<PAGE>
BOARD OF MANAGERS
THE ACCUMULATION FUND
Donald Boggs, Chairman
Gordon T. Miller, Vice Chairman
Aubrey K. Reid, Jr.
Joan Sadowsky
William J. Short
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
WORCESTER, MASSACHUSETTS 01608
This report and the financial statements attached are submitted for the general
information of contract owners and are not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
Nothing herein contained is to be considered an offer of sale of The Paul Revere
Variable Annuity Insurance Company contracts. Such offering is made only by
prospectus, which includes details as to offering price and other material
information.
Form 10100 Rev. 6/98 Printed in U.S.A.
Semi-Annual Report
June 30, 1998
TO OUR CONTRACT OWNERS AND PARTICIPANTS:
The forward momentum of U. S. equity markets slowed in the second quarter
of 1998. The S & P 500 gained 3.3% following the first quarter's lofty 14.0%
advance. The Asian situation continued to cast a general pall on the equity
markets as investors realized that the region's economic and political troubles
were not only not improving, but worsening. Despite the first quarter's strong
5.4% economic growth, there is general consensus among economists that slower
growth is likely to ensue for the rest of the year.
We are pleased to report that your large cap growth equity portfolio's
year-to-date return is ahead of both the S & P 500 and the Russell 1000 Growth
Index. The accumulation unit values of the Qualified Fund and Non-Qualified
Fund increased 19.8% and 19.7% respectively for the year-to-date period.
The portfolio's overweighted position in Financial Services contributed to
second quarter results, as did strong stock performance from the portfolio's
Leisure and Retailing holdings. Although the portfolio had a slight
underweighting in Technology in the second quarter, fortuitous stock selection
and strong performance in key holdings combined to have a positive impact on
performance.
Strong performance from the portfolio's Technology sector contributed to
performance in the second quarter, and we continue to expect strong growth from
this sector. U. S. technology companies generate approximately 50% of their
sales from international markets; we expect to see growth in Asia and Europe as
those regions seek to recover from a historical underinvestment in technology
and begin the restructuring process undertaken by U. S. companies in the early
nineties. We continue to focus on those companies that participate in the high-
end product market, where demand has remained strong and good secular growth
opportunities exist.
Going forward, we believe that the environment of favorable corporate
earnings, increasing productivity, and low inflation should continue to support
equity markets, although there is some risk that a continued slowdown in Asia
could impact the U. S. economy, and thus corporate profits. As a result, we see
basic fundamental research as a critical element in maintaining above-market
performance over the intermediate term, and we will continue to search for
companies for your portfolio that we feel can sustain their earnings growth.
Sincerely,
Donald Boggs
Chairman, Board of Managers
The Paul Revere Variable Annuity Contract
Accumulation Fund
Senior Vice-President
The Paul Revere Variable Annuity Insurance Company
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
As of June 30, 1998
(Unaudited)
-----------------------------
Series Q Series N
(Qualified) (Non-Qualified)
------------ ---------------
ASSETS
Investments in securities at market value
(Cost: Series Q 1998-$19,824,539
(Cost: Series N 1998-$ 5,177,522
(see Statement of Investments) $25,637,664 $6,794,679
Cash 14,665 448,948
Dividends and interest receivable 13,236 3,581
Receivable for investments sold 24,778 6,172
----------- ----------
Total assets 25,690,343 7,253,380
----------- ----------
LIABILITIES
Surrenders payable 641,034 285,273
Payable for investments purchased 125,584 38,793
Payable to The Paul Revere Variable Annuity
Insurance Company 178,990 52,315
Other 17,652 3,721
----------- ----------
Total liabilities 963,260 380,102
----------- ----------
TOTAL NET ASSETS $24,727,083 $6,873,278
----------- ----------
CONTRACT OWNER'S EQUITY
Deferred contracts terminable by owner $20,636,257 $4,945,275
Currently payable contracts 4,090,826 1,928,003
----------- ----------
Total net assets $24,727,083 $6,873,278
----------- ----------
ACCUMULATION UNITS OUTSTANDING 1,815,135 505,462
=========== ==========
NET ASSET VALUE PER ACCUMULATION UNIT $ 13.623 $ 13.598
=========== ==========
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended
6/30/98
Series Q (Qualified)
(Unaudited)
--------------------
INVESTMENT INCOME
Income (unaffiliated companies):
Dividends $ 77,181
Interest 38,024
----------
Total income 115,205
Expenses:
Mortality and expense risk fees 115,193
Investment management and advisory service fees 57,597
Professional services 6,200
----------
Total expenses 178,990
----------
Net investment loss (63,785)
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on investments sold (unaffiliated companies) 2,532,329
Net increase in unrealized appreciation of investments
(unaffiliated companies) 1,691,413
----------
Net realized and unrealized gain on investments 4,223,742
----------
Increase in net assets from operations $4,159,957
==========
Six Months Ended
6/30/98
Series N (Non-qualified)
(Unaudited)
------------------------
INVESTMENT INCOME
Income (unaffiliated companies):
Dividends $ 21,522
Interest 4,724
----------
Total income 26,246
Expenses:
Mortality and expense risk fees 32,398
Investment management and advisory service fees 16,197
Professional services 3,720
----------
Total expenses 52,315
----------
Net investment loss (26,069)
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on investments sold (unaffiliated companies) 712,543
Net increase in unrealized appreciation of investments
(unaffiliated companies) 476,023
----------
Net realized and unrealized gain on investments 1,188,566
----------
Increase in net assets from operations $1,162,497
==========
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended 6/30/98 Year Ended 12/31/97
(Unaudited)
------------------------- -------------------
Series Q Series Q
Qualified Qualified
------------------------- --------------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) $ (63,785) $ 34,747
Net realized gain on investments (unaffiliated companies) 2,532,329 5,091,490
Net increase in unrealized appreciation of
investments (unaffiliated companies) 1,691,413 307,210
----------- -----------
Increase in net assets from operations 4,159,957 5,433,447
Contract receipts:
Gross purchase payments received 21,551 47,982
Deductions from purchase payments 698 2,060
----------- -----------
Net purchase payments received 20,853 45,922
Payments to contract owners:
Annuity payments to contract owners 196,769 378,254
Terminations and withdrawals to contract owners 440,353 1,783,911
----------- -----------
Total payments to contract owners 637,122 2,162,165
----------- -----------
Net contract payments to contract owners (616,269) (2,116,243)
Other additions (deductions) (282,853) 78,932
----------- -----------
Total increase in net assets 3,260,835 3,396,136
NET ASSETS
Beginning of year 21,466,248 18,070,112
----------- -----------
End of period $24,727,083 $21,466,248
=========== ===========
Six Months Ended 6/30/98 Year Ended 12/31/97
(Unaudited)
------------------------ -------------------
Series N Series N
Non-Qualified Non-Qualified
------------------------ -------------------
INCREASE IN NET ASSETS
Operations:
Net investment loss $ (26,069) $ (17,250)
Net realized gain on investments (unaffiliated companies) 712,543 1,359,361
Net increase in unrealized appreciation of
investments (unaffiliated companies) 476,023 115,793
----------- -----------
Increase in net assets from operations 1,162,497 1,457,904
Contract receipts:
Gross purchase payments received 3,950 9,995
Deductions from purchase payments 274 647
----------- -----------
Net purchase payments received 3,676 9,348
Payments to contract owners:
Annuity payments to contract owners 95,030 198,891
Terminations and withdrawals to contract owners 49,987 254,751
----------- -----------
Total payments to contract owners 145,017 453,642
----------- -----------
Net contract payments to contract owners (141,341) (444,294)
Other additions (deductions) (165,154) 63,860
----------- -----------
Total increase in net assets 856,002 1,077,470
NET ASSETS
Beginning of year 6,017,276 4,939,806
----------- -----------
End of period $ 6,873,278 $ 6,017,276
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS
June 30, 1998
SERIES Q (QUALIFIED) SERIES N (NON-QUALIFIED)
SECURITIES OF NUMBER ----------------------- % OF NUMBER ------------------------- % OF
UNAFFILIATED COMPANIES OF MARKET NET OF MARKET NET
SHARES COST (a) VALUE ASSETS SHARES COST (a) VALUE ASSETS
----------- ----------- ----------- -------- -------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
Aerospace
Lockheed Martin Corporation 1,200 $ 124,525 $ 127,050 0.5% 300 $ 31,123 $ 31,763 0.5%
---------- ---------- -------- --------
BANKS AND CREDIT COMPANIES
Crestar Financial Corporation 3,400 91,095 185,514 0.8% 800 21,483 43,650 0.6%
---------- ---------- -------- --------
BUSINESS SERVICES
(b) Affiliated Computer Services 3,700 120,868 142,450 1,000 32,633 38,500
Danka Business Systems ADR 3,800 94,660 44,889 1,100 30,438 12,994
Xerox Corporation 1,000 97,651 101,625 300 29,474 30,488
---------- ---------- -------- --------
313,179 288,964 1.2% 92,545 81,982 1.2%
---------- ---------- -------- --------
COMMUNICATIONS
Alcatel Alsthom ADR 7,000 291,526 284,816 2,000 83,314 81,376
(b) Ascend Communications 6,300 233,280 312,247 1,810 66,245 89,709
(b) CBS, Inc. 2,000 62,305 63,500 600 18,691 19,050
(b) Cisco Systems, Inc. 3,850 179,397 354,443 1,075 58,573 98,968
(b) Global Telesystems Group, Inc. 1,600 65,735 78,000 500 20,741 24,375
(b) Heftel Broadcasting Corporation 3,500 125,774 156,625 1,000 38,224 44,750
(b) Jacor Communications, Inc. 1,500 83,666 88,500 400 22,320 23,600
Lucent Technologies, Inc. 3,600 149,748 299,477 1,000 41,375 83,188
(b) MediaOne Group, Inc. 4,000 146,099 175,752 1,100 40,097 48,332
(b) Tele-Communications, Inc. 3,600 120,038 138,377 1,000 33,344 38,438
(b) Tellabs, Inc. 1,500 99,158 107,437 400 26,629 28,650
Time Warner, Inc. 3,500 228,684 299,033 1,000 65,330 85,438
(b) Univision Communication, Inc. 4,900 185,835 182,525 1,400 53,040 52,150
---------- ---------- -------- --------
1,971,245 2,540,732 10.3% 567,923 718,024 10.5%
---------- ---------- -------- --------
COMPUTER SOFTWARE-PC
(b) Computer Sciences Corporation 1,400 58,621 89,600 300 14,747 19,200
(b) Microsoft Corporation 7,500 599,628 812,813 2,100 168,396 227,588
Synopsys, Inc. 1,500 51,503 68,625 500 16,846 22,875
---------- ---------- -------- --------
709,752 971,038 3.9% 199,989 269,663 3.9%
---------- ---------- -------- --------
COMPUTER SOFTWARE-SYSTEMS
(b) BMC Software, Inc. 10,200 279,471 529,767 2,800 89,834 145,426
(b) Cadence Design Systems, Inc. 8,270 203,007 258,438 2,320 56,983 72,500
Computer Assoc. Intl., Inc. 8,650 366,619 480,620 2,350 100,600 130,573
(b) Compuware Corporation 6,600 138,322 337,425 1,900 40,359 97,137
(b) Dell Computer Corporation 2,000 165,893 185,626 600 50,000 55,688
(b) EMC Corporation 7,000 265,243 313,691 2,000 76,017 89,626
HBO & Company 7,400 132,859 260,850 2,000 33,091 70,500
(b) Network Associates, Inc. 2,350 105,308 112,506 650 28,961 31,119
(b) Oracle Corporation 4,900 131,523 120,359 1,337 35,901 32,841
(b) Policy Management System
Corporation 4,200 173,129 164,850 1,240 51,104 48,670
---------- ---------- -------- --------
1,961,374 2,764,132 11.2% 562,850 774,080 11.3%
---------- ---------- -------- --------
CONSUMER GOODS & SERVICES
American Standard Companies 1,900 88,173 84,907 400 18,722 17,875
(b) Applied Materials, Inc. 700 23,508 20,650 200 6,717 5,900
Black & Decker Corporation 3,400 155,417 207,400 900 40,878 54,900
(b) Cendant Corporation 14,400 343,881 295,200 4,100 96,931 84,050
Clorox Company 1,700 114,844 162,563 500 33,778 47,812
Colgate-Palmolive Company 1,500 123,597 132,000 400 32,959 35,200
Dial Corporation 2,200 53,337 57,064 600 14,576 15,563
Newell Company 1,100 44,855 54,794 300 12,279 14,944
Philip Morris Companies, Inc. 4,500 181,332 177,187 1,300 52,385 51,188
Procter & Gamble Company 2,900 205,267 264,083 800 53,994 72,850
(b) Revlon, Inc. 5,600 260,035 287,700 1,600 74,500 82,200
RJR Nabisco Holdings
Corporation 1,700 58,933 40,375 500 17,333 11,875
Service Corporation
International 5,400 181,928 231,525 1,500 50,984 64,313
Tyco Intl. Ltd. 18,096 494,260 1,140,058 5,090 134,939 320,670
Wal-Mart Stores, Inc. 2,500 79,212 151,875 700 22,180 42,525
---------- ---------- -------- --------
2,408,579 3,307,381 13.4% 663,155 921,865 13.4%
---------- ---------- -------- --------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS (CONTINUED)
June 30, 1998
SERIES Q (QUALIFIED) SERIES N (NON-QUALIFIED)
SECURITIES OF NUMBER ----------------------- % OF NUMBER ------------------------- % OF
UNAFFILIATED COMPANIES OF MARKET NET OF MARKET NET
SHARES COST (a) VALUE ASSETS SHARES COST (a) VALUE ASSETS
----------- ----------- ----------- -------- -------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ELECTRICAL EQUIPMENT
General Electric Company 6,300 $ 336,016 $ 572,512 2.3% 1,800 $ 95,166 $163,575 2.4%
---------- ---------- -------- -----------
ELECTRONICS
(b) Ceridian Corporation 4,600 222,446 270,250 1,300 62,877 76,375
(b) Imation Corporation 150 25,976 2,484
---------- ---------- -------- -----------
248,422 272,734 1.1% 62,877 76,375 1.1%
---------- ---------- -------- -----------
ENERGY
British Petroleum Company 1,331 117,155 117,461 409 35,786 36,094
(b) EVI Weatherford, Inc. 665 31,603 24,605 95 4,624 3,515
Halliburton Company 1,500 61,256 66,658 400 16,335 17,775
KN Energy, Inc. 1,800 93,600 97,538 500 26,000 27,094
(b) Noble Drilling Corporation 1,600 47,058 38,500 400 11,818 9,625
(b) Varco International 1,700 51,044 33,682 500 15,013 9,907
---------- ---------- -------- -----------
401,716 378,444 1.5% 109,576 104,010 1.5%
---------- ---------- -------- -----------
ENTERTAINMENT
(b) Harrah's Entertainment, Inc. 5,000 111,687 116,250 1,400 31,362 32,550
(b) Mirage Resorts, Inc. 3,500 76,994 74,596 1,000 21,991 21,313
(b) Viacom, Inc. Class B 5,800 238,000 337,850 1,600 67,812 93,200
---------- ---------- -------- -----------
426,681 528,696 2.1% 121,165 147,063 2.1%
---------- ---------- -------- -----------
FINANCIAL INSTITUTIONS
Associated First Capital 1,600 128,996 123,101 400 32,249 30,775
CIT Group, Inc. 4,300 130,663 161,250 1,200 36,436 45,000
Federal National Mortgage
Association 1,000 51,845 60,750 300 14,938 18,225
Federal Home Loan Mortgage
Corporation 6,075 285,605 285,908 1,700 73,499 80,007
Green Tree Financial
Corporation 4,900 201,740 209,784 1,400 57,790 59,938
Household International, Inc. 1,200 33,559 59,700 300 8,390 14,925
Morgan Stanley Dean Witter 2,200 133,160 201,025 600 36,683 54,825
U. S. Bancorp 5,700 118,564 245,100 1,500 31,201 64,500
Washington Mutual, Inc. 2,550 122,294 110,767 750 35,969 32,579
---------- ---------- -------- -----------
1,206,426 1,457,385 5.9% 327,155 400,774 5.8%
---------- ---------- -------- -----------
FOOD & BEVERAGE PRODUCTS
CKE Restaurants, Inc. 4,200 151,643 173,250 1,200 43,723 49,500
Dean Foods Company 900 48,204 49,444 200 10,712 10,988
Hershey Foods Corporation 1,200 51,223 82,800 300 12,805 20,700
(b) McCormick & Company 2,300 61,631 82,154 700 18,769 25,003
McDonald's Corporation 1,900 117,354 131,100 500 31,139 34,500
PepsiCo, Inc. 4,900 178,323 201,821 1,400 50,907 57,663
(b) Ralcorp Holdings, Inc. 5,400 97,605 101,925 1,500 27,131 28,313
Ralston-Purina Group 1,400 113,319 163,538 400 34,397 46,725
Tootsie Roll Industries, Inc. 1,545 87,840 118,579 412 23,424 31,621
---------- ---------- -------- -----------
907,142 1,104,611 4.5% 253,007 305,013 4.4%
---------- ---------- -------- -----------
INSURANCE
American General Corporation 2,000 125,052 142,376 600 37,485 42,713
Chubb Corporation 1,700 133,278 136,638 400 31,363 32,150
Conseco, Inc. 2,500 114,103 117,188 700 32,131 32,812
Equitable Companies, Inc. 1,100 57,953 82,432 300 15,806 22,481
(b) Humana, Inc. 1,600 49,318 49,901 500 15,412 15,594
Life RE Corporation 100 6,600 8,288 100 6,600 8,288
Lincoln National Corporation 2,700 210,250 246,712 800 63,251 73,100
Progressive Corporation 1,200 139,546 169,200 330 37,521 46,530
Reliastar Financial Corporation 5,800 244,656 278,400 1,600 67,440 76,800
Torchmark Corporation 2,600 104,260 118,950 700 28,063 32,025
Travelers Group, Inc. 2,100 126,650 127,312 550 33,170 33,344
(b) Wellpoint Health Networks, Inc. 3,200 214,345 236,800 900 60,112 66,600
(b) Annuity & Life RE Holdings 100 1,500 2,212 100 1,500 2,212
---------- ---------- -------- -----------
1,527,511 1,716,409 6.9% 429,854 484,649 7.1%
---------- ---------- -------- -----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
SERIES Q (QUALIFIED) SERIES N (NON-QUALIFIED)
SECURITIES OF NUMBER ----------------------- % OF NUMBER ------------------------- % OF
UNAFFILIATED COMPANIES OF MARKET NET OF MARKET NET
SHARES COST (a) VALUE ASSETS SHARES COST (a) VALUE ASSETS
----------- ----------- ----------- -------- -------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MEDICAL & HEALTH PRODUCTS
American Home Products
Corporation 3,800 $ 156,012 $ 196,650 1,000 $ 40,891 $ 51,750
Biomet, Inc. 1,200 35,017 39,675 300 8,745 9,919
Bristol-Myers Squibb Company 4,400 268,112 505,727 1,200 74,307 137,926
Pfizer, Inc. 2,200 162,807 239,114 600 45,799 65,213
Schering Plough Corporation 3,700 159,265 339,012 1,020 42,988 93,457
Warner-Lambert Company 4,100 196,708 284,437 1,170 55,586 81,169
----------- ----------- ---------- ----------
977,921 1,604,615 6.5% 268,316 439,434 6.4%
----------- ----------- ---------- ----------
MEDICAL & HEALTH TECH. SERVICES
Cardinal Health, Inc. 1,800 143,187 168,750 500 39,948 46,875
Columbia/HCA HealthCare
Corporation 1,400 46,467 40,775 400 13,025 11,650
(b) HEALTHSOUTH Corporation 9,500 185,665 253,536 2,600 50,960 69,389
Medtronic, Inc. 2,000 97,965 127,500 600 29,390 38,250
(b) Tenet Healthcare Corporation 400 12,699 12,500 100 3,175 3,125
(b) Total Renal Care Holdings, Inc. 8,400 250,265 289,800 2,400 71,793 82,800
United Healthcare Corporation 6,700 325,660 426,710 1,900 91,179 121,007
----------- ----------- ---------- ----------
1,061,908 1,319,571 5.3% 299,470 373,096 5.4%
----------- ----------- ---------- ----------
PRINTING & PUBLISHING
McGraw-Hill Companies., Inc. 600 23,162 48,900
Scholastic Corporation 3,200 134,400 127,600 900 37,800 35,887
----------- ----------- ---------- ----------
134,400 127,600 0.5% 60,962 84,787 1.2%
----------- ----------- ---------- ----------
STORES
(b) BJ's Wholesale Club, Inc. 4,800 148,118 195,000 1,400 43,993 56,876
CVS Corporation 10,400 284,758 404,955 3,000 86,862 116,814
(b) Fred Meyer, Inc. 6,600 190,350 280,500 1,800 52,218 76,500
(b) Kroger Company 4,000 137,736 171,500 1,100 37,875 47,162
(b) Linens N Things, Inc. 1,600 39,037 48,902 460 11,239 14,059
Lowe's Companies, Inc. 6,800 232,510 275,827 2,000 68,874 81,126
Nordstrom, Inc. 1,800 110,509 139,050 500 30,668 38,625
(b) Office Depot, Inc. 11,400 203,476 359,818 3,200 57,051 101,002
Rite-Aid Corporation 22,700 459,920 852,680 6,400 130,958 240,403
Sears Roebuck & Company 5,400 345,924 329,740 1,500 96,090 91,594
----------- ----------- ---------- ----------
2,152,338 3,057,972 12.4% 615,828 864,161 12.6%
----------- ----------- ---------- ----------
SUPERMARKETS
(b) Safeway, Inc. 10,000 294,062 406,880 1.6% 2,800 82,679 113,926 1.7%
----------- ----------- ---------- ----------
UTILITIES-ELECTRIC
(b) AES Corporation 2,600 115,510 136,664 0.6% 700 30,995 36,794 0.5%
----------- ----------- ---------- ----------
UTILITIES-TELEPHONE
Century Telephone Enterprises 5,500 197,741 252,312 1,600 60,107 73,400
MCI Communications Corporation 1,500 65,863 87,188 400 17,602 23,250
Sprint Corporation 3,100 225,829 218,550 900 65,586 63,450
(b) Worldcom, Inc. 10,200 410,806 494,068 2,900 116,652 140,470
----------- ----------- ---------- ----------
900,239 1,052,118 4.3% 259,947 300,570 4.4%
----------- ----------- ---------- ----------
TOTAL COMMON STOCKS 474,632 18,270,041 23,921,022 96.8% 133,468 5,156,065 6,735,254 98.0%
----------- ----------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS (CONTINUED)
June 30, 1998
SERIES Q (QUALIFIED) SERIES N (NON-QUALIFIED)
SECURITIES OF NUMBER ----------------------- % OF NUMBER ------------------------- % OF
UNAFFILIATED COMPANIES OF MARKET NET OF MARKET NET
SHARES COST (a) VALUE ASSETS SHARES COST (a) VALUE ASSETS
----------- ----------- ----------- -------- -------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PREFERRED STOCKS
WIRELESS COMMUNICATIONS
Airtouch Communications, Inc.
6.00% Class B. 2,684 $ 69,122 $ 129,503 587 $ 13,066 $ 28,323
4.25% Class C. 1,788 46,040 147,510 377 8,391 31,102
----------- ----------- ---------- ----------
TOTAL PREFERRED STOCKS 4,472 115,162 277,013 1.1% 964 21,457 59,425 0.9%
----------- ----------- ---------- ----------
TOTAL STOCKS 479,104 18,385,203 24,198,035 97.9% 134,432 5,177,522 6,794,679 98.9%
----------- ----------- ---------- ----------
SHORT TERM INVESTMENTS
Federal Home Loan Bond
5.56% due July 6, 1998 479,481 479,629
Student Loan Marketing Association
5.45% due July 1, 1998 959,855 960,000
----------- -----------
TOTAL SHORT-TERM INVESTMENTS 1,439,336 1,439,629 5.8%
----------- -----------
TOTAL INVESTMENTS IN SECURITIES
OF UNAFFILIATED COMPANIES $19,824,539 $25,637,664 103.7% $5,177,522 $6,794,679 98.9%
=========== ----------- ========== ----------
CASH AND RECEIVABLES
LESS LIABILITIES (910,581) -3.7% 78,599 1.1%
----------- ----------
TOTAL NET ASSETS $24,727,083 100.0% $6,873,278 100.0%
=========== ==========
(a) Effective cost for federal income tax purposes.
(b) Non-income producing security.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SUPPLEMENTAL INFORMATION
SELECTED PER UNIT DATA AND RATIOS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
6/30/98 YEAR ENDED DECEMBER 31,
(UNAUDITED) 1997 1996 1995 1994
---------------- ---- ---- ---- ----
PER UNIT DATA (a)
SERIES Q (QUALIFIED)
<S> <C> <C> <C> <C> <C>
Investment income $ 0.062 $ 0.177 $0.153 $0.119 $ 0.081
Expenses 0.097 0.159 0.133 0.096 0.073
------- ------- ------ ------ -------
Net investment income (loss) (0.035) 0.018 0.020 0.023 0.008
Net realized and unrealized gains (losses) from securities 2.284 2.723 1.551 1.711 (0.020)
------- ------- ------ ------ -------
Net increase (decrease) in net asset value 2.249 2.741 1.571 1.734 (0.012)
Accumulation unit net asset value:
Beginning of year 11.374 8.633 7.062 5.328 5.340
------- ------- ------ ------ -------
End of year $13.623 $11.374 $8.633 $7.062 $ 5.328
======= ======= ====== ====== =======
SERIES N (NON-QUALIFIED)
Investment income $ 0.051 $ 0.135 $0.137 $0.117 $ 0.099
Expenses 0.101 0.166 0.134 0.109 0.102
------- ------- ------ ------ -------
Net investment income (loss) (0.050) (0.031) 0.003 0.008 (0.003)
Net realized and unrealized gains (losses) from securities 2.290 2.660 1.459 1.769 (0.023)
------- ------- ------ ------ -------
Net increase (decrease) in net asset value 2.240 2.629 1.462 1.777 (0.026)
Accumulation unit net asset value:
Beginning of year 11.358 8.729 7.267 5.490 5.516
------- ------- ------ ------ -------
End of year $13.598 $11.358 $8.729 $7.267 $ 5.490
======= ======= ====== ====== =======
</TABLE>
(a) The per unit amounts represent the proportionate distribution of actual
investment results as related to the change in unit net asset values for
the year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
6/30/98 YEAR ENDED DECEMBER 31,
(UNAUDITED) 1997 1996 1995 1994
---------------- ---- ---- ---- ----
RATIOS
SERIES Q (QUALIFIED)
<S> <C> <C> <C> <C> <C>
Operating expenses to average accumulation fund balance 0.77 % 1.59 % 1.57% 1.55% 1.55 %
Net investment income (loss) to average accumulation (0.27)% 0.18 % 0.24% 0.38% 0.17 %
fund balance
Portfolio turnover rate 67 % 130 % 78% 64% 64 %
Accumulation units outstanding at the end of the period
(in thousands) 1,815 1,887 2,093 5,491 5,597
SERIES N (NON-QUALIFIED)
Operating expenses to average accumulation fund balance 0.80 % 1.67 % 1.69% 1.71% 1.73 %
Net investment income (loss) to average accumulation
fund balance (0.40)% (0.31)% 0.04% 0.13% (0.05)%
Portfolio turnover rate 67 % 139% 94% 67% 62 %
Accumulation units outstanding at the end of the period
(in thousands) 505 530 566 586 604
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
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 wholly-owned by Provident Companies, Inc.
("Provident"). The Fund is the investment vehicle for Paul Revere
Variable's tax-deferred group annuity contracts.
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 June 30, 1998, 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 date. Interest income is accrued on a daily basis.
The Fund does not distribute net investment income and net realized capital
gains through dividends to contract owners. The allocation of net
investment income and net realized capital gains occurs automatically in
the daily determination of unit net asset values. They are, therefore,
included in the value of the contracts in force and in payments to contract
owners.
Contract owners' equity is comprised of two components. Deferred contracts
terminable by owner represents amounts attributable to contracts which
have not yet annuitized. Currently payable contracts include amounts
equivalent to the annuity reserves relating to contracts with current
annuities. Annuity reserves are computed for currently payable contracts
according to the 1900 Progressive Annuity Mortality Table. The assumed
interest rate is either 3.5% or 5% according to the option elected by the
annuitant at the time of conversion. Paul Revere Variable bears all the
mortality risk associated with these contracts.
3. INVESTMENT ADVISOR
Paul Revere Variable acts as investment advisor to the Fund and provides
mortality and expense guarantees to holders of variable annuity contracts.
For these services, Paul Revere Variable receives mortality and expense
risk fees and investment management and advisory service fees as shown on
the statement of operations which, on an annual basis, will not exceed 2%
of the average daily net asset value of the Fund.
Paul Revere Variable also acts as principal underwriter and performs all
sales and administrative functions relating to the variable annuity
contracts and the Fund. Fees for such services are deducted from the
contract purchase payments as shown in the statements of changes in net
assets.
4. Investment sub-advisor
Under an investment sub-advisory agreement with MFS Institutional Advisors,
Inc. ("MFSI"), MFSI provides investment management services to Paul Revere
Variable for a fee which, on an annual basis, will equal 0.35% of the
average daily net assets of each series of the Fund. This fee is borne by
Paul Revere Variable only and does not represent an additional charge to
the Fund.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
5. FEDERAL INCOME TAXES
The Fund's operations are included with those of Paul Revere Variable,
which is taxed as a life insurance company under the Internal Revenue Code
and is included in a consolidated federal tax return filed by The Paul
Revere Life Insurance Company. 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:
SERIES Q (QUALIFIED) SERIES N (NON-QUALIFIED)
----------------------- ------------------------
PURCHASES SALES PURCHASES SALES
----------- ----------- ----------- -----------
June 30, 1998 $14,862,352 $15,973,337 $4,189,159 $4,467,861
December 31, 1997 $26,404,332 $28,331,204 $7,410,011 $7,764,770
At December 31, 1997, net unrealized appreciation of investments in Series
Q, amounting to $5,812,832, consisted of unrealized gains of $6,081,956 and
unrealized losses of $269,124; net unrealized appreciation of investment in
Series N, amounting to $1,617,157, consisted of unrealized gains of
$1,688,041 and unrealized losses of $70,884.
7. ACCUMULATION UNITS
The change in the number of accumulation units outstanding were as follows:
SERIES Q (QUALIFIED)
-------------------------------
SIX MONTHS ENDED
6/30/98 YEAR ENDED
(UNAUDITED) 1997
---------------- ----------
Units outstanding at beginning of year 1,887,352 2,093,030
Units credited to contracts:
Net purchase payments 1,722 4,552
Units withdrawn from contracts:
Annuity payments 15,809 37,490
Terminations and withdrawals 35,990 179,873
--------- ---------
Net units withdrawn 51,799 217,363
--------- ---------
Contract units withdrawn in excess of units
credited (50,077) (212,811)
Other additions (deductions) (22,140) 7,133
--------- ---------
Net decrease in units (72,217) (205,678)
--------- ---------
Units outstanding at end of period 1,815,135 1,887,352
========= =========
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
7. ACCUMULATION UNITS (CONTINUED)
The change in the number of accumulation units outstanding were as follows:
SERIES N (NON-QUALIFIED)
---------------------------------
SIX MONTHS ENDED
6/30/98 YEAR ENDED
(UNAUDITED) 1997
---------------- ----------
Units outstanding at beginning of year 529,795 565,935
Units credited to contracts:
Net purchase payments 297 927
Units withdrawn from contracts:
Annuity payments 7,653 19,617
Terminations and withdrawals 3,938 24,629
------- -------
Net units withdrawn 11,591 44,246
------- -------
Contract units withdrawn in excess of units
credited (11,294) (43,319)
Other additions (deductions) (13,039) 7,179
------- -------
Net decrease in units (24,333) (36,140)
------- -------
Units outstanding at end of period 505,462 529,795
======= =======
The majority of the terminations and withdrawals from Series Q during 1997
related to withdrawals by participants in the Paul Revere Agency and Home
Office Pension Plans which were deposited into an unrelated funding
vehicle.
8. ASSET TRANSFER AGREEMENT
On May 15, 1998 Provident completed an Asset Transfer and Acquisition
Agreement under which American General Corporation will assume Provident's
individual and tax-sheltered annuity business including all individual
annuities. American General Corporation will assume the administration, but
not the ownership, of Provident's two registered separate accounts,
Separate Account B and The Paul Revere Variable Annuity Contract
Accumulation Fund.
