<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.
Semi Annual Report
June 30, 1999
To Our Contract Owners and Participants:
The U.S. equity markets continued to perform well in the first half of 1999.
The strength of the U.S. economy led to a small interest rate increase in an
effort by the Federal Reserve to keep the strong economy from producing higher
inflation. However, we do not see strong inflationary pressures in the economy
that might result in additional tightening in the near term.
We are pleased to report that your large cap growth equity portfolio's
return is ahead of both the S&P 500 and the Russell 1000 Growth Index. The total
return for the portfolio for the second quarter 1999 was 7.05%, and 27.26% for
the one year period ended 6/30/99. The portfolio's position in Technology,
Miscellaneous Business Services and Leisure Activity contributed to the
portfolio's good performance in the second quarter. First quarter results
benefited from Consumer Staples and Healthcare holdings, as well as from a
number of the portfolio's Technology holdings.
Much of the strength of the performance of the stock market in the past year
is attributed to a narrow band of about 50 large company stocks. Over the past
few months investors have looked increasingly to mid-cap and small company
stocks for more attractive prices. We believe this rotation toward a broader
group of stocks presents a good opportunity for investors to diversity their
portfolios.
Sincerely,
/s/Donald Boggs
---------------
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
(Unaudited)
As of June 30, 1999
-----------------------------
Series Q Series N
(Qualified) (Non-Qualified)
----------- --------------
ASSETS
Investments in securities at market value
(Cost: Series Q 1999-$21,403,516
(Cost: Series N 1999-$ 5,566,821
(see Statement of Investments) $28,198,660 $7,388,560
Cash - 136,552
Dividends and interest receivable 5,829 1,426
Receivable for investments sold 174,969 44,715
----------- ----------
Total assets 28,379,458 7,571,253
----------- ----------
LIABILITIES
Payable for investments purchased 49,260 13,900
Payable to The Paul Revere Variable Annuity
Insurance Company 217,735 120,822
----------- ----------
Total liabilities 266,995 134,722
----------- ----------
TOTAL NET ASSETS $28,112,463 $7,436,531
=========== ==========
CONTRACT OWNERS' EQUITY
Deferred contracts terminable by owner $23,352,549 $5,337,674
Currently payable contracts 4,759,914 2,098,857
----------- ----------
Total net assets $28,112,463 $7,436,531
----------- ----------
ACCUMULATION UNITS OUTSTANDING 1,653,131 430,578
=========== ==========
NET ASSET VALUE PER ACCUMULATION UNIT $17.006 $17.271
=========== ==========
See accompanying notes to financial statements.
<PAGE>
Statement of Operations
(Unaudited)
Six Months Ended
6/30/99
Series Q (Qualified)
--------------------
INVESTMENT INCOME
Income:
Dividends $ 67,698
Interest 5,103
----------
Total income 72,801
----------
Expenses:
Mortality and expense risk fees 133,332
Investment management and advisory service fees 66,666
Professional services 6,200
----------
Total expenses 206,198
----------
Net investment loss (133,397)
----------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on investments sold 3,581,252
Net decrease in unrealized appreciation of investments (286,460)
----------
Net realized and unrealized gain on investments 3,294,792
----------
Increase in net assets from operations $3,161,395
==========
Six Months Ended
6/30/99
Series N (Non-Qualified)
------------------------
INVESTMENT INCOME
Income:
Dividends $ 17,951
----------
Expenses:
Mortality and expense risk fees 35,588
Investment management and advisory service fees 17,794
Professional services 3,720
----------
Total expenses 57,102
----------
Net investment loss (39,151)
----------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on investments sold 1,133,872
Net decrease in unrealized appreciation of investments (149,868)
----------
Net realized and unrealized gain on investments 984,004
----------
Increase in net assets from operations $ 944,853
==========
See accompanying notes to financial statements.
<PAGE>
Statements of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended 6/30/99 Year Ended 12/31/98
Series Q Series Q
(Qualified) (Qualified)
------------------------ -------------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment loss $ (133,397) $ (154,286)
Net realized gain on investments 3,581,252 3,927,590
Net increase (decrease) in unrealized appreciation of
investments (286,460) 2,960,111
----------- -----------
Increase in net assets from operations 3,161,395 6,733,415
Contract receipts:
Gross purchase payments received 257,391 66,629
Deductions from purchase payments 910 852
----------- -----------
Net purchase payment received 256,481 65,777
Payments to contract owners:
Annuity payments to contract owners 296,651 490,751
Terminations and withdrawals to contract owners 952,170 1,548,428
----------- -----------
Total payments to contract owners 1,248,821 2,039,179
----------- -----------
Net contract payments to contract owners (992,340) (1,973,402)
Other deductions --- (282,853)
----------- -----------
Total increase in net assets 2,169,055 4,477,160
NET ASSETS
Beginning of year 25,943,408 21,466,248
----------- -----------
End of period $28,112,463 $25,943,408
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended 6/30/99 Year Ended 12/31/98
Series N Series N
(Non-Qualified) (Non-Qualified)
------------------------ -------------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment loss $ (39,151) $ (57,763)
Net realized gain on investments 1,133,872 1,106,946
Net increase (decrease) in unrealized appreciation of
investments (149,868) 830,473
----------- -----------
Increase in net assets from operations 944,853 1,879,656
Contract receipts:
Gross purchase payments received 2,042 4,269
Deductions from purchase payments 167 307
----------- -----------
Net purchase payments received 1,875 3,962
Payments to contract owners:
Annuity payments to contract owners 150,541 244,083
Terminations and withdrawals to contract owners 543,254 308,059
----------- -----------
Total payments to contract owners 693,795 552,142
----------- -----------
Net contract payments to contract owners (691,920) (548,180)
Other deductions --- (165,154)
----------- -----------
Total increase in net assets 252,933 1,166,322
NET ASSETS
Beginning of year 7,183,598 6,017,276
----------- -----------
End of period $ 7,436,531 $ 7,183,598
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Statement of Investments (continued)
June 30, 1999
<TABLE>
<CAPTION>
Series Q (Qualified) Series N (Non-Qualified)
----------------------- -------------------------
Number % of Number % of
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
ADVERTISING
Interpublic Group Cos., Inc. 600 $ 42,786 $ 51,975 0.2% 100 $ 7,131 $ 8,662 0.1%
---------- ---------- -------- -----------
AEROSPACE/DEFENSE
Raytheon Co. Class B 1,300 93,578 91,488 300 21,675 21,113
United Technologies Corporation 3,100 204,162 222,230 800 52,687 57,350
---------- ---------- -------- -----------
297,740 313,718 1.1% 74,362 78,463 1.0%
---------- ---------- -------- -----------
AUTO - ORIGINAL EQUIPMENT
Danaher Corporation 4,300 286,488 249,938 0.9% 1,100 73,019 63,937 0.9%
---------- ---------- -------- -----------
BROADCASTING
CBS Corporation 6,400 204,858 278,000 1,700 54,756 73,844
Clear Channel Communications 3,986 214,095 274,785 1,004 54,510 69,213
Comcast Corporation Class A Special 13,700 496,358 526,594 3,700 134,027 142,219
Infinity Broadcasting 11,600 295,159 345,100 3,100 78,925 92,225
Media One Group, Inc. 3,500 179,601 260,312 900 47,090 66,938
Univision Communications, Inc. 3,800 135,735 250,800 1,000 37,440 66,000
---------- ---------- -------- -----------
1,525,806 1,935,591 6.9% 406,748 510,439 6.9%
---------- ---------- -------- -----------
COMPUTER SOFTWARE - PC
America Online, Inc. 1,800 134,320 198,900 600 44,875 66,300
Ariba, Inc. 50 1,150 4,863 50 1,150 4,862
Ceridian Corporation 7,500 183,591 245,156 2,000 49,955 65,375
Microsoft Corporation 15,300 756,270 1,379,869 4,000 196,420 360,750
---------- ---------- -------- -----------
1,075,331 1,828,788 6.5% 292,400 497,287 6.7%
---------- ---------- -------- -----------
COMPUTER SOFTWARE - SYSTEMS
Affiliated Computer Services 6,700 240,666 339,188 1,800 64,501 91,125
BMC Software, Inc. 8,700 308,338 469,800 2,300 82,066 124,200
Cadence Design Systems, Inc. 6,270 157,552 79,943 1,620 41,601 20,655
Cisco Systems, Inc. 700 19,287 45,150 200 5,764 12,900
Computer Associates Intl, Inc. 2,600 129,139 143,000 700 34,854 38,500
Computer Sciences Corporation 3,400 181,043 235,238 900 52,379 62,269
Compuware Corporation 8,500 151,820 270,406 2,200 41,306 69,987
DST Systems, Inc. 3,700 197,388 232,638 1,000 53,967 62,875
EMC Corporation 4,400 92,732 242,000 1,200 23,322 66,000
First Data Corporation 3,500 134,831 171,280 900 34,671 44,044
Galileo International, Inc. 3,500 146,283 187,031 900 36,915 48,094
General Instrument Corporation 3,500 133,210 148,750 900 34,254 38,250
Informatica Corporation 50 800 1,780 50 800 1,781
Net Perceptions, Inc. 100 1,400 2,180 100 1,400 2,181
Oracle Corporation 11,600 244,186 430,650 3,055 61,289 113,417
Redback Networks Inc. 50 1,150 6,278 50 1,150 6,278
Sun Microsystems, Inc. 3,400 164,088 234,175 900 43,915 61,988
SunGard Data Systems, Inc. 5,000 199,072 172,500 1,300 51,867 44,850
Synopsys, Inc. 1,900 96,835 104,856 500 25,500 27,594
Xerox Corporation 1,100 65,825 64,968 300 17,952 17,719
---------- ---------- -------- -----------
2,665,645 3,581,811 12.7% 709,473 954,707 12.8%
---------- ---------- -------- -----------
CONGLOMERATES
Allied Signal, Inc. 2,200 138,135 138,600 0.5% 600 37,673 37,800 0.5%
---------- ---------- -------- -----------
CONSUMER GOODS & SERVICES
Colgate-Palmolive Co. 400 41,020 39,500 100 10,255 9,875
Dial Corporation 5,300 131,469 197,094 1,400 34,405 52,062
Gillette Co. 1,900 82,733 77,900 540 23,324 22,140
Linens 'N Things, Inc. 1,500 42,066 65,625 360 10,239 15,750
Newell Rubbermaid, Inc. 6,300 267,811 292,950 1,600 68,055 74,400
Procter & Gamble Co. 3,600 297,425 321,300 870 72,195 77,648
Tyco International Ltd. 13,996 407,841 1,326,120 3,690 107,458 349,628
---------- ---------- -------- -----------
1,270,365 2,320,489 8.2% 325,931 601,503 8.1%
---------- ---------- -------- -----------
CONTAINERS - METAL/GLASS
Corning, Inc. 2,200 134,197 154,275 0.6% 600 36,595 42,075 0.6%
---------- ---------- -------- -----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Statement of Investments (continued)
June 30, 1999
<TABLE>
<CAPTION>
Series Q (Qualified) Series N (Non-Qualified)
---------------------- -------------------------
Number % of Number % of
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 Co. 3,400 $ 222,978 $ 384,200 900 $ 60,732 $101,700
Teradyne, Inc. 2,200 124,846 157,850 600 33,682 43,050
---------- ---------- -------- -----------
347,824 542,050 2.0% 94,414 144,750 2.0%
---------- ---------- -------- -----------
ELECTRONICS
Analog Devices, Inc. 6,000 144,453 301,125 1,600 38,550 80,300
Lattice Semiconductor Corporation 600 27,225 37,350 200 9,075 12,450
---------- ---------- -------- -----------
171,678 338,475 1.2% 47,625 92,750 1.2%
---------- ---------- -------- -----------
ENERGY
Bp Amoco Plc - Spons ADR 2,483 213,062 269,406 614 52,842 66,619
Chevron Corporation 1,000 86,592 95,188 300 25,978 28,556
Conoco, Inc. 2,500 57,500 69,688 700 16,100 19,512
Exxon Corporation 1,900 142,023 146,537 500 37,374 38,562
---------- ---------- -------- -----------
499,177 580,819 2.1% 132,294 153,249 2.1%
---------- ---------- -------- -----------
ENTERTAINMENT
Carnival Corporation Class A 1,500 67,590 72,750 400 18,024 19,400
Time Warner, Inc. 7,400 285,929 543,900 1,900 62,140 139,650
Walt Disney Co. 7,400 242,528 228,012 2,000 66,301 61,625
---------- ---------- -------- -----------
596,047 844,662 3.0% 146,465 220,675 3.0%
---------- ---------- -------- -----------
FINANCIAL INSTITUTIONS
American Express Co. 1,100 120,281 143,138 300 30,850 39,037
Associates First Capital Corporation 10,700 364,816 474,144 2,800 95,904 124,075
Bank of New York Co., Inc. 3,600 135,007 132,075 900 33,688 33,019
Citigroup, Inc. 9,600 349,516 456,000 2,700 98,159 128,250
Goldman Sachs Group, Inc. 300 15,900 21,675 100 5,300 7,225
Household International, Inc. 1,500 70,590 71,062 400 18,824 18,950
Morgan Stanley Dean Witter Discover 4,000 305,497 410,000 1,100 84,207 112,750
Providian Financial Corporation 800 82,248 74,800 200 22,179 18,700
Wells Fargo Company 5,300 227,439 226,575 1,600 68,712 68,400
---------- ---------- -------- -----------
1,671,294 2,009,469 7.1% 457,823 550,406 7.4%
---------- ---------- -------- -----------
FOOD & BEVERAGE
Anheuser-Busch Companies, Inc. 2,500 152,492 177,344 700 42,479 49,656
Coca Cola Enterprises, Inc. 2,800 99,679 86,100 700 25,214 21,525
Nabisco Holdings Corporation Class A 1,900 80,094 82,175 500 21,097 21,625
---------- ---------- -------- -----------
332,265 345,619 1.2% 88,790 92,806 1.2%
---------- ---------- -------- -----------
GOVERNMENT SPONSORED
Federal Home Loan Mortgage Corporation 5,100 240,093 295,800 1.1% 1,300 56,232 75,400 1.0%
---------- ---------- -------- -----------
INSURANCE
American International Group, Inc. 2,500 286,673 292,656 700 80,259 81,944
CIGNA Corporation 2,400 216,243 213,600 600 54,009 53,400
Equitable Cos., Inc. 3,800 213,346 254,600 1,000 56,044 67,000
Hartford Financial Services Group 900 52,728 52,480 200 11,717 11,662
Lincoln National Corporation 4,000 170,668 209,250 1,000 42,857 52,313
Progressive Corporation 1,400 164,143 203,000 330 37,521 47,850
Reliastar Financial Corporation 2,500 109,512 109,375 600 26,369 26,250
---------- ---------- -------- -----------
1,213,313 1,334,961 4.8% 308,776 340,419 4.6%
---------- ---------- -------- -----------
LEISURE TIME
Royal Caribbean Cruises Ltd. 600 24,121 26,250 0.4%
-------- -----------
MEDICAL & HEALTH PRODUCTS
American Home Products Corporation 5,600 311,881 322,000 1,500 83,743 86,250
Bristol Myers Squibb Co. 6,000 280,830 422,625 1,600 74,338 112,700
Elan Corporation Plc - Spons ADR 6,052 213,177 167,943 1,648 59,721 45,732
Guidant Corporation 2,500 90,848 128,594 600 21,597 30,862
Medtronic, Inc. 2,000 139,846 155,750 500 34,962 38,938
Pfizer, Inc. 3,000 291,290 329,250 800 74,037 87,800
Pharmacia & Upjohn, Inc. 5,900 339,225 335,194 1,500 86,009 85,219
Schering-Plough Corporation 3,300 91,771 174,900 900 25,646 47,700
---------- ---------- -------- -----------
1,758,868 2,036,256 7.2% 460,053 535,201 7.2%
---------- ---------- -------- -----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Statement of Investments (continued)
June 30, 1999
<TABLE>
<CAPTION>
Series Q (Qualified) Series N (Non-Qualified)
---------------------- --------------------------
Number % of Number % of
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 TECH.
SERVICES
Cardinal Health, Inc. 2,300 $ 122,827 $ 147,488 575 $ 30,968 $ 36,872
HEALTHSOUTH Corporation 11,000 214,468 164,312 2,900 59,647 43,319
United HealthCare Corporation 4,800 232,135 300,600 1,300 66,130 81,413
---------- ---------- ------- --------
569,430 612,400 2.2% 156,745 161,604 2.2%
---------- ---------- ------- --------
PRINTING/PUBLISHING
Scholastic Corporation 1,900 79,800 96,188 500 21,000 25,313
Tribune Co. 2,900 234,050 252,663 800 64,696 69,700
---------- ---------- ------- --------
313,850 348,851 1.2% 85,696 95,013 1.3%
---------- ---------- -------- --------
RESTAURANTS
McDonald's Corporation 6,700 251,751 276,794 1,800 68,550 74,363
Tricon Global Restaurants,
Inc. 600 39,361 32,475 200 13,120 10,825
Wendy's International, Inc. 5,700 135,325 161,381 1,500 35,658 42,469
---------- ---------- -------- --------
426,437 470,650 1.7% 117,328 127,657 1.7%
---------- ---------- -------- --------
SEMICONDUCTOR EQUIPMENT
Applied Materials, Inc. 1,300 82,550 96,038 300 19,050 22,162
Globespan, Inc. 50 750 1,988 50 750 1,987
Kulicke & Soffa Industries 4,200 139,060 112,613 1,100 36,379 29,494
---------- ---------- -------- --------
222,360 210,639 0.8% 56,179 53,643 0.7%
---------- ---------- -------- --------
SEMICONDUCTORS
Altera Corporation 5,000 151,250 184,062 1,400 42,350 51,537
LSI Logic Corporation 7,400 195,444 341,325 1,900 50,016 87,638
Motorola, Inc. 3,600 265,401 341,100 1,000 74,121 94,750
Texas Instruments, Inc. 1,900 192,004 275,500 500 50,376 72,500
Xilinx, Inc. 3,000 120,331 171,750 800 32,089 45,800
---------- ---------- -------- --------
924,430 1,313,737 4.7% 248,952 352,225 4.7%
---------- ---------- -------- --------
STORES
BJ's Wholesale Club, Inc. 6,300 99,194 189,394 1,600 26,168 48,100
CVS Corporation 8,100 309,098 414,113 2,100 79,036 107,362
Dayton Hudson Corporation 4,100 232,546 266,500 1,100 64,780 71,500
Lowe's Companies, Inc. 5,200 216,871 294,775 1,400 60,439 79,363
Office Depot, Inc. 13,650 166,215 301,153 3,600 43,929 79,425
Rite Aid Corporation 9,200 214,524 226,550 2,400 57,790 59,100
TJX Companies, Inc. 7,500 213,794 249,844 2,000 56,929 66,625
Wal-Mart Stores, Inc. 7,600 169,941 366,700 2,000 43,441 96,500
---------- ---------- -------- --------
1,622,183 2,309,029 8.2% 432,512 607,975 8.2%
---------- ---------- -------- --------
SUPERMARKETS
Kroger Co. 16,200 268,127 452,588 4,200 68,137 117,338
Safeway, Inc. 2,800 106,591 138,600 700 23,923 34,650
---------- ---------- -------- --------
374,718 591,188 2.1% 92,060 151,988 2.0%
---------- ---------- -------- --------
TELECOMMUNICATIONS
AT&T Corporation 5,000 132,575 183,750 1,400 37,121 51,450
ALLTEL Corporation 1,900 92,297 135,850 500 24,763 35,750
AT&T Canada, Inc. 800 50,059 51,250 200 12,498 12,812
CenturyTel, Inc. 5,700 166,978 226,575 1,500 45,701 59,625
Colt Telecom Group - ADR 100 7,718 8,637
Copper Mountain Networks,
Inc. 50 1,050 3,862 50 1,050 3,862
Equant NV 700 57,897 65,888 200 16,542 18,825
Ericsson L M Tel Co. 1,200 33,585 39,525
Frontier Corporation 3,100 163,607 182,900 800 42,294 47,200
Global TeleSystems Group,
Inc. 900 57,263 72,900 300 19,087 24,300
Hearst-Argyle Television,
Inc. 1,800 46,992 43,200 500 13,109 12,000
MCI Worldcom, Inc. 6,800 301,067 586,500 1,800 77,945 155,250
Nextel Communications,
Inc. Class A 3,100 143,569 155,580 800 37,050 40,150
Nortel Networks Corporation 3,100 187,380 269,119 800 48,280 69,450
Qwest Communications Intl. 4,300 153,363 142,169 1,060 37,562 35,046
Tellabs, Inc. 3,800 122,099 256,738 1,000 28,262 67,563
Time Warner Telecom 100 1,400 2,900 50 700 1,450
Viatel, Inc. 300 14,100 16,838 100 4,700 5,613
---------- ---------- -------- --------
1,691,696 2,396,019 8.5% 487,967 688,508 9.2%
---------- ---------- -------- --------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Statement of Investments (continued)
June 30, 1999
<TABLE>
<CAPTION>
Series Q (Qualified) Series N (Non-Qualified)
---------------------- --------------------------
Number % of Number % of
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>
TRANSPORTATION
Harley-Davidson, Inc. 2,500 $ 102,163 $ 135,938 700 $ 28,424 $ 38,062
Kansas City Southern Industries 2,400 112,979 153,150 600 28,318 38,287
----------- ----------- ---------- -----------
215,142 289,088 1.0% 56,742 76,349 1.0%
----------- ----------- ---------- -----------
UTILITIES - GAS PIPELINE
Williams Companies, Inc. 4,200 $ 201,292 178,763 0.6% 1,100 52,715 46,819 0.6%
----------- ----------- ---------- -----------
Total Common Stocks 523,987 20,828,590 27,623,660 98.3% 140,566 5,566,821 7,388,560 99.3%
----------- ----------- ---------- ----------
SHORT-TERM INVESTMENTS
Federal Home Loan Mortgage Corporation,
4.60% due 07/1/1999 574,927 575,000 2.0%
----------- -----------
Total Investments $21,403,517 28,198,660 100.3% $5,566,821 7,388,560 99.3%
=========== ----------- ========== ----------
Other Assets Less Liabilities (86,197) (0.3)% 47,971 0.7%
----------- ----------
Total Net Assets $28,112,463 100.0% $7,436,531 100.0%
=========== ==========
(a) Effective cost for federal income tax purposes.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Supplemental Information
Selected Per Unit Data and Ratios
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
6/30/99 1998 1997 1996 1995 1994
-------- ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
PER UNIT DATA (a)
Series Q (Qualified)
Investment income $ 0.044 $ 0.116 $ 0.177 $0.153 $0.119 $ 0.081
Expenses 0.123 0.202 0.159 0.133 0.096 0.073
-------- ------- ------- ------ ------ -------
Net investment income (loss) (0.079) (0.086) 0.018 0.020 0.023 0.008
Net realized and unrealized gains from securities 1.961 3.836 2.723 1.551 1.711 (0.020)
-------- ------- ------- ------ ------ -------
Net increase (decrease) in net asset value 1.882 3.750 2.741 1.571 1.734 (0.012)
Accumulation unit net asset value:
Beginning of year 15.124 11.374 8.633 7.062 5.328 5.340
-------- ------- ------- ------ ------ -------
End of period. $ 17.006 $15.124 $11.374 $8.633 $7.062 $ 5.328
======== ======= ======= ====== ====== =======
Series N (Non-qualified)
Investment income $ 0.041 $ 0.096 $ 0.135 $0.137 $0.117 $ 0.099
Expenses 0.129 0.212 0.166 0.134 0.109 0.102
-------- ------- ------- ------ ------ -------
Net investment income (loss) (0.088) (0.116) (0.031) 0.003 0.008 (0.003)
Net realized and unrealized gains from securities 2.226 3.891 2.660 1.459 1.769 (0.023)
-------- ------- ------- ------ ------ -------
Net increase (decrease) in net asset value 2.138 3.775 2.629 1.462 1.777 (0.026)
Accumulation unit net asset value:
Beginning of year 15.133 11.358 8.729 7.267 5.490 5.516
-------- ------- ------- ------ ------ -------
End of period. $ 17.271 $15.133 $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 period.
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
6/30/99 1998 1997 1996 1995 1994
---------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
RATIOS
Series Q (Qualified)
Operating expenses to average accumulation
fund balance 0.77% 1.57% 1.59% 1.57% 1.55% 1.55%
Net investment income (loss) to average (0.50)% (0.67)% 0.18% 0.24% 0.38% 0.17%
accumulation fund balance
Portfolio turnover rate 63% 143% 130% 78% 64% 64%
Accumulation units outstanding at the end of the
period (in thousands) 1,653 1,715 1,887 2,093 5,491 5,597
Series N (Non-qualified)
Operating expenses to average accumulation
fund balance 0.79% 1.63% 1.67% 1.69% 1.71% 1.73%
Net investment income (loss) to average
accumulation fund balance (0.54)% (0.90)% (0.31)% 0.04% 0.13% (0.05)%
Portfolio turnover rate 64% 143% 139% 94% 67% 62%
Accumulation units outstanding at the end
of the period (in thousands) 431 475 530 566 586 604
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Supplemental Information
Selected Per Unit Data and Ratios
(Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991 1990 1989
------- ------- ------ ------ -------
PER UNIT DATA (a)
Series Q (Qualified)
<S> <C> <C> <C> <C> <C>
Investment income $ 0.054 $ 0.068 $0.093 $ 0.116 $0.122
Expenses 0.079 0.076 0.066 0.055 0.051
------- ------- ------ ------- ------
Net investment income (loss) (0.025) (0.008) 0.027 0.061 0.071
Net realized and unrealized gains
(losses) from securities 0.291 0.159 1.295 (0.107) 0.928
------- ------- ------ ------- ------
Net increase (decrease) in net
asset value 0.266 0.151 1.322 (0.046) 0.999
Accumulation unit net asset value:
Beginning of year 5.074 4.923 3.601 3.647 2.648
------- ------- ------ ------- ------
End of period $ 5.340 $ 5.074 $4.923 $ 3.601 $3.647
======= ======= ====== ======= ======
Series N (Non-qualified)
Investment income $ 0.055 $ 0.071 $0.085 $ 0.111 $0.104
Expenses 0.092 0.094 0.076 0.072 0.059
------- ------- ------ ------- ------
Net investment income (loss) (0.037) (0.023) 0.009 0.039 0.045
Net realized and unrealized gains
(losses) from securities 0.318 0.194 1.361 (0.102) 1.002
------- ------- ------ ------- ------
Net increase (decrease) in net
asset value 0.281 0.171 1.370 (0.063) 1.047
Accumulation unit net asset value:
Beginning of year 5.235 5.064 3.694 3.757 2.710
------- ------- ------ ------- ------
End of period $5.516 $5.235 $5.064 $3.694 $3.757
======= ====== ====== ====== ======
</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>
Year Ended December 31,
1993 1992 1991 1990 1989
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
RATIOS
Series Q (Qualified)
Operating expenses to average accumulation fund balance 1.56% 1.56% 1.56% 1.58% 1.58%
Net investment income (loss) to average accumulation fund balance (0.50%) (0.17%) 0.64% 1.76% 2.20%
Portfolio turnover rate 59% 61% 98% 80% 89%
Accumulation units outstanding at the end of the period
(in thousands) 5,700 5,753 5,839 5,961 6,157
Series N (Non-qualified)
Operating expenses to average accumulation fund balance 1.73% 1.74% 1.76% 1.80% 1.80%
Net investment income (loss) to average accumulation fund balance (0.69%) (0.42%) 0.21% 0.96% 1.36%
Portfolio turnover rate 62% 66% 109% 84% 84%
Accumulation units outstanding at the end of the period
(in thousands) 640 662 684 735 774
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements
June 30, 1999
(Unaudited)
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 UNUMProvident Corporation
("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, 1999, 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 is responsible
for all sales and administrative functions relating to the variable annuity
contracts and the Fund (see Note 8). 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 do not represent an additional charge to the
Fund.
<PAGE>
Notes to Financial Statements (continued)
June 30, 1999
(Unaudited)
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:
<TABLE>
<CAPTION>
Series Q (Qualified) Series N (Non-qualified)
----------------------- ------------------------
Purchases Sales Purchases Sales
--------- ----- --------- -----
<S> <C> <C> <C> <C>
June 30, 1999 $16,704,389 $18,635,800 $4,611,910 $5,457,554
December 31, 1998 $32,319,947 $34,029,792 $9,057,438 $9,643,236
</TABLE>
At June 30, 1999, net unrealized appreciation of investments in Series Q,
amounting to $6,795,070, consisted of unrealized gains of $7,157,738 and
unrealized losses of $362,668; net unrealized appreciation of investment in
Series N, amounting to $1,821,739, consisted of unrealized gains of
$1,924,560 and unrealized losses of $102,821.
7. Accumulation units
The change in the number of accumulation units outstanding were as follows:
<TABLE>
<CAPTION>
Series Q (Qualified)
----------------------------------
Six Months Ended Year Ended
6/30/99 1998
---------------- ----------
<S> <C> <C>
Units outstanding at beginning of year 1,715,402 1,887,352
Units credited to contracts:
Net purchase payments 16,268 5,076
Units withdrawn from contracts:
Annuity payments 19,251 37,790
Terminations and withdrawals 59,288 117,096
--------- ---------
Net units withdrawn 78,539 154,886
--------- ---------
Contract units withdrawn in excess of units credited (62,271) (149,810)
Other deductions --- (22,140)
--------- ---------
Net decrease in units (62,271) (171,950)
--------- ---------
Units outstanding at end of period 1,653,131 1,715,402
========= =========
</TABLE>
<PAGE>
Notes to Financial Statements (continued)
June 30, 1999
(Unaudited)
7. Accumulation units (continued)
The change in the number of accumulation units outstanding were as follows:
<TABLE>
<CAPTION>
Series N (Non-Qualified)
------------------------
Six Months Ended Year Ended
6/30/99 1998
---------------- ----------
<S> <C> <C>
Units outstanding at beginning of year 474,699 529,795
Units credited to contracts:
Net purchase payments 120 317
Units withdrawn from contracts:
Annuity payments 9,566 18,886
Terminations and withdrawals 34,675 23,488
------- -------
Net units withdrawn 44,241 42,374
------- -------
Contract units withdrawn in excess of units credited (44,121) (42,057)
Other deductions --- (13,039)
------- -------
Net decrease in units (44,121) (55,096)
------- -------
Units outstanding at end of period 430,578 474,699
======= =======
</TABLE>
The majority of the terminations and withdrawals from Series Q during 1998
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 assumed Provident's
individual and tax-sheltered annuity business including all individual
annuities. In accordance with the agreement, American General Corporation,
through its subsidiaries Variable Annuity Life Insurance Company and
American General Annuity assumed 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. The administration
services provided to the Fund by American General Corporation include
processing of unit transactions and daily unit valuation calculations
subsequent to June 1, 1998 as well as accounting and other services. These
services were previously performed by Provident. Fees for such services are
borne by Paul Revere Variable only and do not represent an additional
charge to the Fund.
