fees for tax compliance services, primarily for tax return,
totaled $197,200 in 2005 and $139,525 in 2004.
(d) Disclose, under the caption ALL OTHER FEES, the aggregate fees billed in
each of the last two fiscal years for products and services provided by the
principal accountant, other than the services reported in paragraphs (a) through
(c) of this Item. Registrants shall describe the nature of the services
comprising the fees disclosed under this category.
Other Fees
There were no other services provided to the Trust during
the fiscal years ended December 31, 2005 and 2004.
(e) (1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
PIONEER FUNDS
APPROVAL OF AUDIT, AUDIT-RELATED, TAX AND OTHER SERVICES
PROVIDED BY THE INDEPENDENT AUDITOR
SECTION I - POLICY PURPOSE AND APPLICABILITY
The Pioneer Funds recognize the importance of maintaining the independence of
their outside auditors. Maintaining independence is a shared responsibility
involving Pioneer Investment Management, Inc ("PIM"), the audit committee and
the independent auditors.
The Funds recognize that a Fund's independent auditors: 1) possess knowledge of
the Funds, 2) are able to incorporate certain services into the scope of the
audit, thereby avoiding redundant work, cost and disruption of Fund personnel
and processes, and 3) have expertise that has value to the Funds. As a result,
there are situations where it is desirable to use the Fund's independent
auditors for services in addition to the annual audit and where the potential
for conflicts of interests are minimal. Consequently, this policy, which is
intended to comply with Rule 210.2-01(C)(7), sets forth guidelines and
procedures to be followed by the Funds when retaining the independent audit firm
to perform audit, audit-related tax and other services under those
circumstances, while also maintaining independence.
Approval of a service in accordance with this policy for a Fund shall also
constitute approval for any other Fund whose pre-approval is required pursuant
to Rule 210.2-01(c)(7)(ii).
In addition to the procedures set forth in this policy, any non-audit services
that may be provided consistently with Rule 210.2-01 may be approved by the
Audit Committee itself and any pre-approval that may be waived in accordance
with Rule 210.2-01(c)(7)(i)(C) is hereby waived.
Selection of a Fund's independent auditors and their compensation shall be
determined by the Audit Committee and shall not be subject to this policy.
SECTION II - POLICY
- ---------------- -------------------------------- -------------------------------------------------
SERVICE SERVICE CATEGORY DESCRIPTION SPECIFIC PRE-APPROVED SERVICE SUBCATEGORIES
CATEGORY
- ---------------- -------------------------------- -------------------------------------------------
I. AUDIT Services that are directly o Accounting research assistance
SERVICES related to performing the o SEC consultation, registration
independent audit of the Funds statements, and reporting
o Tax accrual related matters
o Implementation of new accounting
standards
o Compliance letters (e.g. rating agency
letters)
o Regulatory reviews and assistance
regarding financial matters
o Semi-annual reviews (if requested)
o Comfort letters for closed end
offerings
- ---------------- -------------------------------- -------------------------------------------------
II. Services which are not o AICPA attest and agreed-upon procedures
AUDIT-RELATED prohibited under Rule o Technology control assessments
SERVICES 210.2-01(C)(4) (the "Rule") o Financial reporting control assessments
and are related extensions of o Enterprise security architecture
the audit services support the assessment
audit, or use the
knowledge/expertise gained
from the audit procedures as a
foundation to complete the
project. In most cases, if
the Audit-Related Services are
not performed by the Audit
firm, the scope of the Audit
Services would likely
increase. The Services are
typically well-defined and
governed by accounting
professional standards (AICPA,
SEC, etc.)
- ---------------- -------------------------------- -------------------------------------------------
------------------------------------- ------------------------------------
AUDIT COMMITTEE APPROVAL POLICY AUDIT COMMITTEE
REPORTING POLICY
------------------------------------- ------------------------------------
o "One-time" pre-approval o A summary of all such
for the audit period for all services and related fees
pre-approved specific service reported at each regularly
subcategories. Approval of the scheduled Audit Committee
independent auditors as meeting.
auditors for a Fund shall
constitute pre approval for
these services.
------------------------------------- ------------------------------------
o "One-time" pre-approval o A summary of all such
for the fund fiscal year within services and related fees
a specified dollar limit (including comparison to
for all pre-approved specified dollar limits)
specific service subcategories reported quarterly.
o Specific approval is
needed to exceed the
pre-approved dollar limit for
these services (see general
Audit Committee approval policy
below for details on obtaining
specific approvals)
o Specific approval is
needed to use the Fund's
auditors for Audit-Related
Services not denoted as
"pre-approved", or
to add a specific service
subcategory as "pre-approved"
------------------------------------- ------------------------------------
SECTION III - POLICY DETAIL, CONTINUED
- ----------------------- --------------------------- -----------------------------------------------
SERVICE CATEGORY SERVICE CATEGORY SPECIFIC PRE-APPROVED SERVICE SUBCATEGORIES
DESCRIPTION
- ----------------------- --------------------------- -----------------------------------------------
III. TAX SERVICES Services which are not o Tax planning and support
prohibited by the Rule, o Tax controversy assistance
if an officer of the Fund o Tax compliance, tax returns, excise
determines that using the tax returns and support
Fund's auditor to provide o Tax opinions
these services creates
significant synergy in
the form of efficiency,
minimized disruption, or
the ability to maintain a
desired level of
confidentiality.
- ----------------------- --------------------------- -----------------------------------------------
- ------------------------------------- -------------------------
AUDIT COMMITTEE APPROVAL POLICY AUDIT COMMITTEE
REPORTING POLICY
- ------------------------------------- -------------------------
- ------------------------------------- -------------------------
o "One-time" pre-approval o A summary of
for the fund fiscal year all such services and
within a specified dollar limit related fees
(including comparison
to specified dollar
limits) reported
quarterly.
o Specific approval is
needed to exceed the
pre-approved dollar limits for
these services (see general
Audit Committee approval policy
below for details on obtaining
specific approvals)
o Specific approval is
needed to use the Fund's
auditors for tax services not
denoted as pre-approved, or to add a specific
service subcategory as
"pre-approved"
- ------------------------------------- -------------------------
SECTION III - POLICY DETAIL, CONTINUED
- ----------------------- --------------------------- -----------------------------------------------
SERVICE CATEGORY SERVICE CATEGORY SPECIFIC PRE-APPROVED SERVICE SUBCATEGORIES
DESCRIPTION
- ----------------------- --------------------------- -----------------------------------------------
IV. OTHER SERVICES Services which are not o Business Risk Management support
prohibited by the Rule, o Other control and regulatory
A. SYNERGISTIC, if an officer of the Fund compliance projects
UNIQUE QUALIFICATIONS determines that using the
Fund's auditor to provide
these services creates
significant synergy in
the form of efficiency,
minimized disruption,
the ability to maintain a
desired level of
confidentiality, or where
the Fund's auditors
posses unique or superior
qualifications to provide
these services, resulting
in superior value and
results for the Fund.
- ----------------------- --------------------------- -----------------------------------------------
- --------------------------------------- ------------------------
AUDIT COMMITTEE APPROVAL POLICY AUDIT COMMITTEE
REPORTING POLICY
- ------------------------------------- --------------------------
o "One-time" pre-approval o A summary of
for the fund fiscal year within all such services and
a specified dollar limit related fees
(including comparison
to specified dollar
limits) reported
quarterly.
o Specific approval is
needed to exceed the
pre-approved dollar limits for
these services (see general
Audit Committee approval policy
below for details on obtaining
specific approvals)
o Specific approval is
needed to use the Fund's
auditors for "Synergistic" or
"Unique Qualifications" Other
Services not denoted as
pre-approved to the left, or to
add a specific service
subcategory as "pre-approved"
- ------------------------------------- --------------------------
SECTION III - POLICY DETAIL, CONTINUED
- ----------------------- ------------------------- -----------------------------------------------
SERVICE CATEGORY SERVICE CATEGORY SPECIFIC PROHIBITED SERVICE SUBCATEGORIES
DESCRIPTION
- ----------------------- ------------------------- -----------------------------------------------
PROHIBITED SERVICES Services which result 1. Bookkeeping or other services
in the auditors losing related to the accounting records or
independence status financial statements of the audit
under the Rule. client*
2. Financial information systems design
and implementation*
3. Appraisal or valuation services,
fairness* opinions, or
contribution-in-kind reports
4. Actuarial services (i.e., setting
actuarial reserves versus actuarial
audit work)*
5. Internal audit outsourcing services*
6. Management functions or human
resources
7. Broker or dealer, investment
advisor, or investment banking services
8. Legal services and expert services
unrelated to the audit
9. Any other service that the Public
Company Accounting Oversight Board
determines, by regulation, is
impermissible
- ----------------------- ------------------------- -----------------------------------------------
- ------------------------------------------- ------------------------------
AUDIT COMMITTEE APPROVAL POLICY AUDIT COMMITTEE
REPORTING POLICY
- ------------------------------------------- ------------------------------
o These services are not to be o A summary of all
performed with the exception of the(*) services and related
services that may be permitted fees reported at each
if they would not be subject to audit regularly scheduled
procedures at the audit client (as Audit Committee meeting
defined in rule 2-01(f)(4)) level will serve as continual
the firm providing the service. confirmation that has
not provided any
restricted services.
- ------------------------------------------- ------------------------------
- --------------------------------------------------------------------------------
GENERAL AUDIT COMMITTEE APPROVAL POLICY:
o For all projects, the officers of the Funds and the Fund's auditors will each
make an assessment to determine that any proposed projects will not impair
independence.
o Potential services will be classified into the four non-restricted service
categories and the "Approval of Audit, Audit-Related, Tax and Other
Services" Policy above will be applied. Any services outside the specific
pre-approved service subcategories set forth above must be specifically
approved by the Audit Committee.
o At least quarterly, the Audit Committee shall review a report summarizing the
services by service category, including fees, provided by the Audit firm as
set forth in the above policy.
- --------------------------------------------------------------------------------
(2) Disclose the percentage of services described in each of paragraphs (b)
through (d) of this Item that were approved by the audit committee pursuant
to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
Non-Audit Services
Beginning with non-audit service contracts entered into on
or after May 6, 2003, the effective date of the new SEC
pre-approval rules, the Trust's audit committee is required
to pre-approve services to affiliates defined by SEC rules
to the extent that the services are determined to have a
direct impact on the operations or financial reporting of the
Trust.
For the years ended December 31, 2005 and 2004, there
were no services provided to an affiliate that required the
Trust's audit committee pre-approval.
(f) If greater than 50 percent, disclose the percentage of hours expended on the
principal accountant's engagement to audit the registrant's financial statements
for the most recent fiscal year that were attributed to work performed by
persons other than the principal accountant's full-time, permanent employees.
N/A
(g) Disclose the aggregate non-audit fees billed by the registrant's accountant
for services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the adviser that provides ongoing services to the registrant for each of
the last two fiscal years of the registrant.
The aggregate non-audit fees for the Trust and affiliates, as
previously defined, totaled $190,400 in 2005 and $139,525
in 2004.
(h) Disclose whether the registrant's audit committee of the board of trustees
has considered whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of
Rule 2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence.
The Fund's independent auditor, Ernst &
Young LLP ("E&Y"), has advised the Audit
Committee of the Fund's Board of Trustees that
E&Ys Spanish affiliate (E&Y Spain) performed
certain non-audit work for Pioneer Global
Investments Limited ("PGIL"), an affiliate of the
Funds investment adviser. The services involved
the receipt and disbursement of monies transferred
to E&Y Spain by PGIL in payment of individual
payroll and related income tax withholdings due on
returns prepared by E&Y Spain for certain PGIL
employees located in Spain from February 2001 to
October 2005. E&Y became auditors of the Fund in
May 2002. These payroll and tax services were
discontinued in November 2005. The annual fee
received by E&Y Spain for all such services totaled
approximately 9,000 Euro per year. E&Y has informed
the Audit Committee that based on its internal
reviews and the de minimus nature of the services
provided and fees received, E&Y does not believe
its independence with respect to the Fund has been
impaired or that it is disqualified from acting as
independent auditors to the Fund.
The Trust's audit committee of the Board of Trustees has
considered whether the provision of non-audit services that
were rendered to the Affiliates (as defined) that were not
pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01
of Regulation S-X is compatible with maintaining the
principal accountant's independence.
Item 5. Audit Committee of Listed Registrants
(a) If the registrant is a listed issuer as defined in Rule 10A-3
under the Exchange Act (17 CFR 240.10A-3), state whether
or not the registrant has a separately-designated standing
audit committee established in accordance with Section
3(a)(58)(A) of the Exchange Act (15 U.S.C. 78c(a)(58)(A)).
If the registrant has such a committee, however designated,
identify each committee member. If the entire board of directors
is acting as the registrants audit committee as specified in
Section 3(a)(58)(B) of the Exchange Act (15 U.S.C. 78c(a)(58)(B)),
so state.
The registrant has a separately-designated standing audit
committe eestablished in accordance with Section
3(a)(58)(A) of the Exchange Act (15 U.S.C. 78c(a)(58)(A)).
(b) If applicable, provide the disclosure required by Rule 10A-3(d)
under the Exchange Act (17 CFR 240.10A-3(d)) regarding an exemption
from the listing standards for audit committees.
N/A
Item 6. Schedule of Investments.
File Schedule I Investments in securities of unaffiliated issuers
as of the close of the reporting period as set forth in 210.12-
12 of Regulation S-X [17 CFR 210.12-12], unless the schedule is
included as part of the report to shareholders filed under Item
1 of this Form.
Included in Item 1
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
A closed-end management investment company that is filing an annual report on
this Form N-CSR must, unless it invests exclusively in non-voting securities,
describe the policies and procedures that it uses to determine how to vote
proxies relating to portfolio securities, including the procedures that the
company uses when a vote presents a conflict between the interests of its
shareholders, on the one hand, and those of the company's investment adviser;
principal underwriter; or any affiliated person (as defined in Section 2(a)(3)
of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(3)) and the rules
thereunder) of the company, its investment adviser, or its principal
underwriter, on the other. Include any policies and procedures of the company's
investment adviser, or any other third party, that the company uses, or that are
used on the company's behalf, to determine how to vote proxies relating to
portfolio securities.
Not applicable to open-end management investment companies.
Item 8. Portfolio Managers of Closed-End Management Investment
Companies.
(a) If the registrant is a closed-end management investment company that
is filing an annual report on this Form N-CSR,provide the following
information:
(1) State the name, title, and length of service of the person or persons
employed by or associated with the registrant or an investment adviser
of the registrant who are primarily responsible for the day-to-day management
of the registrants portfolio (Portfolio Manager). Also state each Portfolio
Managers business experience during the past 5 years.
Not applicable to open-end management investment companies.
Item 9. Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers.
(a) If the registrant is a closed-end management investment company,
in the following tabular format, provide the information specified in
paragraph (b) of this Item with respect to any purchase made by or on
behalf of the registrant or any affiliated purchaser, as defined in
Rule 10b-18(a)(3) under the Exchange Act (17 CFR 240.10b-18(a)(3)), of
shares or other units of any class of the registrants equity securities
that is registered by the registrant pursuant to Section 12 of the
Exchange Act (15 U.S.C. 781). Instruction to paragraph (a). Disclose
all purchases covered by this Item, including purchases that do not
satisfy the conditions of the safe harbor of Rule 10b-18 under the
Exchange Act (17 CFR 240.10b-18), made in the period covered by the
report. Provide disclosures covering repurchases made on a monthly basis.
For example, if the reporting period began on January 16 and ended on
July 15, the chart would show repurchases for the months from January 16
through February 15, February 16 through March 15, March 16 through
April 15, April 16 through May 15, May 16 through June 15, and June 16
through July 15.
Not applicable to open-end management investment companies.
Item 10. Submission of Matters to a Vote of Security Holders.
Describe any material changes to the procedures by which shareholders
may recommend nominees to the registrants board of directors, where
those changes were implemented after the registrant last provided
disclosure in response to the requirements of Item 7(d)(2)(ii)(G)
of Schedule 14A (17 CFR 240.14a-101), or this Item.
There have been no material changes to the procedures by which the
shareholders may recommend nominees to the registrants board of
directors since the registrant last provided disclosure in response
to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14(A) in
its definitive proxy statement, or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Disclose the conclusions of the registrant's principal executive officer or
officers and principal financial officer or officers, or persons performing
similar functions, about the effectiveness of the registrant's disclosure
controls and procedures (as defined in Rule 30a-2(c) under the Act (17 CFR
270.30a-2(c))) based on their evaluation of these controls and procedures as of
a date within 90 days of the filing date of the report that includes the
disclosure required by this paragraph.
The registrant's principal executive officer and principal financial
officer have concluded, that the registrant's disclosure controls and
procedures are effective based on their evaluation of these controls and
procedures as of a date within 90 days of the filing date of this report.
(b) Disclose whether or not there were significant changes in the registrant's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
There were no significant changes in the registrant's internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant as required by Rule 30a-2 under the Act
(17 CFR 270.30a-2).
Filed herewith.
SIGNATURES
[See General Instruction F]
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Pioneer Variable Contracts Trust
By (Signature and Title)* /s/ John F. Cogan, Jr.
John F. Cogan, Jr, President
Date February 28, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ John F. Cogan, Jr.
John F. Cogan, Jr., President
Date February 28, 2006
By (Signature and Title)* /s/ Vincent Nave
Vincent Nave, Treasurer
Date February 28, 2006
* Print the name and title of each signing officer under his or her signature.