<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
[LOGO]
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 9949 Rev. 1/96 Printed in U.S.A.
ANNUAL REPORT
December 31, 1995
[LOGO]
WORCESTER, MASSACHUSETTS
<PAGE>
TO OUR CONTRACT OWNERS
AND PARTICIPANTS:
The broad U.S. market (represented by the S&P 500 Index) posted a powerful
38% return for the full year 1995. The market benefited from falling interest
rates, strong earnings in selected industry sectors, and a favorable
supply/demand balance. In the fourth quarter, your portfolio of growth equities
comfortably outperformed the Russell 1000 Growth Index -- and the S&P 500 Index.
For the full year, your portfolio slightly trailed both indices. During 1995,
the accumulation unit values of the Qualified Fund and Non-Qualified Fund
increased 33% and 32%, respectively.
Large contributions to portfolio performance during the year came from three
sectors -- Consumer Staples, Healthcare, and Financial Services. The less
economically sensitive Consumer Staples and Healthcare sectors outperformed the
market as investors became increasingly fearful of a slowing rate of economic
growth in 1996. Relative performance was also helped by underweightings in the
poorly performing Retail and Basic Materials sectors. Another positive for
relative performance was the portfolio's positioning in Technology. While
Technology was the worst performing sector of the market in the fourth quarter,
it was underweighted in your portfolio relative to the Growth Index and weighted
in line with the S&P 500 Index.
We believe 1996 will prove more challenging for equity investors than 1995.
The weakening U.S. economy will lead to increased risk of earnings
disappointments. Therefore, identification of those companies capable of
sustaining superior earnings growth will be particularly crucial to
outperforming the benchmarks this year.
Going forward, we will continue to seek those companies with the strongest
relative earnings growth. With the market at a high relative valuation level,
there is heightened risk for growth companies which do not meet earnings
expectations. We continue to be company-focused and to closely examine the
long-term fundamentals for each company in which we invest. We believe this will
provide the best opportunity for continued strong relative performance as the
U.S. equity 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>
AS OF DECEMBER 31, 1995
----------------------------
SERIES Q SERIES N
(QUALIFIED) (NON-QUALIFIED)
----------- ---------------
<S> <C> <C>
ASSETS
Investments in securities of unaffiliated companies at market value
(Cost: Series Q $30,440,986, Series N $3,116,989)
(see Statement of Investments)....................................................... $38,564,248 $ 4,023,951
Cash................................................................................... 152,010 207,074
Dividends and interest receivable...................................................... 46,583 5,038
Receivable from The Paul Revere Variable Annuity Insurance Company..................... 29,482 28,976
----------- ---------------
Total assets...................................................................... 38,792,323 4,265,039
----------- ---------------
LIABILITIES
Payable to The Paul Revere Variable Annuity Insurance Company.......................... -- 523
Other.................................................................................. 17,290 3,095
----------- ---------------
Total liabilities................................................................ 17,290 3,618
----------- ---------------
TOTAL NET ASSETS....................................................................... $38,775,033 $ 4,261,421
----------- ---------------
----------- ---------------
CONTRACT OWNERS' EQUITY
Deferred contracts terminable by owner................................................. $35,952,542 $ 2,875,034
Currently payable contracts............................................................ 2,822,491 1,386,387
----------- ---------------
Total net assets................................................................. $38,775,033 $ 4,261,421
----------- ---------------
----------- ---------------
ACCUMULATION UNITS OUTSTANDING......................................................... 5,490,718 586,396
----------- ---------------
----------- ---------------
NET ASSET VALUE PER ACCUMULATION UNIT.................................................. $ 7.062 $ 7.267
----------- ---------------
----------- ---------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
SERIES N
SERIES Q (QUALIFIED) (NON-QUALIFIED)
------------------------ ----------------------
INCREASE/DECREASE IN NET ASSETS 1995 1994 1995 1994
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss)......................... $ 129,286 $ 49,715 $ 4,785 $ (1,569)
Net realized gain on investments (unaffiliated
companies)........................................ 4,293,754 2,940,964 465,264 336,795
Net increase (decrease) in unrealized appreciation of
investments (unaffiliated companies).............. 5,138,033 (3,066,593) 581,843 (350,450)
----------- ----------- ---------- ----------
Increase (decrease) in net assets from
operations........................................ 9,561,073 (75,914) 1,051,892 (15,224)
Contract receipts and payments:
Gross purchase payments received..................... 653,977 600,331 7,770 8,460
Deductions from purchase payments.................... 3,969 5,994 483 535
----------- ----------- ---------- ----------
Net purchase payments received.................... 650,008 594,337 7,287 7,925
Payments to contract owners:
Annuity payments to contract owners.................. 260,591 226,080 142,452 133,297
Terminations and withdrawals to contract owners...... 1,128,000 943,118 43,041 117,653
----------- ----------- ---------- ----------
Total payments to contract owners................. 1,388,591 1,169,198 185,493 250,950
----------- ----------- ---------- ----------
Net contract payments to contract owners.......... (738,583) (574,861) (178,206) (243,025)
Other additions......................................... 128,917 32,472 71,953 45,650
----------- ----------- ---------- ----------
Total increase (decrease) in net assets........... 8,951,407 (618,303) 945,639 (212,599)
NET ASSETS
Beginning of year....................................... 29,823,626 30,441,929 3,315,782 3,528,381
----------- ----------- ---------- ----------
End of year............................................. $38,775,033 $29,823,626 $4,261,421 $3,315,782
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1995
----------------------------
SERIES Q SERIES N
(QUALIFIED) (NON-QUALIFIED)
----------- ---------------
<S> <C> <C>
INVESTMENT INCOME
Income (unaffiliated companies):
Dividends............................................................................ $ 529,196 $ 59,172
Interest............................................................................. 128,928 10,119
----------- ---------------
Total income...................................................................... 658,124 69,291
Expenses:
Mortality and expense risk fees...................................................... 344,159 37,964
Investment management and advisory service fees...................................... 172,079 18,982
Professional services................................................................ 12,600 7,560
----------- ---------------
Total expenses.................................................................... 528,838 64,506
----------- ---------------
Net investment income................................................................... 129,286 4,785
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments sold
(unaffiliated companies)............................................................. 4,293,754 465,264
Net increase in unrealized appreciation of investments
(unaffiliated companies)............................................................. 5,138,033 581,843
----------- ---------------
Net realized and unrealized gain on investments......................................... 9,431,787 1,047,108
----------- ---------------
Increase in net assets from operations.................................................. $9,561,073 $ 1,051,892
----------- ---------------
----------- ---------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF INVESTMENTS
DECEMBER 31, 1995
<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............ 10,800 $ 388,125 $ 513,000 1,100 $ 38,824 $ 52,250
Raytheon Co.................. 8,600 339,379 406,350 1,000 39,472 47,250
----------- ----------- ---------- ----------
727,504 919,350 2.4% 78,296 99,500
----------- ----------- ---------- ----------
BANKS AND CREDIT COMPANIES
Comerica Inc................. 12,200 360,991 488,000 1,400 41,353 56,000
Northern Trust Corp.......... 11,400 411,107 638,400 1,300 46,881 72,800
Norwest Corp................. 15,800 312,155 521,400 1,800 34,845 59,400
----------- ----------- ---------- ----------
1,084,253 1,647,800 4.3% 123,079 188,200
----------- ----------- ---------- ----------
BUSINESS MACHINES
Hewlett Packard Co........... 2,000 88,730 167,500 200 8,716 16,750
Motorola Inc................. 4,100 190,855 233,700 400 17,954 22,800
Xerox Corp................... 3,400 329,184 465,800 400 37,830 54,800
----------- ----------- ---------- ----------
608,769 867,000 2.2% 64,500 94,350
----------- ----------- ---------- ----------
BUSINESS SERVICES
Alco Standard Corp........... 6,200 283,750 282,875 600 27,565 27,375
(b) Computer Sciences Co........ 10,600 585,701 744,650 1,200 66,865 84,300
(b) CUC Intl Inc................ 3,900 82,711 133,087 500 10,412 17,062
(b) DST Sys Inc................. 900 18,900 25,650 100 2,100 2,850
----------- ----------- ---------- ----------
971,062 1,186,262 3.1% 106,942 131,588
----------- ----------- ---------- ----------
CELLULAR TELEPHONES
(b) Airtouch Communications..... 1,900 45,567 53,438 0.1% 200 4,669 5,625
----------- ----------- ---------- ----------
COMPUTER SOFTWARE--PC
First Data Corp.............. 5,700 346,323 381,187 600 36,639 40,125
(b) Microsoft Corp.............. 3,400 144,641 298,350 400 17,125 35,100
----------- ----------- ---------- ----------
490,964 679,537 1.8% 53,764 75,225
----------- ----------- ---------- ----------
COMPUTER SOFTWARE--SYSTEMS
Adobe Systems Inc............ 7,100 364,636 440,200 800 41,326 49,600
Computer Assoc Intl.......... 8,200 348,241 466,375 900 38,192 51,188
(b) Oracle Corp................. 12,000 234,025 508,500 1,350 27,210 57,206
----------- ----------- ---------- ----------
946,902 1,415,075 3.7% 106,728 157,994
----------- ----------- ---------- ----------
CONSUMER GOODS & SERVICES
Philip Morris Cos. Inc....... 4,400 376,596 397,100 500 42,777 45,125
Procter & Gamble Co.......... 10,600 630,229 879,800 1,200 72,260 99,600
Service Corp Intl............ 8,500 331,839 374,000 900 35,153 39,600
Tyco Intl.................... 24,600 638,659 876,375 2,800 72,744 99,750
----------- ----------- ---------- ----------
1,977,323 2,527,275 6.5% 222,934 284,075
----------- ----------- ---------- ----------
DEFENSE ELECTRONICS
Loral Corp................... 12,600 335,854 445,725 1.2% 1,400 37,410 49,525
----------- ----------- ---------- ----------
ELECTRICAL EQUIPMENT
General Electric Co.......... 10,000 280,975 720,000 1,000 27,619 72,000
Honeywell Inc................ 10,900 392,507 530,012 1,200 43,506 58,350
----------- ----------- ---------- ----------
673,482 1,250,012 3.2% 71,125 130,350
----------- ----------- ---------- ----------
<CAPTION>
SECURITIES OF % OF
UNAFFILIATED COMPANIES NET ASSETS
----------
<S> <C>
COMMON STOCKS
AEROSPACE
Allied Signal Inc............
Raytheon Co..................
2.3%
BANKS AND CREDIT COMPANIES
Comerica Inc.................
Northern Trust Corp..........
Norwest Corp.................
4.4%
BUSINESS MACHINES
Hewlett Packard Co...........
Motorola Inc.................
Xerox Corp...................
2.2%
BUSINESS SERVICES
Alco Standard Corp...........
(b) Computer Sciences Co........
(b) CUC Intl Inc................
(b) DST Sys Inc.................
3.1%
CELLULAR TELEPHONES
(b) Airtouch Communications..... 0.1%
COMPUTER SOFTWARE--PC
First Data Corp..............
(b) Microsoft Corp..............
1.7%
COMPUTER SOFTWARE--SYSTEMS
Adobe Systems Inc............
Computer Assoc Intl..........
(b) Oracle Corp.................
3.7%
CONSUMER GOODS & SERVICES
Philip Morris Cos. Inc.......
Procter & Gamble Co..........
Service Corp Intl............
Tyco Intl....................
6.6%
DEFENSE ELECTRONICS
Loral Corp................... 1.1%
ELECTRICAL EQUIPMENT
General Electric Co..........
Honeywell Inc................
3.1%
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF INVESTMENTS (CONTINUED) DECEMBER 31, 1995
<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>
ELECTRONICS
Intel Corp................... 4,500 $ 62,395 $ 255,375 500 $ 6,437 $ 28,375
(b) Natl Semiconductor.......... 11,200 300,197 247,800 1,200 32,045 26,550
----------- ----------- ---------- ----------
362,592 503,175 1.3% 38,482 54,925
----------- ----------- ---------- ----------
ENTERTAINMENT
Comcast Corp................. 7,800 81,900 141,866 900 9,450 16,369
Disney (Walt) Productions.... 6,400 207,403 376,800 700 18,252 41,213
----------- ----------- ---------- ----------
289,303 518,666 1.4% 27,702 57,582
----------- ----------- ---------- ----------
FINANCIAL INSTITUTIONS
Beneficial Corp.............. 7,400 294,706 345,025 800 31,955 37,300
Federal Home Loan Mtg........ 4,800 264,602 400,800 600 32,464 50,100
Federal Natl Mtg. Assoc...... 1,400 53,123 173,425 200 9,160 24,775
Finova Group Inc............. 4,500 165,545 217,125 500 18,405 24,125
----------- ----------- ---------- ----------
777,976 1,136,375 2.9% 91,984 136,300
----------- ----------- ---------- ----------
FOOD & BEVERAGE PRODUCTS
Campbell Soup Co............. 11,000 561,630 660,000 1,200 61,254 72,000
General Mill Inc............. 9,900 518,208 571,724 1,100 57,565 63,524
Hershey Foods Corp........... 2,900 160,004 188,500 300 16,570 19,500
Kellogg Co................... 5,300 359,143 409,425 600 40,661 46,350
McCormick & Sons Inc......... 4,400 97,590 106,150 500 11,123 12,062
Nabisco Holdings Corp........ 10,100 278,126 329,513 1,100 30,291 35,888
Pepsico, Inc................. 15,700 596,836 877,238 1,800 68,944 100,575
Ralston Purina Co............ 6,300 350,187 392,963 700 38,727 43,662
Universal Foods Corp......... 10,600 368,786 425,325 1,200 41,747 48,150
----------- ----------- ---------- ----------
3,290,510 3,960,838 10.2% 366,882 441,711
----------- ----------- ---------- ----------
FOREST & PAPER PRODUCTS
Kimberly-Clark Corp.......... 7,020 460,940 580,905 1.5% 780 51,203 64,545
----------- ----------- ---------- ----------
INSURANCE
American Re Corp............. 8,400 314,353 343,350 900 33,680 36,787
Equitable Iowa Cos........... 10,800 309,652 346,950 1,200 35,040 38,550
Prudential Reins Hldgs....... 4,100 73,769 95,838 400 7,187 9,350
Torchmark Corp............... 12,400 455,806 561,100 1,400 51,783 63,350
Travelers Group Inc.......... 13,900 557,162 870,487 1,500 60,232 93,937
Unum Corp.................... 5,600 266,771 308,000 700 33,533 38,500
----------- ----------- ---------- ----------
1,977,513 2,525,725 6.5% 221,455 280,474
----------- ----------- ---------- ----------
MACHINERY
York Intl Corp............... 8,500 367,957 399,500 1.0% 900 38,989 42,300
----------- ----------- ---------- ----------
MEDICAL & HEALTH PRODUCTS
American Home Prods.......... 4,200 369,852 407,400 500 44,030 48,500
Baxter Intl Inc.............. 9,700 373,947 406,187 1,100 42,456 46,062
Johnson & Johnson............ 13,400 772,518 1,145,700 1,500 86,935 128,250
Pfizer, Inc.................. 14,900 585,312 938,700 1,700 67,031 107,100
Schering Plough Corp......... 8,000 350,890 438,000 900 39,444 49,275
Warner Lambert Co............ 3,100 221,537 301,088 300 22,143 29,138
----------- ----------- ---------- ----------
2,674,056 3,637,075 9.4% 302,039 408,325
----------- ----------- ---------- ----------
<CAPTION>
% OF
NET ASSETS
----------
<S> <C>
ELECTRONICS
Intel Corp...................
(b) Natl Semiconductor..........
1.3%
ENTERTAINMENT
Comcast Corp.................
Disney (Walt) Productions....
1.4%
FINANCIAL INSTITUTIONS
Beneficial Corp..............
Federal Home Loan Mtg........
Federal Natl Mtg. Assoc......
Finova Group Inc.............
3.2%
FOOD & BEVERAGE PRODUCTS
Campbell Soup Co.............
General Mill Inc.............
Hershey Foods Corp...........
Kellogg Co...................
McCormick & Sons Inc.........
Nabisco Holdings Corp........
Pepsico, Inc.................
Ralston Purina Co............
Universal Foods Corp.........
10.4%
FOREST & PAPER PRODUCTS
Kimberly-Clark Corp.......... 1.5%
INSURANCE
American Re Corp.............
Equitable Iowa Cos...........
Prudential Reins Hldgs.......
Torchmark Corp...............
Travelers Group Inc..........
Unum Corp....................
6.6%
MACHINERY
York Intl Corp............... 1.0%
MEDICAL & HEALTH PRODUCTS
American Home Prods..........
Baxter Intl Inc..............
Johnson & Johnson............
Pfizer, Inc..................
Schering Plough Corp.........
Warner Lambert Co............
9.6%
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF INVESTMENTS (CONTINUED) DECEMBER 31, 1995
<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>
MEDICAL & HEALTH TECH. SERVICES
(b) Beverly Enterprises......... 18,100 $ 252,354 $ 192,312 2,000 $ 28,010 $ 21,250
(b) Genesis Health Ventures..... 8,900 246,511 324,850 1,000 27,792 36,500
Manor Care Inc............... 22,500 604,560 787,500 2,500 67,600 87,500
Medtronic, Inc............... 3,400 179,784 189,975 400 21,250 22,350
(b) Pacificare Health Sys....... 3,400 151,348 295,800 350 16,426 30,450
(b) St. Jude Med Inc............ 2,550 93,116 109,650 300 10,937 12,900
United Healthcare Co......... 14,100 520,891 921,788 1,600 61,363 104,600
----------- ----------- ---------- ----------
2,048,564 2,821,875 7.3% 233,378 315,550
----------- ----------- ---------- ----------
OIL SERVICES
Schlumberger LTD............. 6,700 388,321 463,975 1.2% 800 47,148 55,400
----------- ----------- ---------- ----------
OILS
Amoco Corp................... 6,400 392,312 457,600 700 43,001 50,050
Mobil Corp................... 3,700 376,167 413,475 400 40,667 44,700
----------- ----------- ---------- ----------
768,479 871,075 2.2% 83,668 94,750
----------- ----------- ---------- ----------
PHOTOGRAPHIC PRODUCTS
Eastman Kodak Co............. 8,000 435,766 536,000 1.4% 900 48,948 60,300
----------- ----------- ---------- ----------
POLLUTION CONTROL
WMX Technologies............. 21,200 588,475 630,700 1.6% 2,300 63,321 68,425
----------- ----------- ---------- ----------
PRINTING & PUBLISHING
McGraw Hill Cos Inc.......... 5,300 372,267 461,763 600 42,329 52,275
Reuters Hldgs PLC............ 5,300 214,386 292,162 600 24,579 33,075
----------- ----------- ---------- ----------
586,653 753,925 1.9% 66,908 85,350
----------- ----------- ---------- ----------
RAILROAD
CSX Corp..................... 9,000 346,123 410,625 1,000 38,773 45,625
Illinois Central Corp........ 10,500 319,349 402,938 1,100 33,473 42,213
----------- ----------- ---------- ----------
665,472 813,563 2.1% 72,246 87,838
----------- ----------- ---------- ----------
SPECIAL PRODUCTS & SERVICES
Minnesota Mng & Mfg.......... 2,900 167,684 192,488 300 17,341 19,913
Stanley Works................ 11,500 491,371 592,250 1,400 58,509 72,100
----------- ----------- ---------- ----------
659,055 784,738 2.0% 75,850 92,013
----------- ----------- ---------- ----------
STORES
(b) Autozone Inc................ 9,800 265,571 282,975 1,000 27,095 28,875
Circuit City Stores.......... 10,100 348,828 279,012 1,100 37,984 30,387
(b) Office Depot Inc............ 19,100 215,234 374,838 2,100 22,836 41,213
Sears Roebuck & Co........... 3,400 121,321 132,600 400 14,254 15,600
Wal Mart Stores Inc.......... 28,900 697,291 643,025 3,200 77,364 71,200
----------- ----------- ---------- ----------
1,648,245 1,712,450 4.4% 179,533 187,275
----------- ----------- ---------- ----------
TELECOMMUNICATIONS
(b) Cabletron Sys Inc........... 3,700 213,196 299,700 400 22,510 32,400
(b) Rogers Communications
Inc......................... 18,300 250,816 206,241 2,000 27,658 22,540
----------- ----------- ---------- ----------
464,012 505,941 1.3% 50,168 54,940
----------- ----------- ---------- ----------
<CAPTION>
% OF
NET ASSETS
----------
<S> <C>
MEDICAL & HEALTH TECH. SERVICES
(b) Beverly Enterprises.........
(b) Genesis Health Ventures.....
Manor Care Inc...............
Medtronic, Inc...............
(b) Pacificare Health Sys.......
(b) St. Jude Med Inc............
United Healthcare Co.........
7.4%
OIL SERVICES
Schlumberger LTD............. 1.3%
OILS
Amoco Corp...................
Mobil Corp...................
2.2%
PHOTOGRAPHIC PRODUCTS
Eastman Kodak Co............. 1.4%
POLLUTION CONTROL
WMX Technologies............. 1.6%
PRINTING & PUBLISHING
McGraw Hill Cos Inc..........
Reuters Hldgs PLC............
2.0%
RAILROAD
CSX Corp.....................
Illinois Central Corp........
2.1%
SPECIAL PRODUCTS & SERVICES
Minnesota Mng & Mfg..........
Stanley Works................
2.2%
STORES
(b) Autozone Inc................
Circuit City Stores..........
(b) Office Depot Inc............
Sears Roebuck & Co...........
Wal Mart Stores Inc..........
4.4%
TELECOMMUNICATIONS
(b) Cabletron Sys Inc...........
(b) Rogers Communications
Inc.........................
1.3%
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF INVESTMENTS (CONTINUED) DECEMBER 31, 1995
<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--ELECTRIC
DPL Inc...................... 9,300 $ 200,356 $ 230,175 0.6% 1,000 $ 21,550 $ 24,750
----------- ----------- ---------- ----------
UTILITIES--TELEPHONE
AT&T Corp.................... 8,900 497,345 576,275 1,000 57,006 64,750
MCI Communications Inc....... 26,900 659,488 702,762 3,000 74,737 78,375
----------- ----------- ---------- ----------
1,156,833 1,279,037 3.3% 131,743 143,125
---------
----------- ----------- ----------- --------- ---------- ----------
Total common stocks.......... 759,870 27,672,758 35,657,187 92.0% 84,380 3,082,644 3,972,310
---------
----------- ----------- ----------- --------- ---------- ----------
PREFERRED STOCKS
CELLULAR TELEPHONES
(b) Cellular Communications
Pfd......................... 10,223 369,762 508,595 1.3% 1,038 34,345 51,641
---------
----------- ----------- ----------- --------- ---------- ----------
Total preferred stocks.... 10,223 369,762 508,595 1.3% 1,038 34,345 51,641
---------
----------- ----------- ----------- --------- ---------- ----------
Total stocks.............. 770,093 28,042,520 36,165,782 93.3% 85,418 3,116,989 4,023,951
----------- ----------- ----------- ---------- --------- ---------- ----------
----------- ---------
SHORT-TERM NOTES
FINANCIAL INSTITUTIONS
Federal Home Ln Mtg Assoc.
5.75% due January 1996...... 2,400,000 2,398,466 2,398,466 6.2%
----------- -----------
Total short-term notes.... 2,400,000 2,398,466 2,398,466 6.2%
----------- -----------
Total investments in
securities of
unaffiliated
companies............. $30,440,986 38,564,248 99.5% $3,116,989 4,023,951
----------- ----------- ---------- ----------
----------- ----------
CASH AND RECEIVABLES LESS
LIABILITIES 210,785 0.5% 237,470
----------- ----------
Total net assets.......... $38,775,033 100.0% $4,261,421
----------- ----------
----------- ----------
<CAPTION>
% OF
NET ASSETS
----------
<S> <C>
UTILITIES--ELECTRIC
DPL Inc...................... 0.6%
UTILITIES--TELEPHONE
AT&T Corp....................
MCI Communications Inc.......
3.4%
---------
Total common stocks.......... 93.2%
---------
PREFERRED STOCKS
CELLULAR TELEPHONES
(b) Cellular Communications
Pfd......................... 1.2%
---------
Total preferred stocks.... 1.2%
---------
Total stocks.............. 94.4%
----------
SHORT-TERM NOTES
FINANCIAL INSTITUTIONS
Federal Home Ln Mtg Assoc.
5.75% due January 1996......
Total short-term notes....
Total investments in
securities of
unaffiliated
companies............. 94.4%
CASH AND RECEIVABLES LESS
LIABILITIES 5.6%
Total net assets.......... 100.0%
</TABLE>
(a) Effective cost for federal income tax purposes.
(b) Non-income producing security
See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements
December 31, 1995
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
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in those statements and accompanying notes.
Actual results may differ from such estimates.
Common and preferred stocks are stated at market values which are based on the
last sales prices at December 31, 1995 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. 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.
4. INVESTMENT SUB-ADVISOR
Under an investment sub-advisory agreement with MFS Asset Management, Inc.
("AMI"), formerly Massachusetts Financial Services Company ("MFS"), 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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>
1995................................................... $ 21,413,264 $ 22,487,069 $ 2,385,219 $ 2,546,433
1994................................................... $ 18,095,100 $ 19,227,710 $ 2,045,919 $ 2,262,992
</TABLE>
At December 31, 1995, net unrealized appreciation of investments in Series Q,
amounting to $8,123,262, consisted of unrealized gains of $8,405,231 and
unrealized losses of $281,969; net unrealized appreciation of investments in
Series N, amounting to $906,962, consisted of unrealized gains of $938,286 and
unrealized losses of $31,324.
7. ACCUMULATION UNITS
The change in the number of accumulation units outstanding during each of the
two years ended December 31, 1995 and 1994, respectively, were as follows:
<TABLE>
<CAPTION>
SERIES N (NON-
SERIES Q (QUALIFIED) QUALIFIED)
---------------------- --------------------
1995 1994 1995 1994
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Units outstanding at beginning of year..................... 5,597,405 5,700,469 604,004 639,647
Units credited to contracts:
Net purchase payments................................. 114,907 110,190 1,152 1,441
Units withdrawn from contracts:
Annuity payments...................................... 42,202 42,296 22,386 24,189
Terminations and withdrawals.......................... 190,226 179,871 6,906 21,401
---------- ---------- --------- ---------
Net units withdrawn................................... 232,428 222,167 29,292 45,590
---------- ---------- --------- ---------
Contract units withdrawn in excess of units credited..... (117,521) (111,977) (28,140) (44,149)
Other additions........................................... 10,834 8,913 10,532 8,506
---------- ---------- --------- ---------
Net decrease in units.................................... (106,687) (103,064) (17,608) (35,643)
---------- ---------- --------- ---------
Units outstanding at end of year........................... 5,490,718 5,597,405 586,396 604,004
---------- ---------- --------- ---------
---------- ---------- --------- ---------
</TABLE>
8. SUBSEQUENT EVENT
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.
<PAGE>
SELECTED PER UNIT DATA AND RATIOS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER UNIT DATA (A)
SERIES Q (QUALIFIED)
- ------------------
Investment income..................................................... $ 0.119 $ 0.081 $ 0.054 $ 0.068 $ 0.093
Expenses.............................................................. 0.096 0.073 0.079 0.076 0.066
--------- --------- --------- --------- ---------
Net investment income (loss).......................................... 0.023 0.008 (0.025) (0.008) 0.027
Net realized and unrealized gains (losses) from securities............ 1.711 (0.020) 0.291 0.159 1.295
--------- --------- --------- --------- ---------
Net increase (decrease) in net asset value............................ 1.734 (0.012) 0.266 0.151 1.322
Accumulation unit net asset value:
Beginning of year................................................... 5.328 5.340 5.074 4.923 3.601
--------- --------- --------- --------- ---------
End of year......................................................... $ 7.062 $ 5.328 $ 5.340 $ 5.074 $ 4.923
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SERIES N (NON-QUALIFIED)
- -----------------------
Investment income..................................................... $ 0.117 $ 0.099 $ 0.055 $ 0.071 $ 0.085
Expenses.............................................................. $ 0.109 0.102 0.092 0.094 0.076
--------- --------- --------- --------- ---------
Net investment income (loss).......................................... 0.008 (0.003) (0.037) (0.023) 0.009
Net realized and unrealized gains (losses) from securities............ 1.769 (0.023) 0.318 0.194 1.361
--------- --------- --------- --------- ---------
Net increase (decrease) in net asset value............................ 1.777 (0.026) 0.281 0.171 1.370
Accumulation unit net asset value:
Beginning of year................................................... 5.490 5.516 5.235 5.064 3.694
--------- --------- --------- --------- ---------
End of year......................................................... $ 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>
SERIES Q (QUALIFIED)
- -------------------
Operating expenses to average accumulation fund
balance.............................................................. 1.55% 1.55% 1.56% 1.56% 1.56%
Net investment income (loss) to average
accumulation fund balance............................................ 0.38% 0.17% (0.50%) (0.17%) 0.64%
Portfolio turnover rate................................................ 64% 64% 59% 61% 98%
Accumulation units outstanding at the end of the year
(in thousands)....................................................... 5,491 5,597 5,700 5,753 5,839
SERIES N (NON-QUALIFIED)
- -----------------------
Operating expenses to average accumulation fund balance................ 1.71% 1.73% 1.73% 1.74% 1.76%
Net investment income (loss) to average
accumulation fund balance............................................ 0.13% (0.05%) (0.69%) (0.42%) 0.21%
Portfolio turnover rate................................................ 67% 62% 62% 66% 109%
Accumulation units outstanding at the end of the year
(in thousands)....................................................... 586 604 640 662 684
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Owners of Variable Annuity Contracts of The Paul Revere Variable Annuity
Insurance Company and the Board of Managers of The Paul Revere Variable Annuity
Contract Accumulation Fund of The Paul Revere Variable Annuity Insurance
Company:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of The Paul Revere Variable Annuity Contract
Accumulation Fund (comprising the Qualified and Non-Qualified Portfolios) as of
December 31, 1995, the related statement of operations for the year then ended
and the statement of changes in net assets for each of the two years in the
period then ended, and the selected per unit data and ratios for each of the
five years in the period then ended. These financial statements and per unit
data and ratios are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and per
unit data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per unit data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1995, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and selected per unit data and ratios
referred to above present fairly, in all material respects, the financial
position of each of the respective portfolios constituting The Paul Revere
Variable Annuity Contract Accumulation Fund at December 31, 1995, 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 the selected per unit data
and ratios for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
February 2, 1996
