<PAGE>
SEPARATE ACCOUNT B
December 31, 1996
Annual Report
Provident National Assurance Company
A Subsidiary of
Provident Companies, Inc.
<PAGE>
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
Timothy C. Gartland, Executive Vice President
Robert O. Best, Senior Vice President and
Chief Information Officer
Thomas B. Heys, Jr., Senior Vice President
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>
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,
1996. Comparative figures that relate to Separate Account B's activities during
1996 are provided below.
The accumulation unit value for Separate Account B increased 22.1% in 1996,
from $6.908158 at year end 1995 to $8.435567 on December 31, 1996. During this
same period, the S&P 500 Index rose by a yield adjusted 23.0%. Reflecting
transfers to the fixed-dollar account, as well as withdrawals and retirements,
the number of accumulation units outstanding on December 31, 1996 was 1,538,926,
down from 1,767,394 twelve months earlier. As a result of net income from
investments, withdrawals, and net purchase payments received, total contract
owners' equity on December 31, 1996 was $13,917,113 compared to $13,151,831 on
December 31, 1995.
Funds indexed to the S&P 500 in 1996 appreciated by 23%. Large
capitalization growth oriented stocks rose on the prospects of continued
corporate profits growth in the years ahead. The sectors that performed best
were technology +44.1%, financials +35.6%, and capital goods +30.3%. Since few
sectors outperformed the market it was difficult for fund managers to beat their
indices.
As 1997 begins, the stock prices of many of the big-cap growth issues are
recognizing their earnings growth potential. These growth stocks should
continue to perform well in today's low-inflation, moderate-growth environment.
Stable to lower bond yields, with continued strong earnings power will bode well
for the stock market this year.
Thank you for your continued support.
/s/ David Fussell
------------------------------------
David Fussell
Chairman, Board of Managers
Provident National Assurance Company
Separate Account B
<PAGE>
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors..................................... 1
Statements of Assets and Liabilities............................... 2
Statements of Operations........................................... 3
Statements of Changes in Variable Annuity Contract Owners' Equity.. 4
Schedule of Investments............................................ 5
Supplementary Information.......................................... 8
Notes to Financial Statements...................................... 10
</TABLE>
<PAGE>
[ERNST & YOUNG LETTERHEAD APPEARS HERE]
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, 1996
and 1995, including the schedule of investments as of December 31, 1996, 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,
1996, 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, 1996 and 1995, 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, 1996 and
1995, 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,
1996, 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
January 17, 1997
-1-
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
<TABLE>
<CAPTION>
December 31
1996 1995
--------------------------
ASSETS
<S> <C> <C>
Investments:
Common stocks--at market value
(cost: 1996--$9,625,656;
1995--$10,391,006) $13,622,505 $13,200,097
Bonds--at market value
(cost: 1996--$100,000; 1995--$0) 106,500 0
Short-term investments--at cost plus
accrued interest (approximately
market) 196,934 0
----------- -----------
13,925,939 13,200,097
Cash 902 29,854
Accrued dividends and interest 22,888 18,566
Amounts due from Provident National
Assurance Company 999 19
----------- -----------
TOTAL ASSETS 13,950,728 13,248,536
----------- -----------
LIABILITIES AND CONTRACT OWNERS' EQUITY
Amounts payable for terminations and
variable annuity benefits 19,655 83,866
Management fee and other amounts due
Provident National Assurance Company 13,960 12,839
----------- -----------
TOTAL LIABILITIES 33,615 96,705
----------- -----------
Variable annuity contract owners'
equity:
Deferred annuity contracts
terminable by owners--(accumulation
units outstanding:
1996--1,538,926.064;
1995--1,767,394.226;
unit value: 1996--$8.435567;
1995--$6.908158) 12,981,714 12,209,438
Annuity contracts in pay-out period 935,399 942,393
----------- -----------
TOTAL CONTRACT OWNERS' EQUITY $13,917,113 $13,151,831
=========== ===========
</TABLE>
See notes to financial statements
-2-
<PAGE>
STATEMENTS OF OPERATIONS
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Income:
Dividends $ 193,196 $ 240,725 $ 298,329
Interest 8,347 24,937 76,107
---------- ----------- -----------
201,543 265,662 374,436
---------- ----------- -----------
Expenses--Note C:
Investment advisory services 67,237 63,922 64,398
Mortality and expense assurances 94,131 89,492 90,158
---------- ----------- -----------
161,368 153,414 154,556
---------- ----------- -----------
NET INVESTMENT INCOME 40,175 112,248 219,880
---------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS--NOTE A
Net realized gain from investment
transactions
(excluding short-term securities):
Proceeds from sales 5,882,270 13,313,567 9,701,955
Cost of investments sold 4,404,304 11,434,739 9,214,091
Adjustment for impairment of value 0 (76,960) 0
---------- ----------- -----------
Net realized gain 1,477,966 1,801,868 487,864
---------- ----------- -----------
Net unrealized appreciation of
investments:
At end of year 4,003,349 2,809,091 1,635,016
At beginning of year 2,809,091 1,635,016 2,899,236
---------- ----------- -----------
Increase (decrease) in net
unrealized appreciation of
investments 1,194,258 1,174,075 (1,264,220)
---------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS 2,672,224 2,975,943 (776,356)
---------- ----------- -----------
NET INCOME (LOSS) $2,712,399 $ 3,088,191 $ (556,476)
========== =========== ===========
Ratio of expenses to total investment
income 80.07% 57.75% 41.28%
========== =========== ===========
See notes to financial statements.
</TABLE>
-3-
<PAGE>
STATEMENTS OF CHANGES IN VARIABLE ANNUITY CONTRACT OWNER'S EQUITY
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD $13,151,831 $12,171,347 $13,594,156
----------- ----------- -----------
FROM INVESTMENT ACTIVITIES:
Net investment income 40,175 112,248 219,880
Net realized gain on investments 1,477,966 1,801,868 487,864
Increase (decrease) in net
unrealized appreciation of
investments 1,194,258 1,174,075 (1,264,220)
----------- ----------- -----------
Increase (decrease) in contract
owners' equity from
investment activities 2,712,399 3,088,191 (556,476)
----------- ----------- -----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS:
Net contract purchase payments
(Units purchased:
1996-- 4,869.798;
1995-- 8,835.033;
1994--13,985.385) 35,994 53,380 75,685
Terminations and death benefits
(Units terminated:
1996--243,557.308;
1995--337,338.173;
1994--153,401.946) (1,866,405) (2,054,839) (841,067)
Variable annuity benefits paid
(Number of units:
1996--15,310.532;
1995--17,171.953;
1994--18,478.239) (116,706) (106,248) (100,951)
----------- ----------- -----------
Decrease in contract owners' equity
from variable
annuity contract transactions (1,947,117) (2,107,707) (866,333)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CONTRACT
OWNERS' EQUITY 765,282 980,484 (1,422,809)
----------- ----------- -----------
BALANCE AT END OF PERIOD $13,917,113 $13,151,831 $12,171,347
=========== =========== ===========
</TABLE>
See notes to financial statements.
-4-
<PAGE>
SCHEDULE OF INVESTMENTS
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- ----------
COMMON STOCKS
<S> <C> <C>
CAPITAL GOODS (5.7%)
Boeing Company 2,000 $ 213,000
General Electric Company 5,900 583,363
----------
796,363
CONSUMER (39.4%)
Bristol-Myers Squibb Company 4,500 490,500
Coca-Cola Company 9,000 473,625
Eckerd Jack Company 1,964 62,847
Exide Corporation 3,500 80,937
Gannett Company, Inc. 5,500 411,813
General Motors Corporation 7,000 390,250
McDonald's Corporation 10,500 476,438
Pentos PLC 160,000 0
PepsiCo, Inc. 8,000 234,000
Proctor & Gamble Company 3,500 376,687
Safeway, Inc. 4,200 179,550
Sara Lee Corporation 6,000 223,500
Sears, Roebuck & Company 5,000 230,000
Sprint Corporation 3,000 119,625
Teleport Communications Group, 10,000 305,000
Inc. Class A
Viacom, Inc. Class B 13,712 478,206
Wal-Mart Stores, Inc. 17,000 386,750
Worldcom, Inc. 21,500 560,355
----------
5,480,083
</TABLE>
See notes to financial statements.
-5-
<PAGE>
SCHEDULE OF INVESTMENTS - CONTINUED
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- ----------
COMMON STOCKS - CONTINUED
<S> <C> <C>
FINANCIAL (10.3%)
American Express Company 8,000 $ 452,000
Corestates Financial Corporation 6,250 324,219
NationsBank Corporation 2,000 195,500
Wells Fargo & Company 1,700 458,575
----------
1,430,294
HEALTH CARE (12.9%)
Columbia Healthcare Corporation 6,750 275,063
Eli Lilly & Company 1,500 109,500
HealthSouth Corporation 9,500 366,937
Johnson & Johnson 9,032 449,342
Merck & Company, Inc. 7,500 597,188
----------
1,798,030
HIGH GROWTH TECHNOLOGY (25.9%)
Airtouch Communications, Inc. 7,000 176,750
Comcast Corporation Class A Spl 14,500 258,288
Computer Associates International 7,000 348,250
Emerson Electric Company 5,000 484,375
Hewlett Packard Company 7,000 351,750
Intel Corporation 4,250 556,750
Lucent Technologies, Inc. 4,444 205,535
Microsoft Corporation 4,000 330,500
Motorola, Inc. 4,500 275,625
Oracle Corporation 5,000 208,750
SCI Systems, Inc. 5,000 223,125
3Com Corporation 2,500 183,437
----------
3,603,135
</TABLE>
See notes to financial statements.
-6-
<PAGE>
SCHEDULE OF INVESTMENTS - CONTINUED
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- ------------
<S> <C> <C>
COMMON STOCKS - CONTINUED
MISCELLANEOUS (3.7%)
Minnesota Mining & Manufacturing
Company 6,200 $ 514,600
-----------
TOTAL COMMON STOCKS (97.9%) 13,622,505
Principal
Amount
---------
BONDS (0.8%)
Tenet Healthcare Corporation 6.00%
Exchangeable Subordinated Notes
due December 1, 2005 $100,000 $ 106,500
=========
SHORT-TERM INVESTMENTS (1.4%)
Dynamic Funding Corporation
Commercial Paper
due January 3, 1997 $197,000 $ 196,934
========= -----------
TOTAL INVESTMENTS (100.1%) 13,925,939
CASH AND RECEIVABLES LESS LIABILITIES
(-0.1%) (8,826)
-----------
TOTAL VARIABLE ANNUITY CONTRACT
OWNERS' EQUITY (100.0%) $13,917,113
===========
</TABLE>
See notes to financial statements.
-7-
<PAGE>
SUPPLEMENTARY INFORMATION
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
Selected data for an accumulation unit outstanding throughout each year
excluding sales loads:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994 1993 1992
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income $ .11 $ .13 $ .15 $ .14 $ .12
Expenses .09 .07 .07 .06 .06
---------- ---------- ---------- ---------- ----------
Net investment income .02 .06 .08 .08 .06
Net realized and unrealized
gain (loss) on investments 1.51 1.44 (.32) .54 (.07)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in
contract owners' equity 1.53 1.50 (.24) .62 (.01)
Net contract owners' equity:
Beginning of year 6.91 5.41 5.65 5.03 5.04
---------- ---------- ---------- ---------- ----------
End of year $ 8.44 $ 6.91 $ 5.41 $ 5.65 $ 5.03
========== ========== ========== ========== ==========
Ratio of expenses to average
contract owners' equity 1.20% 1.21% 1.21% 1.22% 1.21%
Ratio of net investment income to
average contract owners' equity 0.30% 0.89% 1.72% 1.39% 1.36%
Portfolio turnover 28% 101% 70% 57% 35%
Number of accumulation units
outstanding at end of year 1,538,926 1,767,394 2,097,793 2,242,809 2,655,895
</TABLE>
See notes to financial statements
-8-
<PAGE>
SUPPLEMENTARY INFORMATION - CONTINUED
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
<TABLE>
<CAPTION>
Year Ended December 31
1991 1990 1989 1988 1987
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income $ .13 $ .13 $ .12 $ .11 $ .10
Expenses .05 .04 .04 .04 .04
---------- ---------- ---------- ---------- ----------
Net investment income .08 .09 .08 .07 .06
Net realized and unrealized
gain (loss) on investments 1.22 ( .16) .64 .29 (.07)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in
contract owners' equity 1.30 (.07) .72 .36 (.01)
Net contract owners' equity:
Beginning of year 3.74 3.81 3.09 2.73 2.74
---------- ---------- ---------- ---------- ----------
End of year $ 5.04 $ 3.74 $ 3.81 $ 3.09 $ 2.73
========== ========== ========== ========== ==========
Ratio of expenses to average
contract owners' equity 1.21% 1.22% 1.21% 1.22% 1.24%
Ratio of net investment income to
average contract owners' equity 1.91% 2.34% 2.36% 2.30% 1.80%
Portfolio turnover 42% 58% 104% 65% 62%
Number of accumulation units
outstanding at end of year 2,854,559 3,031,469 3,667,660 4,191,222 5,182,071
</TABLE>
See notes to financial statements.
-9-
<PAGE>
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 Companies, Inc.) and
is registered under the Investment Company Act of 1940, as amended, as an open-
end diversified management investment company.
Common stocks and bonds 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 $1,369,834,
$1,798,019, and $563,363 for the years ended December 31, 1996, 1995, and 1994,
respectively. There were gross unrealized gains of $4,232,359 and gross
unrealized losses of $229,010 at December 31, 1996. 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, 1996 is shown below.
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
---------------------------------------
<S> <C> <C> <C>
Cost of investments purchased $ 9,751,620 $32,935,068 $36,509,262
Less: Short-term securities 6,012,666 20,637,665 28,013,052
----------- ----------- -----------
$ 3,738,954 $12,297,403 $ 8,496,210
=========== =========== ===========
Proceeds from investments sold $11,698,035 $34,650,485 $37,415,387
Less: Short-term securities 5,815,765 21,336,918 27,713,432
----------- ----------- -----------
$ 5,882,270 $13,313,567 $ 9,701,955
=========== =========== ===========
</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>
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>
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 1992 4.735470
December 1969 1.080379 June 4.585274
December 1970 1.030039 September 4.694884
December 1971 1.178612 December 5.028547
December 1972 1.403795 March 1993 5.208499
December 1973 1.126624 June 5.190340
December 1974 .863269 September 5.441446
December 1975 1.022844 December 5.646864
December 1976 1.156853 March 1994 5.386379
December 1977 1.064425 June 5.274454
December 1978 1.094150 September 5.475394
December 1979 1.219189 December 5.410722
December 1980 1.555258 March 1995 5.656995
December 1981 1.473246 June 6.194660
December 1982 1.812441 September 6.505252
December 1983 2.132092 December 6.908158
December 1984 2.029912 January 1996 7.104573
December 1985 2.480050 February 7.177128
December 1986 2.743444 March 7.309625
December 1987 2.734169 April 7.390144
December 1988 3.087892 May 7.561813
December 1989 3.812606 June 7.593667
March 1990 3.729963 July 7.181787
June 4.080042 August 7.384505
September 3.435225 September 7.851947
December 3.736441 October 8.000702
March 1991 4.312244 November 8.674258
June 4.243108 December 8.435567
September 4.513598
December 5.036212
</TABLE>
-12-
<PAGE>
ACCUMULATION UNIT VALUE TABLE - CONTINUED
(UNAUDITED)
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
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 1989, on the last valuation day of
each quarter from March 1990 through December 1995, and on the last valuation
day of each month of 1996. The results shown should not be considered as a
representation of the results which may be realized in the future.
-13-
