<PAGE>
BOARD OF MANAGERS
THE ACCUMULATION FUND
CHARLES E. SOULE
CHAIRMAN
GORDON T. MILLER
VICE CHAIRMAN
AUBREY K. REID, JR.
JOAN SADOWSKY
WILLIAM J. SHORT
THE PAUL REVERE
VARIABLE ANNUITY
INSURANCE COMPANY
WORCESTER, MASSACHUSETTS 01608
This report and the financial statements attached are submitted for the
general information of contract owners and are not authorized for
distribution to prospective investors unless preceded or accompanied by
an effective prospectus. Nothing herein contained is to be considered
an offer of sale of The Paul Revere Variable Annuity Insurance Company
contracts. Such offering is made only by prospectus, which includes
details as to offering price and other material information.
Form 10100 Rev. 6/96 Printed in U.S.A.
SEMI-ANNUAL REPORT
June 30, 1996
[LOGO]
WORCESTER, MASSACHUSETTS
<PAGE>
TO OUR CONTRACT OWNERS AND PARTICIPANTS:
The second quarter of 1996 saw considerable volatility rooted in a continued
lack of stable consensus over prospects for interest rates and economic growth.
While the Federal Reserve has kept interest rates unchanged for now, job growth
continues to accelerate which is elevating fears of inflation once again and the
possibility of a rate increase late this year. The U.S. stock market, as
measured by the S&P 500, shook off these mixed signals to post a positive return
of 4.5% in the second quarter. Growth stocks, in particular, surged with the
Russell 1000 Growth Index appreciating 6.4%. The accumulation unit values of the
Qualified Fund and Non-Qualified Fund increased 3.6% and 3.5%, respectively.
The portfolio's underperformance for the quarter can be attributed largely
to its Consumer Staples sector positioning relative to the Russell 1000 Growth
Index. The portfolio's weighting was less than half of that of the Index,
reflecting our conviction that the sector offered less attractive risk/reward
trade-offs than other areas of the market. This proved incorrect, at least in
the short-term. We expect to maintain an underweighting relative to the Index,
but will look to increase the portfolio's exposure in this sector, both by
adding to existing names and by establishing new positions based on solid
fundamentals and attractive valuations.
Despite a lackluster performance from the Healthcare sector so far this
year, we continue to believe that well-managed healthcare companies within the
HMO industry offer substantial long-term growth potential. In the Technology
sector, we continue to have confidence in prospects for above average growth,
with software and networking companies exhibiting particularly attractive
fundamentals. The portfolio's Retail sector holdings outperformed the market,
despite concerns over weak consumer spending.
Looking forward, we feel that the critical variable to performance will be
stock selection, not sector weighting. Earnings growth will continue to be the
key determinant of performance. We continue to be company-focused and to closely
examine the long-term fundamentals for each company in which we invest. We
believe this bottom-up approach will provide the best opportunity for strong
relative performance as the U.S. stock market becomes more challenging.
Sincerely,
Charles E. Soule
Chairman, Board of Managers
The Paul Revere Variable
Annuity
Contract Accumulation Fund
President, The Paul Revere
Variable
Annuity Insurance Company
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, 1996 (UNAUDITED)
----------------------------
SERIES Q SERIES N
(QUALIFIED) (NON-QUALIFIED)
----------- ---------------
<S> <C> <C>
ASSETS
Investments in securities of unaffiliated companies at market value
(Cost: Series Q $14,748,289, Series N $3,271,458)
(see Statement of Investments)....................................................... $18,785,608 $ 4,274,942
Cash................................................................................... 799,431 240,736
Dividends and interest receivable...................................................... 21,532 4,946
Receivable for investments sold........................................................ 221,114 49,872
Due from The Paul Revere Variable Annuity Insurance Company............................ 14,387 52,360
----------- ---------------
Total assets...................................................................... 19,842,072 4,622,856
----------- ---------------
LIABILITIES
Surrenders payable..................................................................... 75,918 2,469
Payable for investments purchased...................................................... 257,065 60,819
Other.................................................................................. 23,245 3,297
----------- ---------------
Total liabilities................................................................ 356,228 66,585
----------- ---------------
TOTAL NET ASSETS....................................................................... $19,485,844 $ 4,556,271
----------- ---------------
----------- ---------------
CONTRACT OWNERS' EQUITY
Deferred contracts terminable by owner................................................. $16,499,051 $ 3,119,890
Currently payable contracts............................................................ 2,986,793 1,436,381
----------- ---------------
Total net assets................................................................. $19,485,844 $ 4,556,271
----------- ---------------
----------- ---------------
ACCUMULATION UNITS OUTSTANDING......................................................... 2,522,433 578,618
----------- ---------------
----------- ---------------
NET ASSET VALUE PER ACCUMULATION UNIT.................................................. $ 7.725 $ 7.874
----------- ---------------
----------- ---------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED 6/30/96
(UNAUDITED) YEAR ENDED 12/31/95
---------------------------- ----------------------------
SERIES Q SERIES N SERIES Q SERIES N
INCREASE/DECREASE IN NET ASSETS (QUALIFIED) (NON-QUALIFIED) (QUALIFIED) (NON-QUALIFIED)
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Operations:
Net investment income........................ $ 38,249 $ 1,294 $ 129,286 $ 4,785
Net realized gain on investments
(unaffiliated companies).................. 6,250,627 255,499 4,293,754 465,264
Net increase (decrease) in unrealized
appreciation (depreciation) of investments
(unaffiliated companies).................. (4,141,875) 96,522 5,138,033 581,843
----------- --------------- ----------- ---------------
Increase in net assets from operations.... 2,147,001 353,315 9,561,073 1,051,892
Contract receipts and payments:
Gross purchase payments received............. 68,024 4,610 653,977 7,770
Deductions from purchase payments............ 2,297 285 3,969 483
----------- --------------- ----------- ---------------
Net purchase payments received............ 65,727 4,325 650,008 7,287
Payments to contract owners:
Annuity payments to contract owners.......... 152,404 82,700 260,591 142,452
Terminations and withdrawals to contract
owners.................................... 21,367,993 11,083 1,128,000 43,041
----------- --------------- ----------- ---------------
Total payments to contract owners......... 21,520,397 93,783 1,388,591 185,493
----------- --------------- ----------- ---------------
Net contract payments to contract
owners.................................... (21,454,670) (89,458) (738,583) (178,206)
Other additions................................. 18,480 30,993 128,917 71,953
----------- --------------- ----------- ---------------
Total increase (decrease) in net assets... (19,289,189) 294,850 8,951,407 945,639
NET ASSETS
Beginning of year............................... 38,775,033 4,261,421 29,823,626 3,315,782
----------- --------------- ----------- ---------------
End of period................................... $19,485,844 $ 4,556,271 $38,775,033 $ 4,261,421
----------- --------------- ----------- ---------------
----------- --------------- ----------- ---------------
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30, 1996 (UNAUDITED)
----------------------------
SERIES Q SERIES N
(QUALIFIED) (NON-QUALIFIED)
----------- ---------------
<S> <C> <C>
INVESTMENT INCOME
Income (unaffiliated companies):
Dividends............................................................................ $ 195,047 $ 33,265
Interest............................................................................. 44,183 5,224
----------- ---------------
Total income...................................................................... 239,230 38,489
Expenses:
Mortality and expense risk fees...................................................... 129,788 22,277
Investment management and advisory service fees...................................... 64,893 11,138
Professional services................................................................ 6,300 3,780
----------- ---------------
Total expenses.................................................................... 200,981 37,195
----------- ---------------
Net investment income................................................................... 38,249 1,294
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments sold
(unaffiliated companies)............................................................. 6,250,627 255,499
Net increase (decrease) in unrealized appreciation (depreciation) of investments
(unaffiliated companies)............................................................. (4,141,875) 96,522
----------- ---------------
Net realized and unrealized gain on investments......................................... 2,108,752 352,021
----------- ---------------
Increase in net assets from operations.................................................. $2,147,001 $ 353,315
----------- ---------------
----------- ---------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SERIES Q (QUALIFIED) SERIES N (NON-QUALIFIED)
----------------------------------------------------- -----------------------------------
SECURITIES OF NUMBER MARKET % OF NUMBER MARKET
UNAFFILIATED COMPANIES OF SHARES COST (A) VALUE NET ASSETS OF SHARES COST (A) VALUE
----------- ----------- ----------- -------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
AEROSPACE
Allied Signal Inc............ 5,200 $ 187,894 $ 297,050 1,100 $ 38,824 $ 62,837
Raytheon Co.................. 4,200 166,105 216,825 1,000 39,472 51,625
----------- ----------- ---------- ----------
353,999 513,875 2.7% 78,296 114,462
----------- ----------- ---------- ----------
AIRLINES
(b) Midwest Express Hldgs....... 2,900 97,861 93,163 0.5% 700 23,625 22,487
----------- ----------- ---------- ----------
AUTOMOTIVE
Ford Motor Co................ 5,600 191,436 181,300 0.9% 1,300 44,441 42,088
----------- ----------- ---------- ----------
BANKS AND CREDIT COMPANIES
BayBanks, Inc................ 1,900 192,335 204,725 400 40,374 43,100
Comerica, Inc................ 5,900 167,609 263,288 1,400 41,353 62,475
Northern Trust Corp.......... 5,500 207,490 317,625 1,300 46,881 75,075
Norwest Corp................. 7,600 157,255 265,050 1,800 34,845 62,775
----------- ----------- ---------- ----------
724,689 1,050,688 5.4% 163,453 243,425
----------- ----------- ---------- ----------
BIOTECHNOLOGY
Guidant Corp................. 2,300 94,438 113,275 0.6% -- -- --
----------- ----------- ---------- ----------
BUSINESS MACHINES
(b) Gateway 2000, Inc........... 3,000 89,856 102,000 700 20,967 23,800
Hewlett-Packard Co........... 1,000 45,253 99,625 200 8,716 19,925
(b) Sun Microsystems, Inc....... 6,800 264,159 400,350 1,700 70,259 100,087
----------- ----------- ---------- ----------
399,268 601,975 3.1% 99,942 143,812
----------- ----------- ---------- ----------
BUSINESS SERVICES
Alco Standard Corp........... 2,800 129,642 126,700 600 27,565 27,150
(b) Computer Sciences Co........ 6,600 457,841 494,175 1,500 98,649 112,312
(b) DST Systems, Inc............ 500 10,500 16,000 100 2,100 3,200
----------- ----------- ---------- ----------
597,983 636,875 3.3% 128,314 142,662
----------- ----------- ---------- ----------
CELLULAR TELEPHONES
(b) Airtouch Communications..... 1,000 23,983 28,250 0.1% 200 4,669 5,650
----------- ----------- ---------- ----------
CHEMICALS
Monsanto Co.................. 6,500 190,691 211,250 1.1% 1,500 44,006 48,750
----------- ----------- ---------- ----------
COMPUTER SOFTWARE--PC
First Data Corp.............. 2,800 179,370 223,300 600 36,639 47,850
(b) Microsoft Corp.............. 1,700 73,025 204,212 400 17,125 48,050
----------- ----------- ---------- ----------
252,395 427,512 2.2% 53,764 95,900
----------- ----------- ---------- ----------
COMPUTER SOFTWARE--SYSTEMS
Adobe Systems Inc............ 3,900 210,352 139,912 800 41,326 28,700
Computer Assoc Intl.......... 4,900 231,738 347,900 1,000 45,398 71,000
(b) Oracle Corp................. 10,200 214,869 402,267 2,025 27,210 79,862
----------- ----------- ---------- ----------
656,959 890,079 4.6% 113,934 179,562
----------- ----------- ---------- ----------
CONSUMER GOODS & SERVICES
Philip Morris Cos. Inc....... 2,200 188,759 228,800 500 42,777 52,000
Procter & Gamble Co.......... 4,200 261,756 380,625 1,000 60,842 90,625
Service Corp. Intl........... 4,100 160,681 235,750 900 35,153 51,750
<CAPTION>
SECURITIES OF % OF
UNAFFILIATED COMPANIES NET ASSETS
--------------
<S> <C>
COMMON STOCKS
AEROSPACE
Allied Signal Inc............
Raytheon Co..................
2.7%
AIRLINES
(b) Midwest Express Hldgs....... 0.5%
AUTOMOTIVE
Ford Motor Co................ 0.9%
BANKS AND CREDIT COMPANIES
BayBanks, Inc................
Comerica, Inc................
Northern Trust Corp..........
Norwest Corp.................
5.3%
BIOTECHNOLOGY
Guidant Corp.................
BUSINESS MACHINES
(b) Gateway 2000, Inc...........
Hewlett-Packard Co...........
(b) Sun Microsystems, Inc.......
3.2%
BUSINESS SERVICES
Alco Standard Corp...........
(b) Computer Sciences Co........
(b) DST Systems, Inc............
3.1%
CELLULAR TELEPHONES
(b) Airtouch Communications..... 0.1%
CHEMICALS
Monsanto Co.................. 1.1%
COMPUTER SOFTWARE--PC
First Data Corp..............
(b) Microsoft Corp..............
2.1%
COMPUTER SOFTWARE--SYSTEMS
Adobe Systems Inc............
Computer Assoc Intl..........
(b) Oracle Corp.................
3.9%
CONSUMER GOODS & SERVICES
Philip Morris Cos. Inc.......
Procter & Gamble Co..........
Service Corp. Intl...........
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF INVESTMENTS (CONTINUED) JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SERIES Q (QUALIFIED) SERIES N (NON-QUALIFIED)
----------------------------------------------------- -----------------------------------
NUMBER MARKET % OF NUMBER MARKET
OF SHARES COST (A) VALUE NET ASSETS OF SHARES COST (A) VALUE
----------- ----------- ----------- -------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Sherwin Williams Co.......... 1,900 $ 87,514 $ 88,350 400 $ 18,431 $ 18,600
Tyco Intl.................... 11,800 310,742 480,850 2,800 72,744 114,100
UST, Inc..................... 5,000 167,765 171,250 1,100 36,937 37,675
----------- ----------- ---------- ----------
1,177,217 1,585,625 8.1% 266,884 364,750
----------- ----------- ---------- ----------
ELECTRICAL EQUIPMENT
General Electric Co.......... 6,400 321,943 555,200 1,500 67,046 130,125
Honeywell, Inc............... 5,800 231,265 316,100 1,200 43,506 65,400
----------- ----------- ---------- ----------
553,208 871,300 4.5% 110,552 195,525
----------- ----------- ---------- ----------
ELECTRONICS
Intel Corp................... 2,200 30,504 161,563 0.8% 500 6,438 36,718
----------- ----------- ---------- ----------
ENTERTAINMENT
Disney (Walt) Productions.... 3,100 114,430 194,913 700 18,252 44,013
(b) Viacom, Inc................. 2,400 100,159 93,300 600 24,890 23,325
----------- ----------- ---------- ----------
214,589 288,213 1.5% 43,142 67,338
----------- ----------- ---------- ----------
FINANCIAL INSTITUTIONS
(b) Associates First Cap
Corp........................ 900 26,100 34,425 200 5,800 7,650
Beneficial Corp.............. 3,600 143,390 202,050 800 31,955 44,900
Federal Home Loan Mtg........ 2,300 134,354 196,650 600 32,464 51,300
Federal Natl Mtg Assoc....... 2,900 27,510 97,150 800 9,160 26,800
Finova Group, Inc............ 2,200 80,982 107,250 500 18,405 24,375
----------- ----------- ---------- ----------
412,336 637,525 3.3% 97,784 155,025
----------- ----------- ---------- ----------
FOOD & BEVERAGE PRODUCTS
General Mills, Inc........... 5,600 314,370 305,900 1,300 69,027 71,013
Pepsico, Inc................. 6,200 140,914 220,100 1,400 29,656 49,700
----------- ----------- ---------- ----------
455,284 526,000 2.7% 98,683 120,713
----------- ----------- ---------- ----------
FOREST & PAPER PRODUCTS
Kimberly-Clark Corp.......... 2,020 132,451 156,045 0.8% 480 31,474 37,080
----------- ----------- ---------- ----------
INSURANCE
Cigna Corp................... 1,700 191,457 200,387 400 45,049 47,150
Everest Reinsurance Hldgs.... 2,000 38,079 51,750 400 7,187 10,350
Travelers Group, Inc......... 4,500 114,539 205,313 1,050 25,044 47,906
Unum Corp.................... 2,700 127,398 168,075 700 33,533 43,575
----------- ----------- ---------- ----------
471,473 625,525 3.2% 110,813 148,981
----------- ----------- ---------- ----------
MACHINERY
York Intl. Corp.............. 4,100 178,831 212,175 1.1% 900 38,989 46,575
----------- ----------- ---------- ----------
MEDICAL & HEALTH PRODUCTS
American Home Prods.......... 7,200 357,090 432,899 1,600 75,072 96,200
Baxter Intl. Inc............. 7,000 283,146 330,750 1,600 64,534 75,600
Eli Lilly & Co............... 9,300 573,349 604,565 2,200 133,959 143,000
Pfizer, Inc.................. 2,700 113,306 192,713 600 25,561 42,825
Rhone-Poulenc Rorer, Inc..... 3,100 194,909 208,088 700 44,002 46,988
Schering Plough Corp......... 3,900 169,227 244,725 900 39,444 56,475
----------- ----------- ---------- ----------
1,691,027 2,013,740 10.3% 382,572 461,088
----------- ----------- ---------- ----------
MEDICAL & HEALTH TECH. SERVICES
(b) Beverly Enterprises......... 8,700 121,642 104,400 2,000 28,010 23,999
(b) Genesis Health Ventures..... 6,450 118,128 202,369 1,500 27,792 47,063
Manor Care, Inc.............. 10,800 294,126 425,250 2,500 67,600 98,438
<CAPTION>
% OF
NET ASSETS
--------------
<S> <C>
Sherwin Williams Co..........
Tyco Intl....................
UST, Inc.....................
8.0%
ELECTRICAL EQUIPMENT
General Electric Co..........
Honeywell, Inc...............
4.3%
ELECTRONICS
Intel Corp................... 0.8%
ENTERTAINMENT
Disney (Walt) Productions....
(b) Viacom, Inc.................
1.5%
FINANCIAL INSTITUTIONS
(b) Associates First Cap
Corp........................
Beneficial Corp..............
Federal Home Loan Mtg........
Federal Natl Mtg Assoc.......
Finova Group, Inc............
3.4%
FOOD & BEVERAGE PRODUCTS
General Mills, Inc...........
Pepsico, Inc.................
2.6%
FOREST & PAPER PRODUCTS
Kimberly-Clark Corp.......... 0.8%
INSURANCE
Cigna Corp...................
Everest Reinsurance Hldgs....
Travelers Group, Inc.........
Unum Corp....................
3.3%
MACHINERY
York Intl. Corp.............. 1.0%
MEDICAL & HEALTH PRODUCTS
American Home Prods..........
Baxter Intl. Inc.............
Eli Lilly & Co...............
Pfizer, Inc..................
Rhone-Poulenc Rorer, Inc.....
Schering Plough Corp.........
10.1%
MEDICAL & HEALTH TECH. SERVICES
(b) Beverly Enterprises.........
(b) Genesis Health Ventures.....
Manor Care, Inc..............
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF INVESTMENTS (CONTINUED) JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SERIES Q (QUALIFIED) SERIES N (NON-QUALIFIED)
----------------------------------------------------- -----------------------------------
NUMBER MARKET % OF NUMBER MARKET
OF SHARES COST (A) VALUE NET ASSETS OF SHARES COST (A) VALUE
----------- ----------- ----------- -------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Medtronic, Inc............... 1,700 $ 87,939 $ 95,200 400 $ 21,250 $ 22,400
(b) PacifiCare Health Sys....... 1,700 88,518 115,175 350 16,426 23,713
(b) St Jude Med, Inc............ 5,450 212,126 182,575 1,300 49,849 43,550
United Healthcare Co......... 6,800 264,488 343,400 1,600 61,363 80,800
----------- ----------- ---------- ----------
1,186,967 1,468,369 7.5% 272,290 339,963
----------- ----------- ---------- ----------
OIL SERVICES
Schlumberger LTD............. 3,300 193,109 278,025 1.4% 800 47,148 67,400
----------- ----------- ---------- ----------
OILS
Mobil Corp................... 1,800 183,000 202,275 400 40,667 44,950
Texaco Inc................... 4,200 359,158 352,275 1,000 85,480 83,875
----------- ----------- ---------- ----------
542,158 554,550 2.8% 126,147 128,825
----------- ----------- ---------- ----------
PHOTOGRAPHIC PRODUCTS
Eastman Kodak Co............. 4,300 261,308 334,325 1.7% 1,000 55,750 77,750
----------- ----------- ---------- ----------
PRINTING & PUBLISHING
Gannett, Inc. Del............ 2,800 193,077 198,100 600 41,376 42,450
McGraw-Hill Cos., Inc........ 5,200 184,123 237,900 1,200 42,329 54,900
Reuters Hldgs. PLC........... 2,600 105,461 188,500 600 24,579 43,500
Tribune Co................... 2,600 187,694 188,825 600 42,656 43,575
----------- ----------- ---------- ----------
670,355 813,325 4.2% 150,940 184,425
----------- ----------- ---------- ----------
RAILROAD
Burlington Northern SA....... 1,400 122,234 113,225 300 26,193 24,262
CSX Corp..................... 4,300 161,636 207,475 1,000 38,773 48,250
Illinois Central Corp........ 3,900 80,839 110,663 850 17,316 24,119
----------- ----------- ---------- ----------
364,709 431,363 2.2% 82,282 96,631
----------- ----------- ---------- ----------
RESTAURANTS & LODGING
(b) HFS, Inc.................... 1,600 99,200 112,000 0.6% 400 24,800 28,000
----------- ----------- ---------- ----------
SPECIAL PRODUCTS & SERVICES
Minnesota Mng. & Mfg......... 1,500 86,586 103,500 300 17,341 20,700
Stanley Works................ 11,200 230,983 333,200 2,800 58,509 83,300
----------- ----------- ---------- ----------
317,569 436,700 2.2% 75,850 104,000
----------- ----------- ---------- ----------
STORES
(b) Autozone, Inc............... 6,900 204,730 239,774 1,500 44,595 52,124
Circuit City Stores.......... 4,900 169,883 177,013 1,100 37,984 39,738
Lowes Co..................... 7,400 242,845 267,325 1,700 56,176 61,413
(b) Office Depot, Inc........... 9,100 115,678 184,275 2,100 22,836 42,525
Sears Roebuck & Co........... 3,900 170,669 189,638 900 39,312 43,763
Wal-Mart Stores, Inc......... 8,600 199,391 218,225 2,000 47,220 50,750
----------- ----------- ---------- ----------
1,103,196 1,276,250 6.5% 248,123 290,313
----------- ----------- ---------- ----------
SUPERMARKETS
(b) Vons Cons, Inc.............. 3,200 95,400 119,600 0.6% 800 23,740 29,900
----------- ----------- ---------- ----------
TELECOMMUNICATIONS
(b) Cabletron Systems, Inc...... 3,600 285,404 247,050 1.3% 800 54,759 54,900
----------- ----------- ---------- ----------
UTILITIES--ELECTRIC
DPL, Inc..................... 4,500 97,468 109,688 0.6% 1,000 21,550 24,375
----------- ----------- ---------- ----------
<CAPTION>
% OF
NET ASSETS
--------------
<S> <C>
Medtronic, Inc...............
(b) PacifiCare Health Sys.......
(b) St Jude Med, Inc............
United Healthcare Co.........
7.5%
OIL SERVICES
Schlumberger LTD............. 1.5%
OILS
Mobil Corp...................
Texaco Inc...................
2.8%
PHOTOGRAPHIC PRODUCTS
Eastman Kodak Co............. 1.7%
PRINTING & PUBLISHING
Gannett, Inc. Del............
McGraw-Hill Cos., Inc........
Reuters Hldgs. PLC...........
Tribune Co...................
4.0%
RAILROAD
Burlington Northern SA.......
CSX Corp.....................
Illinois Central Corp........
2.1%
RESTAURANTS & LODGING
(b) HFS, Inc.................... 0.6%
SPECIAL PRODUCTS & SERVICES
Minnesota Mng. & Mfg.........
Stanley Works................
2.3%
STORES
(b) Autozone, Inc...............
Circuit City Stores..........
Lowes Co.....................
(b) Office Depot, Inc...........
Sears Roebuck & Co...........
Wal-Mart Stores, Inc.........
6.4%
SUPERMARKETS
(b) Vons Cons, Inc.............. 0.7%
TELECOMMUNICATIONS
(b) Cabletron Systems, Inc...... 1.2%
UTILITIES--ELECTRIC
DPL, Inc..................... 0.5%
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF INVESTMENTS (CONTINUED) JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SERIES Q (QUALIFIED) SERIES N (NON-QUALIFIED)
----------------------------------------------------- -----------------------------------
NUMBER MARKET % OF NUMBER MARKET
OF SHARES COST (A) VALUE NET ASSETS OF SHARES COST (A) VALUE
----------- ----------- ----------- -------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
UTILITIES-TELEPHONE
AT&T Corp.................... 4,300 $ 221,587 $ 266,600 1,000 $ 57,005 $ 62,000
MCI Communications Corp...... 7,800 169,527 199,875 1,800 41,887 46,125
Sprint Corp.................. 1,200 52,335 50,400 300 13,068 12,600
----------- ----------- ---------- ----------
443,449 516,875 2.7% 111,960 120,725
---------
----------- ----------- ---------- ----------
Total common stocks.......... 373,520 14,560,914 18,524,073 95.1 % 85,155 3,237,114 4,219,798
---------
----------- ----------- ---------- ----------
PREFERRED STOCKS
CELLULAR TELEPHONES
(b) Cellular Communications
Pfd......................... 4,923 187,375 261,534 1.3 % 1,038 34,344 55,144
---------
----------- ----------- ---------- ----------
Total preferred stocks.... 4,923 187,375 261,534 1.3 % 1,038 34,344 55,144
---------
----------- ----------- ---------- ----------
Total stocks.............. 378,443 14,748,289 18,785,608 96.4 % 86,193 3,271,458 4,274,942
---------
----------- ----------- ----------- ----------- ---------- ----------
----------- -----------
Total investments in
securities of
unaffiliated
companies............. $14,748,289 18,785,608 96.4 % $3,271,458 4,274,942
---------
----------- ----------- ---------- ----------
----------- ----------
CASH AND RECEIVABLES LESS
LIABILITIES 700,236 3.6 % 281,329
---------
----------- ----------
Total net assets.......... $19,485,844 100.0 % $4,556,271
---------
----------- --------- ----------
----------- ----------
<CAPTION>
% OF
NET ASSETS
--------------
<S> <C>
UTILITIES-TELEPHONE
AT&T Corp....................
MCI Communications Corp......
Sprint Corp..................
2.6%
---------
Total common stocks.......... 92.6 %
---------
PREFERRED STOCKS
CELLULAR TELEPHONES
(b) Cellular Communications
Pfd......................... 1.2 %
---------
Total preferred stocks.... 1.2 %
---------
Total stocks.............. 93.8 %
---------
Total investments in
securities of
unaffiliated
companies............. 93.8 %
---------
CASH AND RECEIVABLES LESS
LIABILITIES 6.2 %
---------
Total net assets.......... 100.0 %
---------
---------
</TABLE>
(a) Effective cost for federal income tax purposes.
(b) Non-income prodoucing security.
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
1. ORGANIZATION
The Paul Revere Variable Annuity Contract Accumulation Fund ("The Fund") is a
separate account of The Paul Revere Variable Annuity Insurance Company ("Paul
Revere Variable"), and is registered under the Investment Company Act of 1940
as an open-end diversified investment company. Paul Revere Variable is a
wholly-owned subsidiary of The Paul Revere Life Insurance Company ("Paul
Revere Life") which in turn is wholly-owned by The Paul Revere Corporation
which is 83% owned by Textron Inc.
2. ACCOUNTING POLICIES
Common and preferred stocks are stated at market values which are based on
the last sales prices at June 30, 1996, as reported on national security
exchanges or the closing bid prices for unlisted securities as reported by
investment dealers. Short-term notes are stated at amortized cost which
approximates market value. Unrealized investment gains and losses are
included in contract owners' equity. Realized gains and losses on investments
sold are determined on the basis of specific identification of investments.
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend dates.
Interest income is accrued on a daily basis.
The Fund does not distribute net investment income and net realized capital
gains through dividends to contract owners. The allocation of net investment
income and net realized capital gains occurs automatically in the daily
determination of unit net asset values. They are, therefore, included in the
value of the contracts in force and in payments to contract owners.
Contract owners' equity is comprised of two components. Deferred contracts
terminable by owner represents amounts attributable to contracts which have
not yet annuitized. Currently payable contracts include amounts equivalent to
the annuity reserves relating to contracts with current annuities. Annuity
reserves are computed for currently payable contracts according to the 1900
Progressive Annuity Mortality Table. The assumed interest rate is either 3.5%
or 5% according to the option elected by the annuitant at the time of
conversion. Paul Revere Variable bears all the mortality risk associated with
these contracts.
3. INVESTMENT ADVISOR
Paul Revere Variable acts as investment advisor to the Fund and provides
mortality and expense guarantees to holders of variable annuity contracts.
For these services, Paul Revere Variable receives mortality and expense risk
fees and investment management and advisory service fees as shown on the
statement of operations which, on an annual basis, will not exceed 2% of the
average daily net asset value of the Fund.
Paul Revere Variable also acts as principal underwriter and performs all sales
and administrative functions relating to the variable annuity contracts and
the Fund. Fees for such services are deducted from the contract purchase
payments as shown in the statements of changes in net assets.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
The summarized balance sheet of Paul Revere Variable is as follows:
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------
(IN THOUSANDS)
<S> <C>
Available for sale:
Fixed maturities at fair value (cost: $1,291,498)................................................ $ 1,292,631
Equity securities at market (cost: $7,522)....................................................... 8,202
Investment in Textron common stock at market (cost: $3,517)...................................... 12,187
Short-term investments........................................................................... 3,357
Mortgage loans on real estate, at amortized cost................................................... 89,492
Policy loans....................................................................................... 30,624
Investment real estate............................................................................. 2,350
Other invested assets.............................................................................. 1,958
Accrued investment income.......................................................................... 22,890
Other assets....................................................................................... 57,251
Separate account assets............................................................................ 24,465
--------------
$ 1,545,407
--------------
--------------
</TABLE>
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<S> <C>
Future policy benefits.................................................................. $ 92,522
Purchase payment funds.................................................................. 1,291,006
Other liabilities....................................................................... 21,949
Separate account liabilities............................................................ 24,465
Stockholder's equity.................................................................... 115,465
-------------
$ 1,545,407
-------------
-------------
</TABLE>
4. INVESTMENT SUB-ADVISOR
Under an investment sub-advisory agreement with MFS Asset Management, Inc.
("AMI"), AMI provides investment management services to Paul Revere Variable
for a fee which, on an annual basis, will equal 0.35% of the average daily
net assets of each series of the Fund. This fee is borne by Paul Revere
Variable only and does not represent an additional charge to the Fund.
5. FEDERAL INCOME TAXES
The Fund's operations are included with those of Paul Revere Variable, which
is taxed as a life insurance company under the Internal Revenue Code and is
included in a consolidated federal tax return filed by Textron Inc. In the
opinion of Paul Revere Variable management, current law provides that
investment income and capital gains from assets maintained in the Fund for
the exclusive benefit of the contract owners are generally not subject to
federal income tax. However, to the extent that Paul Revere Variable incurs
federal income taxes based on the income from the Fund's assets, the Fund
will be charged. No charges for federal income taxes have been made since the
inception of the Fund.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
6. SECURITY TRANSACTIONS
The aggregate cost of securities purchased and proceeds of securities sold,
other than securities with maturities of one year or less, were as follows:
<TABLE>
<CAPTION>
SERIES Q (QUALIFIED) SERIES N (NON-QUALIFIED)
---------------------------- --------------------------
PURCHASES SALES PURCHASES SALES
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Six months ended June 30,
1996................................................... $ 7,174,789 $ 20,469,020 $ 1,183,442 $ 1,028,973
1995................................................... $ 11,280,114 $ 9,089,963 $ 1,256,609 $ 1,065,573
</TABLE>
At June 30, 1996, net unrealized appreciation of investments in Series Q,
amounting to $4,037,319, consisted of unrealized gains of $4,243,838 and
unrealized losses of $206,519; net unrealized appreciation of investment in
Series N, amounting to $1,003,484, consisted of unrealized gains of $1,035,892
and unrealized losses of $32,408.
7. ACCUMULATION UNITS
The change in the number of accumulation units outstanding were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED 6/30/96
(UNAUDITED) YEAR ENDED 12/31/95
---------------------------- ----------------------------
SERIES Q SERIES N SERIES Q SERIES N
(QUALIFIED) (NON-QUALIFIED) (QUALIFIED) (NON-QUALIFIED)
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Units outstanding at beginning of year................. 5,490,718 586,396 5,597,405 604,004
Units credited to contracts:
Net purchase payments............................. 9,010 572 114,907 1,152
Units withdrawn from contracts:
Annuity payments.................................. 20,427 10,869 42,202 22,386
Terminations and withdrawals...................... 2,959,474 1,448 190,226 6,906
----------- --------------- ----------- ---------------
Net units withdrawn............................... 2,979,901 12,317 232,428 29,292
----------- --------------- ----------- ---------------
Contract units withdrawn in excess of units
credited.......................................... (2,970,891) (11,745) (117,521) (28,140)
Other additions....................................... 2,606 3,967 10,834 10,532
----------- --------------- ----------- ---------------
Net decrease in units................................ (2,968,285) (7,778) (106,687) (17,608)
----------- --------------- ----------- ---------------
Units outstanding at end of period..................... 2,522,433 578,618 5,490,718 586,396
----------- --------------- ----------- ---------------
----------- --------------- ----------- ---------------
</TABLE>
On January 10, 1996, contract withdrawals totaling $7,485,000 were processed
from Series Q of the Fund. These withdrawals by participants in the Paul Revere
Agency Pension Plan were deposited into an unrelated funding vehicle.
8. MERGER AGREEMENT
On April 29, 1996, The Paul Revere Corporation and Provident Companies, Inc.
announced they had signed a definitive merger agreement. The transaction,
valued at approximately $1.2 billion, has been approved by boards of
directors of both companies. Textron Inc., which owns approximately 83% of
The Paul Revere Corporation's outstanding common shares, has agreed to
support the merger, which is subject to shareholder and regulatory approval.
<PAGE>
CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------------
1996 1995 1994 1993 1992 1991
----------- -------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
PER UNIT DATA (A)
SERIES Q (QUALIFIED)
- -------------------
Investment income................................. $ 0.074 $ 0.119 $ 0.081 $ 0.054 $ 0.068 $ 0.093
Expenses.......................................... 0.062 0.096 0.073 0.079 0.076 0.066
----------- -------- ---------- ---------- ----------- ----------
Net investment income (loss)...................... 0.012 0.023 0.008 (0.025) (0.008) 0.027
Net realized and unrealized gains (losses) from
securities.................................... 0.651 1.711 (0.020) 0.291 0.159 1.295
----------- -------- ---------- ---------- ----------- ----------
Net increase (decrease) in net asset value........ 0.663 1.734 (0.012) 0.266 0.151 1.322
Accumulation unit net asset value:
Beginning of year............................... 7.062 5.328 5.340 5.074 4.923 3.601
----------- -------- ---------- ---------- ----------- ----------
End of period................................... $ 7.725 $ 7.062 $ 5.328 $ 5.340 $ 5.074 $ 4.923
----------- -------- ---------- ---------- ----------- ----------
----------- -------- ---------- ---------- ----------- ----------
SERIES N (NON-QUALIFIED)
- -----------------------
Investment income................................. $ 0.066 $ 0.117 $ 0.099 $ 0.055 $ 0.071 $ 0.085
Expenses.......................................... 0.064 0.109 0.102 0.092 0.094 0.076
----------- -------- ---------- ---------- ----------- ----------
Net investment income (loss)...................... 0.002 0.008 (0.003) (0.037) (0.023) 0.009
Net realized and unrealized gains (losses) from
securities.................................... 0.605 1.769 (0.023) 0.318 0.194 1.361
----------- -------- ---------- ---------- ----------- ----------
Net increase (decrease) in net asset value........ 0.607 1.777 (0.026) 0.281 0.171 1.370
Accumulation unit net asset value:
Beginning of year............................... 7.267 5.490 5.516 5.235 5.064 3.694
----------- -------- ---------- ---------- ----------- ----------
End of period................................... $ 7.874 $ 7.267 $ 5.490 $ 5.516 $ 5.235 $ 5.064
----------- -------- ---------- ---------- ----------- ----------
----------- -------- ---------- ---------- ----------- ----------
</TABLE>
(a) The per unit amounts represent the proportionate distribution of actual
investment results as related to the change in unit net asset values for the
year.
<TABLE>
<CAPTION>
RATIOS
<S> <C> <C> <C> <C> <C> <C>
SERIES Q (QUALIFIED)
- -------------------
Operating expenses to average accumulation fund
balance......................................... 0.79% 1.55% 1.55% 1.56% 1.56% 1.56%
Net investment income (loss) to average
accumulation fund balance....................... 0.15% 0.38% 0.17% (0.50%) (0.17%) 0.64%
Portfolio turnover rate........................... 27% 64% 64% 59% 61% 98%
Accumulation units outstanding at the end of the
period
(in thousands).................................. 2,522 5,491 5,597 5,700 5,753 5,839
SERIES N (NON-QUALIFIED)
- -----------------------
Operating expenses to average accumulation fund
balance......................................... 0.84% 1.71% 1.73% 1.73% 1.74% 1.76%
Net investment income (loss) to average
accumulation fund balance....................... 0.03% 0.13% (0.05%) (0.69%) (0.42%) 0.21%
Portfolio turnover rate........................... 29% 67% 62% 62% 66% 109%
Accumulation units outstanding at the end of the
period
(in thousands).................................. 579 586 604 640 662 684
</TABLE>
