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FILE NO. 2-27135
FILE NO. 811-1525
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-3
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
Pre-Effective Amendment No. _____
Post-Effective Amendment No. 46
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 20
(Check appropriate box or boxes)
Provident National Assurance Company Separate Account B
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(Exact Name of Registrant)
Provident National Assurance Company
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(Name of Insurance Company)
1 Fountain Square, Chattanooga, Tennessee 37402
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(Address of Insurance Company's Principal Executive Offices) (Zip Code)
Insurance Company's Telephone Number, including Area Code (423) 755-1901
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Susan N. Roth, Provident National Assurance Company,
1 Fountain Square, Chattanooga, Tennessee 37402
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(Name and Address of
Agent for Service)
Appropriate Date of Proposed Public Offering
Not Applicable
It is proposed that this filing will become effective (check appropriate box)
X
--------- immediately upon filing pursuant to paragraph (b)
--------- on (date) pursuant to paragraph (b)
--------- 60 days after filing pursuant to paragraph (a)(1)
--------- on (date) pursuant to paragraph (a)(1)
--------- 75 days after filing pursuant to paragraph (a)(2)
--------- on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
---------
this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
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VARIABLE ANNUITY CONTRACTS
Cross Reference Sheet Pursuant to Rule 404(c)
By letter dated July 2, 1987, the Staff of the Insurance Products
Office, Division of Investment Management, gave recognition to the fact that
since it was not intended for distribution to prospective new contract owners,
the "prospectus" for this Separate Account was not required to be comprehensive
and conforming to Form N-3. Provident National Assurance Company Separate
Account B had formulated and continued to use what it referred to as
"Disclosure Statement" in the place of the prospectus and Statement of
Additional Information called for by Form N-3. The staff agreed to the
continued use of this approach to disclosure by indicating its tacit
endorsement of the continued preparation and distribution of this "special
disclosure piece".
The special disclosure piece which the staff acknowledged in its
letter of July 2, 1987 is a one-part document based upon the prior registration
form for a management type separate account. The following cross reference
sheet refers to the contents of the one-part document rather than Parts A and B
of Form N-3.
<TABLE>
<CAPTION>
Item No. and Caption in Form N-3 Caption in
Disclosure Statement*
PART A - INFORMATION REQUIRED IN A PROSPECTUS*
<S> <C>
1. Cover Page Cover Page
2. Definitions Item Omitted*
3. Synopsis or Highlights Summary of Disclosure Statement
4. Condensed Financial Information Per Unit Income and Capital Changes
of Separate Account B
5. General Description of Registrant Summary of Disclosure Statement,
and Insurance Company Description of Separate Account B
and the Company
6. Management Board of Managers of Separate Account B
7. Deductions and Expenses Summary of Disclosure Statement,
Investment Advisory Services, Mortality
and Expense Assurances, Sales
and Administrative Services
8. General Description of Variable Summary of Disclosure Statement
Annuity Contracts
9. Annuity Period Item Omitted
10. Death Benefit Item Omitted
11. Purchases and Contract Value Summary of Disclosure Statement, Sales
and Administrative Services, Valuation
of Assets
12. Redemptions Summary of Disclosure Statement,
Surrender for Redemption
</TABLE>
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VARIABLE ANNUITY CONTRACTS
Cross Reference Sheet Pursuant to Rule 404(c)
<TABLE>
<CAPTION>
Item No. and Caption in Form N-3 Caption in Disclosure Statement
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<S> <C>
13. Taxes Summary of Disclosure Statement,
Federal Tax Status
14. Legal Proceedings Legal Proceedings
15. Table of Contents of the Statement Not Applicable*
of Additional Information
PART B - INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
16. Cover Page Not Applicable*
17. Table of Contents Not Applicable*
18. General Information and History Summary of Disclosure Statement,
Descriptions of Separate Account B
and the Company
19. Investment Objectives and Policies Summary of Disclosure Statement,
Investment Objectives and Policies
20. Management Board of Managers of Separate Account B
21. Investment Advisory and Other Summary of Disclosure Statement,
Services Investment Advisory Services
22. Brokerage Allocation Allocation of Portfolio Brokerage
23. Purchase and Pricing of Securities Sales and Administrative Services
Being Offered
24. Underwriters Summary of Disclosure Statement,
Sales and Administrative Services
25. Calculation of Yield Not Applicable*
Quotations of Money Market
Sub-Account
26. Annuity Payments Item Omitted
27. Financial Statements Financial Statements
</TABLE>
* Since the Registrant is not now and does not intend to make a public
offering of its contracts, this disclosure statement omits certain items
set forth in the contents page for Parts A and B of Form N-3 because they
are irrelevant and not applicable to the operation of this particular
Registrant. The only purpose of this document is to provide current
information to contract owners who purchased their contracts on or before
February 1984 and continue to hold such contracts. Pursuant to the
agreement with the staff of the Securities and Exchange Commission reached
in 1987, this Form N-3 does not contain a Statement of Additional
Information.
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PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
1 Fountain Square, Chattanooga, Tennessee 37402
(423) 755-1901
The investment objective of Provident National Assurance Company Separate
Account B (Separate Account) is long-term capital growth. The assets placed
into the Separate Account are normally invested in equity securities,
principally common stocks.
The principal underwriter of Separate Account B is Provident National
Assurance Company.
NOTE: The public offering of contracts of Separate Account B was
discontinued on February 1, 1984.
No further offering of contracts of the Separate Account is
made hereby.
The information contained herein is intended solely for the
information and use of holders of contracts issued prior to
February 1, 1984.
This disclosure statement should be read and retained for future
reference.
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 DISCLOSURE STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this disclosure statement is July 31, 1996
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SUMMARY OF DISCLOSURE STATEMENT
I. Investment Adviser and Principal Underwriter
Provident National Assurance Company (the Company), a stock life
insurance company, acts as principal underwriter and as the investment
adviser to the Separate Account. The Company makes deductions from
the Separate Account, payable monthly, equal to .0048% of the current
net asset value of the Separate Account per valuation day which is
approximately 1.20% on an annual basis. Of these fees, approximately
.50% is received for investment advisory services, approximately .50%
is received for contingent mortality assurances and approximately .20%
for expense assurances.
II. Investment Objectives
The investment objective of the Separate Account is long-term capital
growth. The amounts in the Separate Account are normally placed in
equity investments, principally common stocks. However, depending on
market conditions, from time to time management may decide that
investment of some of the assets of the Separate Account in preferred
stocks and debt obligations will best serve their investment
objectives. From time to time, for the same reason or pending other
investments, the Separate Account may hold funds in U.S. Government
securities, certificates of deposit, and the like.
III. Type of Investment Company
The Separate Account is registered under the Investment Company Act of
1940 as an open-end diversified management investment company.
IV. Redemption
At any time during the accumulation period and prior to the
commencement of annuity payments, the variable annuity contracts may
be surrendered for redemption at the current net asset value. There
is no charge or fee for surrender for redemption.
V. Description of Variable Annuities
A variable annuity is similar to a fixed annuity. Both provide that
the contributions (less certain deductions) made by or on behalf of an
annuitant prior to his retirement date will be accumulated and that
after the retirement date the Company will make monthly payments to
the retired annuitant for the remainder of his lifetime. Also, in
both cases, the Company receives certain fees for assuming the
mortality and expense risks under the contract.
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Under a fixed annuity, the Company assumes the risk of investment gain
or loss, assures a specified interest rate and assures a specified
monthly annuity payment. However, under a variable annuity,
contributions (less deductions) are placed in a Separate Account, and
the contract owner or annuitant assumes the risks of investment gain
or loss in that the value of the contract or individual account
(before retirement) and the monthly annuity payments (after
retirement) vary with the investment income and gains or losses on the
assets of the Separate Account.
The basic objective of the contracts is to provide the annuitant with
annuity payments which will tend to reflect the changes in the cost of
living both before and after his retirement. There has been no exact
correlation between the cost of living index and investment
performance.
In some periods, they have moved in opposite directions. Therefore,
there is no assurance that this objective can be attained. The value
of the investments held in the Separate Account fluctuates daily and
is subject to all the risks of changing economic conditions. There is
no assurance that the value of an annuitant's account during the years
prior to retirement or the aggregate amount of the variable annuity
payments received during the years following retirement will equal or
exceed the purchase payments made by or on behalf of the annuitant.
VI. Miscellaneous
A deduction will be made when applicable for premium taxes imposed by
some states or municipalities. When imposed, these taxes currently
range from .5% to a maximum of 3.0%.
Purchase payments under the contracts, after deductions for sales and
administrative expenses and any applicable premium taxes, are added to
Separate Account B. The assets of the Separate Account are held for
the exclusive benefit of the holders of and persons entitled to
payments under the contracts.
The Board of Managers of the Separate Account is elected annually by
the owners of contracts for which reserves are maintained in the
Separate Account.
PER UNIT INCOME AND CAPITAL CHANGES OF SEPARATE ACCOUNT B
Information relating to per unit income and capital changes is
included in the financial statements which constitute a part of this disclosure
statement.
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DESCRIPTION OF SEPARATE ACCOUNT B AND THE COMPANY
Provident National Assurance Company (Company) is a stock life
insurance company organized under the provisions of Chapters 491 and 508 of the
1966 Code of Iowa on June 28, 1967. In accordance with the provisions of the
Iowa Insurance Code, Separate Account B was established by the Company on
August 21, 1967.
On November 27, 1974, all of the outstanding shares of stock of the
Company were purchased by Provident Life and Accident Insurance Company
(Provident), Chattanooga, Tennessee. Provident was organized in 1887 under the
laws of Tennessee and is engaged in the sale of individual and group life and
accident and health insurance in all states (except New York), the District of
Columbia, the Dominion of Canada and all Canadian provinces and Puerto Rico. In
early 1996, as the result of corporate restructuring, the Company became a
direct wholly-owned subsidiary of Provident Companies, Inc., whose stock is
publicly held and traded on the New York Stock Exchange.
On September 29, 1978, the Company changed its domicile from Des
Moines, Iowa, to Chattanooga, Tennessee, pursuant to Section 56-202(b) of the
Tennessee Code Annotated. As a result of the redomestication, the Company
became a Tennessee corporation, and the Company and the Separate Account are
subject to the laws and regulations of Tennessee pertaining to insurance. The
Home Office of the Company is located at 1 Fountain Square, Chattanooga,
Tennessee.
Under the provisions of Tennessee law, the assets in the Separate
Account are not chargeable with liabilities arising out of any other business
the Company may conduct. The Separate Account, though an integral part of the
Company, is registered as an open-end diversified management investment company
under the Investment Company Act of 1940. Under Tennessee law, regulation of
the Company by the Insurance Commissioner of the State of Tennessee includes
regulation of the Separate Account. Registration with the Securities and
Exchange Commission does not involve supervision of management or investment
practices or policies of the Separate Account or the Company by the Commission.
INVESTMENT OBJECTIVES AND POLICIES
I. Fundamental
The investment policies enumerated below are, except as noted,
fundamental to Separate Account B and may not be changed without prior
approval by a vote of a majority of the outstanding voting securities.
1. The investment objective of the Separate Account is long-term
capital growth.
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To the extent feasible, assets of the Separate Account will be
kept fully invested and amounts will be held in cash only (a)
temporarily, pending investment in accordance with the
investment policy; and (b) to the extent necessary to make
normal contract payments.
The assets of the Separate Account will usually be invested in
a diversified portfolio of equities, which will be primarily
common stocks, with such changes as may seem advisable, from
time to time, to take into account changes in the outlook for
particular industries or companies. Historically, the value
of a diversified portfolio of common stocks held for an
extended period of time has tended to rise during periods of
inflation. There has, however, been no exact correlation, and
for some periods, the prices of securities have declined while
the cost of living has risen. The value of the investments
held in the Separate Account fluctuates daily and is subject
to the risks of changing economic conditions, as well as the
risks inherent in the ability of management to make changes in
such investments necessary to meet changes in economic
conditions.
There may be times when management feels that conditions are
such that continued investment in a portfolio made up
primarily of common stocks does not appear to be the best
method of seeking the objective of the Separate Account. At
such times, a larger proportion of the assets may be invested
in preferred stocks, corporate bonds or debentures (which may
or may not be convertible into stocks), stock warrants or
options (puts or calls), or real estate.
Periodically, and in limited amounts, the Separate Account may
hold funds in the form of short-term obligations, such as U.S.
Treasury Bills, bankers' acceptances, certificates of deposit
and commercial paper. This permits a return on cash balances
held prior to investment of these funds in securities.
2. Investments will not be concentrated in particular industries
or group of industries and no more than 25% of the assets of
the Separate Account will be invested in any one industry.
3. The Separate Account does not intend to engage in the purchase
and sale of interests in real estate, but reserves freedom of
action to do so. However, it will not make any such purchase
if the value of any real estate held plus the amount proposed
to be acquired (subject to the provisions of policy 10 below)
amounts to more than 10% of the value of the Separate
Account's assets. The Separate Account may invest in deeds of
trust to real estate or marketable interests in real estate
investment trusts.
4. No purchase or sale of commodities or of commodity contracts
will be made.
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5. No money will be borrowed.
6. No loan of funds or other assets will be made, except through
the acquisition of a portion of an issue of bonds, debentures
or other evidence of indebtedness which are publicly
distributed.
7. No securities of other issuers will be underwritten.
8. Not more than 5% of the voting securities of any one issuer
will be acquired.
9. No purchase of securities will be made if, as a result of such
purchase, more than the greater of $5,000 or 5% of the total
value of the assets of the Separate Account will be invested
in the securities of any one issuer (other than the United
States or its instrumentalities).
10. The Separate Account will not invest more than 10% of the
value of its assets in securities or other investments
(including real estate and restricted securities) which are
subject to legal or contractual restrictions upon resale or
are not otherwise readily marketable.
Since the inception of the Separate Account, no purchases of
restricted securities have been made. Moreover, management
has no current intention of investing in such securities in
the future.
11. No purchase of warrants or options to purchase securities will
be made if, as a result of such purchase, more than 2% of the
assets of the Separate Account will be invested in such
warrants and options.
Since the inception of the Separate Account, no purchases of
warrants or options have been made. Moreover, management has
no current intention of investing in such securities in the
future.
12. Dividends from the net investment income and capital gains
distributions of the Separate Account will be retained and
reinvested by the Separate Account.
II. Other
The policies and objectives below may be changed by action of the
Board of Managers.
1. All investments of assets of the Separate Account are
restricted to those permitted under the regulations adopted by
the Tennessee Insurance Commissioner with respect to
investments made by segregated variable annuity accounts
established by insurance companies. Investments of the
Separate Account will be in
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compliance with the regulations, including the provision that
all common stock investments shall be in stock which is listed
or admitted to trading on a securities exchange registered
under the Securities Exchange Act of 1934 or which is publicly
held and has been traded in the over-the-counter market and as
to which current stock market quotations are readily
available.
2. So long as the Company is licensed to do variable annuity
business in the State of New York, the investment of assets of
the Separate Account will be subject to the following
restrictions, unless otherwise permitted by New York law: (a)
no investment shall be made which will result in the ownership
of more than 5% of the total outstanding common stock of any
corporation; or (b) not more than 10% of the aggregate value
of the assets of the Separate Account shall be invested at any
time in common stocks which do not meet the criteria for
investments by life insurance companies under New York law.
3. Purchases will not be made on the margin.
4. Short sales of securities will not be made.
5. Limited amounts of securities of one or more investment
companies may be acquired up to a maximum of 10%, in the
aggregate, of the assets of the Separate Account, provided
that no investment will be made in the securities of any one
investment company if immediately after such investment more
than 3% of the outstanding voting securities of such company
will be owned by the Separate Account nor more than 5% of the
value of the Separate Account's assets will be invested in
such company.
6. No investments in the securities of a company will be made for
the purpose of exercising control of management.
7. Purchases will be made for investment purposes and not for
short-term trading purposes. However, freedom of action is
reserved to make such changes in the Separate Account's
portfolio as are considered necessary or desirable, including
the realization of short-term capital appreciation when
appropriate.
8. No participation will be made in joint or joint and several
securities trading accounts.
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III. Portfolio Turnover
The Separate Account will purchase securities for long-term capital
growth and not for short-term trading purposes, although in certain
circumstances (such as during periods of pronounced market
instability) it may sell securities held for a short period if
considered necessary or desirable. Accordingly, the Separate
Account's annual rate of turnover ordinarily will not exceed 50%. In
1995, the portfolio turnover rate was 101%.
FEDERAL TAX STATUS
Separate Account B is not qualified as "regulated investment company"
under Subchapter M of the Internal Revenue Code (Code) since it is not taxed
separately from the Company. The operations of the Separate Account form a
part of the Company's total operations under existing federal income tax law.
The Separate Account will make no distributions of investment income or
realized capital gains. No changes in this status will be sought nor are any
changes otherwise anticipated.
The investment results credited to the contract are not taxable to the
contract owner or annuitant until such owner or annuitant either receives a
distribution under the contract or else commences receiving annuity payments.
Annuity payments received after the annuity starting date will be taxed as
ordinary income to the extent the benefits represent payments in excess of the
"annual exclusion" under the contract. The "annual exclusion" is determined by
dividing the annuitant's cost or investment in the contract by the number of
years during which the annuity payments are expected to be made under the
contracts.
The Company will be required to withhold federal income taxes on
annuity payments and other distributions made under the contract. Recipients
of annuity payments or other distributions may in many cases elect not to have
such payments withheld; however, withholding is mandatory in the case of
certain distributions from qualified plans that are not "rolled over" to
another plan in a direct transfer. The withholding rate will be applied only
against the taxable portion of the annuity payments for the distributions under
the contract. Under current regulations the Company is required to report to
the IRS and the recipient annuity payments in excess of $1 annually whether or
not withholding is elected.
No taxes are payable by the Company on the investment income or
realized or unrealized capital gains of the Separate Account which are taken
into account in determining the value of the accumulation unit and the value of
the annuity unit.
Also with respect to individual non tax qualified contracts,
distributions which represent partial surrenders made before the commencement
date of annuity payments will be treated for federal income tax purposes first
as withdrawals of income earned on investment (to the extent such income is
received and subject to tax), and then as return of capital. In addition,
amounts
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received as a result of an assignment or pledge of the contract will be treated
as withdrawals under the contract and consequently subject to tax. This
provision will not, however, apply to income amounts allocable to investments
made prior to August 14, 1982.
For individual contract distributions made after December 31, 1986,
and before the commencement of annuity payments, a 10% penalty will be assessed
by the IRS against all amounts received under the contract to the extent
amounts received represent income generated under the contract. The penalty
will not be assessed against distributions made: (1) on or after the
participant under the contract attains age 59 1/2, (2) to a beneficiary as a
result of the death of a contract holder, (3) to the participant as a result of
disability, (4) on amounts received which represent payments under an annuity
for the life (or life expectancy) of the payee, or (5) on amounts allocable to
an investment made prior to August 14, 1982.
The Code as amended by the Tax Reform Act of 1986 imposes restrictions
on distributions (i.e., redemptions in whole or part) from annuity contracts
sold to plans qualified under section 403(b) of the Code. These restrictions
are effective in tax years beginning after December 31, 1988. Section
403(b)(11) of the Code requires that for such annuity contracts to receive
tax-deferred treatment, they must provide that:
Distributions attributable to contributions made after
December 31, 1988, pursuant to a salary reduction agreement to
be paid only:
(1) when the employee attains age 59 1/2,
separates from service, dies, or becomes
disabled (within the meaning of section
72(m)(7)); or
(2) in the case of hardship. In hardship cases,
only the distribution of amounts contributed
after December 31, 1988, is permitted;
distribution of any income attributable to
these contributions is prohibited.
The contracts described in this disclosure statement have been amended
to comply with these changes in the Code. Disclosure relating to withdrawal of
amounts from the contracts and redemption of all or a portion of a
Participant's account should be read with the above restrictions in mind.
Distributions of assets held as of December 31, 1988, are not subject
to these Code restrictions.
Contracts issued in connection with qualified plans are also subject
to the minimum distribution requirements of the Code, and may be subject to
additional restrictions contained in the plans themselves.
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NOTE: It should be recognized that the above discussion of federal
income tax aspects of amounts received under a variable
annuity contract is not exhaustive, does not purport to cover
all situations and is not intended as tax advice. A qualified
tax adviser should always be consulted with regard to
application of the law to individual circumstances.
ALLOCATION OF PORTFOLIO BROKERAGE
The Company has responsibility for placing orders for the purchase and
sale of portfolio securities of the Separate Account under an Investment
Advisory Agreement. With respect to such purchases and sales, the primary
objective is to obtain the most favorable prices and execution of orders on
behalf of the Separate Account. With respect to transactions executed in the
over-the-counter market, the Company will deal only with principal market
makers unless more favorable prices are otherwise available.
The Company does not expect to use any one particular broker or dealer
but, subject to obtaining the best prices and executions, brokers who provide
statistical information and supplemental research to the Company for pricing
and appraisal services utilized by the Company may receive orders for
transactions. It is not possible to determine the exact value of such
statistical information and supplemental research provided to the Company.
Such information and research is used by the Company for the benefit of all its
investment accounts and no allocation of services or the costs therefore is
made nor is such an allocation possible.
BOARD OF MANAGERS OF SEPARATE ACCOUNT B
The Separate Account is managed by a Board of Managers in accordance
with the Rules and Regulations adopted by the Board. The Chairman and Members
of the Board of Managers are as follows:
<TABLE>
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Present Positions with the Separate Account and
Name and Address Principal Occupation During the Last Five Years
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David G. Fussell* Chairman of the Board; Vice President, Securities,
1 Fountain Square Provident Life and Accident Insurance Company,
Chattanooga, Tennessee 37402 Provident Life and Casualty Insurance Company.
Age: 48
Henry E. Blaine# Board Member; presently Chairman of the
293 West Haller Drive Board, President and Chief Executive Officer,
East Alton, Illinois 62024 Native American Lapidary Company (NALCO),
Age: 66 Colorado; previously Private Consultant;
previously President, Winchester Group,
Olin Corp.
</TABLE>
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<TABLE>
<S> <C>
H. Grant Law, Jr.# Board Member; President and Chief Executive
213 W. Fleetwood Drive Officer, Newton Chevrolet - GEO, Inc.;
Lookout Mountain, TN 37350 President, Newton Oldsmobile - GMC Truck -
Age: 49 Mitsubishi, Inc.
</TABLE>
*NOTE: Interested person of the Separate Account as that term is
defined in the Investment Company Act of 1940.
#NOTE: Member: Audit Committee of the Separate Account.
COMPENSATION OF CERTAIN AFFILIATED PERSONS
No person other than the Company receives any compensation from the
Separate Account since the Company pays all expenses relating to the operation
of the Separate Account.
INVESTMENT ADVISORY SERVICES
Investment Advisory Agreement
The Company acts as the investment adviser of the Separate Account.
In performing this role, the Company continuously provides the Board
of Managers with an investment program and recommendations on the
purchase and sale of investments for their consideration. The Company
also has the responsibility for placing orders for purchases and
sales. In performing these functions, the Company is guided by the
investment policies and restrictions promulgated by the Board of
Managers of the Separate Account. Moreover, all actions taken by the
Company with regard to investments as investment adviser are reviewed
by the Board.
For providing investment advice the Company receives a monthly fee
from the Separate Account in an amount equal to approximately 0.50% on
an annual basis. No part of the investment advisory fees are derived
from the sales and administrative expense fees described herein.
The Company furnishes these services to the Separate Account pursuant
to a written investment advisory agreement which was last approved on
February 22, 1996 by the Board of Managers, including a majority of
the members of each Board of Managers who are not parties to the
Agreement nor interested persons of such party, at a meeting called
for the purpose of voting on such approval. The agreement was last
submitted to and approved by the contract owners of the Separate
Account on April 12, 1977, and amendments thereto were submitted to
and approved by the contract owners on April 11, 1978.
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The Investment Advisory Agreement:
1. May not be terminated by the Company without the prior
approval of a new investment advisory agreement by a majority
of the outstanding voting securities of the Separate Account
but may be terminated without the payment of any penalty on 60
days' written notice by the Board of Managers or by a majority
of the outstanding voting securities of the Separate Account;
2. Shall continue in effect for a period more than two years from
the date of its execution, only so long as such continuation
is specifically approved at least annually by (a) a majority
of the Board of Managers of the Separate Account, or (b) a
majority of the outstanding voting securities of the Separate
Account, and in either event by a majority of the members of
the Board of Managers who are not parties to the Agreement or
interested persons of such party, casting their votes in
person at a meeting called for the purpose of voting on such
approval;
3. Cannot be modified without prior approval by the vote of a
majority of the outstanding voting securities of the Separate
Account and by a vote of a majority of the members of the
Board of Managers who are not parties to the Agreement or
interested persons of such party, cast in person at a meeting
called for the purpose of voting on such approval;
4. Will terminate automatically if assigned.
CONTRACT CHARGES
Mortality and Expense Assurances
Although variable annuity payments made under the contracts will vary
in accordance with the investment performance of the Separate Account, the
payments will not be affected by (a) the Company's actual expenses, if greater
or lesser than the deductions provided for in the contract, or (b) the
Company's actual mortality experience among annuitants after retirement.
The Company provides an expense assurance by assuming the risk that
the administrative fee may be insufficient to cover the actual administrative
costs.
The Company also assumes the risk that actual mortality of annuitants
may be less than was assumed in calculating the annuity rates. The contingent
mortality assurance provided by the Company under the contracts is the
Company's contractual obligation to continue to make monthly annuity payments,
determined in accordance with the annuity tables and other provisions contained
in the contracts, to each annuitant regardless of how long he lives and
regardless of how long all annuitants as a group live. This obligation assures
an annuitant that
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neither his longevity nor an improvement in life expectancy generally will have
any adverse effect on the monthly annuity payments he will receive under the
contract and relieves the annuitant from the risk that he will outlive the
funds which he has accumulated for retirement. The assurance is based on the
Company's actuarial determination of expected mortality rates among annuitants.
If the future proves that the Company's actuarial determination of expected
mortality rates among annuitants was erroneous because, as a group, their
longevity is longer than anticipated, the Company must provide amounts from its
general funds to fulfill its contractual obligation. In that event, the
Company may incur a loss. Conversely, if longevity among annuitants is lower
than anticipated, a gain may result to the Company. The Company also provides
a minimum death benefit.
For providing expense assurances and for the assumption of the
mortality risks, a charge of approximately .70% on an annual basis is deducted
from the current net asset value of the Separate Account per valuation day.
VOTING RIGHTS
Contract owners of the Separate Account will have the right to vote at
annual meetings of contract owners on the following matters:
1. Initial approval of and any amendment to the investment
advisory agreement;
2. Ratification of the selection of independent auditors for the
Separate Account;
3. Election of members to the Board of Managers of the Separate
Account;
4. Any change in the fundamental investment policies of the
Separate Account or other policies requiring contract owners'
approval; and
5. The transaction of such other business as may properly come
before the meeting.
The number of votes which a contract owner may cast prior to the time
annuity payments begin is equal to the dollar value of the accumulation units
in the variable portion of his contract as of the record date, each dollar of
value representing one vote and each fraction of a dollar of value representing
a like fraction of a vote. Contract values will be rounded to the nearest cent
to determine the total vote a contract owner may be entitled to cast. After
annuity payments begin, a contract owner or annuitant may cast one vote for
each dollar and a fraction of a vote for each fraction of a dollar (rounded to
the nearest cent) of the value of the valuation reserves maintained by the
Company in the Separate Account with respect to the annuitant under the
contract, pursuant to the Tennessee Insurance Code and regulations thereunder.
Once annuity payments begin, the total number of votes which the annuitant may
cast will generally decrease during the payment period.
12
<PAGE> 17
The determination of the number of votes to be cast will be made as of
a date (record date) within 90 days prior to the meeting of contract owners,
and the contract owner will receive at least 20 days written notice of the
meeting and of the number of votes to which he is entitled. The contract owner
will be entitled to vote only if he was the owner on the record date and on the
date of the meeting.
SURRENDER FOR REDEMPTION
At any time during the accumulation period and prior to the
commencement of annuity payments: (a) for contracts used in IRA's, the
annuitant may surrender the contract for redemption; (b) for contracts under
HR-10 plans, the annuitant may surrender the contract for redemption to the
extent permitted in the plan; and (c) for contracts used in plans qualifying
under Section 403(b) of the Code, an annuitant may surrender the contract or
certificate for redemption only under the circumstances described above under
"Federal Tax Status".
With respect to other contracts, at any time prior to the commencement
of annuity payments, surrender for redemption may be effected by sending a
written request for surrender to the Company accompanied by the contract or
certificate.
There is no charge or fee for surrender for redemption.
In addition, subject to possible plan and Internal Revenue Code
restrictions, a portion of the termination value of the contract or
participant's account may be surrendered subject to the following limitations:
1. No more than one such partial surrender for redemption may be allowed
on behalf of any annuitant in any one contract year; and
2. No partial surrender for redemption will be permitted as a result of
which the current value of the accumulation units remaining in the
contract falls below $10.
For IRA contracts, if annuity payments have not commenced prior to the
close of the annuitant's tax year in which he attains age 70 1/2,
then, not later than the close of such tax year, the Company will
distribute in one sum to the annuitant the annuitant's entire interest
in the contract.
TRANSFERS BETWEEN ACCOUNTS
The contract owner may direct the transfer of the value of all or a
portion of the accumulation units between the fixed-dollar annuity portion of
the contract and the variable annuity portion. Such transfers shall not be
permitted more often than once each contract year. Such transfers shall be
effected without the imposition of additional sales and administrative expense
charges.
13
<PAGE> 18
SALES AND ADMINISTRATIVE SERVICES
I. General
The Company acts as principal underwriter and provides all sales and
administrative services in connection with the contracts and Separate
Account B. The Company deducts a sales and administrative expense fee
to cover these services as set forth below.
Administrative expense includes such items as fees and expenses of the
Board of Managers, salaries, rent, postage, telephone, travel, legal,
actuarial and accounting fees, custodian fees, printing, office
equipment, stationery and plan administration cost. The charge for
administrative expense is designed only to reimburse the Company for
its actual administrative expense, and the Company does not expect to
recover from the charge or any modification thereof any amount above
its accumulated expenses in administering the contracts.
When applicable, a deduction will be made for premium taxes imposed by
some states or municipalities. These taxes currently range from .5%
to a maximum of 3%.
II. Tax Qualified Contracts
Under contracts subject to Sections 401, 403(b) and 408 of the Code,
the annuity purchase rates and the deductions for sales and
administrative expenses, the investment advisory fee and the
contingency fees, as contained in the contracts when issued, will be
applicable to cumulative purchase payments made under the contract up
to $100,000. Purchase payments made thereafter may be made only upon
approval by the Company and will be subject to terms and conditions as
required by the Company. The group contracts may not be modified
during the first contract year.
Under the individual contract used to fund IRA's and HR-10 plans, the
Company deducts a sales and administrative fee of 8.0% from each
purchase payment (of which 7.0% is for sales expense and 1.0% is for
administrative expense).
Under the individual or group contract used to fund plans qualifying
under Section 403(b) of the Code, the Company deducts sales and
administrative expense fees in accordance with the following schedule:
14
<PAGE> 19
<TABLE>
<CAPTION>
Cumulative Purchase Portion for Sales Portion for
Payments Percentage Deduction Expense Administrative Expense
------------------- -------------------- -------------------- ----------------------
<S> <C> <C> <C>
First $10,000 6.0% 5.0% 1.0%
Balance 4.0% 3.0% 1.0%
</TABLE>
III. Non Tax Qualified Contracts
Under non tax qualified single purchase payment variable annuity
contracts, the sales and administrative expense fee is calculated as
follows:
<TABLE>
<CAPTION>
Single Purchase Percentage Portion for Sale Portion for
Payment Deduction Expense Administrative Expense
--------------- ---------- ---------------- ----------------------
<S> <C> <C> <C> <C>
First $25,000 6.0% 4.5% 1.5%
Next 25,000 5.0% 4.0% 1.0%
Next 25,000 3.0% 2.5% 0.5%
Balance 2.0% 1.5% 0.5%
</TABLE>
Under non tax qualified flexible installment purchase payment variable
annuity contracts, the sales and administrative expense fee is
calculated as follows:
<TABLE>
<CAPTION>
Single Purchase Percentage Portion for Sale Portion for
Payment Deduction Expense Administrative Expense
--------------- ---------- ---------------- ----------------------
<S> <C> <C> <C> <C>
First $25,000 8.0% 7.0% 1.0
Next 25,000 6.0% 5.0% 1.0%
Next 25,000 5.0% 4.0% 1.0%
Balance 4.0% 3.0% 1.0%
</TABLE>
IV. Underwriting Agreement
The Company furnishes sales and administrative services to the
Separate Account pursuant to a written agreement which was last
approved on February 22, 1996 by the Board of Managers of the Separate
Account, including a majority of members who are not parties to the
Agreement nor interested persons of such party, at a meeting called
for the purpose of voting on such approval. The Agreement was last
submitted to and approved by the contract owners on April 12, 1977.
15
<PAGE> 20
The Underwriting Agreement:
1. May not be terminated by the Company without the prior
approval of an underwriting agreement by a majority of the
outstanding voting securities of the Separate Account but may
be terminated without the payment of any penalty, on 60 days'
written notice by the Board of Managers of the Separate
Account or by a majority of the outstanding voting securities
of the Separate Account;
2. Shall continue in effect for a period more than two years from
the date of its execution, only so long as such continuation
is specifically approved at least annually by (a) a majority
of the Board of Managers of the Separate Account, or (b) a
majority of the outstanding voting securities of the Separate
Account, and in either event by a majority of the members of
the Board of Managers who are not parties to the Agreement or
interested persons of such party, casting their votes in
person at a meeting called for the purpose of voting on such
approval;
3. Cannot be modified without prior approval by the vote of a
majority of the outstanding voting securities of the Separate
Account or by a vote of a majority of the members of the Board
of Managers who are not parties to the agreement or interested
persons of such party, cast in person in a meeting called for
the purpose of voting on such approval;
4. Will terminate automatically if assigned.
VALUATION OF ASSETS
The value of assets held in the Separate Account are calculated each
day the New York Stock Exchange is open for trading.
STATE REGULATION OF COMPANY
As an insurance company organized under the provisions of Chapters 491
and 508 of the 1966 Code of Iowa and redomesticated to Tennessee pursuant to
the provisions of Chapter 511 of the Public Acts of 1978, Ninetieth
Legislature, State of Tennessee, the Company (including the Separate Account)
is subject to regulation by the Tennessee Commissioner of Insurance.
Periodically, the Commissioner examines the liabilities and reserves of the
Company and its Separate Account and certifies to their correctness.
In addition, the Company is subject to the insurance laws and
regulations of the other jurisdictions in which it is or may become licensed to
operate. Generally, the insurance departments of such jurisdictions apply the
laws of the State of domicile in determining permissible investments.
16
<PAGE> 21
SECURITIES CUSTODIAN
Bankers Trust Company of New York acts as the Custodian of portfolio
securities and other assets of the Separate Account, under an agreement among
the Bank, Separate Account and the Company.
LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Company
or the Separate Account are a party, or to which their property is subject,
which depart from the ordinary routine litigation incident to the kinds of
business conducted by them.
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, Secretary of Provident
National Assurance Company.
EXPERTS
The financial statements of the Provident National Assurance Company
Separate Account B at December 31, 1995 and 1994 and for each of the three
years in the period ended December 31, 1995, and of Provident National
Assurance Company at December 31, 1995 and 1994, and for each of the two years
in the period ended December 31, 1995, appearing in this Disclosure Statement
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein and
in the Registration Statement, and are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
There have been filed with the Securities and Exchange Commission,
Washington, D.C., registration statements (Form S-5, now designated N-3) under
the Securities Act of 1933, as amended, with respect to the contracts. The
contracts are exhibits to the registration statements. If further information
is desired with respect to the Separate Account or the contracts, reference is
made to the registration statement and the exhibits filed as a part thereof.
17
<PAGE> 22
REPORT OF INDEPENDENT AUDITORS
Board of Managers and Contract Owners
Provident National Assurance Company
Separate Account B
We have audited the accompanying statements of assets and liabilities of
Provident National Assurance Company Separate Account B as of December 31, 1995
and 1994, including the schedule of investments as of December 31, 1995, and
the related statements of operations and changes in variable annuity contract
owners' equity for each of the three years in the period ended December 31,
1995, 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 Company'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 generally accepted auditing
standards. 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, 1995 and 1994, 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
Provident National Assurance Company Separate Account B at December 31, 1995
and 1994, the results of its operations and the changes in variable annuity
contract owners' equity for each of the three years in the period ended
December 31, 1995, and the supplementary information for each of the ten years
in the period then ended, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Chattanooga, Tennessee
January 22, 1996
-1-
<PAGE> 23
STATEMENTS OF ASSETS AND LIABILITIES
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
<TABLE>
<CAPTION>
December 31
1995 1994
-------------------------------
<S> <C> <C>
ASSETS
Investments:
Common stocks--at market value
(cost: 1995-$10,391,006; 1994--$9,605,302) $13,200,097 $11,240,318
Short-term investments--at cost plus
accrued interest (approximately market) 0 699,378
---------- -----------
13,200,097 11,939,696
Cash 29,854 133,627
Receivable from sale of investments 0 131,899
Accrued dividends and interest 18,566 36,631
Amounts due from Provident National Assurance Company 19 1,803
---------- ----------
TOTAL ASSETS 13,248,536 12,243,656
---------- ----------
LIABILITIES AND CONTRACT OWNERS' EQUITY
Amounts payable for terminations and variable annuity benefits 83,866 60,054
Management fee and other amounts due Provident
National Assurance Company 12,839 12,255
---------- ----------
TOTAL LIABILITIES 96,705 72,309
---------- ----------
Variable annuity contract owners' equity:
Deferred annuity contracts terminable by owners--(accumulation
units outstanding: 1995--1,767,394.226; 1994--2,097,792.998;
unit value: 1995--$6.908158; 1994--$5.410722) 12,209,438 11,350,575
Annuity contracts in pay-out period 942,393 820,772
---------- ----------
TOTAL CONTRACT OWNERS' EQUITY $13,151,831 $12,171,347
========== ==========
</TABLE>
See notes to financial statements.
-2-
<PAGE> 24
STATEMENTS OF CHANGES IN VARIABLE ANNUITY CONTRACT OWNERS' EQUITY
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD $12,171,347 $13,594,156 $14,234,352
----------- ----------- -----------
FROM INVESTMENT ACTIVITIES:
Net investment income 112,248 219,880 194,621
Net realized gain on investments 1,801,868 487,864 2,392,680
Increase (decrease) in net unrealized appreciation of investments 1,174,075 (1,264,220) (969,141)
----------- ----------- -----------
Increase (decrease) in contract owners' equity from
investment activities 3,088,191 (556,476) 1,618,160
----------- ----------- -----------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS:
Net contract purchase payments (Units purchased:
1995-- 8,835.033;
1994--13,985.385;
1993--13,091.397) 53,380 75,685 69,480
Terminations and death benefits (Units terminated:
1995--337,338.173;
1994--153,401.946;
1993--417,161.742) (2,054,839) (841,067) (2,226,590)
Variable annuity benefits paid (Number of units:
1995--17,171.953;
1994--18,478.239;
1993--19,256.924) (106,248) (100,951) (101,246)
----------- ----------- -----------
Decrease in contract owners' equity from variable
annuity contract transactions (2,107,707) (866,333) (2,258,356)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CONTRACT OWNERS' EQUITY 980,484 (1,422,809) (640,196)
----------- ----------- -----------
BALANCE AT END OF PERIOD $13,151,831 $12,171,347 $13,594,156
=========== =========== ===========
</TABLE>
See notes to financial statements.
-3-
<PAGE> 25
STATEMENTS OF OPERATIONS
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Income:
Dividends $ 240,725 $ 298,329 $ 300,181
Interest 24,937 76,107 64,335
---------- ------------ -----------
265,662 374,436 364,516
---------- ------------ -----------
Expenses--Note C:
Investment advisory services 63,922 64,398 70,790
Mortality and expense assurances 89,492 90,158 99,105
---------- ------------ -----------
153,414 154,556 169,895
---------- ------------ -----------
NET INVESTMENT INCOME 112,248 219,880 194,621
---------- ------------ -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE A
Net realized gain from investment transactions
(excluding short-term securities):
Proceeds from sales 13,313,567 9,701,955 9,097,387
Cost of investments sold 11,434,739 9,214,091 6,704,707
Adjustment for impairment of value (76,960) 0 0
---------- ------------ -----------
Net realized gain 1,801,868 487,864 2,392,680
---------- ------------ -----------
Net unrealized appreciation of investments:
At end of year 2,809,091 1,635,016 2,899,236
At beginning of year 1,635,016 2,899,236 3,868,377
---------- ------------ -----------
Increase (decrease) in net unrealized appreciation of investments 1,174,075 (1,264,220) (969,141)
---------- ------------ -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 2,975,943 (776,356) 1,423,539
---------- ------------ -----------
NET INCOME (LOSS) $3,088,191 $ (556,476) $ 1,618,160
========== ============ ===========
Ratio of expenses to total investment income 57.75% 41.28% 46.61%
========== ============ ===========
</TABLE>
See notes to financial statements.
-4-
<PAGE> 26
SCHEDULE OF INVESTMENTS
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------- -------------
<S> <C> <C>
COMMON STOCKS
BASIC PRODUCTS (4.2%)
Aluminum Company of America 1,600 $ 84,600
Boise Cascade Corporation 3,500 120,750
Champion International Corporation 3,000 126,000
Reynolds Metals Company 1,000 56,875
USG Corporation 5,500 165,000
-------------
553,225
CAPITAL GOODS (5.2%)
General Electric Company 9,400 676,800
CONSUMER (32.5%)
Bristol-Myers Squibb Company 4,500 386,438
Coca-Cola Company 2,000 148,500
Gannett Company, Inc. 8,000 491,000
General Motors Corporation 7,000 370,125
Kroger Company 6,000 224,250
McDonald's Corporation 10,500 473,812
Pentos PLC 160,000 0
PepsiCo, Inc. 5,000 279,375
Premark International, Inc. 1,500 75,938
Proctor & Gamble Company 3,000 249,000
Sara Lee Corporation 10,000 320,000
Sears, Roebuck & Company 5,000 195,000
Viacom, Inc. Class A 688 31,820
Viacom, Inc. Class B 13,712 649,606
Wal Mart Stores, Inc. 17,000 378,250
-------------
4,273,114
</TABLE>
See notes to financial statements.
-5-
<PAGE> 27
SCHEDULE OF INVESTMENTS - CONTINUED
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------- ----------------
<S> <C> <C>
COMMON STOCKS - CONTINUED
ENERGY (5.8%)
Atlantic Richfield Company 1,000 $ 110,750
Mobil Corporation 5,800 648,150
-----------
758,900
FINANCIAL (16.4%)
AFLAC, Inc. 6,000 261,000
Allstate Corporation 2,635 108,364
American Express Company 16,000 662,000
Equifax, Inc. 11,000 235,125
Great Western Financial Corporation 8,600 218,225
Wells Fargo & Company 3,100 669,600
-----------
2,154,314
HEALTH CARE (11.9%)
Columbia Healthcare Corporation 4,500 228,375
Cordis Corporation 4,000 402,000
HealthSouth Corporation 7,500 218,437
Merck & Company, Inc. 11,000 721,875
-----------
1,570,687
HIGH GROWTH TECHNOLOGY (17.1%)
Airtouch Communications, Inc. 7,000 196,875
Computer Associates International 6,750 383,906
Hewlett Packard Company 3,500 293,125
Intel Corporation 5,000 283,750
Microsoft Corporation 2,000 175,500
Motorola, Inc. 4,500 256,500
</TABLE>
See notes to financial statements.
-6-
<PAGE> 28
SCHEDULE OF INVESTMENTS - CONTINUED
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------- -------------
<S> <C> <C>
COMMON STOCKS - CONTINUED
HIGH GROWTH TECHNOLOGY (17.1%) - CONTINUED
Reuters Holdings PLC ADR 7,000 $ 385,875
SCI Systems, Inc. 5,000 155,000
3Com Corporation 2,500 116,563
-----------
2,247,094
MISCELLANEOUS (3.1%)
Minnesota Mining & Manufacturing Company 6,200 411,525
UTILITIES (4.2%)
Williams Companies, Inc. 4,000 175,500
Worldcom, Inc. 10,750 378,938
-----------
554,438
-----------
TOTAL COMMON STOCKS (100.4%) 13,200,097
-----------
TOTAL INVESTMENTS (100.4%) 13,200,097
CASH AND RECEIVABLES LESS LIABILITIES (-0.4%) (48,266)
-----------
TOTAL VARIABLE ANNUITY CONTRACT
OWNERS' EQUITY (100.0%) $13,151,831
===========
</TABLE>
See notes to financial statements.
-7-
<PAGE> 29
SUPPLEMENTARY INFORMATION
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
Selected data for an accumulation unit outstanding throughout each year:
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993 1992 1991
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income $ .13 $ .15 $ .14 $ .12 $ .13
Expenses .07 .07 .06 .06 .05
------- ------- ------- ------- -------
Net investment income .06 .08 .08 .06 .08
Net realized and unrealized
gain (loss) on investments 1.44 (.32) .54 (.07) 1.22
------- ------- ------- ------- -------
Net increase (decrease) in
contract owners' equity 1.50 (.24) .62 (.01) 1.30
Net contract owners' equity:
Beginning of year 5.41 5.65 5.03 5.04 3.74
------- ------- ------- ------- -------
End of year $6.91 $5.41 $5.65 $5.03 $5.04
======= ======= ======= ======= =======
Ratio of expenses to average
contract owners' equity 1.21% 1.21% 1.22% 1.21% 1.21%
Ratio of net investment income to
average contract owners' equity 0.89% 1.72% 1.39% 1.36% 1.91%
Portfolio turnover 101% 70% 57% 35% 42%
Number of accumulation units
outstanding at end of year 1,767,394 2,097,793 2,242,809 2,655,895 2,854,559
</TABLE>
See notes to financial statements
-8-
<PAGE> 30
SUPPLEMENTARY INFORMATION - Continued
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
<TABLE>
<CAPTION>
Year Ended December 31
1990 1989 1988 1987 1986
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income $ .13 $ .12 $ .11 $ .10 $ .09
Expenses .04 .04 .04 .04 .03
------- ------- ------- ------- -------
Net investment income .09 .08 .07 .06 .06
Net realized and unrealized
gain (loss) on investments (.16) .64 .29 (.07) .20
------- ------- ------- ------- -------
Net increase (decrease) in
contract owners' equity (.07) .72 .36 (.01) .26
Net contract owners' equity:
Beginning of year 3.81 3.09 2.73 2.74 2.48
------- ------- ------- ------- -------
End of year $ 3.74 $ 3.81 $ 3.09 $ 2.73 $ 2.74
======= ======= ======= ======= =======
Ratio of expenses to average
contract owners' equity 1.22% 1.21% 1.22% 1.24% 1.21%
Ratio of net investment income to
average contract owners' equity 2.34% 2.36% 2.30% 1.80% 2.16%
Portfolio turnover 58% 104% 65% 62% 48%
Number of accumulation units
outstanding at end of year 3,031,469 3,667,660 4,191,222 5,182,071 6,035,935
</TABLE>
See notes to financial statements.
-9-
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
NOTE A--INVESTMENTS AND ACCOUNTING POLICIES
Separate Account B is a segregated investment account of Provident National
Assurance Company (a wholly-owned subsidiary of Provident Life Capital
Corporation) and is registered under the Investment Company Act of 1940, as
amended, as an open-end diversified management investment company.
Common stocks are valued at published market quotations which represent the
closing sales price for securities traded on a national stock exchange or the
mean between the quoted bid and asked prices for those traded over-the-counter.
Short-term investments are valued at cost plus accrued interest.
Realized and unrealized gains and losses are credited to or charged to
variable annuity contract owners' equity. The identified cost basis has been
used in determining realized gains and losses on sales of investments. If
determined on the average cost basis, the net realized gain would have been
$1,798,019, $563,363, and $2,251,016 for the years ended December 31, 1995,
1994, and 1993, respectively. There were gross unrealized gains of $3,027,787
and gross unrealized losses of $218,696 at December 31, 1995. Security
transactions are recorded on the date the securities are purchased or sold
which is the common practice of the industry. Dividends are taken into income
on an accrual basis as of the ex-dividend date.
A summary of the cost of investments purchased and proceeds from investments
sold for the three years in the period ended December 31, 1995 is shown below.
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
-------------------------------------------
<S> <C> <C> <C>
Cost of investments purchased $ 32,935,068 $ 36,509,262 $ 65,195,463
Less: Short-term securities 20,637,665 28,013,052 57,842,580
------------ ------------ ------------
$ 12,297,403 $ 8,496,210 $ 7,352,883
============ ============ ============
Proceeds from investments sold $ 34,650,485 $ 37,415,387 $ 67,188,589
Less: Short-term securities 21,336,918 27,713,432 58,091,202
------------ ------------ ------------
$ 13,313,567 $ 9,701,955 $ 9,097,387
============ ============ ============
</TABLE>
The aggregate cost of investments for federal income tax purposes is the same
as that presented in the Statements of Assets and Liabilities.
-10-
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS - CONTINUED
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
NOTE B--FEDERAL INCOME TAXES
Operations of Separate Account B will form a part of the income tax return of
Provident National Assurance Company, which is taxed as a "life insurance
company" under the Internal Revenue Code.
Under current law, no federal income taxes are payable with respect to Separate
Account B.
NOTE C--EXPENSES
Deductions are made by Provident National Assurance Company at the end of each
valuation period for investment advisory services and for mortality and expense
assurances, which on an annual basis are approximately .50% and .70%,
respectively, of the net assets of Separate Account B.
-11-
<PAGE> 33
ACCUMULATION UNIT VALUE TABLE
(UNAUDITED)
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
<TABLE>
<CAPTION>
End of Month Accumulation Unit Value End of Month Accumulation Unit Value
------------ ----------------------- ------------ -----------------------
<S> <C> <C> <C>
December 1968 1.036279 March 1991 4.312244
December 1969 1.080379 June 4.243108
December 1970 1.030039 September 4.513598
December 1971 1.178612 December 5.036212
December 1972 1.403795 March 1992 4.735470
December 1973 1.126624 June 4.585274
December 1974 .863269 September 4.694884
December 1975 1.022844 December 5.028547
December 1976 1.156853 March 1993 5.208499
December 1977 1.064425 June 5.190340
December 1978 1.094150 September 5.441446
December 1979 1.219189 December 5.646864
December 1980 1.555258 March 1994 5.386379
December 1981 1.473246 June 5.274454
December 1982 1.812441 September 5.475394
December 1983 2.132092 December 5.410722
December 1984 2.029912 January 1995 5.439209
December 1985 2.480050 February 5.563510
December 1986 2.743444 March 5.656995
December 1987 2.734169 April 5.820245
December 1988 3.087892 May 6.083322
March 1989 3.263117 June 6.194660
June 3.506709 July 6.353995
September 3.841545 August 6.345809
December 3.812606 September 6.505252
March 1990 3.729963 October 6.641368
June 4.080042 November 6.888615
September 3.435225 December 6.908158
December 3.736441
</TABLE>
Initial contributions to Separate Account B were received on February 1, 1968,
prior to which time the unit value was set at 1.000000. The above indicates the
accumulation unit value on the last valuation day of each year from December
1968 through December 1988, on the last valuation day of each quarter from
March 1989 through December 1994, and on the last valuation day of each month
of 1995. The results shown should not be considered as a representation of the
results which may be realized in the future.
-12-
<PAGE> 34
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Provident National Assurance Company
We have audited the accompanying statutory-basis statements of financial
condition of Provident National Assurance Company, a wholly-owned subsidiary of
Provident Life Capital Corporation, as of December 31, 1995 and 1994, and the
related statutory-basis statements of operations, 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 auditing
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.
The Company presents its financial statements in conformity with accounting
practices prescribed or permitted by the Tennessee Department of Commerce and
Insurance. The variances between such practices and generally accepted
accounting principles and the effects on the accompanying financial statements
are described in Notes 1 and 13.
In our opinion, because of the materiality of the effects of the variances
between generally accepted accounting principles and the accounting practices
referred to in the preceding paragraph, the financial statements referred to
above are not intended to and do not present fairly, in conformity with
generally accepted accounting principles, the financial position of Provident
National Assurance Company at December 31, 1995 and 1994, or the results of its
operations or its cash flows for the years then ended. However, in our
opinion, the supplementary information included in Note 13 presents fairly, in
all material respects, stockholder's equity at December 31, 1995 and 1994, and
results of operations for the years then ended in conformity with generally
accepted accounting principles.
Also, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Provident National
Assurance Company at December 31, 1995 and 1994, 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 Tennessee Department of
Commerce and Insurance.
Ernst & Young LLP
Chattanooga, Tennessee
February 8, 1996
<PAGE> 35
STATEMENTS OF FINANCIAL CONDITION--STATUTORY BASIS
PROVIDENT NATIONAL ASSURANCE COMPANY
<TABLE>
<CAPTION>
December 31
1995 1994
(in thousands of dollars)
-----------------------------
<S> <C> <C>
ADMITTED ASSETS
CASH AND INVESTMENTS--NOTE 3
Bonds $1,910,317 $2,863,855
Preferred Stocks 43 -
Common Stocks - 227
Mortgage Loans 36,682 306,387
Real Estate - 4,548
Cash 1,546 6,859
Short-term Investments 137,709 215,728
Other Invested Assets - 2,112
---------- ----------
Total Cash and Investments 2,086,297 3,399,716
OTHER ASSETS
Investment Income Due and Accrued 30,025 44,940
Receivable from Parent, Subsidiaries, and Affiliates 892 864
Accounts Receivable - Investments 9,788 6,328
---------- ----------
TOTAL ASSETS EXCLUDING SEPARATE ACCOUNTS BUSINESS 2,127,002 3,451,848
From Separate Accounts Statement 357,848 312,992
---------- ----------
Total Admitted Assets $2,484,850 $3,764,840
========== ==========
</TABLE>
<PAGE> 36
STATEMENTS OF FINANCIAL CONDITION - STATUTORY BASIS - CONTINUED
PROVIDENT NATIONAL ASSURANCE COMPANY
<TABLE>
<CAPTION>
December 31
1995 1994
(in thousands of dollars)
------------------------------
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Annuity Reserves $ 197,085 $ 200,443
Guaranteed Interest Contracts 1,619,217 2,883,567
Other Contract Deposit Funds 90,304 102,299
Interest Maintenance Reserve - 387
Asset Valuation Reserve 32,886 45,501
Insurance Expenses Due or Accrued 3,718 1,942
Federal Income Taxes 3,505 762
Remittances and Items not Allocated 1,428 278
Borrowed Money and Interest Thereon 1,245 1,245
Payable to Parent, Subsidiaries, and Affiliates 5,894 3,145
Deposits under Security Loan Agreements 8,598 47,405
Other Liabilities 3,199 4,029
---------- -----------
TOTAL LIABILITIES EXCLUDING SEPARATE ACCOUNTS BUSINESS 1,967,079 3,291,003
From Separate Accounts Statement 357,848 312,992
---------- -----------
TOTAL LIABILITIES 2,324,927 3,603,995
---------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES--NOTE 11
CAPITAL AND SURPLUS
Common Capital Stock, $3.00 par
Authorized and Issued--1,000,000 shares 3,000 3,000
Gross Paid in and Contributed Surplus 148,121 148,121
Special Surplus Funds 1,011 981
Unassigned Surplus 7,791 8,743
---------- -----------
TOTAL CAPITAL AND SURPLUS 159,923 160,845
---------- -----------
TOTAL LIABILITIES AND CAPITAL AND SURPLUS $2,484,850 $ 3,764,840
========== ===========
</TABLE>
See notes to financial statements--statutory basis.
<PAGE> 37
STATEMENTS OF OPERATIONS - STATUTORY BASIS
PROVIDENT NATIONAL ASSURANCE COMPANY
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994
(in thousands of dollars)
------------------------------
<S> <C> <C>
REVENUE
Premium Income $ 1,158 $ 2,094
Annuity and Other Fund Deposits 6,696 250,357
Net Investment Income 193,531 279,760
Amortization of Interest Maintenance Reserve 2,120 2,636
Other Income 2,678 3,769
------------ ------------
TOTAL REVENUE 206,183 538,616
------------ ------------
BENEFITS AND EXPENSES
Annuity Benefits 20,197 20,095
Surrender Benefits and Other Fund Withdrawals 1,446,514 1,329,552
Interest on Policy or Contract Funds 163,815 259,512
Change in Annuity Reserves (4,323) (5,252)
Change in Liability for Deposit Funds (1,439,818) (1,079,195)
Commissions 120 237
General Expenses 1,270 2,214
Insurance Taxes, Licenses, and Fees 4,425 4,182
------------ ------------
TOTAL BENEFITS AND EXPENSES 192,200 531,345
------------ ------------
NET GAIN FROM OPERATIONS BEFORE FEDERAL INCOME
TAXES AND NET REALIZED CAPITAL LOSSES 13,983 7,271
Federal Income Tax (Credit) 1,621 (4,331)
------------ ------------
NET GAIN FROM OPERATIONS BEFORE NET REALIZED CAPITAL LOSSES 12,362 11,602
Net Realized Capital Losses--Note 3 (23,210) (22,486)
------------ ------------
NET LOSS $ (10,848) $ (10,884)
============ ============
</TABLE>
See notes to financial statements--statutory basis.
<PAGE> 38
STATEMENTS OF CAPITAL AND SURPLUS - STATUTORY BASIS
PROVIDENT NATIONAL ASSURANCE COMPANY
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994
(in thousands of dollars)
-------- --------
<S> <C> <C>
COMMON CAPITAL STOCK
Balance at Beginning and End of Year $ 3,000 $ 3,000
-------- --------
GROSS PAID IN AND CONTRIBUTED SURPLUS
Balance at Beginning and End of Year 148,121 148,121
-------- --------
SPECIAL SURPLUS FUNDS
Balance at Beginning of Year 981 981
Increase During Year 30 -
-------- --------
Balance at End of Year 1,011 981
-------- --------
UNASSIGNED SURPLUS
Balance at Beginning of Year 8,743 (4,834)
Net Loss (10,848) (10,884)
Change in Net Unrealized Capital Gains and Losses (15) (946)
Change in Non-admitted Assets and Related Items (1,709) 663
Change in Reserve on Account of Change in Valuation Basis (965) -
Change in Asset Valuation Reserve 12,615 24,744
Transferred to Special Surplus Funds (30) -
-------- --------
Balance at End of Year 7,791 8,743
-------- --------
TOTAL CAPITAL AND SURPLUS $159,923 $160,845
======== ========
</TABLE>
See notes to financial statements--statutory basis.
<PAGE> 39
STATEMENTS OF CASH FLOWS - STATUTORY BASIS
PROVIDENT NATIONAL ASSURANCE COMPANY
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994
(in thousands of dollars)
------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Premiums Received $ 1,158 $ 2,094
Annuity and Other Fund Deposits 6,696 250,357
Investment Income Received 208,481 293,054
Other Income Received 2,678 3,769
----------- ----------
TOTAL CASH PROVIDED BY OPERATING ACTIVITIES 219,013 549,274
----------- ----------
Surrender Benefits and Other Fund Withdrawals Paid (1,446,514) (1,329,552)
Other Benefits Paid (20,538) (20,095)
Insurance Expenses Paid (3,925) (4,849)
Federal Income Taxes (Paid) Reimbursed (1,064) 3,213
----------- ----------
TOTAL CASH USED BY OPERATING ACTIVITIES (1,472,041) (1,351,283)
----------- ----------
NET CASH USED BY OPERATING ACTIVITIES (1,253,028) (802,009)
----------- ----------
NON-OPERATING ACTIVITIES
Proceeds from Investments Sold, Matured, or Repaid 1,545,953 1,531,245
Tax on Capital Gains and Losses (Paid) Reimbursed 5,164 (512)
Borrowed Money - 516
Other Sources 6,221 4,165
----------- ----------
TOTAL CASH PROVIDED BY OTHER THAN OPERATING ACTIVITIES 1,557,338 1,535,414
----------- ----------
Cost of Long-term Investments Acquired (346,081) (697,072)
Decrease in Deposits Under Security Loan Agreements (38,807) -
Other Applications (2,754) (1,496)
----------- ----------
TOTAL CASH USED BY OTHER THAN OPERATING ACTIVITIES (387,642) (698,568)
----------- ----------
NET CASH PROVIDED BY OTHER THAN OPERATING ACTIVITIES 1,169,696 836,846
----------- ----------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS (83,332) 34,837
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF YEAR 222,587 187,750
----------- ----------
CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR $ 139,255 $ 222,587
=========== ==========
</TABLE>
See notes to financial statements--statutory basis.
<PAGE> 40
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS
Provident National Assurance Company
Note 1--Significant Accounting Policies
OPERATIONS: Provident National Assurance Company (the Company) is a
wholly-owned subsidiary of Provident Life Capital Corporation (see Note 9).
The Company is domiciled in the State of Tennessee and is licensed to do
business in the fifty states and the District of Columbia. The Company is
engaged in administering and maintaining fixed annuity products.
USE OF ESTIMATES: The preparation of financial statements requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. For annuity reserves,
fluctuations in actual experience from such assumptions are normal, given that
assumptions for these reserves are a long-term prediction of future events and
conditions.
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
Tennessee Department of Commerce and Insurance. 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.
The NAIC currently is in the process of recodifying statutory accounting
practices, the result of which is expected to constitute the only source of
prescribed statutory accounting practices. Accordingly, that project, which is
expected to be completed in 1997, will likely change, to some extent,
prescribed statutory accounting practices and may result in changes to the
accounting practices the Company uses to prepare its statutory financial
statements.
Statutory accounting practices differ from generally accepted accounting
principles (GAAP). Specific differences are as follows:
Bonds and Stocks: Bonds and sinking fund preferred stocks are carried at
amortized cost with the discount or premium being amortized using the interest
method. Common stocks are carried at fair value, but income taxes are not
provided on unrealized capital gains and losses. For GAAP, bonds and stocks
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 for available-for-sale bonds and stocks are reported
as a separate component of stockholder's equity. 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.
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS - Continued
PROVIDENT NATIONAL ASSURANCE COMPANY
Non-admitted Assets: Non-admitted assets, principally receivables and
furniture and equipment, are excluded from the statements of financial
condition, and changes therein are charged or credited directly to unassigned
surplus.
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 retirement assumptions deemed to be appropriate when
the contracts were issued.
Federal Income Taxes: Federal income taxes are provided based on the estimated
liability for taxes incurred. The tax effects of temporary differences in
reporting income for financial statement purposes and for income tax purposes
are not included in the liability for federal income taxes.
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS - Continued
PROVIDENT NATIONAL ASSURANCE COMPANY
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Revenue and Expense Recognition: Deposits to guaranteed interest and other
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 guaranteed interest
contracts (GICs) and on other contract deposit funds are not reported as
revenue and benefit expense.
Realized Capital Gains and Losses: Realized capital gains and losses are
included net of tax in the determination of net income (loss) 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 and are amortized over the remaining period to maturity
based on groupings of securities sold in five-year bands.
For a reconciliation of net loss and capital and surplus determined on a
statutory basis to net loss and stockholder's equity determined on a GAAP
basis, see Note 13.
Other significant accounting practices are as follows:
INVESTMENTS: Bonds not backed by other loans are generally carried at
amortized cost with the discount or premium on bonds being amortized using the
interest method. Loan-backed bonds and structured securities are generally
carried at amortized cost using the interest method including anticipated
prepayments at the date of purchase. The prepayment assumptions for
loan-backed bonds and structured 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 purchase assumptions are accounted for using the retrospective
method. Sinking fund preferred stocks are carried at amortized cost. Common
stocks are stated at fair values prescribed by the NAIC. Mortgage loans are
generally carried at the unpaid balance. Real estate is carried at cost less
accumulated depreciation which is calculated using principally the
straight-line method. Short-term investments are carried at 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 bonds
and stocks are recorded directly in unassigned surplus.
DERIVATIVE INSTRUMENTS: Derivative instruments, which consist of futures and
forward contracts and interest rate swaps, are valued in accordance with the
NAIC Accounting Practices and Procedures manual and the Purposes and Procedures
manual of the Securities Valuation Office.
Interest Rate Swap Agreements are agreements in which two parties agree to
exchange, at specified intervals, interest payment streams calculated on an
agreed-upon notional principal amount with at least one stream based on a
specified variable rate index. The underlying notional principal is not
<PAGE> 43
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS - Continued
PROVIDENT NATIONAL ASSURANCE COMPANY
exchanged between the parties. The Company has certain forward interest rate
swap agreements where the exchange of interest payments does not begin until a
specified future date. The Company intends to settle the forward interest
rate swap agreements prior to the commencement of the exchange of interest
payment streams.
The fair values of interest rate swap agreements are not reported in the
statements of financial condition. Amounts to be paid or received pursuant to
interest rate swap agreements are accrued and recognized in the statements of
operations as an adjustment to net investment income.
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS - CONTINUED
PROVIDENT NATIONAL ASSURANCE COMPANY
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
The Company accounts for all of its interest rate swap agreements as hedges.
Accordingly, any gains or losses realized on closed or terminated interest rate
swap agreements are deferred and amortized to net investment income over the
expected remaining life of the hedged item. If the hedged item matures or
terminates earlier than anticipated, the remaining unamortized gain or loss is
amortized to net investment income in the current period. Gains or losses
realized on interest rate swap agreements which are terminated when the hedged
assets are sold are allocated to the interest maintenance reserve and amortized
into earnings over the remaining life of the assets sold. Gains or losses on
interest rate swap agreements which are terminated because the hedged
anticipated transaction is no longer likely to occur are reported in the
statements of operations as a component of net realized capital gains and
losses. The Company regularly monitors the effectiveness of its hedging
programs. In the event a hedge becomes ineffective, it is marked-to-market,
resulting in a charge or credit to net investment income.
Futures and Forwards contracts are commitments to either purchase or sell a
financial instrument at a specific future date for a specified price. The
Company invests only in futures and forwards contracts which have U.S. Treasury
securities as the underlying investments. Changes in the market value of
contracts are generally settled on a daily basis. The notional amount of
futures and forwards contracts represent the extent of the Company's
involvement but not the future cash requirements, as the Company intends to
close out open positions prior to settlement. All of the Company's futures and
forwards contracts are accounted for as hedges.
The fair values of futures and forwards are not reported in the statements of
financial condition. Gains or losses realized on the termination of futures
and forwards contracts are accounted for in the same manner as interest rate
swap agreements.
RESERVES FOR FUTURE POLICY AND CONTRACT BENEFITS: Reserves for future policy
and contract benefits on group 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 were prescribed or permitted by
insurance regulatory authorities. The assumptions vary by year of issue.
Reserves for future policy and contract benefits on all products meet the
minimum valuation standards requirements by the Tennessee Department of
Commerce and Insurance.
GICS AND OTHER CONTRACT DEPOSIT FUNDS: GICs and other contract deposit funds
represent customer deposits plus interest credited at contract rates. The
interest rate credited on a contract is dependent upon the time to maturity
with most contracts issued having a three to five year maturity. Generally, if
a policyholder terminates a GIC prior to maturity, there is a surrender charge
imposed which is based on the length of the remaining life of the GIC and the
change in interest rates from the date the GIC was issued to the date of
termination. In those cases where a guaranteed interest crediting rate exceeds
the minimum standards valuation interest rate, a reserve for interest
guarantees has been established. The Company controls its interest rate risk
by investing in quality assets which have an
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS - Continued
PROVIDENT NATIONAL ASSURANCE COMPANY
aggregate duration that closely matches the expected duration of the
liabilities. The Company changed its investment strategy in 1994 from a
duration matching approach to a cash flow matching approach. The change was
necessitated by the Company's announcement in December 1994 that it had
discontinued the sale of new GIC contracts. The Company has no significant
business other than GICs. The Company will continue to service all of its
existing GIC contracts.
In October 1995, the Company extended an offer to GIC policyholders to
surrender their contracts on a more favorable basis than would otherwise be
available to them. Contracts with a book value of $58,217,000 were surrendered
under the offer which ended October 31, 1995.
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS - Continued
PROVIDENT NATIONAL ASSURANCE COMPANY
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
SEPARATE ACCOUNTS: The separate account amounts shown in the accompanying
financial statements represent contributions by contract holders to
variable-benefits and fixed-benefits pension plans. 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.
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)
----------------------------------------------------------
1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------------------------------------------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds $1,910,317 $1,983,038 $2,863,855 $2,790,937
Preferred Stocks 43 42 - -
Common Stocks - - 227 227
Mortgage Loans 36,682 36,682 306,387 309,095
Cash 1,546 1,546 6,859 6,859
Short-term Investments 137,709 137,709 215,728 215,728
LIABILITIES
GICs 1,619,217 1,719,820 2,883,567 2,846,931
Borrowed Money 1,245 1,245 1,245 1,245
</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 bonds by security type and by maturity date.
COMMON STOCKS: Fair values for common stocks represent values prescribed by
the NAIC.
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS - Continued
PROVIDENT NATIONAL ASSURANCE COMPANY
MORTGAGE LOANS: At December 31, 1995, the fair value is based on the
estimated sales price. At December 31, 1994, the fair value for mortgage loans
is estimated using discounted cash flow analyses, using current market interest
rates available for similar loans to borrowers with similar credit ratings.
CASH AND SHORT-TERM INVESTMENTS: Carrying amounts for cash and short-term
investments approximate fair value.
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS - Continued
PROVIDENT NATIONAL ASSURANCE COMPANY
NOTE 2--FAIR VALUES OF FINANCIAL INSTRUMENTS - CONTINUED
GICs: The fair value of the Company's liability for GICs is estimated using
discounted cash flow calculations, based on current market interest rates
available for similar contracts with maturities consistent with those remaining
for the contracts being valued.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed.
BORROWED MONEY: The carrying amount of borrowed money approximates fair value.
DERIVATIVES: Fair values of the Company's derivative financial instruments are
based on market quotes, pricing models, or formulas using current interest
rates and assumptions and represent the net amount of cash the Company would
have received or paid if the contracts had been settled or closed on December
31. The fair values are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in thousands of dollars)
------------------------------
<S> <C> <C>
Forwards and Futures $ - $ 38
Interest Rate Swaps (30,978) (44,438)
</TABLE>
<PAGE> 49
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS - Continued
PROVIDENT NATIONAL ASSURANCE COMPANY
NOTE 3--INVESTMENTS
BONDS AND STOCKS:
The amortized cost and fair values of bonds and stocks by security type are as
follows:
<TABLE>
<CAPTION>
December 31, 1995
(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 $ 1,244 $ 2,163 $ - $ 3,407
Foreign Governments 113 - - 113
Public Utilities 250,534 25,366 587 275,313
Mortgage-backed Securities 786,406 8,795 1,593 793,608
All Other Corporate Bonds 872,020 39,782 1,205 910,597
Preferred Stocks 43 - 1 42
---------- ------- ------ ----------
Total $1,910,360 $76,106 $3,386 $1,983,080
========== ======= ====== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
(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 $ 3,750 $ 5,420 $ 411 $ 8,759
States, Municipalities, and Political Subdivisions 750 7 - 757
Foreign Governments 3,418 59 12 3,465
Public Utilities 376,443 4,892 10,394 370,941
Mortgage-backed Securities 1,116,630 4,422 35,529 1,085,523
All Other Corporate Bonds 1,362,864 5,154 46,526 1,321,492
---------- ------- ------- ----------
Total Bonds $2,863,855 $19,954 $92,872 $2,790,937
========== ======= ======= ==========
Common Stocks $ 240 $ - $ 13 $ 227
========== ======= ======== ==========
</TABLE>
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS - Continued
PROVIDENT NATIONAL ASSURANCE COMPANY
NOTE 3--INVESTMENTS - CONTINUED
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, 1995
(in thousands of dollars)
-----------------------------------
Amortized Fair
Cost Value
-----------------------------------
<S> <C> <C>
1 year or less $ 198,647 $ 201,684
Over 1 year through 5 years 528,898 540,957
Over 5 years through 10 years 159,063 166,332
Over 10 years 237,303 280,457
---------- ----------
1,123,911 1,189,430
Mortgage-backed Securities 786,406 793,608
---------- ----------
$1,910,317 $1,983,038
========== ==========
</TABLE>
For the years ended December 31, 1995 and 1994, there were changes in net
unrealized gains and losses on bonds and preferred stocks of $145,638,000 and
$(232,577,000), respectively. These unrealized gains and losses are not
reflected in the financial statements.
At December 31, 1995, the total investment in below-investment-grade bonds and
preferred stocks (securities rated below Baa3 by Moody's Investor Services or
an equivalent internal rating) was $119,647,000 or 5.7 percent of cash and
invested assets. The fair value of these investments was $120,898,000.
MORTGAGE LOANS:
Mortgage loans are impaired when, based on current information and events, it
is probable that the Company will be unable to collect all amounts due
according to the contractual terms of the loan agreement. As of December 31,
1995, the recorded investment in mortgage loans considered to be impaired was
$6,687,000, with a related loss reserve of $1,709,000. The average recorded
investment in impaired loans during the year ended December 31, 1995, was
approximately $10,417,000. When a loan is determined to be impaired, unpaid
interest credited to income in the current year is reversed and unpaid interest
accrued in prior years is charged against current year income. Interest
received is either applied against the related principal or reported as
interest income, according to management's judgment as to the collectibility of
the principal. For the year ended December 31, 1995, the Company recognized
interest income on impaired loans of $931,000 using the cash basis method of
income recognition.
Changes in the mortgage loan loss reserve are as follows:
<TABLE>
<CAPTION>
1995 1994
(in thousands of dollars)
-------------------------------
<S> <C> <C>
BALANCE AT JANUARY 1 $12,750 $ -
Adjustments Charged (Credited) to Realized Capital Losses (1,000) 12,750
Release Due to Sales or Direct Write-Down of Loans (9,650) -
-------- -------
BALANCE AT DECEMBER 31 $ 2,100 $12,750
======== =======
</TABLE>
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS - CONTINUED
PROVIDENT NATIONAL ASSURANCE COMPANY
NOTE 3--INVESTMENTS - CONTINUED
In May 1995, the Company sold six restructured mortgage loans with a principal
amount of $28,923,000 and a book value of $24,013,000. The transaction
resulted in a realized capital loss of $5,770,000 on a pre-tax basis and
$2,138,000 after tax.
In October 1995, the Company sold mortgage loans with a principal amount and a
book value of $119,615,000 through a securitization collateralized by 37
loans. The transaction resulted in a realized capital gain of $2,477,000 on a
pre-tax basis and $1,610,000 after tax.
REAL ESTATE:
Accumulated depreciation on real estate was $756,000 as of December 31, 1994.
NON-CURRENT INVESTMENTS:
Non-current investments were comprised of $7,884,000 of delinquent mortgage
loans and $214,000 of bonds in default at December 31, 1994. There were no
non-current investments at December 31, 1995.
NET INVESTMENT INCOME:
Sources for net investment income are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994
(in thousands of dollars)
-------------------------
<S> <C> <C>
Bonds $183,106 $237,366
Mortgage Loans 17,351 38,575
Real Estate 852 3,537
Cash 22 17
Short-term Investments 2,768 5,372
Derivative Instruments (5,302) 2,737
Other Invested Assets 828 109
-------- --------
Gross Investment Income 199,625 287,713
Investment Expenses 6,094 7,953
-------- --------
Net Investment Income $193,531 $279,760
======== ========
</TABLE>
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS - CONTINUED
PROVIDENT NATIONAL ASSURANCE COMPANY
NOTE 3--INVESTMENTS - CONTINUED
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 amounts excluded
are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in thousands of dollars)
-------------------------
<S> <C> <C>
Bonds $ - $ 313
Mortgage Loans $ 271 $ 9,977
</TABLE>
REALIZED CAPITAL GAINS AND LOSSES:
Realized capital gains (losses) on investments are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
(in thousands of dollars)
--------------------------
<S> <C> <C>
Bonds $ (3,221) $ (3,282)
Common Stocks (5) 1,073
Mortgage Loans (3,168) (28,411)
Real Estate (281) 43
Derivative Financial Instruments (19,955) -
-------- --------
(26,630) (30,577)
Transferred to Interest Maintenance
Reserve--net of tax credit ($238; $3,639) (442) (6,757)
Federal Income Tax Credit (2,978) (1,334)
-------- --------
$(23,210) $(22,486)
======== ========
</TABLE>
Proceeds from sales of bonds for the years ended December 31, 1995 and 1994
were $884,933,000 and $495,305,000, respectively. Gross gains of $8,344,000
and $11,196,000 and gross losses of $11,565,000 and $14,478,000, respectively,
were realized during 1995 and 1994 on sales and calls of bonds.
The net realized capital losses include write-downs and provisions for losses
on mortgage loans and foreclosed real estate of $1,500,000 and $27,723,000 for
the years ended December 31, 1995 and 1994, respectively.
<PAGE> 53
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS - CONTINUED
PROVIDENT NATIONAL ASSURANCE COMPANY
NOTE 4--DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses interest rate swaps and exchange-traded interest rate futures
contracts to hedge interest rate risks and to match assets with its insurance
liabilities. Interest rate forward contracts are also used to some extent in
the hedging process.
DERIVATIVE RISKS
The basic types of risks associated with derivatives are market risk (that the
value of the derivative will be adversely impacted by changes in the market,
primarily the change in interest rates) and credit risk (that the counterparty
will not perform according to the terms of the contract). The market risk of
the derivatives should generally offset the market risk associated with the
hedged financial instrument or liability. To help limit the credit exposure of
the derivatives, the Company has entered into master netting agreements with
its counterparties whereby contracts in a gain position can be offset against
contracts in a loss position. The Company also typically enters into
bilateral, cross-collateralization agreements with its counterparties to help
limit the credit exposure of the derivatives. These agreements require the
counterparty in a loss position to submit acceptable collateral with the other
counterparty in the event the net loss position meets or exceeds an agreed upon
amount. The Company's current credit exposure on derivatives is limited to the
value of those contracts in a net gain position. At December 31, 1995, the
Company had no derivatives in a net gain position.
HEDGING ACTIVITY
The table below summarizes by notional amounts the activity for each category
of derivatives.
<TABLE>
<CAPTION>
Interest Rate Swaps
-------------------------
Receive Receive
Variable/ Fixed/
Pay Fixed Pay Variable Forwards Futures Total
(in thousands of dollars)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 $ - $525,000 $22,000 $ - $ 547,000
Additions 500,000 - - 410,000 910,000
Terminations - - 22,000 205,000 227,000
-------- -------- ------- --------- ----------
BALANCE AT DECEMBER 31, 1994 500,000 525,000 - 205,000 1,230,000
Additions - - - 45,000 45,000
Terminations 200,000 258,821 - 250,000 708,821
-------- -------- ------- --------- ----------
BALANCE AT DECEMBER 31, 1995 $300,000 $266,179 $ - $ - $ 566,179
======== ======== ======== ========= ==========
</TABLE>
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS - CONTINUED
PROVIDENT NATIONAL ASSURANCE COMPANY
NOTE 4--DERIVATIVE FINANCIAL INSTRUMENTS - CONTINUED
The following table summarizes the timing of anticipated settlements of
interest rate swaps outstanding at December 31, 1995, and the related weighted
average interest pay rate or receive rate assuming current market conditions.
<TABLE>
<CAPTION>
1996 1997 Total
(in thousands of dollars)
-------------------------------------
<S> <C> <C> <C>
RECEIVE VARIABLE/PAY FIXED
Notional Value $ 300,000 - $300,000
Weighted Average Pay Rate 8.45% - 8.45%
Weighted Average Receive Rate 5.63 - 5.63
RECEIVE FIXED/PAY VARIABLE
Notional Value $ 154,179 $112,000 $266,179
Weighted Average Pay Rate 5.68% 5.69% 5.68%
Weighted Average Receive Rate 4.87 5.51 5.14
TOTAL INTEREST RATE SWAPS $ 454,179 $112,000 $566,179
TOTAL WEIGHTED AVERAGE PAY RATE 7.51% 5.69% 7.15%
TOTAL WEIGHTED AVERAGE RECEIVE RATE 5.37 5.51 5.40
</TABLE>
Derivative activity falls under three programs as follows:
PROGRAM 1
The Company routinely uses forwards and futures to protect margins by reducing
the risk of changes in interest rates between the time of asset purchase and
the associated sale of an asset or sale of new business.
Gains or losses on termination of these forwards and futures are deferred and
reported as an adjustment of the carrying amount of the hedged asset or the
asset backing the hedged liability and are amortized into earnings over the
lives of the hedged items. The net deferred gain associated with this activity
was $1,726,000 and $5,403,000 at December 31, 1995 and 1994, respectively.
Overall, $1,046,000 of the deferred gain was amortized into earnings in 1995
under this hedging program, including $207,000 of excess amortization resulting
primarily from the early surrender of GICs (see Note 1) which had previously
been hedged. The amount of deferred gain amortized into earnings in 1994 was
$563,000.
PROGRAM 2
In 1994 and 1993 the Company created $525,000,000 of synthetic floating rate
GICs consisting of fixed rate GICs combined with index amortizing swaps
(receive fixed/pay variable), which were then backed by variable rate
mortgage-backed securities. The notional amount of index amortizing swaps
associated
<PAGE> 55
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS - CONTINUED
PROVIDENT NATIONAL ASSURANCE COMPANY
with this program was $266,179,000 and $525,000,000 at December 31, 1995 and
1994, respectively. The notional amount of these swaps reduces based on an
amortization schedule indexed to a constant maturity treasury rate. Under
market conditions at December 31, 1995, the remaining swaps are expected to
amortize fully over the next two years.
Income (expense) from settlements of payment streams on these interest rate
swap agreements reported as net investment income in the statements of
operations was $(4,697,000) and $2,737,000 for 1995 and 1994, respectively.
<PAGE> 56
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS - CONTINUED
PROVIDENT NATIONAL ASSURANCE COMPANY
NOTE 4--DERIVATIVE FINANCIAL INSTRUMENTS - CONTINUED
In the event of early disposal of the hedged item, the swap is marked-to-market
and any resulting gain or loss is recognized in earnings as an adjustment to net
investment income. In 1995, the Company recognized a $694,000 mark-to-market
loss on certain of these swaps due to the early disposal of a portion of the
GICs hedged under this program. The affected swaps have been tagged to other
GICs. The amount of the loss amortized back into earnings in 1995 was $89,000.
The unamortized loss of $605,000 will be amortized into earnings over the
remaining life of the swaps.
PROGRAM 3
In December 1994, the Company announced that it would discontinue the sale of
traditional GICs. At that time, the Company decided to convert from a duration
matching investment approach to a cash flow matching investment approach for
its GIC business. The Company hedged the risk of a decline in price on future
sales of assets which would be necessary to fund maturing liabilities by
entering into $500,000,000 notional amount of forward interest rate swaps
(receive variable/pay fixed) and $205,000,000 notional amount of short interest
rate futures contracts. The $205,000,000 futures position was terminated in
1995 as planned when $208,696,000 of bonds were sold to fund maturing GICs.
The Company realized a $50,000 before-tax capital gain on the futures and a
$5,600,000 before-tax capital loss on bonds, a net result which was consistent
with the original hedge expectations. The first $200,000,000 swap position was
terminated in 1995; however, bond sales did not occur as originally anticipated
because the Company had adequate cash flow from other sources to fund the
maturing GICs. The primary source of this other cash flow was the
securitization of the commercial mortgage loan portfolio, which had not been
anticipated at the time this hedge was initiated (see Note 3). The Company
realized a $20,005,000 before-tax capital loss on termination of this swap
position in the fourth quarter of 1995. The remainder of these interest rate
swaps will be terminated as scheduled in 1996 and 1997. At December 31, 1995,
the Company had an unrealized loss of $30,040,000 on these outstanding interest
rate swaps, and an unrealized gain of $10,369,000 on the associated bonds.
NOTE 5--FEDERAL INCOME TAXES
The Company is included along with the affiliates, Provident Life and Accident
Insurance Company and Provident Life and Casualty Insurance Company, in a
consolidated tax return filed by Provident Companies, Inc., the ultimate parent
of the 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 members of the group to the extent losses
are used to offset income within the group. The federal income tax liability
presented in the statements of financial condition represents payables to
affiliates under the tax allocation agreement.
A reconciliation of the federal income tax (benefit) computed at the statutory
corporate tax rate and the federal income tax expense (credit) in the
statements of operations follows:
<PAGE> 57
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS - CONTINUED
PROVIDENT NATIONAL ASSURANCE COMPANY
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994
-----------------------
<S> <C> <C>
Statutory Federal Income Tax Rate 35.0% 35.0%
Tax-preferred Investment Income (4.8) (12.1)
Accrual of Market Discount Bonds (8.1) (27.6)
Reserves (5.4) (21.5)
Amortization of Interest Maintenance Reserve (5.3) (12.7)
Other Items, Net 0.2 (20.7)
---- -----
Effective Federal Income Tax Rate 11.6% (59.6)%
==== =====
</TABLE>
NOTE 5--FEDERAL INCOME TAXES - CONTINUED
During the year, the Internal Revenue Service continued its examination of the
Company's federal income tax returns for tax years 1990 through 1992.
Management believes this examination will have no material impact on the
Company's financial statements.
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, 1995
(in thousands of dollars)
-------------------------
Amount %
---------- -----
<S> <C> <C>
Subject to Discretionary Withdrawal With Adjustment
With Market Value Adjustment $1,694,238 74.9%
At Market Value 357,848 15.8
---------- ------
Total With Adjustment or at Market Value 2,052,086 90.7
Subject to Discretionary Withdrawal Without Adjustment 15,283 0.7
Not Subject to Discretionary Withdrawal 195,895 8.6
---------- ------
$2,263,264 100.0%
========== ======
</TABLE>
NOTE 7--SEPARATE ACCOUNTS
Separate accounts held by the Company primarily represent funds which the
Company invests on behalf of the accounts' contract holders. These separate
accounts represent structured GICs with a minimum interest crediting rate,
variable annuity contracts, and investment vehicles for retirement plans. All
separate accounts are carried at fair value.
Information regarding the separate accounts for the year ended
December 31, 1995, is as follows:
<PAGE> 58
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS - CONTINUED
PROVIDENT NATIONAL ASSURANCE COMPANY
<TABLE>
<CAPTION>
Non-indexed Non-guaranteed
Guarantee Less Separate
Than or Equal to 4% Accounts Total
(in thousands of dollars)
--------------------------------------------------------
<S> <C> <C> <C>
Premiums, Considerations or Deposits $ 53 $ 5,526 $ 5,579
======== ======== ========
Reserves for Accounts With Assets at Fair Value $159,384 $198,464 $357,848
======== ======== ========
By Withdrawal Characteristics:
At Fair Value $159,384 $198,464 $357,848
======== ======== ========
</TABLE>
<PAGE> 59
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS - CONTINUED
PROVIDENT NATIONAL ASSURANCE COMPANY
NOTE 7--SEPARATE ACCOUNTS - CONTINUED
A reconciliation of the amounts transferred to and from the separate accounts
is as follows:
<TABLE>
<CAPTION>
Year Ended
December 31, 1995
(in thousands of dollars)
-------------------------
<S> <C>
Transfers as Reported in the Summary of Operations
of the Separate Accounts Statement:
Transfers to Separate Accounts $ 5,579
Transfers from Separate Accounts 26,151
--------
Net Transfers from Separate Accounts (20,572)
Increase in Liability for Deposit Funds and
Reserves Less Investment Income 20,572
--------
Transfer as Reported in the Summary of Operations of the
Life, Accident and Health Annual Statement $ 0
--------
</TABLE>
NOTE 8--RETIREMENT BENEFITS
The Company has no employees and, therefore, has no retirement benefits. The
Company purchases services at cost from its affiliate, Provident Life and
Accident Insurance Company. The cost of these services includes the cost of
the affiliate's benefit plans; however, there is no obligation on the part of
the Company beyond the amounts paid as part of the cost of services rendered.
NOTE 9--CORPORATE REORGANIZATION
Effective December 27, 1995, Provident Life and Accident Insurance Company of
America completed a step in a corporate reorganization which created a new
parent holding company, Provident Companies, Inc., a non-insurance holding
company incorporated in Delaware. As part of the reorganization, all
outstanding shares of the Company and Provident Life and Casualty Insurance
Company, previously owned by Provident Life and Accident Insurance Company,
were transferred to Provident Life Capital Corporation, a non-insurance holding
company incorporated in Delaware. At December 31, 1995, Provident Life Capital
Corporation was a wholly-owned subsidiary of Provident Life and Accident
Insurance Company of America, and Provident Life and Accident Insurance Company
was a wholly-owned subsidiary of Provident Life Capital Corporation.
When the reorganization is completed during 1996, the Company will become a
wholly-owned subsidiary of Provident Companies, Inc., and Provident Life and
Accident Insurance Company of America and Provident Life Capital Corporation
will be dissolved.
<PAGE> 60
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS - CONTINUED
PROVIDENT NATIONAL ASSURANCE COMPANY
NOTE 10--RELATED PARTY TRANSACTIONS
During 1995, the Company sold mortgage loans with a principal amount and a book
value of $32,485,000 to Provident Life and Accident Insurance Company.
During 1995, the Company purchased bonds from Provident Life and Accident
Insurance Company at the market value of $243,916,000. The Company sold bonds
to Provident Life and Accident Insurance Company at the market value of
$292,609,000. These bonds had a book value of $292,309,000 and a par value of
$288,848,000, resulting in a gain to the Company of $300,000.
<PAGE> 61
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS - CONTINUED
PROVIDENT NATIONAL ASSURANCE COMPANY
NOTE 10--RELATED PARTY TRANSACTIONS - CONTINUED
During 1994, the Company sold bonds to Provident Life and Accident Insurance
Company at the market value of $196,153,000. As these bonds had a book value
of $199,436,000 (par value $196,474,000), the Company incurred a loss of
$3,283,000. The Company sold mortgage loans (principal balance and book value
of $89,738,000) to Provident Life and Accident Insurance Company.
During 1995 and 1994, the Company borrowed short-term funds from its various
affiliates. The related interest expense
is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994
(in thousands of dollars)
-------------------------
<S> <C> <C>
Interest Expense
Provident Life Capital Corporation $ 193 $ 19
Provident Life and Accident Insurance Company 1,500 226
</TABLE>
There were no affiliated borrowings or lendings outstanding at December 31,
1995.
Interest paid and expensed on short-term debt during 1995 and 1994, including
amounts to affiliates, was $2,604,000 and $803,000, respectively.
NOTE 11--COMMITMENTS AND CONTINGENT LIABILITIES
Various lawsuits against the Company have arisen in the normal course of
business. Contingent liabilities that might arise from litigation are not
considered material in relation to the financial position 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. Only the amount of statutory unassigned surplus is
available for the payment of dividends. Based upon these restrictions, the
Company is permitted a maximum of $7,791,000 in dividend distributions in 1996.
At December 31, 1995, the Company had on deposit with regulatory authorities
securities with a book value of $2,947,000 held for the protection of
policyholders.
<PAGE> 62
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS - CONTINUED
PROVIDENT NATIONAL ASSURANCE COMPANY
NOTE 13--GAAP RECONCILIATION
Following is a reconciliation of net loss and capital and surplus of the
Company as determined in accordance with statutory accounting practices to
amounts determined in accordance with GAAP:
<TABLE>
<CAPTION>
Net Loss Capital and Surplus
Year Ended December 31 December 31
1995 1994 1995 1994
---------------------- --------------------
(in thousands of dollars)
<S> <C> <C> <C> <C>
Statutory basis amounts $(10,848) $(10,884) $159,923 $160,845
Add (deduct) adjustments:
Investments 193 9,677 40,574 (79,326)
Asset Valuation Reserve and
Interest Maintenance Reserve (2,120) (2,636) 30,711 45,888
Reserve for future policy and contract benefits (1,472) (4,219) (33,603) 7,450
Non-admitted assets 2,656 946
Deferred income tax 5,116 128 (8,180) 14,251
-------- -------- -------- --------
GAAP basis amounts $ (9,131) $ (7,934) $192,081 $150,054
========== ======== ======== ========
</TABLE>
<PAGE> 63
TABLE OF CONTENTS
Summary of Disclosure Statement
<TABLE>
<S> <C>
I. Investment Adviser and Principal Underwriter 1
II. Investment Objectives 1
III. Type of Investment Company 1
IV. Redemption 1
V. Description of Variable Annuities 1
VI. Miscellaneous 2
Per Unit Income and Capital Changes of Separate Account B 2
Description of Separate Account B and the Company 3
Investment Objectives and Policies 3
I. Fundamental 3
II. Other 5
III. Portfolio Turnover 7
Federal Tax Status 7
Allocation of Portfolio Brokerage 9
Board of Managers of Separate Account B 9
Compensation of Certain Affiliated Persons 10
Investment Advisory Services 10
I. Investment Advisory Agreement 10
Contract Charges 11
Mortality and Expense Assurances 11
Voting Rights 12
Surrender for Redemption 13
Transfers Between Account 13
</TABLE>
18
<PAGE> 64
TABLE OF CONTENTS
<TABLE>
<S> <C>
Sales and Administrative Services 14
I. General 14
II. Tax Qualified Contracts 14
III. Non Tax Qualified Contracts 15
IV. Underwriting Agreement 15
Valuation of Assets 16
State Regulation of Company 16
Securities Custodian 17
Legal Proceedings 17
Legal Opinion 17
Experts 17
Additional Information 17
</TABLE>
19
<PAGE> 65
Part C OTHER INFORMATION
Item 28. Financial Statements and Exhibits
(a) Financial Statements:
<TABLE>
<S> <C>
(i) Provident National Assurance Company Separate Account B
-------------------------------------------------------
Report of Independent Auditors
Statements of Assets and Liabilities
Statements of Changes in Variable Annuity Contract Owners' Equity
Statements of Operations
Schedule of Investments
Supplementary Information
Notes to Financial Statements
Provident National Assurance Company
------------------------------------
Report of Independent Auditors
Statements of Financial Condition--Statutory Basis
Statements of Operation--Statutory Basis
Statements of Capital and Surplus--Statutory Basis
Statements of Cash Flows--Statutory Basis
Notes to Financial Statements--Statutory Basis
(ii) Included in Part C - Financial statements of Separate Account B included in the
registration statements, not included in the disclosure statement:
Report of Independent Auditors
Statement of Sources of Assets
Statements of Net Investment Income
Statements of Net Realized Gain and Unrealized Appreciation of Investments
</TABLE>
(b) Exhibits:
The following exhibits which are marked with an asterisk (*) are
incorporated herein by reference (pursuant to Regulation Section
230.447 and Section 270.8b-32 and in accordance with Rule 24 of the
Commission's Rules of Practice) to the registration statement (Form
S-5) filed by Registrant under the Securities Act of 1933 or specified
amendments thereto.
<TABLE>
<S> <C> <C>
* (1) Resolutions of Board of Directors of the Company creating Separate Account B as filed with the
original registration statement
* (2) Rules and Regulations of the Registrant (Post-Effective Amendments Nos. 26 and 27, December 17,
1979, and April 3, 1980)
* (3) Custodian Agreement with respect to securities of the Registrant (Post-Effective Amendment No.
23; April 3, 1978)
* (4) Investment Advisory Agreement (Post-Effective Amendment No.
</TABLE>
<PAGE> 66
<TABLE>
<S> <C> <C>
23;
April 3, 1978)
* (5) Underwriting or distribution contract (Post-Effective Amendment No. 23, April 3, 1978)
* (6) Form of variable annuity contracts (Post-Effective Amendment No. 26; December 17, 1979)
* (7) Form of variable annuity application (filed with variable annuity contracts - see Item 6 above)
* (8) Certificate of Incorporation of the insurance company (Post-Effective Amendment No. 37; April
30, 1987); By-Laws, (Post-Effective Amendment No. 41, April 30, 1991)
(9) None
(10) None
(11) None
* (12) Opinion of Counsel (filed with Registrant's original Registration Statement)
(13) (A) Consent of Independent Auditors
(B) Consent of Counsel
(14) Financial statement not included in Item 27
(15) None
(16) None
(17) (Exhibit 27) Financial Data Schedule
</TABLE>
<PAGE> 67
Item 29.
DIRECTORS AND OFFICERS OF THE INSURANCE COMPANY
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Positions and Offices Positions and Offices
Principal Address with Insurance Company with Registrant
- ------------------ ------------------------- --------------------
<S> <C> <C>
Eugene A. Jones President None
1 Fountain Square
Chattanooga, TN 37402
J. Harold Chandler Executive Vice President None
1 Fountain Square
Chattanooga, TN 37402
Thomas R. Watjen Executive Vice President and None
1 Fountain Square Chief Financial Officer,
Chattanooga, TN 37402 Director
William L. Armstrong Director None
1625 Broadway, Suite 780
Denver, CO 80202
Charlotte M. Heffner Director None
3655 Randall Hall, NW
Atlanta, Ga 30327
William B. Johnson Director None
The Ritz Carlton Hotel CO.
3414 Peachtree Road, N.E.
Suite 300
Atlanta, Ga 30326
Hugh O. Maclellan, Jr. Director None
The Maclellan Foundation
Fountain Square
Chattanooga, TN 37402
Scott L. Probasco, Jr. Director None
SunTrust Bank, Chattanooga, N.A.
P.O. Box 1638
Chattanooga, TN 37401
Burton E. Sorensen Director None
Sand Spring Road
Morristown, NJ 07960
Robert O. Best Senior Vice President and None
1 Fountain Square Chief Information Officer
Chattanooga, TN 37402
</TABLE>
<PAGE> 68
<TABLE>
<S> <C> <C>
Thomas B. Heys, Jr. Senior Vice President None
1 Fountain Square
Chattanooga, TN 37402
Ralph A. Rogers Vice President and Controller None
1 Fountain Square
Chattanooga, TN 37402
Ken Blankenship Vice President None
1 Fountain Square
Chattanooga, TN 37402
George A. Shell, Jr. Treasurer None
1 Fountain Square
Chattanooga, TN 37402
Susan N. Roth Corporate Secretary Secretary to the
1 Fountain Square Board of Managers
Chattanooga, TN 37402
Glenn P. Felton Assistant Secretary None
1 Fountain Square
Chattanooga, TN 37402
</TABLE>
<PAGE> 69
Item 30. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE INSURANCE
COMPANY OR THE REGISTRANT
(Parent Company;
Provident Companies, Inc. A Delaware Corporation)
Provident Life and Accident Insurance Company* (A Tennessee Corporation)
Provident National Assurance Company* (A Tennessee Corporation)
Sponsor of the Registrant
Provident Life and Casualty Insurance Company* (A Tennessee Corporation)
*These companies are wholly owned subsidiaries of Provident Companies, Inc.
Separate financial statements filed for Separate Account and Provident National
Assurance Company.
Financials for all other entities not required to be filed with this form.
<PAGE> 70
Item 31. Number of Contract Owners (As of April 9, 1996)
Separate Account B - 458
Item 32. Indemnification
Indemnification Agreement is included as part of Exhibit 1
under Item 28(b).
Item 33. Business and Other Connections of Investment Advisor
The Investment Advisor is a life insurance company licensed to
do business in all 50 states and the District of Columbia. In
addition to providing services to variable contracts separate
accounts, it also engages in the sale of fixed annuity
contracts on a group and individual basis. For information
concerning profession, location and employment of officers and
directors see Item 29 above. Investment Advisor and principal
underwriters share complete officer and director commonality.
Item 34. Principal Underwriters
(a) The names and principal occupations of the principal
executive officers and directors of the Principal
Underwriter are set forth in Item 29 above.
(b) The following presents information concerning
commissions and other compensation received by the
Principal Underwriter directly or indirectly from the
Registrant during the Registrant's last fiscal year.
Note: the Registrant ceased making a public offering
of its variable annuity contracts on February 1,
1984.
(c) Not applicable - total payments were less than $2,000
Item 35. Location of Account and Records
Each account book or other document required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the
rules (17 CAFI 270.31A-1 to 31A-3) promulgated thereunder are
located within the offices of Provident National Assurance
Company, 1 Fountain Square, Chattanooga, Tennessee 37402.
Such records are in the custody and control of Eugene A.
Jones.
Item 36. Management Services
None
<PAGE> 71
Item 37. Undertakings
The Registrant hereby undertakes to file 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.
The Registrant hereby represents that any contract offered by
the prospectus and which is issued pursuant to Section 403(b)
of the Internal Revenue Code of 1986, as amended, is issued by
the Registrant in reliance upon, and in compliance with, the
Securities and Exchange Commission's industry- wide no-action
letter to the American Council of Life Insurance (publicly
available November 28, 1988) which permits withdrawal
restrictions to the extent necessary to comply with IRC
Section 403(b)(11).
<PAGE> 72
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940 the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Registration Statement and
has caused this Registration Statement to be signed on its behalf, in the city
of Chattanooga, and State of Tennessee on the 24th day of July, 1996.
PROVIDENT NATIONAL ASSURANCE
COMPANY SEPARATE ACCOUNT B
By /s/David G. Fussell
-------------------------------------
David G. Fussell
Chairman, Board of Managers
PROVIDENT NATIONAL ASSURANCE
COMPANY
By /s/Eugene A. Jones
-------------------------------------
Eugene A. Jones
President
<PAGE> 73
SIGNATURES
As required by the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------ --------------- --------------
<S> <C> <C>
/s/David G. Fussell Chairman and Member of July 24, 1996
- ------------------------ The Board of Managers --------------
David G. Fussell (Principal Executive Officer
and Principal Financial
Accounting Officer)
/s/Henry E. Blaine Member of the Board of July 24, 1996
- ------------------------ Managers -------------
Henry E. Blaine
/s/H. Grant Law, Jr. Member of the Board of July 24, 1996
- ------------------------- Managers -------------
H. Grant Law, Jr.
</TABLE>
<PAGE> 74
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the registrant has duly caused this post-effective
amendment to its registration statement to be signed on its behalf of the
undersigned, thereunto duly authorized in the City of Chattanooga, State of
Tennessee, on the 24th day of July, 1996.
PROVIDENT NATIONAL ASSURANCE COMPANY
By
/s/ Eugene A. Jones
------------------------------
Eugene A. Jones, President
Pursuant to the requirements of the Securities Act of 1933, this post-effective
amendment to its registration statement has been signed below by the following
persons on July 24, 1996, in the capacities indicated.
<TABLE>
<S> <C>
/s/Eugene A. Jones President (Principal Executive Officer)
- ----------------------------------------
Eugene A. Jones
/s/Thomas R. Watjen Director
- ----------------------------------------
Thomas R. Watjen
/s/William L. Armstrong Director
- ----------------------------------------
William L. Armstrong
/s/Charlotte M. Heffner Director
- ----------------------------------------
Charlotte M. Heffner
/s/William B. Johnson Director
- ----------------------------------------
William B. Johnson
/s/Hugh O. Maclellan, Jr. Director
- ----------------------------------------
Hugh O. Maclellan, Jr.
/s/Scott L. Probasco Director
- ----------------------------------------
Scott L. Probasco
/s/Burton E. Sorensen Director
- ----------------------------------------
Burton E. Sorensen
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE AUDITED
FINANCIAL STATEMENTS FOR PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE
ACCOUNT B AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 10,391,006
<INVESTMENTS-AT-VALUE> 13,200,097
<RECEIVABLES> 18,585
<ASSETS-OTHER> 29,854
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,248,536
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 96,705
<TOTAL-LIABILITIES> 96,705
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,767,394<F1>
<SHARES-COMMON-PRIOR> 2,097,793
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,809,091
<NET-ASSETS> 13,151,831<F2>
<DIVIDEND-INCOME> 240,725
<INTEREST-INCOME> 24,937
<OTHER-INCOME> 0
<EXPENSES-NET> 153,414
<NET-INVESTMENT-INCOME> 112,248
<REALIZED-GAINS-CURRENT> 1,801,868
<APPREC-INCREASE-CURRENT> 1,174,075
<NET-CHANGE-FROM-OPS> 2,975,943
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,835
<NUMBER-OF-SHARES-REDEEMED> 354,510
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 980,484
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 63,922
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 153,414
<AVERAGE-NET-ASSETS> 12,650,313
<PER-SHARE-NAV-BEGIN> 5.41
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> 1.44
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.91
<EXPENSE-RATIO> 1.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Shares are reported as accumulation units only
<F2>Net Assets are also attributable to reserves for Contracts that are in the
payout phase. For that reason, net asset value per share given multiplied by
the accumulation units outstanding is less than the value shown for net assets.
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 13A
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 8, 1996, with respect to the financial
statements of Provident National Assurance Company and of our reports dated
January 22, 1996, with respect to the financial statements of Provident
National Assurance Company Separate Account B in this Post- Effective Amendment
No. 46 under the Securities Act of 1933 and Amendment No. 20 under the
Investment Company Act of 1940 to the Registration Statement and in the
Disclosure Statement.
ERNST & YOUNG LLP
Chattanooga, Tennessee
July 29, 1996
<PAGE> 1
EXHIBIT 13B
CONSENT OF COUNSEL
I hereby consent to the use of my name in the disclosure statement included as
part of this Post-Effective Amendment No. 46 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
Chattanooga, Tennessee
July 29, 1996
<PAGE> 1
EXHIBIT 14
REPORT OF INDEPENDENT AUDITORS
Board of Managers and Contract Owners
Provident National Assurance Company
Separate Account B
We have audited the accompanying statement of sources of assets of Provident
National Assurance Company Separate Account B as of December 31, 1995, and
statements of net investment income and net realized gain and unrealized
appreciation of investments for each of the three years in the period ended
December 31, 1995. 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 auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements referred to
above are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements referred to above. An audit also includes assessing the basis of
accounting used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements referred to
above. We believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements referred to above were prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form N-3 of
Provident National Assurance Company Separate Account B, and are not intended
to be a complete presentation of Provident National Assurance Company Separate
Account B's financial position or results of operations.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the sources of assets of Provident National Assurance
Company Separate Account B at December 31, 1995, the net investment income and
net realized gain and unrealized appreciation of investments for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
This report is intended solely for the use of the Company and the Securities
and Exchange Commission. This restriction is not intended to limit the
distribution of this report which, upon filing with the Securities and Exchange
Commission, is a matter of public record.
Chattanooga, Tennessee ERNST & YOUNG LLP
January 22, 1996
-1-
<PAGE> 2
STATEMENT OF SOURCES OF ASSETS
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
December 31, 1995
<TABLE>
<S> <C>
CONTRACT OWNERS' EQUITY
Excess of net contract purchase payments
received over amounts paid on cancelled
contracts (1,903,812 units outstanding) $ 87,782,462
Accumulated net realized gain on investments 17,597,259
Unrealized appreciation of investments 2,809,091
Accumulated net investment income 14,390,007
-------------
122,578,819
-------------
Accumulated terminations and death benefits (107,599,739)
Accumulated variable annuity benefits (1,827,249)
-------------
TOTAL CONTRACT OWNER'S EQUITY $ 13,151,831
=============
</TABLE>
See notes to financial statements--Part B.
-2-
<PAGE> 3
STATEMENTS OF NET INVESTMENT INCOME
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
NET INVESTMENT INCOME
Income:
Dividends $ 240,725 $ 298,329 $ 300,181
Interest 24,937 76,107 64,335
--------- --------- ---------
265,662 374,436 364,516
--------- --------- ---------
Expenses--Note C:
Investment advisory services 63,922 64,398 70,790
Mortality and expense assurances 89,492 90,158 99,105
--------- --------- ---------
153,414 154,556 169,895
--------- --------- ---------
NET INVESTMENT INCOME $ 112,248 $ 219,880 $ 194,621
========= ========= =========
Ratio of expenses to total
investment income 57.75% 41.28% 46.61%
========= ========= =========
</TABLE>
See notes to financial statements--Part B.
-3-
<PAGE> 4
STATEMENTS OF NET REALIZED GAIN AND UNREALIZED APPRECIATION
OF INVESTMENTS
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
NET REALIZED GAIN FROM
INVESTMENT TRANSACTIONS
(excluding short-term securities)-- Note A
Proceeds from sales $13,313,567 $ 9,701,955 $ 9,097,387
Cost of investments sold
(identified cost) 11,434,739 9,214,091 6,704,707
Adjustment for impairment of value (76,960) 0 0
--------- --------- ---------
NET REALIZED GAIN $ 1,801,868 $ 487,864 $ 2,392,680
============ =========== ===========
NET UNREALIZED APPRECIATION OF
INVESTMENTS
Balance at end of year $ 2,809,091 $ 1,635,016 $ 2,899,236
Balance at beginning of year 1,635,016 2,899,236 3,868,377
------------ ------------ ------------
INCREASE (DECREASE) IN NET
UNREALIZED APPRECIATION OF
INVESTMENTS $ 1,174,075 $ (1,264,220) $ (969,141)
=========== ============ ============
</TABLE>
See Notes to financial statements--Part B.
-4-
