<PAGE>
PROVIDENT NATIONAL ASSURANCE COMPANY
SEPARATE ACCOUNT B
JUNE 30, 1998
SEMIANNUAL REPORT
<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
J. Harold Chandler, Chairman, President and Chief Executive Officer
Thomas R. Watjen, Vice Chairman and Chief Financial Officer
Robert O. Best, Executive Vice President and Chief Information Officer
F. Dean Copeland, Executive Vice President and General Counsel
Thomas B. Heys, Jr., Executive Vice President, Institutional Sales
Peter C. Madeja, Executive Vice President
Jeffrey F. Olingy, Executive Vice President, Sales Support
Robert C. Greving, Senior Vice President and Chief Actuary
Ralph A. Rogers, Jr., Senior Vice President and Treasurer
Susan N. Roth, Vice President, Secretary and Counsel
Vicki W. Corbett, Vice President and Controller
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 semiannual report of Separate Account B contains the financial
statements and portfolio information of Separate Account B for the six
months ended June 30, 1998. Comparative figures which relate to Separate
Account B's activities during the first half of 1998 are provided below.
The accumulation unit value for Separate Account B increased 18.3% in
the first half of 1998, from $11.384926 at year end 1997 to $13.465013 on
June 30, 1998. During this same period, the S&P 500 index rose by a yield
adjusted 17.7%. Reflecting transfers to the fixed-dollar account, as well
as withdrawals and retirements, the number of accumulation units
outstanding on June 30, 1998, was 1,157,133, down from 1,310,831 six
months earlier. As a result of withdrawals, net purchase payments
received, and changes in the accumulation unit value, total contract
owners' equity on June 30, 1998, was $17,908,597 compared to $16,453,121
on December 31, 1997.
Performance for the first half of 1998 has continued strong for your
fund and for common stocks in general, especially for stocks of large,
growing companies. The first half return for the S&P 500 index was 17.7%
and follows three consecutive years of 20% plus returns. Returns were
highest in such industries as communications, technology, retail, and
drugs that are viewed as healthy and growing. The weakest returns were in
commodity-oriented industries such as energy and paper that may be hurt
from Asian weakness. Smaller stocks did not perform as well as large
stocks. For example the Russell 2000 index (comprised of the smallest 2000
of the largest 3000 companies) was up only 5.3% for the first half of
1998, far less than the large-company-dominated S&P 500 index.
From here, the outlook is mixed. The economy is likely to slow down
which will pressure corporate profits in the second half. However,
inflation is under control and the Federal Reserve is unlikely to raise
interest rates near term. This means a recession is unlikely and
valuations can remain high. Overall, returns should moderate from recent
high levels, but the chance of a severe, long-term correction is low.
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
(UNAUDITED)
JUNE 30, 1998
Statement of Assets and Liabilities................................ 3
Statement of Operations............................................ 4
Statements of Changes in Variable Annuity Contract Owners' Equity.. 5
Schedule of Investments............................................ 6
Supplementary Information.......................................... 9
Notes to Financial Statements...................................... 10
Accumulation Unit Value Table...................................... 12
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<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
June 30, 1998
-------------
ASSETS
Investments:
Common stocks--at market value
(cost: $9,584,430) 17,892,335
Cash 30,760
Accrued dividends and interest 9,328
Amounts due from Provident National Assurance Company 844
----------
TOTAL ASSETS 17,933,267
----------
LIABILITIES AND CONTRACT OWNERS' EQUITY
Amounts payable for terminations and variable annuity
benefits 6,514
Management fee and other amounts due Provident
National Assurance Company 18,156
----------
TOTAL LIABILITIES 24,670
----------
Variable annuity contract owners' equity:
Deferred annuity contracts terminable by owners--
(accumulation units outstanding: 1,157,133 unit
value: $13.465013) 15,580,807
Annuity contracts in pay-out period 2,327,790
-----------
TOTAL CONTRACT OWNERS' EQUITY $17,908,597
===========
See notes to financial statements.
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<PAGE>
STATEMENT OF OPERATIONS
(UNAUDITED)
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
Six Months Ended
June 30, 1998
-----------------
INVESTMENT INCOME
Income:
Dividends $ 62,928
Interest 2,131
----------
65,059
----------
Expenses--Note C:
Investment advisory services 41,803
Mortality and expense assurances 58,524
----------
100,327
----------
NET INVESTMENT LOSS (35,268)
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS--NOTE A
Net realized gain from investment transactions
(excluding short-term securities):
Proceeds from sales 2,146,921
Cost of investments sold 1,065,512
----------
Net realized gain 1,081,409
----------
Net unrealized appreciation of investments:
At end of period 8,307,905
At beginning of period 6,462,658
----------
Increase in net unrealized appreciation of investments 1,845,247
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 2,926,656
----------
NET INCOME $2,891,388
==========
Ration of expenses to total investment income 154.21%
==========
See notes to financial statements.
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<PAGE>
STATEMENTS OF CHANGES IN VARIABLE ANNUITY CONTRACT OWNERS' EQUITY
(UNAUDITED)
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
----------------- ------------------
<S> <C> <C>
BALANCE AT BEGINNING OF PERIOD $16,453,121 $13,917,113
----------- -----------
FROM INVESTMENT ACTIVITIES:
Net investment loss (35,268) (23,336)
Net realized gain on investments 1,081,409 2,046,808
Increase in net unrealized appreciation of investments 1,845,247 2,459,309
----------- -----------
Increase in contract owners' equity from
investment activities 2,891,388 4,482,781
----------- -----------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS:
Net contract purchase payments (Units purchased:
1998--554.606;
1997--16,110.275) 6,941 174,149
Terminations and death benefits (Units terminated:
1998--103,365.486:
1997--206,229.494) (1,286,389) (1,974,221)
Variable annuity benefits paid (Number of units:
1998--12,346.647;
1997--14,527.206) (156,464 (146,701)
----------- -----------
Decrease in contract owners' equity from variable
contract transactions (1,435,912) (1,946,773)
----------- -----------
NET INCREASE IN CONTRACT OWNERS' EQUITY 1,455,476 2,536,008
----------- -----------
BALANCE AT END OF PERIOD $17,908,597 $16,453,121
=========== ===========
</TABLE>
See notes to financial statements.
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<PAGE>
SCHEDULE OF INVESTMENTS
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
JUNE 30, 1998
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- ----------
<S> <C> <C>
COMMON STOCKS
CAPITAL GOODS (12.4%)
Corning, Inc. 2,800 $ 97,300
Emerson Electric Company 7,800 470,925
General Electric Company 7,800 708,825
Thermo Electron Corporation 2,500 85,470
Textron, Inc. 5,000 358,440
USA Waste Services, Inc. 5,900 291,313
USA Filter Corporation 7,600 212,648
----------
2,224,921
CONSUMER GOODS (8.2%)
Coca-Cola Company 6,000 513,000
Lear Corporation 3,200 164,202
Newell Company 4,000 199,252
PepsiCo, Inc. 8,000 329,504
Proctor & Gamble Company 3,000 273,189
----------
1,479,147
CONSUMER SERVICES (16.1%)
Cendant Corporation 5,604 114,882
Comcast Corporation Class A 12,500 507,813
Walt Disney Company 3,200 336,202
Gannett Company, Inc. 6,000 426,377
McDonald's Corporation 4,500 310,500
Safeway, Inc. 10,400 423,155
Office Depot, Inc. 3,000 94,689
Wal-Mart Stores, Inc. 8,000 486,000
Viacom, Inc. Class B 3,000 174,750
----------
2,874,368
ENERGY (1.9%)
Atlantic Richfield Company 800 62,500
EVI Inc. 3,600 133,200
Royal Dutch Petroleum Company 2,900 158,957
----------
354,657
</TABLE>
See notes to financial statements.
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<PAGE>
SCHEDULE OF INVESTMENTS - CONTINUED
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
JUNE 30, 1998
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- ----------
<S> <C> <C>
FINANCIAL (9.9%)
American Express Company 4,000 $ 455,000
Chase Manhattan Corporation 9,600 724,800
First Union Corporation 3,645 212,321
NationsBank Corporation 4,000 306,752
Washington Mutual, Inc. 1,800 78,188
----------
1,777,061
HEALTH CARE (15.4%)
Bristol-Myers Squibb Company 3,500 402,283
Eli Lilly & Company 2,700 178,875
HealthSouth Corporation 20,600 549,773
Johnson & Johnson 9,032 668,368
Medtronic Inc. 5,000 318,750
Merck & Company, Inc. 2,800 374,500
National Data Corporation 1,500 65,625
Tenet Healthcare Corporation 6,800 212,500
----------
2,770,674
TECHNOLOGY-HARDWARE (9.1%)
Cisco Systems, Inc. 2,400 220,951
Compaq Computer Corporation 6,000 170,250
Hewlett Packard Company 3,000 179,626
Lucent Technologies, Inc. 6,888 572,999
SCI Systems, Inc. 10,000 377,500
3Com Corporation 3,250 99,736
----------
1,621,062
TECHNOLOGY-SOFTWARE (9.7%)
Computer Associates International 10,500 583,412
First Data Corporation 2,900 96,607
Microsoft Corporation 8,000 867,000
Oracle Corporation 7,500 184,223
----------
1,731,242
</TABLE>
See notes to financial statements.
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<PAGE>
SCHEDULE OF INVESTMENTS - CONTINUED
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
JUNE 30, 1998
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TECHNOLOGY-OTHER (8.4%)
Airtouch Communications, Inc. 11,000 $ 642,818
Boeing Company 4,000 178,252
Inacom Corporation 2,300 73,025
Intel Corporation 7,700 570,763
Motorola, Inc. 1,000 52,563
-----------
1,517,421
UTILITIES (8.8%)
Sprint Corporation 3,000 211,500
Teleport Communications Group, Inc. Class A 10,000 542,500
Tel-Save Holdings 2,900 42,775
Thermo Ecotek Corporation 1,800 28,125
Worldcom, Inc. 14,800 716,882
-----------
1,541,782
TOTAL COMMON STOCKS (99.9%) 17,892,335
-----------
TOTAL INVESTMENTS (99.9%) 17,892,335
CASH AND RECEIVABLES LESS LIABILITIES (.1%) 16,262
-----------
TOTAL VARIABLE ANNUITY CONTRACT
OWNERS' EQUITY (100.0%) $17,908,597
===========
</TABLE>
See notes to financial statements.
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<PAGE>
SUPPLEMENTARY INFORMATION
(UNAUDITED)
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
Selected data for an accumulation unit outstanding throughout each year:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31
June 30, 1998 1997 1996 1995 1994
--------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Investment income $ .05 $ .10 $ .11 $ .13 $ .15
Expenses .07 .12 .09 .07 .07
---------- ---------- ---------- ---------- ----------
Net investment income (loss) (.02) (.02) .02 .06 .08
Net realized and unrealized gain (loss)
on investments 2.11 2.96 1.51 1.44 (.32)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in contract owners'
equity 2.09 2.94 1.53 1.50 (.24)
Net contract owners' equity:
Beginning of period 11.38 8.44 6.91 5.41 5.65
---------- ---------- ---------- ---------- ----------
End of period $ 13.47 $ 11.38 $ 8.44 $ 6.91 $ 5.41
========== ========== ========== ========== ==========
Ratio of expenses to average contract
owners' equity .58 % 1.16 % 1.20% 1.21% 1.21%
Ratio of net investment income (loss)
to average contract owners' equity (.20)% (.16)% 0.30% 0.89% 1.72%
Portfolio turnover 4 % 25 % 28% 101% 70%
Number of accumulation units outstanding
at end of period 1,157,133 1,310,831 1,538,926 1,767,394 2,097,793
</TABLE>
See notes to financial statements.
-9-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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 $1,082,025 and
$2,046,415 for the six months ended June 30, 1998 and the year ended December
31, 1997, respectively. There were gross unrealized gains of $8,599,200 and
gross unrealized losses of $291,296 at June 30, 1998. 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 six months ended June 30, 1998 and the year ended December 31, 1997
is shown below.
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
---------------- -----------------
Cost of investments purchased $5,027,648 $12,440,923
Less: Short-term securities 4,317,504 8,714,428
---------- -----------
$ 710,144 $ 3,726,495
========== ===========
Proceeds from investments sold $6,464,425 $14,470,491
Less: Short-term securities 4,317,504 8,911,330
---------- -----------
$2,146,921 $ 5,559,161
========== ===========
The aggregate cost of investments for federal income tax purposes is the same as
that presented in the Statements of Assets and Liabilities.
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.
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<PAGE>
NOTE D--COMMITMENTS
On May 15, 1998 Provident completed an Asset Transfer and Acquisition Agreement
under which American General Corporation will assume Provident's individual and
tax-sheltered annuity business including all individual annuities. American
General Corporation will assume the administration, but not the ownership, of
Provident's two registered separate accounts, Separate Account B and The Paul
Revere Variable Annuity Contract Accumulation Fund.
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<PAGE>
ACCUMULATION UNIT VALUE TABLE
(UNAUDITED)
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
End of Month Accumulation Unit Value End of Month Accumulation Unit Value
- --------------- ----------------------- ------------ -----------------------
December 1968 1.036279 March 1993 5.208499
December 1969 1.080379 June 5.190340
December 1970 1.030039 September 5.441446
December 1971 1.178612 December 5.646864
December 1972 1.403795 March 1994 5.386379
December 1973 1.126624 June 5.274454
December 1974 .863269 September 5.475394
December 1975 1.022844 December 5.410722
December 1976 1.156853 March 1995 5.656995
December 1977 1.064425 June 6.194660
December 1978 1.094150 September 6.505252
December 1979 1.219189 December 6.908158
December 1980 1.555258 March 1996 7.309625
December 1981 1.473246 June 7.593667
December 1982 1.812441 September 7.851947
December 1983 2.132092 December 8.435567
December 1984 2.029912 March 1997 8.468896
December 1985 2.480050 June 10.238554
December 1986 2.743444 September 11.146167
December 1987 2.734169 December 11.384926
December 1988 3.087892 January 1998 11.579188
December 1989 3.812606 February 12.469525
December 1990 3.736441 March 12.975484
December 1991 5.036212 April 13.175727
March 1992 4.735470 May 12.691816
June 4.585274 June 13.465013
September 4.694884
December 5.028547
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 1991, on the last valuation day of
each quarter from 1992 through December 1997, and on the last valuation day
during each month of 1998. The results shown should not be considered as a
representation of the results which may be realized in the future.
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