PROVIDENT NATIONAL ASSURANCE CO SEPARATE ACCOUNT B, 485BPOS, 1999-05-03

PROVIDENT NATIONAL ASSURANCE CO SEPARATE ACCOUNT B
485BPOS, 1999-05-03

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<PAGE>

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.:
/X/ Post Effective Amendment No.: 49

/X/ and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
/X/ Amendment No.: 23

PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
(Exact Name of Registrant)

PROVIDENT NATIONAL ASSURANCE COMPANY
(Name of Insurance Company)

1 Fountain Square, Chattanooga, Tennessee 37402
(Address Of Insurance Company's Principal Executive Offices)

Insurance Company's Telephone Number (including area code): (423)755-1901

Susan N. Roth
Provident National Assurance Company
1 Fountain Square
Chattanooga, Tennessee 37402
(Name And Address Of Agent For Service)

Approximate Date of Proposed Public Offering: N/A

It is proposed that this filing will become effective (check appropriate box):

immediately upon filing pursuant to Paragraph (b)
/ /pursuant to Paragraph (b)

/ /60 days after filing, pursuant to Paragraph (a)(i)

/X/on April 30, 1999, pursuant to Paragraph (a)
/ /75 days after filing, pursuant to Paragraph (a)(ii)
/ /on , pursuant to Paragraph (a)(ii) of Rule 485.
<PAGE>

PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B

<TABLE>
<CAPTION>
PAGE NO. ITEM NO. HEADING IN PROSPECTUS (PART A)
<C> <C> <S>
1 Cover Page
2 2 Definitions
2 3 Synopsis
6 4 Condensed Financial Information
7 5 Description of Insurance Company and the
Separate Account
11 6 Management
12 7 Deductions and Expenses
15 8 Description of Contracts
18 9 Annuity Period
22 10 Death Benefit
23 11 Purchases and Contract Value
25 12 Redemptions
26 13 Taxes
34 14 Legal Proceedings

STATEMENT OF ADDITIONAL
INFORMATION (PART B)
Cover Page
1 17 Table of Contents
3 18 General Information and History of Insurance
Company and the Separate Account
4 19 Investment Objectives and Policies
6 20 Management
9 21 Investment Advisory Services
11 22 Brokerage Allocation
13 24 Underwriters
14 27 Financial Statements
</TABLE>

1
<PAGE>

<TABLE>
<CAPTION>
PAGE NO. ITEM NO. OTHER INFORMATION (PART C)
<S> <C> <C>
28(a) Financial Statements and Exhibits
1 28(b) List of Exhibits
2 29 Directors and Officers of the Insurance Company
5 30 Persons Controlled by or under Common Control
with Registrant
6 31 Number of Contractowners
6 32 Indemnification
6 33 Business and Other Connections of Investment
Advisers
6 34 Principal Underwriters
7 35 Location of Accounts and Records
7 36 Management Services
7 37 Undertakings
</TABLE>

2
<PAGE>

- --------------------------------------------------------------------------------

Provident National Assurance Company
Separate Account B

PROSPECTUS
- --------------------------------------------------------------------------------

April 30, 1999(R)

CHATTANOOGA, TENNESSEE

423-755-1901

- ----------------------------------------------------

(R)

CHATTANOOGA, TN 37402
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
Definitions 2
Synopsis 2
Condensed Financial Information 6
Description of the Company and the Separate Account 7
A.Investment Policies and Restrictions 7
B.Principle Risk Factors 10
Management 11
Deductions and Expenses 12
A.Sales and Administrative Functions and Expenses 12
B.Expense and Mortality and Expense Risk Assumptions 14
C.Brokerage Expenses and Portfolio Turnover 14
General Description of Variable Annuity Contracts 15
Annuity Period 18
Death Benefit 22
Purchases and Contract Value 23
Redemptions 25
Federal Tax Status 26
Changes in Operation of the Separate Account 34
Legal Proceedings 34
Legal Opinion 34
</TABLE>

i
<PAGE>

PROSPECTUS

PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
VARIABLE ANNUITY CONTRACTS
SOLD BY
PROVIDENT NATIONAL ASSURANCE COMPANY
CHATTANOOGA, TENNESSEE 37402
423-755-1901

This Prospectus describes the following Variable Annuity Contracts
("Contracts") offered by Provident National Assurance Company ("Company"). They
are:

1. Individual Single Purchase Payment Variable Annuity Contract
("Single")
2. Individual Flexible Installment Purchase Payment Variable Annuity
Contracts ("Flexible")
3. Individual Variable Annuity Contracts used to fund IRA's ("IRA")
4. Individual Variable Annuity Contracts used to fund HR-10 Plans
("HR10")
5. Individual Variable Annuity Contracts used to fund Ind. 403(b)
plans ("Ind 403(b)")
6. Group Variable Annuity Contracts used to fund 403(b) plans ("Grp
403(b)")

Note: The public's offering of contracts of Separate Account B and Separate
Account C, which was subsequently merged with Separate Account B, was
discontinued on February 1, 1984.

No further offering of contracts of the Separate Accounts 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.

The purchase payments received pursuant to these contracts are invested
in Provident National Assurance Company Separate Account B ("Separate
Account"), a separate account of the Company.

The primary investment objective of the Separate Account is long-term
capital growth. The assets of the Separate Account will usually be invested in
common stock. From time to time, management may decide to invest in preferred
stock and debt obligations. When deemed necessary for defensive purposes, the
Separate Account may hold short-term obligations, such as U.S. Government
securities and certificates of deposit. The contracts are subject to the risks
associated with common stock investment and changing economic conditions. There
can be no assurance that the investment objective will be attained.

This Prospectus sets forth information about the Contracts and the
Separate Account that a prospective investor ought to know before investing. A
Statement of Additional Information about the Company, the Separate Account and
the Contracts has been filed with the Securities and Exchange Commission and is
available, without charge, upon written or oral request received by the Company
at its Home Office located at 1 Fountain Square, Chattanooga, Tennessee 37402.
Please refer to page 36 to examine the Table of Contents of the Statement of
Additional Information.

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation
to the contrary is a criminal offense.

Please read this Prospectus carefully and retain it for future
reference.

The date of this Prospectus is April 30, 1999.

The date of the Statement of Additional Information is April 30, 1999.

<PAGE>

DEFINITIONS

Accumulation Unit--an accounting device used to determine the value of a
contract before annuity payments begin. The value of the Accumulation Unit
varies in accordance with the investment experience of the Separate Account.

Annuitant--the person or persons whose life determines the duration of annuity
payments involving life contingencies.

Annuity--a series of payments generally for life or for life with specified
minimums.

Annuity Commencement Date--the date on which annuity payments will begin.

Annuity Unit--an accounting device used to determine the amount of annuity
payments.

Contract Owner--the person or entity with legal rights of ownership of the
annuity contract.

Fixed Annuity--an annuity with payments fixed in amount throughout the annuity
period.

Plan--an employer pension plan, profit sharing plan, or annuity purchase plan
under which benefits are to be provided by the Variable Annuity Contracts
described herein.

Purchase Payments--payments to the Company, after specific deductions, under an
annuity contract.

Variable Annuity--an annuity providing for payments varying in amount in
accordance with the investment experience of the Separate Account.

SYNOPSIS

<TABLE>
<CAPTION>
Ind Grp
Contract Owner Single Flexible IRA HR10 403(b) 403(b)
<S> <C> <C> <C> <C> <C> <C>
Transaction Expenses:
Sales Load Imposed on
Purchases (as a percentage
of purchase payments) 6% 8% 8% 8% 6% 6%
Annual Expenses (as a
percentage of average net assets):
Management Fees .5% .5% .5% .5% .5% .5%
Mortality and Expense Risk Fees .7% .7% .7% .7% .7% .7%
---- ---- ---- ---- ---- ----
Total Annual Expenses 1.2% 1.2% 1.2% 1.2% 1.2% 1.2%
</TABLE>

EXAMPLES

<TABLE>
<CAPTION>
Single
------
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
If you surrender your contract at the end of
the applicable
time period:
You would pay the following expenses on a
$1,000
investment, assuming 5% annual return on
assets: $71.56 $96.01 $122.34 $197.34
If you annuitize at the end of the applicable
time period:
You would pay the following expenses on a
$1,000
investment, assuming 5% annual return on
assets: $71.56 $96.01 $122.34 $197.34
If you do not surrender your contract:
You would pay the following expenses on a
$1,000
investment, assuming 5% annual return on
assets: $71.56 $96.01 $122.34 $197.34
</TABLE>

2
<PAGE>

<TABLE>
<CAPTION>
Flexible
--------
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
If you surrender your contract at the end of
the applicable
time period:
You would pay the following expenses on a
$1,000
investment, assuming 5% annual return on
assets: $91.32 $115.24 $141.01 $214.42
If you annuitize at the end of the applicable
time period:
You would pay the following expenses on a
$1,000
investment, assuming 5% annual return on
assets: $91.32 $115.24 $141.01 $214.42
If you do not surrender your contract:
You would pay the following expenses on a
$1,000
investment, assuming 5% annual return on
assets: $91.32 $115.24 $141.01 $214.42
<CAPTION>
IRA
---
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
If you surrender your contract at the end of
the applicable
Time period:
You would pay the following expenses on a
$1,000
investment, assuming 5% annual return on
assets: $91.32 $115.24 $141.01 $214.42
If you annuitize at the end of the applicable
time period:
You would pay the following expenses on a
$1,000
investment, assuming 5% annual return on
assets: $91.32 $115.24 $141.01 $214.42
If you do not surrender your contract:
You would pay the following expenses on a
$1,000
investment, assuming 5% annual return on
assets: $91.32 $115.24 $141.01 $214.42
<CAPTION>
HR10
----
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
If you surrender your contract at the end of
the applicable
Time period:
You would pay the following expenses on a
$1,000
investment, assuming 5% annual return on
assets: $91.32 $115.24 $141.01 $214.42
If you annuitize at the end of the applicable
time period:
You would pay the following expenses on a
$1,000
investment, assuming 5% annual return on
assets: $91.32 $115.24 $141.01 $214.42
If you do not surrender your contract:
You would pay the following expenses on a
$1,000
investment, assuming 5% annual return on
assets: $91.32 $115.24 $141.01 $214.42
<CAPTION>
Ind. 403(b)
-----------
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
If you surrender your contract at the end of
the applicable
Time period:
You would pay the following expenses on a
$1,000
investment, assuming 5% annual return on
assets: $71.56 $96.01 $122.34 $197.34
If you annuitize at the end of the applicable
time period:
You would pay the following expenses on a
$1,000
investment, assuming 5% annual return on
assets: $71.56 $96.01 $122.34 $197.34
If you do not surrender your contract:
You would pay the following expenses on a
$1,000 investment, assuming 5% annual return
on assets: $71.56 $96.01 $122.34 $197.34
</TABLE>

3
<PAGE>

<TABLE>
<CAPTION>
Grp. 403(b)
-----------
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
If you surrender your contract at the end of
the applicable
Time period:
You would pay the following expenses on a
$1,000 investment, assuming 5% annual return
on assets: $71.56 $96.01 $122.34 $197.34
If you annuitize at the end of the applicable
time period:
You would pay the following expenses on a
$1,000 investment, assuming 5% annual return
on assets: $71.56 $96.01 $122.34 $197.34
If you do not surrender your contract:
You would pay the following expenses on a
$1,000 investment, assuming 5% annual return
on assets: $71.56 $96.01 $122.34 $197.34
</TABLE>

The Examples should not be considered a representation of past or future
expenses. Actual expenses may be greater or lesser than those shown. This fee
table is designed to summarize and illustrate all of the deductions and
expenses described on pages 12 and 13 for the contracts offered by this
Prospectus. State premium taxes, as described on page 13 may also apply.

4
<PAGE>

General Information:

The Separate Account is registered under the Investment Company Act of
1940 as an open-end diversified investment company. It is the separate account
through which the Company sets aside, separate and apart from its general
assets, assets attributable to the variable portion of its variable annuity
contracts. Registration under the Investment Company Act of 1940 ("1940 Act")
does not involve supervision of management or investment practices or policies
by the Securities and Exchange Commission.

The variable annuity contracts previously offered by the company in the
Separate Account include group and individual contracts designed for use in
deferred compensation, association, payroll deduction and individual retirement
plans, and contracts designed to provide benefits under annuity plans adopted
by public school systems and certain tax exempt organizations which qualify for
tax deferred treatment under Section 403(b) of the Federal Internal Revenue
Code; as an individual retirement or an individual retirement account adopted
by an individual pursuant to Section 408 of this Code (IRA's) and individual
non-trusteed plans established pursuant to the Self-Employed Individuals Tax
Retirement Act of 1962, as amended (HR-10 plans)

This Prospectus generally describes only the variable portion of
contracts issued by the Company, except where fixed accumulation or fixed
annuity payments are specifically mentioned. Fixed annuities are funded by the
Company's general assets and are not placed in the Separate Account.

The portion of contract values placed in the Separate Account are subject
to the investment risks inherent in any equity investment. These risks include
changing economic conditions as well as the risks inherent in management's
ability to make appropriate investment choices. There is no guarantee under a
variable annuity contract that the variable annuity payments or the
accumulation values will equal or exceed total purchase payments.

All contracts contain the Company's promise that on the annuity
commencement date, the contract owner or annuitant may elect to have provided
an annuity payable for the lifetime of the annuitant provided the initial
monthly annuity payment equals or exceeds $25. If the initial monthly annuity
payment would be less than $25, payment shall be made at less frequent
intervals or the value of the account shall be distributed in a lump sum as
selected by the annuitant. The annuity payment will be based on the contract
value and in case of variable annuity payments, will be affected only by the
investment performance of the Separate Account and not by adverse mortality
experience or by increases in the Company's expenses above those assumed and
for which deductions are provided in the contract. Owners of individual
contracts and participants in group contracts to which variable accumulation
units are credited, have the right to vote on particular questions affecting
the management of the Separate Account. (see Voting Rights, page 16)

Withdrawal or redemption of funds from certain contracts may result in
tax penalties. (see Federal Tax Status, page 26)

5
<PAGE>

CONDENSED FINANCIAL INFORMATION

Per Accumulation Unit Income and Capital Changes:

Year Ended December 31,

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income $ 0.10 $ .10 $ .11 $ .13 $ .15 $ .14 $ .12 $ .13 $ .13
Expenses 0.14 .12 .09 .07 .07 .06 .06 .05 .04
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net investment
income (loss) (0.04) (.02) .02 .06 .08 .08 .06 .08 .09
Net realized and
unrealized gain
(loss) on
investments 3.85 2.96 1.51 1.44 (.32) 54 (.07) 1.22 (.16)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net increase
(decrease) in
contract owners'
equity 3.81 2.94 1.53 1.50 (.24) .62 (.01) 1.30 (.07)
Net contract
owners' equity:
Beginning of year 11.38 8.44 6.91 5.41 5.65 5.03 5.04 3.74 3.81
--------- --------- --------- --------- --------- --------- --------- --------- ---------
End of year $15.19 $11.38 $8.44 $6.91 $5.41 $5.65 $5.03 $5.04 $3.74
========= ========= ========= ========= ========= ========= ========= ========= =========
Ratio of expenses
to average
contract owners'
equity 1.07% 1.16% 1.20% 1.21% 1.21% 1.22% 1.21% 1.21% 1.22%
Ratio of net
investment income
(loss) to average
contract owners'
equity (0.30%) (0.16%) 0.30% 0.89% 1.72% 1.39% 1.36% 1.91% 2.34%
Portfolio turnover 11% 25% 28% 101% 70% 57% 35% 42% 58%
Number of
accumulation units
outstanding at end
of year 1,043,607 1,310,831 1,538,926 1,767,394 2,097,793 2,242,809 2,655,895 2,854,559 3,031,469
<CAPTION>
1989
<S> <C>
Investment income $ .12
Expenses .04
----------
Net investment
income (loss) .08
Net realized and
unrealized gain
(loss) on
investments .64
----------
Net increase
(decrease) in
contract owners'
equity .72
Net contract
owners' equity:
Beginning of year 3.09
----------
End of year $3.81
==========
Ratio of expenses
to average
contract owners'
equity 1.21%
Ratio of net
investment income
(loss) to average
contract owners'
equity 2.36%
Portfolio turnover 104%
Number of
accumulation units
outstanding at end
of year 3,667,660
</TABLE>

See notes to financial statements

6
<PAGE>

DESCRIPTION OF THE COMPANY
AND THE SEPARATE ACCOUNT

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.

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. The Company and the Separate Account are subject to
Tennessee insurance laws and regulations. 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. The Home Office of the Company is located at 1 Fountain
Square, Chattanooga, Tennessee.

Income, gains and losses, whether or not realized, resulting from assets
allocated to the Separate Account are, in accordance with applicable variable
annuity contracts, credited to or charged against the Separate Account without
regard to other income gains or losses of the Company. 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. However,
obligations arising under the contracts are the obligation of the Company. 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.

A. Investment Policies and Restrictions

I. Fundamental

The investment policies listed below are, except as noted,
fundamental to the Separate Account 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.

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.

7
<PAGE>

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.

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 groups 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.

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.

8
<PAGE>

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
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.

9
<PAGE>

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.

B. Principle Risk Factors

The Separate Account invests in a diversified portfolio of common stocks.
Common stocks are inherently volatile and their prices may decline
substantially at times due to economic, competitive, regulatory, or other
factors. In addition, the portfolio's returns may differ materially from its
benchmark, the S&P 500 index, due to differences in industry weightings and
specific stock weightings. The Separate Account generally invests in mid-to-
large capitalization growth stocks and this class of stocks may also perform
materially differently from the S&P 500 index for long periods of time due
primarily to changes in forecasted relative earnings and interest rates.

Year 2000 Risks. Certain computer systems may not be able to recognize
dates after December 31, 1999. If these computer generated systems are not
fixed by that time, it is possible that they could generate erroneous
information or shut down. This is known as the "Year 2000 problem." Provident
has committed substantial resources in an effort to ensure that its own
computer systems continue to function after December 31, 1999. Of course,
Provident cannot fix or assess systems that are beyond its control, such as
those of public utilities or service providers. If Provident's own systems or
the systems of others on which it relies do not function properly after
December 31, 1999, the Separate Account could be adversely affected.

Additionally, the markets for and values of securities in which the
Separate Account invests may be hurt by computer failures as of January 1,
1999. Such failures could affect the value of the securities or the trading of
those securities. For example, improperly functioning computer systems could
result in securities trading settlement problems, liquidity issues, production
issues for individual portfolio companies, and overall economic uncertainties.
Individual portfolio companies may incur increased costs in making their own
systems Year 2000 compliant. The combination of increased market uncertainty
and increased costs could mean that Year 2000 issues would adversely affect the
portfolio investments of the Separate Account.

10
<PAGE>

MANAGEMENT

The property and business of the Separate Account are managed by a Board
of Managers selected by the owners of the contracts to which variable
accumulation units are credited. A majority of the Separate Account's three
managers are not deemed to be "interested persons" of the Separate Account or
the Company as defined in the 1940 Act.

The Board of Managers has the following responsibilities and duties:

a) to select and approve annually an independent certified public
accountant;

b) to execute and approve annually an agreement providing for sales and
administrative services;

c) to execute and approve annually an agreement providing for investment
advisory services;

d) to recommend any changes in the fundamental investment policies of
the Separate Account; and

e) to authorize all investments of the assets of the Separate Account in
accordance with the fundamental investment policies of the Separate
Account, and to submit semi-annual and annual reports to the contract
owners.

Pursuant to a written agreement, the Company currently acts as Investment
Adviser and Administrative Manager of the Separate Account and also assumes
certain expenses and mortality and expense risks in connection with the
variable annuity contracts.

As Investment Adviser, the Company continuously provides the Board of
Managers with an investment program and recommendations on the purchase and
sale of investments. The Company also places orders for purchases and sales.
The Company is guided by the investment policies and restrictions promulgated
by the Board of Managers of the Separate Account. Moreover, the Board reviews
all actions taken by the Investment Adviser with regard to investments.

The Investment Adviser receives a monthly fee from the Separate Account
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 below.

The investment advisory agreement was last approved on March 12, 1999 by
the Board of Managers. Contract owners of the Separate Account last approved
the investment advisory agreement on April 12, 1977. Amendments to the
agreement were submitted to and approved by the contract owners on April 11,
1978.

The Separate Account is the sole client for whom the Company provides
investment advisory services.

The Investment Advisory Agreement allows the Company to employ, at its
own expense, an Investment Sub-Adviser. An Investment Sub-Advisory Agreement
between the Company and PRIMCO went into effect on June 25, 1998. PRIMCO is
registered with the Securities and Exchange

11
<PAGE>

Commission as an investment adviser. Its principal offices are located at 1
Fountain Square, Chattanooga, Tennessee 37402. PRIMCO is a Tennessee limited
liability company organized in October 1997. It is owned by Provident
Companies, Inc. and two of its subsidiaries, Provident Life and Accident
Insurance Company and The Paul Revere Life Insurance Company. Its predecessor
was The Paul Revere Investment Management Company, with whom it was merged in
1997. The managers of PRIMCO are officers of the Company. The personnel
employed by PRIMCO consist primarily of individuals who previously worked for
Provident Companies, Inc., or its insurance subsidiaries. Thus, the same
personnel who has provided investment services to the Company and the Separate
Account will continue to do so, but they are employed by a different legal
entity.

As well as providing investment management services to the Provident
companies, PRIMCO also provides investment management services to other
insurance companies. As of December 31, 1998, PRIMCO had over $18 billion in
assets under management.

Under the Sub-Advisory Agreement, PRIMCO, subject to the supervision of
the Company and the Board of Managers of the Separate Account, is responsible
for providing investment advisory services to the Company for the Separate
Account in accordance with investment objectives and guidelines provided by the
Company. In providing these services, PRIMCO is authorized to buy, sell,
exchange, convert and otherwise trade in securities in the portfolio, and place
orders for the execution of such transactions with or through such brokers,
dealers, or issuers as it selects. PRIMCO will provide the Company with a value
of the portfolio on a daily basis. PRIMCO will provide such reports to the
Company and the Board of Managers as are reasonably required, and will attend
meetings of the Board of Managers on a quarterly basis.

The Company will pay PRIMCO compensation in the amount of .15% per annum,
based on the average market value of the Separate Account as of the last
business day of each calendar month in the quarter. The fee will be payable
quarterly by the Company.

DEDUCTIONS AND EXPENSES

A. Sales and Administrative Functions and Expenses

I. General

The Company acts as principal underwriter and provides all sales and
administrative services in connection with the contracts and the Separate
Account. The Company deducts a sales and administrative expense fee to cover
these services as set forth below.

As a consequence of an Asset Transfer and Acquisition Agreement entered
into by Provident Companies, Inc., et al. and American General Corporation, et
al., dated as of December 8, 1997, The Variable Annuity Life Insurance Company
became the Administrator of the Separate Account pursuant to the Separate
Account Administrative Services Agreement entered into with VALIC in June 1998.
The change in Administrator does not result in any changes in administrative
and sales fees.

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

12
<PAGE>

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 3.5%.

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, but in no event will fees and expenses
exceed those applied to purchase payments up to $100,000. 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:

<TABLE>
<CAPTION>
Cumulative Portion Portion For
Purchase Percentage For Sales Administrative
Payment Deduction Expense 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 Portion Portion For
Purchase Percentage For Sales Administrative
Payment Deduction Expense Expense
-------- ---------- --------- --------------
<S> <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 Portion Portion For
Purchase Percentage For Sales Administrative
Payment Deduction Expense Expense
-------- ---------- --------- --------------
<S> <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>

13
<PAGE>

IV. Underwriting Agreement

The Company furnishes sales and administrative services to the Separate
Account pursuant to a written agreement which was last approved on March 12,
1999 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.

B. Expense and Mortality and Expense Risk Assumptions

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 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 .70% on an annual basis is deducted from the current net
asset value of the Separate Account per valuation day.

C. Brokerage Expenses and Portfolio Turnover

PRIMCO has responsibility for placing orders for the purchase and sale of
portfolio securities of the Separate Account under the Investment Sub-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, PRIMCO will deal only with principal market makers unless more
favorable prices are otherwise available.

PRIMCO 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

14
<PAGE>

to PRIMCO for pricing and appraisal services utilized by PRIMCO may receive
orders for transactions. It is not possible to determine the exact value of
such statistical information and supplemental research provided to PRIMCO. Such
information and research is used by PRIMCO 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.

The advisory fee paid by the Company to PRIMCO will not be reduced as a
consequence of PRIMCO's receipt of brokerage and research services. To the
extent that the Separate Account's portfolio transactions are used to obtain
such services, the brokerage commissions paid by the Separate Account will
exceed those that might otherwise be paid by an amount which cannot be
determined. Such services are useful and of value to PRIMCO in serving both the
Separate Account and other clients and conversely such service obtained by
placement of brokerage business of other clients would be useful to PRIMCO in
carrying out its obligations to the Separate Account. While such services are
not expected to reduce the expenses of PRIMCO, through the use of the services,
PRIMCO avoids the additional expense which would be incurred if it should
attempt to develop comparable information through its own staff. Stated as a
percentage of gross purchase payments received, brokerage commissions
aggregated 6% for the year-ended December 31, 1999.

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 1999, the portfolio turnover rate was 11%.

GENERAL DESCRIPTION OF VARIABLE ANNUITY CONTRACTS

The Company is registered with the Securities and Exchange Commission as
a broker dealer and is a member of the National Association of Securities
Dealers, Inc. The public offering of contracts of the Separate Account 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.

Types of Contracts

An individual contract is offered for IRA's, nontransferable deferred
annuities and individual non-trusteed HR-10 plans. The contracts offered for
use in plans qualifying under Section 403(b) of the Code are an individual
contract, under which the contract owner and annuitant are the same, and a
group contract under which a master contract is issued to the employer who is
the contract holder and which covers all participating employees, each of whom
receives a certificate which summarizes the provisions of the master group
contract and evidences his participation in the contract.

Single purchase payment variable annuity contracts and flexible
installment purchase payment variable annuity contracts, each available only on
an individual basis are also offered. Purchase payments under flexible purchase
payment variable annuity contracts may be made at such intervals as desired,
but are usually made on an annual, semi-annual, quarterly or monthly basis.

15
<PAGE>

Voting Rights

Contract owners will have the right to vote at annual meetings of
contract owners on the following matters:

1. Initial approval of and any amendment to an investment advisory
agreement or sub-advisory agreement;

2. Ratification of the selection of independent public accountants for
Separate Account B;

3. Election of members to the Board of Managers of Separate Account B;

4. Any change in the fundamental investment policies of Separate Account
B or other policies requiring contract owners' approval (see
Investment Policies and Restrictions, I. Fundamental, page 7); 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 Separate Account B 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.

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.

Combined Fixed and Variable Benefits

In addition to fully variable benefits, the contracts permit purchase
payments (in increments of 10%) to be applied to provide all, only a portion or
none of the benefits as variable annuity accumulations with the balance (which
is not held in Separate Account B) being applied to provide fixed-dollar
annuity accumulations.

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.

16
<PAGE>

Assignment

In general, assignment of a contract or an annuitant's account is not
permitted. No assignment shall be binding on the Company until it is received
by the Company at its Home Office in Chattanooga, Tennessee.

Contract Modifications

The contracts provide that the sales and administrative fees, the annuity
purchase rates, the investment advisory fee and the contingency fees, as
contained in the contract when issued, will be applicable for cumulative
purchase payments up to $100,000. In addition, modifications to these
provisions may not be made to the group contract during the first contract
year. Payments in excess of $100,000 under any contract may be made only upon
approval by the Company and will be subject to such terms and conditions as are
required by the Company at that time however, in no event will fees and
expenses exceed those applied to purchase payments up to $100,000. Contract
owners or annuitants not covered prior to any modification will be subject to
these terms and conditions.

The contract owner, in the case of an individual contract, or the
contract holder, in the case of a group contract, and the Company may by
agreement in writing change the terms of the contract in order to conform to
the requirements of Sections 401, 403(b) or 408 of the Code or such section or
sections as may from time to time revise or replace Sections 401, 403(b) or
408, or where applicable, to permit the deduction of contributions made by the
contract owner under Section 404 of the Code or such section or sections as may
from time to time revise or replace Section 404. The changes may be made
retroactive to the effective date of the contract or to any date thereafter.

The Company further reserves the right to unilaterally effect such
changes in the contract as may be required by any federal, state or other body
which may have jurisdiction over the provisions of the contract.

Inactive Annuitant's Account

In the case of the group contract, if the contract is terminated or the
annuitant ceases to be employed by the contract holder, the annuitant may:

A. Elect to have the value of his individual account transferred to an
individual annuity contract on a form then regularly issued by the
Company under which benefits and provisions are most nearly similar
to those provided by the certificate issued under this contract;

B. If he is at least 50 years of age, elect commencement of an annuity
under one of the annuity options described on page 19;

C. If he becomes an eligible annuitant under a similar contract issued
by the Company, elect to transfer the value of his individual account
to a certificate issued under such contract;

D. Elect to receive the termination value of his individual account in a
single sum; or

E. Elect to rollover the termination value into an IRA.

17
<PAGE>

In the event no election is made within 90 days of the cessation of
purchase payments, (A) will automatically take effect.

If the annuitant ceased to have purchase payments remitted by the
contract holder, but remains in his employ, he shall be deemed an inactive
annuitant until such time as purchase payments are resumed, annuity payments
commence or the account is surrendered.

Experience Rating

The Company may make a determination of actual sales and administrative
costs applicable to each group contract on an annual basis. If such calculation
is made and the actual costs exceed the amount deducted for sales and
administrative expense, no additional deduction is made from the value of the
contract. If, however, the amount deducted for such expense exceeds actual
costs, the Company may at its discretion allocate all, a portion or none of
such excess as an experience rating credit. To date, the Company has not
experience rated any contract.

ANNUITY PERIOD

The variable annuity payments to the annuitant are determined on the
basis of (a) the mortality table specified in the contract which reflects the
age and sex of the annuitant and the type of annuity payment option selected,
and (b) the investment performance of Separate Account B. The dollar amount of
the variable annuity payments will not be affected by adverse mortality
experience or by an increase in the Company's expenses in excess of the sales
and administrative expenses provided for in the contract. The dollar amount of
the payments will, however, reflect investment gains and losses and investment
income of Separate Account B occurring both before and after retirement, and
thus the payments will vary with the investment experience of Separate Account
B.

Election of Retirement Date and Form of Annuity

Annuity payments will begin on the date and under the annuity options as
provided for in the contract.

When not specified in the plan (except an individual retirement annuity
and an individual retirement account), the date on which annuity payments are
to begin and the form of the options chosen are to be elected in writing at
least 30 days prior to the date annuity payments are to begin. The date may be
the first of any month between the annuitant's 50th and 75th birthdays. (To
avoid penalties for premature distributions to an owner-employee under an HR-10
plan, or with respect to an IRA, the date selected must be no earlier than age
59 1/2.) The option may be any of those shown below.

A participant under an IRA or an owner-employee under an HR-10 plan must
elect to begin receiving benefits before the end of the tax year in which he
reaches age 70 1/2 or become subject to a Code requirement that his entire
interest be distributed in a lump sum. If no such election to begin receiving
benefits is made by persons participating in plans qualifying under Section
403(b) of the Code, benefits will be payable beginning at age 65 under the
second option (as described below) with 120 monthly payments guaranteed.

No election of any option for any payee may be made under these contracts
unless such election will produce a first monthly payment of at least $25 to
that payee. If a combination benefit is

18
<PAGE>

elected, no election may be made unless the first monthly payment from each
account would be $25 to the payee. If, at any time, any payment to be made to
any payee in either account becomes less than $25 the Company shall have the
right to change the frequency of payments to such intervals as will result in
the payment of at least $25 per account per payment.

Optional Annuity Forms

Option 1--Life Annuity. An annuity payable monthly during the lifetime of
----------------------
the annuitant, ceasing with the last payment due prior to the death of the
annuitant. This option offers the maximum level of monthly payments since there
is no assurance of a minimum number of payments or provision for a death
benefit for beneficiaries. It would be possible under this option for the
annuitant to receive only one annuity payment if he died prior to the due date
of the second annuity payment, two if he died prior to the third annuity
payment date, etc.

Option 2--Life Annuity with 120 or 180 Monthly Payments Guaranteed. An
------------------------------------------------------------------
annuity payable monthly during the lifetime of the annuitant, ceasing with the
last payment due prior to the death of the annuitant but with the assurance
that if, at the death of the annuitant, payments have been made for less than
120 or 180 months as elected, annuity payments will be continued during the
remainder of said period to the designated beneficiary. The beneficiary may
elect to receive the present value of such remaining guaranteed payments in a
lump sum at any time. If the beneficiary dies while receiving annuity payments,
the present value of the then current dollar amount of the remaining guaranteed
number of annuity payments will be paid in a lump sum to the estate of the
beneficiary, or to the contingent beneficiary if one has been selected.

Option 3--Unit Refund Life Annuity. An annuity payable monthly during the
----------------------------------
lifetime of the payee, ceasing with the last payment due prior to the death of
the payee; provided that at the death of the payee, the beneficiary will
receive an additional payment of the then dollar value of a number of annuity
units equal to the excess, if any, of (a) over (b) where (a) is the total
dollar amount applied under the option divided by the annuity unit value at the
date of commencement of annuity payments, and (b) is the number of annuity
units represented by each monthly payment multiplied by the number of monthly
payments made. For example, if $20,000 were applied on the annuity commencement
date to the purchase of the annuity under this option, the annuity unit value
on that date was $2, the number of annuity units represented by each monthly
annuity payment was 61, fifteen installments were made prior to the date of
death and the value of an annuity unit on the date of the annuitant's death was
$2.10, the amount paid to the beneficiary would be:

[$20,000-(61)(15)] X $2.10,
------------------
$2

which would be (10,000-915) X $2.10 or 9,085 X $2.10 or $19,078.50.

Option 4--Joint and Last Survivor Annuity. An annuity payable monthly
-----------------------------------------
during the joint lifetime of the annuitant and a designated second person and
thereafter during the remaining lifetime of the survivor, ceasing with the last
payment due prior to the death of the survivor. It would be possible under this
option for the annuitants to receive only one annuity payment if both die prior
to the due date of the second annuity payment, two if they died prior to the
third annuity payment date, etc.

Option 5--Payments for a Designated Period. An amount payable monthly for
------------------------------------------
a number of years selected which may be from 1 to 30 years.

19
<PAGE>

Option 6--Payments of a Specified Dollar Amount. Fixed payments of a
-----------------------------------------------
specified dollar amount (not less than $75 per $1,000 of termination value)
until the amount of such value is exhausted.

Option 7--Interest Income. The termination value is left on deposit with
-------------------------
the Company in its General Account and interest is paid thereon at the rate of
3% per year, with interest payments being made annually, semi-annually,
quarterly or monthly, as requested. Principal is paid on request in the manner
described under Surrender for Redemption, page .

Under individual retirement annuity and individual retirement account
plans, Options 2, 3 and 4 above are restricted by Section 408 of the Code to
require that anticipated payments under these options not exceed the life
expectancy of the annuitant or the life expectancy of the annuitant and the
annuitant's spouse. Under such plans, Option 4 is available only for the
annuitant and the annuitant's spouse.

If one of the first four options is elected, the person electing the
option may further elect to have the termination value, less any premium taxes
then payable, applied to provide a variable annuity, a fixed-dollar annuity or
a combination of both. When a transfer of accumulation units from one account
to another is required, such request must be received by the Company at least
one year prior to the annuity commencement date. Transfers from the General
Account to Separate Account B and from Separate Account B to the General
Account shall be effected without the imposition of additional sales or
administrative expense fees. Selection of Options 5, 6 and 7 would result in a
loss of mortality assurance charges which have been paid during the
accumulation period and annuity periods since none of these options are based
on the life of the annuitant. Upon election of Option 7, which is available
only on a fixed dollar basis, funds attributable to an annuitant's interest in
Separate Account B are transferred to the Company's General Account. All of the
other options are available on a fixed, variable or combined fixed and variable
basis.

These options are available on a fixed, variable or a combined fixed and
variable basis. Subject to agreement by the Company and compliance with Code
requirements, arrangements may be made for a form of annuity on a variable or
fixed annuity basis other than those set forth above.

Determination of Amount of First Monthly Annuity Payment

The amount of the first monthly payment will be determined by the
termination value of the contract, the form of annuity selected and the sex and
adjusted age of the annuitant.

The termination value of the contract or a participant's account is
determined by multiplying the value of an accumulation unit as of the close of
business on the fifth valuation day immediately preceding the date the first
annuity payment is due, by the number of accumulation units credited to the
annuitant as of the former date. The termination value will be reduced by any
state premium taxes then payable. When imposed, such premium taxes currently
range from 0.5% to 3.5%.

The contracts contain tables indicating the dollar amount of the first
monthly payment under each optional form of annuity for each $1,000 of the
termination value of the contract and a formula for determining the adjusted
age. These are determined from the Progressive Annuity Table which assumes
births in the year 1900 and a net investment return of 3 1/2% per annum. The
first monthly annuity payment is determined by multiplying the termination
value of the contract or account (expressed in thousands) by the amount of the
first monthly payment per $1,000 of value, in accordance with the tables in the
contract.

20
<PAGE>

The contracts contain a provision that the first monthly payment will not
be less than 103% of the first monthly payment available under a then currently
issued single purchase payment annuity, if a single purchase payment were made
equal to the value which is being applied under the contract to provide annuity
benefits. This provision assures the annuitant that if, at retirement, the
annuity rates then applicable to new single purchase payment annuity contracts
are significantly more favorable than those provided in this contract, he will
be given the option of selecting the new annuity rates. In the case of the
variable annuity, any such changes in annuity purchase rates would be based
upon changes in mortality and expense experience and not upon changes in the
assumed investment return.

Assumed Investment Return

The assumed investment return in the annuity purchase rates for both the
contracts is 3 1/2%. Subject to the agreement of the Company, the contract
owner may select an assumed investment return rate up to the maximum permitted
by state law or regulation. The assumed investment return is used to determine
the first monthly payment. It should not be inferred that such rate of return
will bear any relationship to the actual net investment experience of the
Separate Account. The maximum rate currently permitted by the Company is 6%.

The variable annuity payment will remain level during periods when the
net investment return is equal to the assumed investment return, increase
during periods when the net investment return exceeds the assumed investment
return and decrease during periods when the net investment return is less than
the assumed investment return. An assumed investment return greater than 3 1/2%
would produce a higher initial variable annuity payment but a more slowly
rising series of subsequent payments in a period during which the value of the
annuity units in increasing or a more rapidly falling series of subsequent
payments in a period during which the value of the annuity unit is decreasing.
An assumed investment rate of less than 3 1/2% (not available under these
contracts) would have the opposite effect.

Determination of Amount of Second and Subsequent Monthly Annuity Payments

The amount of the first monthly variable annuity payment (as determined
above) is divided by the value of an annuity unit as of the close of business
on the fifth valuation day immediately preceding the date on which the payment
is due, to determine the number of annuity units represented by the first
payment. The number of annuity units remains fixed during the annuity period
and in each subsequent month the dollar value of the variable annuity payment
is determined by multiplying this fixed number of annuity units by the then
value of an annuity unit (as of the close of business on the fifth valuation
day before payment) calculated as set forth below.

Illustration of Determination of Annuity Payments

Assume an annuitant on the date of his retirement has 40,000 accumulation
units credited to the contract or account and that the value of an accumulation
unit on the fifth valuation day prior to the annuity commencement date is
$1.150000 producing a total value of $46,000. Assume also that the annuitant
elects an option for which the table in his contract indicates the first
monthly payment is $6.57 per $1,000 of value applied. The annuitant's first
monthly payment would then be 46 multiplied by $6.57 or $302.22.

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Assume further that the annuity unit value as of the close of business on
the fifth valuation day immediately preceding the date on which the first
annuity payment is made is $1.100000. By dividing this into the first monthly
payment of $302.22, the number of annuity units represented by that payment is
determined to be 274.745. The value of this same number of annuity units will
be paid in each subsequent month.

Assume further that the annuity unit value as of the close of business on
the fifth valuation day immediately preceding the date on which the second
monthly payment is due is $1.105000. The second monthly payment is then
determined by multiplying the fixed number of annuity units (274.745) by the
current annuity unit value ($1.105000) which produces a second monthly payment
of $303.59.

Value of an Annuity Unit

The value of an annuity unit was established at $1.00 on December 1,
1967, and for any date thereafter is determined in the same manner as is the
value of an accumulation unit except that the result of each such daily
determination is multiplied, in the case of the annuity unit, by a factor of
.999861, to neutralize the assumed net investment return of 3 1/2% per annum
already built into the annuity tables contained in the contract, thus
preventing the crediting of "double interest". Similar adjustments are made for
assumed investment returns other than 3 1/2%. For example, if on a given
valuation day, Separate Account B had investment income of $4,000, net realized
capital gains of $6,000 and net unrealized capital losses of $3,000, and on the
preceding valuation day the value of an annuity unit was $1.150000 and the
total value of the asset of Separate Account B was $5,000,000, the value of an
annuity unit on that day would be $1.151555 X .999861, or $1.151395 (compare
Value of an Accumulation Unit, page 23).

DEATH BENEFIT

In the event the annuitant dies during the accumulation period and upon
receipt of proof of death by the Company, a death benefit will be payable equal
to the greater of (a) the termination value of his fixed and variable
individual accounts or (b) 100% of the total purchase payments (before any
deductions therefrom) made under the contract.

If one or more partial surrenders occurred prior to the death of the
annuitant, then the total purchase payments made on his behalf will, for
purposes of calculating the minimum death benefit, be reduced in the same
proportion as the number of accumulation units cancelled bears to the number of
accumulation units credited to the contract prior to such partial surrender(s).

In lieu of payment in one sum, the contract owner may elect that the
death benefit be applied under any one of the Optional Annuity Forms described
below to provide annuity payments to the

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beneficiary. If the contract owner has not made such an election, the
beneficiary may do so after the death of the annuitant. The contract owner or
the beneficiary, whichever selects the optional method of settlement, may
designate contingent beneficiaries to receive any further amounts due should
the first beneficiary die before completion of the specified payments.

Under an IRA, if the annuitant dies before receiving the entire interest
under his contract, or if the distribution has commenced to the annuitant's
spouse and such spouse dies before the entire interest has been distributed,
then the remaining interest must, within five years after the death of the
annuitant or annuitant's spouse, be (1) distributed to the annuitant's
beneficiary or the annuitant's spouse's beneficiary or (2) used to purchase an
immediate annuity for such beneficiary which will be payable for the life of
said beneficiary or a term certain not extending beyond the life expectancy of
said beneficiary.

The manner in which the annuity payments to the beneficiary are
determined and in which they may vary from month to month are the same as
applicable to the annuitant as described under Annuity Period, below.

PURCHASES AND CONTRACT VALUE

Purchase Payments

The usual minimum purchase payment for an annuitant under contracts used
to qualify under Section 403(b) of the Code is $10. The usual maximum issue
age is 60, but inclusion of annuitants at higher ages will be considered under
certain circumstances. In the case of IRA's, the minimum purchase payment is
$50 and the minimum anticipated purchase payments must equal at least $600
annually. In all other cases minimum payment requirements, if any, are
specified in the respective plans.

Crediting Accumulation Units

During the period prior to the time annuity payments begin, the Company
receives purchase payments, deducts the sales and administrative expense fees,
together with such premium taxes as may be applicable, and credits the balance
of the purchase payment to the contract in accumulation units (see Sales and
Administrative Functions and Expenses, page 12). The number of accumulation
units credited is determined by the valuation of an accumulation unit next
computed after the purchase payment is received. If a purchase payment
accompanies an application, the Company will, within five business days,
either (a) process and accept the application, issue the contract or
certificate and credit the accumulation units; or (b) reject the application
and return the purchase payment.

The value of a contract or an individual's account, at any time during
the accumulation period, can be determined by multiplying the number of
accumulation units credited to such contract or account by the current
accumulation unit value. Each contract owner will be advised periodically of
the number of accumulation units credited to the contract, the current
accumulation unit value and the total value of the contract.

Value of an Accumulation Unit

Accumulation units are valued for each day on which the New York Stock
Exchange is open.

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<PAGE>

The value of an accumulation unit was established at $1.00 on October 1,
1967. This value is redetermined on each valuation day, as follows: the net
increase or decrease, expressed as a percentage, in the value of the securities
and other assets in Separate Account B for that day, resulting from investment
income, realized and unrealized capital gains and losses, and the daily
deductions for the investment advisory fee and for the contingency fees, is
applied to increase or decrease the value of an accumulation unit as determined
on the preceding valuation day. For example, if on a given valuation day
Separate Account B had an investment income of $4,000, net realized capital
gains of $6,000 and net unrealized capital losses of $3,000, and on the
preceding valuation day the value of an accumulation unit was $1.150000 and the
total value of the assets of Separate Account B was $5,000,000, the value of an
accumulation unit on that day would be

$1.150000 plus $4,000 + $6,000 - $3,000
$5,000,000 -.0000481

X $1.150000, or

$1.150000 + (.001400-.000048) X 1.150000; which would be

$1.150000 + $.001555, or $1.151555.

The value of a contract varies with the performance of the investments of
Separate Account B and there is no assurance that such value will equal or
exceed the purchase payments made.

In determining the value of the assets of Separate Account B each
security included on the New York Stock Exchange-Composite Transactions is
valued at the last reported sale price next preceding valuation. If there has
been no sale on such day, then the value of such security is taken to be the
average between the reported bid and asked prices at the time as of which the
value is being ascertained. Any security not traded on a securities exchange
but traded in the over-the-counter market is valued at the last quoted bid
price. Any securities or other assets for which market quotations are not
readily available are valued at fair value as determined in good faith by the
Board of Managers. The Company reserves the right to make valuations at times
when the New York Stock Exchange is closed, but in no event will valuation be
performed more often than 253 times per calendar year. When the New York Stock
Exchange is closed, securities or other assets are valued at fair value as
determined in good faith by the Board of Managers.

Suspension of the Group Contract

The group contract provides for suspension on any contract anniversary if
the contract owner fails to consent to a modification as provided for in the
contract. Effective with such suspension, no new annuitants may be covered, but
further purchase payments will be accepted as they apply to annuitants covered
prior to such suspension.

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<PAGE>

REDEMPTIONS

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. Contracts under which a variable annuity is paid for a fixed period
of time may be partially or wholly redeemed. Surrender for redemption is
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.

When surrendering a contract or certificate for redemption, an annuitant
may avail himself of the following options:

A. If the annuitant is at least 50 years of age, the termination value
(as determined below) may be used to provide annuity payments
beginning immediately under the selected option (but see Federal Tax
Status, page 26, as to IRA's and HR-10 plans);

B. Without regard to the age of the annuitant, a lump sum payment may be
received in an amount equal to the termination value. The termination
value is computed by the Company (as of the close of business on the
day on which the notice of intent to surrender for redemption,
together with the contract or certificate is received at the Home
Office of the Company, or if that day is a holiday, or if the notice
is received after the close of business on the New York Stock
Exchange, on the next valuation day) by multiplying the number of
accumulation units credited to the annuitant by the value of an
accumulation unit at that time. Payment of the termination value will
be made within seven days after the notice to surrender for
redemption, together with the contract or certificate, is received at
the Home Office of the Company. The right of redemption or the date
of payment upon redemption may be postponed only at times when the
New York Stock Exchange is closed (other than for holidays or
weekends), or in the event the Securities and Exchange Commission
determines either that trading on the New York Stock Exchange is
restricted or that an emergency has been determined by the Securities
and Exchange Commission to exist, or for such other periods as the
Securities and Exchange Commission may by order permit.

In addition, when permitted by the plan and/or the provisions of the
Code, a portion of the termination value of the contract or participant's
account may be surrendered subject to the following limitations:

A. No more than one such partial surrender for redemption may be allowed
on behalf of any annuitant in any one contract year; and

B. 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's 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.

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<PAGE>

FEDERAL TAX STATUS

What are some of the federal tax consequences which affect these contracts?

A. General

SINCE THE TAX LAW IS COMPLEX AND SINCE TAX CONSEQUENCES WILL VARY
ACCORDING TO THE ACTUAL STATUS OF THE CONTRACT OWNER INVOLVED AND THE TYPE OF
PLAN UNDER WHICH THE CONTRACT IS PURCHASED, LEGAL AND TAX ADVICE MAY BE NEEDED
BY A PERSON, TRUSTEE, OR OTHER ENTITY CONTEMPLATING THE PURCHASE OF A CONTRACT
DESCRIBED HEREIN.

It should be understood that any detailed description of the federal
income tax consequences regarding the purchase of these contracts cannot be
made in this Prospectus and that special tax rules may be applicable with
respect to certain purchase situations not discussed herein. In addition, no
attempt is made here to consider any applicable state or other tax laws. For
detailed information, a qualified tax adviser should always be consulted. The
discussion here and in Appendix I commencing on page 32 is based on the
Company's understanding of existing federal income tax laws as they are
currently interpreted.

B. Taxation of the Company and the Separate Account

The separate account is taxed as part of the Company which is taxed as a
life insurance company in accordance with the Internal Revenue Code of 1986, as
amended (the "Code"), Accordingly, the separate account will not be taxed as a
"regulated investment company" under subchapter M of Chapter 1 of the Code.
Investment income and any realized capital gains on the assets of the separate
account are reinvested and are taken into account in determining the value of
the Accumulation and Annuity Units (See "Value of an Accumulation Unit," page
23). As a result, such investment income and realized capital gains are
automatically applied to increase reserves under the contract.

No taxes are due on interest, dividends and short-term or long-term
capital gains earned by the separate account with respect to qualified or non-
qualified contracts.

C. Taxation of Annuities--General Provisions Affecting Purchasers Other than
Qualified Retirement Plans

Section 72 of the Code governs the taxation of annuities in general.

1. Non-Natural Persons, Corporations, Etc.

Section 72 contains provisions for contract owners which are non-natural
persons. Non-natural persons include corporations, trusts, and partnerships.
The annual net increase in the value of the contract is currently includable in
the gross income of a non-natural person unless the non-natural person holds
the contract as an agent for a natural person. There is an exception from
current inclusion for certain annuities held in tax-qualified retirement
arrangements, certain annuities held by structured settlement companies,
certain annuities held by an employer with respect to a terminated tax-
qualified retirement plan and certain immediate annuities. A non-natural person
which is a tax-exempt entity for federal tax purposes will not be subject to
income tax as a result of this provision.

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<PAGE>

If the contract owner is not an individual, the primary annuitant shall
be treated as the contract owner for purposes of making distributions which are
required to be made upon the death of the contract owner. If there is a change
in the primary annuitant, such change; shall be treated as the death of the
contract owner.

2. Other Contract Owners (Natural Persons).

A contract owner is not taxed on increases in the value of the contract
until an amount is received or deemed received, e.g., in the form of a lump sum
payment (full or partial value of a contract) or as annuity payments under the
settlement option elected.

The provisions of Section 72 of the Code concerning distributions are
summarized briefly below. Also summarized are special rules affecting
distributions from contracts obtained in a tax-free exchange for other annuity
contracts or life insurance contracts which were purchased prior to August 14,
1982.

a. Distributions Prior to the Annuity Commencement Date.

i. Total premium payments, less amounts received which were not
includable in gross income equal the "investments in the contract"
under Section 72 of the Code.

ii. To the extent that the value of the contract (ignoring any
surrender charges except on a full surrender) exceeds the
"investment in the contract," such excess constitutes the "income
on the contract."

iii. Any amount received or deemed received prior to the annuity
commencement date (e.g., upon a partial surrender) is deemed. to
come first from any such "income on the contract" and then from
"investment in the contract," and for these purposes such
"income on the contract" shall be computed by reference to any
aggregation rule in subparagraph 2.c., below. As a result, any
such amount received or deemed received (1) shall be includable
in gross income to the extent that such amount does not exceed
any such "income on the contract," and (2) shall not be
includable in gross income to the extent that such amount does
exceed any such "income on the contract." If at the time that
any amount is received or deemed received there is no "income on
the contract" (e.g., because the gross value of the contract
does not exceed the "investment in the contract" and no
aggregation rule applies), then such amount received or deemed
received will not be includable in gross income, and will simply
reduce the "investment in the contract."

iv. The receipt of any amount as a loan under the contract or the
assignment or pledge of any portion of the value of the contract
shall be treated as an amount received for purposes of this
subparagraph a. and the next subparagraph b.

v. In general, the transfer of the contract, without full and
adequate consideration, will be treated as an amount received for
purposes of this subparagraph a. and the next subparagraph b. This
transfer rule does not apply, however, to certain transfers of
property between spouses or incident to divorce.

b. Distributions After Annuity Commencement Date.

Annuity payments made periodically after the annuity commencement
date are includable in gross income to the extent the payments exceed
the amount determined by the application of the ratio of the "investment
in the contract" to the total amount of the payments to be made after
the annuity commencement date (the "exclusion ratio").

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<PAGE>

i. When the total of amounts excluded from income by application of
the exclusion ratio is equal to the investment in the contract as
of the annuity commencement date, any additional payments
(including surrenders) will be entirely includable in gross
income.

ii. If the annuity payments cease by reason of the death of the
annuitant and, as of the date of death, the amount of annuity
payments excluded from gross income by the exclusion ratio does
not exceed the investment in the contract as of the annuity
commencement date, then the remaining portion of unrecovered
investment shall be allowed as a deduction for the last taxable
year of the annuitant.

iii. Generally, nonperiodic amounts received or deemed received after
the annuity commencement date are not entitled to any exclusion
ratio and shall be fully includable in gross income. However,
upon a full surrender after such date, only the excess of the
amount received (after any surrender charge) over the remaining
"investment in the contract" shall be includable in gross income
(except to the extent that the aggregation rule referred to in
the next subparagraph c. may apply).

c. Aggregation of Two or More Annuity Contracts.

Contracts issued after October 21, 1988, by the same insurer (or
affiliated insurer) to the same contract owner within the same calendar
year (other than certain contracts held in connection with a tax-
qualified retirement arrangement) will be treated as one annuity
contract for the purpose of determining the taxation of distributions
prior to the annuity commencement date. An annuity contract received in
a tax-free exchange for another annuity contract or life insurance
contract may be treated as a new contract for this purpose. The Company
believes that for any annuity subject to such aggregation, the values
under the contracts and the investment in the contracts will be added
together to determine the taxation under subparagraph 2.a., above, of
amounts received or deemed received prior to the annuity commencement
date. Withdrawals will first be treated as withdrawals of income until
all of the income from all such contracts is withdrawn. As of the date
of this Prospectus, there are no regulations interpreting this
provision.

d. 10% Penalty Tax--Applicable to Certain Withdrawals and Annuity
Payments.

i. If any amount is received or deemed received on the contract
(before or after the annuity commencement date), the Code applies
a penalty tax equal to 10% of the portion of the amount includable
in gross income, unless an exception applies.

ii. The 10% penalty tax will not apply to the following distributions
(Exceptions vary based upon the precise plan involved):

1. Distributions made on or after the date the recipient has
attained the age of 59 1/2.

2. Distributions made on or after the death of the holder or
where the holder is not an individual, the death of the
primary annuitant.

3. Distributions attributable to a recipient's becoming disabled.

4. A distribution that is part of a scheduled series of
substantially equal periodic payments for the life (or life
expectancy) of the recipient (or the joint lives or life
expectancies of the recipient and the recipient's
beneficiary).

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<PAGE>

5. Distributions of amounts which are allocable to the
"investment in the contract" prior to August 14, 1982, (see
next subparagraph e.).

e. Special Provisions Affecting Contacts Obtained through a Tax-Free
Exchange of Other Annuity or Life Insurance Contracts Purchased prior
to August 14, 1982.

If the contract was obtained by a tax-free exchange of a life
insurance or annuity contract purchased prior to August 14, 1982, then
any amount received or deemed received prior to the annuity commencement
date shall be deemed to come (1) first from the amount of the
"investment in the contract" prior to August 14, 1982 ("pre-8/14/82
investment") carried over from the prior contract, (2) then from the
portion of the "income on the contract" (carried over to, as well as
accumulating in, the successor contract) that is attributable to such
pre-8/14/82 investment, (3) then from the remaining "income on the
contract," and (4) last from the remaining "investment in the contract."
As a result, to the extent that such amount received or deemed received
does not exceed such pre-8/14/82 investment, such amount is not
includable in gross income. In addition, to the extent: that such amount
received or deemed received does not exceed the sum of (a) such pre-
8/14/82 investment and (b) the "income on the contract" attributable
thereto, such amount is not subject to the 10% penalty tax. In all other
respects, amounts received or deemed received from such post-exchange
contracts are generally subject to the rules described in this
subparagraph 3.

f. Required Distributions

i. Death Of Contract Owner Or Primary Annuitant

Subject to the alternative election or spouse beneficiary
provisions in ii. or iii., below:

1. If any contract owner dies on or after the annuity commencement
date and before the entire interest in the contract has been
distributed, the remaining portion of such interest shall be
distributed at least as rapidly as under the method of
distribution being used as of the date of such death;

2. If any contract owner dies before the annuity commencement date,
the entire interest in the contract will be distributed within
five years after such death; and

3. If the contract owner is not an individual, then for purposes of
1. or 2., above, the primary annuitant under the contract shall be
treated as the contract owner, and any change in the primary
annuitant shall be treated as the death of the contract owner. The
primary annuitant is the individual, the events in the life of
whom are of primary importance in affecting the timing or amount
of the payout under the contract.

ii. Alternative Election to Satisfy Distribution Requirements

If any portion of the interest of a contract owner described in
i., above, is payable to or for the benefit of a designated
beneficiary, such beneficiary may elect to have the portion
distributed over a period that does not extend beyond the life or
life expectancy of the beneficiary. The election and payments must
begin within a year of the death.

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<PAGE>

iii. Spouse Beneficiary

If any portion of the interest of a contract owner is payable to or
for the benefit of his or her spouse, and the annuitant or
contingent annuitant is living, such spouse shall be treated as
the contract owner of such portion for purposes of section i.,
above.

3. Diversification Requirements.

Section 817 of the Code provides that a variable annuity contract will
not be treated as an annuity contract for any period during which the
investments made by the separate account or underlying fund are not adequately
diversified in accordance with regulations prescribed by the Treasury
Department. If a contract is not treated as an annuity contract, the contract
owner will be subject to income tax on the annual increases in cash value.

The Treasury Department has issued diversification regulations which
generally require, among other things, that no more than 55% of the value of
the total assets of the segregated asset account underlying a variable contract
is represented by any one investment, no more than 70% is represented by any
two investments, no more than 80% is represented by any three investments, and
no more than 90% is represented by any four investments. In determining whether
the diversification standards are met, all securities of the same issuer, all
interests in the same real property project, and all interests in the same
commodity are each treated as a single investment. In addition, in the case of
government securities, each government agency or instrumentality shall he
treated as a separate issuer.

A separate account must be in compliance with the diversification
standards on the last day of each calendar quarter or within 30 days after the
quarter ends. If an insurance company inadvertently fails to meet the
diversification requirements, the company may comply within a reasonable period
and avoid the taxation of contract income on an ongoing basis. However, either
the company or the contract owner must agree to pay the tax due for the period
during which the diversification requirements were not met.

The Company monitors the diversification of investments in the separate
accounts and tests for diversification as required by the Code. The Company
intends to administer all contracts subject to the diversification requirements
in a manner that will maintain adequate diversification.

4. Ownership of the Assets in the Separate Account.

In order for a variable annuity contract to qualify for tax deferral,
assets in the segregated asset accounts supporting the variable contract must
be considered to be owned by the insurance company and not by the variable
contract owner for tax purposes. The Internal Revenue Service ("IRS") has
issued several rulings which discuss investor control. The IRS has ruled that
certain incidents of ownership by the contract owner, such as the ability to
select and control investments in a separate account, could cause the contract
owner to be treated as the owner of the assets for tax purposes.

Further, in the explanation to the temporary Section 817 diversification
regulations, the Treasury Department noted that the temporary regulations "do
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor, rather
than the insurance company, to be treated as the owner of the assets in the
account." The explanation further indicates that "the temporary regulations
provide that in appropriate cases a segregated asset account may include
multiple sub-accounts, but do not specify

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<PAGE>

the extent to which policyholders may direct their investments to particular
sub-accounts without being treated as the owners of the underlying assets.
Guidance on this and other issues will be provided in regulations or revenue
rulings under Section 817(d), relating to the definition of variable contract."
The final regulations issued under Section 817 do not provide guidance
regarding investor control, and as of the date of this Prospectus, no other
such guidance has been issued. Further, the Company does not know if or in what
form such guidance will be issued. In addition, although regulations are
generally issued with prospective effect, it. is possible that regulations may
be issued with retroactive effect. Due to the lack of specific guidance
regarding the issue of investor control, there is necessarily some uncertainty
regarding whether a contract owner could be considered the owner of the assets
for tax purposes. The Company reserves the right to modify the contracts as
necessary, to prevent contract owners from being considered the owners of the
assets in the separate accounts.

D. Federal Income Tax Withholding

The portion of a distribution which is taxable income to the recipient
will be subject to federal income tax withholding, pursuant to Section 3405, of
the Code, The application of this provision is summarized below:

1. Non-Periodic Distributions.

The portion of a non-periodic distribution which constitutes taxable
income will be subject to federal income tax withholding unless the recipient
elects not to have taxes withheld. If an election not to have taxes withheld is
not provided, 10% of the taxable distribution will be withheld as federal
income tax. Election forms will be provided at the time distributions are
requested. If the necessary election forms are not submitted to the Company,
the Company will automatically withhold 10% of the taxable distribution.

2. Periodic Distributions (distributions payable over a period greater
than one year).

The portion of a periodic distribution which constitutes taxable income
will be subject to federal income tax withholding as if the recipient were
married claiming three exemptions, unless the recipient elects otherwise. A
recipient may elect not to have income taxes withheld or to have income taxes
withheld at a different rate by providing a completed election form. Election
forms will be provided at the time distributions are requested.

E. General Provisions Affecting Qualified Retirement Plans

The contract may be used for a number of tax-qualified retirement plans.
If the contract is being purchased with respect to some form of tax-qualified
retirement. plan, please refer to Appendix I, commencing an page 32, for
information relative to the types of plans for which it may be used and the
general explanation of the tax features of such plans.

F. Annuity Purchases By Nonresident Aliens And Foreign Corporations

The discussion above provides general information regarding U.S. federal
income tax consequences to annuity purchasers that are U.S. citizens or
residents. Purchasers that are not U.S. citizens or residents will generally be
subject to U.S. federal income tax and withholding on annuity distributions at
a 30% rate, unless a lower treaty rate applies. In addition, purchasers may be
subject to state premium tax, other state and/or municipal taxes, and taxes
that may be imposed by the purchaser's country of citizenship or residence.
Prospective purchasers are advised to consult with a qualified tax advisor
regarding U.S., state, and foreign taxation with respect to an annuity
purchase.

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Appendix I
Information Regarding Tax-Qualified Retirement Plans

The tax rules applicable to tax qualified contract owners, including
restrictions on contributions and distributions, taxation of distributions, and
tax penalties, vary according to the type of plan as well as the terms and
conditions of the plan itself. Various tax penalties may apply to contributions
in excess of specified limits, to distributions in excess of specified limits,
distributions which do not satisfy certain requirements and certain other
transactions with respect to qualified plans. Accordingly, this summary
provides only general information about the tax rules associated with use of
the contract by a qualified plan. Contract owners, plan participants, and
beneficiaries are cautioned that the rights and benefits of any person to
benefits are controlled by the terms and conditions of the plan regardless of
the terms and conditions of the contract. Some qualified plans are subject to
distribution and other requirements which are not incorporate into the
Company's administrative procedures. Owners, participants and beneficiaries are
responsible for determining that contributions, distributions and other
transactions comply with applicable law. Because of the complexity of these
rules, owners, participants and beneficiaries are encouraged to consult their
own tax advisers as to specific tax consequences.

A. Tax-Qualified Pension or Profit-Sharing Plans

Provisions of the Code permit eligible employers to establish tax-
qualified pension or profit sharing plans (described in Section 401(a) and
401(k), if applicable, and exempt from taxation under Section 501 (a) of the
Code), and Simplified Employee Pension Plans (described in Section 408(k)).
Such plans are subject to limitations on the amount that may be contributed,
the persons who may be eligible and the time when distributions must commence.
Employers intending to use these contracts in connection with such plans should
seek competent tax and other legal advice.

B. Tax Sheltered Annuities Under Section 403(b)

Section 403(b) of the Code permits public school employees and employees
of certain types of charitable, educational and scientific organizations
specified in Section 501(c) (3) of the Code to purchase annuity contracts, and,
subject to certain limitations, exclude such contributions from gross income.
Generally, such contributions may not exceed the lesser of $10,000 or 20% of
the employee's "includable compensation" for his most recent full year
employment, subject to other adjustments. Special provisions may allow some
employees to elect a different overall limitation.

Tax-sheltered annuity programs under Section 403(b) are subject to a
prohibition against distributions from the contract attributable to
contributions made pursuant to a salary reduction agreement unless such
distribution is made:

(1) after the participating employee attains age 59 1/2;

(2) upon separation from service;

(3) upon death or disability; or

(4) in the case of hardship (and in the case of hardship, any income
attributable to such contributions may not be distributed).

Generally, the above restrictions do not apply to distributions
attributable to cash values or other amounts held under a Section 403(b)
contract as of December 31, 1988.

32
<PAGE>

C. Individual Retirement Annuities Under Section 408

Section 408 of the Code permits eligible individuals to establish
individual retirement programs through the purchase of Individual Retirement
Annuities ("IRAs"). IRAs are subject to limitations on the amount that may be
contributed, the contributions that. may be deducted from taxable income, the
persons who may be eligible and the time when distributions may commence. Also
distributions from certain qualified plans may be "rolled-over" on a tax-
deferred basis to an IRA.

D. Tax Penalties

Distributions from retirement plans are generally taxed under Section 72
of the Code. Under these rules, a portion of each distribution may be
excludable from income. The excludable amount is the portion of the
distribution which bears the same ratio as the after-tax contributions bear to
the expected return.

1. Premature Distribution

Distributions from a qualified plan before the participant attains age 59
1/2 are generally subject to an additional tax equal to 10% of the taxable
portion of the distribution. The 10% penalty does not apply to distributions
made after the employee's death, on account of disability, for eligible medical
expenses and distributions in the form of a life annuity and, except in the
case of an IRA, certain distributions after separation from service after age
55. For these purposes "life annuity" means a scheduled series of substantially
equal periodic payments for the life or life expectancy of the participant (or
the joint lives or life expectancies of the participant and beneficiary).

2. Minimum Distribution Tax

If the amount distributed is less than the minimum required distribution
for the year, the participant is subject to a 50% tax on the amount that was
not properly distributed.

An individual's interest in a tax-qualified retirement plan must
generally be distributed, or begin to be distributed, not later than April 1 of
the calendar year following the later of (i) the calendar year in which the
individual attains age 70 1/2 or (ii) the calendar year in which the individual
retires from service with the employer sponsoring the plan ("required beginning
date"). However, the required beginning date for an individual who is a five
(5) percent owner (as defined in the Code), or who is the owner of an IRA, is
April 1 of the calendar year following the calendar year in which the
individual attains age 70 1/2. The entire interest of the participant must be
distributed beginning no later than this required beginning date over a period
which may not extend beyond a maximum of the life expectancy of the participant
and a designated beneficiary. Each annual distribution must equal or exceed a
"minimum distribution amount" which is determined by dividing the account
balance by the applicable life expectancy. This account balance is generally
based upon the account value as of the close of business on the last day of the
previous calendar year. In addition, minimum distribution incidental benefit
rules may require a larger annual distribution.

If an individual dies before reaching his or her required beginning date,
the individual's entire interest must generally be distributed within five
years of the individual's death. However, this rule will be deemed satisfied,
if distributions begin before the close of the calendar year following the
individual's death to a designated beneficiary (or over a period not extending
beyond the life expectancy of the beneficiary). If the beneficiary is the
individual's surviving spouse, distributions may be delayed until the
individual would have attained age 70 1/2.

33
<PAGE>

If an individual dies after reaching his or her required beginning date
or after distributions have commenced, the individual's interest must generally
be distributed at least as rapidly as under the method of distribution in
effect at the time of the individual's death.

3. Withholding

In general, distributions from IRAs are subject to regular wage
withholding rules.

Periodic distributions from other tax-qualified retirement plans that are
made for a specified period of ten years or for the life or life expectancy of
the participant (or the joint lives or life expectancies of the participant and
the beneficiary) are generally subject to federal income tax withholding as if
the recipient were married claiming three exemptions, unless the recipient
elects otherwise. The recipient of periodic distributions may generally elect
not to have withholding apply or to have income taxes withheld at a different
rate by providing a completed election form.

Other distributions from such other tax-qualified retirement plans are
generally subject to mandatory income tax withholding at the flat rate of 20%
unless such distributions are:

(1) the non-taxable portion of the distribution;

(2) required minimum distributions; or

(3) direct transfer distributions.

Direct transfer distributions are direct payments to an IRA or to
another eligible retirement plan under Section 401 (a) (31) of the Code.

CHANGES IN OPERATION OF THE SEPARATE ACCOUNT

The Company reserves the right, subject to compliance with applicable
law, (1) to operate the Separate Account as a management investment company
under the 1940 Act or in any other form permitted by law, (2) to deregister the
Separate Account under the 1940 Act in accordance with the requirements of the
1940 Act and (3) to substitute the shares of any other registered investment
company for the Fund shares held by the Separate Account, in the event that
Fund shares are unavailable for Separate Account investment, or if the Company
shall determine that further investment in such fund shares is inappropriate in
view of the purpose of the Separate Account. In no event will the changes
described above be made without notice to contract owners in accordance with
the 1940 Act.

The company reserves the right, subject to compliance with applicable
law, to change the name of the Separate Account.

LEGAL PROCEEDINGS

There are no material legal proceedings pending to which the Company or
the Separate Account is a party or of which property of either of them is
subject.

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, Vice President and Secretary
of the Company.

34
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

TO BE USED WITH APRIL 30, 1999 PROSPECTUS
PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
VARIABLE ANNUITY CONTRACTS
SOLD BY
PROVIDENT NATIONAL ASSURANCE COMPANY
Chattanooga, Tennessee 37402 (423) 755-1901

This Statement of Additional Information should be used to supplement
information provided by the April 30, 1999 Prospectus, which describes Variable
Annuity Contracts ("Contracts") offered by Provident National Assurance Company
("Company").

This Statement of Additional Information is not a Prospectus. The
Statement of Additional Information should be read with the Prospectus. The
Prospectus sets forth information about the contracts and the Provident
National Assurance Company Separate Account B ("Separate Account") that an
investor ought to know. The Prospectus may be obtained, without charge, upon
written or oral request received by the Company at its Home Office located at 1
Fountain Square, Chattanooga, Tennessee 37402. Please refer to the Table of
Contents for a cross-reference index to the Prospectus.

The date of this Statement of Additional Information is April 30, 1999

The date of the Prospectus is April 30, 1999
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
General Information and History
of the Company and
the Separate Account....................................................... 1
Investment Objectives and Policies......................................... 2
Management:
Board of Managers of the
Separate Account........................................................... 4
Directors and Principal Officers
of the Company............................................................. 4
Remuneration of the Board of Managers...................................... 6
Remuneration of the Directors
and Principal Officers of the Company......................................
6
Election of the Board of Managers.......................................... 6
Investment Advisory Services
Investment Advisory Agreement.............................................. 7
Sales and Administrative Services Agreement................................
7
Investment Sub-Advisory Agreement.......................................... 7
Ownership and Control...................................................... 8
Brokerage Allocation....................................................... 9
Underwriters............................................................... 11
Report of Independent Auditors.............................................
Financial Statements of the Separate Account...............................
Report of Independent Auditors.............................................
Financial Statements of Provident National Assurance Company...............
</TABLE>

i
<PAGE>

WHERE THIS INFORMATION
CAN BE FOUND IN THE
PROSPECTUS
TABLE OF CONTENTS

<TABLE>
<S> <C>
General Information and History
of the Company and
the Separate Account........................................................ 1
Investment Objective and Policies........................................... 2
Management:
Board of Managers of the
Separate Account............................................................ 4

Investment Advisory Services:
Investment Advisory Agreement.............................................. 7
Sales and Administrative
Services Agreement.......................................................... 7
Investment Sub-Advisory Agreement.......................................... 8
Brokerage Allocation........................................................ 9
Annuity Payments............................................................ 20
Purchase and Pricing of Contracts........................................... 23
</TABLE>

ii
<PAGE>

GENERAL INFORMATION AND HISTORY OF
THE COMPANY AND THE
SEPARATE ACCOUNT

The Company serves as insurer and principal underwriter, and as
investment adviser to the Separate Account. 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, the Separate
Account was established by the Company on August 21, 1967.

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.

The Company is taxed as a life insurance company under Sub-Chapter L of
the Internal Revenue Code. Although the operations of the Separate Account are
accounted for separately from other operations of the Company for purposes of
federal taxation, the Separate Account is not separately taxed as a regulated
investment company or otherwise as a taxable entity separate from the Company.
Under existing federal income tax laws, the income (consisting primarily of
interest, dividends and net capital gains) of the Separate Account, to the
extent that it is applied to increase reserves under variable annuity
contracts, is not taxable to the Company.

The Rules and Regulations of the Separate Account provide for a three-
member Board of Managers, members being elected at annual meetings for one-year
terms. A majority of the Board of Managers will not be "interested persons" as
defined in Section 2(a) of the 1940 Act.

Investment custodial services are provided through an agreement between
the Company and Chase Manhattan Bank, N.A., 3 Chase MetroTech Center, 6th
Floor, Brooklyn, New York 11245. The Separate Account's independent certified
public accountant is Ernst & Young LLP, 300 Krystal Bldg., One Union Square,
Chattanooga, Tennessee 37402.

1
<PAGE>

A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
contracts and the Separate Account discussed in the Prospectus. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in the Prospectus. Statements contained in the
Prospectus concerning the content of the contracts and legal instruments are
only summaries. For a complete statement of the terms of these documents,
reference should be made to the instruments filed with the Commission.

The laws and regulations of the states in which the Company is licensed
contain various requirements as to the amounts of stockholder's equity which
the Company is required to maintain. The Company's statutory capital and
surplus of $56,690,000 and $74,214,000 as of December 31, 1998 and 1997,
respectively, is in compliance with the requirements of all such states. The
Company is subject to various state insurance regulatory restrictions that
limit the maximum amounts of dividends available for payment without prior
approval. Under current law, during 1999, approximately $6,023,000 will be
available for payment of dividends by the Company without state insurance
regulatory approval. Dividends in excess of this amount may only be paid with
regulatory approval. Statutory net income loss for 1998, 1997 and 1996 was
$3,091,000, $7,036,000, and $(2,808,000) respectively. The Company declared and
paid dividends to its parent, Provident Companies, Inc. of $11,719,000 in 1998,
$10,000,000 in 1997, and $10,336,000 in 1996.

The public offering of contracts of the Separate Account was discontinued
on February 1, 1984. No further offering of the contracts of the Separate
Account is made hereby.

INVESTMENT OBJECTIVES AND POLICIES

The primary investment objective of the Separate Account is long-term
capital growth. 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.

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.

As the contracts are subject to the risks associated with common stock
investments and changing economic conditions, there can be no assurance that
the investment objective will be attained. Please refer to the Prospectus for a
description of all fundamental and non-fundamental investment policies.

Fundamental investment policies may not be changed without the approval
of a majority in interest of the owners of annuity contracts to which variable
accumulation units are credited. A majority in interest of the owners of
variable annuity contracts means the vote of (a) 67% or more of

2
<PAGE>

the vote of the contract owners present and entitled to vote at the meeting, if
contract owners who hold with the power to vote over 50% of the variable
accumulation units outstanding are present or represented by proxy; or (b) more
than 50% of the variable accumulation units outstanding, whichever is less.
Non-fundamental investment policies may be changed by a vote of the Board of
Managers.

Changes in the Separate Account's investments are reviewed by the Board of
Managers. The aggregate portfolio turnover rates for the years 1998, 1997 and
1996 were 11%, 25% and, 28%, respectively.

3
<PAGE>

MANAGEMENT

A. Board of Managers of the Separate Account

The property and business of the Separate Account are managed by a Board
of Managers elected by the owners of contracts to which variable accumulation
units are credited. A majority of the Separate Account's three managers, namely
Messrs. Blaine and Law, are not deemed to be "interested persons" of the
Separate Account or the Company as defined in the Investment Company Act of
1940 ("1940 Act").

<TABLE>
<CAPTION>
Principal Occupations During Past 5
Name and Address Age Years
<C> <C> <S>
David G. Fussell* 51 Chairman of the Board; Vice President,
1 Fountain Square Securities, Provident Companies, Inc.,
Chattanooga, TN 37402 Provident Life and Accident Insurance
Company, Provident Life and Casualty
Insurance Company

Henry E. Blaine # 69 Board Member; President, Chief
2418 90th Street, N.W. Operating Officer, Chief Financial
Bradenton, Florida 34209 Officer and Member of the Board,
Bedminster Bio Corp.; B & B
Enterprises, Partner

H. Grant Law, Jr. # 52 Board Member; President, Newton
213 W. Fleetwood Drive Chevrolet, Inc.; President, Newton
Lookout Mountain, TN 37350 Oldsmobile--GMC Truck 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

B. Directors and Principal Officers of the Company

The following table shows the names, addresses, and principal occupations
of all directors and principal executive officers of the Company as of December
31, 1998.

<TABLE>
<CAPTION>
Name and Address Age Principal Occupation
<C> <C> <S>
J. Harold Chandler 49 Chairman, President and Chief Executive Officer, the
Company; Chairman, President and Chief Executive
Officer, and Director, Provident; Director, AmSouth
Bancorporation; Director, Herman Miller, Inc.;
Director, Healthsource, Inc.

Thomas R. Watjen 44 Vice Chairman and Chief Financial Officer, and
Director, the Company; Vice Chairman and Chief
Financial Officer, Provident

Robert O. Best 49 Executive Vice President, and Chief Information
Officer/Client Services, the Company; Provident

F. Dean Copeland 60 Executive Vice President and General Counsel, the
Company; Provident
</TABLE>

4
<PAGE>

<TABLE>
<CAPTION>
Name and Address Age Principal Occupation
<C> <C> <S>
Thomas B. Heys, Jr. 52 Executive Vice President,
Institutional Sales, the Company;
Provident

Peter C. Madeja 40 Executive Vice President, the Company;
Executive Vice President, Provident;
President and CEO of GENEX Services,
Inc.

Ralph A. Rogers, Jr. 50 Senior Vice President and Treasurer,
the Company; Provident

Robert Greving 47 Senior Vice President and Actuary, the
Company; Provident

Vicki W. Corbett 46 Vice President and Controller, the
Company; Provident

Susan N. Roth 40 Secretary, the Company; Provident

William L. Armstrong 62 Director, the Company; Chairman of
Ambassador Media Corporation; Chairman
of Cherry Creek Mortgage Company,
Inc.; Chairman of El Paso Mortgage
Company; Chairman of Centennial State
Mortgage Company; Chairman of Frontier
Real Estate, Inc.; Chairman of
Frontier Title, LLC; Chairman of
Transland Financial Services, Inc.;
Director, Storage Technology
Corporation; Director, Helmerich and
Payne, Inc.

William H. Bolinder 55 Director, the Company; Chairman,
Zurich Insurance Company; Chairman,
Zurich Group

Charlotte M. Heffner 61 Director, the Company; Trustee of The
Maclellan Foundation

Hugh B. Jacks 64 Director, the Company; President,
Potential Enterprises, Inc.

Hugh O. Maclellan, Jr. 59 Director, the Company; President, The
Maclellan Foundation; Director,
SunTrust Bank; Director, Covenant
Transport

A.S. (Pat) MacMillan 55 Director, the Company; Chief Executive
Officer, Team Resources, Inc.;
Trustee, the Maclellan Foundation

C. William Pollard 60 Director, the Company; Chairman of the
Board, The ServiceMaster Company;
Director, Herman Miller, Inc.;
Director, Coro, Inc.
</TABLE>

5
<PAGE>

<TABLE>
<CAPTION>
Name and Address Age Principal Occupation
<C> <C> <S>
Scott L. Probasco, Jr. 70 Director, the Company; Chairman, Executive
Committee, SunTrust Bank; Director, Chattem, Inc.;
Director, SunTrust Banks, Inc.; Director, Coca Cola
Enterprises

Steven S. Reinemund 51 Director, the Company; Chairman and Chief Executive
Officer, Frito-Lay, Inc; Director, PepsiCo.;
Director, The ServiceMaster Company

Burton E. Sorensen 69 Director, the Company; Director, The ServiceMaster
Company
</TABLE>

C. Remuneration of the Board of Managers

The Separate Account is responsible for payment of fees and expenses of
the members of the Board of Managers as well as expenses for audit of the
Separate Account. All other expenses or services relative to the operation of
the Separate Account are paid for by the Company for which it deducts certain
amounts from purchase payments and from the Separate Account (See Prospectus,
page 12). Members of the Board of Managers who are also active or retired
officers, directors or employees of the Company do not receive any fees from
the Separate Account. These members are deemed to be interested persons and
receive direct remuneration or an indirect benefit as active or retired
officers and/or stockholders of the Company. The total aggregate remuneration
paid by the Separate Account to all members of the Board of Managers for the
fiscal year ended December 31, 1998 was $4,000. This amount represents
consideration paid for attendance at meetings of the Board of Managers.
Reimbursement for expenses incurred may also be made if and when applicable.

COMPENSATION TABLE

<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)

Pension or
Retirement Total Compensation
Aggregate Benefits Accrued Estimated From Registrant
Name of Person, Compensation As Part of Fund Annual Benefits and Fund Complex
Position From Registrant Expenses Upon Retirement Paid to Directors

<S> <C> <C> <C> <C>
David G.
Fussell $0 $0 $0 $0
Chairman

Henry E.
Blaine $2,000 $0 $0 $2,000
Member

H. Grant
Law, Jr. $2,000 $0 $0 $2,000
Member
</TABLE>

D. Election of the Board of Managers

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.
Under the terms of the 1940 Act, the Separate Account must have a Board of
Managers, not more than sixty-percent of the members of which are deemed to be
"interested persons" of the Separate Account or its Investment
Adviser/Principal Underwriter as defined in the 1940 Act. Two members of the
Board of Managers whose terms continue, namely Mr. Blaine and Mr. Law, are not
deemed to be "interested persons" as defined in the 1940 Act.

6
<PAGE>

INVESTMENT ADVISORY SERVICES

Investment Advisory Agreement

The Company currently serves as investment adviser to the Separate
Account pursuant to an Investment Advisory Agreement, which was approved by
contract owners on February 3, 1998. The agreement must be renewed each year by
a majority of the Separate Account's Board of Managers who are not parties to
the agreement or interested persons of any such party.

Under the agreement, the Company agrees to provide "investment advisory
services" to the Separate Account. In that connection, it is required
specifically to provide the Board of Managers continuously with an investment
program for its approval or rejection and, if rejected, to submit another
program for consideration.

Pursuant to the agreement, the Company is responsible for all duties
related to the investment, reinvestment and safekeeping of the assets of the
Separate Account and for all expenses attributable to performing its investment
advisory services, including costs of compensating officers and employees of
the Company connected with providing investment advisory services to the
Separate Account.

In connection with the Company's obligations under the agreement, the
Company bears the cost of all services and expenses attributable to the
maintenance and operation of the Separate Account (other than costs relating to
the administration and distribution of the variable annuity contracts, which
are provided for in the current Sales and Administration Agreement for the
Separate Account). These costs include, among other things: fees paid to PRIMCO
pursuant to the Investment Sub-Advisory Agreement between the Company and
PRIMCO as described below; fees required by federal and state securities
regulatory authorities and the National Association of Securities Dealers,
Inc.; costs of maintaining the books and records of the Separate Account;
outside legal, accounting, actuarial and other professional costs; costs of
determining the net asset value of the Separate Account; and other out-of-
pocket expenses relating to the Separate Account, including salaries, rent,
postage, telephone, travel, office equipment and stationery. All brokerage
commissions and other fees relating to purchases and sales of investments for
the Separate Account are paid out of the assets of the Separate Account.

For its advisory services to the Separate Account under the agreement,
the Company charges an amount which equals, on an annual basis, 0.50% of the
average daily net asset value of the Separate Account. This charge is paid
weekly by the Separate Account. At December 31, 1998, the net asset value for
the Separate Account was $15.19. For the fiscal years ended December 31, 1998,
1997 and 1996, the Company received fees under the agreement aggregating
$75,117, $72,873, and $67,237, respectively.

Sales and Administrative Services Agreement

The Company also acts as principal underwriter and performs
administrative functions pursuant to a Sales and Administrative Services
Agreement between the Company and the Separate Account dated August 21, 1967
and amended on February 21, 1979.

As a consequence of an Asset Transfer and Acquisition Agreement entered
into by Provident Companies, Inc., et. al. and American General Corporation,
et. al., dated as of December 8, 1997,

7
<PAGE>

The Variable Annuity Life Insurance Company became the Administrator of the
Separate Account pursuant to the Separate Account Administrative Services
Agreement dated May 15, 1998 between the Company and The Variable Annuity Life
Insurance Company. The change in Administrator will not result in any changes
in administrative and sales fees.

Under the agreement, the Company acts as principal underwriter and
performs administrative functions relative to variable annuity contracts,
receiving as compensation the sales and administration charge deducted from
purchase payments as described in the Prospectus. The total sales and
administration charges received by the Company in 1998, 1997 and 1996 were
$1,107, $1,293, and $1,507, respectively.

The Company also received $105,163, $102,022, and $94,131, from the
Separate Account during 1998, 1997 and 1996, respectively, as its charge for
assuming the mortality and expense risks under its variable annuity contracts,
this representing a charge on each valuation date of an amount which, on an
annual basis, equals .70% of the average daily net asset value of the Separate
Account as permitted under the Sales and Administrative Services Agreement. At
the present time the Company believes there are no statutory or regulatory
limitations on the expenses that may be deducted from the Separate Account, but
the Company assures that all expense deductions, other than for taxes, will not
exceed 2% annually based upon the average daily net asset value of the Separate
Account.

Investment Sub-Advisory Agreement

Under the Investment Advisory Agreement between the Separate Account and
the Company, the Company is specifically authorized to employ one or more sub-
advisers in connection with the services to be performed and obligations to be
assumed by the Company. Pursuant thereto, the Company entered into an
Investment Sub-Advisory Agreement ("Sub-Agreement") with PRIMCO which was
approved by a majority of contract owners on June 25, 1998. The Sub-Advisory
Agreement is subject to the same terms for approval, renewal and termination as
the Agreement itself.

Under the Sub-Advisory Agreement, PRIMCO, subject to the supervision of
the Company and the Board of Managers of the Separate Account, is responsible
for providing investment advisory services to the Company for the Separate
Account in accordance with investment objectives and guidelines provided by the
Company. In providing these services, PRIMCO is authorized to buy, sell,
exchange, convert and otherwise trade in securities in the portfolio, and place
orders for the execution of such transactions with or through such brokers,
dealers, or issuers as it selects. PRIMCO provides the Company with a value of
the portfolio on a daily basis. PRIMCO provides such reports to the Company and
the Board of Managers as are reasonably required and attends meetings of the
Board of Managers on a quarterly basis.

For providing such investment sub-advisory services, the Company pays
PRIMCO compensation in the amount of .15% per annum, based on the average
market value of the Separate Account as of the last business day of each
calendar month in the quarter. The fee is payable quarterly by the Company.

PRIMCO is a Tennessee limited liability company organized in October
1997. It is owned by Provident Companies, Inc. and two of its subsidiaries,
Provident Life and Accident Insurance Company ("Provident Life") and The Paul
Revere Life Insurance Company ("Paul Revere Life").

8
<PAGE>

PRIMCO is registered with the SEC as an investment adviser. Its principal
offices are located at 1 Fountain Square, Chattanooga, Tennessee 37402. Its
predecessor was The Paul Revere Investment Management Company, with whom it was
merged in 1997. The managers of PRIMCO are also officers of the Company. The
members of the Board of Governors of PRIMCO are officers of the Company. The
personnel employed by PRIMCO consist primarily of individuals who were
previously employed in the investment operations of Provident Companies, Inc.
or its insurance subsidiaries. Thus, the same personnel who has provided
investment services to the Company and to the Separate Account will continue to
do so, but they are employed by a different legal entity.

Ownership and Control

As of December 31, 1998, the members of the Board of Managers of the
Separate Account and the directors and principal officers of the Company as a
group, through their ownership of individual variable annuity contracts, owned
beneficially and of record no units.

BROKERAGE ALLOCATION

PRIMCO, a sub-adviser to the Company, selects the securities for purchase
and sale by the Separate Account. Changes in the Separate Account's investments
are reviewed by the Board of Managers.

The Company has no set formula for the distribution of brokerage business
in connection with the placing of orders for the purchase and sale of
investments. The primary consideration in placing portfolio security
transactions with broker/dealers is execution at the most favorable prices and
in the most effective manner possible.

PRIMCO attempts to achieve this result by selecting broker/dealers to
execute portfolio transactions on behalf of the Separate Account and its other
clients on the basis of their professional capability, the value and quality of
the brokerage services and the level of their brokerage commissions. In the
case of securities traded in the over-the-counter market (where no stated
commissions are paid but prices include a dealer's markup or markdown), PRIMCO
normally seeks to deal directly with the primary market makers, unless in its
opinion, best execution is available elsewhere. In the case of such securities
purchased from underwriters, the cost of such securities generally includes a
fixed underwriting commission or concession. From time to time soliciting
dealer fees may be available to PRIMCO on the tender of Separate Account
portfolio securities in so-called Tender or Exchange Offers. Such soliciting
dealer fees will be, in effect, recaptured for the Separate Account by PRIMCO
to the extent possible. At present no other recapture agreements are in effect.
Brokerage business is not allocated based on the sale of variable annuity
contracts.

Under the Sub-Advisory Agreement and as permitted by Section 28(e) of the
Securities Exchange Act of 1934, PRIMCO may cause the Separate Account to pay a
broker/dealer who provides brokerage and research services to the Separate
Account and to PRIMCO, an amount of commission for effecting a securities
transaction for the Separate Account in excess of the amount other
broker/dealers would have charged for the transaction. PRIMCO may do this if it
determines in

9
<PAGE>

good faith that the greater commission is reasonable in relation to the value
of the brokerage research services provided by the executing broker/dealer
viewed in terms of either a particular transaction or PRIMCO's overall
responsibility to the Separate Account or to its other clients. Not all such
services are useful or of value in advising the Separate Account.

The term "broker and research services" includes advice as to the value
of the securities, the advisability of investing in, purchasing or selling
securities and the availability of securities or of purchasers or sellers of
securities.

It also includes furnishing analysis reports and reports concerning
issues, industries, securities, economic factors, trends, portfolio strategies,
performance of accounts, as well as effecting securities transactions and
performing functions incidental thereto such as clearance and settlement.

Although commissions paid on every transaction will, in the judgment of
PRIMCO, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker/dealer might charge
may be paid to broker/dealers who were selected to execute transactions on
behalf of the Separate Account and PRIMCO's other clients.

This could occur, in part, when a broker/dealer provides advice as to the
availability of securities or purchasers or sellers of securities and services
in effecting securities transactions and performing functions incidental
thereto such as clearance and settlement.

Broker/dealers may be willing to furnish statistical research and other
factual information or services ("research") to PRIMCO for no consideration
other than brokerage and underwriting commissions. Securities may be bought or
sold through such broker/dealers but, at present, unless otherwise directed by
the Separate Account, a commission higher than one charged, will not be paid to
such a firm solely because it provided such "research" to PRIMCO.

PRIMCO's investment management personnel attempt to evaluate the quality
of "research" provided by brokers. Results of this effort are sometimes used by
PRIMCO as a consideration in selection of brokers to execute portfolio
transactions. However, PRIMCO is unable to quantify the amount of commission
which was paid as a result of such "research" because a substantial number of
transactions were effected through brokers who provide "research" but were
selected principally because of their execution capabilities.

In certain instances, there may be securities which are suitable for the
Separate Account's portfolio as well as that of one or more of the other
clients of PRIMCO. Investment decisions for the Separate Account and for
PRIMCO's other clients are made with a view to achieving their respective
investment objectives. It may develop that a particular security is bought or
sold for only one client even though it might be held by or bought or sold for
other clients. Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling that same security. Some
simultaneous transactions are unavoidable because several clients have similar
investment objectives. When two or more clients are simultaneously engaged in
the purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized in some
cases this system could have a detrimental effect on the price or volume of the
securities as far as the Separate Account is concerned. In other cases, it is
believed that the Separate Account's ability to participate in volume
transactions will produce better transaction results for the Separate Account.

10
<PAGE>

Brokerage commissions paid in the years ended December 31, 1998, 1997 and
1996 amounted to $4,288, $9,871, and $10,619, respectively. Brokerage
commissions were paid to 4 brokers in 1998. No brokerage commission was paid to
any broker who was or is an affiliated person of the Company, the Separate
Account or PRIMCO.

UNDERWRITERS

The Company is the principal underwriter for contracts offered by the
Prospectus. The Company did not receive any underwriting commissions for the
sale of these contracts.

11
<PAGE>

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, 1998
and 1997, including the schedule of investments as of December 31, 1998, 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,
1998, 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, 1998 and 1997, 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, 1998 and 1997, 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, 1998, 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
February 26, 1999

1
<PAGE>

STATEMENTS OF ASSETS AND LIABILITIES

Provident National Assurance Company Separate Account B
<TABLE>
<CAPTION>
December 31
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Investments:
Common stocks--at market value
(cost: 1998--$9,034,126; 1997--$9,939,798)............. $18,333,394 $16,402,456
Cash...................................................... 73,237 52,588
Receivable for securities sold............................ -- 50
Accrued dividends and interest............................ 10,513 17,788
Amounts due from Provident National Assurance Company..... 1,222 224
----------- -----------
TOTAL ASSETS.............................. 18,418,366 16,473,106
----------- -----------
LIABILITIES AND CONTRACT OWNERS' EQUITY
Amounts payable for terminations and variable annuity
benefits................................................. 112,745 2,794
Management fee and other amounts due Provident
National Assurance Company............................... 12,597 17,191
----------- -----------
TOTAL LIABILITIES............................ 125,342 19,985
----------- -----------
Variable annuity contract owners' equity:
Deferred annuity contracts terminable by owners--
(accumulation
units outstanding: 1998--1,043,607.368; 1997--
1,310,831.075;
unit value: 1998--$15.192155; 1997--$11.384926).......... 15,854,645 14,923,715
Annuity contracts in pay-out period....................... 2,438,379 1,529,406
----------- -----------
TOTAL CONTRACT OWNERS' EQUITY......................... $18,293,024 $16,453,121
=========== ===========
</TABLE>

See notes to financial statements.

2
<PAGE>

STATEMENTS OF OPERATIONS

Provident National Assurance Company Separate Account B

<TABLE>
<CAPTION>
Year Ended December 31
1998 1997 1996
-----------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Income:
Dividends.............................. $ 125,202 $ 147,564 $ 193,196
Interest............................... 5,447 3,995 8,347
---------- ---------- ----------
130,649 151,559 201,543
---------- ---------- ----------
Expenses--Note C:
Investment advisory services........... 75,117 72,873 67,237
Mortality and expense assurances....... 105,163 102,022 94,131
---------- ---------- ----------
180,280 174,895 161,368
---------- ---------- ----------
NET INVESTMENT INCOME (LOSS)......... (49,631) (23,336) 40,175
---------- ---------- ----------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS--NOTE A
Net realized gain from investment
transactions
(excluding short-term securities):
Proceeds from sales.................... 4,795,716 5,559,161 5,882,270
Cost of investments sold............... 2,751,226 3,512,353 4,404,304
---------- ---------- ----------
Net realized gain.................... 2,044,490 2,046,808 1,477,966
---------- ---------- ----------
Net unrealized appreciation of
investments:
At end of year......................... 9,299,268 6,462,658 4,003,349
At beginning of year................... 6,462,658 4,003,349 2,809,091
---------- ---------- ----------
Increase in net unrealized appreciation
of investments........................ 2,836,610 2,459,309 1,194,258
---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS............................ 4,881,100 4,506,117 2,672,224
---------- ---------- ----------
INCREASE IN CONTRACT OWNERS' EQUITY
FROM INVESTMENT ACTIVITIES............... $4,831,469 $4,482,781 $2,712,399
========== ========== ==========
Ratio of expenses to total investment
income.................................... 137.99% 115.40% 80.07%
========== ========== ==========
</TABLE>

See notes to financial statements.

3
<PAGE>

STATEMENTS OF CHANGES IN VARIABLE ANNUITY CONTRACT OWNERS' EQUITY

Provident National Assurance Company Separate Account B

<TABLE>
<CAPTION>
Year Ended December 31
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
Balance at beginning of year............... $16,453,121 $13,917,113 $13,151,831
----------- ----------- -----------
From investment activities:
Net investment income (loss)............. (49,631) (23,336) 40,175
Net realized gain on investments......... 2,044,490 2,046,808 1,477,966
Increase in net unrealized appreciation
of investments.......................... 2,836,610 2,459,309 1,194,258
----------- ----------- -----------
Increase in contract owners' equity from
investment activities................... 4,831,469 4,482,781 2,712,399
----------- ----------- -----------
From variable annuity contract
transactions:
Net contract purchase payments (Units
purchased):
1998--1,326.260;.......................
1997--16,110.275;......................
1996--4,869.798;....................... 17,001 174,149 35,994
Terminations and death benefits (Units
terminated):
1998--219,758.026;.....................
1997--206,229.494;.....................
1996--243,557.308;..................... (2,718,161) (1,974,221) (1,866,405)
Variable annuity benefits paid (Number of
units):
1998--22,625.469;......................
1997--14,527.206;......................
1996--15,310.532;...................... (290,406) (146,701) (116,706)
----------- ----------- -----------
Decrease in contract owners' equity from
variable annuity contract transactions.... (2,991,566) (1,946,773) (1,947,117)
----------- ----------- -----------
Net increase in contract owner's equity.... 1,839,903 2,536,008 765,282
----------- ----------- -----------
Balance at end of year..................... $18,293,024 $16,453,121 $13,917,113
=========== =========== ===========
</TABLE>

See notes to financial statements.

4
<PAGE>

SCHEDULE OF INVESTMENTS

Provident National Assurance Company Separate Account B

December 31, 1998
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- ---------
<S> <C> <C>
COMMON STOCKS
CAPITAL GOODS (12.3%)
Corning, Inc........................................... 2,800 $ 126,000
Emerson Electric Company............................... 4,500 272,250
General Electric Company............................... 7,800 796,088
Thermo Ecotek Corporation.............................. 1,800 19,013
Thermo Electron Corporation............................ 2,500 42,344
Textron, Inc........................................... 5,000 379,688
Tyco International Ltd................................. 2,000 150,875
Waste Management, Inc.................................. 6,400 298,400
USA Filter Corporation................................. 7,600 173,850
---------
2,258,508
CONSUMER GOODS (6.0%)
Coca-Cola Company...................................... 3,000 200,625
Lear Corporation....................................... 3,200 123,200
Newell Company......................................... 4,000 165,000
PepsiCo, Inc........................................... 8,000 327,500
Proctor & Gamble Company............................... 3,000 273,938
---------
1,090,263
CONSUMER SERVICES (18.0%)
America Online, Inc.................................... 800 128,000
Cendant Corporation.................................... 5,604 106,826
Comcast Corporation Class A............................ 12,500 733,594
Gannett Company, Inc................................... 6,000 387,000
InaCom Corporation..................................... 2,300 34,213
Lowe's Companies, Inc.................................. 800 40,950
McDonald's Corporation................................. 3,600 275,850
Office Depot, Inc...................................... 4,600 169,913
Safeway, Inc........................................... 10,400 633,750
Wal-Mart Stores, Inc................................... 4,000 325,750
Walt Disney Company.................................... 9,600 288,000
Viacom, Inc. Class B................................... 2,200 162,800
---------
3,286,646
ENERGY (1.4%)
Atlantic Richfield Company............................. 800 52,200
Royal Dutch Petroleum Company.......................... 2,900 138,838
Weatherford International Inc.......................... 3,600 69,750
---------
260,788
</TABLE>

See notes to financial statements.

5
<PAGE>

SCHEDULE OF INVESTMENTS--Continued

Provident National Assurance Company Separate Account B

December 31, 1998

<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- ----------
<S> <C> <C>
COMMON STOCKS--Continued
FINANCIAL (9.2%)
American Express Company.............................. 4,000 $ 409,000
Chase Manhattan Corporation........................... 9,600 653,400
BankAmerica Corporation............................... 4,000 240,500
First Union Corporation............................... 3,645 221,662
Washington Mutual, Inc................................ 4,200 160,388
----------
1,684,950
HEALTH CARE (13.3%)
Bristol-Myers Squibb Company.......................... 3,500 468,344
Eli Lilly & Company................................... 2,700 239,963
HealthSouth Corporation............................... 21,600 333,450
Johnson & Johnson..................................... 6,732 564,647
Medtronic Inc......................................... 5,000 371,250
Merck & Company, Inc.................................. 1,900 280,606
Tenet Healthcare Corporation.......................... 6,800 178,500
----------
2,436,760
TECHNOLOGY-HARDWARE (11.9%)
Cisco Systems, Inc.................................... 3,600 334,125
Compaq Computer Corporation........................... 6,000 251,625
Hewlett Packard Company............................... 3,000 204,938
Lucent Technologies, Inc.............................. 6,088 669,680
SCI Systems, Inc...................................... 10,000 577,500
3Com Corporation...................................... 3,250 145,641
----------
2,183,509
TECHNOLOGY-SOFTWARE (10.5%)
Computer Associates International..................... 10,500 447,563
First Data Corporation................................ 3,300 104,569
Microsoft Corporation................................. 7,000 970,813
National Data Corporation............................. 1,500 73,031
Oracle Corporation.................................... 7,500 323,438
----------
1,919,414
</TABLE>

See notes to financial statements.

6
<PAGE>

SCHEDULE OF INVESTMENTS--Continued

Provident National Assurance Company Separate Account B

December 31, 1998

<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
COMMON STOCKS--Continued
TECHNOLOGY-OTHER (4.0%)
Intel Corporation.................................... 5,700 $ 675,806
Motorola, Inc........................................ 1,000 61,063
-----------
736,869
TELECOMMUNICATIONS (13.6%)
Airtouch Communications, Inc......................... 11,000 793,375
AT&T Corporation..................................... 4,430 333,358
MCI Worldcom, Inc.................................... 14,800 1,061,900
Sprint Corporation FON Group......................... 3,000 252,374
Sprint Corporation PCS Group......................... 1,500 34,680
-----------
2,475,687
-----------
TOTAL COMMON STOCKS (100.2%)............................. 18,333,394
-----------
TOTAL INVESTMENTS (100.2%)............................... 18,333,394
CASH AND RECEIVABLES LESS LIABILITIES (-0.2%)............ (40,370)
-----------
TOTAL VARIABLE ANNUITY CONTRACT
OWNERS' EQUITY (100.0%)................................. $18,293,024
===========
</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
1998 1997 1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income....... $ 0.10 $ .10 $ .11 $ .13 $ .15
Expenses................ 0.14 .12 .09 .07 .07
--------- --------- --------- --------- ---------
Net investment income
(loss)................. (0.04) (.02) .02 .06 .08
Net realized and
unrealized gain (loss)
on investments......... 3.85 2.96 1.51 1.44 (.32)
--------- --------- --------- --------- ---------
Net increase (decrease)
in contract
owners' equity......... 3.81 2.94 1.53 1.50 (.24)
Net contract owners'
equity:
Beginning of year..... 11.38 8.44 6.91 5.41 5.65
--------- --------- --------- --------- ---------
End of year........... $ 15.19 $ 11.38 $ 8.44 $ 6.91 $ 5.41
========= ========= ========= ========= =========
Ratio of expenses to
average contract
owners' equity......... 1.07% 1.16% 1.20% 1.21% 1.21%
Ratio of net investment
income (loss) to
average contract
owners' equity......... (0.30%) (0.16%) 0.30% 0.89% 1.72%
Portfolio turnover...... 11% 25% 28% 101% 70%
Number of accumulation
units
outstanding at end of
year................... 1,043,607 1,310,831 1,538,926 1,767,394 2,097,793
</TABLE>

See notes to financial statements.

8
<PAGE>

SUPPLEMENTARY INFORMATION--Continued

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
1993 1992 1991 1990 1989
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income....... $ 0.14 $ .12 $ .13 $ .13 $ .12
Expenses................ 0.06 .06 .05 .04 .04
--------- --------- --------- --------- ---------
Net investment income
(loss)................. 0.08 .06 .08 .09 .08
Net realized and
unrealized gain (loss)
on investments......... .54 (.07) 1.22 (.16) .64
--------- --------- --------- --------- ---------
Net increase (decrease)
in contract
owners' equity......... .62 (.01) 1.30 (.07) .72
Net contract owners'
equity:
Beginning of year..... 5.03 5.04 3.74 3.81 3.09
--------- --------- --------- --------- ---------
End of year........... $ 5.65 $ 5.03 $ 5.04 $ 3.74 $ 3.81
========= ========= ========= ========= =========
Ratio of expenses to
average contract
owners' equity......... 1.22% 1.21% 1.21% 1.22% 1.21%
Ratio of net investment
income (loss) to
average contract
owners' equity......... 1.39 1.36% 1.91% 2.34% 2.36%
Portfolio turnover...... 57% 35% 42% 58% 104%
Number of accumulation
units
outstanding at end of
year................... 2,242,809 2,655,895 2,854,559 3,031,469 3,667,660
</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.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in those statements and accompanying notes.
Actual results may differ from such estimates.

Common stocks 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. There were gross
unrealized gains of $9,728,100 and gross unrealized losses of $428,832 at
December 31, 1998. Security transactions are recorded on the day after the
securities are purchased or sold. 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, 1998 is shown below.
<TABLE>
<CAPTION>
Year Ended December 31
1998 1997 1996
-----------------------------------
<S> <C> <C> <C>
Cost of investments purchased.............. $11,431,634 $12,440,923 $ 9,751,620
Less: Short-term securities.............. 9,586,080 8,714,428 6,012,666
----------- ----------- -----------
$ 1,845,554 $ 3,726,495 $ 3,738,954
=========== =========== ===========
Proceeds from investments sold............. $14,383,400 $14,470,491 $11,698,035
Less: Short-term securities.............. 9,587,684 8,911,330 5,815,765
----------- ----------- -----------
$ 4,795,716 $ 5,559,161 $ 5,882,270
=========== =========== ===========
</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

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.

NOTE D--COMMITMENTS

On May 15, 1998 Provident completed an Asset Transfer and Acquisition Agreement
under which American General Corporation assumed Provident's individual and
tax-sheltered annuity business including all individual annuities. In
accordance with the agreement, American General Corporation, through its
subsidiaries Variable Annuity Life Insurance Company and American General
Annuity assumed 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. The administration services provided to the
Fund by American General Corporation include processing of unit transactions
and daily unit valuation calculations subsequent to December 1, 1998 as well as
accounting and other services. These services were previously performed by
Provident. Fees for such services are deducted from Separate Account B as shown
in the Statements of Operations.

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 1994................ 5.386379
December 1969............. 1.080379 June...................... 5.274454
December 1970............. 1.030039 September................. 5.475394
December 1971............. 1.178612 December.................. 5.410722
December 1972............. 1.403795 March 1995................ 5.656995
December 1973............. 1.126624 June...................... 6.194660
December 1974............. .863269 September................. 6.505252
December 1975............. 1.022844 December.................. 6.908158
December 1976............. 1.156853 March 1996................ 7.309625
December 1977............. 1.064425 June...................... 7.593667
December 1978............. 1.094150 September................. 7.851947
December 1979............. 1.219189 December.................. 8.435567
December 1980............. 1.555258 March 1997................ 8.468896
December 1981............. 1.473246 June...................... 10.238554
December 1982............. 1.812441 September................. 11.146167
December 1983............. 2.132092 December.................. 11.384926
December 1984............. 2.029912 January 1998.............. 11.579188
December 1985............. 2.480050 February.................. 12.469525
December 1986............. 2.743444 March..................... 12.975484
December 1987............. 2.734169 April..................... 13.175727
December 1988............. 3.087892 May....................... 12.691816
December 1989............. 3.812606 June...................... 13.465013
December 1990............. 3.736441 July...................... 13.375934
December 1991............. 5.036212 August.................... 11.083512
March, 1992............... 4.735470 September................. 11.758633
June...................... 4.585274 October................... 12.780012
September................. 4.694884 November.................. 13.777563
December.................. 5.028547 December.................. 15.192155
March 1993................ 5.208499
June...................... 5.190340
September................. 5.441446
December.................. 5.646864
</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 1991, on the last valuation day
of each quarter from March 1992 through December 1997, and on the last
valuation day of each month of 1998. The results shown should not be considered
as a representation of the results which may be realized in the future.

12
<PAGE>

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 Companies, Inc., as of December 31, 1998 and 1997, and the related
statutory-basis statements of income, 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.

As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Tennessee Department of Commerce and Insurance, which
practices differ from generally accepted accounting principles. 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 effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial
position of Provident National Assurance Company at December 31, 1998 and 1997,
or the results of its operations or its cash flows for the years then ended.

However, 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, 1998 and 1997, 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 9, 1999

1
<PAGE>

STATEMENT OF FINANCIAL CONDITION--STATUTORY BASIS

Provident National Assurance Company

<TABLE>
<CAPTION>
December 31
1998 1997
(in thousands of dollars)
-------------------------
<S> <C> <C>
Admitted Assets
Cash and Invested Assets--Note 3
Bonds.............................................. $ 447,981 $ 711,181
Cash and Short-term Investments.................... 21,580 51
Receivable for Securities.......................... 732 6,379
----------- -------------
Total Cash and Invested Assets................... 470,293 717,611
Other Assets
Investment Income Due and Accrued.................. 9,256 12,778
Receivable from Parent, Subsidiaries, and
Affiliates........................................ 5,996 115
Other Receivables.................................. 674 --
----------- -------------
Total Assets Excluding Separate Accounts Business.... 486,219 730,504
From Separate Accounts Statement..................... 343,928 282,950
----------- -------------
Total Admitted Assets................................ $830,147 $1,013,454
=========== =============
</TABLE>

See notes to financial statements--statutory basis.

2
<PAGE>

STATEMENT OF FINANCIAL CONDITION--STATUTORY BASIS--(Continued)

Provident National Assurance Company

<TABLE>
<CAPTION>
December 31
1998 1997
(in thousands of dollars)
-------------------------
<S> <C> <C>
Liabilities and Capital and Surplus
Annuity Reserves.................................. $ 192,430 $ 195,788
Guaranteed Interest Contracts..................... 229,989 373,802
Other Contract Deposit Funds...................... 1,880 58,164
Asset Valuation Reserve........................... 4,592 5,522
Federal Income Taxes.............................. 524 1,797
Borrowed Money and Interest Thereon............... -- 13,607
Payable for Securities............................ -- 4,821
Other Liabilities................................. 114 2,789
----------- -------------
Total Liabilities Excluding Separate Accounts
Business........................................... 429,529 656,290
From Separate Accounts Statement.................... 343,928 282,950
----------- -------------
Total Liabilities................................... 773,457 939,240
----------- -------------
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............. 45,175 58,457
Special Surplus Funds............................. 1,058 1,039
Unassigned Surplus................................ 7,457 11,718
----------- -------------
Total Capital and Surplus........................... 56,690 74,214
----------- -------------
Total Liabilities and Capital and Surplus........... $ 830,147 $ 1,013,454
=========== =============
</TABLE>

See notes to financial statements--statutory basis.

3
<PAGE>

STATEMENTS OF INCOME--STATUTORY BASIS

Provident National Assurance Company

<TABLE>
<CAPTION>
Year Ended December 31
1998 1997
(in thousands of dollars)
--------------------------
<S> <C> <C>
Revenue
Premium Income.................................. $ 70 $ 125
Annuity and Other Fund Deposits................. 2,465 5,101
Net Investment Income........................... 47,481 65,794
Amortization of Interest Maintenance Reserve.... (2,244) (2,278)
Other Income.................................... 2,890 2,616
------------ ------------
Total Revenue..................................... 50,662 71,358
------------ ------------
Benefits and Expenses
Annuity Benefits................................ 19,791 19,880
Surrender Benefits and Other Fund Withdrawals... 172,687 449,268
Interest on Policy or Contract Funds............ 21,658 39,747
Change in Annuity Reserves...................... (3,358) (3,465)
Change in Liability for Deposit Funds........... (170,222) (444,167)
Insurance Taxes, Licenses, and Fees............. 1,565 (5,486)
Other Expenses.................................. 459 439
------------ ------------
Total Benefits and Expenses....................... 42,580 56,216
------------ ------------
Net Gain from Operations before Federal Income
Taxes and Net Realized Capital Losses............ 8,082 15,142
Federal Income Taxes.............................. 2,059 6,107
------------ ------------
Net Gain from Operations before Net Realized
Capital Losses................................... 6,023 9,035
Net Realized Capital Losses--Note 3............... (2,932) (1,999)
------------ ------------
Net Income........................................ $ 3,091 $ 7,036
============ ============
</TABLE>

See notes to financial statements--statutory basis.

4
<PAGE>

STATEMENTS OF CAPITAL AND SURPLUS--STATUTORY BASIS

Provident National Assurance Company

<TABLE>
<CAPTION>
Year Ended December 31
1998 1997
(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 of Year..................... 58,457 58,457
Return of Capital................................ (13,282) --
------------ ------------
Balance at End of Year........................... 45,175 58,457
------------ ------------
Special Surplus Funds
Balance at Beginning of Year..................... 1,039 1,023
Increase During Year............................. 19 16
------------ ------------
Balance at End of Year........................... 1,058 1,039
------------ ------------
Unassigned Surplus
Balance at Beginning of Year..................... 11,718 4,837
Net Income....................................... 3,091 7,036
Change in Non-admitted Assets and Related Items.. 3,455 4,871
Change in Reserve on Account of Change in
Valuation Basis................................. -- (5,000)
Change in Asset Valuation Reserve................ 930 9,990
Transferred to Special Surplus Funds............. (19) (16)
Dividends to Stockholder......................... (11,718) (10,000)
------------ ------------
Balance at End of Year........................... 7,457 11,718
------------ ------------
Total Capital and Surplus.......................... $ 56,690 $ 74,214
============ ============
</TABLE>

See notes to financial statements--statutory basis.

5
<PAGE>

STATEMENTS OF CASH FLOWS--STATUTORY BASIS

Provident National Assurance Company

<TABLE>
<CAPTION>
Year Ended December 31
1998 1997
(in thousands of dollars)
--------------------------
<S> <C> <C>
Cash from Operations
Premiums Received............................... $ 70 $ 125
Annuity and Other Fund Deposits................. 2,465 5,101
Investment Income Received...................... 50,105 69,730
Other Income Received........................... 2,890 2,607
Annuity Benefits Paid........................... (19,791) (19,880)
Surrender Benefits and Other Fund Withdrawals
Paid........................................... (172,687) (449,268)
Insurance Expenses (Paid) Reimbursed............ (3,264) 1,400
Decrease in Ledger Assets Due to Reinsurance.... (51,533) --
Federal Income Taxes Paid....................... (2,802) (4,585)
------------ ------------
Net Cash from Operations.......................... (194,547) (394,770)
------------ ------------
Cash from Investments
Proceeds from Investments Sold, Matured, or
Repaid......................................... 396,480 374,407
Tax on Capital Gains and Losses Paid............ (4,132) (3,172)
Cost of Long-term Investments Acquired.......... (130,063) (42,402)
------------ ------------
Net Cash from Investments......................... 262,285 328,833
------------ ------------
Cash from Financing and Miscellaneous Sources
Return of Capital............................... (13,282) --
Borrowed Money (Repayment)...................... (13,604) 6,488
Dividends Paid to Stockholder................... (11,718) (10,000)
Other Applications.............................. (7,605) (3,833)
------------ ------------
Net Cash from Financing and Miscellaneous
Sources.......................................... (46,209) (7,345)
------------ ------------
Net Increase (Decrease) in Cash and Short-term
Investments...................................... 21,529 (73,282)
Cash and Short-term Investments at Beginning of
Year............................................. 51 73,333
------------ ------------
Cash and Short-term Investments at End of Year.... $ 21,580 $ 51
============ ============
</TABLE>

See notes to financial statements--statutory basis.

6
<PAGE>

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 Companies, Inc., a non-insurance holding company
incorporated in Delaware. 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 amounts reported in the financial
statements and accompanying notes. Such estimates and assumptions could change
in the future as more information becomes known, which could impact the amounts
reported and disclosed herein.

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.

In 1998, the NAIC approved a codification of statutory accounting practices
effective January 1, 2001, which will serve as a comprehensive and standardized
guide to statutory accounting principles. Following implementation, statutory
accounting principles will continue to be governed by individual state laws and
permitted practices until adoption by the various states. Accordingly, before
codification becomes effective for the Company, the Tennessee Department of
Commerce and Insurance must adopt codification as the prescribed basis of
accounting. The adoption of the codification will change, to some extent, the
accounting practices that 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: Bonds are carried at amortized cost with the discount or premium
amortized using the interest method. For GAAP, bonds 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 on available-for-sale bonds are reported in stockholder's equity as
accumulated other comprehensive income. Bonds 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.

Non-admitted Assets: Non-admitted assets, principally receivables and
disallowed interest maintenance reserve (IMR), 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 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.

7
<PAGE>

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)

Provident National Assurance Company

Note 1--Significant Accounting Policies--Continued

Federal Income Taxes: Federal income taxes are provided based on the estimated
liability for taxes incurred. Deferred federal income taxes are not provided
for differences between the carrying amounts of assets and liabilities for
financial statement purposes and amounts used for income tax purposes.

Reinsurance: Policy and contract liabilities ceded to reinsurers have been
reported as reductions of the related reserves rather than assets as would be
required under GAAP.

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 rather than on a pre-tax
basis. The Company defers the portion of realized capital gains and losses, net
of tax, on sales of bonds which are attributable to changes in the general
level of interest rates. The deferred gains and losses are accumulated in the
interest maintenance reserve (IMR) and are amortized over the remaining period
to maturity based on groupings of securities sold in five-year bands.

For a reconciliation of net income and capital and surplus determined on a
statutory basis to net income 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 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. 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 are recorded directly in unassigned
surplus.

Derivative Instruments: Derivative instruments, which consist of 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 the Company agrees with
other parties to exchange, at specified intervals, the difference between fixed
rate and variable rate interest amounts, calculated by reference to an agreed
upon notional principal amount. No cash is exchanged at the outset of the
contract, and no principal payments are made by either party. A single net
payment is usually made by one counterparty at each due date. 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, for cash, the forward interest rate swap agreements prior to the
commencement of the exchange of interest payment streams.

8
<PAGE>

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)

Provident National Assurance Company

Note 1--Significant Accounting Policies--Continued

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
income as an adjustment to net investment income.

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 IMR 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 income 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.

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 aggregate duration that closely
matches the expected duration of the liabilities. For GICs, which are no longer
marketed, the Company uses a cash flow matching investment strategy.

Reinsurance: Reinsurance activity is accounted for on a basis consistent with
that used in accounting for the original policies issued and the terms of the
reinsurance contracts.

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.

Reclassification: Certain prior year amounts in the financial statements have
been reclassified to conform to the 1998 presentation.

9
<PAGE>

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)

Provident National Assurance Company

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)
-----------------------------------
1998 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
-----------------------------------
<S> <C> <C> <C> <C>
Admitted Assets
Bonds..................................... $447,981 $483,904 $711,181 $752,178
Cash...................................... 187 187 51 51
Short-term Investments.................... 21,393 21,393 -- --
Liabilities
GICs...................................... 229,989 234,815 373,802 378,574
Borrowed Money............................ -- -- 13,604 13,604
</TABLE>

The following methods and assumptions were used by the Company in estimating
the fair values of its financial instruments:

Bonds: Fair values of bonds 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.

Cash and Short-term Investments: Carrying amounts for cash and short-term
investments approximate fair value.

GICs: Fair values for GICs are 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 insurance contracts other than investment contracts are not
required to be disclosed.

Borrowed Money: The carrying amount of borrowed money approximates fair value.

Interest Rate Swaps: Fair values of interest rate swaps 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 if the contracts had been settled or closed on December 31. Fair
values of interest rate swaps at December 31, 1998 and 1997 were $4,631,000 and
$2,718,000, respectively.

10
<PAGE>

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)

Provident National Assurance Company

Note 3--Investments

Bonds:

The amortized cost and fair values of bonds by security type are as follows:

<TABLE>
<CAPTION>
December 31, 1998
(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.............. $ 2,717 $ 633 $ -- $ 3,350
Foreign Governments.................... 104 1 -- 105
Public Utilities....................... 125,534 19,043 -- 144,577
Mortgage-backed Securities............. 64,320 2,640 -- 66,960
All Other Corporate Bonds.............. 255,306 16,865 3,259 268,912
-------- ------- ------ --------
Total................................ $447,981 $39,182 $3,259 $483,904
======== ======= ====== ========
<CAPTION>
December 31, 1997
(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.............. $ 2,720 $ 413 $ -- $ 3,133
Foreign Governments.................... 107 -- 1 106
Public Utilities....................... 136,436 20,834 142 157,128
Mortgage-backed Securities............. 247,140 4,627 320 251,447
All Other Corporate Bonds.............. 324,778 16,076 490 340,364
-------- ------- ------ --------
Total................................ $711,181 $41,950 $ 953 $752,178
======== ======= ====== ========
</TABLE>

11
<PAGE>

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, 1998
(in thousands of
dollars)
------------------
Amortized Fair
Cost Value
--------- --------
<S> <C> <C>
1 year or less.............................................. $ 30,440 $ 31,238
Over 1 year through 5 years................................. 50,333 52,234
Over 5 years through 10 years............................... 55,333 54,659
Over 10 years............................................... 247,555 278,813
-------- --------
383,661 416,944
Mortgage-backed Securities.................................. 64,320 66,960
-------- --------
$447,981 $483,904
======== ========
</TABLE>

For the years ended December 31, 1998 and 1997, there were changes in net
unrealized gains and losses on bonds of $(5,074,000) and $12,833,000,
respectively. These unrealized gains and losses are not reported in the
financial statements.

At December 31, 1998, the total investment in below-investment-grade bonds
(securities rated below Baa3 by Moody's Investor Services or an equivalent
internal rating) was $28,139,000 or 6.0 percent of cash and invested assets.
The fair value of these investments was $27,535,000.

Net Investment Income:

Sources for net investment income are as follows:

<TABLE>
<CAPTION>
Year Ended December 31
1998 1997
(in thousands of dollars)
<S> <C> <C>
-------------------------
Bonds................................................ $ 48,883 $ 65,332
Mortgage Loans....................................... 125 22
Short-term Investments............................... 938 1,666
Derivative Instruments............................... 122 184
Other Invested Assets................................ 277 (20)
------------ ------------
Gross Investment Income............................ 50,345 67,184
Investment Expenses.................................. 2,864 1,390
------------ ------------
Net Investment Income.............................. $ 47,481 $ 65,794
============ ============
</TABLE>

Due and accrued income on bonds where collection of interest is uncertain is
excluded from investment income. No amounts were excluded at December 31, 1998
and 1997.

12
<PAGE>

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)

Provident National Assurance Company

Note 3--Investments--Continued

Realized Capital Gains and Losses:

Realized capital gains (losses) on investments are as follows:

<TABLE>
<CAPTION>
Year Ended
December 31
1998 1997
(in thousands of dollars)
--------------------------
<S> <C> <C>
Bonds.............................................. $ 1,671 $ 3,955
Miscellaneous...................................... 85 --
------------ ------------
Total............................................ 1,756 3,955
Federal Income Tax................................. 3,602 3,383
------------ ------------
Pre-IMR Capital Gains (Losses), Net of Tax......... (1,846) 572
------------ ------------
Transferred to IMR:
Pre-tax Capital Gains............................ 1,671 3,955
Federal Income Tax............................... 585 1,384
------------ ------------
1,086 2,571
------------ ------------
Net Realized Capital Losses........................ $ (2,932) $ (1,999)
============ ============
</TABLE>

Proceeds from sales of bonds for the years ended December 31, 1998 and 1997
were $237,109,000 and $153,643,000, respectively. Gross gains of $2,230,000 and
$4,483,000 and gross losses of $559,000 and $528,000, respectively, were
realized during 1998 and 1997 on sales and calls of bonds.

13
<PAGE>

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)

Provident National Assurance Company

Note 4--Derivative Financial Instruments

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
derivatives should generally offset the market risk associated with the hedged
financial instrument or liability. The credit exposure of derivatives is
limited to the value of those contracts in a net gain position. The Company
mitigates credit risk by entering into master agreements with its
counterparties whereby contracts in a gain position can be offset against
contracts in a loss position. Additionally, the Company typically enters into
bilateral, cross-collateralization agreements with its counterparties. 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, which is limited to the value of those contracts in a net gain
position, was $2,998,000 at December 31, 1998.

Hedges Outstanding

In 1996, the Company executed a series of cash flow hedges in the group single
premium annuity portfolio, hedging $30,000,000 of expected cash flows in the
years 2001 and 2002 using forward interest rate swaps (receive fixed/pay
variable). The purpose of this action was to lock in the reinvestment rates on
future cash flows and protect the Company from the potential adverse impact of
declining interest rates on the associated policy reserves. These swaps are
scheduled to be terminated as assets are purchased with the future anticipated
cash flows.

The following table summarizes the timing of anticipated settlements of
interest rate swaps outstanding at December 31, 1998, and the related weighted
average interest receive rate or pay rate assuming current market conditions.
<TABLE>
<CAPTION>
2001 2002 Total
(in thousands of
dollars)

-------------------------
<S> <C> <C> <C>
Receive Fixed/Pay Variable
Notional Value....................................... $10,000 $20,000 $30,000
Weighted Average Receive Rate........................ 7.42% 7.44% 7.43%
Weighted Average Pay Rate............................ 5.07% 5.07% 5.07%
</TABLE>

14
<PAGE>

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)

Provident National Assurance Company

Note 5--Annuity Actuarial Reserves and Deposit Liabilities

The withdrawal characteristics of annuity actuarial reserves and deposit
liabilities are as follows:

<TABLE>
<CAPTION>
December 31, 1998
(in thousands of dollars)
-------------------------
Amount %
-------------------------
<S> <C> <C>
Subject to Discretionary Withdrawal With Adjustment
With Market Value Adjustment..................... $ 267,893 33.1%
At Market Value.................................. 340,596 42.1
-------------- ----------
Total With Adjustment or at Market Value........... 608,489 75.2
Subject to Discretionary Withdrawal Without
Adjustment........................................ 11,634 1.4
Not Subject to Discretionary Withdrawal............ 188,844 23.4
-------------- ----------
808,967 100%
==========
Reinsurance Ceded.................................. 47,659
--------------
Net of Reinsurance................................. $ 761,308
==============
</TABLE>

Note 6--Reinsurance

In December 1997, the Company entered into an agreement to reinsure its in-
force block of individual and tax-sheltered annuity business with The Variable
Annuity Life Insurance Company, an affiliate of American General Corporation.
The transaction was completed during the second quarter of 1998. The market
value of assets transferred in connection with the transaction totaled
$51,842,000 and the book value of liabilities assumed was $51,533,000.
Reinsurance ceded information under the terms of the reinsurance agreement is
as follows:

<TABLE>
<CAPTION>
Year Ended
December 31, 1998
(in thousands of dollars)
-------------------------
<S> <C>
Annuity and Other Fund Deposits....................... $ 1,076
Surrender Benefits and Other Fund Withdrawals......... 10,156
Change in Liability for Deposit Funds................. (5,579)
Other Contract Deposit Funds.......................... 47,659
</TABLE>

If the reinsurer is unable to meet its obligations, the Company remains
contingently liable. There were no additional reinsurance contracts in effect
for 1998 and 1997.

15
<PAGE>

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)

Provident National Assurance Company

Note 7--Federal Income Taxes

The Company is included along with its affiliates in a consolidated tax return
filed by Provident Companies, Inc. 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 the members of the
group to the extent losses are used to offset income within the group.

A reconciliation of the federal income tax computed at the statutory corporate
tax rate and the federal income tax expense in the statements of income
follows:

<TABLE>
<CAPTION>
Year Ended
December 31
1998 1997
------ -----
<S> <C> <C>
Statutory Federal Income Tax Rate................................ 35.0% 35.0%
Tax-preferred Investment Income.................................. (1.3) (1.0)
Accrual of Market Discount Bonds................................. (3.1) (0.2)
Reserves......................................................... (12.9) (1.2)
Amortization of IMR.............................................. 9.7 5.3
Other Items, Net................................................. (1.9) 2.4
------ -----
Effective Federal Income Tax Rate................................ 25.5% 40.3%
====== =====
</TABLE>

During 1998, the Company negotiated a tentative settlement with the Internal
Revenue Service of its federal income tax liability for years 1986 through
1992. Also during 1998, the Internal Revenue Service continued its examination
of the Company's federal income tax returns for tax years 1993 through 1995.
Management believes this settlement and examination will have no material
adverse impact on the Company's financial statements.

16
<PAGE>

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)

Provident National Assurance Company

Note 8--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 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,
1998, is as follows:

<TABLE>
<CAPTION>
Non-guaranteed Separate
Accounts
(in thousands of dollars)
-------------------------
<S> <C>
Premiums, Considerations of Deposits.............. $ 25,517
========
Reserves for Accounts With Assets at Fair Value... $342,807
========
By Withdrawal Characteristics:
At Fair Value................................... $342,807
========
</TABLE>

A reconciliation of the amounts transferred to and from the separate accounts
is as follows:

<TABLE>
<CAPTION>
Year Ended
December 31, 1998
(in thousands of dollars)
-------------------------
<S> <C>
Transfers as Reported in the Summary of Operations
of the Separate Accounts Statement:
Transfers to Separate Accounts...................... $25,517
Transfers from Separate Accounts.................... 39,719
-------
Net Transfers from Separate Accounts................ (14,202)
Increase in Liability for Deposit Funds and
Reserves Less Investment Income.................... 12,595
Investment Management Fees.......................... 1,607
-------
Transfer as Reported in the Summary of Operations of
the
Life, Accident and Health Annual Statement.......... $ --
=======
</TABLE>

Note 9--Retirement Benefits

The Company has no employees and, therefore, has no benefit plans. The Company
purchases services from its parent, Provident Companies, Inc., in accordance
with an intercompany cost sharing arrangement. There is no obligation on the
part of the Company beyond the amounts paid as part of the cost of services
purchased.

17
<PAGE>

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)

Provident National Assurance Company

Note 10--Related Party Transactions

During 1998, the Company paid common stock dividends to Provident Companies,
Inc. of $11,718,000 and made a return of capital in the amount of $13,282,000,
both of which were considered extraordinary dividends and were approved by the
Tennessee Department of Commerce and Insurance. During 1997, the Company paid
common stock dividends to Provident Companies, Inc. of $10,000,000.

During 1998 and 1997, the Company borrowed from and loaned to its parent and
affiliates short-term funds. The related interest expense and interest income
are as follows:

<TABLE>
<CAPTION>
Year Ended December 31
1998 1997
(in thousands of dollars)
-------------------------
<S> <C> <C>
Interest Expense................................ $222 $ 74
Interest Income................................. 100 --
</TABLE>

As of December 31, 1998, the Company had an outstanding short-term loan
receivable from Provident Life and Accident Insurance Company in the amount of
$5,067,000 bearing interest at 6.13% and maturing January 5, 1999. Affiliated
borrowings outstanding at December 31, 1997 consisted of a $13,604,000 short-
term note from Provident Companies, Inc. The note payable was issued on
December 31, 1997, bearing interest at 6.41%. The note matured and was repaid
in full on January 2, 1998. There were no additional affiliated borrowings or
lendings outstanding at December 31, 1998 and 1997.

During 1998 and 1997, the Company paid management fees to its affiliates of
$1,211,000 and $257,000, respectively.

Note 11--Commitments and Contingent Liabilities

The Company is subject to lawsuits arising in the normal course of business.
Contingent liabilities that might arise from litigation are not deemed likely
to materially affect the financial position or results of operations 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 $6,023,000 in dividend distributions in 1999.

At December 31, 1998, the Company had on deposit with regulatory authorities
securities with a statement value of $2,385,000 held for the protection of
policyholders.

18
<PAGE>

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)

Provident National Assurance Company

Note 13--GAAP Reconciliation

Following is a reconciliation of net income 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 Income Capital and Surplus
Year Ended
December 31 December 31
1998 1997 1998 1997
-------------------------------------
(in thousands of dollars)
<S> <C> <C> <C> <C>
Statutory basis amounts................. $3,091 $ 7,036 $ 56,690 $ 74,214
Add (deduct) adjustments:
Investments........................... 1,086 2,572 39,475 42,783
Asset Valuation Reserve and
Interest Maintenance Reserve......... 2,244 2,278 3,062 662
Reserve for future policy and contract
benefits............................. (94) (347) (24,831) (28,071)
Non-admitted assets................... -- -- 1,529 4,984
Deferred income tax................... 3,571 1,896 8,014 4,453
------ ------- --------- ---------
GAAP basis amounts...................... $9,898 $13,435 $ 83,939 $ 99,025
====== ======= ========= =========
</TABLE>

19
<PAGE>

PROVIDENT NATIONAL ASSURANCE COMPANY SEPARATE ACCOUNT B
PART C
OTHER INFORMATION

Item 28(A). Financial Statements and Exhibits

INCLUDED IN PROSPECTUS

Per unit income and capital changes and variable annuity unit
values -- condensed financial information for the ten years ended
December 31, 1998

(i) Provident National Assurance Company Separate Account B

Report of Independent Auditors
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Contract Owners'
Equity
Schedule of Investments
Supplementary Information
Notes to Financial Statements

INCLUDED IN STATEMENT OF ADDITIONAL INFORMATION

Provident National Assurance Company

Report of Independent Auditors
Statements of Financial Condition--Statutory Basis
Statements of Income--Statutory Basis
Statements of Capital and Surplus--Statutory Basis
Statements of Cash Flows--Statutory Basis
Notes to Financial Statements--Statutory Basis

Item 28(B). List of 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.

-1-
<PAGE>

* (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)

* (4.1) Investment Advisory Agreement (Post-Effective
Amendment No. 23; April 3, 1978)

* (4.2) Sub-Advisory Agreement

* (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) Separate Account Administrative Services Agreement

* (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

-2-
<PAGE>

Item 29. DIRECTORS AND OFFICERS OF THE INSURANCE COMPANY

(1) (2) (3)
Position and
Name and Address Positions and Offices Offices with
Principal Address with Insurance Company Registrant

J. Harold Chandler Chairman, President None
1 Fountain Square and CEO, Director
Chattanooga, TN 37402

Thomas R. Watjen Vice Chairman and Chief None
1 Fountain Square Financial Officer, Director
Chattanooga, TN 37402

William L. Armstrong Director None
1625 Broadway, Suite 780
Denver, CO 80202

William H. Bolinder Director None
1400 American Lane
Schaumberg, IL 60196

Charlotte M. Heffner Director None
1991 West Paces Ferry Road, NW
Atlanta, Georgia 30327-2515

Hugh B. Jacks Director None
101 Carnoustie
Shoal Creek, AL 35242

Hugh O. Maclellan, Jr. Director None
Suite 501
1 Fountain Square
Chattanooga, TN 37402

A.S. MacMillan Director None
2100 River Edge Pkwy., Suit 800
Atlanta, GA 30328-4604

C. William Pollard Director None
One ServiceMaster Way
Downers Grove, IL 60515

Scott L. Probasco, Jr. Director None
736 Market Street, 16th Floor
Chattanooga, TN 37402

Steven S Reinemund Director None
7701 Legacy Drive
Plano, TX 75024

Burton E. Sorensen Director None
Sand Spring Road
Morristown, NJ 07960

Robert O. Best Executive Vice President and None
1 Fountain Square Chief Information Officer
Chattanooga, TN 37402

F. Dean Copeland Executive Vice President None
1 Fountain Square and General Counsel
Chattanooga, TN 37402

-3-
<PAGE>

(1) (2) (3)
Position and
Name and Address Positions and Offices Offices with
Principal Address with Insurance Company Registrant

Thomas B. Heys, Jr. Executive Vice President, None
1 Fountain Square Institutional Sales
Chattanooga, TN 37402

Peter C. Madeja Executive Vice President None
440 East Swedesford Road
Suite 3050
Wayne, PA 19087

Robert C. Greving Senior Vice President None
1 Fountain Square and Actuary
Chattanooga, TN 37402

Ralph A. Rogers Senior Vice President None
1 Fountain Square and Treasurer
Chattanooga, TN 37402

-4-
<PAGE>

(1) (2) (3)
Position and
Name and Address Positions and Offices Offices with
Principal Address with Insurance Company Registrant

Susan N. Roth Vice President, Secretary Secretary
1 Fountain Square and Counsel to the
Chattanooga, TN 37402 Board of
Managers

Vicki W. Corbett Vice President and Controller None
1 Fountain Square
Chattanooga, TN 37402

Item 30. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
THE INSURANCE COMPANY OR THE REGISTRANT

Provident Companies, Inc. (Parent Company;
A Delaware Corporation)

Provident Life and Accident (A Tennessee Corporation)
Insurance Company*

Provident Life and Casualty (A Tennessee Corporation)
Insurance Company*

Provident National Assurance Company* (A Tennessee Corporation)
Sponsor of the Registrant

The Paul Revere Corporation* (A Massachusetts Corporation)

The Paul Revere Life Insurance Company** (A Massachusetts Corporation)

The Paul Revere Variable Annuity (A Massachusetts Corporation)
Insurance Company***

The Paul Revere Protective Life (A Delaware Corporation)
Insurance Company***

The Paul Revere Equity Sales Company*** (A Massachusetts Corporation)

* These companies are wholly owned subsidiaries of Provident Companies,
Inc.
** This company is a direct wholly owned subsidiary of The Paul Revere
Corporation, a wholly owned subsidiary of Provident Companies, Inc.

*** These companies are direct wholly owned subsidiaries of The Paul
Revere Life Insurance Company, a wholly owned subsidiary of The Paul
Revere Corporation.

-5-
<PAGE>

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.

Item 31. Number of Contract Owners (As of February 26, 1999)
Separate Account B - 341

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.

-6-
<PAGE>

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 Robert O. Best.

Item 36. Management Services

None

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).

-7-
<PAGE>

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 29th day of April, 1999.

PROVIDENT NATIONAL ASSURANCE
COMPANY SEPARATE ACCOUNT B

By /s/ David G. Fussell
---------------------------
Chairman, Board of Managers

PROVIDENT NATIONAL ASSURANCE
COMPANY

By /s/ J. Harold Chandler
-----------------------
Chairman, President and
Chief Executive Officer

-8-
<PAGE>

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.

Signature Title Date

/s/ David G. Fussell Chairman and Member of April 29, 1999
- -------------------- The Board of Managers
David G. Fussell (Principal Executive
Officer and Principal
Financial Accounting
Officer)

/s/ Henry E. Blaine Member of the Board April 29, 1999
- ------------------- of Managers
Henry E. Blaine

/s/ H. Grant Law, Jr. Member of the Board April 29, 1999
- --------------------- of Managers
H. Grant Law, Jr.

-9-
<PAGE>

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 by
the undersigned, thereunto duly authorized in the City of Chattanooga, State of
Tennessee, on the 29th day of April, 1999.

PROVIDENT NATIONAL ASSURANCE COMPANY

By /s/ J. Harold Chandler
-------------------------
J. Harold Chandler
Chairman, President and
Chief Executive Officer

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 April 29, 1999, in the capacities indicated.

/s/ * Chairman, President and Chief Executive
- -------------------------- Officer, Director
J. Harold Chandler (Principal Executive Officer

/s/ * Vice Chairman and
- --------------------------- Chief Financial Officer, Director
Thomas R. Watjen

/s/ * Director
- ---------------------------
William L. Armstrong

/s/ Director
- ---------------------------
William H. Bolinder

/s/ * Director
- ---------------------------
Charlotte M. Heffner

/s/ * Director
- ---------------------------
Hugh B. Jacks

/s/ * Director
- ---------------------------
Hugh O. Maclellan, Jr.

/s/ * Director
- ---------------------------
A.S. MacMillan

/s/ Director
- ---------------------------
C. William Pollard

/s/ * Director
- ---------------------------
Scott L. Probasco, Jr.

/s/ * Director
- ---------------------------
Steven S Reinemund

/s/ * Director
- ---------------------------
Burton E. Sorensen

* By: /s/ Susan N. Roth For all of the Directors
---------------------
Susan N. Roth
Attorney-in-Fact

-10-

<PAGE>

EXHIBIT 4.2

PROVIDENT INVESTMENT MANAGEMENT, LLC

SUB-ADVISORY AGREEMENT

This Agreement is made and entered into this 25th day of June, 1998 by and
between Provident National Assurance Company, a Tennessee corporation,
("Client"), and Provident Investment Management, LLC, a Tennessee limited
liability company ("Manager"), for the purpose of setting forth the terms and
conditions by which Manager will manage the assets designated and shall be
effective June 25, 1998 (the "Effective Date").

WHEREAS, pursuant to an Investment Advisory Agreement (the "Advisory
Agreement") between Client and the Separate Account and Provident National
Assurance Company Separate Account B, an open-end diversified investment company
registered under the Investment Company Act of 1940 (the "Act"), established as
an insurance company separate account under the laws of Tennessee (the "Separate
Account"), Client provides the Board of Managers of the Separate Account with an
investment program and recommendations on the purchase and sale of investments,
and has the responsibility for placing orders for purchases and sales; and

WHEREAS, under the Advisory Agreement Client is authorized to employ one or
more sub-advisors in connection with the services to be provided by Client to
the Separate Account; and

NOW, THEREFORE, in consideration of the premises, the parties hereto agree
as follows:

1. Appointment as a Manager. Client hereby appoints and retains Manager
-------------------------
as investment adviser on the terms and conditions set forth herein for those
assets of the Separate Account designated in writing by Client (the
"Portfolio"). The "Portfolio" shall include all investments and reinvestments
of, and all income earned by, any assets from time to time in the Portfolio.
Manager will assume responsibility for the investment management of the
Portfolio on the Effective Date.

2. Authority. Manager shall have full discretionary authority with
----------
respect to the assets of the Portfolio, subject to the attached Investment
Objectives and Guidelines as they may be modified from time to time and such
additional objectives and restrictions as Client may impose by notice in writing
from time to time (collectively, the "Guidelines"). Manager, as agent and
attorney-in-fact with respect to the Portfolio, when it deems appropriate,
without prior consultation with Client, may (a) buy, sell, exchange, convert and
otherwise trade in any permissible securities as specified in the Guidelines,
and (b) place orders for the execution of such securities transactions with or
through such brokers, dealers or issuers as Manager may select.

3. Acceptance and Acknowledgments by Manager.
------------------------------------------

(a) By execution of this Agreement, Manager accepts the appointment
as investment adviser and agrees to manage and direct the investments of
the Portfolio in accordance with the Guidelines as communicated to Manager
in writing from time to time. Manager acknowledges that Client shall be
the sole judge of Manager's conformity with the Guidelines.

(b) Client hereby directs the Manager and Manager agrees, to use its
best efforts to select investments for the Portfolio in compliance with
such Guidelines and on the basis of the investments' possibilities for
achieving the objectives and needs outlined in the Guidelines. Client
acknowledges that Manager does not warrant the rate of return on or market
value of the investments of the Portfolio.

4. Duty and Liability of Manager. Manager shall discharge its duties
------------------------------
under this Agreement with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent person acting in a like
<PAGE>

capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims and investment policies.
Manager shall be required to take into account diversification, liquidity and
other needs as may be communicated to Manager by Client in writing. In the
performance of its services, Manager will not be liable for any error in
judgment or any acts or omissions to act except those resulting from Manager's
material failure to discharge its duties in accordance with the terms and
standards set forth in this Agreement, willful misconduct or malfeasance.
Nothing herein shall in any way constitute a waiver or limitation of any right
of any person under the Federal Securities Laws.

5. Allocation of Brokerage. When Manager places orders for the execution
------------------------
of transactions for the Portfolio, Manager may allocate such transactions to
such brokers and dealers for execution on such markets, at such prices and at
such commission rates as in the good faith judgment of Manager will be in the
best interest of the Portfolio (i.e., best execution).

6. Transaction Procedures. All transactions will be settled by payment
-----------------------
to, or delivery by, the Custodian of all cash, securities or other assets due to
or from the Portfolio. Manager may issue such instructions to the Custodian as
may be appropriate in connection with the settlement of transactions initiated
by Manager. No cash, securities or other assets due to or held for the Portfolio
shall be paid or delivered to Manager. Instructions of Manager to the Custodian
shall be transmitted in writing, and Manager will instruct all broker-dealers
executing orders on behalf of the Portfolio to forward to the Custodian written
or electronic notification of the issuance of each order and confirmation
thereof. Manager will take reasonable measures to insure that broker-dealers
selected by Manager perform their obligations with respect to the Portfolio.

7. Investment Objectives and Restrictions. It will be Client's
---------------------------------------
responsibility to advise Manager in writing of any changes or modifications to
the investment objectives of the Portfolio as well as any specific investment
restrictions applicable thereto.

8. Confidential Relationship. All data provided by Client or the
--------------------------
Custodian to Manager or developed by any of the three parties in connection with
the investment relationship between Client and Manager shall be held as
confidential by Manager and will not be revealed in any manner to any third
person without first obtaining the written consent of Client; provided, however,
that at the written request of Client, or upon Client's written consent,
information as to investments may be disclosed for the purposes of evaluating
the performance of Manager and the Portfolio or as may be required by law.
Notwithstanding the above, any information which subsequently becomes public by
other than Manager shall not be restricted by this Agreement.

9. Fees.
-----

(a) In consideration of the services to be performed by Manager
pursuant to the terms of this Agreement, Client will pay to Manager
compensation in the amount of fifteen (15) basis points per annum, based on
the average market value of the Portfolio as of the last business day of
each calendar month in the quarter. No fees may be exacted from the portion
of the Portfolio that consists of assets of plans sponsored by any of
Client's companies and qualified pursuant to Section 401 of the Internal
Revenue Code of 1986, as amended, and related sections, except for
reasonable costs a permitted pursuant to Section 408(b) of the Employee
Retirement Income Security Act of 1974, as amended, and the implementing
regulations. The fee shall be payable quarterly by Client in arrears within
thirty (30) days after receipt of a statement from Manager setting forth
the calculation of such fee.

(b) In the event Manager serves for less than a complete quarter, the
fee shall be calculated and shall be payable on a pro rata basis for the
period of the quarter for which Manager acts as investment manager for the
Portfolio.

2
<PAGE>

10. Determination of Value. Manager will provide Client with a value of
-----------------------
the Portfolio as of the end of each day (the "Valuation Date") during this
Agreement. Such valuation shall be in the form of a written summary of the
assets held in the Portfolio on the Valuation Date. Securities for which market
quotations are readily available will be valued at the last sale price or if not
traded on trade day at the known current bid price believed by Manager to most
accurately represent current market value. Other securities and all other assets
will be valued at fair value as determined in good faith by Manager.

11. Services to Other Clients. It is understood that Manager performs
--------------------------
investment advisory services for various clients. Client agrees that Manager may
give advice and take action with respect to any of its other clients which may
differ from advice given or the timing or nature of action taken with respect to
the Portfolio, so long as it is Manager's policy to allocate, in Manager's
discretion, investment opportunities to the Portfolio over a period of time on a
fair and equitable basis relative to other clients. It is understood that
Manager shall not have any obligation to purchase or sell, or to recommend for
purchase or sale, for the Portfolio any security which Manager, its principals,
affiliates or employees may purchase or sell for its or their own accounts or
for the account of any other client, if in the opinion of Manager such
transaction or investment appears unsuitable, impractical or undesirable for the
Portfolio.

12. Other Fiduciaries. Client agrees that Manager shall not be liable for
------------------
a breach of fiduciary responsibility on the part of any fiduciary with respect
to the Portfolio other than Manager as regards any responsibility, obligation or
duty not assumed by Manager pursuant to this Agreement, except where (i) Manager
participates knowingly in, or knowingly undertakes to conceal, an act or
omission of such fiduciary, knowing such act or omission is a breach, (ii) by
failure to discharge its specific responsibilities under this agreement or any
applicable law, Manager has enabled such other fiduciary to commit a breach, or
(iii) Manager has knowledge of a breach by such other fiduciary and does not
notify Client in writing. Client also agrees that Manager shall not be under any
duty with regard to any assets, securities, funds or other properties which are
not included in the Portfolio.

13. Representations.
----------------

(a) Client and Manager each represents to the other that (i) it is
duly authorized and fully empowered to execute, deliver and perform this
Agreement and when executed it will be binding upon Client and Manager in
accordance with its terms and (ii) the terms of this Agreement do not
violate any obligation by which it may be bound, whether arising by
contract, operation of law or otherwise which would have a material adverse
effect on the ability of Client or Manager, as the case may be, to perform
its obligations under this Agreement.

(b) Manager further represents that it is registered as an
investment adviser under the Investment Advisers Act of 1940, and agrees
that it shall promptly notify Client of any change in its status as such,
or any other change in its business which may affect its ability to perform
its duties and responsibilities under this Agreement. Manager also agrees
to abide by all securities laws and other applicable laws.

14. Proxies. Manager acknowledges receipt of Client's policy for voting
--------
proxies and represents that such policy is consistent with its own current
policy for voting proxies. Unless otherwise directed by Client, Manager will
take all required action and render necessary advice with respect to the voting
of proxies solicited by or with respect to the issuers of securities in which
assets of the Portfolio may be invested from time to time. Manager shall report
to Client at such time and in such manner as Client may reasonably request but
at least quarterly with respect to all proxy voting responsibility exercised by
Manager for the Portfolio and regarding compliance with Client's and Manager's
proxy voting policies.

3
<PAGE>

15. Reports and Meetings. Manager shall furnish Client and the Board of
---------------------
Managers of the Separate Account with quarterly investment reports indicating
the assets and market values for each security following the end of each
calendar quarter. Manager shall also periodically attend meetings with Client
and the Board of Managers as appropriate and agreed upon, at least quarterly.

16. Conflict of Interest. Without Client's prior approval, Manager shall
---------------------
refrain from rendering advice or services to Client concerning securities of
companies affiliated with Manager.

17. Termination. This Agreement may be terminated without the payment of
------------
any penalty by either party upon thirty (30) days' prior written notice to the
other party; provided, however, that each party shall be responsible for all
actions taken hereunder prior to the termination. However, Client may terminate
Manager for material underperformance at any time during this period in
accordance with the provisions of this Section. Furthermore,

18. Term. This Agreement shall continue in effect for an initial term
-----
ending June 30, 1999, and thereafter from year to year so long as its
continuance is approved at least annually by (a) a vote of a majority of the
Board of Managers of the Separate Account or by the vote of a majority of the
outstanding units of the Separate Account and (b) by the vote of a majority of
the members of the Board of Managers of the Separate Account who are not parties
to the Investment Advisory Agreement or the Sub-Advisory Agreement or interested
persons (as defined in the Act) of any such party, by vote cast in person at a
meeting called for the purpose of voting on such approval.

19. Amendment; Assignment. Any amendment to this Agreement must be
----------------------
approved by (i) the Board of Managers of the Separate Account or by the vote of
a majority of the outstanding units of the Separate Account, and (ii) the
majority of those members of the Board of Managers of the Separate Account who
are not parties to the Advisory Agreement or the Sub-Advisory Agreement, as the
case may be, or interested persons of such a party, cast in person at a meeting
called for the purpose of voting on such an approval. The Agreement may be
terminated without penalty by the Board of Managers of the Separate Account or
by vote of a majority of the outstanding units of the Separate Account, upon 30
days' written notice to the Client which notice Client must forward to Manager,
and it terminates automatically in the event of its assignment (as defined in
the Act).

20. Notice. Unless otherwise specified herein, all notices, instructions
-------
and advices with respect to security transactions or any other matters
contemplated by this Agreement shall be deemed duly given when received by
Manager and Client in writing at their respective addresses appearing below.

21. Indemnification. Client and Manager agree to indemnify and hold each
----------------
other harmless from any and all expenses, damages, costs and fees, including
reasonable attorney's fees, which may be incurred by reason of the gross
negligence, bad faith, willful misconduct or malfeasance or reckless disregard
of its respective obligation of duties on the part of the offending party.

22. Disclosure Statement. Client acknowledges receipt of Part II of the
---------------------
Manager's Form ADV at least 48 hours prior to the Effective Date of this
Agreement, in compliance with Rule 204-3(b) under the Investment Advisers Act of
1940, as amended. If such form was not received by Client at least 48 hours
prior to the Effective Date, Client shall be entitled to terminate this
Agreement without obligation within 5 business days of execution.

23. Entire Agreement; Invalid Provisions. This Agreement constitutes the
-------------------------------------
entire agreement between Manager and Client with respect to the subject matter
hereof and supersedes any prior agreements or understandings with respect to the
subject matter hereof. If any provision of this Agreement is held to be
illegal,

4
<PAGE>

invalid or unenforceable under present or future law, such provision shall be
fully severable, and the remaining provisions of this Agreement shall remain in
full force and effect.

24. Counterparts. This Agreement may be executed in two or more
-------------
counterparts, each one of which shall be deemed to be an original.

25. Governing Law. To the extent Federal law does not apply, this
--------------
Agreement shall be construed in accordance with and governed by the laws of the
State of Tennessee.

MANAGER:

PROVIDENT INVESTMENT MANAGEMENT, LLC

BY: /s/ James A. Ramsay
--------------------------------
James A. Ramsay
Chief Manager

ADDRESS: 1 Fountain Square
Chattanooga, Tennessee 37402

CLIENT:

PROVIDENT NATIONAL ASSURANCE COMPANY

BY: /s/ Thomas R. Watjen
--------------------------------
Thomas R. Watjen
Vice Chairman and Chief Financial Officer

ADDRESS: 1 Fountain Square
Chattanooga, TN 37402

SEPARATE ACCOUNT:

PROVIDENT NATIONAL ASSURANCE COMPANY
SEPARATE ACCOUNT B

BY: /s/ David G. Fussell
----------------------------
David G. Fussell
Chairman of the Board of Managers

ADDRESS: 1 Fountain Square
Chattanooga, TN 37402

<PAGE>

EXHIBIT 11

SEPARATE ACCOUNT ADMINISTRATIVE SERVICES AGREEMENT

THIS SEPARATE ACCOUNT ADMINISTRATIVE SERVICES AGREEMENT (this "Agreement"),
dated as of May 15, 1998, , is made by and between Provident National Assurance
Company ("Provident") on behalf of itself and on behalf of its Separate Account
B (the "Separate Account") and The Variable Annuity Life Insurance Company
("VALIC"), a Texas stock life insurance company ("Administrator").

WHEREAS, the parties previously entered into the Acquisition Agreement
(defined below) and this Agreement is being entered into as contemplated by the
Acquisition Agreement.

WHEREAS, Provident wishes to appoint Administrator to provide certain
administrative services with respect to the Separate Account and the Contracts
(as defined below), and Administrator desires to provide such administrative
services.

NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and upon the terms and conditions set forth herein, the parties
to this Agreement agree as follows:

ARTICLE 1
DEFINITIONS
-----------

The following terms shall have the respective meaning set forth below
throughout the Agreement:

"ADMINISTRATOR LOSSES" shall have the meaning set forth in Section 10.1.

"ADMINISTRATIVE SERVICES" shall have the meaning set forth in Section 2.1.

"ACQUISITION AGREEMENT" means the Asset Transfer and Acquisition Agreement
entered into by and among Provident, various affiliates of Provident, VALIC, and
various affiliates of VALIC, dated as of December 8, 1997, and all exhibits
thereto, as amended through the date hereof.

"AFFILIATE" means, with respect to any Person, at the time in question, any
other Person controlling, controlled by, or under common control with, such
Person.

"BOARD OF MANAGERS" shall mean the Board of Managers of the Separate
Account.

"BUSINESS" shall have the same meaning as set forth in the Acquisition
Agreement.

"BUSINESS DAY" shall have the same meaning as set forth in the Acquisition
Agreement.
<PAGE>

"CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section 5.3.

"CONTRACT" means a contract of the Separate Account as identified in
Schedule A hereto.

"CONTRACTHOLDER" means the holder of a Contract.

"COMMISSION" means the United States Securities and Exchange Commission.

"EFFECTIVE DATE" shall mean August 31, 1998.

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

"FILINGS" shall mean all documents required to be filed with the Commission
relating to the Separate Account, including, but not limited to, Registration
Statements, Annual and Semi-Annual Reports to Contractholders, Contractholder
proxy materials, and filings on Form N-3, Form NSAR, and Form 24 F-2

"INDEMNIFIED PARTY" shall have the meaning set forth in Section 10.2.

"INDEMNIFYING PARTY" shall have the meaning set forth in Section 10.2.

"INTERMEDIARY" means an individual or entity designated by a Contractholder
as its broker of record or as the individual or entity that will act on such
Contractholder's behalf, in some or all respects, in connection with such
Contractholder's Contract.

"PERSON" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, trust, unincorporated organization,
governmental, judicial or regulatory body, business unit, division or other
entity.

"RULES AND REGULATIONS OF THE SEPARATE ACCOUNT" shall mean the Separate
Account's governing Rules and Regulations as adopted by the Separate Account's
Board of Managers and, as amended, from time to time.

"SEPARATE ACCOUNT LOSSES" shall have the meaning set forth in Section 10.1.

"SERVICE PROVIDER" means an individual or entity, other than an
Intermediary, that provides services to holders of Contracts.

"THIRD PARTY CLAIM" shall have the meaning set forth in Section 10.3.

"UMPIRE" shall have the meaning set forth in Article 12.

2
<PAGE>

ARTICLE 2
APPOINTMENT; STANDARDS; NOTIFICATION OF CONTRACTHOLDERS
-------------------------------------------------------

2.1 APPOINTMENT AND ACCEPTANCE OF APPOINTMENT. Provident hereby appoints
-----------------------------------------
Administrator to provide, with respect to the Separate Account and the
Contracts, the administrative services specified herein (collectively, the
"Administrative Services") for the period specified in Section 11.1, and
Administrator hereby accepts such appointment and agrees to perform such
services.

2.2 STANDARDS. Administrator acknowledges that the performance of the
---------
Administrative Services in an accurate and timely manner is of paramount
importance to Provident and the Separate Account. Administrator agrees to
perform the Administrative Services with the skill, diligence and expertise
commonly expected from experienced and qualified personnel, performing such
duties and in conformance with industry standards and applicable law; provided
that, prior to the date hereof, the Separate Account shall have been
administered in compliance with all applicable representations and warranties in
the Acquisition Agreement.

2.3 NOTIFICATION OF CONTRACTHOLDERS. Administrator agrees to send to (i)
-------------------------------
holders of the Contracts, (ii) Intermediaries, and (iii) Service Providers, a
written notice prepared by the Separate Account and reasonably acceptable to
Administrator to the effect that Administrator has been appointed by the
Separate Account to provide Administrative Services. This notice shall be in the
form of a supplement to the prospectus of the Separate Account. Administrator
shall send such notice promptly after receipt thereof, but in no event more than
30 Business Days thereafter, by first class U.S. mail.

ARTICLE 3
ADMINISTRATIVE SERVICES
-----------------------

3.1 ADMINISTRATIVE SERVICES IN GENERAL.
----------------------------------

(a) Administrator agrees to perform all administrative services
required to be performed with respect to the Separate Account and the Contracts,
and is authorized to do so in the name or on behalf of Provident or the Separate
Account where appropriate, including, without limitation those Administrative
Services specifically provided for in Sections 3.2 through 3.3 and elsewhere in
this Agreement, subject to the next following sentence. In no event shall
Administrator be responsible for the preparation or timely filing of the Filings
nor shall Administrator provide investment advisory services to the Separate
Account.

(b) The intention of the parties is that Administrator will perform
the Administrative Services in such a way as to minimize the involvement of the
Separate Account. When performing Administrative Services for the Separate
Account, the Administrator will comply with the provisions of the Rules and
Regulations of the Separate Account provided to

3
<PAGE>

Administrator by Provident, will safeguard and promote the welfare of the
Separate Account, and will comply with the policies that the Board of Managers
may from time to time reasonably determine; provided that such policies are not
in conflict with this Agreement, the Separate Account's governing documents, or
any applicable statutes or regulations; and further provided that Administrator
shall have no responsibility for compliance with any such provisions or policies
until it shall have received certified copies thereof.

3.2 ADMINISTRATIVE SERVICES AND DUTIES FOR SEPARATE ACCOUNT. As
Administrator, and subject to the supervision and control of the Separate
Account's Board of Managers, the Administrator will provide facilities,
equipment, and personnel to carry out the following administrative services for
operation of the business and affairs of the Separate Account:

(a) maintain copies of the Separate Account's governing documents,
including the Rules and Regulations, provided that Provident shall provide
Administrator all current copies of such documents;

(b) prepare and file with state insurance departments, necessary
filings for the Separate Account, and prepare and maintain required licenses and
permits of the type VALIC prepares and maintains for its own separate accounts,
and comply with all related regulatory requirements; provided that Administrator
shall not be responsible for any such activities related to the Separate Account
in combination with Provident's General Account (such as annual financial
statements);

(c) administer Contracts on behalf of the Separate Account with, among
others, the Separate Account's custodian and transfer agent (as provided in
Section 3.3), provided that Provident shall authorize Administrator to act on
behalf of the Separate Account under such Contracts;

(d) perform the accounting services for the Separate Account
identified in Schedule B hereto;

(e) calculate performance data of the Separate Account for
dissemination to information services covering the investment company industry;

(f) at least annually provide to Contractholders on the appropriate
forms the amount and Federal and State income tax character of any
distributions;

(g) examine and review the operations of the Separate Account
custodian, transfer agent and investment adviser to promote compliance with
applicable state and federal law;

(h) handle the printing and the distribution of publicly disseminated
prospectuses and reports;

4
<PAGE>

(i) prepare and disseminate confirmations pursuant to Rule 10b-10 of
the Exchange Act;

(j) respond to Contractholder inquiries;

(k) perform internal audit examinations in accordance with procedures
adopted by the Administrator and the Separate Account;

(l) assist with the operation of the Separate Account as may be
reasonably requested;

(m) monitor the Separate Account's compliance with Section 817 and
Sections 851 through 855 of the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder, so as to enable the Separate Account to
comply with the diversification requirements applicable to investments of
variable contracts and to maintain its status as a "regulated investment
company;" and

(n) advise the Separate Account and its Board of Managers on matters
concerning the Separate Account and its affairs.

3.3 ADMINISTRATIVE SERVICES AND DUTIES FOR CONTRACTS.

(a) Collection Services. Administrator agrees to perform the
-------------------
following services with respect to amounts due from holders of the Contracts:

(i) Collect premiums, deposits and other remittances from
Contractholders and from any collection facility, including
Intermediaries and other persons or institutions that receive
remittances with respect to the Contracts, and process the remittances
in a manner reasonably acceptable to the Separate Account.

(ii) Maintain records pertaining to the collection and processing
of premiums, deposits or other remittances in a format agreed to by
the parties.

(b) Processing of Disbursements. Administrator agrees to perform the
---------------------------
following services with respect to disbursements made in respect of the
Contracts for payment of annuity benefits, withdrawals, surrenders, transfers,
and returns of deposits:

(i) Receive and process requests for disbursements.

(ii) Process certain transactions, including, but not limited to,
policy lapses, expiries and/or non-forfeiture options with respect to
the Contracts.

5
<PAGE>

(iii) Evaluate requests for disbursements and either pay any such
request for disbursement, in accordance with Section 3.3 (c), or
propose to deny any such request for disbursement in full or in part,
in accordance with Section 3.3 (d) within the time period specified in
the applicable Contract or within any shorter time provided by
applicable statute, rule or regulation. In the event that
Administrator is unable to make a determination as to whether any such
request for disbursement should be paid or denied within the specified
period, it shall notify the Separate Account promptly in writing and
shall state in such notice the reasons for such delay.

(c) Payment of Disbursements. Administrator agrees to pay all
------------------------
disbursements from the assets of the Separate Account and provide notice to
Provident with respect to disbursements from the assets of the General Account
as necessary.

(d) Denied Disbursements.
--------------------

(i) Administrator agrees to promptly notify the Separate
Account of any litigation that has been instituted or threatened, or
of any complaint that any person has filed or has threatened to file
with any state insurance department or other regulatory agency, with
respect to any denied disbursement request or any disbursement
request-handling procedure in connection with a Contract, regardless
of whether the disbursement request was paid or denied, or with
respect to any other matter relating to a Contract. Such notice shall
contain a report summarizing the nature of the litigation or
complaint, the alleged actions or omissions giving rise to the
litigation or complaint and copies of any files that Provident or the
Separate Account may require to respond to the litigation or
complaint.

(ii) Provident agrees to promptly notify Administrator of any
litigation that has been instituted or threatened, or of any complaint
which any person has filed or has threatened to file with any state
insurance department or other regulatory agency, with respect to any
denied disbursement request or any disbursement request-handling
procedure in connection with a Contract, regardless of whether the
disbursement request was paid or denied, or with respect to any other
matter relating to a Contract. Such notice shall contain a report
summarizing the nature of the litigation or complaint, the alleged
actions or omissions giving rise to the litigation or complaint and
copies of any files that Administrator may require to respond to the
litigation or complaint.

(iii) Administrator shall pay the expenses of any litigation or
regulatory proceeding with respect to its obligations under this
Agreement (subject to any indemnification rights of Administrator
under this Agreement or any other agreement between Administrator and
Provident, any Affiliate of Provident or the Separate Account);
provided, however, that Administrator shall have no

6
<PAGE>

obligation to pay any expenses of the Separate Account with respect to
actions arising from events or occurrences prior to the Effective
Date.

ARTICLE 4
YEAR 2000 COMPLIANCE
--------------------

4.1 ADMINISTRATOR COMPLIANCE
------------------------

(a) Administrator warrants and represents that it will use its best
efforts to ensure that its operating systems (including computer software,
hardware, and any other equipment with embedded chips) are or will be Year 2000
Compliant on December 31, 1998, or as soon thereafter as reasonably practicable.
"Year 2000 Compliant" means that the operating systems shall have the ability
to:

(i) accept input and provide output of data involving dates or
portion of dates correctly and without ambiguity as to the twentieth or
twenty-first centuries;

(ii) manage, store, manipulate, sort, sequence, and perform
calculations (collectively "process") with respect to data involving dates
or portions of dates before, during, and after January 1, 2000 (including
single century or multi-century date formulas) without malfunction, abends
or aborts; and

(iii) correctly process leap years including Year 2000, and any
Special Dates as defined below

when used in accordance with their associated documentation, and provided that
all other products (for example, hardware, software, and firmware) used with the
operating systems properly exchange date data with it.

This Year 2000 warranty shall survive for the full term of this Agreement
and any renewals, if applicable. This Year 2000 warranty shall not be subject
to any disclaimer or exclusion of warranties or to any limitation of
Administrator's liability under this Agreement.

The term "Special Dates," as used herein, means dates used by programmers
to create exceptions where no date could be determined as specified to serve as
end-of-file indicators or to facilitate sort routines. Administrator shall
disclose to Provident the Year 2000 development or remediation method used
(e.g., full 4-digit data expansion, sliding window, fixed window [if so, which
year is fixed], and data encoding/compression) and of the testing methods
Administrator used to ensure Year 2000 compliance of the operating systems.

(b) Administrator indemnifies and holds harmless from and against any
and all loss, liability, cost, damage or expense (including reasonable legal and
accounting fees) incurred by Provident and the Separate Account and resulting
from or arising in connection with a failure of

7
<PAGE>

Administrator's operating systems to be Year 2000 Compliant, as defined in this
Agreement, by December 31, 1999. Administrator shall not be liable for a failure
of other products used with the Administrator's operating systems (for example,
hardware, software and firmware) to properly exchange accurate date data with
Administrator's operating system. This indemnification shall survive termination
of this Agreement.

If, after December 31, 1998, Administrator fails to make the operating
systems Year 2000 Compliant within a reasonable period of time (as determined by
Provident) after receipt of written notice from Provident, Provident shall have
the option of terminating the Agreement.

ARTICLE 5
BOOKS AND RECORDS; REPORTS
--------------------------

5.1 MAINTENANCE OF BOOKS AND RECORDS.
--------------------------------

(a) For the duration of this Agreement, Administrator shall maintain,
at a location to be agreed upon by Administrator and Provident, books and
records of all transactions, occurring under and during the term of this
Agreement, pertaining to the Separate Account and the Contracts, including any
disbursement requests submitted in respect of the Contracts and any documents
relating thereto, any communications relating to any Contract, any communication
with any regulatory authority, complaint logs and all data used by Administrator
in the performance of services required under this Agreement. These books and
records shall be maintained (i) in accordance with any and all applicable
statutes, rules and regulations and (ii) in a format no less accessible than the
format in which such books and records are maintained on the date hereof. In
compliance with Rule 31a-3 under the Investment Company Act of 1940 ("1940
Act"), all such books and records pertaining to the Separate Account and the
Contracts shall be made available to the Separate Account, its auditors or other
designees, and regulatory agencies, during normal business hours and at any
other time on reasonable notice, for review, inspection, examination and
reproduction. Administrator shall preserve for the periods prescribed by 1940
Act Rule 31a-2, the records required to be maintained by Rule 31a-1. Upon
termination of this Agreement, all books and records pertaining to the Separate
Account and the Contracts which have not expired, including the books and
records preserved by the Administrator pursuant to 1940 Act Rules 31a-1 and 31a-
2, shall be delivered promptly to Provident or such other person or entity as
Provident shall designate in writing.

(b) Administrator shall back up all of its computer files used in the
performance of services under this Agreement on a daily basis and shall maintain
back-up files in an off-site location.

(c) Administrator shall maintain facilities and procedures reasonably
acceptable to Provident for safekeeping all records used in the performance of
services under this Agreement.

8
<PAGE>

5.2 TRANSACTION REPORT. Within ten Business Days of the end of each
------------------
calendar quarter during the term of this Agreement, Administrator shall provide
Provident with a summary report and accounting of all transactions, including
receipts, payments, policy loans, surrenders and other matters, that have
occurred during that quarter, in a form acceptable to Provident. Administrator
shall provide a final accounting to Provident within 15 Business Days following
the end of the month during which the termination of this Agreement occurs.

5.3 CONFIDENTIAL INFORMATION. Administrator and Provident acknowledge
------------------------
that during the performance of services pursuant to this Agreement, each of them
will be exposed to the confidential and proprietary information of the other
party and the other party's Affiliates (the "Confidential Information"). Each
party agrees to take all commercially reasonable measures to prevent the
Confidential Information from being acquired by unauthorized Persons to the same
extent it protects its own confidential and proprietary information, and will
not disclose the Confidential Information to third parties without the prior
written consent of the other party, except as required by law. Administrator and
Provident agree that the Confidential Information will not be used for any
purpose other than the performance of responsibilities and duties hereunder,
except after prior notification to, and approval in writing by, the other party.
This Section 5.3 shall survive the termination of this Agreement under Article
11.

5.4 USE OF PROVIDENT'S OR SEPARATE ACCOUNT'S NAME. Administrator will
---------------------------------------------
furnish, or will cause to be furnished to Provident, all documentation, or as
appropriate, a form of such documentation, in which Provident or the Separate
Account is named, at least fifteen (15) Business Days prior to its intended use.
No such documentation will be used if Provident or the Separate Account objects
to its use in writing within ten (10) Business Days after receipt of such
material.

5.5 USE OF ADMINISTRATOR'S NAME. Provident will furnish, or will cause to
---------------------------
be furnished to Administrator, all documentation, or as appropriate, a form of
such documentation, in which Administrator is named, at least fifteen (15)
Business Days prior to its intended use. No such documentation will be used if
Administrator objects to its use in writing within ten (10) Business Days after
receipt of such material.

ARTICLE 6
INABILITY TO PERFORM SERVICES; ERRORS
-------------------------------------

6.1 INABILITY TO PERFORM SERVICES. In the event that Administrator shall
-----------------------------
be unable to perform services as required by this Agreement for any reason for a
period that can reasonably be expected to exceed five Business Days,
Administrator shall cooperate with Provident in obtaining an alternative means
of providing such services. Administrator will be responsible for all costs
incurred in either restoring services or obtaining an alternative source of
services, except to the extent such inability by Administrator to perform the
services required by this Agreement is the result of, or is caused by, the
failure of Provident to perform its obligations

9
<PAGE>

under this Agreement or its obligations with respect to the Contracts or the
Separate Account prior to the Effective Date.

6.2 ERRORS. Subject to the next following sentence, Administrator shall,
------
at its own expense, correct any errors in Administrative Services caused by it
within a reasonable time after receiving notice thereof from Provident or
otherwise, except to the extent such inability by Administrator to perform the
services required by this Agreement is the result of, or is caused by, the
failure of Provident, the Separate Account or any of their Affiliates as the
case may be, to perform its obligations as set forth under this Agreement or its
obligations prior to the Effective Date. If Administrator incorrectly calculates
the accumulation unit value or annuity unit value with respect to a Contract
through no fault of Separate Account, Administrator shall notify the Separate
Account's custodian and shall use its best efforts to effect for the Separate
Account, on behalf of Contractholders, an adjustment to the number of
accumulation units purchased or annuity units redeemed to reflect the correct
value.

ARTICLE 7
EXPENSES
--------

Administrator shall be responsible for expenses incurred in providing to
the Separate Account the Administrative Services. Provident, the Separate
Account or the Separate Account's investment adviser shall be responsible for
all other expenses incurred by Administrator on behalf of the Separate Account,
including without limitation: (i) investment advisory fees; (ii) interest and
taxes; (iii) brokerage commissions and other costs in connection with the
purchase or sale of securities and other investment instruments; (iv) fees and
expenses of the Separate Account's Board of Managers, other than those who are
"interested persons" of the Administrator, distributor or investment adviser of
the Separate Account; (v) legal and audit expenses; (vi) custodian, registrar,
and transfer agent fees and expenses; (vii) fees and expenses related to the
registration and qualification of the Separate Account and the Separate Account
shares distributed under state and federal securities laws; (viii) all other
expenses incidental to holding meetings of the Separate Account's
Contractholders, including proxy solicitations therefor; and (ix) insurance
premiums and fidelity and other coverage of the Separate Account.

ARTICLE 8
COMPENSATION
------------

For services to be rendered by Administrator as provided in this Agreement,
Provident shall pay to Administrator a monthly fee in an amount equal to the
total mortality and administrative fees charged under the Contracts during the
immediately preceding month. Administrator will send Provident an invoice for
the monthly fee amount, and payment shall be due within ten Business Days after
Provident's receipt of the invoice.

10
<PAGE>

In the event the total expenses of the Separate Account in any fiscal year
exceed expense limitations imposed by applicable state securities regulations,
the Separate Account's investment adviser shall reimburse the Separate Account
by the amount of such excess.

In case of termination of this Agreement during any month, the
administrative fee for that month shall be reduced proportionately on the basis
of the number of business days during which it is in effect, and the fee
computed upon the average net assets for the business day it is so in effect for
that month.

ARTICLE 9
EXCHANGES
---------

Administrator will utilize its best efforts to obtain the consent of each
Contractholder to redeem or exchange their Contracts for other suitable
investments. As part of this effort, either Administrator or an Affiliate or
agent of Administrator will offer each Contractholder an annuity policy issued
by Administrator or an Affiliate of Administrator in accordance with procedures
that may include, but are not limited to, active contact through direct mail,
telephone contact, person to person meetings and other means intended to result
in the timely exchange of all Contracts subject to this Agreement. In performing
its obligations under this section, Administrator and its Affiliates will comply
with all applicable insurance and other laws and regulations regarding
replacement of annuity policies.

Administrator agrees that in no event, as part of this process, will
Administrator disparage or criticize Provident, its operations, or its products,
including but not limited to the Separate Account.

ARTICLE 10
INDEMNIFICATION
---------------

10.1 INDEMNIFICATION.
---------------

(a) Administrator agrees to indemnify and hold harmless Provident and
the Separate Account and any of their directors, officers, employees, agents or
Affiliates from any and all losses, costs, claims, demands, compensatory,
indirect and/or punitive damages, fines and penalties (collectively, "Separate
Account Losses") arising out of or caused by: (i) fraud, theft or embezzlement
by officers, employees or agents of Administrator during the term of this
Agreement; (ii) the failure, either intentional or unintentional, of
Administrator to properly perform the services or take the actions required by
this Agreement, including, without limitation, the failure to properly process,
evaluate and pay disbursement requests in accordance with the terms of this
Agreement; (iii) the breach of any representation or warranty of Administrator;
(iv) any other act of negligence, bad faith, reckless disregard or willful
misconduct committed by officers, agents or employees of Administrator during
the term of this

11
<PAGE>

Agreement; (v) the failure of any subcontractor retained by Administrator in
accordance with Section 14.8 to provide the services that Administrator is to
provide hereunder; or (vi) any failure of Administrator to comply with
applicable laws, rules and regulations during the term of this Agreement. The
foregoing indemnity shall not apply to any Separate Account Losses to the extent
caused by the failure of Provident or the Separate Account or any of their
Affiliates to perform its obligations under this Agreement or its obligations
with respect to the Contracts or the Separate Account prior to the Effective
Date.

(b) Provident agrees to indemnify and hold harmless Administrator and
any of its directors, officers, employees, agents or Affiliates from any and all
losses, costs, claims, demands, compensatory, indirect and/or punitive damages,
fines and penalties (collectively, "Administrator Losses") arising out of or
caused by: (i) fraud, theft or embezzlement by officers, employees or agents of
Provident or the Separate Account; (ii) the failure, either intentional or
unintentional, of Provident or the Separate Account to properly perform the
services or take the actions required by this Agreement; (iii) the failure of
Provident or the Separate Account to perform its obligations with respect to the
Contracts or the Separate Account; (iv) the breach of any representation or
warranty of Provident or the Separate Account; (v) any other act of negligence,
bad faith, reckless disregard or willful misconduct committed by officers,
agents or employees of Provident or the Separate Account; or (vi) any failure of
Provident or the Separate Account to comply with applicable laws, rules and
regulations during the term of this Agreement. The foregoing indemnity shall not
apply to any Administrator Losses to the extent caused by the failure of
Administrator or any of its affiliates to perform its obligations under this
Agreement.

(c) Failure to deliver a notice with respect to a claim (other than a
claim based on a Third Party Claim) in a timely manner shall not be deemed a
waiver of the Indemnified Party's right to indemnification hereunder for Losses
in connection with such claim, but the amount of reimbursement to which the
Indemnified Party is entitled shall be reduced by the amount, if any, by which
the Indemnified Party's Losses would have been reduced had such Claims Notice
been timely delivered.

10.2 NOTICE OF THIRD PARTY CLAIMANT. In the event that either party hereto
------------------------------
asserts a claim for indemnification hereunder, such party seeking
indemnification (the "Indemnified Party") shall give written notice to the other
party (the "Indemnifying Party"), no later than ten Business Days after such
claim becomes known to the Indemnified Party, specifying the facts constituting
the basis for, and the amount (if known) of, the claim asserted.

10.3 RIGHT TO CONTEST CLAIMS OF THIRD PARTIES.
----------------------------------------

(a) If an Indemnified Party asserts, or may in the future seek to
assert, a claim for indemnification hereunder because of a claim or demand made,
or an action, proceeding or investigation instituted, by any Person not a party
to this Agreement that may result in an Administrator Loss with respect to which
Administrator is entitled to indemnification pursuant to Section 10.1(b) or a
Separate Account Loss with respect to which Provident or the Separate

12
<PAGE>

Account is entitled to indemnification pursuant to Section 10.1(a) (a "Third
Party Claim"), the Indemnified Party shall so notify the Indemnifying Party as
promptly as practicable, but in no event later than ten (10) Business Days after
such Third Party Claim is actually known to the Indemnified Party. Failure to
deliver notice with respect to a Third Party Claim in a timely manner shall not
be deemed a waiver of the Indemnified Party's right to indemnification for
Losses in connection with such Third Party Claim but the amount of reimbursement
to which the Indemnified Party is entitled shall be reduced by the amount, if
any, by which the Indemnified Party's losses would have been less had such
notice been timely delivered.

(b) The Indemnifying Party shall have the right, upon written notice
to the Indemnified Party, to investigate, contest, defend or settle the Third
Party Claim; provided, that the Indemnified Party may, at its option and at its
own expense, participate in the investigation, contesting, defense or settlement
of any such Third Party Claim through representatives and counsel of its own
choosing. If requested by the Indemnifying Party, the Indemnified Party will, at
the sole cost and expense of the Indemnifying Party, cooperate with the
Indemnifying Party and its counsel in defending and contesting any Third Party
claim, or if appropriate and related to the Third Party claim in question, in
making any counterclaim against the Third Party Claim, or any cross-complaint
against any such Person (other than the Indemnified Party or its Affiliates).
The failure of the Indemnifying Party to respond in writing to proper notice of
a Third Party Claim within ten days after receipt thereof shall be deemed an
election not to defend the same. Unless and until the Indemnifying Party elects
to defend the Third Party Claim, the Indemnified Party shall have the right, at
its option and at the Indemnifying Party's expense, to do so in such manner as
it deems appropriate, including, but not limited to, settling such Third Party
Claim (after giving notice of the settlement to the Indemnifying Party) on such
terms as the Indemnified Party deems appropriate.

(c) The Indemnified Party shall not settle or compromise any Third
Party Claim for which it seeks indemnification hereunder without the prior
written consent of the Indemnifying Party (which shall not be unreasonably
withheld) during the ten-day period specified above.

(d) The Indemnifying Party shall be entitled to participate in (but
not to control) the defense of any Third Party Claim which it has elected, or is
deemed to have elected, not to defend, or which it does not have the right to
defend under Section 10.3(b), with its own counsel and at its own expense.

(e) Except as provided in the first sentence of Section 10.3(b), the
Indemnifying Party shall bear all costs of defending any Third Party Claim and
shall indemnify and hold the Indemnified Party harmless against and from all
costs, fees and expenses incurred in connection with defending such Third Party
Claim.

(f) Administrator and Provident shall make mutually available to each
other all relevant information in their possession relating to any Third Party
Claim (except to the extent that such action would result in a loss of attorney-
client privilege).

13
<PAGE>

10.4 INDEMNIFICATION PAYMENTS. Any payment hereunder shall be made by wire
------------------------
transfer of immediately available funds to such account or accounts as the
Indemnified Party shall designate to the Indemnifying Party in writing.

ARTICLE 11
DURATION; TERMINATION
---------------------

11.1 DURATION. This Agreement shall commence on the Effective Date and
--------
continue until such time as none of the Contracts remains in force and no
further Administrative Services in respect of the Contracts are required, or
until it is terminated under Section 11.2. Administrator shall cooperate fully
in the transfer of services and the books and records maintained by
Administrator pursuant to Section 5.1 (or, where appropriate, copies thereof) to
the Separate Account or Provident's designee, so that Provident or its designee
will be able to perform the services required under this Agreement without
interruption following termination of this Agreement.

11.2 TERMINATION.
-----------

(a) This Agreement is subject to immediate termination at the option
of Provident, upon written notice to Administrator, on the occurrence of any of
the following events:

(i) A voluntary or involuntary proceeding is commenced in any
state by or against Administrator for the purpose of conserving,
rehabilitating or liquidating Administrator, or Administrator shall
lose its authority to perform services hereunder;

(ii) There is a material breach by Administrator of any term or
condition of this Agreement, that is not cured by Administrator within
90 days of receipt of written notice from Provident of such breach or
act;

(iii) Any liability policy or bond required pursuant to Article
13 is canceled, terminated or substantially revised; or

(iv) A proceeding is instituted against Administrator by any
federal or state regulatory authority that would materially impact the
ability of Administrator to perform its obligations under this
Agreement; or

(v) Administrator is unable to perform the services required
under Articles 3, 5 and 6 for a period of 90 consecutive days for any
reason; provided, however, that the inability to perform such services
is not due to the failure of Provident to perform its obligations
under this Agreement or its obligations with respect to the Contracts
or the Separate Account prior to the Effective Date.

14
<PAGE>

(b) In the event that this Agreement is terminated under Section
11.2(a), Administrator shall select a third party administrator to perform the
services required by this Agreement. Provident shall have the right to approve
any such administrator selected by Administrator, but such approval will not
unreasonably be withheld. If Administrator fails to select an administrator
pursuant to this provision within a reasonable period of time, Provident shall
select such an administrator. In either case, Administrator shall pay all fees
and charges imposed by the selected administrator that exceed those fees and
charges set forth in Article 8 of this Agreement.

(c) This Agreement is subject to immediate termination at the option
of Administrator, upon written notice to Provident, on the occurrence of any of
the following events:

(i) A voluntary or involuntary proceeding is commenced in any
state by or against Provident or the Separate Account for the purpose
of conserving, rehabilitating or liquidating Provident or the Separate
Account, or the Separate Account shall lose its qualification as a
separate account under state insurance law;

(ii) There is a material breach by Provident or the Separate
Account of any term or condition of this Agreement, that is not cured
by Provident or the Separate Account within 90 days of receipt of
written notice from Administrator of such breach or act;

(iii) Any liability policy or bond held by Provident or the
Separate Account in compliance with federal securities law
requirements is canceled, terminated or substantially revised;

(iv) A proceeding is instituted against Provident or the
Separate Account by any federal or state regulatory authority that
would materially impact the ability of Provident or the Separate
Account to perform its obligations under this Agreement; or

(v) Provident is otherwise unable to perform its obligations
under this Agreement for a period of 90 consecutive days for any
reason.

(d) In the event Provident or the Separate Account fails to make any
payments due under Section 8 of this Agreement after receiving 30 days written
notice of such failure to pay from Administrator, this Agreement is subject to
immediate termination at the option of Administrator, upon written notice to
Provident, and Administrator shall have no continuing obligations to Provident
or the Separate Account hereunder.

(e) This Agreement may be terminated at any time upon the mutual
written consent of the parties hereto, which writing shall state the effective
date of termination.

15
<PAGE>

ARTICLE 12
ARBITRATION
-----------

Any dispute arising out of or relating to the interpretation, performance
or breach of this Agreement, including the formation or validity thereof, shall
be submitted for decision to a panel of three arbitrators. Notice requesting
arbitration must be in writing and sent certified or registered mail, return
receipt requested.

One arbitrator shall be chosen by each party and the two arbitrators shall,
before instituting the hearing, choose an impartial third arbitrator (the
"Umpire") who shall preside at the hearing. If either party fails to appoint its
arbitrator within 30 days after being requested to do so by the other party, the
latter, after ten days notice by certified or registered mail of its intention
to do so, may appoint the second arbitrator. If the two arbitrators are unable
to agree upon the selection of the Umpire within 30 days of their appointment,
then each arbitrator shall submit to the other a list of three Umpire
candidates. Each arbitrator shall strike the names of two candidates from the
other arbitrator's list, and the Umpire shall be selected from the two remaining
candidates by a lot drawing procedure determined by the two arbitrators.

Unless the parties otherwise agree all arbitrators shall be disinterested
active or former officers of insurance or reinsurance companies.

Within 30 days after notice of appointment of all arbitrators, the panel
shall meet and determine a schedule for the conduct of the arbitration,
including hearings. The panel shall be relieved of all judicial formality and
shall not be bound by the strict rules of procedure and evidence. The panel
shall determine where the arbitration shall take place. To the extent and only
to the extent that the provisions of this Agreement are ambiguous or unclear,
the panel shall make its decision considering the custom and practice of the
applicable insurance and reinsurance business. Insofar as the arbitration panel
looks to substantive law, the law of the state of Tennessee shall govern. The
decision of any two arbitrators when rendered in writing shall be final and
binding. The panel is empowered to grant interim relief as it may deem
appropriate.

The panel shall render its decision, which shall be in writing and state
the reasons therefor, within 60 days following the termination of hearings.
Judgment upon the award may be entered in any court having jurisdiction thereof.
Each party shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the cost of the Umpire. The remaining costs of
the arbitration shall be allocated by the panel. The panel may, at its
discretion, award such further costs and expenses as it considers appropriate,
including but not limited to interest (determined at the panel's discretion) and
attorneys' fees, to the extent permitted by law. The panel shall not award
punitive damages under any circumstances.

16
<PAGE>

ARTICLE 13
INSURANCE
---------

13.1 LIABILITY INSURANCE. Administrator shall maintain errors and
-------------------
omissions liability coverages in commercially prudent amounts, to cover any loss
arising as a result of any real or alleged negligence, errors or omissions on
the part of Administrator's officers, agents or employees in any aspect of the
performance of services under this Agreement.

13.2 FIDELITY BOND. Administrator shall maintain fidelity bond coverage in
-------------
commercially prudent amounts to cover any loss due to the misdeeds of
Administrator's officers, employees or agents.

13.3 CHANGES. Administrator shall notify Provident should any of its
-------
insurance coverage referenced in this Article 13 be canceled or reduced. Such
notification shall include the date of change and the reasons therefor.
Administrator shall notify Provident of any material claims against it with
respect to services performed under this Agreement, whether or not they may be
covered by insurance.

ARTICLE 14
MISCELLANEOUS
-------------

14.1 HEADINGS, SCHEDULES AND EXHIBITS. Headings used herein are not a part
--------------------------------
of this Agreement and shall not affect the terms hereof. The attached Schedules
and Exhibits are a part of this Agreement.

14.2 NOTICES. Any notice required or permitted hereunder shall be in
-------
writing and shall be delivered personally (by courier or otherwise),
telegraphed, telexed, sent by facsimile transmission, sent by electronic mail,
or sent by certified, registered or express mail, postage prepaid. Any such
notice shall be deemed given when so delivered personally, telegraphed, telexed
or sent by facsimile transmission or sent by electronic mail, or, if mailed,
three days after the date of deposit in the United States mails, as follows:

(i) if to Administrator:

VALIC
2929 Allen Parkway
Houston, Texas 77019
Attention: Cynthia A. Toles, Esq.
Telecopier No.: (713) 831-5065

17
<PAGE>

(ii) if to Provident or the Separate Account:

Provident Companies, Inc.
1 Fountain Square
Chattanooga, Tennessee 37402
Attention: F. Dean Copeland
Telecopier No.: (423) 755-2590

Any party may, by notice given in accordance with this Agreement to the other
parties, designate another address or person for receipt of notices hereunder.

14.3 AMENDMENTS. This Agreement cannot be modified, changed, discharged or
----------
terminated, except by an instrument in writing signed by an authorized officer
of each of the parties hereto.

14.4 EXECUTION IN COUNTERPART. This Agreement may be executed by the
------------------------
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a number
of copies hereof each signed by less than all, but together signed by all of the
parties hereto.

14.5 LIMITED AUTHORITY. Provident, the Separate Account and Administrator
-----------------
are not partners or joint venturers, and no employee or agent of either party
shall be considered an employee or agent of the other. Administrator's authority
shall be limited to that which is expressly stated in this Agreement. The
performance of services by Administrator for the Separate Account pursuant to
this Agreement shall in no way impair the absolute control of the business and
operations of the Separate Account or Administrator by their respective Boards
of Directors/Managers.

14.6 ASSIGNMENT. This Agreement shall be binding upon and inure to the
----------
benefit of the parties hereto and their respective successors, permitted assigns
and legal representatives. Neither this Agreement, nor any right hereunder, may
be assigned by either party (in whole or in part) without the prior written
consent of the other party hereto, which consent shall not be unreasonably
withheld.

14.7 NO THIRD PARTY BENEFICIARIES. Except as otherwise specifically
----------------------------
provided for herein, nothing in this Agreement is intended or shall be construed
to give any person, other than the parties hereto, their successors and
permitted assigns, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.

14.8 SUBCONTRACTING. Administrator may not subcontract for the performance
--------------
of any services that Administrator is to provide hereunder, except as permitted
in writing by Provident, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing sentence, Administrator shall be permitted to
subcontract for the performance of any of such services with

18
<PAGE>

(i) any of its Affiliates, (ii) any Person that is performing such services as a
subcontractor for Provident or the Separate Account as of the Effective Date,
without obtaining the consent of Provident or the Separate Account so long as
Administrator notifies Provident or the Separate Account of such subcontract on
or prior to the Effective Date, or (iii) any Person that is performing such
services as a subcontractor for Administrator with respect to all or
substantially all of Administrator's insurance business that is similar to the
insurance business to be administered hereunder. The provisions of this Section
14.8 are not intended to and do not prohibit the employment by Administrator of
temporary personnel from time to time, in the ordinary course of business.

14.9 CHANGE IN STATUS. Administrator shall notify Provident immediately of
----------------
any "change of control" filing, the adoption of any plan to liquidate, merge or
dissolve Administrator, or of any proceeding or lawsuit which effects
Administrator's ability to perform this Agreement, including, but not limited
to, insolvency or rehabilitation proceedings.

14.10 SURVIVAL. The provisions of Section 5.3 and Articles 4, 10 and 12
--------
shall survive the termination of this Agreement.

14.11 FURTHER ASSURANCES. Each of the parties hereto shall execute such
------------------
documents and other papers and perform such further acts as may be reasonably
required to carry out the provisions of this Agreement.

14.12 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF TENNESSEE, WITHOUT GIVING EFFECT TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.

14.13 ENTIRE AGREEMENT. This Agreement contains the entire agreement
----------------
among the parties with respect to the subject matter hereof and supersedes all
prior agreements, whether written or oral, with respect thereto.

19
<PAGE>

IN WITNESS WHEREOF, the parties have executed this Administrative Services
Agreement as of the date first above written.

THE VARIABLE ANNUITY LIFE INSURANCE
COMPANY

BY: /s/ Craig Rodby
---------------
Craig Rodby

PROVIDENT NATIONAL ASSURANCE COMPANY ON BEHALF OF
ITSELF AND ON BEHALF OF ITS SEPARATE ACCOUNT B

BY: /s/ Henry T. Hardin III
-----------------------
Henry T. Hardin III

<PAGE>

EXHIBIT 13(A)

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 9, 1999, with respect to the financial
statements of Provident National Assurance Company and of our reports dated
February 26, 1999, with respect to the financial statements and financial
statement schedules of Provident National Assurance Company Separate Account B
in this Post-Effective Amendment No. 49 under the Securities Act of 1933 and
Amendment No. 23 under the Investment Company Act of 1940 to the Registration
Statement and in the Disclosure Statement.

ERNST & YOUNG LLP
Chattanooga, Tennessee
April 30, 1999

<PAGE>

EXHIBIT 13(B)

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. 49 to this Registration Statement
and to the reference made to me under the caption "Legal Opinion" in such
disclosure statement.

SUSAN N. ROTH

Chattanooga, Tennessee

April 29, 1999

<PAGE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED 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> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 9,034,126
<INVESTMENTS-AT-VALUE> 18,333,394
<RECEIVABLES> 1,222
<ASSETS-OTHER> 83,750
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18,418,366
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 125,342
<TOTAL-LIABILITIES> 125,342
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,043,607
<SHARES-COMMON-PRIOR> 1,310,831
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,299,268
<NET-ASSETS> 18,293,024
<DIVIDEND-INCOME> 125,202
<INTEREST-INCOME> 5,447
<OTHER-INCOME> 0
<EXPENSES-NET> 180,280
<NET-INVESTMENT-INCOME> (49,631)
<REALIZED-GAINS-CURRENT> 2,044,490
<APPREC-INCREASE-CURRENT> 2,836,610
<NET-CHANGE-FROM-OPS> 4,831,469
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,326
<NUMBER-OF-SHARES-REDEEMED> 242,383
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,839,903
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 75,117
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 180,280
<AVERAGE-NET-ASSETS> 16,779,001
<PER-SHARE-NAV-BEGIN> 11.38
<PER-SHARE-NII> (.04)
<PER-SHARE-GAIN-APPREC> 3.85
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.19
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

EXHIBIT 99.1

POWER OF ATTORNEY OF DIRECTOR OF
PROVIDENT NATIONAL ASSURANCE COMPANY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Provident
National Assurance Company, a Tennessee corporation, which proposes to file with
the Securities and Exchange Commission, under the provisions of the Securities
Act of 1933 and the Investment Company Act of 1940, an Annual Report on Form N-3
for the year ended December 31, 1998, hereby constitutes and appoints F. Dean
Copeland or Susan N. Roth, as his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution to do any and all
acts and things and execute, for him or her and in his or her name, place and
stead, said form and any and all amendments thereto and to file the same, with
all exhibits thereto, and any and all other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-
facts and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or her substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of April 27, 1999.

/s/ William L. Armstrong
------------------------
William L. Armstrong

<PAGE>

EXHIBIT 99.2

POWER OF ATTORNEY OF DIRECTOR OF
PROVIDENT NATIONAL ASSURANCE COMPANY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Provident
National Assurance Company, Inc., a Tennessee corporation, which proposes to
file with the Securities and Exchange Commission, under the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940, an Annual Report
on Form N-3 for the year ended December 31, 1998, hereby constitutes and
appoints F. Dean Copeland or Susan N. Roth, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
to do any and all acts and things and execute, for him or her and in his or her
name, place and stead, said form and any and all amendments thereto and to file
the same, with all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-facts and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorney-in-
fact and agent, or her substitutes, may lawfully do or cause to be done by
virtue hereof.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of April 27, 1999.

/s/ William H. Bolinder
-----------------------
William H. Bolinder

<PAGE>

EXHIBIT 99.3

POWER OF ATTORNEY OF DIRECTOR OF
PROVIDENT NATIONAL ASSURANCE COMPANY

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of April 27, 1999.

/s/ J. Harold Chandler
----------------------
J. Harold Chandler

<PAGE>

EXHIBIT 99.4

POWER OF ATTORNEY OF DIRECTOR OF
PROVIDENT NATIONAL ASSURANCE COMPANY

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of April 27, 1999.

/s/ Charlotte M. Heffner
------------------------
Charlotte M. Heffner

<PAGE>

EXHIBIT 99.5

POWER OF ATTORNEY OF DIRECTOR OF
PROVIDENT NATIONAL ASSURANCE COMPANY

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of April 27, 1999.

/s/ Hugh B. Jacks
-----------------
Hugh B. Jacks

<PAGE>

EXHIBIT 99.6

POWER OF ATTORNEY OF DIRECTOR OF
PROVIDENT NATIONAL ASSURANCE COMPANY

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of April 27, 1999.

/s/ Hugh O. Maclellan, Jr.
--------------------------
Hugh O. Maclellan, Jr.

<PAGE>

EXHIBIT 99.7

POWER OF ATTORNEY OF DIRECTOR OF
PROVIDENT NATIONAL ASSURANCE COMPANY

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of April 27, 1999.

/s/ A. S. MacMillan
-------------------
A. S. MacMillan

<PAGE>

EXHIBIT 99.8

POWER OF ATTORNEY OF DIRECTOR OF
PROVIDENT NATIONAL ASSURANCE COMPANY

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of April 27, 1999.

/s/ C. William Pollard
----------------------
C. William Pollard

<PAGE>

EXHIBIT 99.9

POWER OF ATTORNEY OF DIRECTOR OF
PROVIDENT NATIONAL ASSURANCE COMPANY

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of April 27, 1999.

/s/ Scott L. Probasco, Jr.
--------------------------
Scott L. Probasco, Jr.

<PAGE>

EXHIBIT 99.10

POWER OF ATTORNEY OF DIRECTOR OF
PROVIDENT NATIONAL ASSURANCE COMPANY

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of April 27, 1999.

/s/ Steven S Reinemund
-----------------------
Steven S Reinemund

<PAGE>

EXHIBIT 99.11

POWER OF ATTORNEY OF DIRECTOR OF
PROVIDENT NATIONAL ASSURANCE COMPANY

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of April 27, 1999.

/s/ Burton E. Sorensen
----------------------
Burton E. Sorensen

<PAGE>

EXHIBIT 99.12

POWER OF ATTORNEY OF DIRECTOR OF
PROVIDENT NATIONAL ASSURANCE COMPANY

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of April 27, 1999.

/s/ Thomas R. Watjen
--------------------
Thomas R. Watjen