<PAGE>
SEPARATE ACCOUNT B
Semiannual Report
June 30, 1999
PROVIDENT NATIONAL ASSURANCE COMPANY
A subsidiary of
UNUMProvident Corporation
<PAGE>
MANAGEMENT
BOARD OF MANAGERS OF SEPARATE ACCOUNT B
Henry E. Blaine, Chairman
H. Grant Law, Jr.
David G. Fussell
Susan N. Roth, Secretary
to the Board of Managers
PRINCIPAL OFFICERS OF
PROVIDENT NATIONAL ASSURANCE COMPANY
J. Harold Chandler, Chairman, President and Chief Executive Officer
Thomas R. Watjen, Vice Chairman and Chief Financial Officer
Robert O. Best, Executive Vice President and Chief Information Officer
F. Dean Copeland, Executive Vice President and General Counsel
Thomas B. Heys, Jr., Executive Vice President, Institutional Sales
Peter C. Madeja, Executive Vice President
Robert C. Greving, Senior Vice President and Chief Actuary
Ralph A. Rogers, Senior Vice President and Treasurer
Susan N. Roth, Vice President and Secretary
Vicki W. Corbett, Vice President and Controller
This report and the financial statements attached are submitted solely for the
general information of contract owners of Separate Account B and are not
authorized for other use.
<PAGE>
MESSAGE TO PARTICIPANTS IN
PROVIDENT NATIONAL'S
VARIABLE ANNUITY CONTRACTS
This semiannual report of Separate Account B contains the financial
statements and portfolio information of Separate Account B for the six months
ended June 30, 1999. Comparative figures which relate to Separate Account B's
activities during the second half of 1999 are provided below.
The accumulation unit value for Separate Account B increased 13.3% for the
first six months of 1999, from 15.192155 at year-end 1998 to 17.218781 on June
30, 1999. During this same period, the S&P 500 index rose by a yield adjusted
12.4%. Reflecting transfers to the fixed-dollar account, as well as withdrawals
and retirements, the number of accumulation units outstanding on June 30, 1999,
was 997,154, down from 1,043,607 six months earlier. As a result of
withdrawals, net purchase payments received, and changes in the accumulation
unit value, total contract owners' equity on June 30, 1999, was $19,631,177
compared to $18,293,024 on December 31, 1998.
Performance for the first half of 1999 continued extremely strong for your
fund and for large stocks in general. The S&P 500 index returned 12.4%, which
continues the record-setting pace of greater than 20% annualized returns
exhibited for the past four years. A strong economy and low inflation have
combined to produce surprising earnings growth and high valuations. Technology
and communication services continued to do well joined by more cyclical sectors
like energy, basic materials, and capital goods. Health care and consumer
staples were the weakest sectors. Small stocks did a little better, but still
underperformed the stocks of larger companies.
The second half of 1999 will have difficulty matching the performance of
the first half. The economy should slow down somewhat and inflation may tick
upward. There are some significant positives, however. The government is
likely to propose major new spending programs or tax cuts and the markets may
begin to reflect a new millennium optimism. As long as the economic news is
less robust, but still healthy, second half returns can still be good.
Thank you for your continued support.
/s/David Fussell
----------------
David Fussell
Chairman, Board of Managers
Provident National Assurance Company
Separate Account B
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
(Unaudited)
Provident National Assurance Company Separate Account B
<TABLE>
<CAPTION>
June 30, 1999
-------------
<S> <C>
ASSETS
Investments:
Common stocks--at market value
(cost: $9,359,393) $19,499,977
Short-term investments--at cost plus accrued interest (approximately market) 142,886
-----------
19,642,863
Cash 27,624
Accrued dividends and interest 9,875
Amounts due from Provident National Assurance Company 991
-----------
TOTAL ASSETS 19,681,353
-----------
LIABILITIES AND CONTRACT OWNERS' EQUITY
Amounts payable for terminations and variable annuity benefits 34,024
Management fee and other amounts due Provident
National Assurance Company 16,152
-----------
TOTAL LIABILITIES 50,176
-----------
Variable annuity contract owners' equity:
Deferred annuity contracts terminable by owners--(accumulation
units outstanding: 997,153.877; unit value: $17.218781) 17,169,774
Annuity contracts in pay-out period 2,461,403
-----------
TOTAL CONTRACT OWNERS' EQUITY $19,631,177
===========
</TABLE>
See notes to financial statements.
-4-
<PAGE>
STATEMENT OF OPERATIONS
(Unaudited)
Provident National Assurance Company Separate Account B
Six Months Ended
June 30, 1999
-----------------
INVESTMENT INCOME
Income:
Dividends $ 62,237
Interest 3,056
------------
65,293
------------
Expenses--Note C:
Investment advisory services 43,813
Mortality and expense assurances 61,339
------------
105,152
------------
NET INVESTMENT LOSS (39,859)
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS--NOTE A
Net realized gain from investment transactions
(excluding short-term securities):
Proceeds from sales 3,254,131
Cost of investments sold 1,683,522
----------
Net realized gain 1,570,609
----------
Net unrealized appreciation of investments:
At end of period 10,140,584
At beginning of period 9,299,268
----------
Increase in net unrealized appreciation of investments 841,316
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 2,411,925
----------
INCREASE IN CONTRACT OWNERS' EQUITY FROM
INVESTMENT ACTIVITIES $2,372,066
==========
Ratio of expenses to total investment income 161.05%
==========
See notes to financial statements.
-5-
<PAGE>
STATEMENTS OF CHANGES IN VARIABLE ANNUITY CONTRACT OWNERS' EQUITY
(Unaudited)
Provident National Assurance Company Separate Account B
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
----------------- ------------------
<S> <C> <C>
BALANCE AT BEGINNING OF PERIOD $18,293,024 $16,453,121
----------- -----------
FROM INVESTMENT ACTIVITIES:
Net investment loss (39,859) (49,631)
Net realized gain on investments 1,570,609 2,044,490
Increase in net unrealized appreciation of investments 841,316 2,836,610
----------- -----------
Increase in contract owners' equity from
investment activities 2,372,066 4,831,469
----------- -----------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS:
Net contract purchase payments (Units purchased):
1999 -- 517.360;
1998 -- 1,326.260; 8,337 17,001
Terminations and death benefits (Units terminated):
1999 -- 49,441.781;
1998 -- 219,758.026; (803,592) (2,718,161)
Variable annuity benefits paid (Number of units):
1999 -- 15,082.849;
1998 -- 22,625.469; (238,658) (290,406)
----------- -------------
Decrease in contract owners' equity from variable
contract transactions (1,033,913) (2,991,566)
----------- -------------
NET INCREASE IN CONTRACT OWNERS' EQUITY 1,338,153 1,839,903
----------- -------------
BALANCE AT END OF PERIOD $19,631,177 $18,293,024
=========== =============
</TABLE>
See notes to financial statements.
-6-
<PAGE>
SCHEDULE OF INVESTMENTS
Provident National Assurance Company Separate Account B
June 30, 1999
Number of Market
Shares Value
--------- ----------
COMMON STOCKS
CAPITAL GOODS (12.2%)
Allied Waste Industries, Inc. 6,400 $ 126,400
Corning, Inc. 2,800 196,350
Emerson Electric Company 2,000 125,750
General Electric Company 7,800 881,400
Textron, Inc. 5,000 411,563
Thermo Ecotek Corporation 1,800 14,400
Thermo Electron Corporation 2,500 50,156
Tyco International Ltd. 2,300 217,925
Waste Management, Inc. 6,800 365,500
----------
2,389,444
CONSUMER GOODS (6.8%)
Coca-Cola Company 3,400 212,500
Gillette Company 3,600 147,600
Lear Corporation 3,200 159,200
Newell Rubbermaid, Inc. 6,800 316,200
PepsiCo, Inc. 8,400 324,975
Procter & Gamble Company 2,000 178,500
----------
1,338,975
CONSUMER SERVICES (19.5%)
America Online, Inc. 1,600 176,800
Cendant Corporation 5,604 114,882
Comcast Corporation Class A 20,000 768,750
Gannett Company, Inc. 6,000 428,250
Inacom Corporation 2,300 29,038
Kroger Company 6,000 167,625
Lowe's Companies, Inc. 800 45,350
McDonald's Corporation 7,200 297,450
Office Depot, Inc. 8,100 178,705
Safeway, Inc. 10,400 514,800
Service Corporation International 4,000 77,000
United Rentals, Inc. 6,400 188,800
Viacom, Inc. Class B 3,600 158,400
Wal-Mart Stores, Inc. 8,000 386,000
Walt Disney Co. 9,600 295,800
----------
3,827,650
See notes to financial statements.
-7-
<PAGE>
SCHEDULE OF INVESTMENTS - Continued
Provident National Assurance Company Separate Account B
June 30, 1999
Number of Market
Shares Value
--------- ----------
COMMON STOCKS (Continued)
ENERGY (1.8%)
Royal Dutch Petroleum Company 2,900 $ 174,725
Schlumberger Ltd. 800 50,950
Weatherford International, Inc. 3,600 131,850
----------
357,525
FINANCIAL (9.3%)
American Express Company 4,000 520,500
Bank of America Corporation 4,000 293,250
Chase Manhattan Corporation 9,600 831,600
Washington Mutual, Inc. 4,800 169,800
----------
1,815,150
HEALTH CARE (13.5%)
Bristol-Myers Squibb Company 7,000 493,063
Eli Lilly & Company 2,700 193,388
HealthSouth Corporation 21,600 322,650
Johnson & Johnson 6,732 659,736
Medtronic, Inc. 5,000 389,375
Merck & Company, Inc. 3,800 281,200
Sunrise Assisted Living, Inc. 5,000 174,375
Tenet Healthcare Corporation 6,800 126,225
----------
2,640,012
TECHNOLOGY-HARDWARE (9.8%)
3Com Corporation 3,250 86,734
Cisco Systems, Inc. 7,200 464,400
Compaq Computer Corporation 6,000 142,125
Frontier Corporation 2,800 165,200
Lucent Technologies, Inc. 8,876 598,575
SCI Systems, Inc. 10,000 475,000
----------
1,932,034
TECHNOLOGY-SOFTWARE (11.7%)
Computer Associates International 10,500 577,500
First Data Corporation 3,300 161,494
Microsoft Corporation 12,400 1,118,325
National Data Corporation 1,500 64,125
Oracle Corporation 10,050 373,106
----------
2,294,550
See notes to financial statements.
-8-
<PAGE>
SCHEDULE OF INVESTMENTS - Continued
Provident National Assurance Company Separate Account B
June 30, 1999
Number of Market
Shares Value
--------- -----------
COMMON STOCKS (Continued)
TECHNOLOGY-OTHER (3.5%)
Intel Corporation 11,400 $ 678,300
TELECOMMUNICATIONS (11.3%)
AT&T Corporation 6,645 370,874
Cincinnati Bell, Inc. 5,600 139,650
MCI Worldcom, Inc. 11,800 1,017,750
Sprint Corporation FON Group 6,000 316,875
Sprint Corporation PCS Group 1,500 85,688
Vodafone Group PLC - ADR 1,500 295,500
-----------
2,226,337
-----------
TOTAL COMMON STOCKS (99.4%) 19,499,977
-----------
Principal
Amount
---------
SHORT-TERM INVESTMENTS (0.7%)
Dana Credit Corporation
5.72% due July 6, 1999 $143,000 142,886
======== -----------
TOTAL INVESTMENTS (100.1%) 19,642,863
CASH AND RECEIVABLES LESS LIABILITIES (-0.1%) (11,686)
-----------
TOTAL VARIABLE ANNUITY CONTRACT
OWNERS' EQUITY (100.0%) $19,631,177
===========
See notes to financial statements.
-9-
<PAGE>
SUPPLEMENTARY INFORMATION
(Unaudited)
Provident National Assurance Company Separate Account B
Selected data for an accumulation unit outstanding throughout each year
excluding sales loads:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31
June 30, 1999 1998 1997 1996 1995 1994
--------------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income $ .06 $ .10 $ .10 $ .11 $ .13 $ .15
Expenses .09 .14 .12 .09 .07 .07
------ ------ ------ ------ ----- -----
Net investment income (loss) (.03) (.04) (.02) .02 .06 .08
Net realized and unrealized gain (loss)
on investments 2.06 3.85 2.96 1.51 1.44 (.32)
------ ------ ------ ----- ----- -----
Net increase (decrease) in contract
owners equity 2.03 3.81 2.94 1.53 1.50 (.24)
Net contract owners' equity:
Beginning of period 15.19 11.38 8.44 6.91 5.41 5.65
------ ------ ------ ----- ----- -----
End of period $17.22 $15.19 $11.38 $8.44 $6.91 $5.41
====== ====== ====== ===== ===== =====
Ratio of expenses to average contract
owners' equity .56% 1.07% 1.16% 1.20% 1.21% 1.21%
Ratio of net investment income (loss)
to average contract owners' equity (.21)% (.30)% (.16)% 0.30% 0.89% 1.72%
Portfolio turnover 11% 11% 25% 28% 101% 70%
Number of accumulation units outstanding
at end of period 997,154 1,043,607 1,310,831 1,538,926 1,767,394 2,097,793
</TABLE>
See notes to financial statements.
-10-
<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 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 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.
-11-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Provident National Assurance Company Separate Account B
NOTE A--INVESTMENTS AND ACCOUNTING POLICIES
Separate Account B is a segregated investment account of Provident National
Assurance Company, a wholly-owned subsidiary of UNUMProvident Corporation
("Provident"), and is registered under the Investment Company Act of 1940, as
amended, as an open-end diversified management investment company.
Common stocks and bonds are valued at published market quotations which
represent the closing sales price for securities traded on a national stock
exchange or the mean between the quoted bid and asked prices for those traded
over-the-counter. Short-term investments are valued at cost plus accrued
interest.
Realized and unrealized gains and losses are credited to or charged to variable
annuity contract owners' equity. The identified cost basis has been used in
determining realized gains and losses on sales of investments. There were gross
unrealized gains of $10,601,950 and gross unrealized losses of $461,366 at June
30, 1999. Security transactions are recorded on the date the securities are
purchased or sold which is the common practice of the industry. Dividends are
taken into income on an accrual basis as of the ex-dividend date.
A summary of the cost of investments purchased and proceeds from investments
sold for the six months ended June 30, 1999 and the year ended December 31, 1998
is shown below.
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
---------------- -----------------
Cost of investments purchased $7,790,055 $11,431,634
Less: Short-term securities 5,781,266 9,586,080
---------- --------------
$2,008,789 $ 1,845,554
========== ==============
Proceeds from investments sold $8,895,567 $14,383,400
Less: Short-term securities 5,641,436 9,587,684
---------- --------------
$3,254,131 $ 4,795,716
========== ==============
The aggregate cost of investments for federal income tax purposes is the same as
that presented in the Statements of Assets and Liabilities.
-12-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 (see Note D).
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 Separate Account B
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 borne by Provident National Assurance
Company only and do not represent an additional charge to Separate Account B.
-13-
<PAGE>
ACCUMULATION UNIT VALUE TABLE
(Unaudited)
Provident National Assurance Company Separate Account B
End of Month Accumulation Unit Value End of Month Accumulation Unit Value
- --------------- ----------------------- ------------ -----------------------
December 1968 1.036279 March 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 March 1998 12.975484
December 1985 2.480050 June 13.465013
December 1986 2.743444 September 11.758633
December 1987 2.734169 December 15.192155
December 1988 3.087892 January 1999 16.290166
December 1989 3.812606 February 15.518614
December 1990 3.736441 March 15.889579
December 1991 5.036212 April 16.365188
December 1992 5.028547 May 16.115250
March 1993 5.208499 June 17.218781
June 5.190340
September 5.441446
December 5.646864
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 1992, on the last valuation day of
each quarter from 1993 through December 1998, and on the last valuation day
during each month of 1999. The results shown should not be considered as a
representation of the results which may be realized in the future.
-14-
