<PAGE>
THE PAUL REVERE VARIABLE ANNUITY
CONTRACT ACCUMULATION FUND
Annual Report
December 31, 1999
THE PAUL REVERE
VARIABLE ANNUITY
INSURANCE COMPANY
Worcester, Massachusetts
<PAGE>
BOARD OF MANAGERS OF
THE ACCUMULATION FUND
Donald Boggs, Chairman
Gordon T. Miller, Vice Chairman
Aubrey K. Reid, Jr.
Joan Sadowsky
William J. Short
This report and the financial statements attached are submitted for the general
information of contract owners and are not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
Nothing herein contained is to be considered an offer or sale of The Paul Revere
Variable Annuity Insurance Company contracts. Such offering is made only by
prospectus, which includes details as to offering price and other material
information.
<PAGE>
To Our Contract Owners and Participants:
The U.S. equity market had another strong year with the S&P 500 rising by a
yield adjusted 21.0%. We are pleased to report that your diversified large cap
growth equity portfolio outperformed the S&P 500 during the year. The
accumulation unit values of the Qualified Fund and Non-Qualified Fund increased
33.7% and 37.5% respectively for the year.
Performance for 1999 continued extremely strong for your fund and for
stocks in general. The U.S. economy is now in the longest up-cycle on record
and stocks have responded with record-breaking performance. The S&P 500 index
returned 21.0%, which is the fifth straight greater-than-20% annual return. The
strong economy and low inflation have combined to produce surprising earnings
growth and high valuations. The technology sector was by far the strongest
sector in 1999 with a return of 75%. Investments in computers and
telecommunication equipment to enhance productivity have resulted in strong
demand for the companies in this sector. For the first time since 1993 small
company stocks performed as well as large company stocks.
Year 2000 faces some problems that may reduce returns from the blistering
pace of the past five years. Tight monetary and fiscal policy should slow the
economy and corporate profits even while inflation may tick upward. Election
year politics creates uncertainty. On the positive side, we are in the midst of
a telecommunications revolution that will continue to produce enormous
productivity for years to come. If that productivity relieves the inflation
stresses on the economy, the markets can continue to advance.
Sincerely,
/s/Don Boggs
------------
Don Boggs
Chairman, Board of Managers
The Paul Revere Variable Annuity Contract
Accumulation Fund
Senior Vice-President
The Paul Revere Variable Annuity Company
<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
