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PROTECTIVE LIFE AND ANNUITY INSURANCE
COMPANY
VARIABLE ANNUITY ACCOUNT A OF
PROTECTIVE LIFE
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223
TELEPHONE: 1-800-456-6330
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This Prospectus describes the Protective Variable Annuity Contract, an
individual flexible premium deferred variable and fixed annuity contract offered
by Protective Life and Annuity Insurance Company. The Contract is designed for
investors who desire to accumulate capital on a tax deferred basis for
retirement or other long term investment purpose. It may be purchased on a
non-qualified basis or for use with certain qualified retirement plans.
You may allocate your Purchase Payments to one or more of the Sub-Accounts
of the Protective Variable Annuity Account A of Protective Life, the Guaranteed
Account, or both. The assets of each Sub-Account will be invested solely in a
corresponding Fund of Protective Investment Company, Oppenheimer Variable
Account Funds, MFS-Registered Trademark- Variable Insurance Trust, Calvert
Variable Series, Inc., or Van Eck Worldwide Insurance Trust. The Funds are:
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PROTECTIVE INVESTMENT MFS-REGISTERED TRADEMARK- OPPENHEIMER VARIABLE ACCOUNT CALVERT VARIABLE SERIES,
COMPANY VARIABLE INSURANCE TRUST FUNDS INC.
INTERNATIONAL EQUITY FUND NEW DISCOVERY SERIES AGGRESSIVE GROWTH FUND/VA SOCIAL SMALL CAP GROWTH
SMALL CAP VALUE FUND EMERGING GROWTH SERIES GLOBAL SECURITIES FUND/VA PORTFOLIO
CAPITAL GROWTH FUND RESEARCH SERIES CAPITAL APPRECIATION FUND/VA SOCIAL BALANCED PORTFOLIO
CORE U.S. EQUITY FUND GROWTH WITH INCOME SERIES MAIN STREET GROWTH & VAN ECK WORLDWIDE INSURANCE
GROWTH AND INCOME FUND UTILITIES SERIES INCOME FUND/VA TRUST
GLOBAL INCOME FUND TOTAL RETURN SERIES HIGH INCOME FUND/VA WORLDWIDE HARD ASSETS FUND
STRATEGIC BOND FUND/VA WORLDWIDE REAL ESTATE FUND
MONEY FUND/VA
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The value of your Contract, except amounts you allocate to the Guaranteed
Account, will vary according to the investment performance of the Funds in which
the selected Sub-Accounts are invested. You bear the investment risk on amounts
you allocate to the Sub-Accounts.
This Prospectus sets forth basic information about the Contract and the
Variable Account that a prospective investor should know before investing.
Additional information about the Contract and the Variable Account is contained
in the Statement of Additional Information, which has been filed with the
Securities and Exchange Commission. The Statement of Additional Information is
dated the same date as this Prospectus and is incorporated herein by reference.
The Table of Contents for the Statement of Additional Information is on the last
page of this Prospectus. You may obtain a copy of the Statement of Additional
Information free of charge by writing or calling Protective Life at the address
or telephone number shown above. You may also obtain an electronic copy of the
Statement of Additional Information, as well as other material that we file
electronically and certain material incorporated by reference, at the SEC web
site (http://www.sec.gov).
PLEASE READ THIS PROSPECTUS CAREFULLY. INVESTORS SHOULD KEEP A COPY FOR
FUTURE REFERENCE. THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS
FOR EACH OF THE FUNDS.
THE PROTECTIVE VARIABLE ANNUITY CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF,
OR GUARANTEED BY, ANY BANK OR FINANCIAL INSTITUTION. IT IS NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY, AND IT IS
SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1999
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TABLE OF CONTENTS
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DEFINITIONS...................................... 3
EXPENSE TABLES................................... 4
Examples....................................... 6
SUMMARY.......................................... 8
The Contract................................... 8
Federal Tax Status............................. 11
CONDENSED FINANCIAL INFORMATION.................. 11
THE COMPANY, VARIABLE ACCOUNT AND FUNDS.......... 14
Protective Life and Annuity Insurance
Company...................................... 14
Variable Annuity Account A of Protective
Life......................................... 14
Administration................................. 14
The Funds...................................... 15
Protective Investment Company (PIC)............ 15
MFS-Registered Trademark- Variable Insurance
Trust-SM- ................................... 16
Oppenheimer Variable Account Funds............. 16
Calvert Variable Series, Inc................... 17
Van Eck Worldwide Insurance Trust.............. 17
Other Investors in the Funds................... 18
Addition, Deletion or Substitution of
Investments.................................. 19
DESCRIPTION OF THE CONTRACT.................... 20
The Contract................................... 20
Parties to the Contract........................ 20
Issuance of a Contract......................... 21
Purchase Payments.............................. 21
Right to Cancel................................ 22
Allocation of Purchase Payments................ 22
Variable Account Value......................... 23
Transfers...................................... 24
Surrenders and Partial Surrenders.............. 26
THE GUARANTEED ACCOUNT........................... 28
DEATH BENEFIT.................................... 29
SUSPENSION OR DELAY IN PAYMENTS.................. 30
CHARGES AND DEDUCTIONS........................... 30
Surrender Charges.............................. 30
Mortality and Expense Risk Charge.............. 31
Administration Charges......................... 31
Transfer Fee................................... 32
Contract Maintenance Fee....................... 32
Fund Expenses.................................. 32
Premium Taxes.................................. 32
Other Taxes.................................... 32
ANNUITIZATION.................................... 32
Annuity Commencement Date...................... 32
Annuity Income Payments........................ 33
Annuity Options................................ 33
Minimum Amounts................................ 33
Death of Annuitant or Owner After Annuity
Commencement Date............................ 33
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YIELDS AND TOTAL RETURNS......................... 34
Yields......................................... 34
Total Returns.................................. 34
Standardized Average Annual Total Returns...... 34
Non-Standard Average Annual Total Returns...... 35
Performance Comparisons........................ 35
Other Matters.................................. 36
FEDERAL TAX MATTERS.............................. 36
Introduction................................... 36
The Company's Tax Status....................... 36
TAXATION OF ANNUITIES IN GENERAL................. 36
Tax Deferral During Accumulation Period........ 36
Taxation of Partial and Full Surrenders........ 38
Taxation of Annuity Payments................... 38
Taxation of Death Benefit Proceeds............. 39
Assignments, Pledges, and Gratuitous
Transfers.................................... 39
Penalty Tax on Premature Distributions......... 40
Aggregation of Contracts....................... 40
Loss of Interest Deduction Where Contract Is
Held By or For the Benefit of Certain
Non-Natural Persons.......................... 40
QUALIFIED RETIREMENT PLANS....................... 41
In General..................................... 41
Direct Rollovers............................... 44
FEDERAL INCOME TAX WITHHOLDING................... 44
GENERAL MATTERS.................................. 44
The Contract................................... 44
Error in Age or Gender......................... 45
Incontestability............................... 45
Non-Participation.............................. 45
Assignment..................................... 45
Notice......................................... 45
Modification................................... 45
Reports........................................ 45
Settlement..................................... 46
Receipt of Payment............................. 46
Protection of Proceeds......................... 46
Minimum Values................................. 46
Application of Law............................. 46
No Default..................................... 46
DISTRIBUTION OF THE CONTRACTS.................... 46
Inquiries...................................... 46
PREPARATION FOR YEAR 2000........................ 47
LEGAL PROCEEDINGS................................ 48
VOTING RIGHTS.................................... 48
FINANCIAL STATEMENTS............................. 48
STATEMENT OF ADDITIONAL INFORMATION TABLE OF
CONTENTS....................................... 49
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DEFINITIONS
"We", "us", "our", "Protective Life", and "Company" refer to Protective Life
and Annuity Insurance Company. "You" and "your" refer to the person(s) who has
been issued a Contract.
ACCUMULATION UNIT: A unit of measure used to calculate the value of a
Sub-Account prior to the Annuity Commencement Date.
ALLOCATION OPTION: Any account to which you may allocate Purchase Payments
or transfer Contract Value under this Contract.
ANNUITY COMMENCEMENT DATE: The date as of which the Contract Value, less
applicable premium tax, is applied to an Annuity Option.
ANNUITY OPTION: The payout option under which the Company makes annuity
income payments.
ANNUITY PURCHASE VALUE: At any time prior to the Annuity Commencement Date,
the greater of: (1) Surrender Value, or (2) 95% of Contract Value (less
applicable premium tax).
ANNUITY UNIT: A unit of measure used to calculate the amount of the
variable income payments.
CONTRACT: The Protective Variable Annuity Contract.
CONTRACT ANNIVERSARY: The same month and day as the Effective Date in each
subsequent year of the Contract.
CONTRACT VALUE: Prior to the Annuity Commencement Date, the sum of the
Variable Account value and the Guaranteed Account value.
CONTRACT YEAR: Any period of 12 months commencing with the Effective Date
or any Contract Anniversary.
DCA: Dollar cost averaging.
DCA FIXED ACCOUNTS: The DCA Fixed Account is part of the Company's general
account and are not part of or dependent upon the investment performance of the
Variable Account.
EFFECTIVE DATE: The date as of which the initial Purchase Payment is
credited to the Contract and the date the Contract takes effect.
FIXED ACCOUNT: The Fixed Account is part of the Company's general account
and is not part of or dependent upon the investment performance of the Variable
Account.
FUND: Any investment portfolio in which a corresponding Sub-Account
invests.
GUARANTEED ACCOUNT: The Fixed Account, DCA Fixed Account, and any other
Allocation Option we may offer with interest rate guarantees.
PURCHASE PAYMENT: The amount(s) paid by the Owner and accepted by the
Company as consideration for this Contract.
QUALIFIED CONTRACTS: Contracts issued in connection with retirement plans
that receive favorable tax treatment under Sections 401, 403, 408, 408A or 457
of the Internal Revenue Code.
QUALIFIED PLANS: Retirement plans that receive favorable tax treatment
under sections 401, 403, 408, 408A3 or 457 of the Internal Revenue Code.
SUB-ACCOUNT: A separate division of the Variable Account.
SURRENDER VALUE: The amount available for a full surrender. It is equal to
the Contract Value minus any applicable contract maintenance fee and premium
tax.
VALUATION DAY: Each day on which the New York Stock Exchange is open for
business.
VALUATION PERIOD: The period which begins at the close of regular trading
on the New York Stock Exchange on any Valuation Day and ends at the close of
regular trading on the next Valuation Day.
VARIABLE ACCOUNT: The Variable Annuity Account A of Protective Life, a
separate investment account of Protective Life.
WRITTEN NOTICE: A notice or request submitted in writing in a form
satisfactory to the Company that is received at the administrative office.
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EXPENSE TABLES
The following expense information assumes that the entire Contract Value is
Variable Account Value.
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OWNER TRANSACTION EXPENSES
Sales Charge Imposed on Purchase Payments......................................... None
Maximum Surrender Charge (contingent deferred sales charge) (as a % of amount
surrendered).................................................................... 7%
Transfer Processing Fee........................................................... None*
ANNUAL CONTRACT MAINTENANCE FEE..................................................... $30**
ANNUAL ACCOUNT EXPENSES (as a percentage of average Variable Account value)
Mortality and Expense Risk Charge................................................. 1.25%
Administration Charge............................................................. 0.15%
Total Account Expenses............................................................ 1.40%
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ANNUAL FUND EXPENSES
(after reimbursement and as percentage of average net assets)
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MANAGEMENT OTHER TOTAL ANNUAL
(ADVISORY) EXPENSES AFTER FUND EXPENSES
FEES REIMBURSEMENT (AFTER REIMBURSEMENTS)
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PROTECTIVE INVESTMENT COMPANY (PIC) (1)
International Equity Fund................................. 1.10% 0.00% 1.10%
Small Cap Value Fund...................................... 0.80% 0.00% 0.80%
Capital Growth Fund....................................... 0.80% 0.00% 0.80%
CORE U.S. Equity Fund..................................... 0.80% 0.00% 0.80%
Growth & Income Fund...................................... 0.80% 0.00% 0.80%
Global Income Fund........................................ 1.10% 0.00% 1.10%
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST-SM- (2,3)
New Discovery Series...................................... 0.90% 0.27% 1.17%
Emerging Growth Series.................................... 0.75% 0.10% 0.85%
Research Series........................................... 0.75% 0.11% 0.86%
Growth With Income Series................................. 0.75% 0.13% 0.88%
Utilities Series.......................................... 0.75% 0.26% 1.01%
Total Return Series....................................... 0.75% 0.16% 0.91%
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Aggressive Growth Fund/VA................................. 0.69% 0.02% 0.71%
Global Securities Fund/VA................................. 0.68% 0.06% 0.74%
Capital Appreciation Fund/VA.............................. 0.72% 0.03% 0.75%
Main Street Growth & Income Fund/VA....................... 0.74% 0.05% 0.79%
High Income Fund/VA....................................... 0.74% 0.04% 0.78%
Strategic Bond Fund/VA.................................... 0.74% 0.06% 0.80%
Money Fund/VA............................................. 0.45% 0.05% 0.50%
CALVERT VARIABLE SERIES, INC. (4)
Social Small Cap Growth Portfolio......................... 1.00% 0.33% 1.33%
Social Balanced Portfolio................................. 0.70% 0.18% 0.88%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund................................ 1.00% 0.16% 1.16%
Worldwide Real Estate Fund (5)............................ 0.00% 0.89% 0.89%
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* Protective Life reserves the right to charge a Transfer Fee in the future.
(See "Charges and Deductions".)
** The contract maintenance fee may not apply. (See "Charges and Deductions".)
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(1) The annual expenses listed for all of the PIC funds are net of certain
reimbursements by PIC's investment manager. (See "The Funds".) Absent the
reimbursements, total expenses for the period ended December 31, 1998 were:
CORE U.S. Equity Fund 0.85%, Small Cap Value Fund 0.89%, International
Equity Fund 1.39%, Growth and Income Fund 0.85%, Capital Growth Fund 0.86%,
and Global Income Fund 1.28%. PIC's investment manager has voluntarily
agreed to reimburse certain of each Fund's expenses in excess of its
management fees. Although this reimbursement may be ended on 120 days notice
to PIC, the investment manager has no present intention of doing so.
(2) MFS has agreed to bear expenses for these series, subject to reimbursement
by these series, such that each series' "Other Expenses" shall not exceed
0.25% of the average daily net assets of these series during the current
fiscal year. The payments made by MFS on behalf of each series under this
arrangement are subject to reimbursement by the series to MFS, which will be
accomplished by the payment of an expense reimbursement fee by the series to
MFS computed and paid monthly at a percentage of the series' average daily
net assets for its then current fiscal year, with a limitation that
immediately after such payment the series' "Other Expenses" will not exceed
the percentage set forth above for that series. The obligation of MFS to
bear a series' "Other Expenses" pursuant to this arrangement, and the
series' obligation to pay the reimbursement fee to MFS, terminates on the
earlier of the date on which payments made by the series equal the prior
payment of such reimbursable expenses by MFS, or December 31, 2004 (May 1,
2001, in the case of the New Discovery Series). MFS may, in its discretion,
terminate this arrangement at an earlier date, provided that the arrangement
will continue for each series until at least May 1, 2000, unless terminated
with the consent of the board of trustees which oversees the series. Absent
the reimbursements, total expenses for the New Discovery Series for the
period ended December 31, 1998 were 5.22%.
(3) Each Series has an expense offset arrangement which reduces the series'
custodian based fee based on the amount of cash maintained by the series
with its custodian and dividend disbursing agent. Each series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. Expenses do not take
into account these expense reductions and are therefore higher than the
actual expenses of the series.
(4) The figures have been restated to reflect the complete assessment of
transfer agency expenses (the addition of 0.01%) for the Calvert Social
Balanced Portfolio expected to be incurred in 1999. "Other Expenses" reflect
an indirect fee. Net fund operating expenses after reductions for fees paid
indirectly (again, restated for Calvert Social Balanced) would be 0.86% for
Calvert Social Balanced, and 1.12% for Calvert Social Small Cap Growth.
(5) Van Eck Associates Corporation (the "Adviser") earned fees for investment
management and advisory services. The fee is based on an annual rate of 1%
of the average daily net assets. The Adviser agreed to waive its management
fees and assume all expenses of the fund except interest, taxes, brokerage
commissions and extraordinary expenses for the period January 1, 1998 to
February 28, 1998. The Adviser also agreed to assume expenses exceeding 1%
of average daily net assets except interest, taxes, brokerage commissions
and extraordinary expenses for the period March 1, 1998 to December 31,
1998. For the year ended December 31, 1998, the Adviser assumed expenses in
the amount of $49,729. Certain of the officers and trustees of the Trust are
officers, directors or stockholders of the Adviser and Van Eck Securities
Corporation. As of December 31, 1998, the Adviser owned 39% of the
outstanding shares of beneficial interest of the Fund.
The above tables are intended to assist the owner in understanding the costs
and expenses that he or she will bear directly or indirectly. The tables reflect
the expenses for the Account and reflect the investment management fees and
other expenses and total expenses for each Fund for the period January 1, 1998
to December 31, 1998. For a more complete description of the various costs and
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expenses see "Charges and Deductions" and the prospectuses for each of the
Funds, which accompany this prospectus. In addition to the expenses listed
above, premium taxes currently varying from 0 to 3.5% may be applicable in
certain states.
EXAMPLES
An Owner would pay the following expenses on a $1,000 investment, assuming a
5% annual return on assets:
1. If the Contract is surrendered at the end of the applicable time period:
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SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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PIC International Equity............................................ $96 $130 $166 $290
PIC Small Cap Value................................................. 93 121 151 260
PIC Capital Growth.................................................. 93 121 151 260
PIC CORE U.S. Equity................................................ 93 121 151 260
PIC Growth and Income............................................... 93 121 151 260
PIC Global Income................................................... 96 130 166 290
MFS New Discovery................................................... 97 132 170 296
MFS Emerging Growth................................................. 93 122 154 265
MFS Research........................................................ 94 122 154 266
MFS Growth With Income.............................................. 94 123 155 268
MFS Utilities....................................................... 95 127 162 281
MFS Total Return.................................................... 94 124 157 271
Oppenheimer Aggressive Growth....................................... 92 118 146 250
Oppenheimer Global Securities....................................... 92 119 148 253
Oppenheimer Capital Appreciation.................................... 92 119 148 254
Oppenheimer Main Street Growth & Income............................. 93 120 150 258
Oppenheimer High Income............................................. 93 120 150 257
Oppenheimer Strategic Bond.......................................... 93 121 151 260
Oppenheimer Money Fund.............................................. 90 112 136 229
Calvert Social Small Cap Growth..................................... 98 137 177 312
Calvert Social Balanced............................................. 94 123 155 268
Van Eck Worldwide Hard Assets....................................... 97 131 169 295
Van Eck Worldwide Real Estate....................................... 94 123 156 269
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2. If the Contract is not surrendered or is annuitized* at the end of the
applicable time period:
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SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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PIC International Equity............................................ $26 $80 $136 $290
PIC Small Cap Value................................................. 23 71 121 260
PIC Capital Growth.................................................. 23 71 121 260
PIC CORE U.S. Equity................................................ 23 71 121 260
PIC Growth and Income............................................... 23 71 121 260
PIC Global Income................................................... 26 80 136 290
MFS New Discovery................................................... 27 82 140 296
MFS Emerging Growth................................................. 23 72 124 265
MFS Research........................................................ 24 72 124 266
MFS Growth With Income.............................................. 24 73 125 268
MFS Utilities....................................................... 25 77 132 281
MFS Total Return.................................................... 24 74 127 271
Oppenheimer Aggressive Growth....................................... 22 68 116 250
Oppenheimer Global Securities....................................... 22 69 118 253
Oppenheimer Capital Appreciation.................................... 22 69 118 254
Oppenheimer Main Street Growth & Income............................. 23 70 120 258
Oppenheimer High Income............................................. 23 70 120 257
Oppenheimer Strategic Bond.......................................... 23 71 121 260
Oppenheimer Money Fund.............................................. 20 62 106 229
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SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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Calvert Social Small Cap Growth..................................... 28 87 147 312
Calvert Social Balanced............................................. 24 73 125 268
Van Eck Worldwide Hard Assets....................................... 27 81 139 295
Van Eck Worldwide Real Estate....................................... 24 73 126 269
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* The examples assume that no transfer fee or premium taxes have been
assessed. The examples assume that the contract maintenance fee is $30. The
contract maintenance fee reflected in the above example is based on an
anticipated average Contract value of $52,603.26 for purposes of the
examples based on a $1,000 investment.
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE 5% ANNUAL RETURN ASSUMED IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR
LESS THAN THE ASSUMED AMOUNT.
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SUMMARY
THE CONTRACT
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WHAT IS THE PROTECTIVE VARIABLE The Protective Variable Annuity Contract is an
ANNUITY CONTRACT? individual flexible premium deferred variable and
fixed annuity contract issued by Protective Life. (See
"The Contract".)
HOW IS A CONTRACT ISSUED? Protective Life will issue the Contract when it
receives and accepts your complete application
information and an initial Purchase Payment. (See
"Issuance of a Contract".)
WHAT ARE THE PURCHASE PAYMENTS? The minimum amount which Protective Life will accept
as an initial Purchase Payment is $5,000 for a
Non-Qualified Contract and $2,000 for a Qualified
Contract. Subsequent Purchase Payments may be made at
any time. The minimum subsequent Purchase Payment is
$250, unless the payment is made electronically under
the Automatic Purchase Plan. Currently, we will accept
a minimum payment of $100 under this Plan. The maximum
aggregate Purchase Payment(s) we will accept without
prior administrative office approval is $1,000,000. We
reserve the right not to accept any Purchase Payment.
(See "Purchase Payments".)
CAN I CANCEL THE CONTRACT? You have the right to return the Contract within 30
days after you receive it. The returned Contract will
be treated as if it were never issued. If the Contract
is issued as an IRA and returned within 7 days,
Protective Life will refund the Purchase Payments;
otherwise Protective Life will refund the Contract
Value. This amount may be more or less than the
Purchase Payments. (See "Right to Cancel".)
CAN I TRANSFER AMOUNTS IN THE Prior to the Annuity Commencement Date, you may
CONTRACT? request transfers from one Allocation Option to
another. No transfers may be made into the DCA Fixed
Account. At least $100 must be transferred. Protective
Life reserves the right to limit the maximum amount
that may be transferred from the Fixed Account to the
greater of (a) $2,500; or (b) 25% of the value of the
Fixed Account per Contract Year. The Company reserves
the right to charge a transfer fee of $25 for each
transfer after the 12th transfer during such Contract
Year. (See "Transfers".)
CAN I SURRENDER THE CONTRACT? Upon Written Notice before the Annuity Commencement
Date, you may surrender the Contract and receive its
Surrender Value. (See "Surrenders and Partial
Surrenders".) Surrenders may have federal (and state)
income tax consequences. In addition, surrenders from
Contracts issued pursuant to Internal Revenue Code
section 403(b) may not be allowed in certain
circumstances.
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IS THERE A DEATH BENEFIT? If any Owner dies prior to the Annuity Commencement
Date and while this Contract is in force, a death
benefit, less any applicable premium tax, will be
payable to the Beneficiary. The death benefit is
determined as of the end of the Valuation Period
during which we receive due proof of the Owner's
death. The death benefit will depend on the age of the
Owner on the date of death.
In general, if an Owner dies on or before his or her
90th birthday, the death benefit is the greater of:
(1) the Contract Value; or (2) aggregate Purchase
Payments less aggregate amounts surrendered and any
associated surrender charges; or (3) the maximum
Anniversary Value.
If the Owner dies after his or her 90th birthday, the
death benefit is the Contract Value.
Only one death benefit is payable under this Contract,
even though the Contract may, in some circumstances,
continue beyond the time of an Owner's death. (See
"Death Benefit".)
ARE THERE CHARGES AND DEDUCTIONS The following charges and deductions are made in
FROM MY CONTRACT? connection with the Contract:
SURRENDER CHARGES. Full or partial surrenders are subject to a surrender
charge. The surrender charge is equal to a specified
percentage (maximum 7%) of each Purchase Payment
surrendered. No surrender charge applies to Contract
Value in excess of the total of the Purchase Payments
(less prior partial surrenders of Purchase Payments).
Protective Life calculates the surrender charge using
the assumption that the Contract Value in excess of
aggregate Purchase Payments (less prior partial
surrenders of Purchase Payments) is surrendered before
any Purchase Payments and that Purchase Payments are
surrendered on a first-in-first-out basis. (See
"Surrender Charge.")
MORTALITY AND EXPENSE RISK We will deduct a mortality and expense risk charge to
CHARGE. compensate us for assuming certain mortality and
expense risks. The charge equals, on an annual basis,
1.25% of the average daily net assets of the Variable
Account value attributable to the Contracts. (See
"Mortality and Expense Risk Charge".)
ADMINISTRATION CHARGE. We will deduct an administration charge equal, on an
annual basis, to 0.15% of the average daily net assets
of the Variable Account value supporting the
Contracts. (See "Administration Charge".)
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CONTRACT MAINTENANCE FEE. Prior to the Annuity Commencement Date we will deduct
a contract maintenance fee of $30 from the Contract
Value on each Contract Anniversary, and on any day
that the Contract is surrendered if the surrender
occurs on any day other than the Contract Anniversary.
Under certain circumstances, we may waive this fee.
(See "Contract Maintenance Fee".)
TAXES. Some states impose premium taxes at rates currently
ranging up to 3.5%. If premium taxes apply to your
Contract, we will deduct them from the Purchase
Payment(s) when accepted or from the Contract Value
upon a full or partial surrender, death or
annuitization. Currently, New York does not impose a
premium tax. The Company reserves the right to impose
a charge for other taxes attributable to the Variable
Account. (See "Charges and Deductions".)
INVESTMENT MANAGEMENT FEES AND The net assets of each Sub-Account of the Variable
OTHER EXPENSES OF THE FUNDS. Account will reflect the investment management fee the
corresponding Fund incurs as well as the other
operating expenses of that Fund. For each Fund, the
investment manager receives a daily fee for its
investment management services. The management fees
are based on the average daily net assets of the Fund.
(See "Fund Expenses" and the Funds' prospectuses.)
WHAT ANNUITY OPTIONS ARE AVAILABLE? Currently, we apply the Annuity Purchase Value, less
any applicable premium tax and surrender charge, to an
Annuity Option on the Annuity Commencement Date,
unless you choose to receive the surrender value in a
lump sum. Annuity Options include: payments for a
fixed period, and life income with payments for a
guaranteed period. (See "Annuitization".)
IS THE CONTRACT AVAILABLE FOR We may issue the Contract for use with retirement
QUALIFIED RETIREMENT PLANS? plans that receive special federal income tax
treatment under the Internal Revenue Code such as
pension and profit sharing plans (including H.R. 10
plans), tax sheltered annuities, individual retirement
accounts, and individual retirement annuities.
Contracts issued for use with these qualified
retirement plans are referred to as Qualified
Contracts, and these types of plans are referred to as
Qualified Plans. (See "Federal Tax Matters".)
</TABLE>
10
<PAGE>
FEDERAL TAX STATUS
Generally, a distribution from the Contract, which includes a full or
partial surrender or payment of a death benefit, will result in taxable income
if there has been an increase in the Contract Value. In certain circumstances, a
10% penalty tax may also apply. (See "Federal Tax Matters".)
CONDENSED FINANCIAL INFORMATION
The date of inception of each of the Sub-Accounts is as follows:
<TABLE>
<S> <C>
May 1, 1998 -- PIC International Equity
PIC Small Cap Value
PIC CORE U.S. Equity
PIC Growth and Income
PIC Global Income
Oppenheimer Money Fund
(formerly PIC Money Market)
PIC Capital Growth
MFS Emerging Growth
MFS Research
MFS Growth with Income
MFS Total Return
Oppenheimer Aggressive Growth
Oppenheimer Capital Appreciation
(formerly Oppenheimer Growth Fund)
Oppenheimer Main Street Growth & Income
(formerly Oppenheimer
Growth & Income Fund)
Oppenheimer Strategic Bond
Calvert Social Small Cap Growth
Calvert Social Balanced
May 1, 1999 -- MFS New Discovery
MFS Utilities
Oppenheimer Global Securities
Oppenheimer High Income
Van Eck Worldwide Hard Assets
Van Eck Worldwide Real Estate
</TABLE>
The following Accumulation Unit values and Accumulation Units represent the
net assets of the Variable Account at December 31, 1994, 1995, 1996, 1997 and
1998. The Accumulation Unit values shown for each period are as of the date of
inception of their respective Sub-Accounts. You should read this information in
conjunction with the Variable Account's financial statements and the related
notes in the Statement of Additional Information.
11
<PAGE>
<TABLE>
<CAPTION>
ACCUMULATION UNIT
VALUES*
(DECEMBER 31,
SUB-ACCOUNT 1998)
- ----------------------------------------------------------------------------------------------- -------------------
<S> <C>
PIC International Equity....................................................................... 16.07
PIC Small Cap Value............................................................................ 12.07
PIC Capital Growth............................................................................. 22.00
PIC CORE U.S. Equity........................................................................... 25.10
PIC Growth and Income.......................................................................... 19.40
PIC Global Income Sub-Account.................................................................. 14.42
MFS New Discovery.............................................................................. 11.97
MFS Emerging Growth............................................................................ 15.02
MFS Research................................................................................... 13.24
MFS Growth With Income......................................................................... 13.75
MFS Utilities.................................................................................. 10.65
MFS Total Return............................................................................... 12.29
Oppenheimer Aggressive Growth.................................................................. 12.16
Oppenheimer Global Securities.................................................................. 11.26
Oppenheimer Capital Appreciation............................................................... 13.72
Oppenheimer Main Street Growth & Income........................................................ 12.21
Oppenheimer High Income........................................................................ 10.51
Oppenheimer Strategic Bond..................................................................... 10.48
Oppenheimer Money Fund (formerly the PIC Money Market Sub-Account)............................. 1.17
Calvert Social Small Cap Growth................................................................ 10.22
Calvert Social Balanced........................................................................ 12.77
Van Eck Worldwide Hard Assets.................................................................. 9.50
Van Eck Worldwide Real Estate.................................................................. 10.39
</TABLE>
- ------------
* Accumulation unit values are rounded to the nearest whole cent.
12
<PAGE>
<TABLE>
<CAPTION>
ACCUMULATION
UNITS**
(DECEMBER 31,
SUB-ACCOUNT 1998)
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
PIC International Equity....................................................................... 375
PIC Small Cap Value............................................................................ 1,233
PIC Capital Growth............................................................................. 1,660
PIC CORE U.S. Equity........................................................................... 1,368
PIC Growth and Income.......................................................................... 3,703
PIC Global Income.............................................................................. 260
MFS New Discovery.............................................................................. --
MFS Emerging Growth............................................................................ 253
MFS Research................................................................................... 607
MFS Growth With Income......................................................................... 824
MFS Utilities.................................................................................. --
MFS Total Return............................................................................... --
Oppenheimer Aggressive Growth.................................................................. 427
Oppenheimer Global Securities.................................................................. --
Oppenheimer Capital Appreciation............................................................... 233
Oppenheimer Main Street Growth & Income........................................................ 1,483
Oppenheimer High Income........................................................................ --
Oppenheimer Strategic Bond..................................................................... 860
Oppenheimer Money Fund (formerly the PIC Money Market Sub-Account)............................. --
Calvert Social Small Cap Growth................................................................ --
Calvert Social Balanced........................................................................ 880
Van Eck Worldwide Hard Assets.................................................................. --
Van Eck Worldwide Real Estate.................................................................. --
</TABLE>
- ------------
** Accumulation units are rounded to the nearest unit.
13
<PAGE>
THE COMPANY, VARIABLE ACCOUNT AND FUNDS
PROTECTIVE LIFE ANNUITY AND INSURANCE COMPANY
The Contracts are issued by Protective Life and Annuity Insurance Company
(formerly American Foundation Life Insurance Company), a wholly owned subsidiary
of Protective Life Insurance Company, which is the chief operating subsidiary of
Protective Life Corporation, a Delaware insurance holding company whose stock is
traded on the New York Stock Exchange. Protective Life and Annuity Insurance
Company ("Protective Life") was organized as an Alabama company in 1978.
Protective Life is authorized to transact business in 29 states (including New
York) and offers a variety of individual life, individual and group annuity and
group dental insurance products. The Company's assets for fiscal year ending in
1998 were in excess of 600 million dollars.
VARIABLE ANNUITY ACCOUNT A OF PROTECTIVE LIFE
The Variable Annuity Account A of Protective Life, also called the Variable
Account, is a separate investment account of Protective Life. The Variable
Account was established under Alabama law by the Board of Directors of
Protective Life on December 1, 1997. The Variable Account is registered with the
Securities and Exchange Commission (the "SEC") as a unit investment trust under
the Investment Company Act of 1940 (the "1940 Act") and meets the definition of
a separate account under federal securities laws. This registration does not
involve supervision by the SEC of the management or investment policies or
practices of the Variable Account.
Protective Life owns the assets of the Variable Account. These assets are
held separate from other assets and are not part of Protective Life's general
account. The portion of the assets of the Variable Account equal to the reserves
or other contract liabilities of the Variable Account will not be charged with
liabilities that arise from any other business Protective Life conducts.
Protective Life may transfer to its general account any assets which exceed the
reserves and other contract liabilities of the Variable Account. Protective Life
may accumulate in the Variable Account the charge for mortality and expense
risks and investment results applicable to those assets that are in excess of
the net assets supporting the contracts. The income, gains and losses, both
realized and unrealized, from the assets of the Variable Account are credited to
or charged against the Variable Account without regard to any other income,
gains or losses of Protective Life. The obligations under the Contracts are
obligations of Protective Life.
Currently, twenty-three Sub-Accounts of the Variable Account are available
under this Contract: PIC International Equity; PIC Small Cap Value; PIC Capital
Growth; PIC CORE U.S. Equity; PIC Growth and Income; PIC Global Income; MFS New
Discovery; MFS Emerging Growth; MFS Research; MFS Growth With Income; MFS
Utilities; MFS Total Return; Oppenheimer Aggressive Growth; Oppenheimer Global
Securities; Oppenheimer Capital Appreciation; Oppenheimer Main Street Growth &
Income; Oppenheimer High Income; Oppenheimer Strategic Bond; Oppenheimer Money
Fund; Calvert Social Small Cap Growth; Calvert Social Balanced; Van Eck
Worldwide Hard Assets; and Van Eck Worldwide Real Estate. Each Sub-Account
invests in shares of a corresponding Fund. Therefore, the investment experience
of your Contract depends on the experience of the Sub-Accounts that you select.
Other contracts issued by Protective Life may offer some or all of the Sub-
Accounts of the Variable Account.
ADMINISTRATION
Pursuant to the terms of an agreement with Protective Life, Protective Life
Insurance Company performs the Contract administration at its administrative
office at 2801 Highway 280 South, Birmingham, Alabama 35223. Contract
administration includes processing applications for the Contracts and subsequent
Owner requests; processing Purchase Payments, transfers, surrenders and death
benefit claims as well as performing record maintenance and disbursing annuity
income payments.
14
<PAGE>
THE FUNDS
Each Sub-Account invests in a corresponding Fund. Each Fund is an investment
portfolio of one of the following investment companies: Protective Investment
Company ("PIC Funds") managed by Protective Investment Advisors, Inc. (formerly
Investment Distributors Advisory Services, Inc.), and subadvised by Goldman
Sachs Asset Management or Goldman Sachs Asset Management International;
Oppenheimer Variable Account Funds managed by OppenheimerFunds, Inc.;
MFS-Registered Trademark- Variable Insurance Trust-SM- managed by MFS Investment
Management; Calvert Variable Series, Inc. managed by Calvert Asset Management
Company, Inc.; or Van Eck Worldwide Insurance Trust managed by Van Eck
Associates Corporation. Shares of these Funds are offered only to:
(1) the Variable Account,
(2) other separate accounts of Protective Life and its affiliates
supporting variable annuity contracts or variable life insurance policies,
(3) separate accounts of other life insurance companies supporting
variable annuity contracts or variable life insurance policies, and
(4) certain qualified retirement plans.
Such shares are not offered directly to investors but are available only
through the purchase of such contracts or policies or through such plans. See
the prospectus for each Fund for details about that Fund.
There is no guarantee that any Fund will meet its investment objectives.
Please refer to the prospectus for each of the Funds you are considering for
more information.
PROTECTIVE INVESTMENT COMPANY (PIC)
INTERNATIONAL EQUITY FUND.
This Fund seeks long-term capital appreciation. This Fund will pursue its
objectives by investing substantially all, and at least 65%, of total assets in
equity and equity-related securities of companies that are organized outside the
United States or whose securities are primarily traded outside the United
States.
SMALL CAP VALUE FUND.
This Fund seeks long-term capital growth. This Fund will pursue its
objectives by investing, under normal circumstances, at least 65% of its total
assets in equity securities of companies with public stock market
capitalizations of $1 billion or less at the time of investment.
CAPITAL GROWTH FUND
This Fund seeks long-term capital growth. The Fund will pursue its objective
by investing, under normal circumstances, at least 90% of its total assets in a
diversified portfolio of equity securities having long-term capital appreciation
potential.
CORE U.S. EQUITY FUND.
This Fund seeks a total return consisting of capital appreciation plus
dividend income. This Fund will pursue its objectives by investing, under normal
circumstances, at least 90% of its total assets in equity securities selected
using both fundamental research and a variety of quantitative techniques in
seeking to maximize the Fund's expected return, while maintaining risk, style,
capitalization and industry characteristics similar to the S&P 500 Index.
15
<PAGE>
GROWTH AND INCOME FUND.
This Fund seeks long-term growth of capital and growth of income. This Fund
will pursue its objectives by investing, under normal circumstances, at least
65% of its total assets in equity securities having favorable prospects of
capital appreciation and/or dividend paying ability.
GLOBAL INCOME FUND.
This Fund seeks high total return, emphasizing current income and, to a
lesser extent, providing opportunities for capital appreciation. This Fund will
pursue its objectives by investing primarily in high quality fixed-income
securities of U.S. and foreign issuers and through foreign currency
transactions.
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST-SM-
NEW DISCOVERY SERIES.
This Fund seeks to provide capital appreciation.
EMERGING GROWTH SERIES.
This Fund seeks to provide long-term growth of capital.
RESEARCH SERIES.
This Fund seeks to provide long-term growth of capital and future income.
GROWTH WITH INCOME SERIES.
This Fund seeks to provide reasonable current income and long-term growth of
capital and income.
UTILITIES SERIES.
This Fund seeks to provide capital growth and current income (income above
that available from a portfolio invested entirely in equity securities.)
TOTAL RETURN SERIES.
This Fund seeks primarily to provide above-average income (compared to a
portfolio invested entirely in equity securities) consistent with the prudent
employment of capital and secondarily to provide a reasonable opportunity for
growth of capital and income.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
AGGRESSIVE GROWTH FUND/VA.
This Fund seeks to achieve long-term capital appreciation by investing in
"growth-type" companies.
GLOBAL SECURITIES FUND/VA.
This Fund seeks long-term capital appreciation by investing in securities of
foreign issuers, "growth-type" companies and cyclical industries.
CAPITAL APPRECIATION FUND/VA.
This Fund seeks to achieve long-term capital appreciation by investing in
securities of well-known established companies.
16
<PAGE>
MAIN STREET GROWTH & INCOME FUND/VA.
This Fund seeks a high total return (which includes growth in the value of
its shares as well as current income) from equity and debt securities. From time
to time this Fund may focus on small to medium capitalization common stocks,
bonds and convertible securities.
HIGH INCOME FUND/VA.
This Fund seeks a high level of current income from investment in high yield
fixed-income securities.
STRATEGIC BOND FUND/VA.
This Fund seeks a high level of current income principally derived from
interest on debt securities and seeks to enhance such income by writing covered
call options on debt securities.
MONEY FUND/VA.
The Fund seeks maximum current income from investments in "money market"
securities consistent with low capital risk and the maintenance of liquidity. An
investment in the Money Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.
CALVERT VARIABLE SERIES, INC.
SOCIAL SMALL CAP GROWTH PORTFOLIO.
This Fund seeks to provide long-term capital appreciation by investing
primarily in equity securities of companies that have small market
capitalizations.
SOCIAL BALANCED PORTFOLIO.
This Fund seeks to achieve a total return above the rate of inflation
through an actively managed, non-diversified portfolio of common and preferred
stocks, bonds, and money market instruments that offer income and capital growth
opportunity and that satisfy the investment and social criteria established for
the Fund.
VAN ECK WORLDWIDE INSURANCE TRUST
WORLDWIDE HARD ASSETS FUND.
This Fund seeks long-term capital appreciation by investing primarily in
"Hard Asset Securities". Hard Asset Securities are the stocks, bonds and other
securities of companies that derive at least 50% of gross revenue or profit from
exploration, development, production or distribution of (together "Hard
Assets"):
(i) precious metals;
(ii) natural resources;
(iii) real estate; and
(iv) commodities.
WORLDWIDE REAL ESTATE FUND.
This Fund seeks a high total return by investing in equity securities of
companies that own significant real estate or that principally do business in
real estate.
17
<PAGE>
THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES AND POLICIES OF ANY OF THE
FUNDS WILL BE ACHIEVED. MORE DETAILED INFORMATION CONCERNING THE INVESTMENT
OBJECTIVES, POLICIES AND RESTRICTIONS OF THE FUNDS, THE EXPENSES OF THE FUNDS,
THE RISKS ATTENDANT TO INVESTING IN THE FUNDS AND OTHER ASPECTS OF THEIR
OPERATIONS CAN BE FOUND IN THE CURRENT PROSPECTUSES FOR THE FUNDS, WHICH
ACCOMPANY THIS PROSPECTUS, AND THE CURRENT STATEMENT OF ADDITIONAL INFORMATION
FOR EACH OF THE FUNDS. YOU SHOULD READ THE FUNDS' PROSPECTUSES CAREFULLY BEFORE
MAKING ANY DECISION CONCERNING THE ALLOCATION OF PURCHASE PAYMENTS OR TRANSFERS
AMONG THE SUB-ACCOUNTS.
Certain Funds may have investment objectives and policies similar to other
mutual funds (sometimes having similar names) that are managed by the same
investment adviser or manager. The investment results of the Funds, however, may
be more or less favorable than the results of such other mutual funds.
Protective Life does not guarantee or make any representation that the
investment results of any Fund is, or will be, comparable to any other mutual
fund, even one with the same investment adviser or manager.
Each Fund sells its shares to the Variable Account in accordance with the
terms of a participation agreement between the appropriate investment company
and Protective Life. The termination provisions of these agreements vary. Should
a participation agreement relating to a Fund terminate, the Variable Account may
not be able to purchase additional shares of that Fund. In that event, Owners
may no longer be able to allocate Variable Account value or Purchase Payments to
Sub-Accounts investing in that Fund. In certain circumstances, it is also
possible that a Fund may refuse to sell its shares to the Variable Account
despite the fact that the participation agreement relating to that Fund has not
been terminated. Should a Fund decide to discontinue selling its shares to the
Variable Account, Protective Life would not be able to honor requests from
Owners to allocate Purchase Payments or transfer Account Value to the
Sub-Account investing in shares of that Fund.
Protective Life has entered into agreements with the investment managers or
advisers of the Funds pursuant to which each such investment manager or adviser
pays Protective Life a servicing fee based upon an annual percentage of the
average daily net assets invested by the Variable Account (and other separate
accounts of Protective Life and its affiliates) in the Funds managed by that
manager or adviser. These fees are in consideration for administrative services
provided to the Funds by Protective Life and its affiliates. Payments of fees
under these agreements by managers or advisers do not increase the fees or
expenses paid by the Funds or their shareholders.
OTHER INVESTORS IN THE FUNDS
PIC currently sells shares of its Funds only to Protective Life and Annuity
Insurance Company ("Protective Life," formerly American Foundation Life
Insurance Company), a Protective Life Insurance Company affiliate, as the
underlying investment for the Variable Account and to Protective Life Insurance
Company as the underlying investment for variable annuity contracts and variable
life insurance policies issued by Protective Life Insurance Company. PIC may in
the future sell shares of its Funds to other separate accounts of Protective
Life or its life insurance company affiliates supporting other variable annuity
contracts or variable life insurance policies. In addition, upon obtaining
regulatory approval, PIC may sell shares to certain retirement plans qualifying
under Section 401 of the Internal Revenue Code of 1986. Protective Life
currently does not foresee any disadvantages to Owners that would arise from the
possible sale of shares to support its variable annuity contracts and variable
life insurance policies or those of its affiliates or from the possible sale of
shares to such retirement plans. However, the board of directors of PIC will
monitor events in order to identify any material irreconcilable conflicts that
might possibly arise if such shares were also offered to support variable
annuity contracts other than the Contracts or variable life insurance policies
or to retirement plans. In event of such a conflict, the board of directors
would determine what action, if any, should be taken in response to the
conflict. In addition, if Protective Life believes that PIC's response to any
such conflicts
18
<PAGE>
insufficiently protects Owners, it will take appropriate action on its own,
including withdrawing the Account's investment in the Fund. (See the PIC
Prospectus for more detail.)
Shares of the MFS-Registered Trademark- Variable Insurance Trust,
Oppenheimer Variable Account Funds, Calvert Variable Series, Inc. and Van Eck
Worldwide Insurance Trust are sold to separate accounts of insurance companies,
which may or may not be affiliated with Protective Life or each other, a
practice known as "shared funding." They may also be sold to separate accounts
to serve as the underlying investment for both variable annuity contracts and
variable life insurance policies, a practice known as "mixed funding." As a
result, there is a possibility that a material conflict may arise between the
interests of Owners of Protective Life's Contracts, whose Contract Values are
allocated to the Variable Account, and of owners of other contracts whose
contract values are allocated to one or more other separate accounts investing
in any one of the Funds. Shares of some of these Funds may also be sold to
certain qualified pension and retirement plans. As a result, there is a
possibility that a material conflict may arise between the interests of Contract
Owners generally or certain classes of Contract Owners, and such retirement
plans or participants in such retirement plans. In the event of any such
material conflicts, Protective Life will consider what action may be
appropriate, including removing the Fund from the Variable Account or replacing
the Fund with another fund. As is the case with PIC, the boards of directors (or
trustees) of the MFS-Registered Trademark- Variable Insurance Trust, Oppenheimer
Variable Account Funds, Calvert Variable Series, Inc. and Van Eck Worldwide
Insurance Trust monitor events related to their Funds to identify possible
material irreconcilable conflicts among and between the interests of the Fund's
various investors. There are certain risks associated with mixed and shared
funding and with the sale of shares to qualified pension and retirement plans,
as disclosed in each Fund's prospectus.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
Protective Life reserves the right, subject to applicable law, to make
additions to, deletions from, or substitutions for the shares that are held in
the Variable Account or that the Variable Account may purchase. If the shares of
a Fund are no longer available for investment or if in Protective Life's
judgment further investment in any Fund should become inappropriate in view of
the purposes of the Variable Account, Protective Life may redeem the shares, if
any, of that Fund and substitute shares of another registered open-end
management company or unit investment trust. Protective Life will not substitute
any shares attributable to a Contract's interest in the Variable Account without
notice and any necessary approval of the Securities and Exchange Commission and
state insurance authorities.
Protective Life also reserves the right to establish additional Sub-Accounts
of the Variable Account, each of which would invest in shares corresponding to a
new Fund. Subject to applicable law and any required SEC approval, Protective
Life may, in its sole discretion, establish new Sub-Accounts or eliminate one or
more Sub-Accounts if marketing needs, tax considerations or investment
conditions warrant. We may make any new Sub-Accounts available to existing
Owner(s) on a basis we determine.
If we make of these substitutions or changes, Protective Life may by
appropriate endorsement change the Contract to reflect the substitution or other
change. If Protective Life deems it to be in the best interest of Owner(s) and
Annuitants, and subject to any approvals that applicable law may require, we may
operate the Variable Account as a management company under the 1940 Act. We may
de-register it under that Act if registration is no longer required, or we may
combine it with other Protective Life separate accounts. Protective Life
reserves the right to make any changes to the Variable Account that the 1940 Act
or other applicable law or regulation requires.
19
<PAGE>
DESCRIPTION OF THE CONTRACT
The following sections describe the Contracts currently being offered.
THE CONTRACT
The Protective Variable Annuity Contract is an individual flexible premium
deferred variable and fixed annuity contract Protective Life issues upon
receiving complete application information and an initial Purchase Payment. (See
"Purchase Payments.")
You may purchase the Contract on a non-qualified basis. You may also
purchase it for use with certain qualified retirement plans that receive special
federal income tax treatment under the Internal Revenue Code, such as pension
and profit sharing plans (including H.R. 10 Plans), tax sheltered annuity plans,
individual retirement accounts, and individual retirement annuities.
You may wish to consult a qualified tax and/or financial adviser regarding
the use of the Contract within a Qualified Plan or in connection with other
employee benefit plans or arrangements that receive favorable tax treatment,
since many such plans or arrangements provide the same type of tax deferral as
provided by the Contract. The Contract provides a number of extra benefits and
features not provided by employee benefit plans or arrangements alone, although
there are costs and expenses under the Contract related to these benefits and
features. You should carefully consider these benefits and features in relation
to their costs as they apply to your particular situation.
PARTIES TO THE CONTRACT
OWNER.
The Owner is the person or persons who own the Contract and are entitled to
exercise all rights and privileges provided in the Contract. Two persons may own
the Contract together; they are designated as the Owner and the Joint Owner. In
the case of Joint Owners, provisions relating to action by the Owner mean both
Joint Owners acting together. Individuals as well as nonnatural persons, such as
corporations or trusts, may be Owners. The Company will only issue a Contract
prior to each Owner's 83rd birthday.
An Owner may transfer the Contract to a new Owner by Written Notice to us.
The maximum age for new Owners on the date we receive such notice of a transfer
is 83. The change of Owner may result in a tax liability. (See "Taxation of
Annuities in General: Assignments, Pledges, and Gratuitous Transfers.")
BENEFICIARY.
The Beneficiary is the person or persons who may receive the benefits of
this Contract upon the death of any Owner.
PRIMARY -- The Primary Beneficiary is the surviving Joint Owner,
if any. If there is no surviving Joint Owner, the Primary
Beneficiary is the person or persons designated by the Owner and
named in our records.
CONTINGENT -- The Contingent Beneficiary is the person or persons
designated by the Owner and named in our records to be Beneficiary
if the Primary Beneficiary is not living at the time of the
Owner's death.
If no Beneficiary designation is in effect or if no Beneficiary is living at
the time of an Owner's death, the Beneficiary will be the estate of the deceased
Owner. If any Owner dies on or after the Annuity Commencement Date, the
Beneficiary will become the new Owner.
20
<PAGE>
Unless designated irrevocably, the Owner may change the Beneficiary by
Written Notice prior to the death of any Owner. An irrevocable Beneficiary is
one whose written consent is needed before the Owner can change the Beneficiary
designation or exercise certain other rights. In the case of certain Qualified
Contracts, Treasury Department regulations prescribe certain limitations on the
designation of a Beneficiary.
ANNUITANT.
The Annuitant is the person on whose life annuity income payments may be
based. The Owner is the Annuitant unless the Owner designates another person as
the Annuitant. If the Annuitant is not an Owner and dies prior to the Annuity
Commencement Date, the Owner will become the new Annuitant unless the Owner
designates otherwise.
The Owner may change the Annuitant by Written Notice prior to the Annuity
Commencement Date. However, if any Owner is not an individual the Annuitant may
not be changed.
PAYEE.
The Payee is the person or persons designated by the Owner to receive the
annuity income payments under the Contract. The Annuitant is the Payee unless
the Owner designates another party as the Payee. The Owner may change the Payee
at any time.
ISSUANCE OF A CONTRACT
To purchase a Contract, you must submit certain application information and
an initial Purchase Payment to Protective Life through a licensed representative
of Protective Life, who is also a registered representative of a broker-dealer
having a distribution agreement with Investment Distributors, Inc. The minimum
initial Purchase Payment is $5,000 for Non-Qualified Contracts and $2,000 for
Qualified Contracts. Protective Life reserves the right to accept or decline a
request to issue a Contract. Contracts may be sold to or in connection with
retirement plans which do not qualify for special tax treatment as well as
retirement plans that qualify for special tax treatment under the Internal
Revenue Code.
If the necessary application information for a Contract accompanies the
initial Purchase Payment, we will allocate the initial Purchase Payment (less
any applicable premium tax) to the Allocation Option you direct in the
application within two business days of receiving such Purchase Payment at the
administrative office. If we do not receive the necessary application
information, Protective Life will retain the Purchase Payment for up to five
business days while it attempts to complete the information. If the necessary
application information is not complete after five days, Protective Life will
inform the applicant of the reason for the delay and return the initial Purchase
Payment immediately unless the applicant specifically consents to Protective
Life retaining it until the information is complete. Once the information is
complete, we will allocate the initial Purchase Payment to the appropriate
Allocation Options within two business days.
Information necessary to complete an application may be transmitted to the
Company by telephone, facsimile, or electronic media.
PURCHASE PAYMENTS
The Company will only accept an initial Purchase Payment prior to the older
Owner's 83rd birthday. Protective Life may accept subsequent Purchase Payments.
The minimum subsequent Purchase Payment we will accept is $250, unless the
payment is made under the Automatic Purchase Plan. Currently, we will accept a
minimum payment of $100 under this plan. We reserve the right not to accept any
Purchase Payment.
21
<PAGE>
Purchase Payments are payable at our administrative office. You may make
them by check payable to Protective Life and Annuity Insurance Company or by any
other method we deem acceptable. Protective Life retains the right to limit the
maximum aggregate Purchase Payment that can be made without prior administrative
office approval. This amount is currently $1,000,000.
Under the current Automatic Purchase Payment plan, you may select a monthly
or quarterly payment schedule pursuant to which Purchase Payments will be
automatically deducted from a bank account. We currently accept Automatic
Purchase Payments on the 1st through the 28th day of each month. Each Automatic
Purchase Payment must be at least $100. You may not allocate payments made
through the Automatic Purchase Payment plan to the DCA Fixed Account. You may
not elect the Automatic Purchase Payment plan and the systematic withdrawal plan
simultaneously. (See "Surrenders and Partial Surrenders".) Upon notification of
the death of any Owner the Company will terminate deductions under the Automatic
Purchase Payment plan. (See "Allocation of Purchase Payments".)
RIGHT TO CANCEL
You have the right to return the Contract within 30 days after you receive
it by returning it to our administrative office or the sales representative who
sold it along with a written cancellation request. Return of the Contract by
mail is effective on being postmarked, properly addressed and postage prepaid.
We will treat the returned Contract as if it had never been issued. If the
Contract is issued in connection with an IRA and returned within 7 days,
Protective Life will refund the Purchase Payments; otherwise where permitted,
Protective Life will refund the Contract Value plus any fees deducted from
either Purchase Payments or Contract Value. This amount may be more or less than
the aggregate amount of your Purchase Payments up to that time.
ALLOCATION OF PURCHASE PAYMENTS
We will allocate your Purchase Payment among the Allocation Options you have
selected at the next price determined after we receive your Purchase Payment.
Owners must indicate in the application how their Purchase Payments are to be
allocated among the Allocation Options. If such instructions are indicated by
percentages, whole percentages must be used. Subsequent Purchase Payments made
through the Automatic Purchase Payment plan may not be allocated to any DCA
Fixed Account.
For Individual Retirement Annuities and Contracts issued in states where,
upon cancellation during the right-to-cancel period, we return at least your
Purchase Payments, we reserve the right to allocate your initial Purchase
Payment (and any subsequent Purchase Payment made during the free look period)
to the Oppenheimer Money Fund Sub-Account until the expiration of the number of
days in the right-to-cancel period starting from the date the Contract is mailed
from our administrative office. Thereafter, all Purchase Payments will be
allocated according to your allocation instructions then in effect.
Owners may change allocation instructions by Written Notice at any time.
Owners may also change instructions by telephone, facsimile transmission or
automated telephone system. From time to time and at our sole discretion we may
introduce additional methods for changing these instructions or discontinue any
method of making non-written requests for changes. For non-written instructions
regarding allocations, we will require a form of personal identification prior
to acting on instructions and we will record any telephone voice instructions.
If we follow these procedures, we will not be liable for any losses due to
unauthorized or fraudulent instructions. The Company reserves the right to limit
or eliminate any of these non-written communication methods for any Contract or
class of Contracts at any time for any reason.
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VARIABLE ACCOUNT VALUE
SUB-ACCOUNT VALUE.
A Contract's Variable Account value at any time is the sum of the
Sub-Account values and therefore reflects the investment experience of the
Sub-Accounts to which it is allocated. There is no guaranteed minimum Variable
Account value. The Sub-Account value for any Sub-Account as of the Effective
Date is equal to the amount of the initial Purchase Payment allocated to that
Sub-Account. On subsequent Valuation Days prior to the Annuity Commencement
Date, the Sub-Account value is equal to that part of any Purchase Payment
allocated to the Sub-Account and any Contract Value transferred to the
Sub-Account, adjusted by income, dividends, net capital gains or losses
(realized or unrealized), decreased by partial surrenders (including any
applicable surrender charges and premium tax), Contract Value transferred out of
the Sub-Account and fees deducted from the Sub-Account.
DETERMINATION OF ACCUMULATION UNITS.
Purchase Payments allocated to and Contract Value transferred to a
Sub-Account are converted into Accumulation Units. An Accumulation Unit is a
unit of measure used to calculate the value of a Sub-Account prior to the
Annuity Commencement Date. The number of Accumulation Units is determined by
dividing the dollar amount directed to the Sub-Account by the value of the
Accumulation Unit for that Sub-Account for the Valuation Day as of which the
allocation or transfer occurs. Purchase Payments allocated to or amounts
transferred to a Sub-Account under a Contract increase the number of
Accumulation Units of that Sub-Account credited to the Contract. The Company
executes such allocations and transfers as of the end of the Valuation Period in
which it receives a Purchase Payment or Written Notice or other instruction
requesting a transfer.
Certain events reduce the number of Accumulation Units of a Sub-Account
credited to a Contract. The following events result in the cancellation of the
appropriate number of Accumulation Units of a Sub-Account:
- surrenders and applicable surrender charges;
- partial surrenders and applicable surrender charges;
- systematic withdrawals;
- transfer from a Sub-Account;
- payment of a death benefit claim;
- application of the Contract Value to an Annuity Option; and
- deduction of the annual contract maintenance fee.
Accumulation Units are canceled as of the end of the Valuation Period in which
the Company receives Written Notice of or other instructions regarding the
event.
DETERMINATION OF ACCUMULATION UNIT VALUE.
The Accumulation Unit value for each Sub-Account at the end of every
Valuation Day is the Accumulation Unit value at the end of the previous
Valuation Day times the net investment factor. The Sub-Account value for a
Contract may be determined on any day by multiplying the number of Accumulation
Units attributable to the Contract in that Sub-Account by the Accumulation Unit
value for that Sub-Account on that day.
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NET INVESTMENT FACTOR.
The net investment factor measures the investment performance of a
Sub-Account from one Valuation Period to the next. For each Sub-Account, the net
investment factor reflects the investment performance of the Fund in which the
Sub-Account invests and the charges assessed against that Sub-Account for a
Valuation Period. Each Sub-Account has a net investment factor for each
Valuation Period which may be greater or less than one. Therefore, the value of
an Accumulation Unit may increase or decrease. The net investment factor for any
Sub-Account for any Valuation Period is determined by dividing (1) by (2) and
subtracting (3) from the result, where:
(1) is the result of:
a. the net asset value per share of the Fund held in the
Sub-Account, determined at the end of the current
Valuation Period; plus
b. the per share amount of any dividend or capital gain
distributions made by the Fund to the Sub-Account, if the
"ex-dividend" date occurs during the current Valuation
Period; plus or minus
c. a per share charge or credit for any taxes reserved for,
which is determined by the Company to have resulted from
the investment operations of the Sub-Account.
(2) is the net asset value per share of the Fund held in the Sub-Account,
determined at the end of the last prior Valuation Period.
(3) is a factor representing the Mortality and Expense Risk Charge and
the Administration Charge for the number of days in the Valuation
Period.
TRANSFERS
Prior to the Annuity Commencement Date, you may instruct us to transfer
Contract Value between and among the Allocation Options. When we receive your
transfer instructions, we will allocate the Contract Value you transfer at the
next price determined for the Allocation Options you indicate.
You must transfer at least $100, or if less, the entire amount in the
Allocation Option each time you make a transfer. If after the transfer, the
Contract Value remaining in any Allocation Option from which a transfer is made
would be less than $100, then we may transfer the entire Contract Value in that
Allocation Option instead of the requested amount. We reserve the right to limit
the number of transfers to no more than 12 per Contract Year. For each
additional transfer over 12 during each Contract Year, we reserve the right to
charge a Transfer Fee which will not exceed $25. The Transfer Fee, if any, will
be deducted from the amount being transferred. (See "Charges and Deductions --
Transfer Fee".)
Transfers involving a Guaranteed Account are subject to additional
restrictions. The maximum amount that may be transferred from the Fixed Account
during a Contract Year is the greater of:
(1) $2,500; or
(2) 25% of the Contract Value in the Fixed Account value.
Transfers into the DCA Fixed Account are not permitted.
Owners may request transfers by Written Notice at any time. Owners also may
request transfers by telephone, facsimile transmission, or automated telephone
system. From time to time and at our sole discretion we may introduce additional
methods for requesting transfers or discontinue any method of making non-written
requests for such transfers. We will require a form of personal identification
prior
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<PAGE>
to acting on non-written requests and we will record telephone requests. We will
send you a confirmation of all transfer requests communicated to us. If we
follow these procedures we will not be liable for any losses due to unauthorized
or fraudulent transfer requests.
RESERVATION OF RIGHTS.
We reserve the right to limit amounts transferred into or out of any account
within the Guaranteed Account. We reserve the right to modify, limit, suspend or
eliminate the transfer privileges (including acceptance of non-written
instructions) without prior notice for any Contract or class of Contracts at any
time for any reason. We also reserve the right to not honor transfers requested
by a third party holding a power of attorney from an Owner where that third
party requests transfers during a single Valuation Period on behalf of the
Owners of two or more Contracts.
DOLLAR COST AVERAGING.
Prior to the Annuity Commencement Date, you may instruct us by Written
Notice to systematically and automatically transfer, on a monthly or quarterly
basis, amounts from the DCA Fixed Account (or any other Allocation Option) to
any Allocation Option, except that no transfers may be made into the DCA Fixed
Account. This is known as the "dollar-cost averaging" method of investment. By
transferring equal amounts of Contract Value on a regularly scheduled basis, as
opposed to allocating a larger amount at one particular time, an Owner may be
less susceptible to the impact of market fluctuations in the value of
Sub-Account Accumulation Units. Protective Life, however, makes no guarantee
that the dollar cost averaging method will result in a profit or protection
against loss. The minimum amount per transfer is $100. Dollar cost averaging
must begin immediately for Purchase Payments allocated to the DCA Fixed Account.
Dollar cost averaging transfers may be made on the 1st through the 28th day
of each month. If no day is selected, transfers will occur on the same day of
the month as your Contract Anniversary, or on the 28th day of the month if your
Contract Anniversary occurs on the 29th, 30th, or 31st day of the month. In
states where, upon cancellation during the right-to-cancel period, we are
required to return your Purchase Payment, we reserve the right to delay
commencement of dollar cost averaging transfers until the expiration of the
right-to-cancel period.
The periodic amount transferred from the DCA Fixed Account will be equal to
the amount you specify or the Purchase Payment allocated to the DCA Fixed
Account divided by the number of dollar cost averaging transfers to be made.
Interest credited will be transferred from the DCA Fixed Account after the last
dollar cost averaging transfer. We will process dollar cost averaging transfers
until the earlier of the following: (1) the designated number of transfers have
been completed, or (2) the Owner instructs us by Written Notice to cancel the
automatic transfers. Any time dollar cost averaging transfers end, all Contract
Value remaining in a DCA Fixed Account will be transferred to the Fixed Account.
Upon the death of any Owner, dollar cost averaging transfers will continue until
canceled by the Beneficiary(s).
There is no charge for dollar cost averaging. Automatic transfers made to
facilitate dollar cost averaging will not count toward the 12 transfers
permitted each Contract Year if Protective Life elects to limit transfers, or
the designated number of free transfers in any Contract Year if the Company
elects to charge for transfers in excess of that number in any Contract Year. We
reserve the right to discontinue offering dollar cost averaging upon 30 days'
written notice to the Owner.
PORTFOLIO REBALANCING.
Prior to the Annuity Commencement Date, you may instruct Protective Life by
Written Notice to periodically transfer your Variable Account value among
specified Sub-Accounts to achieve a particular percentage allocation of Variable
Account value among such Sub-Accounts ("portfolio rebalancing").
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The portfolio rebalancing percentages must be in whole numbers and must allocate
amounts only among the Sub-Accounts. No Contract Value may be transferred to the
Guaranteed Account as part of portfolio rebalancing. Unless you instruct
otherwise, portfolio rebalancing is based on your Purchase Payment allocation
instructions in effect at the time of each rebalancing transfer. Portfolio
rebalancing instructions from you that differ from your current Purchase Payment
allocation instructions are deemed to be a request to change your Purchase
Payment allocation.
You may elect portfolio rebalancing to occur on the 1st through 28th day of
a month on either a quarterly, semi-annual or annual basis. If you do not select
a day, transfers will occur on the same day of the month as your Contract
Anniversary, or on the 28th day of the month if your Contract Anniversary occurs
on the 29th, 30th or 31st day of the month. You may change or terminate
portfolio rebalancing by Written Notice, or by other non-written communication
methods acceptable for transfer requests. Upon the death of any Owner portfolio
rebalancing will continue until canceled by the Beneficiary(s).
There is no charge for portfolio rebalancing. Automatic transfers made to
facilitate portfolio rebalancing will not count toward the 12 transfers
permitted each Contract Year if Protective Life elects to limit transfers, or
the designated number of free transfers in any Contract Year if the Company
elects to charge for transfers in excess of that number in any Contract Year. We
reserve the right to discontinue portfolio rebalancing upon 30 days' written
notice to the Owner.
SURRENDERS AND PARTIAL SURRENDERS
SURRENDER.
At any time prior to the Annuity Commencement Date, you may request a
surrender of your Contract for its surrender value. To surrender your Contract,
you must return the Contract to us and make your surrender request by Written
Notice. We will pay you the surrender value in a lump sum unless you request
payment under another payment option that we are making available at that time.
A surrender may have federal income tax consequences. (See "Taxation of Full and
Partial Surrenders".) Partial and full surrenders from Contracts issued as
Tax-Sheltered Annuities are prohibited in certain circumstances. (See "Federal
Tax Matters".)
SURRENDER VALUE.
The surrender value of your Contract is equal to the Contract Value minus
any applicable surrender charge, contract maintenance fee and premium tax. We
will determine the surrender value as of the end of the Valuation Day on which
we receive your Written Notice requesting surrender and your Contract at our
administrative office.
PARTIAL SURRENDER.
At any time before the Annuity Commencement Date, you may request a partial
surrender of your Contract Value. You must request the partial surrender by
Written Notice. We will withdraw the amount requested from the Contract Value as
of the Valuation Period during which we receive Written Notice requesting the
partial surrender. The amount we will pay you upon a partial surrender is equal
to the Contract Value surrendered minus any applicable surrender charge.
You may specify the amount of the partial surrender to be made from any
Allocation Option. If you do not so specify, or if the amount in the designated
account(s) is inadequate to comply with the request, the partial surrender will
be made from each Allocation Option based on the proportion that the value of
each Allocation Option bears to the total Contract Value.
A partial surrender may have federal income tax consequences. (See "Taxation
of Partial and Full Surrenders".)
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CANCELLATION OF ACCUMULATION UNITS.
Surrenders and partial surrenders will result in the cancellation of
Accumulation Units from each applicable Sub-Account(s) and/or in a reduction of
the Guaranteed Account Value.
SURRENDER AND PARTIAL SURRENDER RESTRICTIONS.
The Owner's right to make surrenders and partial surrenders is subject to
any restrictions imposed by applicable law or employee benefit plan.
RESTRICTIONS ON DISTRIBUTIONS FROM CERTAIN TYPES OF CONTRACTS.
There are certain restrictions on surrenders and partial surrenders of
Contracts used as funding vehicles for Internal Revenue Code Section 403(b)
retirement plans. Section 403(b)(11) of the Internal Revenue Code restricts the
distribution under Section 403(b) annuity contracts of:
(i) contributions made pursuant to a salary reduction agreement
in years beginning after December 31, 1988;
(ii) earnings on those contributions; and
(iii) earnings after December 31, 1988 on amounts attributable to
salary reduction contributions held as of December 31, 1988.
Distributions of those amounts may only occur upon the death of the
employee, attainment of age 59 1/2, separation from service, disability, or
hardship. In addition, income attributable to salary reduction contributions may
not be distributed in the case of hardship.
In the case of certain Qualified Plans, federal tax law imposes restrictions
on the form and manner in which benefits may be paid. For example, spousal
consent may be needed in certain instances before a distribution may be made.
SYSTEMATIC WITHDRAWALS.
Currently, the Company offers a systematic withdrawal plan. This plan allows
you to pre-authorize periodic partial surrenders prior to the Annuity
Commencement Date. You may elect to participate in this plan at the time of
application or at a later date by properly completing an election form. In order
to participate in the plan you must have:
(1) made an initial Purchase Payment of at least $12,000; or
(2) a Surrender Value as of the previous Contract Anniversary equal to at
least $12,000.
The systematic withdrawal plan and the Automatic Purchase Payment plan may
not be elected simultaneously. (See "Purchase Payments".) There are federal
income tax consequences to systematic withdrawals from the Contract and the
Owner should, therefore, consult with his or her tax advisor before
participating in any withdrawal program. (See "Taxation of Partial and Full
Surrenders".)
When you elect the systematic withdrawal plan, you will instruct Protective
Life to withdraw a level dollar amount from the Contract on a monthly or
quarterly basis. Systematic withdrawals may be made on the 1st through the 28th
day of each month. The amount requested must be at least $100 per withdrawal. We
will process withdrawals for the designated amount until you instruct us
otherwise. You may instruct us as to the Allocation Options from which the
withdrawals should be made. If you give no instructions, systematic withdrawals
will be taken pro-rata from the Allocation Options in proportion to the value
each Allocation Option bears to the total Contract Value. We will pay you the
amount requested each month or quarter as applicable and cancel the applicable
Accumulation Units.
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The maximum penalty-free amount you can withdraw under the systematic
withdrawal plan each year is the greater of:
(1) 10% of all Purchase Payments made as of the date of the
request, or
(2) your cumulative earnings calculated as of each Contract
Anniversary.
Unless you instruct us to reduce the withdrawal amount so the annual total
will not exceed these limits, we will continue to process withdrawals for the
monthly amount you designate. Once the amount of your withdrawals exceeds the
limit for penalty-free withdrawals, we reserve the right to deduct a surrender
charge, if applicable, from the remaining payments made during that Contract
Year. (See "Surrender Charge".)
If the amount to be withdrawn from an Allocation Option exceeds the value
available, the transaction will not be completed and the systematic withdrawal
plan will terminate. (See "Surrender Charge.") Upon notification of the death of
any Owner the Company will terminate the systematic withdrawal plan. The
systematic withdrawal plan may be discontinued by the Owner at any time by
written notice.
Other than the surrender charges described in this section, there is no
charge for the systematic withdrawal plan. We reserve the right to discontinue
the systematic withdrawal plan upon Written Notice to you.
THE GUARANTEED ACCOUNT
The Guaranteed Account has not been, and is not required to be, registered
with the SEC under the Securities Act of 1933, and neither these accounts nor
the Company's general account have been registered as an investment company
under the 1940 Act. Therefore, neither the Guaranteed Account, the Company's
general account, nor any interests therein are generally subject to regulation
under the 1933 Act or the 1940 Act. The disclosures relating to the Guaranteed
Account included in this prospectus are for the Owner's information and have not
been reviewed by the SEC. However, such disclosures may be subject to certain
generally applicable provisions of federal securities law relating to the
accuracy and completeness of statements made in prospectuses.
The Guaranteed Account currently includes the Fixed Account and DCA Fixed
Account. The Fixed Account and the DCA Fixed Account are part of Protective
Life's general account. The assets of Protective Life's general account support
its insurance and annuity obligations and are subject to Protective Life's
general liabilities from business operations. Since the Fixed Account and the
DCA Fixed Account are part of the general account, Protective Life assumes the
risk of investment gain or loss on this amount.
You may allocate some or all of your Purchase Payments and may transfer some
or all of your Contract Value to an account within the Guaranteed Account,
except that transfers may not be made into the DCA Fixed Account.
Amounts allocated or transferred to an account within the Guaranteed Account
earn interest from the date the funds are credited to the account. The interest
rate we apply to Purchase Payments and transfers into the Guaranteed Account is
guaranteed for one year from the date the Purchase Payment or transfer is
credited to the account. When an interest rate guarantee expires, we will set a
new interest rate, which may not be the same as the interest rate then in
effect. The new interest rate is also guaranteed for one year.
From time to time and subject to regulatory approval, we may offer Fixed
Accounts or DCA Fixed Accounts with different interest guaranteed periods. We,
in our sole discretion, establish the interest rates for each account in the
Guaranteed Account. We will not declare a rate that is less than an
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annual effective interest rate of 3.00%. Because these rates vary from time to
time, allocations made to the same account within the Guaranteed Account at
different times may earn interest at different rates.
GUARANTEED ACCOUNT VALUE.
Any time prior to the Annuity Commencement Date, the Guaranteed Account
value is equal to the sum of:
(1) Purchase Payments allocated to the Guaranteed Account; plus
(2) amounts transferred into the Guaranteed Account; plus
(3) interest credited to the Guaranteed Account; minus
(4) amounts transferred out of the Guaranteed Account; minus
(5) the amount of any surrenders removed from the Guaranteed
Account, including any applicable premium tax and surrender
charges; minus
(6) fees deducted from the Guaranteed Account.
For the purposes of interest crediting, amounts deducted, transferred or
withdrawn from accounts within the Guaranteed Account will be separately
accounted for on a "first-in, first-out" (FIFO) basis.
DEATH BENEFIT
If any Owner dies before the Annuity Commencement Date and while this
Contract is in force, the Company will pay a death benefit to the Beneficiary.
The Death Benefit is determined as of the end of the Valuation Period in
which we receive due proof of death. The amount of the death benefit will depend
upon the age of the Owner when he or she dies.
If the Owner dies on or before his or her 90th birthday, the death benefit
is the greatest of:
(1) the Contract Value, which is the sum of the Variable Account
value and the Guaranteed Account value,
(2) aggregate Purchase Payments made under the Contract reduced by
any partial surrenders and any associated charges, or
(3) the maximum anniversary value.
The maximum anniversary value is the greatest anniversary value attained.
The anniversary value is the sum of:
(1) the Contract Value on a Contract Anniversary; plus
(2) all Purchase Payments made since that Contract Anniversary;
minus
(3) any partial surrenders (and any associated charges) made since
that Contract Anniversary.
An anniversary value is determined for each contract anniversary through the
earlier of:
(1) the deceased Owner's 80th birthday, or
(2) the date of that Owner's death
If the Owner dies after his or her 90th birthday, the death benefit is the
Contract Value.
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Only one death benefit is payable under this Contract, even though the
Contract may, in some circumstances, continue beyond the time of an Owner's
death.
The Beneficiary may take the death benefit in one sum immediately. In this
event the Contract will terminate. If the death benefit is not taken in one sum
immediately, then the death benefit will become the new Contract Value as of the
date we receive due proof of death and the entire interest in the Contract must
be distributed under one of the following options:
(1) the entire interest must be distributed over the life of the
Beneficiary, or over a period that does not extend beyond the
life expectancy of the Beneficiary, with distributions
beginning within one year of the Owner's death, or
(2) the entire interest must be distributed within 5 years of the
Owner's death.
If no option is elected, we will distribute the entire interest within 5
years of the Owner's death.
If the Beneficiary is the deceased Owner's spouse, then the surviving spouse
may elect, in lieu of receiving the death benefit, to continue the Contract and
become the new Owner. The surviving spouse may select a new Beneficiary. Upon
this spouse's death, the death benefit will become payable to the new
Beneficiary and must then be distributed to the new Beneficiary in one sum
immediately or according to either paragraph (1) or (2) above.
If any Owner is not an individual, the death of the Annuitant is treated as
the death of an Owner.
SUSPENSION OR DELAY IN PAYMENTS
Payments of a partial or full surrender of the Variable Account Value or
death benefit are usually made within seven (7) calendar days. However, the
Company may delay such payment of a partial or full surrender of the Variable
Account Value or death benefit for any period in the following circumstances:
1) when the New York Stock Exchange is closed; or
2) when trading on the New York Stock Exchange is restricted; or
3) when an emergency exists (as determined by the SEC as a result
of which (a) the disposal of securities in the Variable
Account is not reasonably practical; or (b) it is not
reasonably practical to determine fairly the value of the net
assets of the Variable Account); or
4) when the SEC, by order, so permits for the protection of
security holders.
The Company may delay payment of a partial or full surrender from the
Guaranteed Account for up to six months where permitted.
CHARGES AND DEDUCTIONS
SURRENDER CHARGES (CONTINGENT DEFERRED SALES CHARGE)
GENERAL
We do not apply charges to Purchase Payments for sales expenses at the time
you make Purchase Payments. However, within certain time limits described below,
we deduct a surrender charge (contingent deferred sales charge) from the
Contract Value if you make a partial surrender or surrender before the Annuity
Commencement Date. Also, in certain circumstances we may deduct a surrender
charge from amounts applied to Annuity Options. (See "Annuity Options.")
In the event surrender charges are not sufficient to cover sales expenses,
the loss will be borne by Protective Life; conversely, if the amount of such
charges provides more than enough to cover such expenses, the excess will be
retained by Protective Life. Protective Life does not currently believe that the
surrender charges imposed will cover the expected costs of distributing the
Contracts. Any shortfall will be made up from Protective Life's general assets
which may include amounts derived from the mortality and expense risk charge.
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DETERMINING THE SURRENDER CHARGE
The surrender charge is equal to the percentage of each Purchase Payment or
portion of Purchase Payment you surrender as specified in the table below. We
calculate the surrender charge separately and apply it to each Purchase Payment
at any time you surrender the Purchase Payment. No such surrender charge applies
to surrenders or partial surrenders of the Contract Value in excess of the
aggregate Purchase Payments. We calculate the surrender charge using the
principle that all Contract Value in excess of the aggregate Purchase Payments
is surrendered before any Purchase Payments and that Purchase Payments are
surrendered on a first-in-first-out basis.
The surrender charge is as follows:
<TABLE>
<CAPTION>
NUMBER OF YEARS ELAPSED
BETWEEN THE DATE OF RECEIPT OF SURRENDER CHARGE AS A PERCENTAGE
PURCHASE PAYMENT(S) & DATE OF OF PURCHASE PAYMENT WITHDRAWN
SURRENDER IN A FULL YEAR
- ----------------------------------- -------------------------------------
<S> <C>
Less than 1 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 and more 0%
</TABLE>
We do not apply the surrender charge to the payment of a death benefit.
Currently, we do not apply the surrender charge to systematic withdrawals you
make within the limits described in the "Systematic Withdrawals" section of this
prospectus. (See "Death Benefits" and "Systematic Withdrawals.")
Surrenders will cause the cancellation of Accumulation Units from each
applicable Sub-Account and/or a reduction of the Guaranteed Account Value.
REDUCTION OR ELIMINATION OF SURRENDER CHARGE.
We may decrease or waive surrender charges on Contracts issued to a trustee,
employer or similar entity pursuant to a retirement plan or when sales are made
in a similar arrangement where offering the Contracts to a group of individuals
under such a program results in saving of sales expenses. We will determine, at
our sole discretion, the entitlement to such a reduction in surrender charge.
MORTALITY AND EXPENSE RISK CHARGE
To compensate Protective Life for assuming mortality and expense risks, we
deduct a daily mortality and expense risk charge equal, on an annual basis, to
1.25% of the average daily net assets of the Variable Account attributable to
such Contracts.
The mortality risk Protective Life assumes is that Annuitant(s) may live for
a longer period of time than estimated when the guarantees in the Contract were
established. Because of these guarantees, each Payee is assured that longevity
will not have an adverse effect on the annuity payments received. The mortality
risk that Protective Life assumes also includes a guarantee to pay a death
benefit if the Owner dies before the Annuity Commencement Date. The expense risk
that Protective Life assumes is the risk that the administration charge,
contract maintenance fee and transfer fees may be insufficient to cover actual
future expenses. It is possible that the mortality and expense risk charge (or a
portion of it) could be treated as an amount received through a partial
surrender for tax purposes. (See "Federal Tax Matters.")
ADMINISTRATION CHARGES
We will deduct an administration charge equal, on an annual basis, to 0.15%
of the daily net asset value of each Sub-Account in the Variable Account. This
deduction is made to reimburse Protective
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Life for expenses incurred in the administration of the Contract and the
Variable Account. The administration charge is deducted only from the Variable
Account value. The Variable Account is not responsible for any other operating
expenses.
TRANSFER FEE
Currently, there is no charge for transfers. Protective Life reserves the
right, however, to charge $25 for each transfer after the first 12 transfers in
any Contract Year. For the purpose of assessing the fee, each request would be
considered to be one transfer, regardless of the number of Allocation Options
affected by the transfer in one day. The fee would be deducted from the amount
being transferred.
CONTRACT MAINTENANCE FEE
Prior to the Annuity Commencement Date, the contract maintenance fee is $30
and it is deducted from the Contract Value on each Contract Anniversary, and on
any day that the Contract is surrendered other than the Contract Anniversary.
The contract maintenance fee will be deducted from the Allocation Options in the
same proportion as their values are to the Contract. The contract maintenance
fee will be waived by the Company in the event the Contract Value, or the
aggregate Purchase Payments reduced by any withdrawals or partial surrenders,
equals or exceeds $50,000 on the date the contract maintenance fee is to be
deducted.
FUND EXPENSES
The net assets of each Sub-Account of the Variable Account will reflect the
investment management fees and other operating expenses incurred by the Funds.
For each Fund, an investment manager is paid a daily fee for its services. (See
the prospectuses for the Funds, which accompany this Prospectus.)
PREMIUM TAXES
Some states impose premium taxes at rates currently ranging up to 3.5%. If
premium taxes apply to your Contract, we will deduct them from the Purchase
Payment(s) when accepted or from the Contract Value upon a full or partial
surrender, death or annuitization. Currently, New York does not impose a premium
tax.
OTHER TAXES
Currently, no charge will be made against the Variable Account for federal,
state or local taxes other than premium taxes. We reserve the right, however, to
deduct a charge for taxes attributable to the operation of the Variable Account.
ANNUITIZATION
ANNUITY COMMENCEMENT DATE
As of the Annuity Commencement Date, we will apply your Annuity Purchase
Value to the Annuity Option you have selected, and determine the amount of your
Annuity Income Payment. If you have not selected an Annuity Option by the
Annuity Commencement Date, we apply the Annuity Purchase Value under Option 2 --
Life Income with Payments for 10 years certain. The Annuity Commencement Date
may be any date before or on the Annuitant's 90th birthday and may not be later
than that date unless approved by Protective Life. You may change the Annuity
Commencement Date from time to time by Written Notice no later than 30 days
before the scheduled Annuity Commencement Date. Annuity Commencement Dates that
occur or are scheduled to occur at an advanced age for the Annuitant (E.G., past
age 85) may in certain circumstances have adverse income tax consequences. (See
"Federal Income Tax Matters.") Distributions from Qualified Contracts may be
required before the Annuity Commencement Date.
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ANNUITY INCOME PAYMENTS
Annuity income payments are periodic payments from the Company to the
designated payee, the amount of which is fixed and guaranteed by the Company.
Each Annuity Option will result in a guaranteed amount to be paid during the
annuity period that is not in any way dependent upon the investment experience
of the Variable Account.
We generally make the first payment under any Annuity Option one month
following the Annuity Commencement Date. We make subsequent payments in
accordance with the manner of payment that you have selected.
The Annuity Option you select must result in each annuity income payment
being at least equal to the minimum payment amount according to Protective
Life's rules then in effect. If any amount due is less than the minimum per
year, we make other arrangements that are equitable to the Payee.
Once annuity income payments commence, the Contract can not be surrendered.
ANNUITY OPTIONS
We currently offer the following Annuity Options. We offer additional
Annuity Options for Qualified Contracts; however, certain restrictions apply.
ANNUITY OPTION 1 -- PAYMENT FOR A CERTAIN PERIOD:
We will make payments for a period of not less than 5 or more than 30 years.
The amount of each payment depends on the Annuity Purchase Value applied,
the period selected and the payment rates in effect on the Annuity
Commencement Date.
ANNUITY OPTION 2 -- LIFE INCOME WITH PAYMENT FOR A CERTAIN PERIOD:
We will make payments as long as the named Annuitant remains alive. In
addition, regardless of when the named Annuitant dies, we will continue
payments for the certain period selected, which may be up to 30 years.
Payments stop at the end of the selected certain period or when the
Annuitant dies, whichever is later. The amount of each payment depends on
the Annuity Purchase Value applied, the period selected and the payment
rates in effect on the Annuity Commencement Date.
ADDITIONAL OPTION
In addition to the Annuity Options described above, you may use the Annuity
Purchase Value to purchase any annuity contract that we offer on the date
you elect the option.
After the death of the Annuitant, any remaining guaranteed payments shall be
payable to the Beneficiary unless you specified otherwise before the
Annuitant's death.
MINIMUM AMOUNTS
If your Contract Value is less than $2,000 on the Annuity Commencement Date,
we reserve the right to pay the Contract Value in one lump sum. If at any time
your annuity income payments are less than the minimum payment amount according
to the Company's rules then in effect, we reserve the right to change the
frequency to an interval that will result in a payment at least equal to the
minimum. The current minimum payment amount is $20.
DEATH OF ANNUITANT OR OWNER AFTER ANNUITY COMMENCEMENT DATE
In the event of the death of any Owner on or after the Annuity Commencement
Date, the Beneficiary will become the new Owner. If any Owner or Annuitant dies
on or after the Annuity Commencement Date and before all benefits under the
Annuity Option selected have been paid, any remaining portion of such benefits
will be paid out at least as fast as under the Annuity Option being used when
the Owner or Annuitant died. After the death of the Annuitant, any remaining
payments shall be payable to the Beneficiary unless you specified otherwise
before the Annuitant's death.
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YIELDS AND TOTAL RETURNS
From time to time, Protective Life may advertise or include in sales
literature yields, effective yields, and total returns for the Sub-Accounts.
THESE FIGURES ARE BASED ON HISTORIC RESULTS AND DO NOT INDICATE OR PROJECT
FUTURE PERFORMANCE. More detailed information about the calculation of
performance information appears in the Statement of Additional Information.
Yields, effective yields, and total returns for the Sub-Accounts are based
on the investment performance of the corresponding Funds. The Funds' performance
also reflects the Funds' expenses. Certain of the expenses of each Fund may be
reimbursed by the investment manager. (See the Prospectuses for the Funds.)
YIELDS
The yield of the Oppenheimer Money Fund Sub-Account refers to the annualized
income generated by an investment in the Sub-Account over a specified seven-day
period. The yield is calculated by assuming that the income generated for that
seven-day period is generated each seven day period over a 52 week period and is
shown as a percentage of the investment. The effective yield is calculated
similarly but when annualized the income earned by an investment in the
Sub-Account is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
The yield of a Sub-Account (except the Oppenheimer Money Fund Sub-Account)
refers to the annualized income generated by an investment in the Sub-Account
over a specified 30 day or one-month period. The yield is calculated by assuming
that the income generated by the investment during that 30 day or one month
period is generated each period over a 12 month period and is shown as a
percentage of the investment.
TOTAL RETURNS
The cumulative total return of a Sub-Account refers to return quotations
assuming an investment under a Contract has been held in the Sub-Account for
various periods of time including, but not limited to, a period measured from
the date the Sub-Account commenced operations. Average annual total return
refers to total return quotations that are annualized based on an average return
over various periods of time.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
The average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Contract to the redemption value of that investment as of the last day
of each of the periods for which the quotations are provided. Average annual
total return information shows the average percentage change in the value of an
investment in the Sub-Account from the beginning date of the measuring period to
the end of that period. This standardized version of average annual total return
reflects all historical investment results, less all charges and deductions
applied against the Sub-Account (excluding any deductions for premium taxes).
The Sub-Accounts have been in operation prior to the commencement of the
offering of the Contract described in this prospectus. Protective Life may
advertise the performance of the Sub-Accounts for these prior periods. The
Sub-Account performance information of any period prior to the commencement of
the offering of the Contract is calculated as if the Contract had been offered
during those periods, using current charges and expenses.
Until a Sub-Account (other than the Oppenheimer Money Fund Sub-Account) has
been in operation for 10 years, Protective Life will always include quotes of
standard average annual total return for the period measured from the date that
Sub-Account began operations. When a Sub-Account (other than the Oppenheimer
Money Fund Sub-Account) has been in operation for one, five and ten years,
respectively, the standard version average annual total return for these periods
will be provided.
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NON-STANDARD AVERAGE ANNUAL TOTAL RETURNS
In addition to the standard version of average annual total return described
above, total return performance information computed on non-standard bases may
be used in advertisements or sales literature. Average annual total return
information may be presented, computed on the same basis as the standard version
except deductions will not include the contract maintenance fee. In addition,
Protective Life may from time to time disclose average annual total return in
other non-standard formats and cumulative total return for Contracts funded by
the Sub-Accounts.
Protective Life may, from time to time, also disclose yield, standard
average annual total returns, and non-standard total returns for the Funds.
Certain Funds have been in existence prior to the investment by the
Sub-Accounts in such Funds. Protective Life may advertise the performance of the
Sub-Accounts that invest in these Funds for these prior periods. The performance
information of any period prior to the investments by the Sub-Accounts is
calculated as if the Sub-Account had invested in those Funds during those
periods, using current charges and expenses associated with the Contract.
Non-standard performance data will only be disclosed if the standard
performance data for the periods described in "Standardized Average Annual Total
Returns," above, is also disclosed. For additional information regarding the
calculation of other performance data, please refer to the Statement of
Additional Information.
PERFORMANCE COMPARISONS
Protective Life may, from time to time, advertise or include in sales
literature Sub-Account performance relative to certain performance rankings and
indices compiled by independent organizations. In advertising and sales
literature, the performance of each Sub-Account may be compared to the
performance of other variable annuity issuers in general or to the performance
of particular types of variable annuities investing in mutual funds, or
investment portfolios of mutual funds with investment objectives similar to each
of the Sub-Accounts. Lipper Analytical Services, Inc. ("Lipper"), the Variable
Annuity Research Data Service ("VARDS"), and Morningstar Inc. ("Morningstar")
are independent services which monitor and rank the performance of variable
annuity issuers in each of the major categories of investment objectives on an
industry-wide basis.
Lipper and Morningstar rankings include variable life insurance issuers as
well as variable annuity issuers. VARDS rankings compare only variable annuity
issuers. The performance analyses prepared by Lipper, Morningstar and VARDS each
rank such issuers on the basis of total return, assuming reinvestment of
distributions, but do not take sales charges, redemption fees, or certain
expense deductions at the separate account level into consideration. In
addition, VARDS prepares risk adjusted rankings, which consider the effects of
market risk on total return performance. This type of ranking provides data as
to which funds provide the highest total return within various categories of
funds defined by the degree of risk inherent in their investment objectives.
Advertising and sales literature may also compare the performance of each
Sub-Account to the Standard & Poor's Index of 500 Common Stocks, a widely used
measure of stock performance. This unmanaged index assumes the reinvestment of
dividends but does not reflect any "deduction" for the expense of operating or
managing an investment portfolio. Other independent ranking services and indices
may also be used as a source of performance comparison.
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OTHER MATTERS
Protective Life may also report other information including the effect of
tax-deferred compounding on a Sub-Account's investment returns, or returns in
general, which may be illustrated by tables, graphs, or charts.
All income and capital gains derived from Sub-Account investments are
reinvested and can lead to substantial long-term accumulation of assets,
provided that the underlying Fund's investment experience is positive.
FEDERAL TAX MATTERS
INTRODUCTION
The following discussion of the federal income tax treatment of the Contract
is not exhaustive, does not purport to cover all situations, and is not intended
as tax advice. The federal income tax treatment of the Contract is unclear in
certain circumstances, and you should always consult a qualified tax adviser
regarding the application of law to individual circumstances. This discussion is
based on the Internal Revenue Code of 1986, amended (the "Code"), Treasury
regulations, and interpretations existing on the date of this Prospectus. These
authorities, however, are subject to change by Congress, the Treasury
Department, and judicial decisions.
This discussion does not address state or local tax consequences associated
with the purchase of the Contract. In addition, PROTECTIVE LIFE MAKES NO
GUARANTEE REGARDING ANY TAX TREATMENT -- FEDERAL, STATE OR LOCAL -- OF ANY
CONTRACT OR OF ANY TRANSACTION INVOLVING A CONTRACT.
THE COMPANY'S TAX STATUS
Protective Life is taxed as a life insurance company under the Internal
Revenue Code. Since the operations of the Variable Account are a part of, and
are taxed with, the operations of the Company, the Variable Account is not
separately taxed as a "regulated investment company" under the Internal Revenue
Code. Under existing federal income tax laws, investment income and capital
gains of the Variable Account are not taxed to the extent they are applied under
a Contract. Protective Life does not anticipate that it will incur any federal
income tax liability attributable to such income and gains of the Variable
Account, and therefore does not intend to make provision for any such taxes. If
Protective Life is taxed on investment income or capital gains of the Variable
Account, then Protective Life may impose a charge against the Variable Account
in order to make provision for such taxes.
TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL DURING ACCUMULATION PERIOD
Under existing provisions of the Internal Revenue Code, except as described
below, any increase in an Owner's Contract Value is generally not taxable to the
Owner until received, either in the form of annuity payments as contemplated by
the Contracts, or in some other form of distribution. However, this rule applies
only if:
(1) the investments of the Variable Account are "adequately diversified"
in accordance with Treasury Department regulations;
(2) the Company, rather than the Owner, is considered the owner of the
assets of the Variable Account for federal income tax purposes; and
(3) the Owner is an individual (or an individual is treated as the Owner
for tax purposes).
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DIVERSIFICATION REQUIREMENTS.
The Internal Revenue Code and Treasury Department regulations prescribe the
manner in which the investments of a segregated asset account, such as the
Variable Account, are to be "adequately diversified." If the Variable Account
fails to comply with these diversification standards, the Contract will not be
treated as an annuity contract for federal income tax purposes and the Owner
would generally be taxable currently on the excess of the Contact Value over the
premiums paid for the Contact. Protective Life expects that the Variable
Account, through the Funds, will comply with the diversification requirements
prescribed by the Internal Revenue Code and Treasury Department regulations.
OWNERSHIP TREATMENT.
In certain circumstances, variable annuity contract owners may be considered
the owners, for federal income tax purposes, of the assets of a segregated asset
account, such as the Variable Account, used to support their contracts. In those
circumstances, income and gains from the segregated asset account would be
includable in the contract owners' gross income. The Internal Revenue Service
(the "IRS") has stated in published rulings that a variable contract owner will
be considered the owner of the assets of a segregated asset account if the owner
possesses incidents of ownership in those assets, such as the ability to
exercise investment control over the assets. In addition, the Treasury
Department announced, in connection with the issuance of regulations concerning
investment diversification, that those 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." This
announcement also stated that the IRS would issue guidance by way of regulations
or rulings on the "extent to which policyholders may direct their investments to
particular sub-accounts [of a segregated asset account] without being treated as
owners of the underlying assets." As of the date of this Prospectus, the IRS has
not issued any such guidance.
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of the assets of a segregated
asset account. For example, the Owner of this Contract has the choice of more
investment options to which to allocate purchase payments and Variable Account
values, and may be able to transfer among investment options more frequently
than in such rulings. These differences could result in the Owner being treated
as the owner of the assets of the Variable Account and thus subject to current
taxation on the income and gains from those assets. In addition, the Company
does not know what standards will be set forth in the regulations or rulings
which the Treasury Department has stated it expects to issue. Protective Life
therefore reserves the right to modify the Contract as necessary to attempt to
prevent Contract Owners from being considered the owners of the assets of the
Variable Account. However, there is no assurance such efforts would be
successful.
NONNATURAL OWNER.
As a general rule, Contracts held by "nonnatural persons" such as a
corporation, trust or other similar entity, as opposed to a natural person, are
not treated as annuity contracts for federal tax purposes. The income on such
Contracts (as defined in the tax law) is taxed as ordinary income that is
received or accrued by the Owner of the Contract during the taxable year. There
are several exceptions to this general rule for nonnatural Owners. First,
Contracts will generally be treated as held by a natural person if the nominal
owner is a trust or other entity which holds the Contract as an agent for a
natural person. However, this special exception will not apply in the case of
any employer who is the nominal owner of a Contract under a non-qualified
deferred compensation arrangement for its employees.
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In addition, exceptions to the general rule for nonnatural Owners will apply
with respect to:
(1) Contracts acquired by an estate of a decedent by reason of the death
of the decedent;
(2) certain Qualified Contracts;
(3) Contracts purchased by employers upon the termination of certain
Qualified Plans;
(4) certain Contracts used in connection with structured settlement
agreements; and
(5) Contracts purchased with a single purchase payment when the annuity
starting date is no later than a year from purchase of the Contract
and substantially equal periodic payments are made, not less
frequently than annually, during the annuity period.
DELAYED ANNUITY COMMENCEMENT DATES.
If the Contract's Annuity Commencement Date occurs (or is scheduled to
occur) at a time when the Annuitant has reached an advanced age (E.G., past age
85), it is possible that the Contract would not be treated as an annuity for
federal income tax purposes. In that event, the income and gains under the
Contract could be currently includable in the Owner's income.
The remainder of this discussion assumes that the Contract will be treated
as an annuity contract for federal income tax purposes.
TAXATION OF PARTIAL AND FULL SURRENDERS
In the case of a partial surrender, amounts you received are generally
includable in income to the extent your Contract Value before the surrender
exceeds your "investment in the contract." Amounts received under a systematic
withdrawal plan are treated as partial surrenders. In the case of a full
surrender, amounts received are includable in income to the extent they exceed
the "investment in the contract." For these purposes, the investment in the
contract at any time equals the total of the Purchase Payments made under the
Contract to that time (to the extent such payments were neither deductible when
made nor excludable from income as, for example, in the case of certain
contributions to Qualified Contracts) less any amounts previously received from
the Contract which were not included in income. Partial and full surrenders may
be subject to a 10% penalty tax. (See "Penalty Tax on Premature Distributions.")
Partial and full surrenders may also be subject to federal income tax
withholding requirements. (See "Federal Income Tax Withholding.") In addition,
in the case of partial and full surrenders from certain Qualified Contracts,
mandatory withholding requirements may apply, unless a "direct rollover" of the
amount surrendered is made. (See "Direct Rollovers".)
Under the Waiver of Surrender Charges provision of the Contract, amounts we
distribute may not be subject to surrender charges if the Owner has a terminal
illness or enters, for a period of at least 90 days, certain nursing home
facilities. Such distributions will be treated as surrenders for federal tax
purposes.
The Contract provides a death benefit that in certain circumstances may
exceed the greater of the Purchase Payments and the Contract Value. As described
elsewhere in this Prospectus, the Company imposes certain charges with respect
to the death benefit. It is possible that these charges (or some portion
thereof) could be treated for federal tax purposes as a partial surrender of the
Contract.
TAXATION OF ANNUITY PAYMENTS
Normally, the portion of each annuity income payment taxable as ordinary
income is equal to the excess of the payment over the exclusion amount. The
exclusion amount is the amount determined by multiplying (1) the payment by (2)
the ratio of the investment in the contract allocated to the fixed Annuity
Option, adjusted for any period certain or refund feature, to the total expected
amount of
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annuity income payments for the term of the Contract (determined under Treasury
Department regulations).
Once the total amount of the investment in the contract is excluded using
the above formulas, annuity income payments will be fully taxable. If annuity
income payments cease because of the death of the Annuitant and before the total
amount of the investment in the contract is recovered, the unrecovered amount
generally will be allowed as a deduction.
There may be special income tax issues present in situations where the Owner
and the Annuitant are not the same person and are not married to one another. A
tax advisor should be consulted in those situations.
Annuity income payments may be subject to federal income tax withholding
requirements. (See "Federal Income Tax Income Withholding".) In addition, in the
case of annuity income payments from certain Qualified Contracts, mandatory
withholding requirements may apply, unless a "direct rollover" of such annuity
payments is made. (See "Direct Rollovers".)
TAXATION OF DEATH BENEFIT PROCEEDS
Prior to the Annuity Commencement Date, amounts may be distributed from a
Contract because of the death of an Owner or, in certain circumstances, the
death of the Annuitant. Such death benefit proceeds are includable in income as
follows:
(1) if distributed in a lump sum, they are taxed in the same manner as a
full surrender, as described above; or
(2) if distributed under an Annuity Option, they are taxed in the same
manner as annuity income payments, as described above.
After the Annuity Commencement Date, where a guaranteed period exists under
an Annuity Option, and the Annuitant dies before the end of that period,
payments made to the Beneficiary for the remainder of that period are includable
in income as follows:
(1) if received in a lump sum, they are included in income to the extent
that they exceed the unrecovered investment in the contract at that
time; or
(2) if distributed in accordance with the existing Annuity Option
selected, they are fully excluded from income until the remaining
investment in the contract is deemed to be recovered, and all
annuity income payments thereafter are fully includable in income.
Proceeds payable on death may be subject to federal income tax withholding
requirements. (See "Federal Income Tax Withholding".) In addition, in the case
of such proceeds from certain Qualified Contracts, mandatory withholding
requirements may apply, unless a "direct rollover" of such proceeds is made.
(See "Direct Rollovers".)
ASSIGNMENTS, PLEDGES, AND GRATUITOUS TRANSFERS
Other than in the case of Qualified Contracts (which generally cannot be
assigned or pledged), any assignment or pledge of (or agreement to assign or
pledge) any portion of the Contract Value is treated for federal income tax
purposes as a surrender of such amount or portion. The investment in the
contract is increased by the amount includable as income with respect to such
assignment or pledge, though it is not affected by any other aspect of the
assignment or pledge (including its release). If an Owner transfers a Contract
without adequate consideration to a person other than the Owner's spouse (or to
a former spouse incident to divorce), the Owner will be taxed on the difference
between his or her Contract Value and the investment in the contract at the time
of transfer. In such case, the
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transferee's investment in the contract will be increased to reflect the
increase in the transferor's income.
PENALTY TAX ON PREMATURE DISTRIBUTIONS
Where a Contract has not been issued in connection with a Qualified Plan,
there generally is a 10% penalty tax on the amount of any payment from the
Contract that is includable in income unless the payment is:
(a) received on or after the Owner reaches age 59 1/2;
(b) attributable to the Owner's becoming disabled (as defined in the tax
law);
(c) made on or after the death of the Owner or, if the Owner is not an
individual, on or after the death of the primary annuitant (as
defined in the tax law);
(d) made as a series of substantially equal periodic payments (not less
frequently than annually) for the life (or life expectancy) of the
Owner or the joint lives (or joint life expectancies) of the Owner
and a designated beneficiary (as defined in the tax law); or
(e) made under a Contract purchased with a single Purchase Payment when
the annuity starting date is no later than a year from purchase of
the Contract and substantially equal periodic payments are made, not
less frequently than annually, during the annuity period.
(Similar rules, discussed below, apply in the case of certain Qualified
Contracts.)
AGGREGATION OF CONTRACTS
In certain circumstances, the IRS may determine the amount of an annuity
income payment or a surrender from a Contract that is includable in income by
combining some or all of the annuity contracts owned by an individual not issued
in connection with Qualified Plans. For example, if a person purchases a
Contract offered by this Prospectus and also purchases at approximately the same
time an immediate annuity issued by Protective Life, the IRS may treat the two
contracts as one contract. In addition, if a person purchases two or more
deferred annuity contracts from the same insurance company (or its affiliates)
during any calendar year, all such contracts will be treated as one contract for
purposes of determining whether any payment not received as an annuity
(including surrenders prior to the Annuity Commencement Date) is includable in
income. The effects of such aggregation are not clear; however, it could affect
the amount of a surrender or an annuity payment that is taxable and the amount
which might be subject to the 10% penalty tax described above.
LOSS OF INTEREST DEDUCTION WHERE CONTRACT IS HELD BY OR FOR THE BENEFIT OF
CERTAIN NONNATURAL PERSONS
In the case of Contracts issued after June 8, 1997 to a nonnatural taxpayer
(such as a corporation or a trust), or held for the benefit of such an entity,
recent changes in the tax law may result in a portion of otherwise deductible
interest no longer being deductible by the entity, regardless of whether the
interest relates to debt used to purchase or carry the Contract. However, this
interest deduction disallowance does not affect Contracts where the income on
such Contracts is treated as ordinary income that is received or accrued by the
Owner during the taxable year. Entities that are considering purchasing the
Contract, or entities that will be Beneficiaries under a Contract, should
consult a tax adviser.
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QUALIFIED RETIREMENT PLANS
IN GENERAL
The Contracts are also designed for use in connection with certain types of
retirement plans which receive favorable treatment under the Internal Revenue
Code. Numerous special tax rules apply to the participants in Qualified Plans
and to Contracts used in connection with Qualified Plans. Therefore, no attempt
is made in this Prospectus to provide more than general information about use of
the Contract with the various types of Qualified Plans.
The tax rules applicable to Qualified Plans vary according to the type of
plan and the terms and conditions of the plan itself. For example, both the
amount of the contribution that may be made, and the tax deduction or exclusion
that the Owner may claim for such contribution, are limited under Qualified
Plans and vary with the type of plan. Also, for full surrenders, partial
surrenders, systematic withdrawals and annuity income payments under Qualified
Contracts, there may be no "investment in the contract" and the total amount
received may be taxable. Similarly, loans from Qualified Contracts, where
available, are subject to a variety of limitations, including restrictions as to
the amount that may be borrowed, the duration of the loan, and the manner in
which the loan must be repaid. (Owners should always consult their tax advisors
and retirement plan fiduciaries prior to exercising any loan privileges that are
available.)
If this Contract is used in connection with a Qualified Plan, the Owner and
Annuitant must be the same individual. Additionally, for Contracts issued in
connection with Qualified Plans subject to the Employee Retirement Income
Security Act ("ERISA"), the spouse or former spouse of the Owner will have
rights under the Contract. In such a case, the Owner may need the consent of the
spouse or former spouse to change Annuity Options, or make a partial or full
surrender of the Contract.
In addition, special rules apply to the time at which distributions must
commence and the form in which the distributions must be paid. For example, the
length of any guarantee period may be limited in some circumstances to satisfy
certain minimum distribution requirements under the Internal Revenue Code.
Furthermore, failure to comply with minimum distribution requirements applicable
to Qualified Plans will result in the imposition of an excise tax. This excise
tax generally equals 50% of the amount by which a minimum required distribution
exceeds the actual distribution from the Qualified Plan. In the case of
Individual Retirement Accounts or Annuities ("IRAs"), distributions of minimum
amounts (as specified in the tax law) must generally commence by April 1 of the
calendar year following the calendar year in which the Owner attains age 70 1/2.
In the case of certain other Qualified Plans, distributions of such minimum
amounts must generally commence by the later of this date or April 1 of the
calendar year following the calendar year in which the employee retires.
There may be a 10% penalty tax on the taxable amount of payments from
certain Qualified Contracts. There are exceptions to this penalty tax which vary
depending on the type of Qualified Plan. In the case of an IRA, exceptions
provide that the penalty tax does not apply to a payment:
(a) received on or after the Owner reaches age 59 1/2;
(b) received on or after the Owner's death or because of the Owner's
disability (as defined in the tax law); or
(c) made as a series of substantially equal periodic payments (not less
frequently than annually) for the life (or life expectancy) of the
Owner or for the joint lives (or joint life expectancies) of the
Owner and his designated beneficiary (as defined in the tax law).
These exceptions, as well as certain others not described herein, generally
apply to taxable distributions from other Qualified Plans (although, in the case
of plans qualified under sections 401 and 403, exception "c" above for
substantially equal periodic payments applies only if the Owner has separated
from service). In addition, the penalty tax does not apply to certain
distributions from IRAs taken after
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December 31, 1997 which are used for qualified first time home purchases or for
higher education expenses. Special conditions must be met for these two
exceptions to the penalty tax. Those wishing to take a distribution from an IRA
for these purposes should consult their tax advisor.
When issued in connection with a Qualified Plan, a Contract will be amended
as generally necessary to conform to the requirements of the plan. However,
Owners, Annuitants, and Beneficiaries are cautioned that the rights of any
person to any benefits under Qualified Plans may be subject to the terms and
conditions of the plans themselves, regardless of the terms and conditions of
the Contract. In addition, the Company shall not be bound by terms and
conditions of Qualified Plans to the extent such terms and conditions contradict
the Contract, unless the Company consents.
Following are brief descriptions of various types of Qualified Plans in
connection with which the Company may issue a Contract.
INDIVIDUAL RETIREMENT ACCOUNTS AND ANNUITIES.
Section 408 of the Internal Revenue Code permits eligible individuals to
contribute to an individual retirement program known as IRAs. IRAs are subject
to limits on the amounts that may be contributed and deducted, the persons who
may be eligible and on the time when distributions may commence. Also, subject
to the direct rollover and mandatory withholding requirements (discussed below),
distributions from certain Qualified Plans may be "rolled over" on a
tax-deferred basis into an IRA.
The Contract may not, however, be used in connection with an "Education IRA"
under Section 530 of the Code, a "Simplified Employee Pension" under Section
408(k) of the Internal Revenue Code, or a "Simple IRA" under Section 408(p) of
the Code.
IRAs generally may not invest in life insurance contracts, but an annuity
that is purchased by, or used as, an IRA may provide a death benefit that equals
the greater of the premiums paid and the contract's cash value. The Contract
provides a death benefit that in certain circumstances may exceed the greater of
the Purchase Payments and the Contract Value. It is possible that the death
benefit could be viewed as violating the prohibition on investment in life
insurance contracts with the result that the Contract would not be viewed as
satisfying the requirements of an IRA.
ROTH IRAS.
Section 408A of the Internal Revenue Code permits eligible individuals to
contribute to a type of IRA known as a "Roth IRA." Roth IRAs are generally
subject to the same rules as non-Roth IRAs, but differ in several respects.
Among the differences is that, although contributions to a Roth IRA are not
deductible, "qualified distributions" from a Roth IRA will be excludable from
income.
A qualified distribution is a distribution that satisfies two requirements.
First, the distribution must be made in a taxable year that is at least five
years after the first taxable year for which a contribution to any Roth IRA
established for the Owner was made. Second, the distribution must be either (1)
made after the Owner attains age 59 1/2; (2) made after the Owner's death; (3)
attributable to the Owner being disabled or; (4) a qualified first-time
homebuyer distribution within the meaning of Section 72(t)(2)(F) of the Internal
Revenue Code. In addition, distributions from Roth IRAs need not commence when
the Owner attains age 70 1/2. A Roth IRA may accept a "qualified rollover
contribution" from a non-Roth IRA, but a Roth IRA may not accept rollover
contributions from other qualified plans. The state tax treatment of a Roth IRA
may differ from federal tax treatment of a Roth IRA.
As described above (see "Individual Retirement Annuities"), there is some
uncertainty regarding the proper characterization of the Contract's death
benefit for purposes of the tax rules governing
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IRAs (which include Roth IRAs). Persons intending to use the Contract in
connection with a Roth IRA should seek competent advice.
CORPORATE AND SELF-EMPLOYED ("H.R. 10" AND "KEOGH") PENSION AND PROFIT-SHARING
PLANS.
Sections 401(a) and 403(a) of the Internal Revenue Code permit corporate
employers to establish various types of tax-favored retirement plans for
employees. The Self-Employed Individuals' Tax Retirement Act of 1962, as
amended, commonly referred to as "H.R. 10" or "Keogh," permits self-employed
individuals also to establish such tax-favored retirement plans for themselves
and their employees. Such retirement plans may permit the purchase of the
Contract in order to provide benefits under the plans. The Contract provides a
death benefit that in certain circumstances may exceed the greater of the
Purchase Payments and the Contract Value. It is possible that the IRS could
characterize the death benefit as an "incidental death benefit." There are
limitations on the amount of incidental benefits that may be provided under
pension and profit sharing plans. In addition, the provision of such benefits
may result in currently taxable income to participants.
SECTION 403(b) POLICIES.
Section 403(b) of the Internal Revenue Code permits public school employees
and employees of certain types of charitable, educational and scientific
organizations specified in Section 501(c)(3) of the Internal Revenue Code to
have their employers purchase annuity contracts for them and, subject to certain
limitations, to exclude the amount of purchase payments from gross income for
tax purposes. Purchasers of the Contracts for use as a "Section 403(b) Policy"
should seek competent advice as to eligibility, limitations on permissible
amounts of purchase payments and other tax consequences associated with such
Contracts. In particular, purchasers and their advisers should consider that the
Contract provides a death benefit that in certain circumstances may exceed the
greater of the Purchase Payments and the Contract Value. It is possible that the
IRS could characterize the death benefit as an "incidental death benefit." If
the death benefit were so characterized, this could result in currently taxable
income to purchasers. In addition, there are limitations on the amount of
incidental death benefits that may be provided under a Section 403(b) Policy.
Even if the IRS characterized the benefit under the Contract as an incidental
death benefit, the death benefit is unlikely to violate those limits unless the
purchaser also purchases a life insurance contract as part of his or her Section
403(b) Policy. Employers intending to use the Contract in connection with such
plans should seek competent advice.
Section 403(b) Policies contain restrictions on withdrawals of:
(i) contributions made pursuant to a salary reduction agreement in
years beginning after December 31, 1988;
(ii) earnings on those contributions; and
(iii) earnings after December 31, 1988 on amounts attributable to salary
reduction contributions held as of December 31, 1988.
These amounts can be paid only if the employee has reached age 59 1/2,
separated from service, died, become disabled, or in the case of hardship.
Amounts permitted to be distributed in the event of hardship are limited to
actual contributions; earnings thereon can not be distributed on account of
hardship. (These limitations on withdrawals do not apply to the extent the
Company is directed to transfer some or all of the Contract Value to the issuer
of another Section 403(b) Policy or into a Section 403(b)(7) custodial account.)
DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS.
Section 457 of the Internal Revenue Code permits employees of state and
local governments and tax-exempt organizations to defer a portion of their
compensation without paying current taxes. The
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employees must be participants in an eligible deferred compensation plan.
Generally, a Contract purchased by a state or local government or a tax-exempt
organization will not be treated as an annuity contract for federal income tax
purposes. The Contract will be issued in connection with a Section 457 deferred
compensation plan sponsored by a state or local government only if the plan has
established a trust to hold plan assets, including the Contract. Those who
intend to use the Contracts in connection with such plans should seek competent
advice.
DIRECT ROLLOVERS
If your Contract is used in connection with a pension, profit-sharing, or
annuity plan qualified under sections 401(a) or 403(a) of the Internal Revenue
Code, or is a Section 403(b) Policy, any "eligible rollover distribution" from
the Contract will be subject to direct rollover and mandatory withholding
requirements. An eligible rollover distribution generally is any taxable
distribution from a qualified pension plan under section 401(a) of the Internal
Revenue Code, qualified annuity plan under section 403(a) of the Internal
Revenue Code, or section 403(b) annuity or custodial account, excluding certain
amounts (such as minimum distributions required under section 401(a)(9) of the
Internal Revenue Code and distributions which are part of a "series of
substantially equal periodic payments" made for life or a specified period of 10
years or more).
Under these requirements, federal income tax equal to 20% of the eligible
rollover distribution will be withheld from the amount of the distribution.
Unlike withholding on certain other amounts distributed from the Contract,
discussed below, you cannot elect out of withholding with respect to an eligible
rollover distribution. However, this 20% withholding will not apply if, instead
of receiving the eligible rollover distribution, you elect to have it directly
transferred to certain Qualified Plans. Prior to receiving an eligible rollover
distribution, you will receive a notice (from the plan administrator or the
Company) explaining generally the direct rollover and mandatory withholding
requirements and how to avoid the 20% withholding by electing a direct transfer.
FEDERAL INCOME TAX WITHHOLDING
Protective Life will withhold and remit to the federal government a part of
the taxable portion of each distribution made under a Contract unless the
distributee notifies Protective Life at or before the time of the distribution
that he or she elects not to have any amounts withheld. In certain
circumstances, Protective Life may be required to withhold tax. The withholding
rates applicable to the taxable portion of periodic annuity payments (other than
eligible rollover distributions) are the same as the withholding rates generally
applicable to payments of wages. In addition, a 10% withholding rate applies to
the taxable portion of non-periodic payments (including surrenders prior to the
Annuity Commencement Date) and conversions of, or rollovers from, non-Roth IRAs
to Roth IRAs. Regardless of whether you elect not to have federal income tax
withheld, you are still liable for payment of federal income tax on the taxable
portion of the payment. As discussed above, the withholding rate applicable to
eligible rollover distributions is 20%.
GENERAL MATTERS
THE CONTRACT
The Contract and its attachments, including the copy of your application and
any endorsements, riders and amendments, constitute the entire agreement between
you and us. All statements in the application shall be considered
representations and not warranties. The terms and provisions of this Contract
are to be interpreted in accordance with the Internal Revenue Code and
applicable regulations.
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ERROR IN AGE OR GENDER
When a benefit of the Contract is contingent upon any person's age or
gender, we may require proof of such. We may suspend payments until we receive
proof. When we receive satisfactory proof, we will make the payments which were
due during the period of suspension. Where the use of unisex mortality rates is
required, we will not determine or adjust benefits based upon gender.
If after we receive proof of age and gender (where applicable) we determine
that the information you furnished was not correct, we will adjust any benefit
under this Contract to that which would be payable based upon the correct
information. If we have underpaid a benefit because of the error, we will make
up the underpayment in a lump sum. If the error resulted in an overpayment, we
will deduct the amount of the overpayment from any current or future payment due
under the Contract. We will deduct up to the full amount of any current or
future payment until the overpayment has been fully repaid. Overpayments and
underpayments will accrue interest at an annual effective rate of 3%.
INCONTESTABILITY
We will not contest the Contract.
NON-PARTICIPATION
The Contract is not eligible for dividends and will not participate in
Protective Life's surplus or profits.
ASSIGNMENT
You have the right to assign the Contract if it is a Non-Qualified Contract.
We do not assume responsibility for the assignment. Any claim made under an
assignment is subject to proof of the nature and extent of the assignee's
interest prior to payment by us. Assignments have federal income tax
consequences. (See "Assignments, Pledges and Gratuitous Transfers" in the
prospectus.)
NOTICE
All instructions and requests to change or assign the Contract must be in
writing in a form acceptable to us, signed by the Owner(s), and received at our
administrative office. The instruction, change or assignment will relate back to
and take effect on the date it was signed, except we will not be responsible for
following any instruction or making any change or assignment before we receive
it.
MODIFICATION
No one is authorized to modify or waive any term or provision of this
Contract unless we agree to the modification or waiver in writing and it is
signed by our President, Vice-President or Secretary. We reserve the right to
change or modify the provisions of this Contract to conform to any applicable
laws, rules or regulations issued by a government agency, or to assure continued
qualification of the Contract as an annuity contract under the Internal Revenue
Code. We will send you a copy of the endorsement that modifies the Contract, and
where required we will obtain all necessary approvals, including that of the
Owner(s).
REPORTS
At least annually prior to the Annuity Commencement Date, we will send to
you at the address contained in our records a report showing the current
Contract Value and any other information required by law.
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SETTLEMENT
Benefits due under this Contract are payable from our administrative office.
The Owner may apply the settlement proceeds to any payout option we offer for
such payments at the time the election is made. Unless directed otherwise in
writing, we will make payments according to the Owner's instructions as
contained in our records at the time the payment is made. We shall be discharged
from all liability for payment to the extent of any payments we make.
RECEIPT OF PAYMENT
If any Owner, Annuitant, Beneficiary or Payee is incapable of giving a valid
receipt for any payment, we may make such payment to whomever has legally
assumed his or her care and principal support. Any such payment shall fully
discharge us to the extent of that payment.
PROTECTION OF PROCEEDS
To the extent permitted by law and except as provided by an assignment, no
benefits payable under this Contract will be subject to the claims of creditors.
MINIMUM VALUES
The values available under the Contract are at least equal to the minimum
values required in the state where the Contract is delivered.
APPLICATION OF LAW
The provisions of the Contract are to be interpreted in accordance with the
laws of the state where the Contract is delivered, with the Internal Revenue
Code and with applicable regulations.
NO DEFAULT
The Contract will not be in default if subsequent Purchase Payments are not
made.
DISTRIBUTION OF THE CONTRACTS
The Contracts will be offered on a continuous basis and Protective Life does
not anticipate discontinuing the offering of the Contracts. Nevertheless,
Protective Life reserves the right to discontinue the offering at any time.
Investment Distributors, Inc. serves as principal underwriter (as defined in the
1940 Act) for the Contracts. Investment Distributors, Inc. has agreed to use its
best efforts to sell the Contracts. Investment Distributors, Inc. is a
wholly-owned subsidiary of PLC and has the same address as Protective Life.
Applications for Contracts are solicited by agents who are licensed by
applicable state insurance authorities to sell Protective Life's Contracts and
who are also registered representatives of broker/ dealers having a distribution
agreement with Investment Distributors, Inc. or broker/dealers having a
distribution agreement with such broker/dealer. Investment Distributors, Inc. is
an affiliate of Protective Life and Annuity Insurance Company and is registered
with the SEC under the Securities Exchange Act of 1934 as a broker/dealer.
Investment Distributors, Inc. is a member of the National Association of
Securities Dealers, Inc. The maximum commission Protective Life will pay is 7%
of the Purchase Payments for the sale of a Contract, not including subsequent
asset-based commissions.
INQUIRIES
Inquiries regarding a Contract may be made by writing to Protective Life at
its administrative office.
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PREPARATION FOR YEAR 2000
Computer hardware and software often denote the year using two digits rather
than four; for example, the year 1998 often is denoted by such hardware and
software as "98". It is probable that such hardware and software will
malfunction when calculations involving the year 2000 are attempted because the
hardware and/or software will interpret "00" as representing the year 1900
rather than the year 2000. This "Year 2000" issue potentially affects all
individuals and companies (including Protective Life, its customers, business
partners, suppliers, banks, custodians and administrators). The problem is most
prevalent in older mainframe systems, but personal computers and equipment
containing computer chips could also be affected.
Protective Life shares computer hardware and software with its parent, PLC.
PLC began work on the Year 2000 problem in 1995. At that time, PLC identified
and assessed its critical mainframe systems, and prioritized the remediation
efforts that were to follow. During 1998 all other hardware and software,
including non-information technology (non-IT) related hardware and software,
were included in the process. PLC's Year 2000 plan includes all subsidiaries.
PLC estimates that Year 2000 remediation is complete for most of its
insurance administration and general administration systems. Of the general
administration systems that are not yet remediated, the majority are new systems
that were implemented during 1998 and are scheduled to be upgraded to the
current release of the system during the second quarter of 1999. All remediated
systems are currently in production. Personal computer network hardware and
software have been reviewed, with upgrades implemented where necessary. A review
of personal computer desktop software is in progress, but not complete. All Year
2000 personal computer preparations are expected to be completed by June 30,
1999. With respect to non-IT equipment and processes, the assessment and
remediation is progressing on schedule and all known issues are expected to be
remediated before December 31, 1999.
One insurance administration system identified as mission critical is not
yet fully remediated. This personal computer database system that processes
member information for one subsidiary is currently being remediated. This effort
is on schedule and targeted to be complete by June 30, 1999.
Future date tests are used to verify a system's ability to process
transactions dated up to and beyond January 1, 2000. Future date tests are
complete or in-progress for the majority of PLC's mission-critical systems. A
large portion of the testing is conducted by a contract programming staff
dedicated full time to Year 2000 preparations. These resources have been part of
PLC's Year 2000 project since 1995.
Integrated tests involve multiple system testing and are used to verify the
Year 2000 readiness of interfaces and connectivity across multiple systems. PLC
is using its mainframe computer to simulate a Year 2000 production environment
and to facilitate integrated testing. Integrated testing will continue
throughout 1999.
Business partners and suppliers that provide products or services critical
to PLC's operations are being reviewed and in some cases their Year 2000
preparations are being monitored by PLC. To date, no partners or suppliers have
reported that they expect to be unable to continue supplying products and
services after January 1, 2000. Initial reviews are targeted to be completed in
the first quarter of 1999. Monitoring and testing of critical partners and
suppliers will continue throughout 1999. Formal contingency planning will begin
in March 1999 and continue throughout the year.
These plans will augment PLC's existing disaster recovery plans.
PLC cannot specifically identify all of the costs to develop and implement
its Year 2000 plan. The cost of new systems to replace non-compliant systems
have been capitalized in the ordinary course of business. Other costs have been
expensed as incurred. Through December 31, 1998, costs that have been
specifically identified as relating to the Year 2000 problem total $3.9 million,
with an additional
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$1.3 million estimated to be required to support continued testing activity.
PLC's Year 2000 efforts have not adversely affected its normal procurement and
development of information technology.
Although PLC believes that a process is in place to successfully address
Year 2000 issues, there can be no assurances that PLC's efforts will be
successful, that interactions with other service providers with Year 2000 issues
will not impair Protective Life's operations, or that the Year 2000 issue will
not otherwise adversely affect Protective Life.
Should some of PLC's systems not be available due to Year 2000 problems, in
a reasonably likely worst case scenario, Protective Life may experience
significant delays in its ability to perform certain functions, but does not
expect to be unable to perform critical functions or to otherwise conduct
business.
LEGAL PROCEEDINGS
There are at present no legal proceedings to which the Variable Account is a
party or the assets of the Variable Account are subject. Protective Life is
involved in pending and threatened proceedings in which claims for monetary
damages or penalties may be asserted. Management, after consultation with legal
counsel, does not believe that such proceedings are material, nor does it
anticipate the ultimate liability arising from any such proceeding would be
material, to Protective Life in relation to its total assets. Such proceedings
are not related to the Variable Account.
VOTING RIGHTS
In accordance with its view of applicable law, Protective Life will vote the
Fund shares held in the Variable Account at special shareholder meetings of the
Funds in accordance with instructions received from persons having voting
interests in the corresponding Sub-Accounts. If, however, the 1940 Act or any
regulation thereunder should be amended, or if the present interpretation
thereof should change, or Protective Life determines that it is allowed to vote
such shares in its own right, it may elect to do so.
The number of votes available to an Owner will be calculated separately for
each Sub-Account of the Variable Account, and may include fractional votes. The
number of votes attributable to a Sub-Account will be determined by applying an
Owner's percentage interest, if any, in a particular Sub-Account to the total
number of votes attributable to that Sub-Account. An Owner holds a voting
interest in each Sub-Account to which that Owner has allocated Accumulation
Units. Before the Annuity Commencement Date, the Owner's percentage interest, if
any, will be percentage of the dollar value of Accumulation Units allocated for
his or her Contract to the total dollar value of that Sub-Account. On or after
the Annuity Commencement Date, the Owner has no voting rights.
The number of votes which are available to the Owner will be determined as
of the date coincident with the date established by the Fund for determining
shareholders eligible to vote at the relevant meeting of that Fund. Voting
instructions will be solicited by written communication prior to such meeting in
accordance with procedures established by the Fund.
FINANCIAL STATEMENTS
The audited statement of assets and liabilities of The Variable Annuity
Account A of Protective Life as of December 31, 1998 and the related statements
of operations and changes in net assets for the year ended December 31, 1998 as
well as the Report of Independent Accountants are contained in the Statement of
Additional Information.
The audited consolidated balance sheets for Protective Life as of December
31, 1998 and 1997 and the related consolidated statements of income,
stockholder's equity, and cash flows for the three years in the period ended
December 31, 1998 and the related financial statement schedules as well as the
Report of Independent Accountants are contained in the Statement of Additional
Information.
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