<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20550
FORM N-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre Effective Amendment No.: / /
Post Effective Amendment No.: 50 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
CO. ACT OF 1940 /X/
Amendment No.: 50 /X/
THE PAUL REVERE VARIABLE ANNUITY CONTRACT ACCUMULATION FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
18 Chestnut Street, Worcester, Massachusetts 01608
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's Telephone Number (including area code): (508) 799-4441
Edward M. Shea John H. Budd
18 Chestnut Street 18 Chestnut Street
Worcester, MA 01608 Worcester, MA 01608
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Approximate Date of Proposed Public Offering: May 1, 1996
It is proposed that this filing will become effective (check appropriate box):
/ / immediately upon filing pursuant to Paragraph (b) of Rule 485
/X/ on May 1, 1996, pursuant to Paragraph (b) of Rule 485
/ / 60 days after filing, pursuant to Paragraph (a)(i) of Rule 485
/ / on , pursuant to Paragraph (a) of Rule 485
(Amended by Sec. Act. Rel. No. 6402, Inv. Co. Act. Rel. No. 1234,
eff. 6/14/82)
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY
CONTRACT ACCUMULATION FUND
Cross Reference Sheet Showing Location in Preliminary Prospectus for Individual
"Level Charge" and Group Variable Administration Variable Annuity Contracts of
Items Called for by Registration Statement on Form N-8B-1.
Form N-8B-1
ITEM NO. HEADING IN PROSPECTUS (PART A) PAGE NO.
- -------- ------------------------------ --------
1 Cover Page 1
2 Definitions 2
3 Summary 3
4 Per Unit Income and Capital Changes (a) 4
5 Description of Insurance Company and the
Accumulation Fund 6
6 Management 8
7 Deductions and Expenses 8
8 Description of Contracts 11
9 Payments to Annuitants 12
10 Payments at Death 13
11 Purchases Payment Provisions 11
12 Redemption 14
13 Federal Tax Status 17
14 Legal Proceedings 19
STATEMENT OF ADDITIONAL INFORMATION (PART B)
16 Cover Page 1
17 Table of Contents 2
18 General Information and History of Insurance
Company and the Accumulation Fund 3
19 Investment Objectives and Policies 4
20 Management 5
21 Investment Advisory Services 7
22 Brokerage Allocation 10
24 Underwriters 11
23 Purchase and Pricing of Contracts 11
26 Annuity Payments 12
27 Financial Statements 14
OTHER INFORMATION (PART C)
28(a) Financial Statements and Exhibits 1
28(b) List of Exhibits 1
29 Directors and Officers of the Insurance Company 2
30 Persons Controlled by or under Common Control
with Registrant 2
31 Number of Contractowners 2
32 Indemnification 2
33 Business and Other Connections of Investment
Advisers 2
34 Principal Underwriters 2
35 Location of Accounts and Records 3
36 Management Services 3
37 Undertakings 3
<PAGE>
P R O S P E C T U S
THE PAUL REVERE VARIABLE ANNUITY CONTRACT ACCUMULATION FUND
VARIABLE ANNUITY CONTRACTS
Sold By
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
Worcester, Massachusetts 01608 508-799-4441
This Prospectus describes the following Variable Annuity Contracts ("Contracts")
offered by The Paul Revere Variable Annuity Insurance Company ("Company"). They
are:
1.Flexible Purchase Payment Variable Annuity Contract
("Flexible");
2.Single Payment Variable Annuity Contract ("Single");
3.Individual "Level Charge" Variable Annuity Contract
("Level"); and
4.Group Variable Annuity Contract ("Group").
The purchase payments received pursuant to these contracts are invested in The
Paul Revere Variable Annuity Contract Accumulation Fund ("Accumulation Fund"), a
separate account of the Insurance Company. The Accumulation Fund consists of two
Series. Series Q is applicable to contracts which were afforded special tax
treatment under the Internal Revenue Code ("IRC") and are commonly referred to
as "qualified contracts". Series N is applicable to all other contracts. Funds
may be accumulated and annuity payments made on a variable basis, a fixed basis
or a combination variable and fixed basis except with respect to the Group
Contract which does not provide for fixed accumulation.
The primary investment objective of both Series of the Accumulation Fund is
growth of capital. The assets of the Accumulation Fund will usually be invested
in common stock believed to have potential for growth but may, from time to
time, be invested in other securities. When deemed necessary for defensive
purposes, the Accumulation Fund may substantially increase that portion of its
assets invested in fixed income obligations and held in cash. As the contracts
are subject to the risks associated with common stock investment and changing
economic conditions, there can be no assurance that the investment objective
will be attained.
This Prospectus sets forth information about the Contracts and Accumulation Fund
that a prospective investor ought to know before investing. A Statement of
Additional Information about the Company, the Accumulation Fund and the
Contracts has been filed with the Securities and Exchange Commission and is
available, without charge, upon written or oral request received by the Company
at its Home Office located at 18 Chestnut Street, Worcester, Massachusetts
01608. Please refer to page 20 to examine the Table of Contents of the Statement
of Additional Information.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Please read this Prospectus carefully and retain it for future reference.
The date of this Prospectus is May 1, 1996.
The date of the Statement of Additional Information is May 1, 1996.
1
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Definitions.................................... 2
Summary........................................ 3
Selected Per Unit Data and Ratios.............. 4
Description of the Company and
the Accumulation Fund........................ 6
A. Investment Policies and Restrictions.... 7
Management..................................... 8
Deductions and Expenses........................ 8
A. Sales and Administrative Functions
and Expenses........................... 8
B. Investment Advisory Fees................ 9
C. Expense and Mortality and Expense
Risk Assumptions....................... 10
D. Brokerage Expenses and Portfolio
Turnover................................ 10
Description of Contracts....................... 11
A. Types of Contracts...................... 11
B. Purchase Payment Provisions............. 11
C. Accumulation Units...................... 11
D. Net Asset Value......................... 12
E. Annuity Unit............................ 12
F. Payments to Annuitants.................. 12
G. Payments at Death....................... 13
H. Early or Deferred Commencement Dates.... 14
I. Redemption............................. 14
J. Voting Rights.......................... 14
K. Miscellaneous Provisions................ 14
Prior Contracts................................ 15
A. Flexible Payment Contracts Issued Prior
to
June 1, 1977........................... 15
B. Group Contracts Issued Prior to June 1,
1977.................................... 16
C. Group Deposit Administration Variable
Annuity Contracts...................... 16
Fixed Accumulation............................. 17
Federal Tax Status............................. 17
Changes in Operation of the Separate Account... 19
Legal Proceedings.............................. 19
Statement of Additional Information
Table of Contents............................ 20
</TABLE>
DEFINITIONS
ACCUMULATION UNIT - an accounting device used to determine the value of a
contract before annuity payments begin, the value of which varies in
accordance with the investment experience of the appropriate Series of the
Accumulation Fund.
ANNUITANT - the person or persons whose life determines the duration of annuity
payments involving life contingencies.
ANNUITY - a series of payments generally for life or for life with specified
minimums.
ANNUITY COMMENCEMENT DATE - the date on which annuity payments will begin.
ANNUITY UNIT - an accounting device used to determine the amount of annuity
payments.
CONTRACT OWNER - the person or entity with legal rights of ownership of the
annuity contract.
FIXED ANNUITY - an annuity with payments fixed in amount throughout the annuity
period.
PLAN - an employer pension plan, profit sharing plan, or annuity purchase plan
under which benefits are to be provided by the Variable Annuity Contracts
described herein.
PURCHASE PAYMENTS - payments to the Company, after specific deductions, under an
annuity contract.
VARIABLE ANNUITY - an annuity providing for payments varying in amount in
accordance with the investment experience of the appropriate Series of the
Accumulation Fund.
2
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SUMMARY
<TABLE>
<CAPTION>
CONTRACTS
----------------------------------------------------
FLEXIBLE* SINGLE* LEVEL* GROUP*
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CONTRACT OWNER TRANSACTION EXPENSES:
Sales Load Imposed on Purchases
(as a percentage of purchase payments)........... 7.5% 6.0% 5.0% 5.0%
Collection Fee (per payment)...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
ANNUAL EXPENSES (as a percentage of average net
assets):
Management Fees................................... .5% .5% .5% .5%
Mortality and Expense Risk Fees................... 1.0% 1.0% 1.0% 1.0%
----- ----- ----- -----
Total Annual Expenses........................... 1.5% 1.5% 1.5% 1.5%
----- ----- ----- -----
</TABLE>
*See pages 10 and 11 for full contract name.
If you either surrender or annuitize your contract at the end of the applicable
time period, you would have paid the following expenses on a $1,000 investment
(or annual $1,000 investments), assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
YEAR
------------------------------------------
1
-- 3 5 10
--- --- ---------
<S> <C> <C> <C> <C>
Flexible (one time $1000 deposit)................. 90 120 152 242
Flexible (annual $1000 deposits).................. 90 315 603 1,628
Single............................................ 75 106 138 230
Level/Group....................................... 66 96 129 222
</TABLE>
This fee table is designed to summarize and illustrate all of the deductions and
expenses described on pages 8, 9 and 10 for the contracts offered by this
Prospectus. State premium taxes, as described on page 9 may also apply.
GENERAL INFORMATION:
The Accumulation Fund is registered under the Investment Company Act of 1940 as
an open-end diversified investment company. It is the separate account through
which the Company sets aside, separate and apart from its general assets, assets
attributable to the variable portion of its variable annuity contracts.
Registration under the Investment Company Act of 1940 ("1940 Act") does not
involve supervision of management or investment practices or policies by the
Securities and Exchange Commission.
Four types of variable annuity contracts are offered by this Prospectus. Three
of these contracts are issued to individuals and one is a group contract. Two of
the "individual" contracts provide for a series of purchase payments to be made
over a period of time and one calls for only a single purchase payment.
These contracts are designed for use in connection with retirement plans, some
of which may qualify for federal income tax advantages available under Sections
401, 403, or 408 of the IRC.
This Prospectus generally describes only the variable portion of contracts
issued by the Company, except where fixed accumulation or fixed annuity payments
are specifically mentioned. Fixed annuities are funded by the Company's general
assets and are not placed in the Accumulation Fund. (See Fixed Accumulation,
page 17).
The portion of contract values placed in either Series of the Accumulation Fund
are subject to the investment risks inherent in any equity investment. These
risks include changing economic conditions as well as the risks inherent
(CONTINUED ON PAGE 6)
3
<PAGE>
SELECTED PER UNIT DATA AND RATIOS (A)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SERIES N -----------------------------------------------------------------------------------------
(NON-QUALIFIED) 1995(B) 1994(B) 1993(B) 1992(B) 1991(B) 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES
Investment income...................... $ .117 $ .099 $ .055 $ .071 $ .085 $ .111 $ .104
Operating expenses..................... .109 .102 .092 .094 .076 .072 .059
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss)........... .008 (.003) (.037) (.023) .009 .039 .045
CAPITAL CHANGES
Net realized and unrealized gains
(losses) from securities............. 1.769 (.023) .318 .194 1.361 (.102) 1.002
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net asset
value................................ 1.777 (.026) .281 .171 1.370 (.063) 1.047
Accumulation unit net asset value:
Beginning of year.................... 5.490 5.516 5.235 5.064 3.694 3.757 2.710
----------- ----------- ----------- ----------- ----------- ----------- -----------
End of year.......................... $ 7.267 $ 5.490 $ 5.516 $ 5.235 $ 5.064 $ 3.694 $ 3.757
----------- ----------- ----------- ----------- ----------- ----------- -----------
RATIOS
Operating expenses to average
accumulation fund balance............ 1.71% 1.73% 1.73% 1.74% 1.76% 1.80% 1.80%
Net investment income (loss) to average
accumulation fund balance............ 0.13% (0.05%) (0.69% ) (0.42% ) 0.21% 0.96% 1.36%
Portfolio turnover rate................ 67% 62% 62% 66% 109% 84% 84%
Accumulation units outstanding at end
of year (in thousands)............... 586 604 640 662 684 735 774
<CAPTION>
SERIES N
(NON-QUALIFIED) 1988 1987 1986
<S> <C> <C> <C>
INCOME AND EXPENSES
Investment income...................... $ .070 $ .042 $ .036
Operating expenses..................... .047 .038 .044
----------- ----------- -----------
Net investment income (loss)........... .023 .004 (.008)
CAPITAL CHANGES
Net realized and unrealized gains
(losses) from securities............. .201 .019 .321
----------- ----------- -----------
Net increase (decrease) in net asset
value................................ .224 .023 .313
Accumulation unit net asset value:
Beginning of year.................... 2.486 2.463 2.150
----------- ----------- -----------
End of year.......................... $ 2.710 $ 2.486 $ 2.463
----------- ----------- -----------
RATIOS
Operating expenses to average
accumulation fund balance............ 1.81% 1.80% 1.79%
Net investment income (loss) to average
accumulation fund balance............ 0.88% 0.17% (0.33% )
Portfolio turnover rate................ 64% 138% 72%
Accumulation units outstanding at end
of year (in thousands)............... 942 1,085 1,109
</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.
(b) See the Report of Independent Auditors on page 13 of the Statement of
Additional Information.
4
<PAGE>
SELECTED PER UNIT DATA AND RATIOS (A)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SERIES Q -----------------------------------------------------------------------------------------
(QUALIFIED) 1995(B) 1994(B) 1993(B) 1992(B) 1991(B) 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES
Investment income...................... $ .119 $ .081 $ .054 $ .068 $ .093 $ .116 $ .122
Operating expenses..................... .096 .073 .079 .076 .066 .055 .051
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss)........... .023 .008 (.025) (.008) .027 .061 .071
CAPITAL CHANGES
Net realized and unrealized gains
(losses) from securities............. 1.711 (.020) .291 .159 1.295 (.107) .928
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net asset
value................................ 1.734 (.012) .266 .151 1.322 (.046) .999
Accumulation unit net asset value:
Beginning of year.................... 5,328 5.340 5.074 4.923 3.601 3.647 2.648
----------- ----------- ----------- ----------- ----------- ----------- -----------
End of year.......................... $ 7.062 $ 5.328 $ 5.340 $ 5.074 $ 4.923 $ 3.601 $ 3.647
----------- ----------- ----------- ----------- ----------- ----------- -----------
RATIOS
Operating expenses to average
accumulation fund balance............ 1.55% 1.55% 1.56% 1.56% 1.56% 1.58% 1.58%
Net investment income (loss) to average
accumulation fund balance............ 0.38% 0.17% (0.50% ) (0.17% ) 0.64% 1.76% 2.20%
Portfolio turnover rate................ 64% 64% 59% 61% 98% 80% 89%
Accumulation units outstanding at end
of year (in thousands)............... 5,491 5,597 5,700 5,753 5,839 5,961 6,157
<CAPTION>
SERIES Q
(QUALIFIED) 1988 1987 1986
<S> <C> <C> <C>
INCOME AND EXPENSES
Investment income...................... $ .078 $ .037 $ .037
Operating expenses..................... .041 .028 .038
----------- ----------- -----------
Net investment income (loss)........... .037 .009 (.001)
CAPITAL CHANGES
Net realized and unrealized gains
(losses) from securities............. .194 .030 .325
----------- ----------- -----------
Net increase (decrease) in net asset
value................................ .231 .039 .324
Accumulation unit net asset value:
Beginning of year.................... 2.417 2.378 2.054
----------- ----------- -----------
End of year.......................... $ 2.648 $ 2.417 $ 2.378
----------- ----------- -----------
RATIOS
Operating expenses to average
accumulation fund balance............ 1.59% 1.63% 1.60%
Net investment income (loss) to average
accumulation fund balance............ 1.45% 0.51% (0.04% )
Portfolio turnover rate................ 66% 133% 67%
Accumulation units outstanding at end
of year (in thousands)............... 6,385 6,703 6,938
</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.
(b) See the Report of Independent Auditors on page 13 of the Statement of
Additional Information.
5
<PAGE>
in management's ability to make appropriate investment choices. There is no
guarantee under a variable annuity contract that the variable annuity payments
or the accumulation values will equal or exceed total purchase payments.
All contracts contain the Company's promise that on the annuity commencement
date, the contract owner or annuitant may elect to have provided an annuity
payable for the lifetime of the annuitant provided the initial monthly annuity
payment equals or exceeds $25. If the initial monthly annuity payment would be
less than $25, payment shall be made at less frequent intervals or the value of
the account shall be distributed in a lump sum as selected by the annuitant. The
annuity payment will be based on the contract value and in case of variable
annuity payments, will be affected only by the investment performance of the
appropriate Series of the Accumulation Fund and not by adverse mortality
experience or by increases in the Companys expenses above those assumed and for
which deductions are provided for in the contract. Owners of individual
contracts and participants in group contracts to which variable accumulation
units are credited, have the right to vote on particular questions affecting the
management of the Accumulation Fund. (see Voting Rights, page 14)
Withdrawal or redemption of funds from certain contracts may result in tax
penalties. (see Federal Tax Status, page 17)
DESCRIPTION OF THE COMPANY
AND THE ACCUMULATION FUND
The Company, with an address of 18 Chestnut Street, Worcester, Massachusetts, is
a stock insurance company organized under the laws of Massachusetts. Its
principal business is the sale and administration of life and annuity insurance
policies. The Company was organized on August 6, 1965. The Accumulation Fund was
organized on December 22, 1965 and is registered as a diversified open-end
investment company under the 1940 Act.
Under Massachusetts law, regulation of the Company by the Insurance Commissioner
of Massachusetts includes regulation of its Accumulation Fund which is not a
separately incorporated entity.
The Company is a wholly-owned subsidiary of The Paul Revere Life Insurance
Company, a Massachusetts corporation. The Paul Revere Life Insurance Company is
wholly-owned by The Paul Revere Corporation, a Massachusetts corporation with
its principal office at 18 Chestnut Street, Worcester, Massachusetts 01608. The
Paul Revere Corporation is 83%-owned by Textron Inc., a Delaware corporation
with its principal office at 40 Westminster Street, Providence, Rhode Island
02903 and 17%-owned publicly. The Paul Revere Corporation is comprised of The
Paul Revere Life Insurance Company, The Paul Revere Variable Annuity Insurance
Company, The Paul Revere Protective Life Insurance Company and other
non-insurance affiliates.
Income, gains and losses, whether or not realized, resulting from assets
allocated to the Accumulation Fund are, in accordance with applicable variable
annuity contracts, credited to or charged against the Accumulation Fund without
regard to other income gains or losses of the Company. For this purpose, each
Series of the Accumulation Fund under Massachusetts law may not be charged with
liabilities arising out of any other business of the Company to the extent they
are set aside for variable annuity contracts. However, obligations arising under
such contracts are the obligation of the Company.
The Accumulation Fund consists of two Series. Series Q is made up of qualified
contracts which were afforded special tax treatment under the IRC. Series N is
made up of all other contracts.
The Home Office and Agency retirement plans of The Paul Revere Life Insurance
Company, 18 Chestnut Street, Worcester, Massachusetts 01608 held 67.3% of the
outstanding units of the Accumulation Fund at December 31, 1995.
On January 10, 1996, The Paul Revere Corporation redeemed 1,093,077 units
representing $7.5 million of its agency pension plan assets from Series Q of the
Fund. It intends to redeem approximately 1,959,000 units representing $13
million of its home office pension plan assets in April, 1996. The Paul Revere
Corporation's decision to redeem these contracts results from a plan to transfer
its
6
<PAGE>
pesion assets to a trust. Once these transactions are complete, the retirement
plans of The Paul Revere Corporation will control or hold with power to vote
approximately 452,000 units or 14% of the total vote.
A. INVESTMENT POLICIES AND RESTRICTIONS
The fundamental investment policies and restrictions of the Accumulation Fund
(including Series Q and Series N) are enumerated in Items 1 and 4 through 10
below. They may not be changed without the approval of a majority in interest of
contracts having a voting interest in the Accumulation Fund. A majority as used
in this Prospectus, means (a) 67% or more of the voting interests of the
contract owners present and entitled to vote if voting interests of over 50% are
present or represented by proxy or (b) more than 50% of the voting interest in
the Accumulation Fund, whichever is less. Items 2, 3 and 11 through 15 are not
fundamental investment policies and may be changed by the Board of Managers.
1. The growth of capital is the primary investment objective of the Accumulation
Fund. Assets of the Accumulation Fund, including any earned income and realized
capital gains, shall be kept fully invested except for reasonable amounts held
in cash to meet current expenses or normal contract payments and for reasonable
amounts held for temporary periods pending investment in accordance with the
investment policy.
2. Common stocks believed to have potential for growth will usually constitute a
major portion of the Accumulation Fund portfolio but in keeping with the
objective of growth of capital, the investments may be made from time to time in
other securities. When deemed necessary for defensive purposes, the Accumulation
Fund may substantially increase the portion of its assets invested in fixed
income obligations and held in cash.
3. Investments of the Accumulation Fund are controlled by provisions of Sections
132H, Chapter 175 of the General Laws of Massachusetts. In general, this
releases the Accumulation Fund assets from investment restrictions applicable to
life insurance company reserve investments, limits investments in securities of
any one issuer to 10% of the value of the Accumulation Fund assets and requires
common stock purchases to be listed or admitted to trading on a securities
exchange located in the United States or Canada or to be traded in the
over-the-counter securities market. Such section as may be amended from time to
time will be followed.
The Accumulation Fund will not:
4. Acquire more than 5% of the voting securities of any one issuer.
5. Purchase the securities of an issuer, if, immediately after and as a result
of such purchase, the value of its holdings in the securities of such issuer
shall exceed 5% of the value of its total assets.
6. Invest more than 25% of the value of its assets in any one industry.
7. Engage in the purchase or sale of interests in real estate which are not
readily marketable.
8. Borrow money except from banks as a temporary measure for extraordinary or
emergency purposes and then not to exceed 5% of the value of its assets.
9. Engage in the purchase or sale of commodities or commodity contracts.
10. Act as an underwriter of securities of another issuer (except where the
Accumulation Fund may be deemed to be a statutory underwriter in connection with
the disposition of restricted securities).
11. Make purchases on margin, except such short-term credit as is necessary for
clearance of transactions.
12. Make short sales of securities.
13. Invest for the purpose of exercising control or management.
14. Purchase securities of other investment companies except (i) of closed-end
companies in the open market at customary brokerage commissions and then with an
aggregate investment in such securities not exceeding 5% of the value of its
assets and the total outstanding voting interest in any one such investment
company not to exceed 3% or (ii) as a part of a merger or consolidation.
15. Invest in excess of 10% of the value of its assets in restricted securities.
7
<PAGE>
As of the year ended December 31, 1995, the Accumu-lation Fund did not engage in
the purchase or sale of interests in real estate, invest in repurchase
agreements or non-negotiable time deposits maturing in more than seven days, or
make loans of securities. The Accumulation Fund has never engaged in puts, calls
or straddles and has no intention to do so at the present time.
MANAGEMENT
The property and business of the Accumulation Fund are managed by a Board of
Managers selected by the owners of the contracts to which variable accumulation
units are credited. A majority of the Accumulation Funds five managers are not
deemed to be "interested persons" of the Accumulation Fund or the Company as
defined in the 1940 Act.
The Board of Managers has the following responsibilities and duties: a) to
select and approve annually an independent certified public accountant, b) to
execute and approve annually an agreement providing for sales and administrative
services, c) to execute and approve annually an agreement providing for
investment advisory services, d) to recommend any changes in the fundamental
investment policies of the Accumulation Fund, and e) to authorize all
investments of the assets of the Accumulation Fund in accordance with the
fundamental investment policies of the Accumulation Fund, and to submit
semi-annual and annual reports to the contract owners.
The Company pursuant to a written agreement acts as Investment Advisor and
Administrative Manager of the Accumulation Fund and also assumes certain
expenses and mortality and expense risks in connection with the variable annuity
contracts.
Pursuant to the Investment Advisory Agreement between the Accumulation Fund and
the Company, the Company is authorized, and has employed, at its own expense,
the services of an Investment Sub-Advisor. An Investment Sub-Advisory Agreement
between the Company and MFS Asset Management, Inc. ("AMI"), formerly
Massachusetts Financial Services Company ("MFS"), went into effect on August 16,
1984. AMI is registered with the Securities and Exchange Commission as an
investment advisor. Its principal offices are located at 500 Boylston Street,
Boston, Massachusetts 02116. AMI serves as investment advisor to substantial
private and institutional accounts. MFS serves as investment advisor to certain
mutual fund and insurance company separate accounts. As of December 31, 1995,
MFS and its subsidiaries including AMI, had over $42.3 billion in assets under
management, which included over $5 billion in assets managed by AMI. Under the
Sub-Advisory Agreement, AMI will provide the Board of Managers with an
investment program for their consideration and will execute the program approved
by the Board.
This Sub-Advisory Agreement was approved by a majority of the members of the
Board of Managers who were not interested persons of the Accumulation Fund, the
Company or MFS. The continuation of both agreements was approved by a vote of
the majority of the Board of Managers who were not interested persons and by a
majority of the entire Board at the first meeting called for that purpose
following the Annual Meeting of Variable Annuity Contract Owners which occurred
on March 28, 1996.
Both agreements shall continue in full force and effect unless terminated by the
Board of Managers of the Accumulation Fund or by a vote of the majority in
interest of the contracts, which termination may be accomplished without the
payment of any penalty with not more than 60 days written notice. Both
agreements shall (i) automatically terminate upon assignment by either party;
(ii) continue in effect from year to year, after it has been in effect for two
years, only if approved annually by a vote of a majority of the Board of
Managers of the Accumulation Fund who are not parties to the agreements or not
interested persons of any of the parties to the agreement.
DEDUCTIONS AND EXPENSES
A. SALES AND ADMINISTRATIVE FUNCTIONS AND
EXPENSES
The Company acts as principal underwriter and performs detailed administrative
functions relative to the variable annuity contracts offered by this Prospectus
and the Accumulation Fund. The Company incurs distribution costs which exceed
the sales charges received in the first contract year and finances these excess
costs. This financing procedure results in no additional expenses to the
Accumulation Fund.
8
<PAGE>
The total amounts received by the Company in connection with the sales and
administrative functions in 1995, 1994 and 1993 were $4,452, $6,529, and $7,211,
respectively.
1. Sales Charges
Sales charges deducted from purchase payments received are in accordance with
the following:
(a) Flexible Purchase Payment Variable Annuity Contracts.
<TABLE>
<CAPTION>
PURCHASE SALES
PAYMENTS CHARGE
<S> <C> <C>
-------------------------
1st $ 15,000 7.5%
Next 10,000 6.0
Next 25,000 5.0
Next 50,000 4.0
Over 100,000 2.0
</TABLE>
(b) Single Payment Variable Annuity Contracts.
<TABLE>
<S> <C> <C>
First $ 25,000 6.0%
Next 25,000 3.0
Over 50,000 1.5
</TABLE>
(c) Level Variable Annuity Contracts.
Sales charge equals 5% of each purchase payment.
(d) Group Variable Annuity Contracts.
(i) For contracts with anticipated annual purchase payments under $50,000
- 5%.
(ii) For contracts with anticipated annual purchase payments of $50,000 or
more - 2% plus a charge of the lesser of $50 or 0.5% of amount
withdrawn except payments upon the death of a participant.
(iii) No sales charge on an initial purchase payment of $250,000 if being
transferred from another Section 403(b) plan. Funds in the hands of
the Company or its parent, The Paul Revere Life Insurance Company,
may be transferred without charge, once each year, into a variable
annuity contract if the funds are already held in connection with a
plan qualifying under Section 403(b) of the IRC.
2. Collection Fee
A collection fee for administrative expenses incurred in processing purchase
payments in the amount of $1 is deducted from each purchase payment. This
collection fee is not guaranteed and may be increased up to a maximum of $3 if
necessary to reflect actual administrative expenses.
3. State Premium Taxes
The Company will, where such taxes are imposed by state law, make a deduction
for premium taxes when incurred, which could be (i) at the annuity
commencement date, (ii) when total surrender occurs or (iii) when premiums are
paid. It is the Companys practice to compute and deduct at the time of receipt
of each purchase payment a charge for premium tax only upon that portion equal
to the sales charges and collection fee delaying the charge on other amounts
until the annuity commencement date. The Company gains no special benefit from
its charge for premium taxes. The 0% to 3.5% premium tax rates vary by state
and are subject to change by legislation, administrative interpretation or
judicial acts.
B. INVESTMENT ADVISORY FEES
The Company, as the Investment Advisor and Administrative Manager of the
Accumulation Fund, assesses a service charge as of each valuation, which, on an
annual basis, equals 0.50% of the average daily net asset value of each Series
of the Accumulation Fund.
AMI, pursuant to an Investment Sub-Advisory Agreement with the Company, receives
an advisory fee in an amount each month equal, on an annual basis, to 0.35% of
the average daily net assets of the Accumulation Fund. This fee does not affect
the charges made by the Company to the Accumulation Fund.
The advisory fee paid to the Company for the three years 1995, 1994 and 1993
amounted to $191,061, $167,704 and $165,730, respectively. The fees paid to AMI
by the Company in 1995, 1994 and 1993 were $133,743, $117,393 and $115,983,
respectively.
9
<PAGE>
C. EXPENSE AND MORTALITY AND EXPENSE RISK
ASSUMPTIONS
Although variable annuity payments will vary in accordance with investment
performance of the Series of the Accumulation Fund in which the reserves are
invested, the Company assures that the payments will not vary by reason of
either increased life expectancy or increased expenses to amounts in excess of
expense amounts provided for in the contract.
The Company, as the Sales and Administrative Manager of the Accumulation Fund,
in return for a charge to the Accumulation Fund on each valuation in an amount
which on an annual basis equals 1% of the average daily net asset value of the
Accumulation Fund, assumes the risks that (i) annuitants may live longer than
foreseen in the actuarial estimates of life expectancies; (ii) the aggregate
purchase payments may exceed the redemption value as of the date of death of the
annuitant (See Payments at Death, page 13); and (iii) charges by the Company for
services and expenses as provided by the contract may not prove sufficient to
cover the actual expenses. It is the opinion of the Company that an appropriate
estimate of the division of the charge would attribute 0.55% to (i) and (ii) and
0.45% to expenses and (iii) but there has not been sufficient experience in this
area to provide other than an estimate. If these charges prove insufficient the
loss will fall on the Company. The charges for expense and mortality and expense
risk assumed for the 3 years, 1995, 1994 and 1993 amounted to $382,123, $335,408
and $331,458, respectively.
At the present time, the Company believes that there are no statutory or
regulatory limitations on expenses that may be deducted from the Accumulation
Fund but assures that all expense deductions (i.e., Company charges and direct
expenses other than for taxes, such as charges for investment advisory service
and expense and mortality and expense risk assumptions, audit expenses and fees
and expenses of the Board of Managers) will not annually exceed 2% of the
average daily net asset value of the Accumulation Fund.
D. BROKERAGE EXPENSES AND PORTFOLIO TURNOVER
AMI in its capacity as sub-advisor selects the securities for purchase and sale
by the Accumulation Fund. The Company has no set formula for the distribution of
brokerage business in connection with the placing of orders for the purchase and
sale of investments, as it is the Company's policy to place orders with the
primary objective of obtaining the most favorable price and execution.
Consideration may be given in the allocation of business, however, to services
provided by a broker, including the furnishing of statistical data and research,
if the commissions charged are reasonable.
Under the Sub-Advisory Agreement and as permitted by Section 28 (e) of the
Securities Exchange Act of 1934, AMI may cause the Accumulation Fund to pay a
broker-dealer who provides brokerage and research services to the Accumulation
Fund and to AMI, an amount of commission for effecting a securities transaction
for the Accumulation Fund in excess of the amount another broker-dealer would
have charged for the transaction. This will be done if AMI determines in good
faith that the greater commission is reasonable in relation to the value of the
brokerage research services provided by the executing broker-dealer viewed in
terms of either a particular transaction or AMI's overall responsibility to the
Accumulation Fund or to its other clients.
The advisory fee paid by the Company to AMI will not be reduced as a consequence
of AMI's receipt of brokerage and research services. To the extent that the
Accumulation Fund's portfolio transactions are used to obtain such services, the
brokerage commissions paid by the Accumulation Fund will exceed those that might
otherwise be paid by an amount which cannot be determined. Such services are
useful and of value to AMI in serving both the Accumulation Fund and other
clients and conversely such service obtained by placement of brokerage business
of other clients would be useful to AMI in carrying out its obligations to the
Accumulation Fund. While such services are not expected to reduce the expenses
of AMI, through the use of the services, AMI avoids the additional expense which
would be incurred if it should attempt to develop comparable information through
its own staff.
Brokerage commissions paid in the years ended December 31, 1995, 1994 and 1993
amounted to $62,318, $49,933 and $64,779, respectively. Stated as a percentage
of gross purchase payments received, brokerage commissions aggregated 9.4%, 8.2%
and 11.4% for these three periods. Brokerage commissions were paid to 74 brokers
in 1995. In
10
<PAGE>
the years ended December 31, 1995, 1994 and 1993 the aggregate rates of
portfolio turnover were 65%, 64% and 59%, respectively.
DESCRIPTION OF CONTRACTS
A. TYPES OF CONTRACTS
The Company is registered with the Securities and Exchange Commission as a
broker dealer and is a member of the National Association of Securities Dealers,
Inc. The variable annuity contracts will be sold by registered representatives
of the Company who are also licensed with the State Insurance Department for the
sale of such contracts.
There are 4 types of variable annuity contracts offered by this Prospectus. They
are:
1.Flexible Purchase Payment Variable Annuity Contract.
The Flexible Contract provides for purchase payments to be made in the amounts
and at such times as the contract owner desires with certain contract limits
and limits provided for by the IRC when contracts are issued in connection
with plans qualifying for special tax treatment.
2.Single Payment Variable Annuity Contract.
The Single Contract provides for additional payments after the first only at
the option of the Company.
3.Individual "Level Charge" Variable Annuity Contract.
The Level Contract is designed to be issued to an individual qualifying for
tax deferred treatment under Section 403(b) of the IRC.
4.Group Variable Annuity Contract.
The Group Contract is issued as a master group contract to an employer in
connection with a plan qualifying under Section 403(b) of the IRC. Each
participant employee is issued a certificate evidencing his interest in the
Accumulation Fund which at all times is fully vested.
All Contracts except Group provide for accumulation of values within the general
assets of the Company as well as the Accumulation Fund.
The Company reserves the right to reject any application. If an initial purchase
payment cannot be credited within 5 business days of receipt by the Company it
will be returned to the payor immediately unless the applicant consents to its
being held for a longer period. Initial purchase payments accompanied by
properly completed applications will be credited no later than 2 business days
following receipt.
Any inquiries concerning these Contracts can be made at the principal offices of
the Company, 18 Chestnut Street, Worcester, Massachusetts 01608.
B. PURCHASE PAYMENT PROVISIONS
Purchase payments are payable to the Company at its Home Office. In the case of
Flexible Contracts each purchase payment must be at least $50 except when paid
by pre-authorized check plan or under a payroll deduction plan when the minimum
purchase payment is $25. In the case of Level Contracts, the minimum purchase
payment is $25. Purchase payments for Group Contracts must aggregate a minimum
of $300 annually with respect to each participant. The minimum initial purchase
payment under a Single Contract is $2,500. Subsequent payments may be made only
with the consent of the Company.
Under Flexible Contracts the maximum purchase payment is $2,500 except where a
larger purchase payment is being made on a regular basis. In such case the
maximum purchase payment that can be made in any contract year without the
consent of the Company is an amount 3 times the amount paid in the first
contract year.
Purchase payments for Level and Group Contracts must be made monthly or such
other frequency agreed to by the Company.
Under all contracts and certificates (in the case of Group Contracts) the
purchase payment, net of sales charge, deductions for applicable premium tax
charge and collection fee or contract charge (in the case of Single Contracts)
will be credited to the contract (or certificate) as accumulation units. The
number of accumulation units to be credited will be determined by dividing the
net purchase payment by the value of an accumulation unit next determined after
receipt of the purchase payment (or the issue of the contract or certificate in
the case of an initial purchase payment.)
C. ACCUMULATION UNITS
Accumulation units are a measure of the value of the contract before the annuity
commencement date. Accumulation units are credited separately for variable and
fixed
11
<PAGE>
accumulations. The number of accumulation units credited is equal to the net
purchase payment applied divided by the value of the accumulation unit next
determined following the receipt of the purchase payment by the Company at its
Home Office (or the issue of the contract or certificate). The number of
accumulation units credited is not changed by any subsequent variation in the
value of an accumulation unit. The value of variable accumulation units will
vary from valuation to valuation reflecting the investment experience of the
Accumulation Fund.
The value of a variable accumulation unit for each Series is determined as of a
valuation date by dividing (a) the net asset value of that Series of the
Accumulation Fund by (b) the number of accumulation units within that Series.
Changes in the value of a Series of the Accumulation Fund depend on investment
experience, such as, realized and unrealized capital gains and losses on
portfolio securities and upon net income from such securities.
D. NET ASSET VALUE
The net asset value of a Series of the Accumulation Fund is determined each
business day of the Company as of the close of the New York Stock Exchange and
on such other business days when there is sufficient activity in the portfolio
securities of the Series to affect the value thereof by adding the cash held
plus the value of securities plus other assets and subtracting any liabilities
or obligations chargeable to the Series. Securities are valued at the closing
price for such securities traded on organized exchanges and at the last bid
price for non-traded securities and securities not traded on an organized
exchange. Other assets including restricted securities are valued at fair value
as determined in good faith by or under the direction of the Board of Managers.
Obligations chargeable are (i) incurred expenses for audit (ii) fees and
expenses of the Board of Managers and (iii) charges made by the Company for
expenses and mortality and expense risk assumed and investment management and
advisory services in an amount which on an annual basis is not to exceed 2.0% of
the average daily net asset value of the Series of the Accumulation Fund.
E. ANNUITY UNIT
1. VALUE OF VARIABLE ANNUITY UNIT
The value of a variable annuity unit as of any valuation date is determined by
multiplying the value of the preceding annuity unit value by a factor to
neutralize the assumed net investment rate (3 1/2% or 5% per annum as selected
by the contract owner and included in the annuity tables used to determine the
first payment) and further multiplied by the ratio of the value of a variable
accumulation unit as of the current valuation to the value of a variable
accumulation unit of the preceding valuation. The number of variable annuity
units determining annuity payments remains constant once the number has been
determined. Generally, the election of the 5% net investment rate will produce
higher initial annuity payments but such payments will rise more slowly or fall
more rapidly than annuity payments based on 3 1/2% assumed net investment rate
under conditions of similar investment performance.
2. AMOUNT OF MONTHLY ANNUITY PAYMENTS
The number of annuity units determining each monthly annuity payment is equal to
(a) the value applied to provide the annuity payment (less any applicable
premium tax); multiplied by (b) the applicable annuity purchase rates; and
divided by (c) the annuity unit value when the number is being determined. The
number of annuity units will remain fixed unless the units are split as
described herein.
Each monthly annuity payment will be equal to the number of annuity units as
determined above, multiplied by the value of an annuity unit determined in the
daily valuation two weeks preceding the date on which payment is due, but in no
event as of a time preceding the effective date of the contract. The amount of
each variable annuity payment will vary from month to month depending on the
investment experience of the appropriate Series of the Accumulation Fund but the
Company guarantees that the amount of each payment will not be affected by
variations in mortality experience among annuitants or by expenses incurred in
excess of expense assumptions. (See Expense and Mortality and Expense Risk
Assumptions, page 10).
F. PAYMENTS TO ANNUITANTS
1. ANNUITY SETTLEMENT OPTIONS
Under the variable annuity contracts offered by this Prospectus, the contract
owner or participant in a group contract may elect to have the annuitant receive
variable annuity benefit payments in accordance with one or more
12
<PAGE>
of the options described below under each of which payments will be made from
the Accumulation Fund. If no option is selected, Option I with 120 monthly
payments guaranteed will be assumed to have been elected.
OPTION I - VARIABLE LIFE ANNUITY WITH 120 OR 240 MONTHLY PAYMENTS GUARANTEED
A variable annuity payable monthly during the lifetime of the annuitant ceasing
with the last monthly payment due immediately preceding or coincident with the
annuitant's death with a guarantee if, at the death of the annuitant, payments
have been made for less than 120 months or 240 months, as selected, variable
annuity payments will be continued to the beneficiary during the remainder of
the guaranteed period.
OPTION II - UNIT REFUND VARIABLE LIFE ANNUITY
A variable annuity payable for a period certain and after that during the
lifetime of the annuitant. The number of period certain payments is equal to the
amount applied under the option divided by the amount of the first annuity
payment, provided however, that the final period certain payment shall be
multiplied by that part of the answer to the above calculation which is not a
whole number.
OPTION III - JOINT AND SURVIVOR VARIABLE LIFE ANNUITY
A variable annuity payable monthly during the joint lifetime of the primary
annuitant and a secondary annuitant and continuing during the lifetime of the
survivor. SINCE THERE IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED IT WOULD BE
POSSIBLE UNDER THIS OPTION FOR ONLY ONE MONTHLY ANNUITY PAYMENT TO BE MADE, IF
THE ANNUITANT AND THE SECONDARY ANNUITANT BOTH DIE PRIOR TO THE DUE DATE OF THE
SECOND PAYMENT; OR ONLY TWO IF THEY BOTH DIED BEFORE THE THIRD, ETC.
OPTION IV - VARIABLE LIFE ANNUITY
A variable annuity payable monthly during the lifetime of the annuitant and
ceasing with the last monthly payment due immediately preceding or coincident
with the annuitant's death. SINCE THERE IS NO MINIMUM NUMBER OF PAYMENTS
GUARANTEED, IT WOULD BE POSSIBLE UNDER THIS OPTION FOR ONLY ONE MONTHLY PAYMENT
TO BE MADE IF THE ANNUITANT DIES PRIOR TO THE DUE DATE OF THE SECOND PAYMENT; OR
ONLY TWO IF DEATH WERE BEFORE THE THIRD, ETC.
Additional annuity options as may be agreed to by the Company are available.
2. FIXED ANNUITY OPTIONS
In lieu of any options payable from the Accumulation Fund, the contract owner or
participant may, on 30 days written notice of the Company prior to the annuity
commencement date, specify that all or part of the value of the contract, less
any applicable premium taxes not previously charged for, may be applied to
provide a fixed annuity. The annuity purchase rates will be determined from
either the rate table set forth in the contract or the Companys published rate
tables applicable on the day the first monthly payment falls due, whichever is
more favorable to the annuitant. A fixed annuity is payable from the Companys
general assets and does not participate in the investment experience of the
Accumulation Fund.
3. PROVISIONS AFFECTING ANNUITY BENEFIT PAYMENTS
If the initial monthly annuity payment would be less than $25, payments shall be
made at less frequent intervals or the values of the participants interest shall
be distributed in a lump sum as selected by the contract owner or participant.
G. PAYMENTS AT DEATH
If an annuitant dies prior to the annuity commencement date, the redemption
value of the contract will be payable to the beneficiary named in the contract.
If the redemption value as of the valuation following the date of death is less
than the total amount of purchase payments made adjusted for partial withdrawals
or redemptions, the Company will also pay a death benefit from its general
assets equal to the difference between the adjusted purchase payments and the
redemption value.
At the death of the annuitant after the annuity has commenced, if no other
provision for settlement is applicable, the amount payable, if any, will be
determined as of the valuation following the date of election, which may be made
within 60 days of the date of death by the beneficiary and paid in one sum to
the beneficiary on receipt of acceptable proof of death by the Company at its
Home Office. The beneficiary may, within 60 days following such death, elect in
lieu of a lump sum payment to receive annuity payments subject to the provisions
of the contract
13
<PAGE>
as to minimum amounts and time of election in accordance with Option I or IV or
elect to have the amount payable, if any, remain in the Accumulation Fund to the
credit of the beneficiary. Payment options in lieu of lump sum payment shall not
be available to any estate, fiduciary, corporation, partnership or association
without the consent of the Company. A BENEFICIARY ENTITLED TO RECEIVE PAYMENTS
NOT BASED ON LIFE CONTINGENCIES MAY ELECT A SINGLE SUM PAYMENT EQUAL TO THE
VALUE OF THE CONTRACT.
H. EARLY OR DEFERRED COMMENCEMENT DATES
The contract provides for monthly annuity benefit payments beginning on a
selected annuity commencement date. However, upon written request to the
Company, the contract owner or participant may change this date by electing a
prior annuity commencement date or, with the Company's consent, a later annuity
commencement date.
I. REDEMPTION
The redemption value of any contract on any date prior to the annuity
commencement date is the product of the number of accumulation units credited to
the contract multiplied by the value of an accumulation unit as the valuation
next following receipt of the written request for redemption at the Home Office
of the Company. The contract owner or participant may redeem his contract in
whole or in part at any time prior to the annuity commencement date for an
amount not exceeding its redemption value provided that the value of the
contract following any partial redemption shall at least equal the minimum
initial payment required to purchase such contract. The Company reserves the
right to require the surrender of the variable annuity contract upon its
termination.
Payment for any redemption will be made within 7 days following receipt of the
request at the Home Office of the Company. The right of redemption may be
suspended or the date of payment postponed (a) for any period (i) during which
the New York Stock Exchange is "closed" for other than weekends or holidays or
(ii) during which trading on the New York Stock Exchange is restricted; (b) for
any period during which an emergency exists as a result of which (i) disposal of
securities of the Accumulation Fund is not reasonably practical or (ii) it is
not reasonably practical for the Accumulation Fund to clearly determine the
value of its net assets; or (c) for such other period as the Securities and
Exchange Commission by order permits for the protection of the contract owners.
J. VOTING RIGHTS
Individual Contract owners and participants in Group Contracts described in this
Prospectus (whether prior to or after the annuity commencement date) will be
entitled to vote at meetings of the Accumulation Fund with respect to (i) any
change in fundamental investment or other policies of the Accumulation Fund
requiring approval of interests therein, (ii) approval of the Investment
Advisory Agreement; (iii) election of the members of Board of Managers of the
Accumulation Fund (iv) ratification of an independent certified public
accountant for the Accumulation Fund; and (v) any other business which may
properly come before the meeting.
The number of votes to which a contract owner or participant is entitled is
equal to the number of variable accumulation units credited to his contract or
certificate as of an evaluation not earlier than 120 days nor later than 30 days
prior to the meeting as selected by the Board of Managers. Persons with a voting
interest will be given written notice of the meeting and of the number of votes
to which such person is entitled. Voting may be in person or by proxy. The Home
Office and Agency retirement plans of the Paul Revere Life Insurance Company
held a voting interest of 67.3% of the total vote as of December 31, 1995.
K. MISCELLANEOUS PROVISIONS
1. OWNERSHIP RIGHTS AND LIMITATIONS
During the lifetime of the annuitant, the contract owner or participant may,
subject to the rights of any designated irrevocable beneficiary or any assignee,
exercise any rights and enjoy any privileges granted by the contract including
the right to designate, change or revoke any beneficiary nomination and to
designate a new contract owner. Any change of beneficiary or ownership or
assignment of the contract or of any benefit under it shall not be binding upon
the Company unless filed at its Home Office.
The Company may rely upon the correctness of information, notice and other
material furnished it by the contract owner or participant including any
determination of classification of any party thereto. The contract owner shall
in no event be considered an agent of the Company for any purposes under these
contracts.
14
<PAGE>
To the extent permitted by law, no annuitant, contingent annuitant, beneficiary
or participant shall have the right to assign, alienate, encumber, anticipate or
commute any benefit or payment under the contract and no payment shall be
subject by attachment or otherwise to claims of creditors of any contract owner,
participant, annuitant, a secondary annuitant or beneficiary.
2. TRANSFER AND EXCHANGE PRIVILEGES
Once each calendar year a contract owner (except under a Group Contract) may
direct the Company to transfer all or a portion of a variable accumulation value
to the general assets of the Company to provide fixed accumulation value, or all
or a portion of any fixed accumulation to the variable accumulation value of the
contract. The transfer will be made without charge to the contract owner and
will be effected at current value at the valuation next following the receipt of
the request in the Home Office of the Company. The privileges of exchange and
transfer may be discontinued or modified at any time by the Company.
3. SPLITTING UNITS
The Company reserves the right to split the value of an accumulation unit, an
annuity unit, or both, if such action is deemed to be in the best interest of
the contract owner, annuitant and the Company. In effecting any split of unit
value, strict equity will be preserved and the split will have no material
effect on the benefits, provisions, or investment return of the contract owner,
participant, annuitant, beneficiary or to the Company. A split may be effected
to either increase or decrease the number of units.
4. ADJUSTMENTS
The contract owners, participants, annuitants, contingent annuitants and
beneficiaries are required to furnish all information and evidence which the
Company may reasonably require in order to administer the contract. If the age,
sex or other relevant facts with respect to any participant, annuitant,
contingent or beneficiary are misstated, the amount of any benefit payable shall
be payable on the basis of correct information. Any underpayment by the Company
will be paid in full with the next payment due following the determination of
the true facts and any overpayment may be deducted with interest at the rate of
5% per annum for any amounts payable thereafter or charged to the person
overpaid or his representative. The Company may require proof of age before
making any annuity payments and reserves the right to require evidence
satisfactory to it that the annuitant is living on the date on which any annuity
payment is due.
5. EXPERIENCE CREDITS - GROUP CONTRACTS
Experience credits may be allowed on Group Contracts as of any contract
anniversary in accordance with the experience credit plan of the Company in
force at the time. Any experience credits allowed will be credited or applied in
accordance with plan provisions. In no event will experience credits reduce the
number of accumulation units credited to the contract or any participant in the
Accumulation Fund. The granting of experience credits is at the sole discretion
and expense of the Company and it is not obligated to grant such credits.
Experience credits will not be available under Individual Contracts.
For each of the last three fiscal years ended December 31, 1995, no experience
credits have been granted.
6. MODIFICATION OF GROUP CONTRACTS
The Group Contract may be modified in any respect by written agreement between
the contract owner and the Company so long as such modification does not reduce
or take away accumulation value credited to a participant or any annuity
previously provided under the contract. No such modification by the Company will
modify the annuity purchase rates with respect to any accumulation value
credited to the contract unless the modification is for the purpose of
conforming the contract to requirements of the IRC.
PRIOR CONTRACTS
A. FLEXIBLE PAYMENT CONTRACTS ISSUED PRIOR TO
JUNE 1, 1977
The following contract provisions shall remain in effect for contracts issued
prior to June 1, 1977 and shall not apply to contracts issued after that date.
15
<PAGE>
The charge for sales and administration is based upon the aggregate amount of
all purchase payments made under the contract, including payments then being
made, in accordance with the following:
<TABLE>
<CAPTION>
ADMIN-
PURCHASE TOTAL SALES ISTRATIVE
PAYMENTS CHARGES CHARGES CHARGES
<S> <C> <C> <C> <C>
-----------------------------------------------------
First $ 5,000 8.0% 5.5% 2.5%
Next 5,000 7.5 5.0 2.5
Next 5,000 7.0 4.5 2.5
Next 5,000 6.5 4.0 2.5
Next 5,000 6.0 * 3.5 2.5*
Next 25,000 5.0 * 2.5 2.5*
Next 50,000 4.0 * 1.5 2.5*
Over 100,000 2.0 * 1.25 0.75*
</TABLE>
*Maximum administrative charge deducted from one purchase payment is $500.
Total purchase payments in force under Individual Flexible Purchase Payment
Annuity Contracts issued by the Insurance Company and owned by contract owner,
his spouse or his children under age 21 years are combined for the purpose of
determining the aggregate amount of purchase payments.
Contracts issued prior to June 1, 1977 shall not be subject to the $1 collection
fee assessed against each purchase payment.
B. GROUP CONTRACTS ISSUED PRIOR TO JUNE 1, 1977
The following provisions shall remain in effect for all Group Contracts issued
prior to June 1, 1977 and shall not apply to such contracts after that date.
The charge for sales and administration will be 6% of each purchase payment,
3.5% representing the sales charge and 2.5% the administration charge.
A participant may request transfer of the accumulation value credited to any
other Group Contract issued by the Company under which the participant also
qualifies as a participant or to an Individual Contract issued by the Company,
in either case without charge.
Contracts issued prior to June 1, 1977 shall not be subject to the $1 collection
fee assessed against each purchase payment.
C. GROUP DEPOSIT ADMINISTRATION VARIABLE
ANNUITY CONTRACTS
Prior to 1984, the Company issued Group Deposit Administration Variable Annuity
Contracts which were issued as master group contracts to employers or trustees
to cover all present and future participants under a plan. The basic features of
these contracts were substantially the same as those outlined for contracts in
this Prospectus.
Certain of these contracts remain in force and purchase payments are continuing
to be received in connection therewith.
Such contracts issued between June 1, 1980 and January 1, 1984 were subject to a
sales charge based on the aggregate amount of all purchase payments made under
the contract including the payment then being made in accordance with the
following table.
<TABLE>
<CAPTION>
PURCHASE SALES
PAYMENTS CHARGES
<S> <C> <C>
-------------------------
First $ 15,000 5.0%
Next 10,000 3.5
Next 25,000 2.5
Over 50,000 2.0
</TABLE>
Contracts issued between June 1, 1977 and June 1, 1980 were subject to one of
two sets of sales charges. Those contracts where the Insurance Company provided
service functions including but not limited to assistance in initial
establishment of employee benefit plan, plan design, employee booklet
preparation, actual evaluation, tax reporting and individual record keeping were
subject to the following sales charges:
<TABLE>
<CAPTION>
PURCHASE SALES
PAYMENTS CHARGES
<S> <C> <C>
-------------------------
First $ 15,000 7.5%
Next 10,000 6.0
Next 25,000 5.0
Next 50,000 4.0
Over 100,000 2.0
</TABLE>
Contracts to which the Company provided no service functions were subject to the
same sales charges as applied to contracts issued between June 1, 1980 and
January 1, 1984.
Contracts issued prior to June 1, 1977 were, and continue to be, subject to
sales charges as shown below except
16
<PAGE>
where the sales charges of the later contracts are more favorable to the
contract owner. In such cases the more favorable sales charge is made.
<TABLE>
<CAPTION>
ADMIN-
PURCHASE TOTAL SALES ISTRATIVE
PAYMENTS CHARGES CHARGES CHARGES
<S> <C> <C> <C> <C>
-----------------------------------------------------
First $ 5,000 8.0% 5.5% 2.5%
Next 5,000 7.5 5.0 2.5
Next 5,000 7.0 4.5 2.5
Next 5,000 6.5 4.0 2.5
Next 5,000 6.0 * 3.5 2.5*
Next 25,000 5.0 * 2.5 2.5*
Next 50,000 4.0 * 1.5 2.5*
Over 100,000 2.0 * 1.25 0.75*
</TABLE>
*The maximum administrative charge deducted from one purchase payment is $500.
Only contracts issued after June 1, 1977 are subject to a collection fee, which
is currently $1. (See Collection Fee, page 9.)
The Company reserves the right to modify these contracts in any respect on the
10th or subsequent contract anniversary including the right to increase sales
and administrative charges or annuity purchase rates as to payments received
subsequent to such modification.
FIXED ACCUMULATION
Individual Variable Annuity Contracts described in this Prospectus have a fixed
accumulation provision which if selected by the contract owner permits an
accumulation at a fixed current rate of interest. This rate is set from time to
time for a specific period. The interest rate credited will never be less than
3 1/2%. Accumulations under the fixed accumulation provision of these annuity
contracts become part of the general assets of the Company which support
insurance and obligations generally. Because of exemptive and exclusionary
provisions, interest in the general assets have not been registered under the
Securities Act of 1933 ("1933 Act") nor are the general assets of the Company
registered as an investment company under the 1940 Act. Accordingly neither the
general assets nor any assets therein are generally subject to the provisions of
the 1933 or 1940 Acts. Disclosure regarding the fixed portion of the annuity
contracts and the general assets, however, may be subject to certain generally
applicable provisions of Federal Securities Law related to the accuracy and
completeness of the statements made in prospectuses.
FEDERAL TAX STATUS
INTRODUCTION
The variable annuity contracts described in this Prospectus are designed for use
in connection with retirement plans that may or may not be qualified plans under
Section 401, 403, and 408 of the IRC. The ultimate effect of federal income tax
on variable accumulation value, on the annuity payments, and on the economic
benefit to the owner, participant, annuitant, payee or the beneficiary depends
on the Company's tax status, upon the type of retirement plan for which the
contract was purchased and upon the tax and employment status of the individual
concerned. The discussion contained herein is general in nature, is based upon
the Company's understanding of current federal income tax law (including
recently enacted amendments), and is not intended as tax advise. Any person
concerned with these tax implications should consult a competent tax advisor.
TAXATION OF ANNUITIES IN GENERAL
Section 72 of the IRC governs taxation of annuities in general. No taxes are
imposed on increases in value of the variable annuity contract until
distribution occurs as either annuity payments under an annuity option elected
or in the form of a cash withdrawal or lump sum payment prior to the annuity
commencement date, except where the variable annuity contract is owned by a
person who is not a natural person (e.g. corporation). In such cases, the income
of the contract is treated as ordinary income received or accrued by the owner
during that taxable year (See IRC Section72 (u)(l)). Section 72 of the IRC has
been amended by the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"),
the Tax Reform Act of 1984 ("The 1984 Act"), the Tax Reform Act of 1986
("TRA-86"), and more recently the Technical and Miscellaneous Revenue Act of
1988 ("TAMRA"), the Omnibus Budget Reconciliation Act of 1989 ("OBRA") and the
Revenue Recognition Act of 1990. The following discussion of annuity taxation
applies only to contributions and attributable earnings made to contracts after
August 13, 1982 as affected by TEFRA, the 1984 Act, TRA-86, TAMRA, OBRA and the
Revenue Recognition Act of 1990. If an owner or participant has made
17
<PAGE>
contributions before August 14, 1982 to another annuity contract and exchanges
that contract for a variable annuity contract offered by this Prospectus, then
different tax treatment may apply to contributions (and attributable earnings)
made before August 14, 1982.
In the case of a non-qualified variable annuity contract (Flexible or Single) a
partial cash withdrawal (i.e., a withdrawal of less than the entire value of the
contract) or if the annuity contract is assigned or pledged as collateral for a
loan, the amount of the loan or withdrawal will be treated as taxable income
until all amounts in excess of cost basis are accounted for. In the case of a
qualified contract, the portion of the distribution which bears the same ratio
to the total distribution as the investment in the contract bears to the total
value of the accrued benefit as of the date of the distribution, is excludable
from gross income. In the case of most qualified contracts, however, the cost
basis of the employee beneficiary will be zero and distributions prior to the
annuity commencement date will therefore be taxable in full. The taxable portion
of a withdrawal or lump sum payment prior to the annuity commencement date is
subject to taxes as ordinary income. In case of payments after the annuity
commencement date under an annuity option, a portion of each payment, generally,
is taxable as ordinary income. The taxable portion is determined by applying to
each payment an "exclusion ratio" which is the ratio the cost basis in the
contract bears to the expected return on the contract. The amount in excess of
the "exclusion amount" is taxable. If the owner recovers his entire cost basis
during the term of annuity payments, then the "exclusion ratio" will no longer
apply and the whole annuity payment will be taxable. In the case of Flexible and
Single Contracts issued on a non-qualified basis, taxable cash withdrawals and
lump sum payments will be subject to a 10% penalty except when made under
certain circumstances. This 10% penalty also affects certain annuity payments.
This penalty will not apply to distributions which are: (a) made to an owner
after the owner reaches 59 1/2; (b) made to a beneficiary or the estate of an
annuitant upon death of the annuitant; (c) attributable to owners becoming
disabled so as to be unable to engage in any substantial gainful occupation or
activity by reason of any medically determinable mental or physical impairment
which can be expected to result in death or to be of long, continuing and
indefinite duration; (d) allocable to purchase payments made before August 14,
1982; (e) made from a qualified pension plan; (f) one in a series of
substantially equal periodic payments made for the life of the annuitant or the
joint lives of that annuitant and his beneficiary; (g) distributions under an
immediate variable annuity contract; or (h) which is purchased by an employer
upon termination of a qualified plan and held by the employer until such time as
the employee separates from service.
In addition, contracts will not be treated as annuity contracts for purposes of
section 72 unless the contract provides (a) that if the contract owner dies on
or after the annuity starting date but prior to the time before the entire
interest in the contract has been distributed the remaining portion of the
interest must be distributed at least as rapidly as under the method of
distribution in effect at the time of the contract owners death; and (b) if the
contract owner dies prior to the annuity commencement date the entire interest
must be (i) distributed within five years after the death of the owner or (ii)
distributed as annuity payment over the life of a designated beneficiary (or
over a period that does not extend beyond the life expectancy of a designated
beneficiary) and such distribution begins within one year of the contract owners
death. However, the contract may be continued in the name of the spouse of the
contract owner.
THE COMPANY BELIEVES THAT THE CONTRACTS DESCRIBED IN THIS PROSPECTUS MEET THESE
REQUIREMENTS.
Withholding for federal income taxes on some distributions may be required
unless the recipient elects not to have such amounts withheld and properly
notifies the Company of that election.
QUALIFIED PLANS
The variable annuity contracts may be used with several types of qualified
plans. The tax rules applicable to participants in such qualified plans vary
according to the type of plan and terms and conditions of the plan itself.
Purchasers of variable annuity contracts for use with any qualified plan should
seek competent legal and tax advice regarding the suitability of the contracts.
A. SECTION 403(B) PLANS
Under Section 403(b) of the IRC payments made by public school systems and
certain tax exempt organizations to
18
<PAGE>
purchase annuity contracts for their employees are excludable from the gross
income of the employee subject to certain limitations. However, such payments
may be subject to FICA (Social Security) taxes.
B. INDIVIDUAL RETIREMENT ANNUITIES
Sections 219 and 408 of the IRC permit individuals or their employers to
contribute to an individual retirement program known as "Individual Retirement
Annuity" or "IRA". IRA's are subject to limitations on the amount which may be
contributed and the time when distributions may commence. In addition,
distribution from certain other types of qualified plans may be placed into an
IRA on a tax deferred basis.
C. CORPORATE PENSION AND PROFIT SHARING PLANS
Sections 401(a) and 403(a) of the IRC permit corporate employers to establish
various types of plans for employees. Such retirement plans may permit the
purchase of a variable annuity contract to provide benefits under the plans.
D. H.R.-10 PLANS
The Self-Employed Individual Tax Retirement Act of 1962 as amended, commonly
referred to as "H.R.-10" permits self- employed individuals to establish tax
qualified plans for themselves and their employees. These plans are limited by
law to maximum permissible contribution, distribution dates and
non-forfeitability of interest. In order to establish such a plan, a plan
document, usually in the form approved in advance by the Internal Revenue
Service, is adopted and implemented by the employer.
CHANGES IN OPERATION OF
THE SEPARATE ACCOUNT
The Company reserves the right, subject to compliance with applicable law, (1)
to operate the Separate Account as a management investment company under the
1940 Act or in any other form permitted by law, (2) to deregister the Separate
Account under the 1940 Act in accordance with the requirements of the 1940 Act
and (3) to substitute the shares of any other registered investment company for
the Fund shares held by the Separate Account, in the event that Fund shares are
unavailable for Separate Account investment, or if the Company shall determine
that further investment in such fund shares is inappropriate in view of the
purpose of the Separate Account. In no event will the changes described above be
made without notice to contract owners in accordance with the 1940 Act.
The company reserves the right, subject to compliance with applicable law, to
change the name of the Separate Account.
LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Company or the
Accumulation Fund is a party or of which property of either of them is subject.
19
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
General Information and History of the Company
and the Accumulation Fund
Investment Objective and Policies
Management:
Board of Managers of the Accumulation Fund
Directors and Principal Officers of the Company
Remuneration of the Board of Managers
Remuneration of the Directors and Principal
Officers of the Company
Election of the Board of Managers
Investment Advisory Services:
Investment Advisory Agreement
Sales and Administrative Services Agreement
Investment Sub-Advisory Agreement
Ownership and Control
Brokerage Allocation
Underwriters
Purchase and Pricing of Contracts
Annuity Payments
Report of Independent Auditors
Financial Statements of the Contract
Accumulation Fund
Report of Independent Auditors
Financial Statements of The Paul Revere
Variable Annuity Insurance Company
20
<PAGE>
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<PAGE>
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<PAGE>
- --------------------------------------------------------------------------------
THE
PAUL REVERE
VARIABLE ANNUITY
CONTRACT ACCUMULATION FUND
PROSPECTUS
- "LEVEL CHARGE" VARIABLE ANNUITY
CONTRACTS
- INDIVIDUAL VARIABLE ANNUITY
CONTRACTS
- GROUP
VARIABLE
ANNUITY
CONTRACTS
[LOGO]
- --------------------------------------------------------------------------------
MAY 1,
1996 -REGISTERED TRADEMARK-
WORCESTER, MA 01608
WORCESTER,
MASSACHUSETTS
FORM 5373-95
508-799-4441
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TO BE USED WITH MAY 1, 1996 PROSPECTUS
THE PAUL REVERE VARIABLE ANNUITY CONTRACT ACCUMULATION FUND
VARIABLE ANNUITY CONTRACTS
Sold By
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
Worcester, Massachusetts 01608 508-799-4441
This Statement of Additional Information should be used to supplement
information provided by the May 1, 1996 Prospectus, which describes Variable
Annuity Contracts ("Contracts") offered by The Paul Revere Variable Annuity
Insurance Company ("Company" or "PRV").
This Statement of Additional Information is not a Prospectus. Please read the
Prospectus carefully before purchasing any of the contracts offered by the
Company. The Statement of Additional Information should be read with the
Prospectus. The Prospectus sets forth information about the contracts and the
Paul Revere Variable Annuity Contract Accumulation Fund ("Accumulation Fund" or
"Fund") that a prospective investor ought to know before investing. The
Prospectus may be obtained, without charge, upon written or oral request
received by the Insurance Company at its Home Office located at 18 Chestnut
Street, Worcester, Massachusetts 01608. Please refer to the Table of Contents
for a cross-reference index to the Prospectus.
The date of this Statement of Additional Information is May 1, 1996.
The date of the Prospectus is May 1, 1996.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information and History
of the Company and
the Accumulation Fund.......................... 3
Investment Objective and Policies............... 4
Management:
Board of Managers of the
Accumulation Fund........................... 5
Directors and Principal Officers
of the Company.............................. 6
Remuneration of the Board of Managers......... 7
Remuneration of the Directors
and Principal Officers of
the Company................................. 7
Election of the Board of Managers............. 7
Investment Advisory Services
Investment Advisory Agreement................. 7
Sales and Administrative
Services Agreement.......................... 8
Investment Sub-Advisory Agreement............. 8
Ownership and Control......................... 9
Brokerage Allocation............................ 10
Underwriters.................................... 11
Purchase and Pricing of Contracts............... 11
Annuity Payments................................ 12
Report of Independent Auditors.................. 13
Financial Statements of the Contract
Accumulation Fund.............................. 14
Report of Independent Auditors.................. 25
Financial Statements of The Paul Revere Variable
Annuity Insurance Company...................... 26
</TABLE>
WHERE THIS INFORMATION
CAN BE FOUND IN THE
PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information and History
of the Company and
the Accumulation Fund.......................... 3
Investment Objective and Policies............... 7
Management:
Board of Managers of the
Accumulation Fund........................... 8
Investment Advisory Services:
Investment Advisory Agreement................. 8
Sales and Administrative
Services Agreement.......................... 8
Investment Sub-Advisory Agreement............. 8
Brokerage Allocation............................ 10
Purchase and Pricing of Contracts............... 11
Annuity Payments................................ 12
</TABLE>
<PAGE>
GENERAL INFORMATION AND HISTORY OF
THE COMPANY AND THE
ACCUMULATION FUND
The Company serves as insurer and principal underwriter, and as investment
advisor to The Accumulation Fund. The Company was organized on August 6, 1965
under Massachusetts General Laws and is a stock life insurance company,
wholly-owned by The Paul Revere Life Insurance Company ("PRL"), a Massachusetts
corporation. Each has its principal office at 18 Chestnut Street, Worcester,
Massachusetts. The Paul Revere Life Insurance Company is wholly-owned by The
Paul Revere Corporation, a Massachusetts corporation with its principal office
at 18 Chestnut Street, Worcester, Massachusetts. The Paul Revere Corporation is
83%-owned by Textron Inc., a Delaware corporation with its principal office at
40 Westminster Street, Providence, Rhode Island 02903 and 17%-owned publicly.
The Paul Revere Corporation is comprised of The Paul Revere Life Insurance
Company, The Paul Revere Variable Annuity Insurance Company, The Paul Revere
Protective Life Insurance Company and other non-insurance affiliates.
The Accumulation Fund was organized on December 22, 1965 and is registered as a
diversified, open-end investment company under the Investment Company Act of
1940 ("1940 Act"). The Accumulation Fund is the separate account through which
the Company sets aside separate and apart from its general assets, assets
attributable to variable annuity contracts. Under Massachusetts law, regulation
of the Company by the Insurance Commissioner of Massachusetts includes
regulation of its Accumulation Fund which is not a separately incorporated
entity. The Company is subject to the laws of Massachusetts governing life
insurance through the regulation of the Massachusetts Commissioner of Insurance
("the Commissioner"). An Annual Statement in prescribed form is filed with the
Commissioner on or before March 1 of each year covering the operations of the
Company for the preceding year and its financial condition as of December 31 of
such year. Its books and assets are subject to review and examination by the
Commissioner or his agent at all times. A full examination of its operations is
conducted by the Commissioner at least once every 3 years. In addition, the
Company is subject to insurance laws and regulations of other states where it is
licensed to operate.
The Company is taxed as a life insurance company under Sub-Chapter L of the
Internal Revenue Code. Although the operations of the Accumulation Fund are
accounted for separately from other operations of the Company for purposes of
federal taxation, the Accumulation Fund is not separately taxed as a regulated
investment company or otherwise as a taxable entity separate from the Company.
Under existing federal income tax laws, the income (consisting primarily of
interest, dividends and net capital gains) of the Accumulation Fund, to the
extent that it is applied to increase reserves under variable annuity contracts,
is not taxable to the Company.
The Rules and Regulations of the Accumulation Fund provide for a five-member
Board of Managers, members being elected at annual meetings for 3-year terms. A
majority of the Board of Managers will not be "interested persons" as defined in
Section 2(a) of the 1940 Act.
Investment custodial services are provided through an agreement between the
Company and Mellon Bank, 1 Mellon Bank Center, Pittsburgh, Pennsylvania
15258-0001. The Accumulation Fund's independent certified public accountant is
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116.
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
contracts and the Accumulation Fund discussed in the Prospectus. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in the Prospectus. Statements contained in the
Prospectus concerning the content of the contract and legal instruments are only
summaries. For a complete statement of the terms of these documents, reference
should be made to the instruments filed with the Commission.
The laws and regulations of the states in which the Company is licensed contain
various requirements as to the amounts of stockholder's equity which the Company
is required to maintain. The Company's statutory capital and surplus of
$66,526,066 and $66,239,125 as of December 31, 1995 and 1994, respectively, is
in compliance with the requirements of all such states. The Company is subject
to various state insurance regulatory restrictions that limit the maximum
amounts of dividends available for payment
3
<PAGE>
without prior approval. Under current law, during 1996, approximately $8,539,219
will be available for payment of dividends by the Company without state
insurance regulatory approval. Dividends in excess of this amount may only be
paid with regulatory approval. Statutory net income for 1995, 1994 and 1993 was
$8,948,085, $6,686,096, and $20,189,320, respectively. The Company declared and
paid dividends to its parent, PRL, of $8,000,000 in 1995, $11,000,000 in 1994
and $10,000,000 in 1993.
INVESTMENT OBJECTIVES AND POLICIES
The primary investment objective of both Series of the Accumulation Fund is
growth of capital. The assets of the Accumulation Fund will usually be invested
in common stocks believed to have potential for growth but may, from time to
time, be invested in other securities. When deemed necessary for defensive
purposes, the Accumulation Fund may substantially increase that portion of its
assets invested in fixed income obligations and held in cash. As the contracts
are subject to the risks associated with common stock investments and changing
economic conditions, there can be no assurance that the investment objective
will be attained. Please refer to the Prospectus for a description of all
fundamental and non-fundamental investment policies.
Fundamental investment policies may not be changed without the approval of a
majority in interest of the owners of annuity contracts to which variable
accumulation units are credited. A majority in interest of the owners of
variable annuity contracts means the vote of (a) 67% or more of the vote of the
contract owners present and entitled to vote at the meeting, if contract owners
who hold with the power to vote over 50% of the variable accumulation units
outstanding are present or represented by proxy; or (b) more than 50% of the
variable accumulation units outstanding, whichever is less. Non-fundamental
investment policies may be changed by a vote of the Board of Managers.
On December 31, 1995, the Accumulation Fund did not own any restricted
securities. If the Accumulation Fund buys restricted securities in the future,
the Board of Managers will be required to value such securities in good faith in
determining the net asset value of the Accumulation Fund. If the Accumulation
Fund sells such securities, it may be deemed an "Underwriter" (as such term is
defined in the Securities Act of 1933 and the Rules and Regulations promulgated
by the Securities and Exchange Commission thereon) with respect thereto, and
registration of such securities under the Securities Act may be required. The
Accumulation Fund will endeavor to have the issuer or some other person agree to
bear the expenses of such registration but if there is no agreement, the
Accumulation Fund might have to bear such expenses which could be substantial.
Where registration is required a considerable period may elapse between the time
when the decision may be made to sell securities and the time the Accumulation
Fund may be permitted to sell under an effective registration statement. During
such period, if adverse market conditions develop, the Accumulation Fund may not
be able to obtain as favorable a price as that prevailing at the time the
decision to sell is made.
The Company has at various times deemed it necessary for defensive purposes to
substantially increase the portion of the Fund's assets in unsecured short-term
notes, normally maturing within two weeks of the date of purchase. It is the
Fund's policy to limit purchases in corporate short-term notes to notes rated
"Prime-I" by Moody's Investors Services. The percentage of the Fund's net assets
held in short-term notes at December 31, 1995, 1994 and 1993 amounted to 5.6%,
0%, and 0%, respectively. MFS Asset Management, Inc. ("AMI"), formerly
Massachusetts Financial Services Company ("MFS"), in its capacity as sub-advisor
selects the securities for purchase and sale by the Accumulation Fund. Changes
in the Accumulation Fund's investments are reviewed by the Board of Managers.
The aggregate portfolio turnover rates for the years 1995, 1994 and 1993 were
65%, 64%, and 59%, respectively.
4
<PAGE>
MANAGEMENT
A. BOARD OF MANAGERS OF THE ACCUMULATION FUND
The property and business of the Accumulation Fund are managed by a Board of
Managers elected by the owners of contracts to which variable accumulation units
are credited. A majority of the Accumulation Fund's five managers namely Messr.
Short and Miller and Ms. Sadowsky are not deemed to be "interested persons" of
the Accumulation Fund or the Company as defined in the Investment Company Act of
1940 ("1940 Act").
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE DURING PAST 5 YEARS
<S> <C> <C>
*Charles E. Soule, Chairman 61 Director and President of PRV and PRL, President and
18 Chestnut Street Chief Executive Officer, The Paul Revere
Worcester, Massachusetts Corporation.
Gordon T. Miller, Vice 73 Retired; Former Vice President and Director of
Chairman Industrial Relations of Barry Wright Corporation,
14 Eastwood Road Newton Lower Falls, Massachusetts.
Shrewsbury, Massachusetts
*Aubrey K. Reid, Jr. 68 Retired; Director Emeritus and Former President of
18 Chestnut Street PRV and PRL.
Worcester, Massachusetts
Joan Sadowsky 65 Retired; Former Vice President of Human Resources,
142 Winifred Avenue Atlas Distributing Corporation, Auburn,
Worcester, Massachusetts Massachusetts.
William J. Short 60 President, Worcester Area Chamber of Commerce,
33 Waldo Street Worcester, Massachusetts
Worcester, Massachusetts
</TABLE>
*indicates "interested persons" as defined in the Investment Company Act of
1940.
5
<PAGE>
B. DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
The following table shows the names, addresses, and principal occupations of all
directors and principal executive officers of the Company as of December 31,
1995.
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE PRINCIPAL OCCUPATION
<S> <C> <C>
Donald E. Boggs 50 Director, Executive Vice President.
34 Hickory Circle
Holden, MA
John H. Budd 57 Director, Senior Vice President, General Counsel and
75 Highland Street Secretary.
Holden, MA
Gerald M. Gates 45 Director, Senior Vice President.
5 Clearings Way
Princeton, MA
M. Katherine Hessel 44 Director, Vice President.
73 Brattle Street
Holden, MA
J. Andrew Hilbert 37 Director, Senior Vice President, Chief Financial
5 Skylar Drive Officer and Treasurer.
Southboro, MA
John D. Lemery 45 Director, Senior Vice President and Chief Investment
600 Main Street, Officer.
Apt. 2302
Worcester, MA
Barry E. Lundquist 44 Director, Senior Vice President.
18 Brooks Road
Paxton, MA
Gary W. MacConnell 61 Director, Vice President and Chief Information Officer.
23 Vicksburg Circle
Holden, MA
Richard L. Mucci 45 Director, Executive Vice President and Chief Operating
24 Willis Holden Officer.
Drive
Acton, MA
Bruce A. Richards 36 Senior Vice President and Chief Actuary.
12 Alana Drive
Sutton, MA
**Charles E. Soule 61 Director, President.
50 O'Neil Drive
Westboro, MA
</TABLE>
**Also a member of the Board of Managers of the Accumulation Fund.
6
<PAGE>
C. REMUNERATION OF THE BOARD OF MANAGERS
The Accumulation Fund is responsible for payment of fees and expenses of the
members of the Board of Managers as well as expenses for audit of the
Accumulation Fund. All other expenses or services relative to the operation of
the Accumulation Fund are paid for by the Company for which it deducts certain
amounts from purchase payments and from the Accumulation Fund (See Prospectus,
page 8). Members of the Board of Managers who are also active or retired
officers, directors or employees of the Company do not receive any fees from the
Accumulation Fund. These members are deemed to be interested persons and receive
direct remuneration or an indirect benefit as active or retired officers and/or
stockholders of the Company. The total aggregate remuneration paid by the
Accumulation Fund to all members of the Board of Managers for the fiscal year
ended December 31, 1995 was $8,400. This amount represents consideration paid
for attendance at meetings of the Board of Managers. Reimbursement for expenses
incurred may also be made if and when applicable.
D. REMUNERATION OF THE DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
The aggregate remuneration paid in 1995 to the directors and principal officers
of the Company was $253,003. This amount includes all forms of compensation. No
officer or director of the Company individually received in 1995 direct or
indirect remuneration from the Company in excess of $61,278.
E. ELECTION OF THE BOARD OF MANAGERS
Under Article III of the Rules and Regulations of the Accumulation Fund, members
of the Board of Managers are elected at the annual meeting to serve for the term
of three years, following those whose terms are then expiring, provided that
when terms of more than two members of the Board expire in the same year, the
term of members to be elected shall be adjusted in such a manner that terms of
at least one but not more than two members shall expire in each of the next
three years.
Under the terms of the 1940 Act, the Accumulation Fund must have a Board of
Managers, not more than sixty-percent of the members of which are deemed to be
"interested persons" of the Accumulation Fund or its Investment
Advisor/Principal Underwriter as defined in the 1940 Act. Two members of the
Board of Managers whose terms continue -- namely Mrs. Sadowsky and Mr. Miller --
are not deemed to be "interested persons" as defined in the 1940 Act. Of the two
nominees for election, Mr. Short is not deemed to be an "interested person" as
defined in the 1940 Act whereas Mr. Reid is so deemed. Of the three members of
the Board of Managers whose terms continue, Mr. Soule is deemed to be an
"interested person" by virtue of his status as active or retired officer and/or
director of the Investment Advisor.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISORY AGREEMENT
The Company currently serves as investment advisor to the Accumulation Fund
pursuant to an Investment Advisory Agreement, which was approved by contract
owners on August 16, 1984. The agreement must be renewed each year by a majority
of the Accumulation Fund's Board of Managers who are not parties to the
agreement or not interested persons of any part to the agreement.
Under the agreement, the Company agrees to provide "investment advisory
services" to the Accumulation Fund. In that connection, it is required
specifically to provide the Board of Managers continuously with an investment
program for its approval or rejection and, if rejected, to submit another
program for consideration.
Pursuant to the agreement, the Company is responsible for all duties related to
the investment, reinvestment and safekeeping of the assets of the Accumulation
Fund and for all expenses attributable to performing its investment advisory
services, including costs of compensating officers and employees of the Company
connected with providing investment advisory services to the Fund.
In connection with the Company's obligations under the agreement, the Company
bears the cost of all services and expenses attributable to the maintenance and
operation of the Accumulation Fund (other than costs relating to the
administration and distribution of the variable annuity contracts, which are
provided for in the current Sales and Administration Agreement for the
Accumulation Fund). These costs include, among other things: fees paid to MFS
Asset Management, Inc. ("AMI") pursuant to the Investment Sub-Advisory Agreement
between the Company and AMI as described below; fees required by federal and
state
7
<PAGE>
securities regulatory authorities and the National Association of Securities
Dealers, Inc.; costs of maintaining the books and records of the Fund; outside
legal, accounting, actuarial and other professional costs; costs of determining
the net asset value of each series of the Accumulation Fund; and other
out-of-pocket expenses relating to the Fund, including salaries, rent, postage,
telephone, travel, office equipment and stationery. All brokerage commissions
and other fees relating to purchases and sales of investments for the
Accumulation Fund are paid out of the assets of the Fund.
For its advisory services to the Fund under the agreement, the Company charges
an amount which equals, on an annual basis, 0.50% of the average daily net asset
value of each Series of the Fund. This charge is paid weekly by the Fund. At
December 31, 1995, the net asset values for each series of the Fund were
$4,261,421 (Series N) and $38,775,033 (Series Q). For the fiscal years ended
December 31, 1995, 1994 and 1993, the Company received fees under the agreement
aggregating $191,061, $167,704, and $165,730, respectively.
SALES AND ADMINISTRATIVE
SERVICES AGREEMENT
The Company also acts as principal underwriter and performs administrative
functions pursuant to a Sales and Administrative Services Agreement between the
Company and the Accumulation Fund dated February 19, 1970 and re-executed on
February 16, 1989.
Under the agreement, the Company acts as principal underwriter and performs
administrative functions relative to variable annuity contracts, receiving as
compensation the sales and administration charge deducted from purchase payments
as described in the Prospectus. The total sales and administration charges
received by the Company in 1995, 1994 and 1993 were $4,452, $6,529, and $7,211,
respectively.
The Company also received $382,123, $335,408, and $331,458 from the Accumulation
Fund during 1995, 1994 and 1993, respectively, as its charge for assuming the
mortality and expense risks under its variable annuity contracts, this
representing a charge on each valuation date of an amount which, on an annual
basis, equals 1% of the average daily net asset value of the Accumulation Fund
as permitted under the Sales and Administrative Services Agreement. At the
present time the Company believes there are no statutory or regulatory
limitations on the expenses that may be deducted from the Accumulation Fund, but
the Company assures that all expense deductions, other than for taxes, will not
exceed 2% annually based upon the average daily net asset value of the
Accumulation Fund.
The average daily net asset value of the Accumulation Fund means the sum of the
net asset value of the appropriate Series of the Accumulation Fund respectively
computed on each valuation during the period divided by the number of
valuations.
INVESTMENT SUB-ADVISORY AGREEMENT
Under the Investment Advisory Agreement between the Accumulation Fund and
Company, the Company is specifically authorized to employ one or more
sub-advisors in connection with the services to be performed and obligations to
be assumed by the Company. Pursuant thereto, the Company entered into an
Investment Sub-Advisory Agreement ("Sub-Agreement") with Massachusetts Financial
Services Company ("MFS") which was approved by a majority of contract owners on
August 16, 1984. In 1995, this relationship was taken over by MFS Asset
Management, Inc. ("AMI"), a wholly-owned subsidiary of MFS. The Sub-Agreement is
subject to the same terms for approval, renewal and termination as the Agreement
itself.
Under the Sub-Agreement, AMI, subject to the supervision of the Company and the
Board of Managers, is responsible for all aspects of day-to-day management of
the investments of the Accumulation Fund. Among other things, it is required to
(i) perform research and evaluate pertinent data; (ii) provide the Board with an
investment program for the Fund for its approval; (iii) make investment
decisions and carry them out by placing orders for the execution of portfolio
transactions consistent with the investment policies of the Fund as set forth in
its current Prospectus; (iv) report to the Board of Managers at least quarterly
with respect to the implementation of the approved investment plan; (v) transmit
to the Company information necessary for the Company to perform its
responsibilities with respect to the Fund; (vi) create and maintain brokerage
records as required by law; and (vii) provide the office space, material and
personnel necessary to fulfill its obligations under the Sub-Agreement
8
<PAGE>
and to pay all expenses incurred by it in connection with its activities.
However, AMI is not required to perform services or bear expenses related to the
maintenance and operation of the Fund. (These expenses are properly assumed by
the Company pursuant to the Agreement.)
For the services AMI furnishes to the Company and the Accumulation Fund as
sub-advisor, the Sub-Agreement provides that the Company will pay AMI each month
an amount which, on an annual basis, will equal 0.35% of the average daily net
assets of each Series of the Fund. In 1995, 1994 and 1993, respectively, the
Company paid AMI a total of $133,743, $117,393, and $115,983 as provided for
under the Sub-Agreement. These payments did not affect the amount of the
advisory fees to be paid to the Company by the Accumulation Fund under the
Agreement.
MFS Asset Management, Inc. ("AMI"), formerly Massachusetts Financial Services
Company ("MFS"), is a Delaware corporation with its principal offices at 500
Boylston Street, Boston, Massachusetts 02116. AMI, together with its parent
corporation, Massachusetts Financial Services Company and its predecessor
organizations, have a history of money management dating from 1924. AMI is a
wholly-owned subsidiary of MFS.
Since 1982, MFS has been a subsidiary of Sun Life Assurance Company of Canada
(U.S.), One Sun Life Executive Park, Wellesley Hills, Massachusetts, 02181,
which is, in turn, a wholly-owned subsidiary of Sun Life Assurance Company of
Canada, 150 King Street West, Toronto, Canada M5H 1J9.
As of December 31, 1995, MFS and its subsidiaries including AMI, had over $42.3
billion in assets under management, which included over $5 billion in assets
managed by AMI.
AMI serves as investment advisor to substantial private and institutional
accounts. MFS serves as investment advisor to certain mutual fund and insurance
company separate accounts. The mutual funds in separate accounts are registered
as investment companies under the Investment Company Act of 1940. Each of the
separate accounts is established by Sun Life Assurance Company of Canada (U.S.).
The following list shows the names and addresses and principal occupations of
all directors and principal executive officers of AMI as of December 31, 1995.
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
<S> <C>
*A. Keith Brodkin Chairman and Director of MFS and Chairman of AMI.
*Thomas J. Cashman,
Jr. President and Director of AMI.
*Arnold D. Scott Senior Executive Vice President, Director and Secretary of MFS and Director
of AMI.
*Jeffrey L. Shames President and Director of MFS and Director of AMI.
*Address is:
500 Boylston Street
Boston, Massachusetts
</TABLE>
OWNERSHIP AND CONTROL
As of December 31, 1995, the members of the Board of Managers of the
Accumulation Fund and the directors and principal officers of the Company as a
group, through their ownership of individual variable annuity contracts, owned
beneficially and of record 11,947 units, being .2% of the total. The Home Office
and the Agency retirement plans of The Paul Revere Corporation were the only
contract owners who, as of the above date, directly or indirectly owned,
controlled or held with power to vote units representing 5% or more of the total
vote. Their combined interests were represented by 4,092,754 units, representing
67.3% of the total vote.
On January 10, 1996, The Paul Revere Corporation redeemed 1,093,077 units
representing $7.5 million of its agency pension plan assets from Series Q of the
Fund. It intends to redeem approximately 1,959,000 units representing $13
million of its home office pension plan assets
9
<PAGE>
in April, 1996. The Paul Revere Corporation's decision to redeem these contracts
results from a plan to transfer its pension assets to a trust. Once these
transactions are complete, the retirement plans of The Paul Revere Corporation
will control or hold with power to vote approximately 452,000 units or 14% of
the total vote.
BROKERAGE ALLOCATION
AMI, a sub-advisor to the Company, selects the securities for purchase and sale
by the Accumulation Fund. Changes in the Accumulation Fund's investments are
reviewed by the Board of Managers.
The Company has no set formula for the distribution of brokerage business in
connection with the placing of orders for the purchase and sale of investments.
The primary consideration in placing portfolio security transactions with
broker/dealers is execution at the most favorable prices and in the most
effective manner possible.
AMI attempts to achieve this result by selecting broker/ dealers to execute
portfolio transactions on behalf of the Accumulation Fund and its other clients
on the basis of their professional capability, the value and quality of the
brokerage services and the level of their brokerage commissions. In the case of
securities traded in the over-the-counter market (where no stated commissions
are paid but prices include a dealer's markup or markdown), AMI normally seeks
to deal directly with the primary market makers, unless in its opinion, best
execution is available elsewhere. In the case of such securities purchased from
underwriters, the cost of such securities generally included a fixed
underwriting commission or concession. From time to time soliciting dealer fees
may be available to AMI on the tender of Accumulation Fund portfolio securities
in so-called Tender or Exchange Offers. Such soliciting dealer fees will be, in
effect, recaptured for the Accumulation Fund by AMI to the extent possible. At
present no other recapture agreements are in effect. Brokerage business is not
allocated based on the sale of variable annuity contracts.
Under the Sub-Advisory Agreement and as permitted by Section 28(e) of the
Securities Exchange Act of 1934, AMI may cause the Accumulation Fund to pay a
broker/dealer who provides brokerage and research services to the Accumulation
Fund and to AMI, an amount of commission for effecting a securities transaction
for the Accumulation Fund in excess of the amount other broker/dealers would
have charged for the transaction, if AMI determines in good faith that the
greater commission is reasonable in relation to the value of the brokerage
research services provided by the executing broker/dealer viewed in terms of
either a particular transaction or AMI's overall responsibility to the
Accumulation Fund or to its other clients. Not all such services are useful or
of value in advising the Accumulation Fund.
The term "broker and research services" includes advice as to the value of the
securities, the advisability of investing in, purchasing or selling securities
and the availability of securities or of purchasers or sellers of securities.
It also includes furnishing analysis reports and reports concerning issues,
industries, securities, economic factors, trends, portfolio strategies,
performance of accounts, as well as effecting securities transactions and
performing functions incidental thereto such as clearance and settlement.
Although commissions paid on every transaction will, in the judgment of AMI, be
reasonable in relation to the value of the brokerage services provided,
commissions exceeding those which another broker/dealer might charge may be paid
to broker/dealers who were selected to execute transactions on behalf of the
Accumulation Fund and AMI's other clients.
This could occur, in part, when a broker/dealer provides advice as to the
availability of securities or purchasers or sellers of securities and services
in effecting securities transactions and performing functions incidental thereto
such as clearance and settlement.
Broker/dealers may be willing to furnish statistical research and other factual
information or services ("research") to AMI for no consideration other than
brokerage and underwriting commissions. Securities may be bought or sold through
such broker/dealers but, at present, unless otherwise directed by the
Accumulation Fund, a commission higher than one charged, will not be paid to
such a firm solely because it provided such "research" to AMI.
AMI's investment management personnel attempt to evaluate the quality of
"research" provided by brokers. Results of this effort are sometimes used by AMI
as a consideration
10
<PAGE>
in selection of brokers to execute portfolio transactions. However, AMI is
unable to quantify the amount of commission which was paid as a result of such
"research" because a substantial number of transactions were effected through
brokers who provide "research" but were selected principally because of their
execution capabilities.
In certain instances, there may be securities which are suitable for the
Accumulation Fund's portfolio as well as that of one or more of the other
clients of AMI. Investment decisions for the Accumulation Fund and for AMI's
other clients are made with a view to achieving their respective investment
objectives. It may develop that a particular security is bought or sold for only
one client even though it might be held by or bought or sold for other clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling that same security. Some simultaneous
transactions are unavoidable because several clients have similar investment
objectives. When two or more clients are simultaneously engaged in the purchase
or sale of the same security, the securities are allocated among clients in a
manner believed to be equitable to each. It is recognized in some cases this
system could have a detrimental effect on the price or volume of the securities
as far as the Accumulation Fund is concerned. In other cases, it is believed
that the Accumulation Fund's ability to participate in volume transactions will
produce better transaction results for the Accumulation Fund.
Brokerage commissions paid in the years ended December 31, 1995, 1994 and 1993
amounted to $62,318, $49,933, and $64,779, respectively. Brokerage commissions
were paid to 74 brokers in 1995. No brokerage commission was paid to any broker
who was or is an affiliated person of the Company, the Accumulation Fund or AMI.
UNDERWRITERS
The Company is the principal underwriter for contracts offered by the
Prospectus. The contracts offered by the Prospectus are available at any time
during the year covered by the Prospectus. The Company did not receive any
underwriting commissions for the sale of these contracts.
PURCHASE AND PRICING
OF CONTRACTS
The contracts offered by the Prospectus will only be sold by registered
representatives of the Company who are also licensed with the State Insurance
Department for the sale of such contracts. Purchase payments are due and payable
by the contract owner at the Home Office at a time required by either the
contract or any other basis mutually agreeable by the contract owner and the
Company. The contract owner is to furnish any information that may be required
by the Company as reasonably necessary for the proper crediting of the purchase
payment.
Please refer to the Prospectus for a description of each contract offered by the
Prospectus (Prospectus, page 11) and the amount of any sales charge and
collection fee assessed against any purchase payment (Prospectus, page 8).
The balance of a purchase payment, after deduction of the sales charge, any
applicable premium tax charge and the collection fee will be applied to provide
accumulation units to the credit of the contract. Variable accumulation units
will be credited on the basis of the value of a variable accumulation unit as of
the valuation date next following its receipt of the purchase payment by the
Company at its Home Office.
The Flexible Purchase Payment Variable Annuity Contract ("Flexible") provides
for an annuity to begin at some future date with voluntary purchase payments in
addition to the initial purchase payment being permitted at the discretion of
the Company, but with certain limits on the exercise of such discretion where
the contract qualifies for special tax treatment under the Internal Revenue
Code.
The Single Payment Variable Annuity Contract ("Single") provides for a purchase
of the contract in one sum at the time the contract is issued and for an annuity
subsequent to the issue date of the contract.
Both contracts permit accumulation on a full variable, fully fixed or combined
variable and fixed basis.
The Individual "Level Charge" Variable Annuity Contract ("Level") is designed
primarily to be issued to an individual who desires to fund a retirement plan
involving a reduction of salary which qualifies for tax-deferred treatment
11
<PAGE>
under the Internal Revenue Code. This contract permits accumulation on a fully
variable, fully fixed or combined variable and fixed basis.
The Group Variable Annuity Contract ("Group") is designed primarily to be issued
as a master group contract to an employer to fund a plan involving reduction of
salary which qualifies for tax-deferred treatment under the Internal Revenue
Code, or plans involving allocation of accumulation values to participants. A
participant has at all times a fully vested interest in the value of his
certificate. This contract provides for variable accumulation only.
Please refer to the Prospectus for a detailed explanation as to how the
accumulation unit is valued (Prospectus, page 12).
ANNUITY PAYMENTS
The number of annuity units determining each monthly annuity payment is equal to
the value applied to annuity payments less any applicable premium tax multiplied
by the applicable annuity purchase rates and divided by the annuity unit value
when the number is being determined. The number of annuity units will remain
fixed unless the units are split as described in the Prospectus (Prospectus,
page 15).
Each monthly annuity payment will be equal to the number of annuity units as
determined above multiplied by the value of an annuity unit determined in the
daily valuation two weeks preceding the date on which payments are due but in no
event as of the time preceding the effective date of the contract. The amount of
each variable annuity payment will vary from month to month depending on the
investment experience of the appropriate Series of the Accumulation Fund but the
Company guarantees the amount of each payment will not be affected by variations
in mortality experience among annuitants or by expenses incurred in excess of
expense assumptions (see Prospectus, page 10).
ILLUSTRATION OF VARIABLE
ANNUITY PAYMENT CALCULATION
<TABLE>
<S> <C>
Value applied to provide an
annuity: $47,750
MULTIPLIED BY
Annuity purchase rate $6.40 per
(from tables): $1,000
EQUALS
Tabular annuity amount: $305.60
DIVIDED BY
Annuity unit value on the
valuation when the number of
annuity units is determined: $0.522602
EQUALS
Number of annuity units
determining each monthly
annuity payment: 584.766
MULTIPLIED BY
Annuity unit value for valuation
two weeks preceding date
annuity benefit payable: $0.533170
EQUALS
Annuity payment for month in
dollars: $311.78
</TABLE>
The annuity payment due for each succeeding month is computed in the same manner
using the fixed figure determined for the number of annuity units (e.g. 584.766)
and the then applicable annuity unit value for the valuation two weeks preceding
the date the annuity benefit is payable.
12
<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
13
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY CONTRACT ACCUMULATION FUND
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
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.
14
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY CONTRACT ACCUMULATION FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
Series N
Series Q (Qualified) (Non-Qualified)
------------------------ ----------------------
1995 1994 1995 1994
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
INCREASE/DECREASE IN NET ASSETS
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>
See accompanying notes to financial statements.
15
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY CONTRACT ACCUMULATION FUND
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.
16
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY CONTRACT ACCUMULATION FUND
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.
17
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY CONTRACT ACCUMULATION FUND
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.
18
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY CONTRACT ACCUMULATION FUND
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.
19
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY CONTRACT ACCUMULATION FUND
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.
20
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY CONTRACT ACCUMULATION FUND
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.
21
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY CONTRACT ACCUMULATION FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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.
22
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY CONTRACT ACCUMULATION FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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
SERIES Q (QUALIFIED) (NON-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.
23
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY CONTRACT ACCUMULATION FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SELECTED PER UNIT DATA AND RATIOS -----------------------------------------------------
PER UNIT DATA (A) 1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
(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>
<TABLE>
<S> <C> <C> <C> <C> <C>
RATIOS
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>
24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
The Paul Revere Variable Annuity Insurance Company
We have audited the accompanying balance sheets of The Paul Revere Variable
Annuity Insurance Company as of December 31, 1995 and 1994, and the related
statements of income, changes in shareholder's equity and cash flows for each of
the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 referred to above present fairly, in
all material respects, the financial position of The Paul Revere Variable
Annuity Insurance Company at December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As described in Note 1 to the financial statements, in 1994, the Company changed
its method of accounting for certain investments in debt and equity securities.
Ernst & Young LLP
Boston, Massachusetts
March 29, 1996
25
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Premiums, policy and contract charges................................ $ 14,503 $ 10,653 $ 9,929
Net investment income................................................ 103,841 98,416 98,530
Net realized investment gains........................................ 4,126 2,876 11,365
--------- --------- ---------
Total revenues......................................................... 122,470 111,945 119,824
--------- --------- ---------
BENEFITS, CLAIMS AND EXPENSES
Benefits to policyholders, net of reinsurance
ceded of $666 in 1995, $437 in 1994 and $890 in 1993............... 81,002 72,459 78,953
Commissions and other expenses....................................... 15,399 12,499 9,646
Amortization of deferred costs:
Deferred policy acquisition costs.................................. 2,414 760 2,083
Value assigned purchased insurance in-force........................ 57 (69) 54
--------- --------- ---------
Total benefits, claims and expenses.................................... 98,872 85,649 90,736
--------- --------- ---------
INCOME BEFORE INCOME TAXES............................................. 23,598 26,296 29,088
Income taxes:
Current.............................................................. 4,130 4,581 10,570
Deferred............................................................. 4,290 4,711 27
--------- --------- ---------
Total income taxes..................................................... 8,420 9,292 10,597
--------- --------- ---------
NET INCOME............................................................. $ 15,178 $ 17,004 $ 18,491
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
ASSETS 1995 1994
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities held to maturity................................................................. $ -- $ 498,856
Available for sale:
Fixed maturities................................................................................ 1,322,540 649,389
Equity securities............................................................................... 4,714 5,586
Investment in Textron common stock.............................................................. 10,299 7,686
Short-term investments.......................................................................... 28,622 6,517
Mortgage loans.................................................................................... 72,627 31,140
Real estate....................................................................................... 2,987 1,200
Policy loans...................................................................................... 29,685 26,553
Other invested assets............................................................................. 1,588 436
----------- -----------
Total investments................................................................................... 1,473,062 1,227,363
Cash................................................................................................ 2,444 --
Accrued investment income........................................................................... 22,514 20,469
Deferred policy acquisition costs................................................................... 35,000 31,852
Value assigned purchased insurance in-force......................................................... 902 959
Federal and state tax recoverable................................................................... 1,905 5,218
Deferred income taxes............................................................................... -- 7,838
Other assets........................................................................................ 4,525 3,511
Assets held in separate accounts.................................................................... 43,201 33,710
----------- -----------
TOTAL ASSETS.............................................................................. $ 1,583,553 $ 1,330,920
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES
Future policy benefits............................................................................ $ 86,392 $ 76,713
Other policyholder funds.......................................................................... 1,268,318 1,129,381
Deferred income taxes............................................................................. 29,845 --
Other liabilities................................................................................. 8,012 12,524
Liabilities related to separate accounts.......................................................... 43,201 33,710
----------- -----------
TOTAL LIABILITIES......................................................................... 1,435,768 1,252,328
----------- -----------
SHAREHOLDER'S EQUITY
Capital stock, par value $5.00 per share, 500,000 shares
authorized, issued and outstanding.............................................................. 2,500 2,500
Additional paid-in capital........................................................................ 41,930 41,930
Securities valuation adjustment................................................................... 42,464 (19,551)
Retained earnings................................................................................. 60,891 53,713
----------- -----------
TOTAL SHAREHOLDER'S EQUITY................................................................ 147,785 78,592
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY................................................ $ 1,583,553 $ 1,330,920
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
CAPITAL ADDITIONAL SECURITIES
STOCK PAID-IN VALUATION RETAINED
$5.00 PAR VALUE CAPITAL ADJUSTMENT EARNINGS TOTAL
------------------- ----------- ------------------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1993....................... $ 2,500 $ 40,930 $ 9,271 $ 39,218 $ 91,919
Net income..................................... 18,491 18,491
Capital contribution........................... 1,000 1,000
Unrealized gains on equity securities, net..... (3,388) (3,388)
Dividend to shareholder........................ (10,000) (10,000)
------ ----------- -------- ----------- ---------
BALANCE AT DECEMBER 31, 1993..................... 2,500 41,930 5,883 47,709 98,022
Adjustment to beginning balance
for change in accounting method, net......... 28,818 28,818
Net income..................................... 17,004 17,004
Securities valuation adjustment, net........... (54,252) (54,252)
Dividend to shareholder........................ (11,000) (11,000)
------ ----------- -------- ----------- ---------
BALANCE AT DECEMBER 31, 1994..................... 2,500 41,930 (19,551) 53,713 78,592
Net income..................................... 15,178 15,178
Securities valuation adjustment, net........... 62,015 62,015
Dividend to shareholder........................ (8,000) (8,000)
------ ----------- -------- ----------- ---------
BALANCE AT DECEMBER 31, 1995..................... $ 2,500 $ 41,930 $ 42,464 $ 60,891 $ 147,785
------ ----------- -------- ----------- ---------
------ ----------- -------- ----------- ---------
</TABLE>
See accompanying notes to financial statements.
28
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................................. $ 15,178 $ 17,004 $ 18,491
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in future policy benefits and other policyholder funds....... 73,084 64,505 74,204
Amortization and depreciation......................................... (2,002) (9,180) (8,691)
Additions to deferred policy acquisition costs........................ (15,368) (9,262) (6,446)
Change in income tax balances......................................... 7,604 4,347 (1,954)
Net realized investment gains......................................... (4,126) (2,876) (11,365)
Increase in accrued investment income................................. (2,045) (1,348) (1,806)
Other, net............................................................ (5,373) (4,144) 2,618
--------- --------- ---------
Net cash provided by operating activities............................... 66,952 59,046 65,051
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed maturities held to maturity (held for investment in 1993):
Proceeds from sales................................................... -- 6,072 37,794
Proceeds from maturities and calls.................................... 14,435 11,563 259,353
Purchases............................................................. (28,939) (121,104) (373,345)
Fixed maturities, marketable equity securities and short-term
investments available for sale:
Proceeds from sales................................................... 105,908 47,900 47,352
Proceeds from maturities and calls.................................... 65,785 204,472 10,000
Purchases............................................................. (243,008) (207,075) (31,332)
Increase in mortgage loans, net......................................... (43,601) (4,531) (5,201)
Increase (decrease) in other, net....................................... 748 3,075 (2,701)
Increase in policy loans, net........................................... (3,132) (3,204) (2,868)
--------- --------- ---------
Net cash used in investing activities................................... (131,804) (62,832) (60,948)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in cash overdraft................................... (236) (4,762) 4,042
Capital contribution.................................................... -- -- 1,000
Dividend to shareholder................................................. (8,000) (11,000) (10,000)
Receipts from interest-sensitive products............................... 171,607 101,881 76,813
Return of account balances on interest-sensitive products............... (96,075) (82,333) (75,958)
--------- --------- ---------
Net cash provided by (used in) financing activities..................... 67,296 3,786 (4,103)
--------- --------- ---------
Net increase in cash.................................................... 2,444 -- --
Cash at beginning of year............................................... -- -- --
--------- --------- ---------
Cash at end of year..................................................... $ 2,444 $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
29
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1.ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Paul Revere Variable Annuity Insurance Company ("the Company") serves as
insurer, principal underwriter and investment advisor to The Paul Revere
Variable Annuity Contract Accumulation Fund ("the Fund") and insurer of Paul
Revere Separate Account One. The Company is a Massachusetts-domiciled stock
life insurance company and is a wholly-owned subsidiary of The Paul Revere
Life Insurance Company ("PRL"), also Massachusetts domiciled. PRL is wholly-
owned by The Paul Revere Corporation ("Paul Revere"), a Massachusetts
corporation. The Company's primary business is the sale of life insurance and
annuity products. The career agency force markets a portfolio of
non-participating interest sensitive whole life, traditional whole life
insurance and term insurance. The Company distributes its annuity products
through the career agency force, various financial institutions and several
brokerage groups. Although the Company is licensed and sells its life
insurance and annuity products in forty-eight states, its primary markets are
California, Florida, New Jersey and Ohio.
Paul Revere (an 83%-owned subsidiary of Textron Inc.) was incorporated on
December 16, 1992 for the purpose of owning all of the outstanding shares of
PRL. In connection with its formation, Paul Revere issued 1,000 shares of
common stock in exchange for substantially all of the net assets of PRHC, Inc.
(a wholly-owned subsidiary of Textron, Inc.), which included all of the
outstanding shares of PRL.
PRHC, Inc. was incorporated on May 17, 1990 and was also established for the
purpose of owning the outstanding shares of PRL. During 1990, PRHC, Inc.
issued to Textron 1,000 shares of common stock in exchange for all of the
outstanding shares of PRL (1,960,000 shares).
On October 26, 1993 Textron sold to the public, 17% of Paul Revere in an
underwritten offering registered under the Securities Act of 1933. Prior to
the offering, Textron made a capital contribution of $100,000,000 to Paul
Revere.
BASIS OF PRESENTATION
The accompanying financial statements of the Company have been prepared on the
basis of generally accepted accounting principles (GAAP) for stock life
insurance companies. Certain prior year amounts have been reclassified to
conform with the current year's presentation.
The preparation of financial statements in conformity with GAAP 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.
INVESTMENTS
Prior to January 1, 1994, the Company classified fixed maturities in
accordance with the then existing accounting standards, and, accordingly,
fixed maturities held to maturity were carried at amortized cost. A portion of
the Company's portfolio of fixed maturities was considered available for sale
and carried at the lower of aggregate amortized cost or market. Adjustments
for other than temporary declines in the value of publicly traded bonds were
recorded as a direct adjustment to the securities' carrying value. Such
adjustments for other fixed maturities were reflected through the
establishment of allowances.
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("FAS 115"). Under FAS 115, securities are
classified as held to maturity, available for sale, or trading. In 1994, the
Company considered a portion of its fixed maturity securities
30
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
portfolio as held to maturity with the remainder classified as available for
sale. Securities carried at amortized cost and classified in the Company's
held to maturity category are those which the Company has both the ability and
positive intent to hold to maturity. Securities classified in the available
for sale category are carried at fair value and consist of those securities
which the Company intends to hold for an indefinite period of time but not
necessarily to maturity. Unrealized gains and losses related to securities
available for sale, net of applicable income taxes and related adjustments to
deferred policy acquisition costs (DAC), if material, are reported as a
separate component of shareholder's equity. To comply with FAS 115, the
Company transferred certain debt securities from the held to maturity category
to the available for sale category of its investment portfolio. In accordance
with FAS 115, prior period financial statements have not been restated to
reflect the change in accounting principle. The adoption of FAS 115 had no
effect on the Company's net income. The net unrealized gains of $28,818,000
(net of applicable income taxes), relating to the debt securities classified
in the available for sale category of the Company's investment portfolio as of
January 1, 1994, were recorded as an increase to shareholder's equity.
In November 1995, the Financial Accounting Standards Board ("FASB") staff
issued "A Guide to Implementation of FAS 115" which offered companies a
one-time opportunity to reclassify securities among its investment categories,
without calling into question the intent to hold other debt securities to
maturity in the future. The Company subsequently reviewed its portfolio and on
December 1, 1995, transferred debt securities with an amortized cost and
market value of $513,589,000 and $534,959,000, respectively, from the held to
maturity category to the available for sale category of its investment
portfolio.
Fixed maturities held to maturity and redeemable preferred stock are carried
at amortized cost. The Company's investment strategies place an emphasis on
matching investment maturities with the timing of amounts estimated to be
payable under insurance contracts. However, periodic sales of fixed maturities
held to maturity may be necessary under certain circumstances in response to
such situations as the deterioration in an issuer's credit quality or changes
in insurance or tax regulations.
The available for sale category of the Company's investment portfolio includes
marketable equity securities, short-term investments and fixed maturities not
classified as held to maturity. While these securities are not held with the
specific intention to sell them, they may be sold prior to maturity to support
the Company's investment strategies and, accordingly, are carried at fair
value in accordance with FAS 115. Investments in marketable equity securities,
including the Company's investment in Textron common stock, are based on the
last sales prices as reported on national securities exchanges or the closing
bid prices for unlisted securities as reported by investment dealers.
Subsequent to January 1, 1994, all securities purchased are designated for
inclusion in either the available for sale or held to maturity categories
based on the Company's intent and the nature of the securities purchased.
Further, adjustments for other than temporary declines in the value of all
fixed maturities are recorded as a direct adjustment to the securities'
carrying value.
The Company's fixed maturities available for sale include mortgage-backed
securities, a substantial portion of which is guaranteed by the U.S.
Government or U.S. Government agencies. Future investment income from
mortgage-backed securities may be affected by the timing of principal payments
and the yields on reinvestment alternatives available at the time of such
payments. To minimize the risk associated with the timing of principal
payments, the Company has purchased certain mortgage-backed securities which
are structured to reduce the sensitivity of principal payments to fluctuating
interest rates.
31
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The amortized cost of fixed maturities classified as held to maturity or
available for sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or, in the case of mortgage-backed securities, over the
estimated life of the security. To the extent that the estimated lives of
mortgage-backed securities change as a result of changes in prepayment rates,
the accumulated amortization of premiums and the accretion of discounts is
adjusted retrospectively with a charge or credit to current operations.
Changes in fair values of securities classified as available for sale, after
adjustment for applicable income taxes, are reported as a securities valuation
adjustment in a separate component of shareholder's equity and, accordingly,
have no effect on net income.
Effective January 1, 1995, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" ("FAS 114"), as amended by Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosures" ("FAS 118"). FAS 114 and FAS 118
require that an impaired mortgage loan's fair value be measured based on the
present value of future cash flows discounted at the loan's effective interest
rate, at the loan's observable market price, or at the fair value of the
collateral if the loan is collateral dependent. If the fair value of a
mortgage loan is less than the recorded investment in the loan, the difference
is recorded as an allowance for mortgage loan losses. The change in the
allowance for mortgage loan losses is reported with realized gains or losses
on investments. Interest income on impaired loans is accrued on the net
reported value of the impaired loans; changes in actual or estimated cash
flows are charged or credited to the allowance for mortgage loan losses. The
impact of FAS 114 and FAS 118 on the Company's net income and financial
condition was not material.
Net realized investment gains or losses, resulting from sales or calls of
investments and the losses resulting from declines in fair values of
investments in mortgage loans, real estate and other investments that are
other than temporary, are stated separately in the statements of income. The
cost of securities sold is determined primarily on the specific identification
method.
Short-term financial instruments, including investments with original
maturities of three months or less at acquisition, are included as investing
activities in the statements of cash flows.
Other investments are reported as follows:
- Mortgage loans - amortized cost less allowance for other than temporary
declines in value.
- Real estate held for sale - lower of cost or fair value less estimated
costs to sell.
- Policy loans - unpaid principal balance.
- Other invested assets (primarily real estate limited partnerships) - at
cost adjusted for the Company's equity in undistributed net earnings or
losses since acquisition, less allowances for other than temporary
declines in value.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of financial instruments presented in Note 8 are estimates of
the fair values at a specific point in time using available market information
and appropriate valuation methodologies. These estimates are subjective in
nature and involve uncertainties and significant judgment in the
interpretation of current market data. Therefore, the fair values presented
are not necessarily indicative of amounts the Company could realize or settle
currently. The Company does not necessarily intend to dispose of or liquidate
such instruments prior to maturity.
32
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
CASH OVERDRAFT
The Company operates a cash management program which, at times, results in
book cash overdrafts supported by its short-term investments. Included in
other liabilities at December 31, 1994 is a cash overdraft of $236,000.
RECOGNITION OF PREMIUM REVENUES AND POLICY BENEFITS FOR TRADITIONAL LIFE
PRODUCTS
Premiums from life insurance products are recognized in revenues when due.
Benefits and expenses relating to those businesses are recognized over the
life of the contracts through the establishment of reserves for future policy
benefits and the amortization of deferred policy acquisition costs. Benefits
to policyholders include benefits paid or accrued, changes in reserves for
future policy benefits and surrenders.
RECOGNITION OF REVENUES, CONTRACT BENEFITS AND EXPENSES FOR INVESTMENT AND
INTEREST-SENSITIVE LIFE PRODUCTS
For investment and interest-sensitive life products, revenues consist of
investment income, net realized investment gains, and policy and surrender
charges assessed during the year. Benefits and expenses for these products
include amounts incurred during the year for benefit claims in excess of
related account balances, policy maintenance expenses, interest credited and
amortization of deferred policy acquisition costs.
DEFERRED POLICY ACQUISITION COSTS
Costs, which vary with, and are related primarily to, the production of new
business, have been deferred to the extent such costs are deemed recoverable
from future profits. Such costs include commissions, selling, selection and
policy issue expenses. For traditional life insurance products, these costs
are amortized in proportion to premiums over the estimated lives of the
policies. For interest-sensitive life and investment products, these costs are
amortized in proportion to estimated gross profits from interest, mortality
and other margins under the contracts.
SEPARATE ACCOUNTS
The Paul Revere Variable Annuity Contract Accumulation Fund (the "Fund") and
Paul Revere Separate Account One ("Separate Account One") are the separate
accounts through which PRV sets aside, separate and apart from its general
assets, assets attributable to its variable annuity contracts. The Fund is an
open-end diversified investment company registered under the Investment
Company Act of 1940. PRV serves as investment advisor to the Fund. Separate
Account One is a unit investment trust registered under the Investment Company
Act of 1940. Separate Account One invests in underlying investment portfolios
managed by various unrelated investment advisors. PRV is the principal
underwriter of variable annuity contracts sold through the Fund and Separate
Account One. Separate account assets, which are stated at fair value based on
quoted market prices, and separate account liabilities are shown separately in
the balance sheets. Operating results of the separate accounts are not
included in the statements of income.
INSURANCE RESERVES AND LIABILITIES
Reserves for future policy benefits and unpaid claims and claim expenses
include policy reserves and claim liabilities established for the Company's
annuity and individual life insurance products.
Policy reserves represent the portion of premiums received, accumulated with
interest, to provide for future claims. Policy reserves for traditional life
insurance products are based on the Company's withdrawal and mortality
experience at interest rates ranging from 3.5% to 10.5% in 1995 and 1994.
Policy reserves for interest-sensitive life insurance products are determined
based on the accumulated policy account value.
33
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Other policyholder funds represent amounts accumulated under deferred
contracts to provide annuities in the future. During 1995, 1994 and 1993,
daily interest was credited at effective annual rates ranging from 4.0% to
9.0%, 4.0% to 9.5% and 4.0% to 9.5%, respectively.
The establishment of insurance reserves requires making assumptions relating
to mortality and interest rates, as well as expenses and lapse rates used to
calculate policyholder liabilities during the term of the policies. These
estimates are made when the policy is issued, based on facts and circumstances
then known. While the Company believes that its policy reserves have been
determined on reasonable bases and are adequate, there are no assurances that
the Company's reserves will be sufficient to fund future liabilities in all
circumstances.
REINSURANCE
The Company currently coinsures with the Paul Revere Protective Life Insurance
Company ("Paul Revere Protective"), a wholly owned subsidiary of Paul Revere
Life, 50% of all risks less than $500,000 on individual life insurance
business sold in states where Paul Revere Protective is a licensed reinsurer.
If the amount at risk on any one life is in excess of $500,000, that excess is
reinsured with one of several licensed United States reinsurers. Reinsurance
recoverables have been included in other assets in the accompanying balance
sheets.
INCOME TAXES
The Company files a consolidated federal income tax return with its ultimate
parent, Textron Inc. Federal income taxes are allocated to the Company based
on its separate results.
In accordance with Statement of Financial Accounting Standards, No. 109,
"Accounting for Income Taxes", deferred income taxes have been recognized for
temporary differences between the financial reporting basis and income tax
basis of assets and liabilities based on enacted tax rates expected to be in
effect when such amounts are expected to be realized or settled.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company recognizes the cost of its retiree health care and life insurance
benefits using the accrual method of accounting over the employees' years of
service in accordance with Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other than Pensions."
34
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2.INVESTMENTS
The following information summarizes the components of net investment income
(loss) and net realized and unrealized investment gains (losses):
NET INVESTMENT INCOME (LOSS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities.................................................... $ 94,199 $ 93,244 $ 93,589
Equity securities................................................... 458 423 724
Mortgage loans...................................................... 4,596 2,760 3,190
Real estate......................................................... 102 55 (7)
Policy loans........................................................ 2,240 1,683 1,717
Other invested assets............................................... 2,443 1,006 750
Short-term investments.............................................. 1,132 473 79
--------- --------- ---------
Gross investment income............................................. 105,170 99,644 100,042
Less investment expenses............................................ 1,329 1,228 1,512
--------- --------- ---------
Net investment income............................................... $ 103,841 $ 98,416 $ 98,530
--------- --------- ---------
--------- --------- ---------
</TABLE>
NET REALIZED INVESTMENT GAINS (LOSSES)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities..................................................... $ 3,029 $ 1,596 $ (1,206)
Equity securities.................................................... 3,180 2,363 16,027
Mortgage loans, real estate and other invested assets................ (2,083) (1,083) (3,456)
--------- --------- ---------
Net realized investment gains........................................ $ 4,126 $ 2,876 $ 11,365
--------- --------- ---------
--------- --------- ---------
</TABLE>
The increase (decrease) in the Company's unrealized gains and losses on fixed
maturities available for sale was $104,569,000, ($43,822,000) and $1,938,000
in 1995, 1994 and 1993, respectively; the corresponding amounts for equity
securities were $644,000, ($2,549,000) and ($4,996,000).
Mortgage loans with an amortized cost of $466,000 and other invested assets
with an amortized cost of $2,987,000 were non-income producing at December 31,
1995. Investments are placed on non-accrual status once interest is sixty days
past due. Management may, at its discretion, put an investment on non-accrual
status earlier if substantial doubt exists regarding the collectibility of
interest.
35
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of held to maturity and available for sale
securities at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
1995 COST GAINS LOSSES FAIR VALUE
----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed maturities available for sale:
U.S. Government and agencies................... $ 14,724 $ 609 $ -- $ 15,333
Public utilities............................... 169,001 9,817 (98) 178,720
Corporate securities........................... 701,717 44,250 (2,301) 743,666
Mortgage-backed securities..................... 369,109 16,585 (873) 384,821
----------- ----------- ----------- ----------
Total fixed maturities........................... 1,254,551 71,261 (3,272) 1,322,540
Equity securities.............................. 4,350 364 -- 4,714
Investment in Textron common stock............. 3,517 6,782 -- 10,299
Short-term investments......................... 28,622 -- -- 28,622
----------- ----------- ----------- ----------
Total available for sale......................... 1,291,040 78,407 (3,272) 1,366,175
----------- ----------- ----------- ----------
Total............................................ $1,291,040 $ 78,407 $ (3,272) $1,366,175
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
1994 COST GAINS LOSSES FAIR VALUE
----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed maturities held to maturity:
U.S. Government and agencies................... $ 1,963 $ -- $ (245) $ 1,718
Public utilities............................... 130,533 399 (8,575) 122,357
Corporate securities........................... 366,360 829 (31,384) 335,805
----------- ----------- ----------- ----------
Total held to maturity........................... 498,856 1,228 (40,204) 459,880
----------- ----------- ----------- ----------
Fixed maturities available for sale:
U.S. Government and agencies................... 2,101 19 (92) 2,028
Public utilities............................... 29,417 143 (2,141) 27,419
Corporate securities........................... 225,033 2,871 (11,492) 216,412
Mortgage-backed securities..................... 429,418 4,026 (29,914) 403,530
----------- ----------- ----------- ----------
Total fixed maturities........................... 685,969 7,059 (43,639) 649,389
Equity securities.............................. 3,253 2,383 (50) 5,586
Investment in Textron common stock............. 3,517 4,169 -- 7,686
Short-term investments......................... 6,517 -- -- 6,517
----------- ----------- ----------- ----------
Total available for sale......................... 699,256 13,611 (43,689) 669,178
----------- ----------- ----------- ----------
Total............................................ $1,198,112 $ 14,839 $ (83,893) $1,129,058
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
</TABLE>
36
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
During 1994, the Company sold, from the held to maturity category of its
investment portfolio, a fixed maturity with an amortized cost of $5,779,000
resulting in a realized investment gain of $293,000, due to a significant
deterioration in the issuer's creditworthiness.
At December 31, 1995, $36,749,000 of fixed maturities available for sale were
below investment grade. These securities represented 2.5% of the Company's
total investments.
The amortized cost and fair value of fixed maturities at December 31, 1995, by
contractual maturity date, are presented below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED
COST FAIR VALUE
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Available for sale:
Fixed maturities:
Due in one year or less............................................ $ 12,883 $ 12,915
Due after one year through five years.............................. 152,942 164,904
Due after five years through ten years............................. 600,825 633,578
Due after ten years................................................ 118,792 126,322
Mortgage-backed securities......................................... 369,109 384,821
----------- ----------
1,254,551 1,322,540
Equity securities................................................... 4,350 4,714
Investment in Textron common stock.................................. 3,517 10,299
Short-term investments.............................................. 28,622 28,622
----------- ----------
Total................................................................ $1,291,040 $1,366,175
----------- ----------
----------- ----------
</TABLE>
During 1995, fixed maturities and marketable equity securities classified as
available for sale, with a fair value of $116,067,000 as of the date of the
sale, were sold. The gross realized investment gains and losses on such sales
totaled $6,884,000 and $886,000, respectively.
During 1994, fixed maturities and marketable equity securities classified as
available for sale, with a fair value of $53,643,000 as of the date of the
sale, were sold. The gross realized investment gains and losses on such sales
totaled $4,366,000 and $12,000, respectively.
Gross gains and losses realized on sales of fixed maturities were $1,800,000
and $900,000, respectively, in 1993.
The Company invests in mortgage loans principally involving commercial real
estate. Mortgage loans have original repayment terms ranging from 10 to 30
years. The mortgages are secured by the underlying property and non-
participating mortgages are generally limited to 75% of the appraised value of
established properties at the date of the loans with sufficient cash flows to
meet debt service requirements.
37
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Changes in the allowance for other than temporary declines in the value of
fixed maturities (not subject to direct adjustment), mortgage loans, real
estate and other investments were as follows:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING END
OF YEAR ADDITIONS DEDUCTIONS OF YEAR
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Mortgage loans................................ $ 2,780 $ 2,185 $ 1,624 $ 3,341
Real estate................................... 2,770 105 1,812 1,063
Other investments............................. 342 (342) -- --
----------- ----------- ----------- -----------
Total........................................... $ 5,892 $ 1,948 $ 3,436 $ 4,404
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Year ended December 31, 1994:
Fixed maturities.............................. $ 4,008 $ -- $ 4,008 $ --
Mortgage loans................................ 980 2,350 550 2,780
Real estate................................... 3,270 500 1,000 2,770
Other investments............................. -- 342 -- 342
----------- ----------- ----------- -----------
Total........................................... $ 8,258 $ 3,192 $ 5,558 $ 5,892
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Year ended December 31, 1993:
Fixed maturities.............................. $ 5,483 $ -- $ 1,475 $ 4,008
Mortgage loans................................ -- 980 -- 980
Real estate................................... 2,685 845 260 3,270
----------- ----------- ----------- -----------
Total........................................... $ 8,168 $ 1,825 $ 1,735 $ 8,258
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
Additions represent charges to net realized investment gains and deductions
represent reserves released upon disposal or restructuring of the related
assets. The net change in the reserve is included as an increase or decrease
in net realized investment gains or losses in the statements of income.
Subsequent to January 1, 1994, adjustments for other than temporary declines
in the value of all fixed maturities are recorded as a direct adjustment to
the securities' carrying value, in accordance with FAS 115.
Net investment income recorded on problem investments was $126,000, $578,000
and $278,000 in 1995, 1994 and 1993, respectively. Interest not recognized on
non-accrual securities and loans was $583,000, $922,000 and $1,247,000 in
1995, 1994 and 1993, respectively.
Restructured securities and loans aggregated $1,298,000 and $11,009,000 as of
December 31, 1995 and 1994, respectively. The amount of interest foregone on
restructured securities and loans was $79,000, $688,000 and $196,000 in 1995,
1994 and 1993, respectively.
38
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following investments in fixed maturities as of December 31, 1995 exceeded
ten percent of shareholder's equity.
<TABLE>
<CAPTION>
AMORTIZED COST ESTIMATED FAIR VALUE
--------------- ---------------------
(IN THOUSANDS)
<S> <C> <C>
FNMA 1993-175-PU..................................... $ 19,883 $ 19,834
Hanson Overseas...................................... 16,206 17,082
FNMA G92-24-E........................................ 15,792 17,643
Union Pacific Railroad............................... 15,000 15,240
</TABLE>
3.REINSURANCE
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result
in losses to the Company; consequently, allowances are established for amounts
deemed uncollectible. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk arising from similar
geographic regions, activities, or economic characteristics of the reinsurers
to minimize its exposure to significant losses from reinsurer insolvencies.
The effect of reinsurance on premiums and amounts earned is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Direct premiums and amounts assessed against policyholders........... $ 15,863 $ 11,853 $ 10,945
Reinsurance ceded.................................................... (1,360) (1,200) (1,016)
--------- --------- ---------
Net premiums and amounts earned...................................... $ 14,503 $ 10,653 $ 9,929
--------- --------- ---------
--------- --------- ---------
</TABLE>
4.CREDIT ARRANGEMENTS
The Company maintains a line of credit totaling $20,000,000 for short-term
funding of investment purchases against which no borrowings were outstanding
at December 31, 1995.
5.POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In accordance with Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions", the
Company recognizes the cost of its retiree health care and life insurance
benefits using the accrual method of accounting over the employees' years of
service.
Postretirement benefits other than pensions allocated to the Company in 1995,
1994 and 1993 were $103,000, $102,000 and $86,000, respectively. The balance
of the accrued postretirement benefits other than pensions ($1,165,000 and
$1,188,000 at December 31, 1995 and 1994, respectively) is included in other
liabilities in the balance sheets. The respective amounts of such retiree
costs deductible for tax purposes are not affected by FAS 106.
39
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6.INCOME TAXES
Details of income taxes are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal....................................................... $ 3,965 $ 4,231 $ 9,749
State......................................................... 165 350 821
--------- --------- ---------
4,130 4,581 10,570
--------- --------- ---------
Deferred:
Federal....................................................... 3,928 4,711 27
State......................................................... 362 -- --
--------- --------- ---------
4,290 4,711 27
--------- --------- ---------
Total........................................................... $ 8,420 $ 9,292 $ 10,597
--------- --------- ---------
--------- --------- ---------
</TABLE>
On August 10, 1993, new income tax legislation increased the federal statutory
income tax rate from 34% to 35%, retroactive to January 1, 1993.
Following is a reconciliation of the federal statutory income tax rate to the
effective income tax rate applicable to pre-tax income before the cumulative
effect of changes in accounting principles, as reflected in the statements of
income:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Federal statutory income tax rate................................. 35.0% 35.0% 35.0%
Increase (decrease) in taxes resulting from:
State income taxes............................................ 1.5% 0.9% 1.9%
Dividends received deduction.................................. (0.8%) (0.5%) (0.9%)
Cumulative effect of statutory rate change.................... -- -- 0.3 %
Other......................................................... -- (0.1 %) 0.1 %
--- --- ---
Effective income tax rate......................................... 35.7 % 35.3 % 36.4 %
--- --- ---
--- --- ---
</TABLE>
40
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The components of the Company's net deferred tax (asset) liability were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Liability for postretirement benefits other than pensions..... $ (408) $ (421) $ (419)
Purchase payment funds and liabilities for future policy
benefits.................................................... (8,092) (6,493) (7,092)
Differences in investment valuation........................... -- (11,624) (411)
Other......................................................... 394 -- (139)
--------- --------- ---------
Total deferred tax assets..................................... (8,106) (18,538) (8,061)
Deferred policy acquisition costs and value assigned purchased
insurance in-force.......................................... 10,614 10,272 7,685
Differences in investment valuation........................... 27,337 -- --
Other......................................................... -- 428 1,522
--------- --------- ---------
Total deferred tax liabilities................................ 37,951 10,700 9,207
--------- --------- ---------
Total net deferred tax (asset) liability...................... $ 29,845 $ (7,838) $ 1,146
--------- --------- ---------
--------- --------- ---------
</TABLE>
Cash payments for income taxes were $817,000, $5,371,000 and $10,920,000 in
1995, 1994 and 1993, respectively.
7.STATUTORY FINANCIAL INFORMATION
The Company is domiciled in Massachusetts and prepares its statutory financial
statements in accordance with accounting principles and practices prescribed
or permitted by the Division of Insurance of the Commonwealth of
Massachusetts. Prescribed statutory accounting practices include state laws,
regulations, and general administrative rules, as well as a variety of
publications of the NAIC. Permitted statutory accounting practices encompass
all accounting practices that are not prescribed; such practices differ from
state to state, may differ from company to company within a state, and may
change in the future. The Company is not currently utilizing any material
permitted accounting practices in the preparation of its statutory financial
statements.
Statutory surplus differs from shareholder's equity reported in accordance
with generally accepted accounting principles primarily because policy
acquisition costs are expensed when incurred, investment reserves are based on
different assumptions, life insurance reserves are based on different
assumptions and income tax expense reflects only taxes paid or currently
payable. Statutory net income and surplus are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory net income............................................ $ 8,948 $ 6,686 $ 20,189
--------- --------- ---------
Statutory surplus............................................... $ 66,526 $ 66,239 $ 64,651
--------- --------- ---------
</TABLE>
The Company is subject to various state insurance regulatory restrictions that
limit the maximum amounts of dividends available for payment without prior
approval. Under current law, during 1996, approximately $8,539,000 will be
available for payment of dividends by the Company without state insurance
regulatory approval. Dividends in excess of this amount may only be paid with
regulatory approval.
41
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8.FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," as amended during 1994 by Statement of
Financial Accounting Standards No. 119, "Disclosure About Derivative Financial
Instruments and Fair Value of Financial Instruments," requires disclosure of
fair value information about all financial instruments held or owed by a
company except for certain excluded instruments and instruments for which it
is not practicable to estimate fair value. The following methods and
assumptions were used in estimating the fair value of the Company's financial
instruments:
INVESTMENTS
The estimated fair values of investment securities, except for mortgage and
policy loans, are based on quoted market prices, where available, from an
independent pricing service. Fair values for private placement securities and
fixed maturities not provided by an independent pricing service are estimated
by the Company using a current market rate applicable to the yield, credit
quality and maturity of the investments. The fair value of mortgage loans has
been estimated based on discounted cash flow analyses, using interest rates
currently being offered for similar loans to borrowers of similar credit
quality. The fair values of real estate and other invested assets were
determined through Member of Appraisal Institute (MAI) appraisals and in-house
valuations. For policy loans, fair value approximates carrying value.
INSURANCE RESERVES
The estimated fair value of other policyholder funds was based on the cash
surrender value of the Company's financial products portfolio. The fair value
of reserves or liabilities relating to the Company's other insurance products
is not required to be disclosed under generally accepted accounting
principles. However, the fair values of liabilities under all insurance
contracts are taken into consideration in the overall management of the
Company's interest rate risk, which minimizes exposure to changing interest
rates through the matching of investment maturities with the timing of amounts
estimated to be payable under insurance contracts.
42
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The carrying values and estimated fair values of the Company's financial
instruments for which it is practicable to calculate a fair value are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------------- --------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Fixed maturities held to maturity....................................... $ -- $ -- $ 498,856 $ 459,880
Available for sale:
Fixed maturities...................................................... 1,322,540 1,322,540 649,389 649,389
Equity securities..................................................... 15,013 15,013 13,272 13,272
Short-term investments................................................ 28,622 28,622 6,517 6,517
Mortgage loans.......................................................... 72,627 81,789 31,140 31,094
Real estate............................................................. 2,987 3,900 1,200 1,700
Policy loans............................................................ 29,685 29,685 26,553 26,553
Other invested assets................................................... 1,588 1,976 436 956
------------ ------------ ------------ ------------
$ 1,473,062 $ 1,483,525 $ 1,227,363 $ 1,189,361
------------ ------------ ------------ ------------
Liabilities:
Other policyholder funds................................................ $ 1,268,318 $ 1,255,516 $ 1,129,381 $ 1,120,102
------------ ------------ ------------ ------------
</TABLE>
9.RELATED PARTY TRANSACTIONS
PRL shares its office facilities and personnel with its subsidiaries. Such
shared costs and expenses are allocated to PRL and its subsidiaries based on
time and usage studies; such allocations would vary depending on the
assumptions underlying those studies. For certain common administration costs,
the Company reimbursed PRL $13,638,000, $10,053,000 and, $8,897,000 in 1995,
1994, and 1993, respectively.
The amounts due PRL as of December 31, 1995, 1994 and 1993 were $3,546,000,
$8,174,000, and $4,037,000, respectively, and are included in other
liabilities.
On December 15, 1993, the Company sold 424,125 shares of its investment in
576,700 shares of Textron common stock to Paul Revere. The sale resulted in a
realized investment gain of $14,022,000 which was recorded in the accompanying
1993 financial statements. For the years ended December 31, 1995, 1994 and
1993, dividends received on Textron common stock were $238,000, $214,000 and
$715,000, respectively.
10.
PENDING ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" (FAS 121), which will be effective for fiscal years
beginning after December 15, 1995. FAS 121 requires that certain long-lived
assets be reviewed for impairment whenever events indicate that the carrying
amount of an asset may not be recoverable, and that an impairment loss be
recognized
43
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
under certain circumstances in the amount by which the carrying value,
including goodwill relating to the asset, exceeds the fair value of the asset.
The adoption of FAS 121 is not expected to have a material effect on the
Company's net income or financial condition.
11.
LITIGATION AND CONTINGENCIES
In the normal course of its business operations, the Company is involved in
litigation from time to time with claimants, beneficiaries and others, and a
number of lawsuits were pending at December 31, 1995. In the opinion of
management, the ultimate liability, if any, arising from this litigation is
not expected to have a material adverse affect on the financial condition of
the Company.
Periodically, the Company is assessed by various state guaranty funds as part
of those funds' activities to collect amounts from solvent insurance companies
to cover certain losses to policyholders that resulted from the insolvency or
rehabilitation of other insurance companies. Each state guaranty fund operates
independent of any other state guaranty fund; as such, the methods by which
assessments are levied against the Company vary from state to state. Also,
some states permit guaranty fund assessments to be partially recovered through
reductions in future premium taxes. Because there are many uncertainties
regarding the ultimate assessments that will be made against the Company for
any specific insolvency or rehabilitation, the Company recognizes its
obligation for guaranty fund assessments when it receives notice that an
amount is payable to a guaranty fund. The Company also recognizes an asset to
the extent that the assessment can be recovered through future reductions in
premium taxes. At December 31, 1995, the Company is not able to reasonably
estimate the potential amounts of any future assessments and, accordingly, the
accompanying financial statements do not include any provision for such future
assessments.
44
<PAGE>
- --------------------------------------------------------------------------------
THE
PAUL REVERE
VARIABLE ANNUITY
CONTRACT ACCUMULATION FUND
STATEMENT OF
ADDITIONAL INFORMATION
(TO BE USED WITH PROSPECTUS, MAY, 1,
1996)
- "LEVEL CHARGE" VARIABLE ANNUITY
CONTRACTS
- INDIVIDUAL VARIABLE ANNUITY
CONTRACTS
- GROUP
VARIABLE
ANNUITY
CONTRACTS
[LOGO]
- --------------------------------------------------------------------------------
MAY 1, 1996 -REGISTERED TRADEMARK-
THE PAUL REVERE
VARIABLE ANNUITY
INSURANCE COMPANY
WORCESTER,
MASSACHUSETTS
WORCESTER, MA 01608
508-799-4441
FORM 9207-95
<PAGE>
THE PAUL REVERE VARIABLE ANNUITY
CONTRACT ACCUMULATION FUND
PART C
OTHER INFORMATION
This registration statement contains the following financial statements,
condensed financial information and exhibits:
ITEM 28(A) FINANCIAL STATEMENTS AND EXHIBITS
INCLUDED IN PROSPECTUS
Per unit income and capital changes and variable annuity unit
values -- condensed financial information for the ten years ended
December 31, 1995.
INCLUDED IN STATEMENT OF ADDITIONAL INFORMATION
The Paul Revere Variable Annuity Contract Accumulation Fund:
Report of Independent Auditors
Statement of assets and liabilities at December 31, 1995.
Statement of investments at December 31, 1995.
Statement of changes in net assets for the two years ended
December 31, 1995.
Statement of operations for the year ended December 31, 1995.
Notes to financial statements.
The Paul Revere Variable Annuity Insurance Company:
Report of Independent Auditors
Balance sheets at December 31, 1995 and 1994.
Statements of income for the three years ended December 31, 1995.
Statements of changes in shareholder's equity for the three years
ended December 31, 1995.
Statements of cash flows for the three years ended
December 31, 1995.
Notes to financial statements.
ITEM 28(B) LIST OF EXHIBITS
1. Consent of Counsel
2. Consent of Independent Auditors
<PAGE>
ITEM 29 DIRECTORS AND OFFICERS OF THE INSURANCE COMPANY
This information is listed in the Statement of Additional Information,
Part B of this Registration Statement under Management, Page 6, and
incorporated in Part C by reference.
ITEM 30 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 31 NUMBER OF CONTRACTOWNERS
NUMBER OF HOLDERS
TITLE OF CLASS OF RECORD*
Series Q 962
Series N 180
* As of December 31, 1995.
ITEM 32 INDEMNIFICATION
The Paul Revere Variable Annuity Insurance Company maintained a
blanket fidelity bond in the amount of $1,000,000 with National
Union Fire Insurance Company, Pittsburgh, Pennsylvania, covering its
officers and employees and those of the registrant. This bond is
numbered 985-5437.
ITEM 33 BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
This information is included in the Prospectus and Statement of
Additional Information, Parts A and B of this Registration Statement,
and incorporated in Part C by reference.
ITEM 34 PRINCIPAL UNDERWRITERS
(a) None.
(b) Included in the Statement of Additional Information, Part B and
incorporated in Part C by reference.
(c) None.
<PAGE>
ITEM 35 LOCATION OF ACCOUNTS AND RECORDS
NAME OF PERSON
MAINTAINING
POSSESSION THEREOF ADDRESS DESCRIPTION
JAMES A. HILBERT, Senior 18 Chestnut Street Financial
Vice President, Chief Financial Worcester, MA 10608 Records
Officer and Treasurer
THE PAUL REVERE VARIABLE
ANNUITY INSURANCE COMPANY
MICHAEL A. TOMPKINS,
Vice President 18 Chestnut Street Contractowner
THE PAUL REVERE VARIABLE Worcester, MA 01608 Accounts and
ANNUITY INSURANCE COMPANY Records
ITEM 36 MANAGEMENT SERVICES
None.
ITEM 37 UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, to file with the Securities and Exchange
Commission such supplementary and periodic information, documents and
reports as may be prescribed by any rule or regulation of the
Commission heretofore and hereafter duly adopted pursuant to authority
conferred in that Section.
(b) To file with the Securities and Exchange Commission, a Post Effective
Aendment to this Registration Statement, as frequently as is necessary
to ensure that the audited financial statements in the Registration
Statement are never more than 16 months old for so long as payments
under the variable annuity contracts may be accepted.
(c) To include either (1) as part of any application to purchase a
contract offered by the Prospectus, a space that an applicant can
check to request a Statement of Additional Information or (2) a
postcard or similar written communication affixed to or included
in the Prospectus that the applicant can remove to send for a
Statement of Additional Information.
d) To deliver any Statement of Additional Information and financial
statements that are required by this Registration Statement promptly
upon written or oral request.
<PAGE>
POST EFFECTIVE AMENDMENT - SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, The Paul Revere Variable Annuity Contract
Accumulation Fund has caused this Post Effective Amendment No. 50 to
Registration Statement No. 2-24380 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Worcester, Commonwealth
of Massachusetts on the 28th day of March, 1996.
The Paul Revere Variable Annuity Contract Accumulation Fund
By: /s/Charles E. Soule
-------------------------------------------
Charles E. Soule
Chairman, Board of Managers
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Post Effective Amendment No. 50 to
Registration Statement No. 2-24380 has been signed below by the following
persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE
/s/Gordon T. Miller Vice Chairman 03/28/96
- ------------------- Board of Managers
Gordon T. Miller
/s/Aubrey K. Reid Jr Member 03/28/96
- ------------------- Board of Managers
Aubrey K. Reid, Jr.
/s/Joan Sadowsky Member 03/28/96
- ------------------- Board of Managers
Joan Sadowsky
/s/William J. Short Member 03/28/96
- ------------------- Board of Managers
William J. Short
/S/Charles E. Soule Chairman 03/28/96
- ------------------- Board of Managers
Charles E. Soule
1 of 1
<PAGE>
POST EFFECTIVE AMENDMENT - SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, The Paul Revere Variable Annuity Contract
Accumulation Fund has caused this Post Effective Amendment No. 50 to
Registration Statement No. 2-24380 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Worcester, Commonwealth
of Massachusetts on the 28th day of March, 1996.
The Paul Revere Variable Annuity Insurance Company
By:/s/Charles E. Soule, President
------------------------------
Charles E. Soule, President
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Post Effective Amendment No. 50 to
Registration Statement No. 2-24380 has been signed below by the following
persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE
/s/Donald E. Boggs Director and Executive Vice 03/28/96
- ------------------- President
Donald E. Boggs
/s/John H. Budd Director, Senior Vice President, 03/28/96
- ------------------- General Counsel and Secretary
John H. Budd
/s/Gerald M. Gates Director and Senior Vice President 03/28/96
- -------------------
Gerald M. Gates
/s/M. Katherine Hessel Director and Vice President 03/28/96
- ----------------------
M. Katherine Hessel
1 of 2
<PAGE>
SIGNATURE TITLE DATE
/s/James A Hilbert Director, Senior Vice President, 03/28/96
- --------------------- Chief Financial Officer
James A. Hilbert and Treasurer
/s/John D. Lemery Director, Senior Vice President 03/28/96
- --------------------- and Chief Investment Officer
John D. Lemery
/s/Barry E. Lundquist Director and Senior Vice President 03/28/96
- ---------------------
Barry E. Lundquist
/s/Gary W. MacConnell Director, Vice President and 03/28/96
- --------------------- Chief Information Officer
Gary W. MacConnell
/s/Richard L. Mucci Director, Executive Vice President 03/28/96
- --------------------- and Chief Operating Officer
Richard L. Mucci
/s/Charles e. Soule Director and President 03/28/96
- ---------------------
Charles E. Soule
2 of 2
<PAGE>
CONSENT OF
LEGAL COUNSEL
Securities and Exchange Commission
Washington, D.C. 20549
As Senior Vice President, General Counsel and Secretary of The Paul Revere
Variable Annuity Insurance Company, I hereby consent to the reference of my name
under the caption "Legal Opinions" in the Prospectus filed under Post Effective
Amendment No. 50 to Registration No. 2-24380. Permission is granted to use this
letter as an exhibit to Post Effective Amendment No. 50 to Registration No.
2-24380.
I further state that there are no material changes in this Post Effective
Amendment No. 50 to Registration No. 2-24380 from Post Effective Amendment No.
49 for purposes of filing effective May 1, 1996, pursuant to Paragraph (b) or
Rules 485 and 486.
/S/John H. Budd
-----------------------------
John H. Budd
Senior Vice President,
General Counsel and Secretary
Worcester, Massachusetts
April 25, 1996
<PAGE>
CONSENT
OF INDEPENDENT AUDITORS
We consent to the use of our report dated February 2, 1996, with respect to
the financial statements of The Paul Revere Variable Annuity Contract
Accumulation Fund, and our report dated March 29, 1996, with respect to The Paul
Revere Variable Annuity Insurance Company, in the Registration Statement (Form
N-3 No. 2-24380), and related Prospectus and Statement of Additional Information
of The Paul Revere Variable Annuity Contract Accumulation Fund dated May 1,
1996.
ERNST & YOUNG LLP
Boston, Massachusetts
April 25, 1996
