<PAGE>
SEPARATE ACCOUNT B
Annual Report
December 31, 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
James A. Ramsay, President
Thomas R. Watjen, Executive Vice President - Finance & Risk Mgt.
F. Dean Copeland, Executive Vice President - Legal and Administrative
Elaine D. Rosen, Executive Vice President
Robert C. Greving, Senior Vice President and Chief Actuary
John M. Lang, 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 annual report of Separate Account B contains the financial statements
and portfolio information of Separate Account B for the year ended December 31,
1999. Comparative figures, which relate to Separate Account B's activities
during 1999, are provided below.
The accumulation unit value for Separate Account B increased 26.3% for the
year, from 15.19 on December 31, 1998 to 19.18 on December 31, 1999. During
this same period, the S&P 500 index rose by a yield adjusted 21.0%. Reflecting
transfers to the fixed-dollar account, as well as withdrawals and retirements,
the number of accumulation units outstanding on December 31, 1999, was 609,502,
down from 1,043,607 twelve months earlier. As a result of withdrawals, net
purchase payments received, and changes in the accumulation unit value, total
contract owners' equity on December 31, 1999 was $14,186,833 compared to
$18,293,024 on December 31, 1998.
Performance for 1999 continued extremely strong for your fund and for
stocks in general. The U.S. economy is now in the longest up-cycle on record
and stocks have responded with record-breaking performance. The S&P 500 index
returned 21.0%, which is the fifth straight greater-than-20% annual return. The
strong economy and low inflation have combined to produce surprising earnings
growth and high valuations. The technology sector was by far the strongest
sector in 1999 with a return of 75%. Investments in computers and
telecommunication equipment to enhance productivity have resulted in strong
demand for the companies in this sector. For the first time since 1993 small
company stocks performed as well as large company stocks.
Year 2000 faces some problems that may reduce returns from the blistering
pace of the past five years. Tight monetary and fiscal policy should slow the
economy and corporate profits even while inflation may tick upward. Election
year politics creates uncertainty. On the positive side, we are in the midst of
a telecommunications revolution that will continue to produce enormous
productivity for years to come. If that productivity relieves the inflation
stresses on the economy, the markets can continue to advance.
Thank you for your continued support.
/s/Susan N. Roth
----------------
Susan N. Roth
Secretary, Board of Managers
Provident National Assurance Company
Separate Account B
<PAGE>
Provident National Assurance Company Separate Account B
Audited Financial Statements
December 31, 1999
Report of Independent Auditors.................... 1
Statements of Assets and Liabilities.............. 2
Statements of Operations.......................... 3
Statements of Changes in Contract Owners' Equity.. 4
Schedule of Investments........................... 5
Supplementary Information......................... 8
Notes to Financial Statements..................... 10
<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, 1999
and 1998, including the schedule of investments as of December 31, 1999, and the
related statements of operations and changes in contract owners' equity for each
of the three years in the period ended December 31, 1999, 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, 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, 1999 and
1998, the results of its operations and the changes in contract owners' equity
for each of the three years in the period ended December 31, 1999, and the
supplementary information for each of the ten years in the period then ended, in
conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG
January 24, 2000
Chattanooga, Tennessee
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
Provident National Assurance Company Separate Account B
<TABLE>
<CAPTION>
December 31
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Investments:
Common stocks--at market value
(cost: 1999 -- $7,275,732; 1998--$9,034,126) $15,689,215 $18,333,394
Cash 45,351 73,237
Accrued dividends and interest 5,788 10,513
Amounts due from Provident National Assurance Company 310,630 1,222
----------- -----------
TOTAL ASSETS 16,050,984 18,418,366
----------- -----------
</TABLE>
LIABILITIES AND CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Amounts payable for terminations and variable annuity benefits 1,848,827 112,745
Management fee and other amounts due Provident
National Assurance Company 15,324 12,597
----------- -----------
TOTAL LIABILITIES 1,864,151 125,342
----------- -----------
Contract owners' equity:
Deferred annuity contracts terminable by owners--(accumulation
units outstanding: 1999--609,501.533; 1998--1,043,607.368;
unit value: 1999-- $19.180992; 1998--$15.192155) 11,690,844 15,854,645
Annuity contracts in pay-out period 2,495,989 2,438,379
----------- -----------
TOTAL CONTRACT OWNERS' EQUITY $14,186,833 $18,293,024
=========== ===========
</TABLE>
See notes to financial statements.
-2-
<PAGE>
STATEMENTS OF OPERATIONS
Provident National Assurance Company Separate Account B
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME
Income:
Dividends $117,994 $125,202 $147,564
Interest 8,906 5,447 3,995
-------- -------- --------
126,900 130,649 151,559
-------- -------- --------
Expenses--Note C:
Investment advisory services 90,919 75,117 72,873
Mortality and expense assurances 127,286 105,163 102,022
-------- -------- --------
218,205 180,280 174,895
-------- -------- --------
NET INVESTMENT LOSS (91,305) (49,631) (23,336)
-------- -------- --------
</TABLE>
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS--NOTE A
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net realized gain from investment transactions
(excluding short-term securities):
Proceeds from sales 9,283,030 4,795,716 5,559,161
Cost of investments sold 4,400,934 2,751,226 3,512,353
--------- --------- ---------
Net realized gain 4,882,096 2,044,490 2,046,808
--------- --------- ---------
Net unrealized appreciation of investments:
At end of year 8,413,483 9,299,268 6,462,658
At beginning of year 9,299,268 6,462,658 4,003,349
--------- --------- ---------
Increase (decrease) in net unrealized appreciation
of investments (885,785) 2,836,610 2,459,309
--------- --------- ---------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 3,996,311 4,881,100 4,506,117
--------- ---------- ---------
INCREASE IN CONTRACT OWNERS' EQUITY
FROM INVESTMENT ACTIVITIES $3,905,006 $4,831,469 $4,482,781
========== ========== ==========
Ratio of expenses to total investment income 171.95% 137.99% 115.40%
========== ========== ==========
</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
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $18,293,024 $16,453,121 $13,917,113
----------- ----------- -----------
From investment activities:
Net investment loss (91,305) (49,631) (23,336)
Net realized gain on investments 4,882,096 2,044,490 2,046,808
Increase (decrease) in net
unrealized appreciation
of investments (885,785) 2,836,610 2,459,309
----------- ----------- -----------
Increase in contract owners'
equity from investment activities 3,905,006 4,831,469 4,482,781
----------- ----------- -----------
From variable annuity contract transactions:
Net contract purchase payments (Units purchased):
1999--940.920;
1998--1,326.260;
1997--16,110.275; 15,418 17,001 174,149
Terminations and death benefits (Units terminated):
1999--438,602.231;
1998-- 219,758.026;
1997-- 206,229.494; (7,587,364) (2,718,161) (1,974,221)
Variable annuity benefits paid (Number of units):
1999--26,818.794;
1998--22,625.469;
1997--14,527.206; (439,251) (290,406) (146,701)
----------- ----------- -----------
Decrease in contract owners' equity from variable
annuity contract transactions (8,011,197) (2,991,566) (1,946,773)
----------- ----------- -----------
Net increase (DECREASE) in contract
owners' equity (4,106,191) 1,839,903 2,536,008
----------- ----------- -----------
Balance at end of year $14,186,833 $18,293,024 $16,453,121
=========== =========== ===========
</TABLE>
See notes to financial statements.
-4-
<PAGE>
SCHEDULE OF INVESTMENTS
Provident National Assurance Company Separate Account B
December 31, 1999
<TABLE>
<CAPTION>
Number of Market
Shares Value
---------- -----------
<S> <C> <C>
COMMON STOCKS
CAPITAL GOODS (11.3%)
Allied Waste Industries, Inc. 8,800 $ 77,550
Corning, Inc. 2,300 296,555
General Electric Company 4,800 742,800
Textron, Inc. 3,000 230,063
Tyco International, Ltd. 4,600 178,825
Waste Management, Inc. 4,800 82,500
----------
1,608,293
CONSUMER GOODS (6.9%)
Gillette Company 4,700 193,581
Lear Corporation 3,200 102,400
Lowe's Companies, Inc. 800 47,800
Newell Rubbermaid, Inc. 6,800 197,200
Office Depot, Inc. 8,100 88,594
PepsiCo, Inc. 8,400 296,100
Staples, Inc. 2,500 51,875
-----------
977,550
CONSUMER SERVICES (20.0%)
Cendant Corporation 5,660 150,344
Comcast Corporation Class A 13,800 693,450
Gannett Company, Inc. 4,000 326,250
Kroger Company 7,600 143,450
McDonald's Corporation 5,200 209,625
Safeway, Inc. 10,400 369,850
United Rentals, Inc. 7,200 123,300
Viacom, Inc. Class B 3,600 217,575
Wal-Mart Stores, Inc. 6,000 414,750
Walt Disney Company 6,600 193,050
-------------
2,841,644
ENERGY (2.9%)
Royal Dutch Petroleum Company 2,900 175,269
Schlumberger, Ltd. 1,400 78,749
Transocean Sedco Forex, Inc. 271 9,131
Weatherford International, Inc. 3,600 143,775
-------------
406,924
</TABLE>
See notes to financial statements.
-5-
<PAGE>
SCHEDULE OF INVESTMENTS - Continued
Provident National Assurance Company Separate Account B
December 31, 1999
<TABLE>
<CAPTION>
Number of Market
Shares Value
------- ------
<S> <C> <C>
COMMON STOCKS - Continued
FINANCIAL (8.7%)
American Express Company 3,000 $ 498,750
Bank of America Corporation 4,000 200,750
Chase Manhattan Corporation 5,300 411,744
Washington Mutual, Inc. 4,800 124,800
----------
1,236,044
HEALTH CARE (10.6%)
Bristol Myers Squibb Company 3,000 192,563
Eli Lilly and Company 2,700 179,550
HealthSouth Corporation 21,600 116,100
Johnson & Johnson 2,732 254,418
Medtronic, Inc. 9,000 327,938
Merck & Company, Inc. 2,800 187,775
Sunrise Assisted Living, Inc. 6,000 82,500
Tenet Healthcare Corporation 6,800 159,800
-----------
1,500,644
TECHNOLOGY - HARDWARE (17.4%)
Cisco Systems, Inc. 7,200 771,300
Intel Corporation 5,400 444,488
Lucent Technologies, Inc. 7,876 589,223
SCI Systems, Inc. 8,000 657,500
-----------
2,462,511
TECHNOLOGY - SOFTWARE & SERVICES (16.5%)
America Online, Inc. 4,000 301,750
Computer Associates International 7,000 489,563
First Data Corporation 3,300 162,731
Microsoft Corporation 7,600 887,300
National Data Corporation 1,500 50,906
Oracle Corporation 4,050 453,853
----------
</TABLE> 2,346,103
See notes to financial statements.
-6-
<PAGE>
SCHEDULE OF INVESTMENTS - Continued
Provident National Assurance Company Separate Account B
December 31, 1999
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- ------------
<S> <C> <C>
COMMON STOCKS - Continued
TELECOMMUNICATIONS (16.3%)
AT&T Corporation 4,045 205,284
Broadwing, Inc. 5,600 206,500
Global Crossing Ltd. 5,740 287,000
MCI Worldcom, Inc. 13,500 716,344
Qwest Communications International 1,500 64,500
Sprint Corporation FON Group 6,000 403,874
Sprint Corporation PCS Group 1,500 153,750
Vodafone Airtouch, PLC - ADR 5,500 272,250
-----------
2,309,502
-----------
TOTAL COMMON STOCK (110.6%) 15,689,215
-----------
TOTAL INVESTMENTS (110.6%) 15,689,215
CASH AND RECEIVABLES LESS LIABILITIES (-10.6%) (1,502,382)
-----------
TOTAL CONTRACT OWNERS' EQUITY (100.0%) $14,186,833
===========
</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
1999 1998 1997 1996 1995
---------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Investment income $ 0.12 $ 0.10 $ 0.10 $ 0.11 $ 0.13
Expenses 0.20 0.14 0.12 0.09 0.07
-------- ---------- ---------- ---------- ----------
Net investment income (loss) (0.08) (0.04) (.02) .02 .06
Net realized and unrealized gain
on investments 4.07 3.85 2.96 1.51 1.44
-------- ---------- ---------- ---------- ----------
Net increase in contract
owners' equity 3.99 3.81 2.94 1.53 1.50
Net contract owners' equity:
Beginning of year 15.19 11.38 8.44 6.91 5.41
-------- ---------- ---------- ---------- ----------
End of year $ 19.18 $ 15.19 $ 11.38 $ 8.44 $ 6.91
======== ========== ========== ========== ==========
Ratio of expenses to average contract
owners' equity 1.22% 1.07% 1.16% 1.20% 1.21%
Ratio of net investment income (loss) to
average contract owners' equity (0.51%) (0.30%) (0.16%) 0.30% 0.89%
Portfolio turnover 14% 11% 25% 28% 101%
Number of accumulation units
outstanding at end of year 609,502 1,043,607 1,310,831 1,538,926 1,767,394
</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
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Investment income $ 0.15 $ 0.14 $ 0.12 $ 0.13 $ 0.13
Expenses 0.07 0.06 0.06 0.05 0.04
---------- ---------- ---------- ---------- ----------
Net investment income 0.08 0.08 0.06 0.08 0.09
Net realized and unrealized gain (loss)
on investments (0.32) 0.54 (0.07) 1.22 (0.16)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in contract
owners' equity (0.24) 0.62 (0.01) 1.30 (0.07)
Net contract owners' equity:
Beginning of year 5.65 5.03 5.04 3.74 3.81
---------- ---------- ---------- ---------- ----------
End of year $ 5.41 $ 5.65 $ 5.03 $ 5.04 $ 3.74
========== ========== ========== ========== ==========
Ratio of expenses to average contract
owners' equity 1.21% 1.22% 1.21% 1.21% 1.22%
Ratio of net investment income to
average contract owners' equity 1.72% 1.39% 1.36% 1.91% 2.34%
Portfolio turnover 70% 57% 35% 42% 58%
Number of accumulation units
outstanding at end of year 2,097,793 2,242,809 2,655,895 2,854,559 3,031,469
</TABLE>
See notes to financial statements.
-9-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Provident National Assurance Company Separate Account B
December 31, 1999
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,
formerly 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 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 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
$9,381,498 and gross unrealized losses of $968,015 at December 31, 1999.
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, 1999 is shown below.
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
Cost of investments purchased $19,725,034 $11,431,634 $12,440,923
Less: Short-term securities 17,082,494 9,586,080 8,714,428
----------- ----------- -----------
$ 2,642,540 $ 1,845,554 $ 3,726,495
=========== =========== ===========
Proceeds from investments sold $26,374,430 $14,383,400 $14,470,491
Less: Short-term securities 17,091,400 9,587,684 8,911,330
----------- ----------- -----------
$ 9,283,030 $ 4,795,716 $ 5,559,161
=========== =========== ===========
</TABLE>
The aggregate cost of investments for federal income tax purposes is the same as
that presented in the Statements of Assets and Liabilities.
-10-
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
Provident National Assurance Company Separate Account B
December 31, 1999
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 Companies', Inc.
(Provident) 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 June 5.274454
December 1969 1.080379 September 5.475394
December 1970 1.030039 December 5.410722
December 1971 1.178612 March 1995 5.656995
December 1972 1.403795 June 6.194660
December 1973 1.126624 September 6.505252
December 1974 0.863269 December 6.908158
December 1975 1.022844 March 1996 7.309625
December 1976 1.156853 June 7.593667
December 1977 1.064425 September 7.851947
December 1978 1.094150 December 8.435567
December 1979 1.219189 March 1997 8.468896
December 1980 1.555258 June 10.238554
December 1981 1.473246 September 11.146167
December 1982 1.812441 December 11.384926
December 1983 2.132092 March 1998 12.975484
December 1984 2.029912 June 13.465013
December 1985 2.480050 September 11.758633
December 1986 2.743444 December 15.192155
December 1987 2.734169 January 1999 16.290166
December 1988 3.087892 February 15.518614
December 1989 3.812606 March 15.889579
December 1990 3.736441 April 16.365192
December 1991 5.036212 May 16.115250
December 1992 5.028547 June 17.218781
March 1993 5.208499 July 16.512345
June 5.190340 August 16.197535
September 5.441446 September 15.844714
December 5.646864 October 17.031721
March 1994 5.386379 November 17.633825
December 19.180992
</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 1993 through December 1998, and on the last valuation
day of each month of 1999. The results shown should not be considered as a
representation of the results which may be realized in the future.
-12-
