<PAGE>
FILE NO. 2-24380
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20550
FORM N-3 REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
/ / Pre Effective Amendment No.: ___
/X/ Post Effective Amendment No.: 54
/X/ and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
/X/ Amendment No.: 54
/X/ THE PAUL REVERE VARIABLE ANNUITY CONTRACT ACCUMULATION FUND
(Exact Name of Registrant as Specified in Charter)
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
(Name of Insurance Company)
18 Chestnut Street, Worcester, Massachusetts 01608
(ADDRESS OF INSURANCE COMPANY'S PRINCIPAL EXECUTIVE OFFICES)
Insurance Company's Telephone Number (including area code): (508) 799-4441
Susan N. Roth
UnumProvident Corporation
1 Fountain Square
Suite 756
Chattanooga, Tennessee 37402
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Approximate Date of Proposed Public Offering: April 30, 2000
It is proposed that this filing will become effective (check appropriate box):
/ / immediately upon filing pursuant to Paragraph (b) of Rule 485
/X/ on April 30, 2000, 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
<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.
PAGE NO. ITEM NO. HEADING IN PROSPECTUS (PART A)
1 Cover Page
2 2 Definitions
2 3 Summary
5 4 Per Unit Income and Capital Changes (a)
7 5 Description of Insurance Company and the
Accumulation Fund
9 6 Management
10 7 Deductions and Expenses
13 8 Description of Contracts
16 9 Payments to Annuitants
17 10 Payments at Death
17 11 Purchases Payment Provisions
17 12 Redemption
22 13 Federal Tax Status
25 14 Legal Proceedings
STATEMENT OF ADDITIONAL
INFORMATION (PART B)
1 Cover Page
2 17 Table of Contents
4 18 General Information and History of Insurance
Company and the Accumulation Fund
1
<PAGE>
5 19 Investment Objectives and Policies
7 20 Management
10 21 Investment Advisory Services
12 22 Brokerage Allocation
14 24 Underwriters
14 23 Purchase and Pricing of Contracts
15 26 Annuity Payments
17 27 Financial Statements
OTHER INFORMATION (PART C)
28(a) Financial Statements and Exhibits
1 28(b) List of Exhibits
2 29 Directors and Officers of the Insurance Company
2 30 Persons Controlled by or under Common Control with
Registrant
2 31 Number of Contractors
2 32 Indemnification
2 33 Business and Other Connections of Investment Advisers
2 34 Principal Underwriters
3 35 Location of Accounts and Records
3 36 Management Services
3 37 Undertakings
<PAGE>
The
Paul Revere
VARIABLE ANNUITY
CONTRACT ACCUMULATION FUND
PROSPECTUS
. "Level Charge" Variable Annuity Contracts
. Individual Variable Annuity Contracts
. Group Variable Annuity Contracts
April 30, 2000 (R)
WORCESTER, MASSACHUSETTS
508-799-4441
- --------------------------------------------------------------------------------
(R)
WORCESTER, MA 01608
<PAGE>
TABLE OF CONTENTS
Definitions 7
Summary 7
Selected Per Unit Data and Ratios 9
Description of the Company and the Accumulation Fund 11
A. Investment Policies and Restrictions 11
Management 13
Deductions and Expenses 14
A. Sales and Administrative Functions and Expenses 14
B. Investment Advisory Fees 15
C. Expense and Mortality and Expense Risk Assumptions 16
D. Brokerage Expenses and Portfolio Turnover 16
Description of Contracts 17
A. Types of Contracts 17
B. Purchase Payment Provisions 18
C. Accumulation Units 18
D. Net Asset Value 19
E. Annuity Unit 19
F. Payments to Annuitants 20
G. Payments at Death 21
H. Early or Deferred Commencement Dates 21
I. Redemption 21
J. Voting Rights 22
K. Miscellaneous Provisions 22
Prior Contracts 24
A. Flexible Payment Contracts Issued Prior to June 1, 1977 24
B. Group Contracts Issued Prior to June 1, 1977 24
C. Group Deposit Administration Variable Annuity Contracts 24
Fixed Accumulation 26
Federal Tax Status 26
Changes in Operation of the Separate Account 28
Legal Proceedings 29
Statement of Additional Information 30
Table of Contents 31
<PAGE>
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 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").
Note: The public offering of contracts of the Accumulation Fund was
discontinued.
No further offering of contracts of the Accumulation Fund is made hereby.
The information contained herein is intended solely for the information and use
of holders of contracts previously issued.
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 30 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 April 30, 2000.
The date of the Statement of Additional Information is April 30, 2000.
<PAGE>
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.
SUMMARY
<TABLE>
<CAPTION>
Flexible* Single* Level* Group*
Contracts
<S> <C> <C> <C> <C>
Contract Owner Transaction Expenses:
Sales Load Imposed on Purchases 7.5% 6.0% 5.0% 5.0%
(as a percentage of purchase payments)
Collection Fee (per payment) $1.00 $1.00 $1.00 $1.00
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Flexible* Single* Level* Group*
--------- ------- ------ ------
Contracts
---------
<S> <C> <C> <C> <C>
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 page 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 and 9 for the contracts offered by this
Prospectus. State premium taxes, as described on page 8 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.
3
<PAGE>
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 18).
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 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 Company's 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 22)
Withdrawal or redemption of funds from certain contracts may result in
tax penalties. (see Federal Tax Status, page 26)
4
<PAGE>
SELECTED PER UNIT DATA AND RATIOS (a)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999(b) 1998(b) 1997(b) 1996(b) 1995(b) 1994(b) 1993(b) 1992(b) 1991 1990
------- ------- ------- ------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Series N (Non-qualified)
Income and Expenses
Investment income....... $0.083 $ 0.096 $ .135 $ .137 $ .117 $ .099 $ .055 $ .071 $ .085 $ .111
Operating expenses...... 0.296 0.212 .166 .134 .109 .102 .092 .094 .076 .072
Net investment income
(loss)................. (0.213) (0.116) (0.031) .003 .008 (.003) (.037) (.023) .009 .039
Capital Changes
Net realized and
unrealized gains
(losses) from
securities............. 5.894 3.891 2.660 1.459 1.769 (.023) .318 .194 1.361 (.102)
Net increase (decrease)
in net asset value..... 5.681 3.775 2.629 1.462 1.777 (.026) .281 .171 1.370 (.063)
Accumulation unit net
asset value:
Beginning of year...... 15.133 11.358 8.729 7.267 5.490 5.516 5.235 5.064 3.694 3.757
End of year............$20.814 $15,133 $11.358 $8.729 $7.267 $5.490 $5.516 $5.235 $5.064 $3.694
Ratios
Operating expenses to
average accumulation
fund balance........... 1.62% 1.63 % 1.67 % 1.69% 1.71% 1.73% 1.73 % 1.74 % 1.76% 1.80%
Net investment income
(loss) to average
accumulation fund
balance................ (1.16)% (0.90)% (0.31)% 0.04% 0.13% (0.05)% (0.69)% (0.42)% 0.21% 0.96%
Portfolio turnover
rate................... 103% 143 % 139 % 94% 67% 62 % 62 % 66 % 109% 84%
Accumulation units
outstanding at end of
year (in thousands).... 342 475 530 566 586 604 640 662 684 735
</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 17 of the Statement of
Additional Information.
5
<PAGE>
SELECTED PER UNIT DATA AND RATIOS (a)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998(b) 1997(b) 1996(b) 1995(b) 1994(b) 1993(b) 1992(b) 1991 1991
------ ------- ------- ------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Series Q (Qualified)
Income and Expenses
Investment income....... $ 0.094 $ 0.116 $ .177 $ .153 $ .119 $ .081 $ .054 $ .068 $ .093 $ .116
Operating expenses...... 0.277 0.202 .159 .133 .096 .073 .079 .076 .066 .055
Net investment income
(loss)................. (0.183) (0.086) .018 .020 .023 .008 (.025) (.008) .027 .061
Capital Changes
Net realized and
unrealized gains
(losses) from
securities............. 5.280 3.836 2.723 1.551 1.711 (.020) .291 .159 1.295 (.107)
Net increase (decrease)
in net asset value..... 5.097 3.750 2.741 1.571 1.734 (.012) .266 .151 1.322 (.046)
Accumulation unit net
asset value:
Beginning of year...... 15.124 11.374 8.633 7.062 5,328 5.340 5.074 4.923 3.601 3.647
End of year............ $20.221 $15.124 $11.374 $8.633 $7.062 $5.328 $5.340 $5.074 $4.923 $3.601
Ratios
Operating expenses to
average accumulation
fund balance........... 1.56 % 1.57 % 1.59% 1.57% 1.55% 1.55% 1.56 % 1.56 % 1.56% 1.58%
Net investment income
(loss) to average
accumulation fund
balance................ (1.03)% (0.67)% 0.18% 0.24% 0.38% 0.17% (0.50)% (0.17)% 0.64% 1.76%
Portfolio turnover
rate................... 98 % 143 % 130% 78% 64% 64% 59 % 61 % 98% 80%
Accumulation units
outstanding at end of
year (in thousands).... 1,385 1,715 1.887 2,093 5,491 5,597 5,700 5,753 5,839 5,961
</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 17 of the Statement of
Additional Information.
6
<PAGE>
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 ("Paul Revere"), a
Massachusetts corporation with its principal office at 18 Chestnut Street,
Worcester, Massachusetts 01608. Paul Revere 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. Paul Revere is a wholly owned subsidiary of UnumProvident
Corporation, a Delaware corporation with its principal office at 1 Fountain
Square, Chattanooga, Tennessee 37402.
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
43% of the outstanding units of the Accumulation Fund at December 31, 1999.
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,
7
<PAGE>
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.
8
<PAGE>
As of the year ended December 31, 1999, the Accumulation 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.
B. Principle Risk Factors
The Accumulation Fund invests in a diversified portfolio of common
stocks. Common stocks are inherently volatile and their prices may decline
substantially at times due to economic, competitive, regulatory, or other
factors. In addition, the portfolio's returns may differ materially from its
benchmark, the Russell 1000 index, due to differences in industry weightings
and specific stock weightings. The Accumulation Fund generally invests in mid-
to-large capitalization growth stocks and this class of stocks may also perform
materially differently from the Russell 1000 index for long periods of time due
primarily to changes in forecasted relative earnings and interest rates.
Additionally, the markets for and values of securities in which the
Separate Account invests may be hurt by computer failures as of January 1,
1999. Such failures could affect the value of the securities or the trading of
those securities. For example, improperly functioning computer systems could
result in securities trading settlement problems, liquidity issues, production
issues for individual portfolio companies, and overall economic uncertainties.
Individual portfolio companies may incur increased costs in making their own
systems Year 2000 compliant. The combination of increased market uncertainty
and increased costs could mean that Year 2000 issues would adversely affect the
portfolio investments of the Separate Account.
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.
9
<PAGE>
The Company pursuant to a written agreement currently 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 Institutional Advisors, Inc. ("MFSI"),
formerly MFS Asset Management, Inc., went into effect on August 16, 1984. MFSI
is registered with the Securities and Exchange Commission as an investment
advisor. Its principal offices are located at 500 Boylston Street, Boston,
Massachusetts 02116. MFSI 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, 1999,
Massachusetts Financial Services Company ("MFS") and its subsidiaries including
MFSI, had over $136 billion in assets under management, which included
over $25 billion in assets, managed by MFSI. Under the Sub-Advisory Agreement,
MFSI 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 on February 17, 2000.
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.
As a consequence of an Asset Transfer and Acquisition Agreement entered
into by Provident Companies, Inc., et. al. and American General Corporation,
et. al., dated as of December 8, 1997, and the Separate Account Administrative
Services Agreement entered into in June 1998. The Variable Annuity Life
Insurance Company became the Administrator of the Accumulation Fund. The change
in Administrator does not result in any changes in administrative or sales
fees.
The total amounts received by the Company in connection with the sales
and administrative functions in 1999, 1998 and 1997 were $2,623, $1,159, and
$2,707, respectively.
10
<PAGE>
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
(b) Single Payment Variable Annuity Contracts.
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 Company's 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.
11
<PAGE>
MFSI, 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 1999, 1998 and
1997 amounted to $171,014, $149,556 and $129,238, respectively. The fees paid to
MFSI by the Company in 1999, 1998 and 1997 were $119,042, $103,384, $90,536,
respectively.
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 1999, 1998 and 1997
amounted to $342,028, $299,109, and $258,476, 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
MFSI 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, MFSI may cause the Accumulation Fund to
pay a broker-dealer who provides brokerage and research services to the
Accumulation Fund and to MFSI, 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 MFSI determines in good
12
<PAGE>
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 MFSI's overall responsibility to
the Accumulation Fund or to its other clients.
The advisory fee paid by the Company to MFSI will not be reduced as a
consequence of MFSI'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 MFSI 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 MFSI in carrying out its
obligations to the Accumulation Fund. While such services are not expected to
reduce the expenses of MFSI, through the use of the services, MFSI 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, 1999, 1998 and
1997 amounted to $50,580, $79,252 and $63,648, respectively. Stated as a
percentage of gross purchase payments received, brokerage commissions aggregated
99%, 112%, and 110%, for these three periods. Brokerage commissions were paid to
63 brokers in 1999. In the years ended December 31, 1999, 1998 and 1997 the
aggregate rates of portfolio turnover were 99%, 143% and 132%, respectively. The
1998 and 1997 portfolio rate was greater than 100% due to volatile market
conditions and active trading by portfolio managers.
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.
13
<PAGE>
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 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.
14
<PAGE>
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 16).
15
<PAGE>
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 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
Company's 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 Company's 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 participant's
interest shall be distributed in a lump sum as selected by the contract owner
or participant.
16
<PAGE>
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 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.
17
<PAGE>
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 members of the 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 43% of the total vote as of December 31,
1999.
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.
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.
18
<PAGE>
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, 1999, 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.
19
<PAGE>
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.
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>
Purchase Total Sales Administrative
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.
20
<PAGE>
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 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>
Purchase Total Sales Administrative
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 15)
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.
21
<PAGE>
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
advice. 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 (S)72 (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 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.
22
<PAGE>
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
owner's 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.
23
<PAGE>
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 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.
24
<PAGE>
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.
LEGAL OPINION
Legal matters relating to Federal securities laws applicable to the
contracts as well as all matters relating to Federal income tax laws and the
insurance laws of Tennessee and other states in which contracts have been
offered, have been passed upon by Susan N. Roth, Vice President and Secretary
of The Paul Revere Variable Annuity Insurance Company.
EXPERTS
The financial statements of The Paul Revere Variable Annuity Contract
Accumulation Fund at December 31, 1999 and 1998 and for each of the three years
in the period ended December 31, 1999, and of The Paul Revere Variable Annuity
Insurance Company at December 31, 1999 and 1998, and for each of the two years
ended December 31, 1999, appearing in this Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
25
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TO BE USED WITH APRIL 30, 2000 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 April 30, 2000 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 April 30, 2000.
The date of the Prospectus is April 30, 2000.
26
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information and History of the Company and the Accumulation Fund.. 33
Investment Objective and Policies......................................... 34
Management: 36
Board of Managers of the Accumulation Fund............................ 36
Directors and Principal Officers of the Company....................... 37
Remuneration of the Board of Managers................................. 38
Election of the Board of Managers..................................... 38
Investment Advisory Services Investment Advisory Agreement............ 39
Sales and Administrative Services Agreement........................... 39
Investment Sub-Advisory Agreement..................................... 40
Ownership and Control................................................. 41
Brokerage Allocation...................................................... 41
Underwriters.............................................................. 43
Purchase and Pricing of Contracts......................................... 43
Annuity Payments.......................................................... 44
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..................................................................
</TABLE>
27
<PAGE>
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... 33
Investment Objective and Policies.......................................... 34
Management:
Board of Managers of the Accumulation Fund............................... 36
Investment Advisory Services:
Investment Advisory Agreement............................................ 39
Sales and Administrative Services Agreement.............................. 39
Investment Sub-Advisory Agreement........................................ 40
Brokerage Allocation....................................................... 41
Purchase and Pricing of Contracts.......................................... 43
Annuity Payments........................................................... 44
</TABLE>
28
<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 ("Paul Revere"), a Massachusetts
corporation with its principal office at 18 Chestnut Street, Worcester,
Massachusetts. Paul Revere 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. Paul
Revere is a wholly-owned subsidiary of UnumProvident Corporation
("UnumProvident"). UnumProvident is a Delaware corporation with its principal
office at 1 Fountain Square, Chattanooga, Tennessee 37402.
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 The Chase Manhattan Bank, 3 Chase MetroTech Center, 6th Floor,
Brooklyn, New York 11245. The Accumulation Fund's independent certified public
accountant is Ernst & Young LLP, 300 Krystal Bldg, One Union Square,
Chattanooga, Tennessee 37402.
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
29
<PAGE>
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 $108,048,000 and $94,789,000 as of December 31, 1999 and 1998,
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 without prior
approval. Under current law, during 2000, approximately $13,068,994 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 1999, 1998 and 1997 was
$14,383,000, $43,338,000, and $17,522,000, respectively. The Company declared
and paid dividends to its parent, PRL of $-0- in 1999, $59,000,000 in 1998,
and $2,000,000 in 1997.
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, 1999, 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
30
<PAGE>
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, 1999, 1998, and
1997 and amounted to 1.6%, 0%, and 2.47%, respectively. MFS Institutional
Advisors, Inc. ("MFSI"), formerly MFS Asset Management, Inc., 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 1999, 1998,
and 1997, were 99%, 143%, and 132%, respectively. The 1998 portfolio rate was
greater than 100% due to volatile market conditions and active trading by
portfolio managers.
31
<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>
*Donald E. Boggs, 54 Senior Vice President of PRV
Chairman
1 Fountain Square
Chattanooga, TN
Gordon T. Miller, Vice 77 Retired; Former Vice President and Director of Industrial
Chairman Relations of Barry Wright Corporation, Newton Lower Falls,
14 Eastwood Road Massachusetts.
Shrewsbury, Massachu-
setts
*Aubrey K. Reid, Jr. 72 Retired; Director Emeritus and Former President of PRV and PRL.
6 Crocker Hill Drive
Paxton, Massachusetts
01612
Joan Sadowsky 69 Retired; Former Vice President of Human Resources, Atlas
142 Winifred Avenue Distributing Corporation, Auburn, Massachusetts.
Worcester, Massachu-
setts
William J. Short 64 President, Worcester Area Chamber of Commerce, Worcester,
33 Waldo Street Massachusetts
Worcester, Massachu-
setts
</TABLE>
*indicates "interested persons" as defined in the Investment Company Act
of 1940.
32
<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, 1999.
<TABLE>
<CAPTION>
Principal Occupations
Name and Address Age During Past 5 Years
<S> <C> <C>
James A. Ramsay 40 President, the Company; Senior Vice President,
UnumProvident
Thomas R. Watjen 45 Executive Vice President - Finance and Risk
Management, the Company and Director, the Company;
Executive Vice President - Finance and Risk
Management, UnumProvident
F. Dean Copeland 61 Executive Vice President - Legal and
Administrative Affairs and Assistant Secretary and
Director, the Company; Executive Vice President -
Legal and Administrative Affairs and Assistant
Secretary, UnumProvident
Elaine D. Rosen 47 Executive Vice President - Customer Developement
and Director; the Company; Executive Vice
President - Customer Developement, UnumProvident
Ralph A. Rogers, Jr. 51 Senior Vice President, the Company; UnumProvident
Robert C. Greving 48 Senior Vice President and Chief Actuary, the
Company; UnumProvident
John M. Lang 40 Senior Vice President and Treasurer, the Company;
UnumProvident
Vicki W. Corbet 47 Vice President and Controller, the Company;
UnumProvident
Susan N. Roth 41 Secretary, the Company, UnumProvident
James L. Moody, Jr. 68 Director, the Company; UnumProvident;Director,
Empire Company Limited; Director, IDEXX
Laboratories; Director, Staples, Inc.
Burton E. Sorensen 70 Director, the Company, UnumProvident; Director,
The ServiceMaster Company
</TABLE>
33
<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 14). 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, 1999 was $4,800. 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.
COMPENSATION TABLE
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Pension or
Retirement Total Compensation
Aggregate Benefits Accrued Estimated Annual From Registrant
Name of Person, Compensation From As Part of Fund Benefits Upon and Fund Complex
Position Registrant Expenses Retirement Paid to Directors
- --------------- ----------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Donald E. Boggs 0 0 0 0
Chairman
Gordon T. Miller $1,800 0 0 $1,800
Vice Chairman
Aubrey K. Reid, Jr. 0 0 0 0
Member
Joan Sadowsky $1,800 0 0 $1,800
Member
William J. Short $1,200 0 0 $1,200
Member
</TABLE>
D.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. Members of the Board
of Managers whose terms continue, namely Ms. Sadowsky, Mr. Miller and Mr. Short
are not deemed to be "interested persons" as defined in the 1940 Act. Of the
three members of the Board of Managers whose terms continue, Mr. Boggs and Mr.
Reid are deemed to be an "interested person" by virtue of his status as active
or retired officer and/or director of the Investment Advisor.
34
<PAGE>
INVESTMENT ADVISORY SERVICES
The Company currently serves as investment adviser to the Accumulation
Fund pursuant to an Investment Advisory Agreement, which was approved by
contract owners on August 8, 1996. 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 MFSI
pursuant to the Investment Sub-Advisory Agreement between the Company and MFSI
as described below; fees required by federal and state 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, 1999, the net asset values for each series of the Fund
were $20.81 (Series N) and $20.22 (Series Q). For the fiscal years ended
December 31, 1999, 1998 and 1997 the Company received fees under the agreement
aggregating $171,040, $149,556 and $129,238, 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 1999, 1998, and 1997 were
$2,623, $1,159, and $2,707, respectively.
35
<PAGE>
The Company also received $342,028, $299,109, and $258,476, from the
Accumulation Fund during 1999, 1998, and 1997, 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 1996, this relationship was taken over by MFSI, 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, MFSI, 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 and to pay all expenses incurred by it in connection with its
activities. However, MFSI 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 MFSI furnishes to the Company and the Accumulation Fund
as sub-advisor, the Sub-Agreement provides that the Company will pay MFSI 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 1999, 1998 and 1997,
respectively, the Company paid MFSI a total of $119,042, $103,384 and $96,826,
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.
36
<PAGE>
MFSI, formerly MFS Asset Management, Inc. is a Delaware corporation with
its principal offices at 500 Boylston Street, Boston, Massachusetts 02116.
MFSI, together with its parent corporation, Massachusetts Financial Services
Company and its predecessor organizations, have a history of money management
dating from 1924. MFSI is a wholly-owned subsidiary of MFS.
MFS is a subsidiary of Sun Life of Canada (U.S.) Financial Services
Holdings, Inc., which is ultimately a subsidiary of Sun Life Assurance Company
of Canada, 150 King Street West, Toronto, Canada M5H 1J9.
As of December 31, 1999, MFS and its subsidiaries had over $136 billion in
assets under management, which included over $25 billion managed by MFSI.
MFSI 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 following list shows the names and addresses and principal
occupations of all directors and principal officers of MFSI.
<TABLE>
<C> <S>
Name and Address Principal Occupation
---------------- --------------------
*Thomas J. Cashman, Jr. Chairman and Director of MFSI and Director and
Executive Vice President of MFS.
*Arnold D. Scott Senior Executive Vice President and Director
of MFS and Director of MFSI.
*Jeffrey L. Shames Chairman, Chief Executive Officer and Director
of MFS and Director of MFSI.
*Joseph J. Trainor President and Director of MFSI.
</TABLE>
*Address is:
500 Boylston Street
Boston, Massachusetts
OWNERSHIP AND CONTROL
As of December 31, 1999, 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 11,500 units, being approximately .008% 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 565,568 units,
representing 43% of the total vote.
BROKERAGE ALLOCATION
MFSI, 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.
37
<PAGE>
MFSI 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), MFSI
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 MFSI 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 MFSI 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, MFSI may cause the Accumulation Fund to pay a
broker/dealer who provides brokerage and research services to the Accumulation
Fund and to MFSI, 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 MFSI 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 MFSI'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
MFSI, 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 MFSI'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 MFSI 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 MFSI.
38
<PAGE>
MFSI's investment management personnel attempt to evaluate the quality of
"research" provided by brokers. Results of this effort are sometimes used by
MFSI as a consideration in selection of brokers to execute portfolio
transactions. However, MFSI 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 MFSI. Investment decisions for the Accumulation Fund and for MFSI'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, 1999, 1998, and
1997 amounted to $50,580, $79,252, and $63,648, respectively. Brokerage
commissions were paid to 63 brokers in 1999. No brokerage commission was paid
to any broker who was or is an affiliated person of the Company, the
Accumulation Fund or MFSI.
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 17) and the amount of any sales charge and
collection fee assessed against any purchase payment (Prospectus, page 14).
39
<PAGE>
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 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 18).
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 15).
40
<PAGE>
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.
41
<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 statements of assets and liabilities of The
Paul Revere Variable Annuity Contract Accumulation Fund (comprising the
Qualified and Non-qualified Portfolios) as of December 31, 1999 and 1998,
including the statement of investments as of December 31, 1999, and the related
statements of operations and changes in net assets for each of the three years
in the period ended December 31, 1999, and the supplementary information for
each of the ten years in the period then ended. These financial statements and
supplementary information are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
supplementary information based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements and
supplementary information 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 as of December 31, 1999 and 1998, by correspondence with the custodian and
brokers. 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 supplementary information referred
to above present fairly, in all material respects, the financial position of The
Paul Revere Variable Annuity Contract Accumulation Fund at December 31, 1999 and
1998, the results of its operations and the changes in its net assets for each
of the three years in the period ended December 31, 1999, and the supplementary
information for each of the ten years in the period then ended, in conformity
with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Chattanooga, Tennessee
January 24, 2000
<PAGE>
Statements of Assets and Liabilities
<TABLE>
<CAPTION>
December 31,
1999 1998 1999 1998
Series Q Series Q Series N Series N
(Qualified) (Qualified) (Non-Qualified) (Non-Qualified)
------------ ------------ --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities at market value
(Cost: Series Q 1999-$18,887,810, 1998-$19,178,659)
(Cost: Series N 1999-$4,682,837, 1998-$5,278,593)
(see Statement of Investments) $28,498,687 $26,260,278 $7,160,424 $7,250,200
Cash 4,520 85,709 173,142 16,461
Dividends receivable 7,567 16,612 1,759 4,480
Receivable for investments sold 65,167 75,057 17,005 26,456
----------- ----------- ---------- ----------
Total assets 28,575,941 26,437,656 7,352,330 7,297,597
----------- ----------- ---------- ----------
LIABILITIES
Surrenders payable -- 15,146 -- 3,663
Payable for investments purchased 77,192 114,052 19,654 29,197
Payable to The Paul Revere Variable Annuity
Insurance Company 497,587 362,848 219,872 81,081
Other -- 2,202 -- 58
----------- ----------- ---------- ----------
Total liabilities 574,779 494,248 239,526 113,999
----------- ----------- ---------- ----------
TOTAL NET ASSETS $28,001,162 $25,943,408 $7,112,804 $7,183,598
=========== =========== ========== ==========
CONTRACT OWNERS' EQUITY
Deferred contracts terminable by owner $22,256,041 $21,615,662 $4,466,397 $5,144,222
Currently payable contracts 5,745,121 4,327,746 2,646,407 2,039,376
----------- ----------- ---------- ----------
Total net assets $28,001,162 $25,943,408 $7,112,804 $7,183,598
=========== =========== ========== ==========
ACCUMULATION UNITS OUTSTANDING 1,384,747 1,715,402 341,729 474,699
=========== =========== ========== ==========
NET ASSET VALUE PER ACCUMULATION UNIT $20.221 $15.124 $20.814 $15.133
=========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the years ended December 31,
1999 1998 1997
Series Q Series Q Series Q
(Qualified) (Qualified) (Qualified)
--------------- --------------- ---------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) $ (276,056) $ (154,286) $ 34,747
Net realized gain on investments 5,429,040 3,927,590 5,091,490
Net increase in unrealized appreciation of investments 2,529,347 2,960,111 307,210
----------- ----------- -----------
Increase in net assets from operations 7,682,331 6,733,415 5,433,447
Contract receipts:
Gross purchase payments received 44,524 66,629 47,982
Deductions from purchase payments 2,074 852 2,060
----------- ----------- -----------
Net purchase payments received 42,450 65,777 45,922
Payments to contract owners:
Annuity payments to contract owners 546,059 490,751 378,254
Terminations and withdrawals to contract owners 5,403,945 1,548,428 1,783,911
----------- ----------- -----------
Total payments to contract owners 5,950,004 2,039,179 2,162,165
----------- ----------- -----------
Net contract payments to contract owners (5,907,554) (1,973,402) (2,116,243)
Other increases (decreases) 282,977 (282,853) 78,932
----------- ----------- -----------
Total increase in net assets 2,057,754 4,477,160 3,396,136
NET ASSETS
Beginning of year 25,943,408 21,466,248 18,070,112
----------- ----------- -----------
End of year $28,001,162 $25,943,408 $21,466,248
=========== =========== ===========
For the years ended December 31,
1999 1998 1997
Series N Series N Series N
(Non-qualified) (Non-qualified) (Non-qualified)
-------------- -------------- --------------
INCREASE IN NET ASSETS
Operations:
Net investment loss $ (82,825) $ (57,763) $ (17,250)
Net realized gain on investments 1,790,732 1,106,946 1,359,361
Net increase in unrealized appreciation of investments 505,981 830,473 115,793
----------- ----------- -----------
Increase in net assets from operations 2,213,888 1,879,656 1,457,904
Contract receipts:
Gross purchase payments received 6,249 4,269 9,995
Deductions from purchase payments 246 307 647
----------- ----------- -----------
Net purchase payments received 6,003 3,962 9,348
Payments to contract owners:
Annuity payments to contract owners 267,038 244,083 198,891
Terminations and withdrawals to contract owners 2,222,991 308,059 254,751
----------- ----------- -----------
Total payments to contract owners 2,490,029 552,142 453,642
----------- ----------- -----------
Net contract payments to contract owners (2,484,026) (548,180) (444,294)
Other increases (decreases) 199,344 (165,154) 63,860
----------- ----------- -----------
Total increase (decrease) in net assets (70,794) 1,166,322 1,077,470
NET ASSETS
Beginning of year 7,183,598 6,017,276 4,939,806
----------- ----------- -----------
End of year $ 7,112,804 $ 7,183,598 $ 6,017,276
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
Statements of Operations
For the years ended December 31,
1999 1998 1997
Series Q Series Q Series Q
(Qualified) (Qualified) (Qualified)
-------------- -------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME
Income:
Dividends $ 122,168 $ 151,836 $ 211,880
Interest 19,589 57,336 138,669
---------- ---------- ----------
Total income 141,757 209,172 350,549
---------- ---------- ----------
Expenses:
Mortality and expense risk fees 270,142 233,905 202,101
Investment management and advisory service fees 135,071 116,953 101,051
Professional services 12,600 12,600 12,650
---------- ---------- ----------
Total expenses 417,813 363,458 315,802
---------- ---------- ----------
Net investment income (loss) (276,056) (154,286) 34,747
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on investments sold 5,429,040 3,927,590 5,091,490
Net increase in unrealized appreciation of investments 2,529,347 2,960,111 307,210
---------- ---------- ----------
Net realized and unrealized gain on investments 7,958,387 6,887,701 5,398,700
---------- ---------- ----------
Increase in net assets from operations $7,682,331 $6,733,415 $5,433,447
========== ========== ==========
For the years ended December 31,
1999 1998 1997
Series N Series N Series N
(Non-qualified) (Non-qualified) (Non-qualified)
-------------- -------------- --------------
INVESTMENT INCOME
Income:
Dividends $ 32,459 $ 42,373 $ 57,959
Interest 105 5,231 16,943
---------- ---------- ----------
Total income 32,564 47,604 74,902
---------- ---------- ----------
Expenses:
Mortality and expense risk fees 71,886 65,204 56,375
Investment management and advisory service fees 35,943 32,603 28,187
Professional services 7,560 7,560 7,590
---------- ---------- ----------
Total expenses 115,389 105,367 92,152
---------- ---------- ----------
Net investment loss (82,825) (57,763) (17,250)
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on investments sold 1,790,732 1,106,946 1,359,361
Net increase in unrealized appreciation of investments 505,981 830,473 115,793
---------- ---------- ----------
Net realized and unrealized gain on investments 2,296,713 1,937,419 1,475,154
---------- ---------- ----------
Increase in net assets from operations $2,213,888 $1,879,656 $1,457,904
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments
December 31, 1999
Series Q (Qualified) Series N (Non-Qualified)
-------------------- ------------------------
Securities of Number % of Number % of
Unaffiliated Companies of Market Net of Market Net
Shares Cost Value Assets Shares Cost Value Assets
------ ---------- ---------- ------ ------ -------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
Aerospace/Defense
Honeywell International, Inc. 1,880 $ 118,042 $ 108,453 0.39% 480 $ 30,139 $ 27,690 0.39%
---------- ---------- -------- -----------
Auto - Original Equipment
Danaher Corporation 2,660 177,156 128,345 0.46% 610 40,202 29,433 0.41%
---------- ---------- -------- -----------
Broadcasting
CBS Corporation 6,240 219,183 398,970 1,560 55,513 99,743
Clear Channel Communications 2,856 151,169 254,898 654 33,836 58,370
Comcast Corporation Class A Special 6,330 227,702 318,083 1,630 58,569 81,908
Entercom Communications Corp. 3,170 114,120 209,219 810 29,160 53,460
Infinity Broadcasting Corporation 10,100 257,423 365,494 2,730 69,617 98,791
Media One Group, Inc. 3,270 269,860 251,177 820 67,602 62,986
Univision Communications, Inc. 2,970 109,305 303,497 750 27,788 76,641
---------- ---------- -------- -----------
1,348,762 2,101,338 7.50% 342,085 531,899 7.48%
---------- ---------- -------- -----------
Computer Software - PC
Ceridian Corporation 8,810 222,562 189,966 2,130 53,129 45,927
International Business Machines Corp. 400 54,083 43,199 80 10,817 8,640
Microsoft Corporation 13,260 654,462 1,548,105 3,280 160,486 382,940
---------- ---------- -------- -----------
931,107 1,781,270 6.36% 224,432 437,507 6.15%
---------- ---------- -------- -----------
Computer Software - Systems
Affiliated Computer Services Class A 5,740 201,126 264,040 1,470 51,124 67,620
BMC Software, Inc. 7,520 264,389 601,130 1,880 66,701 150,282
Cisco Systems, Inc. 7,030 460,862 753,089 1,730 113,558 185,326
Citrix Systems, Inc. 2,080 111,956 255,840 330 19,210 40,590
Computer Associates Int'l, Inc. 4,560 272,891 318,914 1,150 68,994 80,428
Compuware Corporation 9,510 181,262 354,248 2,310 44,090 86,048
Comverse Technology, Inc. 590 69,903 85,403 180 21,326 26,054
DST Systems, Inc. 3,170 169,649 241,911 820 44,546 62,576
EMC Corporation 3,860 76,782 421,705 990 19,339 108,158
First Data Corporation 6,150 275,305 303,272 1,540 69,188 75,941
Galileo International, Inc. 2,080 91,124 62,270 480 20,629 14,370
General Instrument Corporation 2,970 113,038 252,450 750 28,545 63,750
Liberate Technologies, Inc. 490 82,347 125,930 140 23,528 35,980
Network Solutions, Inc. 490 39,093 106,606 80 6,383 17,405
Oracle Corporation 8,410 162,859 942,445 2,095 48,509 234,771
Phone.com, Inc. 500 82,937 57,969 90 14,929 10,434
S1 Corporation 2,380 83,831 185,938 570 20,077 44,531
Siebel Systems, Inc. 3,960 121,673 332,640 990 30,393 83,160
SunGard Data Systems, Inc. 4,350 172,164 103,313 1,060 41,932 25,175
Sun Microsystems, Inc. 5,310 189,639 411,193 1,250 46,255 96,797
Synopsys, Inc. 1,580 80,580 105,465 410 20,910 27,368
Veritas Software Corporation 3,020 118,015 432,238 740 28,840 105,913
---------- ---------- -------- -----------
3,421,425 6,718,009 24.00% 849,006 1,642,677 23.10%
---------- ---------- -------- -----------
Consumer Goods & Services
Clorox Company 2,680 147,870 135,005 750 41,251 37,781
Dial Corporation 4,660 116,653 113,295 1,140 28,192 27,716
Tyco International, Ltd. 17,232 246,159 669,894 3,950 56,903 153,556
---------- ---------- -------- -----------
510,682 918,194 3.28% 126,346 219,053 3.08%
---------- ---------- -------- -----------
Containers
Corning, Inc. 4,060 280,881 523,486 1.87% 990 68,370 127,648 1.79%
---------- ---------- -------- -----------
Electrical Equipment
Agilent Technologies, Inc. 340 10,200 26,286 80 2,400 6,185
General Electric Company 4,160 460,509 643,759 990 98,172 153,202
Hitachi Ltd. - ADR 500 68,125 80,938 100 13,625 16,188
Teradyne, Inc. 3,760 109,333 248,160 990 28,587 65,340
---------- ---------- -------- -----------
648,167 999,143 3.57% 142,784 240,915 3.39%
---------- ---------- -------- -----------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments (continued)
December 31, 1999
Series Q (Qualified) Series N (Non-Qualified)
-------------------- ------------------------
Number % of Number % of
of Market Net of Market Net
Shares Cost Value Assets Shares Cost Value Assets
------ ------- ------- ---------- ------ -------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Electronics
Analog Devices, Inc. 5,350 $ 143,207 $ 497,550 1,410 $ 39,986 $131,129
Intel Corporation 5,650 424,356 465,065 1,390 104,859 114,414
W. W. Grainger, Inc. 2,280 113,457 109,013 570 28,354 27,253
---------- --------- -------- -----------
681,020 1,071,628 3.83% 173,199 272,796 3.84%
---------- --------- -------- -----------
Energy
Conoco, Inc. Class B 4,250 118,097 105,719 1,060 29,466 26,368
Exxon Mobil Corporation 3,100 258,130 249,743 780 64,949 62,839
Halliburton Company 2,000 75,069 80,500 500 18,767 20,125
Williams Companies, Inc. 3,670 175,877 112,164 900 43,125 27,506
---------- --------- -------- -----------
627,173 548,126 1.96% 156,307 136,838 1.92%
---------- --------- -------- -----------
Entertainment
Carnival Corporation Class A 1,290 58,127 61,678 330 14,870 15,778
Time Warner, Inc. 6,340 225,104 459,254 1,560 51,296 113,002
---------- --------- -------- -----------
283,231 520,932 1.86% 66,166 128,780 1.81%
---------- --------- -------- -----------
Financial Institutions
American Express Company 890 98,687 147,963 240 24,680 39,900
Associates First Capital Corporation 6,530 233,155 179,167 1,630 60,063 44,723
Chase Manhattan Corporation 1,580 118,312 122,746 420 31,450 32,629
Citigroup, Inc. 4,750 189,015 263,921 1,230 48,849 68,342
Morgan Stanley Dean Witter,
Discover and Company 2,480 215,896 354,020 650 57,984 92,788
Providian Financial Corporation 1,580 149,252 143,879 420 40,307 38,246
State Street Corporation 4,060 283,092 296,634 1,060 73,385 77,446
---------- --------- -------- -----------
1,287,409 1,508,330 5.39% 336,718 394,074 5.54%
---------- --------- -------- -----------
Food & Beverage
Seagram Company, Ltd. 1,580 71,105 71,001 0.25% 420 18,901 18,874 0.27%
---------- --------- -------- -----------
Insurance
American International Group, Inc. 2,695 248,169 291,397 725 66,827 78,391
AXA Financial, Inc. 6,540 191,633 221,543 1,630 47,297 55,216
CIGNA Corporation 1,870 169,088 150,652 450 40,663 36,253
Lincoln National Corporation 2,970 120,634 118,800 740 30,891 29,600
---------- --------- -------- -----------
729,524 782,392 2.80% 185,678 199,460 2.80%
---------- --------- -------- -----------
Leisure Time
Royal Caribbean Cruises Ltd. 480 19,421 23,670 0.33%
-------- -----------
Medical & Health Products
American Home Products Corporation 5,740 310,338 226,371 1,480 80,074 58,368
Bausch & Lomb, Inc. 2,680 185,786 183,413 680 47,178 46,538
Bristol Myers Squibb Company 5,140 240,932 329,924 1,310 60,209 84,086
Elan Corp., Plc - ADR 5,702 201,627 168,208
Guidant Corporation 3,560 158,023 167,320 900 41,552 42,300
Medtronic, Inc. 6,630 238,763 241,581 1,560 56,271 56,842
Pharmacia & Upjohn, Inc. 5,040 291,925 226,800 1,230 71,159 55,350
---------- --------- -------- -----------
1,627,394 1,543,617 5.51% 356,443 343,484 4.83%
---------- --------- -------- -----------
Printing & Publishing
Scholastic Corporation 1,580 66,360 98,256 410 17,220 25,497
Tribune Company 4,950 201,000 272,559 1,310 53,461 72,132
---------- --------- -------- -----------
267,360 370,815 1.32% 70,681 97,629 1.37%
---------- --------- -------- -----------
Restaurants
McDonald's Corporation 2,600 88,807 104,813 900 32,749 36,281
Wendy's International, Inc. 4,840 115,214 99,825 1,230 29,344 25,369
---------- --------- -------- -----------
204,021 204,638 0.73% 62,093 61,650 0.87%
---------- --------- -------- -----------
Semiconductor Equipment
Applied Materials, Inc. 1,090 69,215 138,089 240 15,240 30,405
KLA-Tencor Corporation 490 43,365 54,574 90 7,965 10,024
Novellus Systems, Inc. 1,980 128,096 242,612 480 31,120 58,815
---------- --------- -------- -----------
240,676 435,275 1.55% 54,325 99,244 1.40%
---------- --------- -------- -----------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments (continued)
December 31, 1999
Series Q (Qualified) Series N (Non-Qualified)
-------------------- ------------------------
Number % of Number % of
of Market Net of Market Net
Shares Cost Value Assets Shares Cost Value Assets
------ ------- ------- ---------- ------ ---------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Semiconductors
Altera Corporation 4,350 $ 131,588 $ 215,597 1,140 $ 34,485 $ 56,501
Atmel Corporation 12,580 233,560 371,896 3,130 58,111 92,531
LSI Logic Corporation 6,330 166,370 427,275 1,560 40,918 105,300
Motorola, Inc. 3,070 227,997 452,058 820 61,608 120,744
National Semiconductor Corp. 5,940 154,301 254,306 1,480 38,250 63,363
Texas Instruments, Inc. 2,180 111,173 211,188 560 28,422 54,250
----------- ----------- ---------- ----------
1,024,989 1,932,320 6.90% 261,794 492,689 6.93%
----------- ----------- ---------- ----------
Stores
BJ's Wholesale Club, Inc. 5,440 86,382 198,560 1,310 21,818 47,815
CVS Corporation 7,030 259,393 280,761 1,720 64,745 68,693
Lowe's Companies, Inc. 4,550 182,411 271,862 1,150 44,182 68,713
Office Depot, Inc. 11,730 144,539 128,297 2,380 30,155 26,031
Tandy Corporation 2,600 127,350 127,888 680 33,436 33,448
TJX Companies, Inc. 6,530 188,638 133,457 1,630 47,042 33,313
----------- ----------- ---------- ----------
988,713 1,140,825 4.07% 241,378 278,013 3.91%
----------- ----------- ---------- ----------
Supermarkets
Kroger Company 13,860 234,233 261,608 3,450 57,596 65,119
Safeway Inc. 3,270 111,089 116,289 770 25,981 27,383
Wal-Mart Stores, Inc. 6,530 133,430 451,386 1,630 30,330 112,674
----------- ----------- ---------- ----------
478,752 829,283 2.96% 113,907 205,176 2.88%
----------- ----------- ---------- ----------
Telecommunications
Ancor Communications, Inc. 875 67,267 59,391 215 16,533 14,593
AT&T Canada, Inc. 2,380 75,326 95,795 330 10,333 13,283
AT&T Corporation 4,360 115,605 247,429 1,150 30,492 65,263
Broadwing, Inc. 1,690 32,734 62,319 420 8,135 15,488
Cable & Wireless Plc - ADR 2,800 137,047 148,225 680 33,283 35,998
California Amplifier, Inc. 2,400 67,425 63,150 680 19,003 17,893
CenturyTel, Inc. 4,850 136,144 229,769 1,230 35,436 58,271
EchoStar Communications
Corporation Class A 300 21,300 29,250 90 6,390 8,775
Ericsson L M Tel Co. - ADR Series B 1,720 71,495 112,982
GTE Corporation 2,480 184,401 174,995 570 42,580 40,221
Global Crossing Ltd. 1,400 62,823 70,000 390 17,484 19,500
Global TeleSystems Group, Inc. 2,290 79,687 79,291 600 20,877 20,775
Hearst-Argyle Television, Inc. 2,180 56,063 58,043 570 14,602 15,176
Jazztel Plc - ADR 2,710 129,110 176,489 690 32,545 44,936
MCI Worldcom, Inc. 10,095 293,103 535,666 2,445 70,736 129,738
Nextel Communications, Inc. Class A 2,770 148,142 285,656 650 35,606 67,031
Nokia Corp. - ADR Series A 660 82,295 125,399
Nortel Networks Corporation 5,350 161,939 540,350 1,310 39,600 132,310
NTL, Inc. 1,490 123,718 185,878 340 26,945 42,415
Sprint Corporation PCS Group 3,280 247,101 336,199 870 68,187 89,174
Telesystem International Wireless 4,000 121,317 149,000 1,100 33,070 40,975
Tritel, Inc. 40 720 1,268 10 180 317
Williams Communications Group 640 14,720 18,520 145 3,335 4,196
----------- ----------- ---------- ----------
2,275,692 3,546,683 12.67% 719,142 1,114,709 15.67%
----------- ----------- ---------- ----------
Transportation
Harley-Davidson, Inc. 2,180 89,601 139,656 0.50% 570 23,320 36,516 0.51%
----------- ----------- ---------- ----------
Total Common Stocks 18,312,882 27,923,759 99.73% 4,682,837 7,160,424 100.67%
----------- ----------- ---------- ----------
Short-Term Investments
Federal Home Loan Mortgage Corporation
1 1/2% Due 1/3/2000 574,928 574,928 2.05%
----------- -----------
Total Investments $18,887,810 28,498,687 101.78% $4,682,837 7,160,424 100.67%
============ ----------- ========== ----------
Other Assets Less Liabilities (497,525) (1.78%) (47,620) (0.67%)
----------- ----------
Total Net Assets $28,001,162 100.00% $7,112,804 100.00%
=========== ===========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
Supplementary Information
Selected Per Unit Data and Ratios
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997 1996 1995
-------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
PER UNIT DATA (a)
Series Q (Qualified)
Investment income $ 0.094 $ 0.116 $ 0.177 $0.153 $0.119
Expenses 0.277 0.202 0.159 0.133 0.096
------- ------- ------- ------ ------
Net investment income (loss) (0.183) (0.086) 0.018 0.020 0.023
Net realized and unrealized gains on investments 5.280 3.836 2.723 1.551 1.711
------- ------- ------- ------ ------
Net increase in net asset value 5.097 3.750 2.741 1.571 1.734
Accumulation unit net asset value:
Beginning of year 15.124 11.374 8.633 7.062 5.328
------- ------- ------- ------ ------
End of year $20.221 $15.124 $11.374 $8.633 $7.062
======= ======= ======= ====== ======
Series N (Non-qualified)
Investment income $ 0.083 $ 0.096 $ 0.135 $0.137 $0.117
Expenses 0.296 0.212 0.166 0.134 0.109
------- ------- ------- ------ ------
Net investment income (loss) (0.213) (0.116) (0.031) 0.003 0.008
Net realized and unrealized gains on investments 5.894 3.891 2.660 1.459 1.769
------- ------- ------- ------ ------
Net increase in net asset value 5.681 3.775 2.629 1.462 1.777
Accumulation unit net asset value:
Beginning of year 15.133 11.358 8.729 7.267 5.490
------- ------- ------- ------ ------
End of year $20.814 $15.133 $11.358 $8.729 $7.267
======= ======= ======= ====== ======
</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>
Years Ended December 31,
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
RATIOS
Series Q (Qualified)
Operating expenses to average accumulation fund balance 1.56% 1.57% 1.59% 1.57% 1.55%
Net investment income (loss) to average accumulation fund balance (1.03%) (0.67%) 0.18% 0.24% 0.38%
Portfolio turnover rate 98% 143% 130% 78% 64%
Accumulation units outstanding at the end of the year
(in thousands) 1,385 1,715 1,887 2,093 5,491
Series N (Non-qualified)
Operating expenses to average accumulation fund balance 1.62% 1.63% 1.67% 1.69% 1.71%
Net investment income (loss) to average accumulation fund balance (1.16%) (0.90%) (0.31%) 0.04% 0.13%
Portfolio turnover rate 103% 143% 139% 94% 67%
Accumulation units outstanding at the end of the year
(in thousands) 342 475 530 566 586
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
Supplementary Information
Selected Per Unit Data and Ratios (continued)
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992 1991 1990
-------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
PER UNIT DATA (a)
Series Q (Qualified)
Investment income $ 0.081 $ 0.054 $ 0.068 $0.093 $ 0.116
Expenses 0.073 0.079 0.076 0.066 0.055
------- ------- ------- ------ -------
Net investment income (loss) 0.008 (0.025) (0.008) 0.027 0.061
Net realized and unrealized gains (losses) on investments (0.020) 0.291 0.159 1.295 (0.107)
------- ------- ------- ------ -------
Net increase (decrease) in net asset value (0.012) 0.266 0.151 1.322 (0.046)
Accumulation unit net asset value:
Beginning of year 5.340 5.074 4.923 3.601 3.647
------- ------- ------- ------ -------
End of year $ 5.328 $ 5.340 $ 5.074 $4.923 $ 3.601
======= ======= ======= ====== =======
Series N (Non-qualified)
Investment income $ 0.099 $ 0.055 $ 0.071 $0.085 $ 0.111
Expenses 0.102 0.092 0.094 0.076 0.072
------- ------- ------- ------ -------
Net investment income (loss) (0.003) (0.037) (0.023) 0.009 0.039
Net realized and unrealized gains (losses) on investments (0.023) 0.318 0.194 1.361 (0.102)
------- ------- ------- ------ -------
Net increase (decrease) in net asset value (0.026) 0.281 0.171 1.370 (0.063)
Accumulation unit net asset value:
Beginning of year 5.516 5.235 5.064 3.694 3.757
------- ------- ------- ------ -------
End of year $ 5.490 $ 5.516 $ 5.235 $5.064 $ 3.694
======= ======= ======= ====== =======
</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>
Years Ended December 31,
1994 1993 1992 1991 1990
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
RATIOS
Series Q (Qualified)
Operating expenses to average accumulation fund balance 1.55% 1.56% 1.56% 1.56% 1.58%
Net investment income (loss) to average accumulation fund balance 0.17% (0.50%) (0.17%) 0.64% 1.76%
Portfolio turnover rate 64% 59% 61% 98% 80%
Accumulation units outstanding at the end of the year
(in thousands) 5,597 5,700 5,753 5,839 5,961
Series N (Non-qualified)
Operating expenses to average accumulation fund balance 1.73% 1.73% 1.74% 1.76% 1.80%
Net investment income (loss) to average accumulation fund balance (0.05%) (0.69%) (0.42%) 0.21% 0.96%
Portfolio turnover rate 62% 62% 66% 109% 84%
Accumulation units outstanding at the end of the year
(in thousands) 604 640 662 684 735
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
Notes to Financial Statements
December 31, 1999
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,
formerly 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 December 31, 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 day after
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 and underwriter 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.
10
<PAGE>
Notes to Financial Statements (continued)
December 31, 1999
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 Paul Revere
Life. 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>
December 31, 1999 $26,239,570 $32,534,476 $7,337,386 $9,723,875
December 31, 1998 $32,319,947 $34,029,792 $9,057,438 $9,643,236
</TABLE>
At December 31, 1999, net unrealized appreciation of investments in Series
Q, amounting to $9,610,877, consisted of unrealized gains of $10,332,641
and unrealized losses of $721,764 net unrealized appreciation of investment
in Series N, amounting to $2,477,587, consisted of unrealized gains of
$2,646,805 and unrealized losses of $169,218.
7. Accumulation units
The change in the number of accumulation units outstanding were as follows:
<TABLE>
<CAPTION>
Series Q (Qualified)
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Units outstanding at beginning of year 1,715,402 1,887,352 2,093,030
Units credited to contracts:
Net purchase payments 2,667 5,076 4,552
Units withdrawn from contracts:
Annuity payments 33,671 37,790 37,490
Terminations and withdrawals 317,549 117,096 179,873
--------- --------- ---------
Net units withdrawn 351,220 154,886 217,363
Contract units withdrawn in excess of units credited (348,553) (149,810) (212,811)
Other increases (decreases) 17,898 (22,140) 7,133
--------- --------- ---------
Net decrease in units (330,655) (171,950) (205,678)
--------- --------- ---------
Units outstanding at end of year 1,384,747 1,715,402 1,887,352
========= ========= =========
</TABLE>
11
<PAGE>
Notes to Financial Statements (continued)
December 31, 1999
7. Accumulation units (continued)
<TABLE>
<CAPTION>
Series N (Non-qualified)
-----------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Units outstanding at beginning of year 474,699 529,795 565,935
Units credited to contracts:
Net purchase payments 360 317 927
Units withdrawn from contracts:
Annuity payments 16,231 18,886 19,617
Terminations and withdrawals 129,499 23,488 24,629
-------- ------- -------
Net units withdrawn 145,730 42,374 44,246
-------- ------- -------
Contract units withdrawn in excess of units credited (145,370) (42,057) (43,319)
Other increases (decreases) 12,400 (13,039) 7,179
-------- ------- -------
Net decrease in units (132,970) (55,096) (36,140)
-------- ------- -------
Units outstanding at end of year 341,729 474,699 529,795
======== ======= =======
</TABLE>
8. Commitments
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 subsequent to June 1,
1998 and daily unit value calculations subsequent to September 1, 1998 as
well as accounting and other services. These services were previously
performed by Provident. Fees for such services are deducted from the Fund
as shown in the Statements of Operations.
12
<PAGE>
Report of Independent Auditors
Board of Directors
The Paul Revere Variable Annuity Insurance Company
We have audited the accompanying statutory-basis statements of financial
condition of The Paul Revere Variable Annuity Insurance Company, a wholly-owned
subsidiary of The Paul Revere Life Insurance Company, as of December 31, 1999
and 1998, and the related statutory-basis statements of income, capital and
surplus, and cash flows for the years then ended. 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 audit 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.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Division of Insurance of the Commonwealth of Massachusetts,
which practices differ from generally accepted accounting principles. The
variances between such practices and generally accepted accounting principles
also are described in Note 1. The effects on the financial statements of these
variances are not reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of The Paul Revere Variable Annuity Insurance Company at December 31, 1999 and
1998, or the results of its operations or its cash flows for the years then
ended.
However, 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, 1999 and 1998, and the
results of its operations and its cash flows for the years then ended, in
conformity with accounting practices prescribed or permitted by the Division of
Insurance of the Commonwealth of Massachusetts.
ERNST & YOUNG LLP
Chattanooga, Tennessee
February 9, 2000
1
<PAGE>
STATEMENTS OF FINANCIAL CONDITION--STATUTORY BASIS
The Paul Revere Variable Annuity Insurance Company
<TABLE>
<CAPTION>
December 31
1999 1998
(in thousands of dollars)
----------------------------------------
<S> <C> <C>
Admitted Assets
Cash and Invested Assets--Note 3
Bonds $190,268 $179,870
Preferred Stocks 5,306 9,673
Mortgage Loans 6,360 6,360
Policy Loans 6,364 5,368
Cash and Short-term Investments 10,615 223
Other Invested Assets and Receivables 1,626 46
-------- --------
Total Cash and Invested Assets 220,539 201,540
Other Assets
Deferred and Uncollected Premiums 4,136 4,700
Investment Income Due and Accrued 3,635 2,876
Receivable from Parent, Subsidiaries, and Affiliates 13,881 811
Miscellaneous Assets 789 869
-------- --------
Total Assets Excluding Separate Accounts Business 242,980 210,796
From Separate Accounts Statement 35,928 33,735
-------- --------
Total Admitted Assets $278,908 $244,531
======== ========
</TABLE>
See notes to financial statements--statutory basis.
2
<PAGE>
<TABLE>
<CAPTION>
December 31
1999 1998
(in thousands of dollars)
-----------------------------------------
<S> <C> <C>
Liabilities and Capital and Surplus
Life and Annuity Reserves $ 68,374 $ 64,653
Premiums and Other Contract Deposit Funds 27,084 25,748
Other Reserves Held for Policyholders 1,255 1,753
Interest Maintenance Reserve 3,206 3,646
Asset Valuation Reserve 1,723 2,308
Federal Income Taxes 8,385 5,705
Borrowed Money and Interest Thereon - 4,438
Drafts Outstanding 13,706 234
Amounts Payable to Third Party Administrator 11,558 3,627
Other (359) 3,895
-------- --------
Total Liabilities Excluding Separate Accounts Business 134,932 116,007
From Separate Accounts Statement 35,928 33,735
-------- --------
Total Liabilities 170,860 149,742
-------- --------
Commitments and Contingent Liabilities--Note 11
Capital and Surplus
Common Capital Stock, $5.00 par
Authorized and Issued--500,000 shares 2,500 2,500
Net Gain on Reinsurance 14,059 15,768
Gross Paid in and Contributed Surplus 48,800 48,800
Unassigned Surplus 42,689 27,721
-------- --------
Total Capital and Surplus 108,048 94,789
-------- --------
Total Liabilities and Capital and Surplus $278,908 $244,531
======== ========
</TABLE>
See notes to financial statements--statutory basis.
3
<PAGE>
STATEMENTS OF INCOME--STATUTORY BASIS
The Paul Revere Variable Annuity Insurance Company
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998
(in thousands of dollars)
----------------------------------------
<S> <C> <C>
Revenue
Premium Income $11,820 $ 15,648
Annuity and Other Fund Deposits - 31,301
Considerations for Supplementary Contracts 999 2,461
Net Investment Income 15,053 47,756
Amortization of Interest Maintenance Reserve 1,417 675
Reserve Adjustments on Reinsurance Ceded - (11,468)
Commissions and Expense Allowances on Reinsurance Ceded 3,443 3,960
Other Income 1,560 619
------- --------
Total Revenue 34,292 90,952
------- --------
Benefits and Expenses
Death Benefits 2,668 4,195
Surrender Benefits and Other Fund Withdrawals 4,150 66,422
Interest on Policy or Contract Funds 1,353 25,099
Change in Life and Annuity Reserves 3,721 6,634
Change in Liability for Premium and Other Deposit Funds - (32,028)
Other Benefits and Reserve Changes 1,035 5,580
Commissions 1,453 3,938
General Insurance Expenses 1,269 3,125
Adjustment for Liability Gains Released from the
Interest Maintenance Reserve--Note 3 - (32,797)
Other Expenses 350 616
------- --------
Total Benefits and Expenses 15,999 50,784
------- --------
Net Gain from Operations before Federal Income
Taxes (Credit) and Net Realized Capital Gains 18,293 40,168
Federal Income Taxes (Credit) 5,224 (1,933)
------- --------
Net Gain from Operations before Net Realized Capital Gains 13,069 42,101
Net Realized Capital Gains--Note 3 1,314 1,237
------- --------
Net Income $14,383 $ 43,338
======= ========
</TABLE>
See notes to financial statements--statutory basis.
4
<PAGE>
STATEMENTS OF CAPITAL AND SURPLUS--STATUTORY BASIS
The Paul Revere Variable Annuity Insurance Company
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998
(in thousands of dollars)
-----------------------------------------
<S> <C> <C>
Common Capital Stock
Balance at Beginning and End of Year $ 2,500 $ 2,500
-------- --------
Net Gain on Reinsurance
Balance at Beginning of Year 15,768 -
Change During Year (1,709) 15,768
-------- --------
Balance at End of Year 14,059 15,768
-------- --------
Gross Paid in and Contributed Surplus
Balance at Beginning and End of Year 48,800 48,800
-------- --------
Unassigned Surplus
Balance at Beginning of Year 27,721 38,469
Net Income 14,383 43,338
Change in Net Unrealized Capital Gains and Losses - (244)
Change in Non-admitted Assets and Related Items - (1,367)
Change in Reserve on Account of Change in Valuation Basis - (2,320)
Change in Asset Valuation Reserve 585 8,845
Dividends to Stockholder - (59,000)
-------- --------
Balance at End of Year 42,689 27,721
-------- --------
Total Capital and Surplus $108,048 $ 94,789
======== ========
</TABLE>
See notes to financial statements--statutory basis.
5
<PAGE>
STATEMENTS OF CASH FLOWS--STATUTORY BASIS
The Paul Revere Variable Annuity Insurance Company
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998
(in thousands of dollars)
-----------------------------------------
<S> <C> <C>
Operations
Premiums and Other Considerations Received $ 13,487 $ 18,678
Annuity and Other Fund Deposits - 31,301
Investment Income Received 13,873 69,008
Commissions and Expense Allowances on Reinsurance Ceded 1,734 (9,160)
Surrender Benefits and Other Fund Withdrawals Paid (4,150) (66,422)
Other Benefits Paid (4,187) (7,934)
Insurance Expenses Paid (5,076) (9,145)
Transfer of Ledger Assets - (1,353,276)
Federal Income Taxes Paid (3,339) (8,119)
Other Sources 1,549 619
-------- -----------
Net Cash Provided (Used) by Operations 13,891 (1,334,450)
-------- -----------
Investments Activities
Proceeds from Investments Sold, Matured, or Repaid 35,693 1,797,526
Tax on Capital Gains and Losses Paid (184) (21,036)
Cost of Long-term Investments Acquired (39,633) (366,747)
Net (Increase) Decrease in Policy Loans (996) 28,500
-------- -----------
Net Cash Provided (Used) by Investment Activities (5,120) 1,438,243
-------- -----------
Financing and Miscellaneous Activities
Repayment of Borrowed Money (4,437) (41,295)
Dividends Paid to Stockholder - (59,000)
Other Sources (Applications) 6,058 (7,835)
-------- -----------
Net Cash Provided (Used) by Financing and Miscellaneous
Activities 1,621 (108,130)
-------- -----------
Net Increase (Decrease) in Cash and Short-term Investments 10,392 (4,337)
Cash and Short-term Investments at Beginning of Year 223 4,560
-------- -----------
Cash and Short-term Investments at End of Year $ 10,615 $ 223
======== ===========
</TABLE>
See notes to financial statements--statutory basis.
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
The Paul Revere Variable Annuity Insurance Company
Note 1--Significant Accounting Policies
Operations: The Paul Revere Variable Annuity Insurance Company (the Company) is
a wholly-owned subsidiary of The Paul Revere Life Insurance Company. The Paul
Revere Life Insurance Company is wholly-owned by The Paul Revere Corporation
(Paul Revere), a wholly-owned subsidiary of UnumProvident Corporation (formerly
Provident Companies, Inc.), a non-insurance holding company incorporated in
Delaware. On June 30, 1999, Unum Corporation merged with and into Provident
Companies, Inc. under the name UnumProvident Corporation (UnumProvident). The
Company is domiciled in the Commonwealth of Massachusetts and is licensed to do
business in forty-eight states and the District of Columbia. The Company's
primary business is the sale of life insurance products, which are marketed
through branch offices, financial institutions, and independent agents and
brokers. Annuities are no longer actively marketed by the Company.
Use of Estimates: The preparation of financial statements requires management
to make estimates and assumptions that affect amounts reported in the financial
statements and accompanying notes. Such estimates and assumptions could change
in the future as more information becomes known, which could impact the amounts
reported and disclosed herein.
Basis of Presentation: The accompanying financial statements have been prepared
in conformity with statutory accounting practices prescribed by or permitted by
the National Association of Insurance Commissioners (NAIC) and 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 may differ from state to state, may differ from company to company
within a state, and may change in the future. The Company does not apply any
permitted statutory accounting practices that differ from prescribed statutory
accounting practices.
In 1998, the NAIC approved a codification of statutory accounting practices
effective January 1, 2001, which will serve as a comprehensive and standardized
guide to statutory accounting principles. Following implementation, statutory
accounting principles will continue to be governed by individual state laws and
permitted practices until adoption by the various states. Accordingly, before
codification becomes effective for the Company, the Division of Insurance of the
Commonwealth of Massachusetts must adopt codification as the prescribed basis of
accounting. The adoption of the codification will change, to some extent, the
accounting practices that the Company uses to prepare its statutory financial
statements. At this time, the Company has not determined the effects that
codification will have on its financial statements.
Statutory accounting practices differ from generally accepted accounting
principles (GAAP). Specific material differences are as follows:
Investments: Bonds are carried at amortized cost with the discount or premium
amortized using the interest method. Non-sinking fund preferred stocks are
carried principally at cost. Common stocks are carried at fair value, but
income taxes are not provided on unrealized capital gains and losses. For GAAP,
securities not bought and held for the purpose of selling in the near term but
for which the Company does not have the positive intent and ability to hold to
maturity are classified as available-for-sale and are carried at fair value.
Unrealized holding gains and losses on available-for-sale securities are
reported in stockholder's equity as accumulated other comprehensive income.
Bonds and preferred stocks that the Company has the positive intent and ability
to hold to maturity are classified as held-to-maturity and are generally
reported at amortized cost.
Non-admitted Assets: Non-admitted assets, consisting of certain receivable
balances, are excluded from the statements of financial condition, and changes
therein are charged or credited directly to unassigned surplus.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
The Paul Revere Variable Annuity Insurance Company
Note 1--Significant Accounting Policies - Continued
Asset Valuation Reserve: The asset valuation reserve is reported as a liability
rather than as capital, and changes in this reserve are charged or credited
directly to unassigned surplus.
Policy Reserves: Policy reserves are provided based on assumptions and methods
prescribed or permitted by insurance regulatory authorities rather than on
mortality, interest, and withdrawal assumptions deemed to be appropriate when
the contracts were issued.
Federal Income Taxes: Federal income taxes are provided based on the estimated
taxes incurred. Deferred federal income taxes are not provided for differences
between the carrying amounts of assets and liabilities for financial statement
purposes and amounts used for income tax purposes.
Reinsurance: Policy and contract liabilities ceded to reinsurers have been
reported as reductions of the related reserves rather than assets as would be
required under GAAP.
Revenue and Expense Recognition: Amounts collected from policyholders are
recognized as premium income over the premium paying period. Expenses include
the increase in benefit reserves and gross benefit claims incurred. Under GAAP,
revenues for interest-sensitive products consist of policy charges for the cost
of insurance, policy administration, and surrenders assessed during the period,
and expenses include interest credited to policy account balances and benefit
claims incurred in excess of policy account balances.
Deposits to contract deposit funds are reported as revenue. Benefits include
fund withdrawals and the change in deposit fund liabilities. Under GAAP,
deposits collected from contract holders and withdrawals on contract deposit
funds are not reported as revenue and benefit expense.
Under GAAP, considerations for supplementary contracts are reported as a
deduction to payments and change in reserves for supplementary contracts.
Policy Acquisition Costs and Value of Business Acquired: The costs of acquiring
new business are expensed when incurred rather than deferred and amortized.
Realized Capital Gains and Losses: Realized capital gains and losses are
included net of tax in the determination of net income rather than on a pre-tax
basis. The Company defers the portion of realized capital gains and losses, net
of tax, on sales of fixed income investments, principally bonds and mortgage
loans, which are attributable to changes in the general level of interest rates.
The deferred gains and losses are accumulated in the interest maintenance
reserve (IMR) and are amortized over the remaining period to maturity based on
groupings of securities sold in five-year bands.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
The Paul Revere Variable Annuity Insurance Company
Note 1--Significant Accounting Policies - Continued
Other significant accounting practices are as follows:
Investments: Issuer obligations are generally carried at amortized cost with
the discount or premium amortized using the interest method. Single class and
multi-class mortgage-backed/asset-backed securities are generally carried at
amortized cost using the interest method including anticipated prepayments at
the date of purchase. The prepayment assumptions for single class and multi-
class mortgage-backed/asset backed securities are obtained from broker dealer
survey values or internal estimates and are consistent with the current interest
rate and economic environment; significant changes in estimated cash flows from
the original purchase assumptions are accounted for using the retrospective
method. Preferred stocks are carried at cost. Common stocks are stated at
market. Mortgage loans are generally carried at the unpaid balance, except
those loans expected to be sold, which are carried at the lower of the unpaid
balance or the fair value of collateral. Policy loans are presented at unpaid
balances. Short-term investments are carried at cost. Other long-term invested
assets are carried at amortized cost. Realized capital gains and losses are
determined based upon specific identification of the investments sold and do not
include amounts allocable to separate accounts. At the time a decline in the
value of an investment is determined to be other than temporary, a provision for
loss is recorded which is included in realized capital gains and losses.
Changes in admitted asset carrying amounts of investments are recorded directly
in unassigned surplus.
Reserves for Life Policies and Contracts: Reserves for future policy and
contract benefits on traditional life products have been provided on the net
level premium or preliminary term method. The reserves are calculated based
upon assumptions as to interest, mortality, and withdrawal that are prescribed
or permitted by insurance regulatory authorities. The interest rate assumption
on current year issues for traditional life products is principally 4.5%. The
assumptions vary by plan and year of issue.
For life insurance policies, reserves for the excess of valuation net premiums
over corresponding gross premiums are computed according to the valuation
standards required by the Division of Insurance of the Commonwealth of
Massachusetts.
Reserves for future policy and contract benefits on single premium annuities
have been provided on a net single premium method. The reserves are calculated
based upon assumptions as to interest, mortality, and retirement that are
prescribed or permitted by insurance regulatory authorities. The assumptions
vary by year of issue.
Reserves for interest-sensitive products are calculated as the greater of the
net surrender value and the Commissioners Reserve Valuation Method reserve
defined in the universal life model regulation. The net surrender value is
calculated as the cash value less the surrender charge. The reserves are
calculated based upon assumptions as to interest and mortality that are
prescribed or permitted by insurance regulatory authorities. The interest rate
assumption on current year issues is 4.5%.
The Company waives deduction of deferred fractional premiums upon death of the
insured and returns any portion of the final premium beyond the date of death.
Surrender values are not promised in excess of legally computed reserves. The
extra reserve on annual premium policies subject to an extra premium is one-half
the extra annual gross premium. The extra reserve for single premium policies
subject to an extra premium is one-half the extra gross single premium.
Reserves for future policy and contract benefits on all products meet the
minimum valuation standards requirements for the Division of Insurance of the
Commonwealth of Massachusetts.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
The Paul Revere Variable Annuity Insurance Company
Note 1--Significant Accounting Policies - Continued
Other Contract Deposit Funds: Other contract deposit funds represent customer
deposits plus interest credited at contract rates. The Company controls its
interest rate risk by investing in quality assets which have an aggregate
duration that closely matches the expected duration of the liabilities.
Reinsurance: Reinsurance activity is accounted for on a basis consistent with
that used in accounting for the original policies issued and the terms of the
reinsurance contracts.
Separate Accounts: The separate account amounts shown in the accompanying
financial statements represent funds that are separately administered for
variable annuity contracts and for which the contract holder, rather than the
Company, bears the investment risk. The contract purchase payments and the
assets of the separate accounts are segregated from other Company funds for both
investment and administrative purposes. Contract purchase payments received
under variable annuity contracts are subject to deductions for sales and
administrative fees. Also, the Company receives management fees which are based
on the net asset values of the separate accounts.
Reclassification: Certain prior year amounts in the financial statements have
been reclassified to conform to the 1999 presentation.
Note 2--Fair Values of Financial Instruments
The carrying amounts and fair values of the Company's financial instruments are
as follows:
<TABLE>
<CAPTION>
December 31
(in thousands of dollars)
----------------------------------------------------------------
1999 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Admitted Assets
Bonds $190,268 $191,107 $179,870 $190,298
Preferred Stocks 5,306 5,757 9,673 12,170
Mortgage Loans 6,360 6,360 6,360 6,360
Policy Loans 6,364 5,844 5,368 4,879
Cash and Short-term Investments 10,615 10,615 223 223
Liabilities
Investment-type Insurance Contracts
Supplementary Contracts without Life
Contingencies 734 734 808 808
Other Contract Deposit Funds 27,084 27,084 25,748 25,748
Borrowed Money - - 4,438 4,438
</TABLE>
The following methods and assumptions were used by the Company in estimating the
fair values of its financial instruments:
Bonds and Preferred Stocks: Fair values for bonds and preferred stocks are
estimated using values obtained from independent pricing services or, in the
case of private placements, are estimated by discounting expected future cash
flows using a current market rate applicable to the yield, credit quality, and
maturity of the investments. See Note 3 for the amortized cost and fair values
of securities by security type and by maturity date.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
The Paul Revere Variable Annuity Insurance Company
Note 2--Fair Values of Financial Instruments - Continued
Mortgage Loans: Carrying amounts for mortgage loans approximate fair value.
Policy Loans: Fair values for policy loans are estimated using discounted cash
flow analyses, using interest rates currently being offered. Loans with similar
characteristics were aggregated for purposes of the calculations.
Cash and Short-term Investments: Carrying amounts for cash and short-term
investments approximate fair value.
Supplementary Contracts without Life Contingencies, Other Contract Deposit
Funds, and Borrowed Money: The carrying amounts for supplementary contracts
without life contingencies, other contract deposit funds, and borrowed money
approximate fair value.
Note 3--Investments
Securities:
The amortized cost and fair values of securities by security type are as
follows:
<TABLE>
<CAPTION>
December 31, 1999
(in thousands of dollars)
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
United States Government and
Government Agencies and Authorities $ 3,425 $ 72 $ 94 $ 3,403
States, Municipalities, and Political 7,027 8 336 6,699
Subdivisions
Public Utilities 8,327 243 375 8,195
Mortgage-backed Securities 19,964 778 4 20,738
All Other Corporate Bonds 151,525 9,206 8,659 152,072
Preferred Stocks 5,306 767 316 5,757
-------- ------- ------ --------
Total $195,574 $11,074 $9,784 $196,864
======== ======= ====== ========
Common Stocks $ 740 $ - $ 740 $ -
======== ======= ====== ========
</TABLE>
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
The Paul Revere Variable Annuity Insurance Company
Note 3--Investments - Continued
<TABLE>
<CAPTION>
December 31, 1998
(in thousands of dollars)
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
United States Government and
Government Agencies and Authorities $ 4,173 $ 380 $ - $ 4,553
Public Utilities 4,246 467 - 4,713
Mortgage-backed Securities 14,538 1,509 3 16,044
All Other Corporate Bonds 156,913 10,590 2,515 164,988
Preferred Stocks 9,673 3,167 670 12,170
-------- ------- ------ --------
Total $189,543 $16,113 $3,188 $202,468
======== ======= ====== ========
Common Stocks $ 740 $ - $ 740 $ -
======== ======= ====== ========
</TABLE>
The amortized cost and fair values of bonds by maturity date are shown below.
The maturity dates have not been adjusted for possible calls or prepayments.
<TABLE>
<CAPTION>
December 31, 1999
(in thousands of dollars)
-----------------------------------------------
Amortized Fair
Cost Value
-------------------- ----------------------
<S> <C> <C>
1 year or less $ 28 $ 28
Over 1 year through 5 years 25,595 25,106
Over 5 years through 10 years 62,573 60,184
Over 10 years 82,108 85,051
-------- --------
170,304 170,369
Mortgage-backed Securities 19,964 20,738
-------- --------
$190,268 $191,107
======== ========
</TABLE>
For the years ended December 31, 1999 and 1998, there were decreases in the net
unrealized gains on bonds and preferred stocks of $11,635,000 and $60,612,000,
respectively. These unrealized gains and losses are not reported in the
financial statements.
At December 31, 1999, the total investment in below-investment-grade bonds
(securities rated below Baa3 by Moody's Investor Services or an equivalent
internal rating) was $7,377,000 or 3.3 percent of cash and invested assets. The
fair value of these investments was $6,964,000.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
The Paul Revere Variable Annuity Insurance Company
Note 3--Investments - Continued
Net Investment Income:
Sources for net investment income are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998
(in thousands of dollars)
-------------------------------------
<S> <C> <C>
Bonds $13,257 $44,742
Preferred Stocks 459 638
Mortgage Loans 626 415
Policy Loans 430 677
Short-term Investments 339 2,180
Other Investment Income 324 2,246
------- -------
Gross Investment Income 15,435 50,898
Investment Expenses 382 3,142
------- -------
Net Investment Income $15,053 $47,756
======= =======
</TABLE>
Due and accrued income on bonds where collection of interest is uncertain and on
mortgage loans more than 30 days delinquent or where collection of interest is
uncertain is excluded from investment income. The total amount excluded at
December 31, 1999 was $141,000. No amounts were excluded at December 31, 1998.
Realized Capital Gains and Losses:
Realized capital gains (losses) on investments are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998
(in thousands of dollars)
---------------------------------------
<S> <C> <C>
Bonds $(1,793) $53,545
Preferred Stocks 1,742 (53)
Common Stocks 3,321 117
Other - 423
------- -------
Total 3,270 54,032
Federal Income Tax 979 20,836
------- -------
Pre-IMR Capital Gains, Net of Tax 2,291 33,196
------- -------
Transferred to IMR
Pre-tax Capital Gains 1,503 49,168
Federal Income Tax 526 17,209
------- -------
977 31,959
------- -------
Net Realized Capital Gains $ 1,314 $ 1,237
======= =======
</TABLE>
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
The Paul Revere Variable Annuity Insurance Company
Note 3--Investments - Continued
Proceeds from disposal of bonds and preferred stocks for the years ended
December 31, 1999 and 1998 were $23,455,000 and $1,789,421,000, respectively.
Gross gains of $2,342,000 and $61,392,000 and gross losses of $2,393,000 and
$7,900,000, respectively, were realized during 1999 and 1998 on sales and calls
of bonds and preferred stocks.
As a result of the transfer of assets, principally bonds, in connection with the
reinsurance of the Company's individual and tax-sheltered annuity business
during 1998 (see Note 5), the Company released liability gains of $32,797,000
from the IMR. This adjustment was reported as an offset to 1998 benefits and
expenses.
Note 4--Deferred and Uncollected Premiums
Gross ordinary renewal deferred and uncollected life insurance premiums and
annuity considerations were $4,663,000 and $5,362,000 at December 31, 1999 and
1998, respectively. These amounts net of loading were $4,136,000 and $4,700,000
at December 31, 1999 and 1998, respectively.
Note 5--Reinsurance
During 1998 the Company reinsured, on a 100% coinsurance basis, its in-force
block of individual and tax-sheltered annuity business with American General
Annuity Insurance Company and The Variable Annuity Life Insurance Company,
affiliates of American General Corporation (American General). The market value
of assets transferred in connection with the transaction totaled $1,473.2
million, and the book value of liabilities assumed was $1,444.2 million. The
Company received a ceding commission of $26.8 million that is being amortized
into income, net of federal income tax, as earnings emerge from the business
reinsured. Reinsurance ceded information under the terms of the reinsurance
agreement with American General is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998
(in thousands of dollars)
------------------------------------------
<S> <C> <C>
Insurance Liabilities $1,233,420 $1,321,401
Annuity and Other Fund Deposits 30,565 26,493
Surrender Benefits and Other Fund Withdrawals 188,156 131,230
Change in Reserves for Life, Annuity Benefits, and Deposit Funds (157,591) (104,737)
</TABLE>
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
The Paul Revere Variable Annuity Insurance Company
Note 5--Reinsurance - Continued
Total reinsurance ceded information for the Company is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998
(in thousands of dollars)
----------------------------------------
<S> <C> <C>
Life Insurance in Force (Amount of Insurance) $ 210,508 $ 250,182
Insurance Liabilities 1,248,983 1,334,707
Premium Income 677 1,107
Annuity and Other Fund Deposits 34,125 36,706
Death Benefits - 1,097
Surrender Benefits and Other Fund Withdrawals 188,786 131,230
Change in Reserves for Life, Annuity Benefits, and Deposit Funds 156,888 (97,055)
</TABLE>
If a reinsurer is unable to meet its obligations, the Company remains
contingently liable.
Note 6--Annuity Actuarial Reserves and Deposit Liabilities
The withdrawal characteristics of annuity actuarial reserves and deposit
liabilities are as follows:
<TABLE>
<CAPTION>
December 31, 1999
(in thousands of dollars)
-----------------------------------------------
Amount %
---------------------- ----------------------
<S> <C> <C>
Subject to Discretionary Withdrawal at Market Value
At Book Value Less Surrender Charge $ 9,387 0.7%
At Market Value 26,723 2.1
---------- -----
Total With Adjustment or at Market Value 36,110 2.8
Subject to Discretionary Withdrawal Without Adjustment 1,223,082 93.3
Not Subject to Discretionary Withdrawal 51,539 3.9
---------- -----
Total (Gross) 1,310,731 100.0%
=====
Reinsurance Ceded 1,247,799
----------
Total (Net) $ 62,932
==========
</TABLE>
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
The Paul Revere Variable Annuity Insurance Company
Note 7--Federal Income Taxes
The Company is included along with its affiliates in a consolidated tax return
filed by The Paul Revere Life Insurance Company. The total federal income tax
liability of the consolidated group is allocated among the members of the group
in proportion to the consolidated federal taxable income of the group directly
attributable to each member. Reimbursement is made among the members of the
group to the extent losses are used to offset income within the group.
A reconciliation of the federal income tax computed at the statutory corporate
tax rate and the federal income tax expense (credit) in the statements of income
is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998
---------------------------------------
<S> <C> <C>
Statutory Federal Income Tax Rate 35.0% 35.0%
Deferred Policy Acquisition Costs 1.7 0.7
Adjustment to Prior Year Provision (3.4) 0.4
Reinsurance (3.2) (40.6)
Amortization of IMR (2.7) (1.3)
Other Items, Net 1.2 1.0
---- -----
Effective Federal Income Tax Rate 28.6% (4.8)%
==== =====
</TABLE>
At December 31, 1999, the Company's tax years through 1990 are closed to further
assessment by the Internal Revenue Service. Subsequent years are at various
stages of the examination process. Management believes recorded income tax
liabilities adequately provide for all remaining open years.
Note 8--Separate Accounts
Separate accounts held by the Company primarily represent funds which the
Company invests on behalf of the accounts' contract holders. The assets of
these accounts are carried at market value.
Information regarding the separate accounts, which have non-indexed guarantees
less than or equal to four percent, is as follows:
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
(in thousands of dollars)
-------------------------
<S> <C>
Premiums, Considerations or Deposits $ 48
=======
Reserves for Accounts With Assets at Fair Value $35,114
=======
By Withdrawal Characteristics:
At Fair Value $35,114
=======
</TABLE>
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
The Paul Revere Variable Annuity Insurance Company
Note 8--Separate Accounts - Continued
A reconciliation of the amounts transferred to and from the separate accounts is
as follows:
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
(in thousands of dollars)
-------------------------
<S> <C>
Transfers as Reported in the Summary of Operations
of the Separate Accounts Statement:
Transfers to Separate Accounts $ 48
Transfers from Separate Accounts 7,957
-------
Net Transfers from Separate Accounts (7,909)
-------
Increase in Liability for Deposit Funds and
Reserves Less Investment Income 7,376
Investment Management Fees 533
-------
Transfers as Reported in the Summary of Operations of the
Life, Accident and Health Annual Statement $ -
=======
</TABLE>
Note 9--Retirement Benefits
The Company has no employees and, therefore, has no retirement benefits. The
Company purchases services from its affiliates in accordance with an
intercompany cost sharing arrangement. There is no obligation on the part of
the Company beyond the amounts paid as part of the cost of services purchased.
Note 10--Related Party Transactions
During 1998, the Company paid common stock dividends to The Paul Revere Life
Insurance Company of $59,000,000, respectively, consisting of $48,694,000 in
bonds, $9,314,000 in cash, and $992,000 in accrued interest.
During 1998, the Company sold $112,984,000 in book value of bonds (par value
$114,330,000) to Provident Life and Accident Insurance Company at the market
value of $114,494,000.
During 1999 and 1998, the Company borrowed from and loaned to its affiliates
short-term funds. The related interest expense and interest income are as
follows:
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998
(in thousands of dollars)
--------------------------------------------
<S> <C> <C>
Interest Expense $ 21 $1,579
Interest Income 266 878
</TABLE>
Affiliated borrowings outstanding at December 31, 1998 consisted of a $4,437,000
short-term note from UnumProvident Corporation. The note payable was issued on
December 31, 1998, with interest at 6.13%. The note matured and was repaid in
full on January 5, 1999.
During 1999 and 1998, the Company paid management fees to its affiliates of
$1,512,000 and $3,274,000, respectively.
17
<PAGE>
Note 11--Commitments and Contingent Liabilities
In 1997, two alleged class action lawsuits were filed in Superior Court in
Worcester, Massachusetts (Superior Court) against UnumProvident and several of
its subsidiaries, The Paul Revere Corporation, The Paul Revere Life Insurance
Company, The Paul Revere Protective Life Insurance Company, Provident Life and
Accident Insurance Company, and the Company. One of the lawsuits purports to
represent all career agents of subsidiaries of Paul Revere whose employment
relationships ended on June 30, 1997 and who were offered contracts to sell
insurance policies as independent producers. The other purports to represent
independent brokers who sold certain Paul Revere individual disability income
policies with benefit riders. Motions filed by UnumProvident and affiliates to
dismiss most of the counts in the complaints, which allege various breach of
contract and statutory claims, have been denied, but the cases remain at a
preliminary stage. A hearing to determine class certification was heard on
December 20, 1999 in Massachusetts state court. The court certified a class for
the independent brokers and has denied class certification for the career
agents. The Company will appeal the class certification for the independent
brokers. UnumProvident and affiliates have filed a conditional counterclaim in
each action which requests a substantial return of commissions should the
Superior Court agree with the plaintiff's interpretation of the contracts.
UnumProvident believes that it has strong defenses to both lawsuits and plans to
vigorously defend its position and resist certification of the classes. In
addition, the same plaintiff's attorney who has filed the purported class action
lawsuits has filed 44 individual lawsuits on behalf of current and former Paul
Revere sales managers alleging various breach of contract claims. UnumProvident
and affiliates have filed a motion in federal court to compel arbitration for 16
of the plaintiffs who are licensed by the National Association of Securities
Dealers and have executed the Uniform Application for Registration or Transfer
in the Securities Industry (Form U-4). The federal court has denied 14 of those
motions and granted two.
Three additional former general managers have filed similar lawsuits.
UnumProvident believes that it has strong defenses and plans to vigorously
defend its position in these cases. Although the alleged class action lawsuits
and individual lawsuits are in the early stages, management does not currently
expect these suits to materially affect the financial position or results of
operations of the Company.
Various lawsuits against the Company have arisen in the normal course of
business. Contingent liabilities that might arise from litigation are not
deemed likely to materially affect the financial position or results of
operations of the Company.
Note 12--Shareholder Dividend Restrictions and Deposits
The Company is subject to various regulatory restrictions which limit the amount
of dividends available for distribution, without prior approval by regulatory
authorities, to the greater of ten percent of surplus as regards policyholders
as of the preceding year end or the net gain from operations of the preceding
year. Based upon these restrictions, the Company is permitted a maximum of
$13,068,000 in dividend distributions in 2000.
At December 31, 1999, the Company had on deposit with regulatory authorities
securities with a statement value of $2,886,000 held for the protection of
policyholders.
18
<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, 1999.
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, 1999.
Statement of changes in net assets for the three years ended
December 31, 1999.
Statement of operations for the year ended December 31, 1999.
Statement of investments at December 31, 1999.
Notes to financial statements.
The Paul Revere Variable Annuity Insurance Company:
Report of Independent Auditors
Balance sheets at December 31, 1999 and 1998.
Statements of income for the two years ended December 31, 1999.
Statements of capital and surplus for the two years ended December
31, 1999.
Statements of cash flows for the two years ended December 31,
1999.
Notes to financial statements.
ITEM 28(B). LIST OF EXHIBITS
1. Consent of Legal Counsel
2. Consent of Independent Auditors
1
<PAGE>
4. Financial Data Schedules
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 7, and incorporated in Part C by reference.
ITEM 30. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
<TABLE>
<CAPTION>
Corporate Structure(1)
UNUMProvident
Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNUM UNUM European Mindtask Limited Duncanson
Holding Holding (United Kingdom) & Holt, Inc.
Company Company Limited (New York)
(Delaware) (United Kingdom) |
| | |
| First UNUM | | Duncanson
|---- Life | UNUM General |------ & Holt
| Insurance |----------Company Limited | Services,
| Company | (United Kingdom) | Inc.
| (New York) | | (Maine)
| | UNUM |
| UNUM | Management | Duncanson
|---- Sales |------- Company Limited |------- & Holt
| Corporation | (United Kingdom) | Canada Ltd.
| (Delaware) | | (Canada)
| | UNUM Limited | |
| Claims |------ (United Kingdom) | | TRI-CAN
|---- Service | | | |-------- Reinsurance
| International, | | Claims Services | Inc.
| Inc. | |----- International | (Canada)
| (Delaware) | Limited |
| | (6) (United Kingdom) | Duncanson &
| UNUM | |-------- Holt
|----Development | Open Door VAC | Europe Ltd.
| Corporation | Limited | (United Kingdom)
| (Maine) |-------(United Kingdom) | |
| | | Duncanson &
| UNUM | |---------- Holt
| International | Agencies Limited
|----Underwriters | (United Kingdom)
| Inc. |
| (Delaware) | Duncanson
| | & Holt
| UNUM |--------- Asia PTE
| Life | Ltd.
| Insurance | (Singapore)
|---Company of |
America | Duncanson &
(Maine) (2) | Holt
| SP |------ Underwriters Ltd.
|--------- Administrator, | (United Kingdom)
LLC |
(California) (3) |
| Duncanson &
| Holt Syndicate
|------- Management Ltd.
(United Kingdom)
|
| LRG Services
| Limited
|-------- (United Kingdom)
|
|
| Trafalgar
|---------- Underwriting
Agencies Ltd.
(United Kingdom)
<CAPTION>
UNUMProvident
Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Colonial UNUM UNUM Continental Continental Options &
Companies, Japan International National International Choices,
Inc. Accident Ltd. Life Life Inc.
(Delaware) Insurance (Bermuda) Insurance Insurance (Wyoming)
| Company Company Company
| Limited (Delaware) (Delaware)
| (Japan)
|
| Colonial Life &
|------ Accident
| Insurance
| Company
| (South Carolina)
|
| BenefitAmerica,
|------- Inc.
(South Carolina)
<CAPTION>
UNUMProvident
Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
<S> | <C> | <C> |
Boston The Paul Revere GENEX
Compania Corporation Services, Inc.
Argentina (Massachusetts) (Pennsylvania)
de Seguros | |
S.A. | |
(Argentina) (5) | |
| | |
|------ Fibos S.A. |------- The Paul Revere |------ GENEX
(7) | (Argentina) Life Insurance | Services of
| Company | Canada, Inc.
| Boston (Massachusetts) | (Ontario)
|------ Seguros de | |
(6) | Vida S.A. | The Paul |----- Primecor, Inc.
| (Argentina) | Revere (Pennsylvania)
| |---- Protective
| Boston | Life
| Seguros de | Insurance
|------ Retiro S.A. | Company
(8) (Argentina) | (Delaware)
|
| The Paul Revere
| Variable Annuity
|----- Insurance
| Company
| (Massachusetts)
|
| The Paul Revere
| Equity Sales
| Company
| (Massachusetts)
|
| PR Land
|----- (Delaware)
|
| PR Land II
|----- (Delaware)
<CAPTION>
UNUMProvident
Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
<S> | <C> | <C> | <C> | <C> | <C> | <C> |
Provident Provident Provident Provident Volunteer Provident Provident
Life and National Life and Investment Assistance International Insurance
Accident Assurance Casualty Management, Company Ltd. Agency,
Insurance Company Insurance (DE), LLC (Tennessee) (Bermuda) LLC
Company (Tennessee) Company (Delaware) (Delaware)
(Tennessee) (Tennessee) |
| Provident
|----- Investment
| Management,
| LLC
(9) | (Tennessee)
</TABLE>
(1) Percentage of ownership is 100% unless otherwise indicated.
(2) Reflects split ownership: 82.72% by UNUM Holding Company and 17.28% by
UNUMProvident Corporation.
(3) 50% owned by UNUM Life Insurance Company of America; 50% owned by an entity
outside of UNUMProvident Corporation's holding company structure.
(4) 50% owned by UNUM European Holding Company Limited; 50% owned by UNUM
Limited.
(5) Approximately 1% owned by entities outside of UNUMProvident Corporation's
holding company structure.
(6) Reflects split ownership: 99% owned by Boston Compania Argentina de Seguros
S.A. and 1% owned by Fibos S.A.
(7) Reflects split ownership: 98% owned by Boston Compania Argentina de Seguros
S.A. and 2% owned by UNUMProvident Corporation.
(8) Reflects split ownership: 99% owned by Boston Compania Argentina de Seguros
S.A. and 1% owned by Fibos S.A.
(9) Reflects split ownership: 99% owned by UNUMProvident Corporation and 1%
owned by Provident Investment Management (DE), LLC.
NOTES:
UNUM Finance Company (Delaware) was dissolved 10/29/1999.
UNUM Partners, L.P. (Delaware) was dissolved in 1999.
Group Management Services, Inc. (Washington) was dissolved 10/1/1999.
Duncanson & Holt (Bermuda) Ltd. was sold 12/31/99.
Duncanson & Holt Administrative Services, Inc. was sold 12/31/99.
ITEM 31. NUMBER OF CONTRACTOWNERS
<TABLE>
<CAPTION>
Title of Number of Holders
Class of Record*
-------- -----------------
<S> <C>
Series Q 228
Series N 82
</TABLE>
--------
* As of December 31, 1999.
ITEM 32. INDEMNIFICATION
The Paul Revere Variable Annuity Insurance Company maintained a
blanket fidelity bond in the amount of $350,000 with National
Union Fire Insurance Company, Pittsburgh, Pennsylvania, covering its
officers and employees and those of the registrant. This bond is
numbered 621-3933.
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.
2
<PAGE>
ITEM 35.LOCATION OF ACCOUNTS AND RECORDS
Name of Person
maintaining
Possession Thereof Address Description
------------------ ------------------- -------------
Liz Barton American General Corporation Contract owner
205 East 10th Street accounts and
Amarillo, Texas 79101 records
Eric Alexander American General Corporation Financial
205 East 10th Street Records
Amarillo, Texas 79101
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 Amendment 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.
3
<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. 53 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 April, 2000.
Paul Revere Variable Annuity
Contract Accumulation Fund
/s/ Donald E. Boggs
By:__________________________________
Donald E. Boggs 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. 54 to
Registration Statement No. 2-24380 has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Gordon T. Miller Vice Chairman 04/28/00
- ------------------------------------------------
Gordon T. Miller Board of Managers
/s/ Aubrey K. Reid Jr. Member 04/28/00
- ------------------------------------------------
Aubrey K. Reid, Jr. Board of Managers
/s/ Joan Sadowsky Member 04/28/00
- ------------------------------------------------
Joan Sadowsky Board of Managers
/s/ William J. Short Member 04/28/00
- ------------------------------------------------
William J. Short Board of Managers
/s/ Donald E. Boggs Chairman 04/28/00
- ------------------------------------------------
Donald E. Boggs Board of Managers
</TABLE>
4
<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. 53 to
Registration Statement No. 2-24380 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chattanooga, State of
Tennessee on the 28th day of April, 2000.
The Paul Revere Variable Annuity
Insurance Company
/s/ James A. Ramsey
President
By:__________________________________________
James A. Ramsey
President
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Post Effective Amendment No. 54 to
Registration Statement No. 2-24380 has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director 04/28/00
- --------------------------------
J. Harold Chandler
* Executive Vice President 04/28/00
- -------------------------------- Finance and Risk Management;
Thomas R. Watjen Director
* Executive Vice President- 04/28/00
- -------------------------------- Legal and Administrative
F. Dean Copeland Affairs and Assistant Secretary;
Director
* Executive Vice President- 04/28/00
- -------------------------------- Customer Development;
Elaine D. Rosen Director
* Director 04/28/00
- --------------------------------
James L. Moody, Jr.
* Director 04/28/00
- --------------------------------
Burton E. Sorensen
</TABLE>
5
<PAGE>
EXHIBIT 1
CONSENT OF LEGAL COUNSEL
I hereby consent to the use of my name in the disclosure statement included
as part of this Post-Effective Amendment No. 54 to this Registration Statement
and to the reference made to me under the caption "Legal Opinion" in such
disclosure statement.
/s/ Susan N. Roth
------------------------------------
Susan N. Roth
<PAGE>
EXHIBIT 2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 9, 2000, with respect to the financial
statements of The Paul Revere Variable Annuity Insurance Company and of our
reports dated January 24, 2000, with respect to the financial statements and
financial statement schedules of The Paul Revere Variable Annuity Contract
Accumulation Fund in this Post-Effective Amendment No. 54 under the Securities
Act of 1933 and Amendment No. 54 under the Investment Company Act of 1940 to the
Registration Statement and in the Disclosure Statement.
ERNST & YOUNG LLP
Chattanooga, Tennessee
April 30, 1999
<PAGE>
POWER OF ATTORNEY OF DIRECTOR OF
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors of The Paul
Revere Variable Annuity Insurance Company, Inc., a Massachusetts corporation,
which proposes to file with the Securities and Exchange Commission, under the
provisions of the Securities Act of 1933 and the Investment Company Act of 1940,
an Annual Report on Form N-3 for the year ended December 31, 1999, each hereby
constitutes and appoints F. Dean Copeland or Susan N. Roth, as his or her true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution to do any and all acts and things and execute, for him or her and
in his or her name, place and stead, said form and any and all amendments
thereto and to file the same, with all exhibits thereto, and any and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-facts and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or her substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of April 26, 2000.
/s/ J. Harold Chandler
- -------------------------------
J. Harold Chandler
/s/ Thomas R. Watjen
- -------------------------------
Thomas R. Watjen
/s/ F. Dean Copeland
- -------------------------------
F. Dean Copeland
/s/ Elaine D. Rosen
- -------------------------------
Elaine D. Rosen
/s/ James L. Moody, Jr.
- -------------------------------
James L. Moody, Jr.
/s/ Burton E. Sorensen
- -------------------------------
Burton E. Sorensen
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> PAUL REVERE-QUALIFIED-SERIES Q
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<INVESTMENTS-AT-COST> 18,887,810
<INVESTMENTS-AT-VALUE> 28,498,687
<RECEIVABLES> 72,734
<ASSETS-OTHER> 4,520
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 28,575,941
<PAYABLE-FOR-SECURITIES> 77,192
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 497,587
<TOTAL-LIABILITIES> 574,779
<SENIOR-EQUITY> 28,001,162
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,384,747
<SHARES-COMMON-PRIOR> 1,715,402
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,610,877
<NET-ASSETS> 28,001,162
<DIVIDEND-INCOME> 122,168
<INTEREST-INCOME> 19,589
<OTHER-INCOME> 0
<EXPENSES-NET> 417,813
<NET-INVESTMENT-INCOME> (276,056)
<REALIZED-GAINS-CURRENT> 5,429,040
<APPREC-INCREASE-CURRENT> 2,529,347
<NET-CHANGE-FROM-OPS> 7,682,331
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,667
<NUMBER-OF-SHARES-REDEEMED> 333,322
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (330,655)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 135,071
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 417,813
<AVERAGE-NET-ASSETS> 26,726,269
<PER-SHARE-NAV-BEGIN> 15.12
<PER-SHARE-NII> (0.18)
<PER-SHARE-GAIN-APPREC> 5.28
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.22
<EXPENSE-RATIO> 1.56
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> PAUL REVERE-NON-QUALIFIED-SERIES N
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<INVESTMENTS-AT-COST> 4,682,837
<INVESTMENTS-AT-VALUE> 7,160,424
<RECEIVABLES> 18,764
<ASSETS-OTHER> 173,142
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,352,330
<PAYABLE-FOR-SECURITIES> 19,654
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 219,872
<TOTAL-LIABILITIES> 239,526
<SENIOR-EQUITY> 7,112,804
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 341,729
<SHARES-COMMON-PRIOR> 474,699
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,477,587
<NET-ASSETS> 7,112,804
<DIVIDEND-INCOME> 32,459
<INTEREST-INCOME> 105
<OTHER-INCOME> 0
<EXPENSES-NET> 115,389
<NET-INVESTMENT-INCOME> (82,825)
<REALIZED-GAINS-CURRENT> 1,790,732
<APPREC-INCREASE-CURRENT> 505,981
<NET-CHANGE-FROM-OPS> 2,213,888
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 360
<NUMBER-OF-SHARES-REDEEMED> 133,330
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (132,970)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 35,943
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 115,389
<AVERAGE-NET-ASSETS> 7,113,323
<PER-SHARE-NAV-BEGIN> 15.13
<PER-SHARE-NII> (.21)
<PER-SHARE-GAIN-APPREC> 5.89
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.81
<EXPENSE-RATIO> 1.62
</TABLE>
