<PAGE> 1
SEPARATE ACCOUNT B
December 31, 1995
Annual Report
Provident National Assurance Company
A Subsidiary of
Provident Life and Accident
Insurance Company
<PAGE> 2
MANAGEMENT
BOARD OF MANAGERS OF SEPARATE ACCOUNT B
Henry E. Blaine
H. Grant Law, Jr.
David G. Fussell
Susan N. Roth, Secretary
to the Board of Managers
PRINCIPAL OFFICERS OF
PROVIDENT NATIONAL ASSURANCE COMPANY
Eugene A. Jones, President
J. Harold Chandler, Executive Vice President
Thomas R. Watjen, Executive Vice President and
Chief Financial Officer
Robert O. Best, Senior Vice President and
Chief Information Officer
Thomas B. Heys, Jr., Senior Vice President
Alberto J. Morales, Senior Vice President,
Chief Administrative Officer and Asst. Secretary
Ralph A. Rogers, Vice President and Controller
Glenn P. Felton, Vice President, Managing
Corporate Counsel and Assistant Secretary
Susan N. Roth, Corporate Secretary and Counsel
George A. Shell, Jr., Treasurer
This report and the financial statements attached are submitted solely for the
general information of contract owners of Separate Account B and are not
authorized for other use.
<PAGE> 3
MESSAGE TO PARTICIPANTS IN
PROVIDENT NATIONAL'S
VARIABLE ANNUITY CONTRACTS
This annual report of Separate Account B contains the financial
statements and portfolio information of Separate Account B for the year ended
December 31, 1995. Comparative figures that relate to Separate Account B's
activities during 1995 are provided below.
The accumulation unit value for Separate Account B increased 27.7% in
1995, from $5.410722 at year end 1994 to $6.908158 on December 31, 1995.
During this same period, the S&P 500 Index rose by a yield adjusted 37.1%.
Reflecting transfers to the fixed-dollar account, as well as withdrawals and
retirements, the number of accumulation units outstanding on December 31, 1995,
was 1,767,394, down from 2,097,793 twelve months earlier. As a result of net
income from investments, withdrawals, and net purchase payments received, total
contract owners' equity on December 31, 1995, was $13,151,831 compared to
$12,171,347 on December 31, 1994.
In the domestic capital markets, 1995 was a truly outstanding year.
Corporate America continued to reap the benefits of restructuring and posted
strong earnings per share growth. While at the same time the stock market was
having one of its best years on record, the bond market rallied strongly with
yields on long term treasury bonds declining almost two hundred basis points in
yield. The Federal Reserve contributed to the market's success during the year
by successfully orchestrating a "soft landing" for the economy resulting in 3%
GDP growth, 3% inflation, and approximately 5-1/2% unemployment.
The outlook for 1996 is for the stock market to revert to a more normal
return range than 1995's outstanding pace. Corporate profits are expected to
grow around 8% during 1996 as opposed to 18% for 1995, and the expansion in
economic growth is expected to be lackluster. The Federal Reserve should
continue its gradual easing activities throughout the year in an effort to
maintain moderate growth with contained inflation.
Thank you for your continued support.
/s/ David Fussell
------------------------------------
David Fussell
Chairman, Board of Managers
Provident National Assurance Company
Separate Account B
<PAGE> 4
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1995
<TABLE>
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Statements of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Changes in Variable Annuity Contract Owners' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Supplementary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
[LOGO ERNST & YOUNG LLP] / / 300 Krystal Building / / Phone: 615 756 2461
[LETTERHEAD] One Union Square Fax: 615 267 0304
Chattanooga, Tennessee 37402
</TABLE>
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.
/S/ ERNST & YOUNG LLP
January 22, 1996
-1-
<PAGE> 6
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> 7
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> 8
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> 9
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> 10
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> 11
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> 12
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> 13
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> 14
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> 15
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> 16
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-
