UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-01356
THE PAUL REVERE VARIABLE ANNUITY
CONTRACT ACCUMULATION FUND
(Exact name of Registrant as specified in charter)
18 Chestnut Street
Worcester, MA 10608
(Address of principal executive offices)
CT Corporation System
101 Federal Street
Boston, MA 02110
(Name and address of agent for service)
Registrant’s telephone number, including area code: (508) 792-6358
Date of fiscal year end: December 31
Date of reporting period: January 31, 2006 - December 31, 2006
| Item 1. | Report to Stockholders. |
Annual Report
December 31, 2006
Board of Managers of
The Accumulation Fund:
Donald E. Boggs, Chairman
Gordon T. Miller, Vice Chairman
David G. Fussell
Joan Sadowsky
H. C. Goodwin
THE PAUL REVERE VARIABLE ANNUITY
CONTRACT ACCUMULATION FUND
A Separate Account of The Paul Revere
Variable Annuity Insurance Company
This report and the financial statements attached are submitted for the general information of contractowners and are not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. Nothing herein contained is to be considered an offer of sale of The Paul Revere Variable Annuity Insurance Company contracts. Such offering is made only by prospectus, which includes details as to offering price and other material information.
TO OUR CONTRACTOWNERS AND PARTICIPANTS:
THE PAUL REVERE VARIABLE ANNUITY
CONTRACT ACCUMULATION FUND
VARIABLE ANNUITY CONTRACTS
What a difference a year can make. By the end of 2005, the Dow Jones Industrial Average had lost value over the course of the year, as stocks were beaten back by a myriad of investor worries, including a spike in oil prices, a rise in interest rates, and political uncertainty in the Middle East. Fast forward to 2006, and we have seen a dramatically different picture. While there were some fluctuations in the global markets in the first half of the year, the second half of 2006 was good to many investors. Oil prices retreated, boosting consumer confidence, and interest rates have held steady. As 2006 drew to a close, global growth remained strong and seemed poised to fill in any gaps left by a slowing in the U.S. economy.
In the United States through the latter part of the year, the U.S. Federal Reserve Board entered a period of monetary policy stability in its attempt to keep inflation and growth in balance. Consumer inflation was tame, and the economy was far from falling into recession. Corporate profit growth slowed slightly in the fourth quarter but remained strong. That strength was reflected in the series of new record highs hit by U.S. stock markets. The Dow Jones Industrial Average closed above 12,500 for the first time in history and closed the year 19% higher. The Standard & Poor’s 500 Stock Index returned 16%, and the NASDAQ Composite Index was up 10%.
Against this backdrop for 2006, the portfolio underperformed the Russell 1000 Growth in 2006. The three biggest detractors to relative performance were stock selection and overweights to technology and retailing. Selection in financial services and leisure also negatively impacted performance. Conversely, the three biggest contributors to relative performance were stock selection in special products & services and energy. Underweighting transportation also helped relative performance.
Consistent with the portfolio’s investment approach, we remain overweight in areas where we see sustainable growth companies with stocks selling at reasonable prices. Key overweights at the end of the year were in special products & services (business services), leisure (gaming & lodging), and energy (oil service). Top underweights were in technology (computer systems) and retailing (specialty stores).
Thank you for your continued support.
| Sincerely, |
| /s/ Donald E. Boggs |
| Donald E. Boggs |
| Chairman, Board of Managers |
| The Paul Revere Variable Annuity |
| Contract Accumulation Fund |
The opinions expressed in this annual report are those of the MFS Investment Team. These views are subject to change at any time based on market and other conditions, and no forecast can be guaranteed.
Past performance is no guarantee of future results.
Additional Information.
REMUNERATION OF THE BOARD OF MANAGERS
Unum Group paid all expenses relative to the operation of the Fund including Board of Managers’ fees. Accordingly, no member of the Board of Managers receives any remuneration from the Fund. The total aggregate remuneration paid to all members of the Board of Managers for the fiscal year ended December 31, 2006, was $7,200.00. This amount represents consideration paid for attendance at meetings of the Board of Managers. Those members of the Board of Managers deemed to be interested persons received direct remuneration or an indirect benefit as officers of PRV. None of the members of the Board of Managers, or officers of the Fund, who are also officers or employees of PRV or its affiliates, received any remuneration from the Fund.
Information concerning the nominees for re-election, as well as members of the Board of Managers whose terms will continue, follows with the same abbreviations of company names as used previously. Unless the contractowner withholds authorization on the Proxy, it is intended that the interest represented by the Proxy will be voted in favor of the election of the nominees.
None of the members of the Board of Managers who are not “interested persons” of the Fund within the meaning of section 2(a)(19) of the Investment Company Act of 1940 owns beneficially or of record securities of PRV or any of its affiliates.
PROXY VOTING POLICIES
A description of the Fund’s proxy voting policy and procedures is available without charge, upon written request, from the Secretary of the Board of Managers. Please send a written request to the Secretary of the Board of Managers, c/o Unum Group at 1 Fountain Square, Chattanooga, Tennessee 37402. You may also view a description of the Fund’s proxy voting policy and procedures on the SEC’s (Securities and Exchange Commission) website, www.sec.gov.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended is available via the methods noted above.
QUARTERLY FILING REQUIREMENTS
In November 2004, the Fund began filing its complete schedule of investments with the Securities and Exchange Commission for the first and third quarter of each fiscal year on Form N-Q, which when filed, is available without charge, upon written request, from the Secretary of the Board of Managers. Please send a written request to the Secretary of the Board of Managers, c/o Unum Group at 1 Fountain Square, Chattanooga, Tennessee 37402. You may also view its complete schedule of investments on Form N-Q on the SEC’s (Securities and Exchange Commission) website, www.sec.gov.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information (SAI) includes additional information about members of the board of managers of the Registrant, and is available, without charge, upon request, toll-free at (800) 718-8824 for contractowners who call to request the SAI.
INFORMATION CONCERNING MEMBERS OF THE BOARD OF MANAGERS
(1) | (2) | (3) | (4) | (5) | (6) | |||||
Name, Address, and Age | Position(s) Held with | Term of Office and | Principal Occupation(s) | Number of Fund Complex | Other | |||||
H. C. Goodwin (72) 24 Waters Road Sutton, MA 01590 | Member, Board of Managers | 2004-2007 5 years of service | President of Manufacturers Service Center, Inc. | 2 | None | |||||
Gordon T. Miller (84) 14 Eastwood Road Shrewsbury, MA 01545 | Vice Chairman, Board of Managers | 2004-2007 38 years of service | Retired; Former Vice President and Director of Industrial Relations of Barry Wright Corporation, Newton Lower Falls, MA. (antivibration products) | 2 | None | |||||
Joan Sadowsky (77) 770 Salisbury Street Apt. 576 Worcester, MA 01609 | Member, Board of Managers | 2007-2010 21 years of service | Retired; Former Vice President of Human Resources, Atlas Distributing Corporation, Auburn, MA (beverage distribution) | 2 | None | |||||
The members of the Board of Managers listed below are “interested persons” of the Fund within the meaning of section 2(a)(19) of the Investment Company Act of 1940.
INFORMATION CONCERNING MEMBERS OF THE BOARD OF MANAGERS
(CONTINUED)
(1) | (2) | (3) | (4) | (5) | (6) | |||||
Name, Address, and Age | Position(s) Held | Term of | Principal | Number of Fund Complex | Other | |||||
Donald E. Boggs* (61) 1 Fountain Square Chattanooga, TN 37402 | Chairman Board of Managers | 2004-2007 9 years of service | Retired, Senior Vice President of Unum Group, Chattanooga, Tennessee | 2 | None | |||||
David G. Fussell* (59) 1 Fountain Square Chattanooga, TN 37402 | Member, Board of Managers | 2007-2010 5 years of service | Senior Vice President of Unum Group, Chattanooga, Tennessee | 2 | None | |||||
| * | Officers of PRV, (the investment advisor and sponsoring insurance company) and other subsidiaries within the Unum Group holding company system. |
None of the members of the Board of Managers who are not “interested persons” of the Fund within the meaning of section 2(a)(19) of the Investment Company Act of 1940 owns beneficially or of record securities of PRV or any of its affiliates.
AUDITED FINANCIAL STATEMENTS
The Paul Revere Variable Annuity Contract Accumulation Fund
Years Ended December 31, 2006 and 2005
The Paul Revere Variable Annuity Contract Accumulation Fund
Audited Financial Statements
December 31, 2006
| 1 | ||
| 2 | ||
| 3 | ||
| 4 | ||
| 5 | ||
| 8 | ||
| 9 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Owners 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) (“Fund”) as of December 31, 2006, including the schedule of investments as of December 31, 2006, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2006, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The Paul Revere Variable Annuity Contract Accumulation Fund (comprising the Qualified and Non-Qualified Portfolios) at December 31, 2006, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Chattanooga, Tennessee
February 21, 2007
1
Statement of Assets and Liabilities
| December 31, 2006 | ||||||
| Series Q (Qualified) | Series N (Non-Qualified) | |||||
ASSETS | ||||||
Investments in securities at market value | ||||||
(Cost: Series Q - $ 8,445,414) | ||||||
(Cost: Series N - $ 1,358,703) | ||||||
(see Schedule of Investments) | $ | 9,263,762 | $ | 1,489,762 | ||
Cash | 409 | 49,932 | ||||
Dividends and Interest receivable | 8,825 | 1,492 | ||||
Receivable for investments sold | 231,000 | — | ||||
Total assets | 9,503,996 | 1,541,186 | ||||
LIABILITIES | ||||||
Payable for investments purchased | 230,967 | — | ||||
Payable to The Paul Revere Variable Annuity Insurance Company | 29,733 | 5,316 | ||||
Total liabilities | 260,700 | 5,316 | ||||
TOTAL NET ASSETS | $ | 9,243,296 | $ | 1,535,870 | ||
CONTRACT OWNERS’ EQUITY | ||||||
Deferred contracts | $ | 7,543,088 | $ | 758,700 | ||
Currently payable contracts | 1,700,208 | 777,170 | ||||
Total net assets | $ | 9,243,296 | $ | 1,535,870 | ||
ACCUMULATION UNITS OUTSTANDING | 710,397 | 122,558 | ||||
NET ASSET VALUE PER ACCUMULATION UNIT | $ | 13.011 | $ | 12.532 | ||
See accompanying notes to financial statements.
2
| Year Ended December 31, 2006 Series Q (Qualified) | ||||
INVESTMENT LOSS | ||||
Income: | ||||
Dividends | $ | 88,477 | ||
Interest | 10,552 | |||
Total income | 99,029 | |||
Expenses: | ||||
Mortality and expense risk fees | 91,547 | |||
Investment management and advisory service fees | 45,723 | |||
Professional services | 12,600 | |||
Total expenses | 149,870 | |||
Net investment loss | (50,841 | ) | ||
REALIZED AND UNREALIZED GAIN ON INVESTMENTS | ||||
Net realized gain on investments sold | 262,609 | |||
Net increase in unrealized appreciation of investments | 243,981 | |||
Net realized and unrealized gain on investments | 506,590 | |||
Increase in net assets from operations | $ | 455,749 | ||
| Year Ended December 31, 2006 Series N (Non-Qualified) | ||||
INVESTMENT LOSS | ||||
Income: | ||||
Dividends | $ | 14,554 | ||
Expenses: | ||||
Mortality and expense risk fees | 15,032 | |||
Investment management and advisory service fees | 7,486 | |||
Professional services | 7,560 | |||
Total expenses | 30,078 | |||
Net investment loss | (15,524 | ) | ||
REALIZED AND UNREALIZED GAIN ON INVESTMENTS | ||||
Net realized gain on investments sold | 49,257 | |||
Net increase in unrealized appreciation of investments | 32,334 | |||
Net realized and unrealized gain on investments | 81,591 | |||
Increase in net assets from operations | $ | 66,067 | ||
See accompanying notes to financial statements.
3
Statements of Changes in Net Assets
| For the years ended December 31 | ||||||||
| 2006 Series Q (Qualified) | 2005 Series Q (Qualified) | |||||||
INCREASE (DECREASE) IN NET ASSETS | ||||||||
Operations: | ||||||||
Net investment loss | $ | (50,841 | ) | $ | (72,553 | ) | ||
Net realized gain on investments | 262,609 | 544,103 | ||||||
Net increase (decrease) in unrealized appreciation of investments | 243,981 | (344,677 | ) | |||||
Increase in net assets from operations | 455,749 | 126,873 | ||||||
Payments to contract owners: | ||||||||
Annuity payments to contract owners | 240,355 | 245,149 | ||||||
Terminations and withdrawals to contract owners | 476,500 | 107,267 | ||||||
Total payments to contract owners | 716,855 | 352,416 | ||||||
Total decrease in net assets | (261,106 | ) | (225,543 | ) | ||||
NET ASSETS | ||||||||
Beginning of period | 9,504,402 | 9,729,945 | ||||||
End of period | $ | 9,243,296 | $ | 9,504,402 | ||||
| For the years ended December 31 | ||||||||
| 2006 Series N (Non-Qualified) | 2005 Series N (Non-Qualified) | |||||||
INCREASE (DECREASE) IN NET ASSETS | ||||||||
Operations: | ||||||||
Net investment loss | $ | (15,524 | ) | $ | (17,411 | ) | ||
Net realized gain on investments | 49,257 | 99,697 | ||||||
Net increase (decrease) in unrealized appreciation of investments | 32,334 | (56,338 | ) | |||||
Increase in net assets from operations | 66,067 | 25,948 | ||||||
Contract receipts: | ||||||||
Gross purchase payments received | — | 279 | ||||||
Deductions from purchase payments | — | 8 | ||||||
Net purchase payments received | — | 271 | ||||||
Payments to contract owners: | ||||||||
Annuity payments to contract owners | 52,380 | 53,459 | ||||||
Terminations and withdrawals to contract owners | 6,929 | 40,559 | ||||||
Total payments to contract owners | 59,309 | 94,018 | ||||||
Net contract payments to contract owners | (59,309 | ) | (93,747 | ) | ||||
Total increase (decrease) in net assets | 6,758 | (67,799 | ) | |||||
NET ASSETS | ||||||||
Beginning of period | 1,529,112 | 1,596,911 | ||||||
End of period | $ | 1,535,870 | $ | 1,529,112 | ||||
See accompanying notes to financial statements.
4
December 31, 2006
Number | Series Q (Qualified) | % of | Number | Series N (Non-Qualified) | % of | |||||||||||||||||
| Cost | Market Value | Cost | Market Value | |||||||||||||||||||
Securities of Unaffiliated Companies | ||||||||||||||||||||||
Common Stocks | ||||||||||||||||||||||
Aerospace & Military Technology | ||||||||||||||||||||||
Boeing Company | 1,400 | $ | 112,848 | $ | 124,376 | 290 | $ | 17,616 | $ | 19,545 | ||||||||||||
United Technologies Corporation | 2,370 | 125,404 | 148,172 | 390 | 20,478 | 24,383 | ||||||||||||||||
| 238,252 | 272,548 | 2.95 | % | 38,094 | 43,928 | 2.86 | % | |||||||||||||||
Agriculture | ||||||||||||||||||||||
Monsanto Company | 2,200 | 94,567 | 115,566 | 1.25 | % | 300 | 12,982 | 15,759 | 1.03 | % | ||||||||||||
Beverages | ||||||||||||||||||||||
PepsiCo, Inc. | 2,060 | 107,394 | 128,853 | 1.39 | % | 350 | 18,346 | 21,893 | 1.43 | % | ||||||||||||
Broadcasting & Media | ||||||||||||||||||||||
News Corporation | 4,400 | 87,821 | 94,512 | 1.02 | % | 700 | 13,971 | 15,036 | 0.98 | % | ||||||||||||
Computer – Systems & Services | ||||||||||||||||||||||
Adobe Systems, Inc.* | 4,600 | 172,574 | 189,152 | 760 | 28,762 | 31,251 | ||||||||||||||||
Apple Computer, Inc.* | 1,430 | 98,372 | 121,321 | 240 | 15,988 | 20,362 | ||||||||||||||||
Automatic Data Processing, Inc. | 1,500 | 68,859 | 73,875 | 200 | 9,238 | 9,850 | ||||||||||||||||
CheckFree Corporation* | 1,100 | 47,890 | 44,176 | 180 | 7,814 | 7,229 | ||||||||||||||||
Dell, Inc.* | 1,800 | 45,270 | 45,162 | 260 | 6,529 | 6,523 | ||||||||||||||||
eBay, Inc. * | 2,300 | 76,546 | 69,161 | 400 | 13,241 | 12,028 | ||||||||||||||||
Electronic Arts, Inc. * | 2,790 | 152,503 | 140,504 | 500 | 27,278 | 25,180 | ||||||||||||||||
EMC Corporation * | 4,710 | 65,074 | 62,172 | 770 | 10,637 | 10,164 | ||||||||||||||||
First Data Corporation | 6,390 | 161,566 | 163,073 | 1,060 | 26,727 | 27,051 | ||||||||||||||||
Google, Inc., Class A * | 375 | 151,685 | 172,680 | 60 | 25,239 | 27,629 | ||||||||||||||||
Hewlett Packard Company | 3,190 | 107,311 | 131,396 | 550 | 18,502 | 22,655 | ||||||||||||||||
International Game Technology | 3,380 | 124,581 | 156,156 | 570 | 21,041 | 26,334 | ||||||||||||||||
Microsoft Corporation | 6,120 | 158,901 | 182,743 | 1,000 | 26,200 | 29,860 | ||||||||||||||||
Oracle Corporation * | 9,900 | 137,186 | 169,686 | 1,610 | 22,171 | 27,595 | ||||||||||||||||
SanDisk Corporation* | 580 | 25,938 | 24,957 | 100 | 4,472 | 4,303 | ||||||||||||||||
Seagate Technology | 900 | 22,844 | 23,850 | 150 | 3,807 | 3,975 | ||||||||||||||||
Yahoo!, Inc. * | 2,540 | 84,345 | 64,872 | 410 | 13,622 | 10,471 | ||||||||||||||||
| 1,701,445 | 1,834,936 | 19.85 | % | 281,268 | 302,460 | 19.69 | % | |||||||||||||||
Conglomerate | ||||||||||||||||||||||
Danaher Corporation | 620 | 40,966 | 44,913 | 110 | 7,271 | 7,968 | ||||||||||||||||
General Electric Company | 7,730 | 271,577 | 287,633 | 1,300 | 45,567 | 48,373 | ||||||||||||||||
| 312,543 | 332,546 | 3.60 | % | 52,838 | 56,341 | 3.67 | % | |||||||||||||||
Consumer Goods & Services | ||||||||||||||||||||||
Altria Group, Inc. | 800 | 62,811 | 68,656 | 150 | 11,809 | 12,873 | ||||||||||||||||
Colgate-Palmolive Company | 670 | 37,962 | 43,711 | 110 | 6,233 | 7,176 | ||||||||||||||||
Ecolab, Inc | 970 | 37,097 | 43,844 | 160 | 6,118 | 7,232 | ||||||||||||||||
NIKE, Inc. | 1,100 | 94,260 | 108,933 | 180 | 15,384 | 17,825 | ||||||||||||||||
Procter & Gamble Company | 4,380 | 250,967 | 281,503 | 680 | 38,876 | 43,704 | ||||||||||||||||
| 483,097 | 546,647 | 5.91 | % | 78,420 | 88,810 | 5.78 | % | |||||||||||||||
Electronics | ||||||||||||||||||||||
Harman International | 790 | 81,289 | 78,929 | 0.85 | % | 130 | 13,397 | 12,988 | 0.85 | % | ||||||||||||
Energy Services | ||||||||||||||||||||||
Exxon Mobil Corporation | 800 | 52,633 | 61,304 | 125 | 8,224 | 9,579 | ||||||||||||||||
GlobalSantaFe Corporation | 2,110 | 83,787 | 124,026 | 350 | 13,736 | 20,573 | ||||||||||||||||
Noble Corporation | 940 | 67,165 | 71,581 | 160 | 11,742 | 12,184 | ||||||||||||||||
Schulumberger, Ltd. | 800 | 49,422 | 50,528 | 130 | 8,031 | 8,211 | ||||||||||||||||
Transocean, Inc.* | 290 | 24,314 | 23,458 | 50 | 4,192 | 4,045 | ||||||||||||||||
Weatherford International, Ltd.* | 2,160 | 93,691 | 90,266 | 360 | 15,621 | 15,044 | ||||||||||||||||
Praxair, Inc. | 800 | 49,991 | 47,464 | 130 | 8,119 | 7,713 | ||||||||||||||||
| 421,003 | 468,627 | 5.07 | % | 69,665 | 77,349 | 5.04 | % | |||||||||||||||
See accompanying notes to financial statements.
5
Schedule of Investments (continued)
December 31, 2006
Number | Series Q (Qualified) | % of | Number | Series N (Non-Qualified) | % of | |||||||||||||||||
| Cost | Market Value | Cost | Market Value | |||||||||||||||||||
Common Stocks-Continued | ||||||||||||||||||||||
Financial Institutions | ||||||||||||||||||||||
American Express Company | 2,860 | $ | 140,815 | $ | 173,516 | 480 | $ | 23,706 | $ | 29,122 | ||||||||||||
Charles Schwab Corporation | 5,300 | 89,487 | 102,502 | 850 | 14,340 | 16,439 | ||||||||||||||||
Chicago Mercantile Exchange | 280 | 131,093 | 142,730 | 40 | 18,751 | 20,390 | ||||||||||||||||
Goldman Sachs Group, Inc. | 250 | 45,311 | 49,837 | 40 | 7,250 | 7,974 | ||||||||||||||||
JPMorgan Chase & Company | 1,400 | 63,382 | 67,620 | 250 | 11,322 | 12,075 | ||||||||||||||||
Merrill Lynch & Company, Inc. | 430 | 25,733 | 40,033 | 70 | 4,189 | 6,517 | ||||||||||||||||
Morgan Stanley | 1,130 | 69,145 | 92,016 | 190 | 11,626 | 15,472 | ||||||||||||||||
UBS AG | 1,520 | 85,683 | 91,702 | 240 | 13,529 | 14,479 | ||||||||||||||||
SLM Corporation | 2,320 | 121,097 | 113,146 | 380 | 19,955 | 18,533 | ||||||||||||||||
State Street Corporation | 1,200 | 74,720 | 80,928 | 200 | 12,464 | 13,488 | ||||||||||||||||
Western Union | 2,990 | 63,841 | 67,036 | 460 | 9,859 | 10,313 | ||||||||||||||||
| 910,307 | 1,021,066 | 11.05 | % | 146,991 | 164,802 | 10.73 | % | |||||||||||||||
Foods | ||||||||||||||||||||||
Nestle SA | 1,000 | 87,040 | 88,679 | 170 | 14,797 | 15,075 | ||||||||||||||||
Yum! Brands, Inc. | 500 | 23,876 | 29,400 | 80 | 3,886 | 4,704 | ||||||||||||||||
| 110,916 | 118,079 | 1.28 | % | 18,683 | 19,779 | 1.29 | % | |||||||||||||||
Health Services | ||||||||||||||||||||||
UnitedHealth Group, Inc. | 980 | 62,486 | 52,655 | 0.57 | % | 180 | 11,477 | 9,671 | 0.63 | % | ||||||||||||
Leisure & Tourism | ||||||||||||||||||||||
Harrah’s Entertainment, Inc | 580 | 41,417 | 47,978 | 90 | 6,502 | 7,445 | ||||||||||||||||
Las Vegas Sands Company* | 740 | 48,596 | 66,215 | 160 | 10,739 | 14,317 | ||||||||||||||||
Starwood Hotels & Resort | 800 | 43,356 | 50,000 | 120 | 6,219 | 7,500 | ||||||||||||||||
| 133,369 | 164,193 | 1.78 | % | 23,460 | 29,262 | 1.91 | % | |||||||||||||||
Machinery | ||||||||||||||||||||||
Deere & Company | 1,110 | 91,665 | 105,528 | 220 | 18,237 | 20,915 | ||||||||||||||||
Rockwell Automation, Inc. | 1,790 | 121,017 | 109,333 | 360 | 23,828 | 21,989 | ||||||||||||||||
| 212,682 | 214,861 | 2.32 | % | 42,065 | 42,904 | 2.79 | % | |||||||||||||||
Manufacturing | ||||||||||||||||||||||
Precision Castparts Corporation | 700 | 43,876 | 54,796 | 0.59 | % | 100 | 6,220 | 7,828 | 0.51 | % | ||||||||||||
Medical & Health Products | ||||||||||||||||||||||
Allergan, Inc. | 980 | 105,229 | 117,345 | 160 | 17,329 | 19,158 | ||||||||||||||||
Amgen, Inc. * | 2,620 | 167,978 | 178,972 | 440 | 28,343 | 30,056 | ||||||||||||||||
Baxter International, Inc. | 1,700 | 64,591 | 78,863 | 300 | 11,387 | 13,917 | ||||||||||||||||
Caremark Rx, Inc. | 2,300 | 113,246 | 131,353 | 380 | 18,743 | 21,702 | ||||||||||||||||
Celgene Corporation* | 1,960 | 73,180 | 112,759 | 330 | 12,307 | 18,985 | ||||||||||||||||
DENTSPLY International, Inc. | 2,240 | 67,075 | 66,864 | 370 | 11,073 | 11,045 | ||||||||||||||||
Eli Lilly & Company | 1,730 | 97,701 | 90,133 | 270 | 15,387 | 14,067 | ||||||||||||||||
Genzyme Corporation * | 2,570 | 145,353 | 158,261 | 430 | 24,724 | 26,479 | ||||||||||||||||
Johnson & Johnson | 3,310 | 190,149 | 218,526 | 530 | 30,169 | 34,991 | ||||||||||||||||
Medtronic, Inc. | 2,760 | 146,408 | 147,688 | 460 | 24,301 | 24,615 | ||||||||||||||||
Roche Holdings, Ltd. ADR | 1,300 | 97,039 | 116,347 | 200 | 14,929 | 17,900 | ||||||||||||||||
St. Jude Medical, Inc. * | 1,810 | 73,765 | 66,174 | 300 | 12,220 | 10,968 | ||||||||||||||||
Wyeth | 2,870 | 118,729 | 146,140 | 440 | 17,570 | 22,405 | ||||||||||||||||
| 1,460,443 | 1,629,425 | 17.63 | % | 238,482 | 266,288 | 17.34 | % | |||||||||||||||
Semiconductors | ||||||||||||||||||||||
Applied Materials, Inc. | 5,100 | 91,873 | 94,095 | 820 | 14,769 | 15,129 | ||||||||||||||||
Intel Corporation | 9,740 | 232,935 | 197,235 | 1,620 | 38,629 | 32,805 | ||||||||||||||||
Marvell Technology Group, Ltd. * | 3,640 | 100,702 | 69,852 | 600 | 16,592 | 11,514 | ||||||||||||||||
| 425,510 | 361,182 | 3.91 | % | 69,990 | 59,448 | 3.87 | % | |||||||||||||||
See accompanying notes to financial statements.
6
Schedule of Investments (continued)
December 31, 2006
Number | Series Q (Qualified) | % of | Number | Series N (Non-Qualified) | % of | ||||||||||||||||||
| Cost | Market Value | Cost | Market Value | ||||||||||||||||||||
Common Stocks-Continued | |||||||||||||||||||||||
Stores | |||||||||||||||||||||||
Coach, Inc.* | 2,100 | $ | 91,067 | $ | 90,216 | 350 | $ | 15,178 | $ | 15,036 | |||||||||||||
CVS Corporation | 2,200 | 58,558 | 68,002 | 350 | 9,716 | 10,818 | |||||||||||||||||
Family Dollar Stores, Inc. | 1,600 | 46,614 | 46,928 | 270 | 7,877 | 7,919 | |||||||||||||||||
Lowe’s Cos., Inc. | 2,920 | 84,168 | 90,958 | 480 | 14,310 | 14,952 | |||||||||||||||||
Staples, Inc. | 4,400 | 111,196 | 117,480 | 740 | 18,589 | 19,758 | |||||||||||||||||
Target Corporation | 2,220 | 93,652 | 126,651 | 370 | 15,636 | 21,109 | |||||||||||||||||
W.W. Grainger, Inc. | 600 | 44,971 | 41,964 | 100 | 7,538 | 6,994 | |||||||||||||||||
Williams Sonoma, Inc. | 1,870 | 78,843 | 58,793 | 310 | 12,917 | 9,746 | |||||||||||||||||
| 609,069 | 640,992 | 6.93 | % | 101,761 | 106,332 | 6.92 | % | ||||||||||||||||
Telecommunications | |||||||||||||||||||||||
Amdocs, Ltd. * | 4,370 | 131,770 | 169,337 | 745 | 22,895 | 28,869 | |||||||||||||||||
America Movil ADR Series L | 1,550 | 51,433 | 70,091 | 260 | 8,627 | 11,757 | |||||||||||||||||
Cisco Systems, Inc. * | 12,120 | 209,864 | 331,240 | 1,950 | 34,116 | 53,293 | |||||||||||||||||
Corning Inc. * | 4,620 | 81,582 | 86,440 | 810 | 15,173 | 15,155 | |||||||||||||||||
Juniper Networks, Inc.* | 1,280 | 29,255 | 24,243 | 210 | 4,800 | 3,977 | |||||||||||||||||
QUALCOMM, Inc. | 1,800 | 66,702 | 68,022 | 300 | 11,157 | 11,337 | |||||||||||||||||
| 570,606 | 749,373 | 8.11 | % | 96,768 | 124,388 | 8.09 | % | ||||||||||||||||
Transportation | |||||||||||||||||||||||
FedEx Corporation | 730 | 76,144 | 79,293 | 110 | 11,637 | 11,948 | |||||||||||||||||
Burlington Northern Santa Fe | 1,000 | 71,723 | 73,810 | 170 | 12,188 | 12,548 | |||||||||||||||||
| 147,867 | 153,103 | 1.66 | % | 23,825 | 24,496 | 1.59 | % | ||||||||||||||||
Total Common Stocks | 8,214,542 | 9,032,889 | 97.72 | % | 1,358,703 | 1,489,762 | 97.00 | % | |||||||||||||||
Short-Term Investments | |||||||||||||||||||||||
Federal Home Loan Bank 4.95% due January 2, 2007 | 231,000 | 230,873 | 230,873 | 2.50 | % | ||||||||||||||||||
Total Investments | $ | 8,445,415 | $ | 9,263,762 | 100.22 | % | $ | 1,358,703 | $ | 1,489,762 | 97.00 | % | |||||||||||
Other Assets Less Liabilities | (20,466 | ) | -0.22 | % | 46,108 | 3.00 | % | ||||||||||||||||
Total Net Assets | $ | 9,243,296 | 100.00 | % | $ | 1,535,870 | 100.00 | % | |||||||||||||||
| * | Non – income producing security. |
See accompanying notes to financial statements.
7
Selected Per Unit Data and Ratios
| Years Ended December 31 | ||||||||||||||||||||
| 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
PER UNIT DATA (a) | ||||||||||||||||||||
Series Q (Qualified) | ||||||||||||||||||||
Investment income | $ | 0.136 | $ | 0.111 | $ | 0.155 | $ | 0.093 | $ | 0.099 | ||||||||||
Expenses | 0.207 | 0.209 | 0.192 | 0.172 | 0.180 | |||||||||||||||
Net investment loss | (0.071 | ) | (0.098 | ) | (0.037 | ) | (0.079 | ) | (0.081 | ) | ||||||||||
Net realized and unrealized gains (losses) on investments | 0.700 | 0.269 | 0.760 | 2.272 | (4.481 | ) | ||||||||||||||
Net increase (decrease) in net asset value | 0.629 | 0.171 | 0.723 | 2.193 | (4.562 | ) | ||||||||||||||
Accumulation unit net asset value: | ||||||||||||||||||||
Beginning of year | 12.382 | 12.211 | 11.488 | 9.295 | 13.857 | |||||||||||||||
End of year | $ | 13.011 | $ | 12.382 | $ | 12.211 | $ | 11.488 | $ | 9.295 | ||||||||||
Total Return | 5.08 | % | 1.40 | % | 6.29 | % | 23.59 | % | (32.92 | %) | ||||||||||
Series N (Non-Qualified) | ||||||||||||||||||||
Investment income | $ | 0.119 | $ | 0.109 | $ | 0.173 | $ | 0.087 | $ | 0.094 | ||||||||||
Expenses | 0.244 | 0.253 | 0.260 | 0.199 | 0.204 | |||||||||||||||
Net investment loss | (0.125 | ) | (0.144 | ) | (0.087 | ) | (0.112 | ) | (0.110 | ) | ||||||||||
Net realized and unrealized gains (losses) on investments | 0.664 | 0.358 | 0.735 | 2.241 | (4.563 | ) | ||||||||||||||
Net increase (decrease) in net asset value | 0.539 | 0.214 | 0.648 | 2.129 | (4.673 | ) | ||||||||||||||
Accumulation unit net asset value: | ||||||||||||||||||||
Beginning of year | 11.993 | 11.779 | 11.131 | 9.002 | 13.675 | |||||||||||||||
End of year | $ | 12.532 | $ | 11.993 | $ | 11.779 | $ | 11.131 | $ | 9.002 | ||||||||||
Total Return | 4.49 | % | 1.82 | % | 5.82 | % | 23.65 | % | (34.17 | %) | ||||||||||
(a) For a unit outstanding throughout the period. Additionally, 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 and do not include any sales loads. |
| |||||||||||||||||||
| Years Ended December 31 | ||||||||||||||||||||
| 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
RATIOS | ||||||||||||||||||||
Series Q (Qualified) | ||||||||||||||||||||
Operating expenses to average accumulation fund balance | 1.64 | % | 1.65 | % | 1.65 | % | 1.67 | % | 1.63 | % | ||||||||||
Net investment loss to average accumulation fund balance | (0.56 | %) | (0.77 | %) | (0.31 | %) | (0.77 | %) | (0.73 | %) | ||||||||||
Portfolio turnover rate | 81 | % | 74 | % | 94 | % | 83 | % | 102 | % | ||||||||||
Accumulation units outstanding at the end of the year (in thousands) | 710 | 768 | 797 | 826 | 859 | |||||||||||||||
Series N (Non-Qualified) | ||||||||||||||||||||
Operating expenses to average accumulation fund balance | 2.01 | % | 2.01 | % | 1.97 | % | 2.00 | % | 1.91 | % | ||||||||||
Net investment loss to average accumulation fund balance | (1.03 | %) | (1.14 | %) | (0.66 | %) | (1.12 | %) | (1.03 | %) | ||||||||||
Portfolio turnover rate | 83 | % | 74 | % | 93 | % | 83 | % | 104 | % | ||||||||||
Accumulation units outstanding at the end of the year (in thousands) | 123 | 128 | 136 | 156 | 163 | |||||||||||||||
See accompanying notes to financial statements.
8
December 31, 2006
| 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. The Fund consists of two series. Series Q is applicable to contracts which were afforded special tax treatment under the Internal Revenue Code and are commonly referred to as “qualified contracts”. Series N is applicable to all other contracts and are commonly referred to as “non-qualified contracts”.
| 2. | Accounting policies |
The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 stocks are stated at market values which are based on the last sales prices at December 31, 2006, as reported on national security exchanges. 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 represent 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 statements of operations which, on an annual basis, will not exceed 2% of the average daily net asset value of the Fund. The current rate for such fees is 1.5% of the average daily net asset value of the Fund.
Certain administrative services of the Fund are provided by The Variable Annuity Life Insurance Company (“VALIC”) under a contract dated May 15, 1998. These services include processing of unit transactions and daily unit value calculations subsequent to December 1, 1998 as well as accounting and other services.
| 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.
9
Notes to Financial Statements (continued)
December 31, 2006
| 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:
| Series Q (Qualified) | Series N (Non-Qualified) | |||||||||||
| Purchases | Sales | Purchases | Sales | |||||||||
Year ended December 31, 2006 | $ | 7,306,633 | $ | 8,306,591 | $ | 1,209,168 | $ | 1,319,691 | ||||
At December 31, 2006, net unrealized appreciation of investments in Series Q, amounting to $818,348, consisted of unrealized gains of $1,014,384 and unrealized losses of $196,036, net unrealized appreciation of investments in Series N, amounting to $131,059, consisted of unrealized gains of $163,560 and unrealized losses of $32,501.
| 7. | Accumulation units |
The change in the number of accumulation units outstanding were as follows:
| Series Q (Qualified) | ||||||
| 2006 | 2005 | |||||
Units outstanding at beginning of year | 767,596 | 796,794 | ||||
Units withdrawn from contracts: | ||||||
Annuity payments | 19,568 | 20,372 | ||||
Terminations and withdrawals | 37,631 | 8,826 | ||||
Net units withdrawn | 57,199 | 29,198 | ||||
Contract units withdrawn in excess of units credited | (57,199 | ) | (29,128 | ) | ||
Units outstanding at end of year | 710,397 | 767,596 | ||||
10
Notes to Financial Statements (continued)
December 31. 2006
| 7. | Accumulation units (continued) |
| Series N (Non-Qualified) | ||||||
| 2006 | 2005 | |||||
Units outstanding at beginning of year | 127,504 | 135,576 | ||||
Units credited to contracts: | ||||||
Net purchase payments | — | 23 | ||||
Units withdrawn from contracts: | ||||||
Annuity payments | 4,420 | 4,579 | ||||
Terminations and withdrawals | 526 | 3,516 | ||||
Net units withdrawn | 4,946 | 8,095 | ||||
Contract units withdrawn in excess of units credited | (4,946 | ) | (8,072 | ) | ||
Units outstanding at end of year | 122,558 | 127,504 | ||||
| 8. | Subsequent Event |
On February 16, 2007, Series Q of the Fund had a termination in the amount of $6,036,756. The termination was requested by the UnumProvident Corporation Pension Plan in an effort to consolidate various pension plan assets into a centralized investment location.
11
| Item 2. | Code of Ethics. |
(a) The Registrant has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer and principal accounting officer. A copy of the Registrant’s Code of Ethics is filed herewith as Exhibit 10(a)(1).
(b) During the period covered by this report, no amendments were made to the provisions of the Code of Ethics described in 2(a) above.
(c) During the period covered by this report, no implicit or explicit waivers of the provisions of the Code of Ethics described in 2(a) above were granted.
| Item 3. | Audit Committee Financial Expert. |
The Fund has assets of under $10 million. It has no audit committee and no audit committee financial expert. The Board of Managers of the Fund consists of independent directors that control 3/5 of the Board. The Board receives quarterly reports on the transactions in the Fund. Because of the nature of the Fund’s business there are no sensitive accounting estimates used in preparation of the financial statements of the Fund.
| Item 4. | Principal Accountant Fees and Services. |
All audit and other fees paid to the auditors for work related to the Fund are paid by Unum Group and are not charged to or paid from the Fund.
Audit Fees –Ernst & Young LLP billed Unum Group $17,100.00 for the audit of the financial statements of the Fund for 2006, and $16,100.00 for the audit of the financial statements of the Fund for 2005.
Audit-Related Fees – The aggregate fees for audit related services rendered by Ernst & Young LLP to the Fund, the investment adviser or any entity controlling, controlled by or under common control with the investment adviser in 2006 and 2005 for such services were $0.00 and $0.00.
Tax Fees – The aggregate fees related to tax compliance, tax advice and tax planning services to the Fund for fiscal years ended December 31, 2006, and December 31, 2005, were $0.00 and $0.00.
All Other Fees—The aggregate fees rendered by Ernst & Young LLP to the Fund, the investment adviser or any entity controlling, controlled by or under common control with the investment adviser, or Unum Group for such services to the Fund in 2006 and 2005 were $0.00 and $0.00.
| Item 5. | Audit Committee of Listed Registrants. |
Not applicable.
| Item 6. | Schedule of Investments. |
Schedule of investments is included as of the close of the reporting period as part of the report to shareholders filed under Item 1 of this Form.
| Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
Not applicable.
| Item 8. | Portfolio Managers of Closed-End Management Investment Companies. |
Not applicable.
| Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
Not applicable.
REGISTRANT PURCHASES OF EQUITY SECURITIES
| (a) | (b) | (c) | (d) | |||||
Period | Total Number of Shares (or Units) Purchased | Average Price Paid per Share (or Unit) | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar | ||||
Month #1 (identify beginning and ending dates) | ||||||||
Month #2 (identify beginning and ending dates) | ||||||||
Month #3 (identify beginning and ending dates) | ||||||||
Month #4 (identify beginning and ending dates) | ||||||||
Month #5 (identify beginning and ending dates) | ||||||||
Month #6 (identify beginning and ending dates) | ||||||||
Total |
| Item 10. | Submission of Matters to a Vote of Security Holders. |
Not applicable.
| Item 11. | Controls and Procedures. |
(a) Within the 90-day period prior to the filing of this report, the Registrant’s management, including the person serving as both the Registrant’s Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures as defined in Investment Company Act Rule 30a-3(c). Based on that evaluation, the Chief Executive Officer/Chief Financial Officer concluded that the Registrant’s disclosure controls and procedures were effective as of the date of that evaluation.
(b) No change in the Registrant’s internal control over financial reporting that materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting, occurred during the Registrant’s most recent second fiscal half-year.
| Item 12. | Exhibits. |
The following exhibits are attached to this Form N-CSR:
(1) Code of Ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, attached hereto as Exhibit 10(a)(1).
(2) Certification for each principal executive and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 C.F.R. 270.30a-2(a)), attached hereto as Exhibit 31.
(3) Certification for each principal executive and principal financial officer of the registrant as required by Rule 30a-2(b) under the Act (17 C.F.R. 270.30a-2(b)), attached hereto as Exhibit 32.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| The Paul Revere Variable Annuity | ||
| Contract Accumulation Fund | ||
| By (Signature and Title): | /s/ Donald E. Boggs | |
| Donald E. Boggs, Chairman, Board of Managers | ||
| Signing in the capacity of Chief Executive Officer and Chief Financial Officer | ||
Date: March 1, 2007.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following person on behalf of the Registrant and in the capacities and on the dates indicated.
| By (Signature and Title): | /s/ Donald E. Boggs | |
| Donald E. Boggs, Chairman, Board of Managers | ||
| Signing in the capacity of Chief Executive Officer and Chief Financial Officer | ||
Date: March 1, 2007.