<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999
FILE NO. 333-41577
FILE NO. 811-8537
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 1 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 2 /X/
VARIABLE ANNUITY
ACCOUNT A OF PROTECTIVE LIFE
(EXACT NAME OF REGISTRANT)
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
(NAME OF DEPOSITOR)
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
(205) 879-9230
(DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
STEVE M. CALLAWAY, ESQUIRE
PROTECTIVE LIFE INSURANCE COMPANY
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA, 35223
(NAME AND ADDRESS OF AGENT FOR SERVICES)
COPY TO:
STEPHEN E. ROTH, ESQUIRE
SUTHERLAND, ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004
(202) 383-0158
-------------------
It is proposed that this filing become effective (check appropriate box):
/ / immediately upon filing pursuant to paragraph (b) of Rule 485;
/X/ on May 1, 1999 pursuant to paragraph (b) of Rule 485;
/ / 60 days after filing pursuant to paragraph (a) of Rule 485;
/ / on May 1, 1999 pursuant to paragraph (a)(i) of Rule 485;
/ / 75 days after filing pursuant to paragraph (a)(ii) of Rule 485;
/ / on date pursuant to paragraph (a)(ii) of Rule 485.
TITLE OF SECURITIES BEING REGISTERED: INTERESTS IN A SEPARATE
ACCOUNT ISSUED THROUGH VARIABLE ANNUITY CONTRACTS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART A
INFORMATION REQUIRED TO BE IN THE PROSPECTUS
<PAGE>
<TABLE>
<S> <C>
[LOGO]
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
</TABLE>
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:
<TABLE>
<S> <C> <C> <C>
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
</TABLE>
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
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
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
<CAPTION>
PAGE
-----------
<S> <C>
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....................................... 50
</TABLE>
2
<PAGE>
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.
3
<PAGE>
EXPENSE TABLES
The following expense information assumes that the entire Contract Value is
Variable Account Value.
<TABLE>
<S> <C>
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%
</TABLE>
ANNUAL FUND EXPENSES
(after reimbursement and as percentage of average net assets)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
(ADVISORY) EXPENSES AFTER FUND EXPENSES
FEES REIMBURSEMENT (AFTER REIMBURSEMENTS)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
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%
</TABLE>
- --------------------------------------------------------------------------------
* 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".)
4
<PAGE>
(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
5
<PAGE>
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:
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
</TABLE>
2. If the Contract is not surrendered or is annuitized* at the end of the
applicable time period:
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
</TABLE>
- ------------
* 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.
7
<PAGE>
SUMMARY
THE CONTRACT
<TABLE>
<S> <C>
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.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
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".)
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
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 Insurance and and Annuity
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.
22
<PAGE>
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.
23
<PAGE>
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
24
<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").
25
<PAGE>
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".)
26
<PAGE>
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.
27
<PAGE>
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
28
<PAGE>
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.
29
<PAGE>
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.
30
<PAGE>
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
31
<PAGE>
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.
32
<PAGE>
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.
33
<PAGE>
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.
34
<PAGE>
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.
35
<PAGE>
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).
36
<PAGE>
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.
37
<PAGE>
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
38
<PAGE>
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
39
<PAGE>
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.
40
<PAGE>
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
41
<PAGE>
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
42
<PAGE>
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
43
<PAGE>
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.
44
<PAGE>
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.
45
<PAGE>
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.
46
<PAGE>
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 the Company, 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.
The Company began work on the Year 2000 problem in 1995. At that time, the
Company identified and assessed the Company's 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. The Company's Year 2000
plan includes all subsidiaries.
The Company 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.
Two insurance administration systems identified as mission critical are not
yet fully remediated. A 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. Also, another personal
computer application, which processes policy information for one line of
business, is being re-written and is currently in test. This system is targeted
to be in production by April 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 the Company'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 the Company'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. The
Company 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 the Company's operations are being reviewed and in some cases their Year 2000
preparations are being monitored by the Company. 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 the Company's existing disaster recovery plans.
The Company 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
47
<PAGE>
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 $1.3 million estimated to be
required to support continued testing activity. The Company's Year 2000 efforts
have not adversely affected its normal procurement and development of
information technology.
Although the Company believes that a process is in place to successfully
address Year 2000 issues, there can be no assurances that the Company's efforts
will be successful, that interactions with other service providers with Year
2000 issues will not impair the Company's operations, or that the Year 2000
issue will not otherwise adversely affect the Company.
Should some of the Company's systems not be available due to Year 2000
problems, in a reasonably likely worst case scenario, the Company 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.
48
<PAGE>
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.
49
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CALCULATION OF YIELDS AND TOTAL RETURNS.................................................................... 3
Oppenheimer Money Fund Sub-Account Yield................................................................. 3
Other Sub-Account Yields................................................................................. 4
Total Returns............................................................................................ 4
Effect of the Contract Maintenance Fee on Performance Data............................................... 6
SAFEKEEPING OF ACCOUNT ASSETS.............................................................................. 6
STATE REGULATION........................................................................................... 6
RECORDS AND REPORTS........................................................................................ 6
LEGAL MATTERS.............................................................................................. 7
EXPERTS.................................................................................................... 7
OTHER INFORMATION.......................................................................................... 7
FINANCIAL STATEMENTS....................................................................................... 7
</TABLE>
50
<PAGE>
PLEASE TEAR OFF, COMPLETE AND RETURN THIS FORM TO ORDER A FREE STATEMENT OF
ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE PROSPECTUS. ADDRESS
THE FORM TO PROTECTIVE LIFE'S INVESTMENT PRODUCTS DIVISION, CUSTOMER SERVICE
CENTER AT THE ADDRESS SHOWN ON THE COVER.
PLEASE SEND ME A FREE COPY OF THE STATEMENT OF ADDITIONAL INFORMATION FOR
THE PROTECTIVE VARIABLE ANNUITY.
- --------------------------------------------------------------------------------
Name Social Security No.
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City, State, Zip
- --------------------------------------------------------------------------------
Daytime Telephone Number
<PAGE>
PART B
INFORMATION REQUIRED TO BE IN THE
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
2801 Highway 280 South
Birmingham, Alabama 35223
Telephone: 1-800-866-3555
STATEMENT OF ADDITIONAL INFORMATION
VARIABLE ANNUITY ACCOUNT A OF PROTECTIVE LIFE
THE PROTECTIVE VARIABLE ANNUITY
AN INDIVIDUAL FLEXIBLE PREMIUM
DEFERRED VARIABLE AND FIXED ANNUITY CONTRACT
This Statement of Additional Information contains information in addition to
the information described in the Prospectus for the Protective Variable Annuity,
an individual flexible premium deferred variable and fixed annuity contract (the
"Contract") offered by Protective Life and Annuity Insurance Company. This
Statement of Additional Information is not a Prospectus. It should be read only
in conjunction with the Prospectuses for the Contract and the Funds. The
Prospectus is dated the same as this Statement of Additional Information. You
may obtain a copy of the Prospectus by writing or calling us at our address or
phone number shown above.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS MAY 1, 1999.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CALCULATION OF YIELDS AND TOTAL RETURNS.................................................................... 3
Oppenheimer Money Fund Sub-Account Yield................................................................. 3
Other Sub-Account Yields................................................................................. 4
Total Returns............................................................................................ 5
Effect of the Contract Maintenance Fee on Performance Data............................................... 6
SAFEKEEPING OF ACCOUNT ASSETS.............................................................................. 6
STATE REGULATION........................................................................................... 6
RECORDS AND REPORTS........................................................................................ 6
LEGAL MATTERS.............................................................................................. 7
EXPERTS.................................................................................................... 7
OTHER INFORMATION.......................................................................................... 7
FINANCIAL STATEMENTS....................................................................................... 7
</TABLE>
2
<PAGE>
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, Protective Life and Annuity may disclose yields, total
returns, and other performance data pertaining to the Contracts for a
Sub-Account. Such performance data will be computed or accompanied by
performance data computed, in accordance with the standards defined by the
Securities and Exchange Commission ("SEC").
Because of the charges and deductions imposed under a Contract, yields for
the Sub-Accounts will be lower than the yields for their respective Funds. The
calculations of yields, total returns, and other performance data do not reflect
the effect of premium tax that may be applicable to a particular Contract.
Premium taxes currently range from 0% to 3.50% of premium based on the state in
which the Contract is sold. New York does not currently impose a premium tax.
OPPENHEIMER MONEY FUND SUB-ACCOUNT YIELD
From time to time, advertisements and sales literature may quote the current
annualized yield of the Oppenheimer Variable Account Funds Money Fund
Sub-Account for a seven-day period in a manner which does not take into
consideration any realized or unrealized gain, or losses on shares of the
Oppenheimer Variable Account Funds Money Fund or on its portfolio securities.
This current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities and unrealized
appreciation and depreciation) at the end of the seven day period in value of a
hypothetical account under a Contract having a balance of 1 Accumulation Unit of
the Oppenheimer Money Fund Sub-Account at the beginning of the period, dividing
such net change in account value by the value of the hypothetical account at the
beginning of the period to determine the base period return, and annualizing
this quotient on a 365-day basis. The net change in account value reflects: 1)
net income from the Oppenheimer Variable Account Funds Money Fund attributable
to the hypothetical account; and 2) charges and deductions imposed under the
Contract attributable to the hypothetical account. The charges and deductions
reflect the per unit charges for the hypothetical account for: 1) the Annual
Contract Maintenance Fee; 2) Administration Charge; and 3) the Mortality and
Expense Risk Charge. For purposes of calculating current yields for a Contract,
an average per unit Contract Maintenance Fee is used based on the $35 Contract
Maintenance Fee deducted at the end of each Contract Year. Current Yield will be
calculated according to the following formula:
Current Yield = ((NCS-ES)/UV) X (365/7)
Where:
<TABLE>
<S> <C>
NCS the net change in the value of the Fund (exclusive of unrealized gains
or losses on the sale of securities and unrealized appreciation and
depreciation) for the seven-day period attributable to a hypothetical
Account having a balance of 1 Sub-Account Accumulation Unit.
ES per unit expenses attributable to the hypothetical account for the
seven-day period.
UV the Accumulation Unit value as of the end of the last day of the prior
seven-day period.
</TABLE>
The effective yield of the Oppenheimer Variable Account Funds Money Fund
Sub-Account determined on a compounded basis for the same seven-day period may
also be quoted.
The effective yield is calculated by compounding the unannualized base
period return according to the following formula:
Effective Yield = (1+((NCS-ES)/UV))(365/7) - 1
3
<PAGE>
Where:
<TABLE>
<S> <C>
NCS the net change in the value of the portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized appreciation
and depreciation) for the seven-day period attributable to a
hypothetical account having a balance of 1 Sub-Account Accumulation
Unit.
ES per Accumulation Unit expenses attributable to the hypothetical account
for the seven-day period.
UV the Accumulation Unit value as of the end of the last day of the prior
seven-day period.
</TABLE>
Because of the charges and deductions imposed under the Contract, the
current and effective yields for the PIC Money Market Sub-Account will be lower
than such yields for the PIC Money Market Fund.
The current and effective yields on amounts held in the PIC Money Market
Sub-Account normally will fluctuate on a daily basis. THEREFORE, THE DISCLOSED
YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION OF FUTURE
YIELDS OR RATES OF RETURN. The PIC Money Market Sub-Account's actual yield is
affected by changes in interest rates on money market securities, average
portfolio maturity of the Oppenheimer Variable Account Funds Money Fund, the
types of quality of portfolio securities held by the Oppenheimer Variable
Account Funds Money Fund and the Oppenheimer Variable Account Funds Money Fund
operating expenses. Yields on amounts held in the Oppenheimer Money Fund
Sub-Account may also be presented for periods other than a seven day period.
OTHER SUB-ACCOUNT YIELDS
From time to time, sales literature or advertisements may quote the current
annualized yield of one or more of the Sub-Accounts (except the Oppenheimer
Money Fund Sub-Account) for a Contract for 30-day or one-month periods. The
annualized yield of a Sub-Account refers to income generated by the Sub-Account
over a specific 30 day or one month period. Because the yield is annualized, the
yield generated by a Sub-Account during a 30-day or one-month period is assumed
to be generated each period over a 12-month period.
The yield is computed by: 1) dividing the net investment income of the Fund
attributable to the Sub-Account Accumulation Units less Sub-Account expenses for
the period; by 2) the maximum offering price per Accumulation Unit on the last
day of the period times the daily average number of units outstanding for the
period; by 3) compounding that yield for a six-month period; and by 4)
multiplying that result by 2. Expenses attributable to the Sub-Account include
the Annual Contract Maintenance Fee, the Administration Charge and the Mortality
and Expense Risk Charge. The yield calculation assumes an Contract Maintenance
Fee of $30 per year per Contract deducted at the end of each Contract Year. For
purposes of calculating the 31-day or one-month yield, an average administration
fee per dollar of Contract value in the Variable Account is used to determine
the amount of the charge attributable to the Sub-Account for the 30-day or
one-month period. The 30 day or one month yield is calculated according to the
following formula:
Yield = 2 X [(((N1-ES)/ (U X UV))+1)(6) - 1]
Where:
<TABLE>
<S> <C>
N1 net income of the Fund for the 30 day or one month period attributable
to the Sub-Account Accumulation Units.
ES expenses of the Sub-Account for the 30 day or one month period.
U the average number of Accumulation Units outstanding.
UV the Accumulation Unit value as of the end of the last day in the 30 day
or one month period.
</TABLE>
4
<PAGE>
Because of the charges and deductions imposed under the Contracts, the yield
for the Sub-Account will be lower than the yield for the corresponding Fund.
The yield on the amounts held in the Sub-Accounts normally will fluctuate
over time. Therefore, the disclosed yield for any given past period is not an
indication or representation of future yields or rates of return. The
Sub-Account's actual yield is affected by the types and quality of portfolio
securities held by the corresponding Fund and its operating expenses.
TOTAL RETURNS
From time to time, sales literature or advertisements may also quote average
annual total returns for one or more of the Sub-Accounts for various periods of
time.
Until a 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 has
been in operation for 1, 5, and 10 years, respectively, the standard average
annual total return for these periods will be provided. Average annual total
returns for other periods of time may, from time to time, also be disclosed.
Average annual total returns 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. The ending date of each period for which total return quotations are
provided will generally be for the most recent month-end practicable considering
the type and media of the communication and will be stated in the communication.
All average annual total returns will be calculated using Sub-Account unit
values computed on each Valuation Day based on the performance of the
Sub-Account's underlying Fund, the deductions for the mortality and expense risk
charge and the administration charge.
The standard average annual total return calculation assumes that the
contract maintenance fee is $30 per year per contract, expressed as a percentage
of the average Contract Value. The standard average annual total return will be
calculated according to the following formula:
TR = (ERV/P)(1/N) - 1
Where:
<TABLE>
<S> <C> <C>
TR = the average annual total return net of Sub-Account recurring
charges.
ERV = the ending redeemable value (net of any applicable surrender charge)
of the hypothetical account at the end of the period.
P = a hypothetical single Purchase Payment of $1,000.
N = the number of years in the period.
</TABLE>
In addition to standard average annual total returns, sales literature or
advertisements may from time to time also quote nonstandard average annual total
returns that do not reflect the surrender charge, the Contract Maintenance Fee,
or both. These nonstandard average annual total returns are calculated in
exactly the same way as standard average annual total returns described above,
except that the ending redeemable value of the hypothetical account for the
period is replaced with an ending value for the period that does not take into
account the surrender charge, the Contract Maintenance Fee, or both.
5
<PAGE>
Protective Life may also disclose cumulative total returns in conjunction
with the standard formats described above. The cumulative total returns will be
calculated using the following formula:
CTR = (ERV/P) - 1
Where:
<TABLE>
<S> <C> <C>
CTR = The cumulative total return net of Sub-Account recurring charges for
the period.
ERV = The ending value of the hypothetical investment at the end of the
period that does not take into account the surrender charge, the
Contract Maintenance Fee, or both.
P = A hypothetical single Purchase Payment of $1,000.
</TABLE>
EFFECT OF THE CONTRACT MAINTENANCE FEE ON PERFORMANCE DATA
The Contract provides for a $30 annual contract maintenance fee to be
deducted at the end of each Contract Year from the Sub-Accounts based on the
proportion that the value of each such Account bears to the total Contract
Value. For purposes of reflecting the contract maintenance fee in yield and
total return quotations, the annual charge is converted into a per-dollar
per-day charge based on the average Variable Account value of all Contracts on
the last day of the period for which quotations are provided. The per-dollar
per-day average charge is then adjusted to reflect the basis upon which the
particular quotation is calculated.
SAFEKEEPING OF ACCOUNT ASSETS
Title to the assets of the Variable Account are held by Protective Life. The
assets are kept physically segregated and held separate and apart from the
Company's General Account assets and from the assets in any other separate
account.
Records are maintained of all purchases and redemptions of Fund shares held
by each of the Sub-Accounts.
The officers and employees of Protective Life are covered by an insurance
company blanket bond issued in the amount of $20 million dollars. The bond
insures against dishonest and fraudulent acts of officers and employees.
STATE REGULATION
Protective Life is subject to regulation and supervision by the Department
of Insurance of the State of Alabama which periodically examines its affairs. It
is also subject to the insurance laws and regulations of all jurisdictions where
it is authorized to do business. A copy of the Contract form has been filed
with, and where required approved by, insurance officials in each jurisdiction
where the Contracts are sold. Protective Life is required to submit annual
statements of its operations, including financial statements, to the insurance
departments of the various jurisdictions in which it does business for the
purposes of determining solvency and compliance with local insurance laws and
regulations.
RECORDS AND REPORTS
Protective Life will maintain all records and accounts relating to the
Variable Account. As presently required by the 1940 Act and regulations
promulgated thereunder, reports containing such information as may be required
under the Act or by any other applicable law or regulation will be sent to
Owner(s) periodically at the last known address.
6
<PAGE>
LEGAL MATTERS
Sutherland, Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain matters relating to the federal securities laws.
EXPERTS
The 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 and the
consolidated balance sheets of Protective Life as of December 31, 1998 and 1997
and the related consolidated statements of income, stockholder's equity and cash
flows for each of the three years in the period ended December 31, 1998 and the
related financial statement schedules included in this Statement of Additional
Information and in the registration statement have been included herein in
reliance on the report of PricewaterhouseCoopers LLP (formerly Coopers & Lybrand
LLP) of Birmingham, AL, independent accountants, given on the authority of that
firm as experts in accounting and auditing.
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities
Act of 1933 as amended, with respect to the Contracts discussed in this
Statement of Additional Information. Not all the information set forth in the
registration statement, amendments and exhibits thereto has been included in
this Statement of Additional Information. Statements contained in this Statement
of Additional Information concerning the content of the Contracts and other
legal instruments are intended to be summaries. For a complete statement of the
terms of these documents, reference should be made to the instruments filed with
the SEC at 450 Fifth Street, N. W., Washington, D.C. 20549.
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 herein.
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 years ended December 31, 1998, 1997
and 1996 as well as the Report of Independent Accountants are contained herein.
Financial Statements follow this page.
7
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
VARIABLE ANNUITY ACCOUNT A OF PROTECTIVE LIFE
Report of Independent Accountants.................................................... F-2
Statement of Assets and Liabilities as of December 31, 1998.......................... F-3
Statement of Operations for the period ended December 31, 1998....................... F-5
Statement of Changes in Net Assets for the period ended December 31, 1998............ F-7
Notes to Financial Statements........................................................ F-9
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
Report of Independent Accountants.................................................... F-14
Statements of Income for the years ended December 31, 1998, 1997, and 1996........... F-15
Balance Sheets as of December 31, 1998 and 1997...................................... F-16
Statements of Share-Owners' Equity for the years ended December 31, 1998, 1997, and
1996................................................................................ F-17
Statements of Cash Flows for the years ended December 31, 1998, 1997, and 1996....... F-18
Notes to Financial Statements........................................................ F-19
Financial Statement Schedules:
Schedule III-- Supplementary Insurance Information................................... S-1
Schedule IV-- Reinsurance............................................................ S-2
</TABLE>
All other schedules to the consolidated financial statements required by
Article 7 of Regulation S-X are not required under the related instructions or
are inapplicable and therefore have been omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners and Board of Directors
of Protective Life and Annuity Insurance Company
(formerly American Foundation Life Insurance Company)
In our opinion, the accompanying statements of assets and liabilities and
the related statements of operations and changes in assets of the Variable
Annuity Account A of Protective Life (the "Separate Account") formerly known as
the Variable Annuity Account A of American Foundation, listed in the index on
page F1 of this Form N-4 present fairly, in all material respects, the financial
position of the Separate Account at December 31, 1998, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Separate Account's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
March 17, 1999
Birmingham, Alabama
F-2
<PAGE>
VARIABLE ANNUITY ACCOUNT A OF PROTECTIVE LIFE
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PIC PIC PIC PIC PIC
MONEY GROWTH AND INTERNATIONAL GLOBAL SMALL
MARKET INCOME EQUITY INCOME CAP VALUE
------------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts at market value........... $ 0 $ 71,846 $ 6,029 $ 3,747 $ 14,882
--
----------- ------ ----------- -----------
Total Assets..................................... 0 71,846 6,029 3,747 14,882
--
----------- ------ ----------- -----------
LIABILITIES
Payable to Protective Life and Annuity Insurance
Company............................................ 0 0 0 0 0
--
----------- ------ ----------- -----------
NET ASSETS........................................... $ 0 $ 71,846 $ 6,029 $ 3,747 $ 14,882
--
--
----------- ------ ----------- -----------
----------- ------ ----------- -----------
<CAPTION>
CALVERT
SOCIAL
PIC PIC SMALL CALVERT
CORE CAPITAL CAP SOCIAL
US EQUITY GROWTH GROWTH BALANCED
----------- --------- ------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts at market value........... $ 34,343 $ 36,536 $ 0 $ 11,234
--
----------- --------- -----------
Total Assets..................................... 34,343 36,536 0 11,234
--
----------- --------- -----------
LIABILITIES
Payable to Protective Life and Annuity Insurance
Company............................................ 0 0 0 0
--
----------- --------- -----------
NET ASSETS........................................... $ 34,343 $ 36,536 $ 0 $ 11,234
--
--
----------- --------- -----------
----------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
VARIABLE ANNUITY ACCOUNT A OF PROTECTIVE LIFE
STATEMENT OF ASSETS & LIABILITIES (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MFS
MFS GROWTH MFS OPPENHEIMER
EMERGING MFS WITH TOTAL AGGRESSIVE OPPENHEIMER
GROWTH RESEARCH INCOME RETURN GROWTH GROWTH
----------- ----------- --------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in sub-accounts at market
value..................................... $ 3,802 $ 8,041 $ 11,339 $ 0 $ 5,191 $ 3,200
--
----------- ----------- --------- ------ ------
Total Assets............................ 3,802 8,041 11,339 0 5,191 3,200
--
----------- ----------- --------- ------ ------
LIABILITIES
Payable to Protective Life and Annuity
Insurance Company......................... 0 0 0 0 0 0
--
----------- ----------- --------- ------ ------
NET ASSETS.................................. $ 3,802 $ 8,041 $ 11,339 $ 0 $ 5,191 $ 3,200
--
--
----------- ----------- --------- ------ ------
----------- ----------- --------- ------ ------
<CAPTION>
OPPENHEIMER OPPENHEIMER
GROWTH AND STRATEGIC
INCOME BOND TOTAL
------------- --------------- ---------
<S> <C> <C> <C>
ASSETS
Investment in sub-accounts at market
value..................................... $ 18,111 $ 9,015 237,316
------------- ------ ---------
Total Assets............................ 18,111 9,015 237,316
------------- ------ ---------
LIABILITIES
Payable to Protective Life and Annuity
Insurance Company......................... 0 0 0
------------- ------ ---------
NET ASSETS.................................. $ 18,111 $ 9,015 $ 237,316
------------- ------ ---------
------------- ------ ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
VARIABLE ANNUITY ACCOUNT A OF PROTECTIVE LIFE
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PIC GROWTH PIC
PIC MONEY AND INTERNATIONAL PIC GLOBAL
MARKET INCOME EQUITY INCOME
----------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................................... $ 46 $ 861 $ 3 $ 86
EXPENSE
Mortality and expense risk and administrative charges....... 15 153 14 9
--- ------------- ----- -----------
Net investment income (loss)................................ 31 708 (11) 77
--- ------------- ----- -----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gain (loss) from redemption of investment
shares.................................................... 0 0 0 0
Capital gain distribution................................... 0 4,950 284 95
--- ------------- ----- -----------
Net realized gain on investments............................ 0 4,950 284 95
Net unrealized appreciation (depreciation) on investments
during the period......................................... 1 (4,660) 215 (129)
--- ------------- ----- -----------
Net realized and unrealized gain (loss) on investments...... 1 290 499 (34)
--- ------------- ----- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... $ 32 $ 998 $ 488 $ 43
--- ------------- ----- -----------
--- ------------- ----- -----------
<CAPTION>
CALVERT
SOCIAL
SMALL CALVERT
PIC SMALL PIC CORE PIC CAPITAL CAP SOCIAL
CAP VALUE US EQUITY GROWTH GROWTH BALANCED
----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................................... $ 76 $ 203 $ 139 $ 0 $ 251
EXPENSE
Mortality and expense risk and administrative charges....... 33 54 72 0 23
--
----------- ----------- ----------- -----
Net investment income (loss)................................ 43 149 67 0 228
--
----------- ----------- ----------- -----
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gain (loss) from redemption of investment
shares.................................................... 0 (1) (2) 0 0
Capital gain distribution................................... 1773 355 642 0 562
--
----------- ----------- ----------- -----
Net realized gain on investments............................ 1,773 354 640 0 562
Net unrealized appreciation (depreciation) on investments
during the period......................................... (714) 1,592 2,465 0 171
--
----------- ----------- ----------- -----
Net realized and unrealized gain (loss) on investments...... 1,059 1,946 3,105 0 733
--
----------- ----------- ----------- -----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... $ 1,102 $ 2,095 $ 3,172 $ 0 $ 961
--
--
----------- ----------- ----------- -----
----------- ----------- ----------- -----
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
VARIABLE ANNUITY ACCOUNT A OF PROTECTIVE LIFE
STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
OPPENHEIMER
MFS EMERGING MFS MFS GROWTH MFS TOTAL AGGRESSIVE
GROWTH RESEARCH WITH INCOME RETURN GROWTH
------------- ----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends........................................... $ 0 $ 0 $ 0 $ 0 $ 0
EXPENSE
Mortality and expense risk and administrative
charges........................................... 9 26 9 0 12
--
----- ----------- ----- -----
Net investment income (loss)........................ (9) (26) (9) 0 (12)
--
----- ----------- ----- -----
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gain (loss) from redemption of
investment shares................................. 0 0 0 0 0
Capital gain distribution........................... 0 0 0 0 0
--
----- ----------- ----- -----
Net realized gain on investments.................... 0 0 0 0 0
Net unrealized appreciation (depreciation) on
investments during the period..................... 722 1,680 504 0 878
--
----- ----------- ----- -----
Net realized and unrealized gain (loss) on
investments....................................... 722 1,680 504 0 878
--
----- ----------- ----- -----
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.......................................... $ 713 $ 1,654 $ 495 $ 0 $ 866
--
--
----- ----------- ----- -----
----- ----------- ----- -----
<CAPTION>
OPPENHEIMER
OPPENHEIMER GROWTH AND OPPENHEIMER
GROWTH INCOME STRATEGIC BOND TOTAL
--------------- --------------- --------------- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends........................................... $ 0 $ 0 $ 0 $ 1,665
EXPENSE
Mortality and expense risk and administrative
charges........................................... 9 52 11 501
----- ------ ----- ---------
Net investment income (loss)........................ (9) (52) (11) 1,164
----- ------ ----- ---------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gain (loss) from redemption of
investment shares................................. 0 0 0 (3)
Capital gain distribution........................... 0 0 0 8,661
----- ------ ----- ---------
Net realized gain on investments.................... 0 0 0 8,658
Net unrealized appreciation (depreciation) on
investments during the period..................... 535 3,079 124 6,463
----- ------ ----- ---------
Net realized and unrealized gain (loss) on
investments....................................... 535 3,079 124 15,121
----- ------ ----- ---------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.......................................... $ 526 $ 3,027 $ 113 $ 16,285
----- ------ ----- ---------
----- ------ ----- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
VARIABLE ANNUITY ACCOUNT A OF PROTECTIVE LIFE
STATEMENT OF CHANGES IN ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PIC
PIC MONEY PIC GROWTH INTERNATIONAL PIC GLOBAL PIC SMALL PIC CORE US
MARKET AND INCOME EQUITY INCOME CAP VALUE EQUITY
--------- ----------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)........................ $ 31 $ 708 $ (11) $ 77 $ 43 $ 149
Net realized gain on investments.................... 4,950 284 95 1,773 354
Net unrealized appreciation (depreciation) of
investments during the period..................... 1 (4,660) 215 (129) (714) 1,592
--------- ----------- ------ ----------- ----------- -----------
Net increase in net assets resulting from
operations........................................ 32 998 488 43 1,102 2,095
--------- ----------- ------ ----------- ----------- -----------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contract owners' net payments....................... 20,000 61,988 4,824 3,704 13,063 27,690
Surrenders.......................................... (20,032) 0 0 0 0 0
Transfer (to) from other portfolios................. 0 8,860 717 0 717 4,558
--------- ----------- ------ ----------- ----------- -----------
Net increase (decrease) in net assets resulting from
variable annuity contract transactions............ (32) 70,848 5,541 3,704 13,780 32,248
--------- ----------- ------ ----------- ----------- -----------
Total increase in net assets........................ 0 71,846 6,029 3,747 14,882 34,343
NET ASSETS
Beginning of year................................... 0 0 0 0 0 0
--------- ----------- ------ ----------- ----------- -----------
End of year......................................... $ 0 $ 71,846 $ 6,029 $ 3,747 $ 14,882 $ 34,343
--------- ----------- ------ ----------- ----------- -----------
--------- ----------- ------ ----------- ----------- -----------
<CAPTION>
PIC CALVERT CALVERT
CAPITAL SOCIAL SMALL SOCIAL
GROWTH CAP GROWTH BALANCED
--------- ------------- -----------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)........................ $ 67 $ 0 $ 228
Net realized gain on investments.................... 640 0 562
Net unrealized appreciation (depreciation) of
investments during the period..................... 2,465 0 171
--
--------- -----------
Net increase in net assets resulting from
operations........................................ 3,172 0 961
--
--------- -----------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contract owners' net payments....................... 28,805 0 10,273
Surrenders.......................................... 0 0 0
Transfer (to) from other portfolios................. 4,559 0 0
--
--------- -----------
Net increase (decrease) in net assets resulting from
variable annuity contract transactions............ 33,364 0 10,273
--
--------- -----------
Total increase in net assets........................ 36,536 0 11,234
NET ASSETS
Beginning of year................................... 0 0 0
--
--------- -----------
End of year......................................... $ 36,536 $ 0 $ 11,234
--
--
--------- -----------
--------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
VARIABLE ANNUITY ACCOUNT A OF PROTECTIVE LIFE
STATEMENT OF CHANGES IN ASSETS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MFS
MFS GROWTH OPPENHEIMER
EMERGING MFS WITH MFS TOTAL AGGRESSIVE
GROWTH RESEARCH INCOME RETURN GROWTH
----------- ----------- --------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)......................... $ (9) $ (26) $ (9) $ 0 $ (12)
Net realized gain on investments..................... 0 0 0 0 0
Net unrealized appreciation (depreciation) of
investments during the period...................... 722 1,680 504 0 878
--
----------- ----------- --------- ------
Net increase in net assets resulting from
operations......................................... 713 1,654 495 0 866
--
----------- ----------- --------- ------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contract owners' net payments........................ 3,089 6,287 10,844 0 4,324
Surrenders........................................... 0 0 0 0 0
Transfer (to) from other portfolios.................. 0 100 0 0 1
--
----------- ----------- --------- ------
Net increase (decrease) in net assets resulting from
variable annuity contract
transactions....................................... 3,089 6,387 10,844 0 4,325
--
----------- ----------- --------- ------
Total increase in net assets......................... 3,802 8,041 11,339 0 5,191
NET ASSETS
Beginning of year.................................... 0 0 0 0 0
--
----------- ----------- --------- ------
End of year.......................................... $ 3,802 $ 8,041 $ 11,339 $ 0 $ 5,191
--
----------- ----------- --------- ------
<CAPTION>
OPPENHEIMER
OPPENHEIMER GROWTH AND OPPENHEIMER
GROWTH INCOME STRATEGIC BOND TOTAL
--------------- ------------- --------------- ---------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)......................... $ (9) $ (52) $ (11) $ 1,164
Net realized gain on investments..................... 0 0 0 8,658
Net unrealized appreciation (depreciation) of
investments during the period...................... 535 3,079 124 6,463
------ ------------- ------ ---------
Net increase in net assets resulting from
operations......................................... 526 3,027 113 16,285
------ ------------- ------ ---------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contract owners' net payments........................ 1,240 10,525 8,902 215,558
Surrenders........................................... 0 0 0 (20,032)
Transfer (to) from other portfolios.................. 1,434 4,559 0 25,505
------ ------------- ------ ---------
Net increase (decrease) in net assets resulting from
variable annuity contract
transactions....................................... 2,674 15,084 8,902 221,031
------ ------------- ------ ---------
Total increase in net assets......................... 3,200 18,111 9,015 237,316
NET ASSETS
Beginning of year.................................... 0 0 0 0
------ ------------- ------ ---------
End of year.......................................... $ 3,200 $ 18,111 $ 9,015 $ 237,316
------ ------------- ------ ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
VARIABLE ANNUITY ACCOUNT A OF PROTECTIVE LIFE
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Variable Annuity Account A of Protective Life (Separate Account) was
established by Protective Life and Annuity Insurance Company (PLAIC) on December
1, 1997, with sales beginning August 21, 1998. The Separate Account is an
investment account to which net proceeds from individual flexible premium
deferred variable annuity contracts (the Contracts) are allocated until maturity
or termination of the Contracts.
PLAIC has structured the Separate Account into a unit investment trust form
registered with the U.S. Securities and Exchange Commission under the Investment
Company Act of 1940, as amended. The Separate Account is comprised of seven
proprietary sub-accounts and ten independent sub-accounts. The seven proprietary
sub-accounts are the Money Market, Growth and Income, International Equity,
Global Income, Small Cap Value, Core US Equity, and Capital Growth sub-accounts.
Funds are transferred to Protective Investment Company (the Fund) in exchange
for shares of the corresponding portfolio of the Fund.
The ten independent sub-accounts are the Calvert Social Small Cap Growth,
Calvert Social Balanced, MFS Emerging Growth, MFS Research, MFS Growth with
Income, MFS Total Return, Oppenheimer Aggressive Growth, Oppenheimer Growth,
Oppenheimer Growth & Income, and Oppenheimer Strategic Bond sub-accounts. The
Fund invests contract owners' funds in exchange for shares in the independent
funds. The Fund then holds the shares for the contract owners.
Gross premiums from the Contracts are allocated to the sub-accounts in
accordance with contract owner instructions and are recorded as variable annuity
contract transactions in the statement of changes in net assets. Such amounts
are used to provide money to pay contract values under the Contracts (Note 4).
The Separate Account's assets are the property of PLAIC.
Contract owners may allocate some or all of gross premiums or transfer some
or all of the contract value to the Guaranteed Account, which is part of PLAIC's
General Account. The assets of PLAIC's General Account support its insurance and
annuity obligations and are subject to PLAIC's general liabilities from business
operations. The Guaranteed Account's value for the year ended December 31, 1998
was $531,751.
Transfers to/from other portfolios, included in the statement of changes in
net assets, are transfers between the individual sub-accounts and the
sub-accounts and the Guaranteed Account.
Pursuant to the terms of an agreement with PLAIC, Protective Life Insurance
Company administers the Contracts. 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.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION -- Investments are made in shares and are valued at the
net asset values of the respective portfolios. Transactions with the Funds are
recorded on the trade date. Dividend income is recorded on the ex-dividend date.
REALIZED GAINS AND LOSSES -- Realized gains and losses on investments
include gains and losses on redemptions of the Fund's shares (determined on the
last-in-first-out (LIFO) basis) and capital gain distributions from the Fund.
F-9
<PAGE>
VARIABLE ANNUITY ACCOUNT A OF PROTECTIVE LIFE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DIVIDEND INCOME AND CAPITAL GAIN DISTRIBUTIONS -- Dividend income and
capital gain distributions are recorded on the ex-dividend date. Distributions
are from net investment income and net realized gains recorded in the Investment
Company financials.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
various estimates that affect the reported amounts of assets and liabilities, at
the date of the financial statements, as well as the reported amounts of income
and expenses, during the reporting period. Actual results could differ from
those estimates.
FEDERAL INCOME TAXES -- The operation of the Separate Account is included in
the federal income tax return of PLAIC. Under the provisions of the Contracts,
PLAIC has the right to charge the Separate Account for federal income tax
attributable to the Separate Account. No charge is currently being made against
the Separate Account for such tax.
3. INVESTMENTS
At December 31, 1998, the investments by the respective sub-accounts were as
follows:
<TABLE>
<CAPTION>
SHARES COST MARKET VALUE
----------- ---------- ------------
<S> <C> <C> <C>
PIC Money Market.............................................................. $ 0 $ 0 $ 0
PIC Growth and Income......................................................... 5,107 76,505 71,846
PIC International Equity...................................................... 421 5,813 6,029
PIC Global Income............................................................. 352 3,875 3,747
PIC Small Cap Value........................................................... 1,719 15,596 14,882
PIC Core US Equity............................................................ 1,550 32,751 34,343
PIC Capital Growth............................................................ 1,751 34,071 36,536
Calvert Social Small Cap Growth............................................... 0 0 0
Calvert Social Balanced....................................................... 5,257 11,063 11,234
MFS Emerging Growth........................................................... 177 3,080 3,802
MFS Research.................................................................. 422 6,362 8,041
MFS Growth with Income........................................................ 564 10,835 11,339
MFS Total Return.............................................................. 0 0 0
Oppenheimer Aggressive Growth................................................. 116 4,312 5,191
Oppenheimer Growth............................................................ 87 2,665 3,200
Oppenheimer Growth and Income................................................. 884 15,033 18,111
Oppenheimer Strategic Bond.................................................... 1,761 8,892 9,015
----- ---------- ------------
$ 230,853 $ 237,316
---------- ------------
---------- ------------
</TABLE>
F-10
<PAGE>
VARIABLE ANNUITY ACCOUNT A OF PROTECTIVE LIFE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
During the year ended December 31, 1998, transactions in shares were as
follows:
<TABLE>
<CAPTION>
PIC
GROWTH PIC PIC SMALL PIC CALVERT
PIC MONEY AND INTERNATIONAL PIC GLOBAL CAP PIC CORE US CAPITAL SOCIAL SMALL
MARKET INCOME EQUITY INCOME VALUE EQUITY GROWTH CAP GROWTH
--------- --------- --------------- ----------- --------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares purchased..... 20,000 4,705 402 336 1,501 1,527 1,718 0
Shares received from
reinvestment of
dividends.......... 46 412 20 17 221 25 37 0
--
--------- --------- ------ ----------- --------- ----------- ---------
Total shares
acquired........... 20,046 5,117 422 353 1,722 1,552 1,755 0
Shares redeemed...... (20,046) (10) (1) (1) (3) (2) (4) 0
--
--------- --------- ------ ----------- --------- ----------- ---------
Net increase in
shares owned....... 0 5,107 421 352 1,719 1,550 1,751 0
Shares owned,
beginning of the
period............. 0 0 0 0 0 0 0 0
--
--------- --------- ------ ----------- --------- ----------- ---------
Shares owned, end of
period............. 0 5,107 421 352 1,719 1,550 1,751 0
--
--
--------- --------- ------ ----------- --------- ----------- ---------
--------- --------- ------ ----------- --------- ----------- ---------
Cost of shares
acquired........... $ 20,046 $ 76,646 $ 5,826 $ 3,884 $ 15,626 $ 32,804 $ 34,140 $ 0
--
--
--------- --------- ------ ----------- --------- ----------- ---------
--------- --------- ------ ----------- --------- ----------- ---------
Cost of shares
redeemed........... $ (20,046) $ (141) $ (13) $ (9) $ (30) $ (53) $ (69) $ 0
--
--
--------- --------- ------ ----------- --------- ----------- ---------
--------- --------- ------ ----------- --------- ----------- ---------
<CAPTION>
CALVERT
SOCIAL
BALANCED
-----------
<S> <C>
Shares purchased..... 4,885
Shares received from
reinvestment of
dividends.......... 383
-----------
Total shares
acquired........... 5,268
Shares redeemed...... (11)
-----------
Net increase in
shares owned....... 5,257
Shares owned,
beginning of the
period............. 0
-----------
Shares owned, end of
period............. 5,257
-----------
-----------
Cost of shares
acquired........... $ 11,086
-----------
-----------
Cost of shares
redeemed........... $ (23)
-----------
-----------
</TABLE>
During the year ended December 31, 1998, transactions in shares were as
follows (continued):
<TABLE>
<CAPTION>
MFS
MFS GROWTH OPPENHEIMER OPPENHEIMER
EMERGING MFS WITH MFS TOTAL AGGRESSIVE OPPENHEIMER GROWTH AND
GROWTH RESEARCH INCOME RETURN GROWTH GROWTH INCOME
----------- ----------- --------- ------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares purchased..... 177 423 564 0 116 87 887
Shares received from
reinvestment of
dividends.......... 0 0 0 0 0 0 0
--
----------- ----------- --------- ------ ------ -------------
Total shares
acquired........... 177 423 564 0 116 87 887
Shares redeemed...... 0 (1) 0 0 0 0 (3)
--
----------- ----------- --------- ------ ------ -------------
Net increase in
shares owned....... 177 422 564 0 116 87 884
Shares owned,
beginning of the
period............. 0 0 0 0 0 0 0
--
----------- ----------- --------- ------ ------ -------------
Shares owned, end of
period............. 177 422 564 0 116 87 884
--
--
----------- ----------- --------- ------ ------ -------------
----------- ----------- --------- ------ ------ -------------
Cost of shares
acquired........... $ 3,088 $ 6,386 $ 10,844 $ 0 $ 4,323 $ 2,673 $ 15,081
--
--
----------- ----------- --------- ------ ------ -------------
----------- ----------- --------- ------ ------ -------------
Cost of shares
redeemed........... $ (8) $ (24) $ (9) $ 0 $ (11) $ (8) $ (48)
--
--
----------- ----------- --------- ------ ------ -------------
----------- ----------- --------- ------ ------ -------------
<CAPTION>
OPPENHEIMER
STRATEGIC BOND
---------------
<S> <C>
Shares purchased..... 1,763
Shares received from
reinvestment of
dividends.......... 0
------
Total shares
acquired........... 1,763
Shares redeemed...... (2)
------
Net increase in
shares owned....... 1,761
Shares owned,
beginning of the
period............. 0
------
Shares owned, end of
period............. 1,761
------
------
Cost of shares
acquired........... $ 8,902
------
------
Cost of shares
redeemed........... $ (10)
------
------
</TABLE>
F-11
<PAGE>
VARIABLE ANNUITY ACCOUNT A OF PROTECTIVE LIFE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS
Contract owners' net payments represent premiums received from policyholders
less certain deductions made by PLAIC in accordance with the contract terms.
These deductions include, where appropriate, tax, surrender, mortality and
expense risk and administrative charges. These deductions are made to the
individual contracts in accordance with the terms governing each contract as set
forth in the contract.
The net assets of each sub-account of the Separate Account reflect the
investment management fees and other operating expenses incurred by the Funds.
PLAIC offers a loan privilege to contract owners. Contract owners may obtain
loans using the contract as the only security for the loan. Loans are subject to
provisions of The Internal Revenue Code of 1986, as amended, and to applicable
retirement program rules. There were no loans outstanding as of December 31,
1998.
5. SUBSEQUENT EVENTS
Protective Life has announced plans to liquidate the PIC Money Market
account and replace it with the Oppenheimer Money Fund in 1999.
In 1999, the Oppenheimer Growth Fund and the Oppenheimer Growth and Income
Fund names will be changed to Oppenheimer Capital Appreciation and Oppenheimer
Main Street Growth and Income, respectively.
Additionally, six sub-accounts will be added to the Separate Account. These
sub-accounts are MFS New Discovery, MFS Utilities, Oppenheimer Global
Securities, Oppenheimer High Income, Van Eck Worldwide Hard Assets, and Van Eck
Worldwide Real Estate. Sales will begin in the sub-accounts in 1999.
F-12
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants.................................................... F-14
Consolidated Statements of Income for the years ended December 31, 1998, 1997, and
1996............................................................................... F-15
Consolidated Balance Sheets as of December 31, 1998 and 1997......................... F-16
Consolidated Statements of Stockholder's Equity for the years ended December 31,
1998, 1997, and 1996............................................................... F-17
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997,
and 1996........................................................................... F-18
Notes to Consolidated Financial Statements........................................... F-19
Financial Statement Schedules:
Schedule III -- Supplementary Insurance Information................................ S-1
Schedule IV -- Reinsurance......................................................... S-2
</TABLE>
All other schedules to the consolidated financial statements required by
Article 7 of Regulation S-X are not required under the related instructions or
are inapplicable and therefore have been omitted.
F-13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Share Owners
Protective Life and Annuity Insurance Company
(formerly American Foundation Life Insurance Company)
Birmingham, Alabama
In our opinion, the consolidated financial statements of Protective Life and
Annuity Insurance Company and Subsidiaries (the "Company") listed in the index
on page F1 of this Form N-4 present fairly, in all material respects, the
consolidated financial position of the Company at December 31, 1998 and 1997,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules listed in the index on page F1 of this Form N-4
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements. These
financial statements and financial statement schedules are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
February 11, 1999
Birmingham, Alabama
F-14
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES
Premiums and policy fees.......................................... $ 23,242,432 $ 11,420,914 $ 12,226,202
Reinsurance ceded................................................. (13,475,288) (3,005,081) (2,768,199)
------------- ------------- -------------
Net of reinsurance ceded.......................................... 9,767,144 8,415,833 9,458,003
Net investment income............................................. 10,678,166 6,233,845 6,611,489
Realized investment gains......................................... 127,769 (59,889) (28,070)
Other income...................................................... (598) 8,718 2,406
------------- ------------- -------------
20,572,481 14,598,507 16,043,828
------------- ------------- -------------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded:
1998--$18,523,397; 1997--$4,430,527; 1996-- $4,031,931)......... 9,261,000 9,075,762 9,675,240
Amortization of deferred policy acquisition costs................. 1,711,138 320,288 346,710
Other operating expenses (net of reinsurance ceded:
1998--$247,095; 1997--$60,900; 1996-$75,843).................... 6,246,819 2,406,314 2,361,076
------------- ------------- -------------
17,218,957 11,802,364 12,383,026
------------- ------------- -------------
INCOME BEFORE INCOME TAX............................................ 3,353,524 2,796,143 3,660,802
------------- ------------- -------------
INCOME TAX EXPENSE (BENEFIT)
Current........................................................... 548,581 1,743,864
Deferred.......................................................... 938,986 402,108 (499,191)
------------- ------------- -------------
938,986 950,689 1,244,673
------------- ------------- -------------
NET INCOME.......................................................... 2,414,538 1,845,454 2,416,129
PREFERRED STOCK DIVIDENDS........................................... 100,000 100,000 100,000
------------- ------------- -------------
INCOME AVAILABLE TO COMMON SHARE OWNER.............................. $ 2,314,538 $ 1,745,454 $ 2,316,129
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See notes to financial statements.
F-15
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at market (amortized cost: 1998-$346,561,571;
1997-$67,110,502)................................................................ $360,113,277 $ 68,201,559
Mortgage loans on real estate...................................................... 7,900,221 10,902,986
Investment real estate, net of accumulated depreciation (1997-$93,376)............. 407,624
Policy loans....................................................................... 54,103,044 11,635,376
Short-term investments............................................................. 18,267,431 873,844
------------ ------------
Total investments................................................................ 440,383,973 92,021,389
Cash................................................................................. 2,218,201
Accrued investment income............................................................ 7,597,305 1,230,529
Accounts and premiums receivable, net of allowance for uncollectible amounts
(1998-$7,000; 1997-$7,000)......................................................... 673,967 1,233,659
Reinsurance receivables.............................................................. 22,405,337 7,680,586
Deferred policy acquisition costs.................................................... 133,275,451 1,692,285
Other assets......................................................................... 55,968 70,809
Assets related to separate accounts
Variable annuity................................................................... 237,565
------------ ------------
$604,629,566 $106,147,458
------------ ------------
------------ ------------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits and claims.................................................. $439,842,102 $ 56,254,682
Unearned premiums.................................................................. 2,487,277 463,232
------------ ------------
442,329,379 56,717,914
Annuity deposits..................................................................... 3,434,342 929,124
Other policyholders' funds........................................................... 12,143,006 12,080,458
Other liabilities.................................................................... 7,941,276 8,964,653
Deferred income taxes................................................................ 7,305,381 2,005,168
Liabilities related to separate accounts
Variable annuity................................................................... 237,565
------------ ------------
Total liabilities................................................................ 473,390,949 80,697,317
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES -- NOTE F
SHARE-OWNERS' EQUITY
Preferred Stock, $1.00 par value, shares authorized, issued and outstanding: 2,000... 2,000 2,000
Common Stock, $10.00 par value
Shares authorized: 1998-500,000; 1997-200,000
Shares issued and outstanding: 1998-250,000; 1997-200,000.......................... 2,500,000 2,000,000
Additional paid-in capital........................................................... 101,574,516 6,200,000
Retained earnings.................................................................... 18,353,492 16,538,954
Accumulated other comprehensive income
Net unrealized gains on investments (net of income tax: 1998-$4,743,097;
1997-$381,870)................................................................... 8,808,609 709,187
------------ ------------
Total share-owners' equity....................................................... 131,238,617 25,450,141
------------ ------------
$604,629,566 $106,147,458
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
F-16
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF SHARE-OWNERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL NET UNREALIZED
PREFERRED COMMON PAID-IN GAINS (LOSSES) RETAINED
STOCK STOCK CAPITAL ON INVESTMENTS EARNINGS
----------- ----------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995.......................... $ 2,000,000 $ 4,202,000 $ 923,193 $ 15,477,371
Net income for 1996............................... 2,416,129
Decrease in net unrealized gains on investments
(net of income tax: ($748,368))................. (1,389,826)
Reclassification adjustment for amounts included
in net income (net of income tax: $9,824)....... 18,246
Comprehensive income for 1996.....................
Redemption feature of preferred stock
removed--Note H................................. $ 2,000 1,998,000
Common dividends ($15 per share).................. (3,000,000)
Preferred dividends ($50 per share)............... (100,000)
----------- ----------- ------------- --------------- ------------
Balance, December 31, 1996.......................... 2,000 2,000,000 6,200,000 (448,387) 14,793,500
Net income for 1997............................... 1,845,454
Increase in net unrealized gains on investments
(net of income tax: $602,348)................... 1,118,646
Reclassification adjustment for amounts included
in net income (net of income tax: $20,961)...... 38,928
Comprehensive income for 1997.....................
Preferred dividends ($50 per share)............... (100,000)
----------- ----------- ------------- --------------- ------------
Balance, December 31, 1997.......................... 2,000 2,000,000 6,200,000 709,187 16,538,954
Net income for 1998............................... 2,414,538
Increase in net unrealized gains on investments
(net of income tax--$4,405,946)................. 8,182,472
Reclassification adjustment for amounts included
in net income (net of income tax: ($44,719)).... (83,050)
Comprehensive income for 1998.....................
Common stock dividend (50,000 shares)............. 500,000 (500,000)
Preferred dividends ($50 per share)............... (100,000)
Capital contribution from Protective.............. 95,374,516
----------- ----------- ------------- --------------- ------------
Balance, December 31, 1998.......................... $ 2,000 $ 2,500,000 $ 101,574,516 $ 8,808,609 $ 18,353,492
----------- ----------- ------------- --------------- ------------
----------- ----------- ------------- --------------- ------------
<CAPTION>
TOTAL
SHARE-OWNERS'
EQUITY
--------------
<S> <C>
Balance, December 31, 1995.......................... $ 22,602,564
--------------
Net income for 1996............................... 2,416,129
Decrease in net unrealized gains on investments
(net of income tax: ($748,368))................. (1,389,826)
Reclassification adjustment for amounts included
in net income (net of income tax: $9,824)....... 18,246
--------------
Comprehensive income for 1996..................... 1,044,549
--------------
Redemption feature of preferred stock
removed--Note H................................. 2,000,000
Common dividends ($15 per share).................. (3,000,000)
Preferred dividends ($50 per share)............... (100,000)
--------------
Balance, December 31, 1996.......................... 22,547,113
--------------
Net income for 1997............................... 1,845,454
Increase in net unrealized gains on investments
(net of income tax: $602,348)................... 1,118,646
Reclassification adjustment for amounts included
in net income (net of income tax: $20,961)...... 38,928
--------------
Comprehensive income for 1997..................... 3,003,028
--------------
Preferred dividends ($50 per share)............... (100,000)
--------------
Balance, December 31, 1997.......................... 25,450,141
--------------
Net income for 1998............................... 2,414,538
Increase in net unrealized gains on investments
(net of income tax--$4,405,946)................. 8,182,472
Reclassification adjustment for amounts included
in net income (net of income tax: ($44,719)).... (83,050)
--------------
Comprehensive income for 1998..................... 10,513,960
--------------
Common stock dividend (50,000 shares).............
Preferred dividends ($50 per share)............... (100,000)
Capital contribution from Protective.............. 95,374,516
--------------
Balance, December 31, 1998.......................... $131,238,617
--------------
--------------
</TABLE>
See notes to financial statements.
F-17
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------
1998 1997 1996
-------------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................................... $ 2,414,538 $ 1,845,454 $ 2,416,129
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred policy acquisition costs................ 1,711,138 320,288 346,710
Capitalization of deferred policy acquisition costs.............. (783,304)
Deferred income taxes............................................ 938,986 1,025,417 (499,191)
Interest credited to universal life and investment products...... 2,422,680 1,059,710 1,111,034
Policy fees assessed on universal life and investment products... (1,004,958) (1,048,883) (1,179,765)
Change in accrued investment income and other receivables........ (19,671,587) 2,020,726 (6,955)
Change in policy liabilities and other policyholder funds of
traditional life and health products........................... 84,738,359 (8,576,735) (1,612,231)
Change in receivable from Protective Life Insurance Company...... 24,817,851
Change in other liabilities...................................... (1,023,377) 200,205 (2,294,791)
Other (net)...................................................... 14,841 (79,787) (326,038)
-------------- ------------ ------------
Net cash provided by (used in) operating activities.................. 69,757,316 (3,233,605) 22,772,753
-------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reduction of investments:
Investments available for sale................................... 1,164,896,631 135,907,273 98,454,653
Other............................................................ 3,018,788 3,661,121 1,545,594
Sale of investments:
Investment available for sale.................................... 210,129,485 4,386,839 46,567,425
Other............................................................ 435,000 400,000
Cost of investments acquired:
Investments available for sale................................... (1,371,973,391) (139,609,229) (165,042,338)
Other............................................................ (310,000)
-------------- ------------ ------------
Net cash provided by (used in) investing activities.................. 6,506,513 4,346,004 (18,384,666)
-------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to share owners.......................................... (100,000) (100,000) (3,100,000)
Investment product deposits and change in universal life
deposits......................................................... (78,382,030) (368,379) (723,167)
-------------- ------------ ------------
Net cash used in financing activities................................ (78,482,030) (468,379) (3,823,167)
-------------- ------------ ------------
INCREASE (DECREASE) IN CASH.......................................... (2,218,201) 644,020 564,920
CASH AT BEGINNING OF YEAR............................................ 2,218,201 1,574,181 1,009,261
-------------- ------------ ------------
CASH AT END OF YEAR.................................................. $ 0 $ 2,218,201 $ 1,574,181
-------------- ------------ ------------
-------------- ------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Income taxes..................................................... $ 350,000 $ 548,581 $ 1,830,301
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Acquisitions and bulk reinsurance assumptions
Assets acquired.................................................. $ 247,894,180
Liabilities assumed.............................................. (380,405,180)
--------------
Net.............................................................. $ (132,511,000)
--------------
--------------
</TABLE>
See notes to financial statements.
F-18
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements of Protective Life and Annuity
Insurance Company ("the Company") are prepared on the basis of generally
accepted accounting principles. Such accounting principles differ from statutory
reporting practices used by insurance companies in reporting to state regulatory
authorities. (See also Note B.)
The Company was founded in 1978 as American Foundation Life Insurance
Company. Effective March 1, 1999, the Company's name was changed to Protective
Life and Annuity Insurance Company. Since 1983, all outstanding shares of the
Company's common stock have been owned by Protective Life Insurance Company
("Protective"), which is a wholly-owned subsidiary of Protective Life
Corporation ("PLC"), an insurance holding company domiciled in the state of
Delaware. All outstanding shares of the Company's preferred stock are owned by
PLC.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make various estimates
that affect the reported amounts of assets and liabilities, disclosures of
contingent assets and liabilities, as well as the reported amounts of revenues
and expenses.
NATURE OF OPERATIONS
The Company, since it is licensed in the State of New York, is the entity
through which PLC markets, distributes, and services insurance and annuity
products in New York. The operating results of companies in the insurance
industry have historically been subject to significant fluctuations due to
competition, economic conditions, interest rates, investment performance,
maintenance of insurance ratings, and other factors.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1997, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities;" SFAS No. 130, "Reporting Comprehensive
Income;" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information."
The adoption of these accounting standards did not have a material effect on
the Company's financial statements.
INVESTMENTS
The Company has classified all of its investments in fixed maturities and
short-term investments as "available for sale."
Investments are reported on the following bases less allowances for
uncollectible amounts on investments, if applicable:
- Fixed maturities (bonds and redeemable preferred stocks) -- at current
market value.
- Mortgage loans on real estate -- at unpaid balances, adjusted for loan
origination costs, net of fees, and amortization of premium or discount.
F-19
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- Investment real estate -- at cost, less allowances for depreciation
computed on the straight-line method. With respect to real estate acquired
through foreclosure, cost is the lesser of the loan balance plus
foreclosure costs or appraised value.
- Policy loans -- at unpaid balances.
- Short-term investments -- at cost, which approximates current market
value.
Substantially all short-term investments have maturities of three months or
less at the time of acquisition.
As prescribed by SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," certain investments are recorded at their market values
with the resulting unrealized gains and losses, net of income tax, reported as a
component of share-owners' equity. The market values of fixed maturities
increase or decrease as interest rates fall or rise. Therefore, although the
adoption of SFAS No. 115 does not affect the Company's operations, its reported
share-owners' equity will fluctuate significantly as interest rates change.
The Company's balance sheets at December 31, prepared on the basis of
reporting investments at amortized cost rather than at market values, are as
follows:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Total investments............................................ $ 426,832,267 $ 90,930,332
Deferred policy acquisition costs............................ 133,275,451 1,692,285
All other assets............................................. 30,970,142 12,433,784
-------------- --------------
$ 591,077,860 $ 105,056,401
-------------- --------------
-------------- --------------
Deferred income taxes........................................ $ 2,562,284 $ 1,623,298
All other liabilities........................................ 466,085,568 78,692,149
-------------- --------------
468,647,852 80,315,447
Share-owners' equity......................................... 122,430,008 24,740,954
-------------- --------------
$ 591,077,860 $ 105,056,401
-------------- --------------
-------------- --------------
</TABLE>
Realized gains and losses on sales of investments are recognized in net
income using the specific identification basis.
CASH
Cash includes all demand deposits reduced by the amount of outstanding
checks and drafts.
SEPARATE ACCOUNTS
The assets and liabilities related to separate accounts in which the Company
does not bear the investment risk are valued at market and reported separately
in the accompanying financial statements.
REVENUES AND BENEFITS EXPENSE
F-20
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- Traditional Life and Health Insurance Products -- Traditional life
insurance products consist principally of those products with fixed and
guaranteed premiums and benefits and include whole life insurance
policies, term and term-like life insurance policies, limited-payment life
insurance policies, and certain annuities with life contingencies. Life
insurance and immediate annuity premiums are recognized as revenue when
due. Health insurance premiums are recognized as revenue over the terms of
the policies. Benefits and expenses are associated with earned premiums so
that profits are recognized over the life of the contracts. This is
accomplished by means of the provision for liabilities for future policy
benefits and the amortization of deferred policy acquisition costs.
Liabilities for future policy benefits on traditional life insurance
products have been computed using a net level method including assumptions
as to investment yields, mortality, persistency, and other assumptions
based on the Company's experience modified as necessary to reflect
anticipated trends and to include provisions for possible adverse
deviation. Reserve investment yield assumptions are graded and range from
2.5% to 7.0%. The liability for future policy benefits and claims on
traditional life and health insurance products includes estimated unpaid
claims that have been reported to the Company and claims incurred but not
yet reported. Policy claims are charged to expense in the period that the
claims are incurred.
Activity in the liability for unpaid claims is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Balance beginning of year........................... $ 3,724,904 $ 5,008,998 $ 3,862,708
Less reinsurance.................................. 203,199 801,709 370,612
------------ ------------ ------------
Net balance beginning of year....................... 3,521,705 4,207,289 3,492,096
------------ ------------ ------------
Incurred related to:
Current year........................................ 7,178,869 5,947,439 6,293,400
Prior year.......................................... (173,472) (331,984) (153,466)
------------ ------------ ------------
Total incurred.................................... 7,005,397 5,615,455 6,139,934
------------ ------------ ------------
Paid related to:
Current year........................................ 5,904,526 4,913,958 4,883,873
Prior year.......................................... 1,026,981 1,387,081 540,868
------------ ------------ ------------
Total paid........................................ 6,931,507 6,301,039 5,424,741
------------ ------------ ------------
Net balance end of year............................. 3,595,595 3,521,705 4,207,289
Plus reinsurance.................................. 494,064 203,199 801,709
------------ ------------ ------------
Balance end of year................................. $ 4,089,659 $ 3,724,904 $ 5,008,998
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
- Universal Life and Investment Products -- Universal life and investment
products include universal life insurance, deferred annuities, and
annuities without life contingencies. Revenues for universal life and
investment products consist of policy fees that have been assessed against
policy account balances for the costs of insurance, policy administration,
and surrenders. That is, universal life and investment product deposits
are not considered revenues in accordance with
F-21
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
generally accepted accounting principles. Benefit reserves for universal
life and investment products represent policy account balances before
applicable surrender charges plus certain deferred policy initiation fees
that are recognized in income over the term of the policies. Policy
benefits and claims that are charged to expense include benefit claims
incurred in the period in excess of related policy account balances and
interest credited to policy account balances. Interest credit rates for
universal life and investment products ranged from 3.4% to 9.4% in 1998.
The Company's accounting policies with respect to variable annuities are
identical except that policy account balances (excluding account balances
that earn a fixed rate) are valued at market and reported as components of
assets and liabilities related to separate accounts.
DEFERRED POLICY ACQUISITION COSTS
Commissions and other costs of acquiring traditional life and health
insurance, universal life insurance, and investment products that vary with and
are primarily related to the production of new business have been deferred.
Traditional life and health insurance acquisition costs are being amortized over
the premium-payment period of' the related policies in proportion to the ratio
of annual premium income to total anticipated premium income. Acquisition costs
for universal life and investment products are amortized over the lives of the
policies in relation to the present value of estimated gross profits before
amortization. Under SFAS No. 97, "Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and for Realized Gains and
Losses from the Sale of Investments," the Company makes certain assumptions
regarding the mortality, persistency, expenses, and interest rates it expects to
experience in future periods. These assumptions are to be best estimates and are
to be periodically updated whenever actual experience and/or expectations for
the future change from that assumed.
The cost to acquire blocks of insurance representing the present value of
future profits from such blocks of insurance is also included in deferred policy
acquisition costs. The Company amortizes the present value of future profits
over the premium payment period, including accrued interest of approximately
5.75%. The unamortized present value of future profits was approximately $131.2
million at December 31, 1998. During 1998, $132.5 million of present value of
future profits on acquisitions made during the year was capitalized and $1.3
million was amortized.
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Income tax provisions are generally based on income reported for
financial statement purposes. Deferred federal income taxes arise from the
recognition of temporary differences between the bases of assets and liabilities
determined for financial reporting purposes and the bases determined for income
tax purposes. Such temporary differences are principally related to the deferral
of policy acquisition costs and the provision for future policy benefits and
expenses.
RECLASSIFICATIONS
Certain reclassification s have been made in the previously reported
financial statements and accompanying notes to make the prior year amounts
comparable to those of the current year. Such reclassifications had no effect on
net income, total assets, or share-owners' equity.
F-22
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE B -- RECONCILIATION WITH STATUTORY REPORTING PRACTICES
Financial statements prepared in conformity with generally accepted
accounting principles ("GAAP") differ in some respects from the statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. The most Significant differences are: (a) acquisition costs of
obtaining new business are deferred and amortized over the approximate life of
the policies rather than charged to operations as incurred, (b) benefit
liabilities are computed using a net level method and are based on realistic
estimates of expected mortality, interest, and withdrawals as adjusted to
provide for possible unfavorable deviation from such assumptions, (c) deferred
income taxes are provided for temporary differences between financial and
taxable earnings, (d) the Asset Valuation Reserve and Interest Maintenance
Reserve are restored to share-owners' equity, (e) agents' debit balances and
prepaid expenses are reported as assets rather than being charged directly to
surplus (referred to as nonadmitted items), (f) certain items of interest
income, principally accrual of mortgage and bond discounts are amortized
differently, and (g) bonds are stated at market instead of amortized cost.
The reconciliations of net income and share-owners' equity prepared in
conformity with statutory reporting practices to that reported in the
accompanying consolidated financial statements are as follows:
<TABLE>
<CAPTION>
NET INCOME SHAREOWNER'S EQUITY
---------------------------------------- --------------------------------------------
1998 1997 1996 1998 1997 1996
------------ ------------ ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
In conformity with statutory
reporting practices: ........ $ 5,365,091 $ 2,794,015 $ 2,558,227 $ 26,256,416 $ 20,467,722 $ 18,031,163
Additions (deductions) by
adjustment:
Deferred policy acquisition
costs, net of
amortization............... (1,711,138) (320,288) (346,710) 133,275,451 1,692,285 1,919,471
Deferred income tax........ (938,986) 402,108 499,191 (7,305,381) (2,005,168) (979,751)
Asset Valuation Reserve.... 1,334,584 730,240 560,732
Interest Maintenance
Reserve.................. (82,982) (85,826) (89,611) 460,059 161,051 285,805
Nonadmitted items.......... 15,671 10,431 7,090
Other timing and valuation
adjustments.............. (217,447) (944,555) (204,968) (22,798,183) 4,393,580 2,722,603
------------ ------------ ------------ -------------- ------------- -------------
In conformity with generally
accepted accounting
principles................... $ 2,414,538 $ 1,845,454 $ 2,416,129 $ 131,238,617 $ 25,450,141 $ 22,547,113
------------ ------------ ------------ -------------- ------------- -------------
------------ ------------ ------------ -------------- ------------- -------------
</TABLE>
F-23
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE C -- INVESTMENT OPERATIONS
Major categories of net investment income for the years ended December 31
are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Fixed maturities.................................. $ 7,525,336 $ 4,701,611 $ 4,708,490
Mortgage loans on real estate..................... 952,437 1,146,325 1,431,687
Investment real estate............................ 72,318 65,584 73,756
Policy loans...................................... 656,623 643,653 752,828
Other, principally short-term investments......... 2,083,693 112,127 160,644
------------- ------------ ------------
11,290,407 6,669,300 7,127,405
Investment expenses............................... (612,241) (435,455) (515,916)
------------- ------------ ------------
$ 10,678,166 $ 6,233,845 $ 6,611,489
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
Realized investment gains (losses) for the years ended December 31 are
summarized as follows:
<TABLE>
<S> <C> <C> <C>
Fixed maturities.............................. $ 87,677 $ (59,889) $ 22,247
Mortgage loans and other investments.......... 40,092 0 (50,317)
--------- --------- ---------
$ 127,769 $ (59,889) $ (28,070)
--------- --------- ---------
--------- --------- ---------
</TABLE>
In 1998, the Company established an allowance for uncollectible amounts on
investments totaling $500,000 at December 31, 1998. Additions and reductions to
the allowance are included in realized investment gains (losses). Without such
additions/reductions, the Company had net realized investment gains of $627,769
in 1998.
In 1998, gross gains on the sale of investments available for sale (fixed
maturities and short-term investments) were approximately $600,000 and gross
losses were approximately $500,000. In 1997, gross gains were approximately
$10,000 and gross losses were approximately $70,000. In 1996, gross gains were
approximately $20,000.
F-24
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
The amortized cost and estimated market values of the Company's investments
classified as available for sale at December 31 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
1998 COST GAINS LOSSES MARKET VALUES
- --------------------------------------------------- -------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed................................ $ 6,488,768 $ 204,235 $ 6,693,003
United States Government and authorities....... 8,731,486 474,109 9,205,595
States, municipalities, and political
subdivisions................................. 3,075,631 105,159 3,180,790
Public utilities............................... 54,040,814 1,380,112 $ 12,869 55,408,057
Convertibles and bonds with warrants........... 694,723 179,348 515,375
All other corporate bonds...................... 273,530,149 12,673,749 1,093,441 285,110,457
-------------- ------------- ------------ --------------
346,561,571 14,837,364 1,285,658 360,113,277
Short-term investments............................. 18,267,431 18,267,431
-------------- ------------- ------------ --------------
$ 364,829,002 $ 14,837,364 $ 1,285,658 $ 378,380,708
-------------- ------------- ------------ --------------
-------------- ------------- ------------ --------------
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
1997 COST GAINS LOSSES MARKET VALUES
- --------------------------------------------------- -------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed................................ $ 11,348,224 $ 348,395 $ 11,696,619
United States Government and authorities....... 8,746,050 242,265 $ 4,982 8,983,333
Public utilities............................... 9,228,405 198,255 5,441 9,421,219
Convertibles and bonds with warrants........... 694,485 0 168,610 525,875
All other corporate bonds...................... 37,093,338 572,155 90,980 37,574,513
-------------- ------------- ------------ --------------
67,110,502 1,361,070 270,013 68,201,559
Short-term investments............................. 873,844 0 0 873,844
-------------- ------------- ------------ --------------
$ 67,984,346 $ 1,361,070 $ 270,013 $ 69,075,403
-------------- ------------- ------------ --------------
-------------- ------------- ------------ --------------
</TABLE>
F-25
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
The amortized cost and estimated market values of fixed maturities at
December 31, by expected maturity, are shown below. Expected maturities are
derived from rates of prepayment that may differ from actual rates of
prepayment.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
1998 COST MARKET VALUES
- ------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Due in one year or less...................................... $ 28,436,528 $ 28,618,945
Due after one year through five years........................ 178,463,434 185,885,380
Due after five years through ten years....................... 78,858,516 83,976,562
Due after ten years.......................................... 60,803,093 61,632,390
-------------- --------------
$ 346,561,571 $ 360,113,277
-------------- --------------
-------------- --------------
<CAPTION>
AMORTIZED ESTIMATED
1997 COST MARKET VALUES
- ------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Due in one year or less...................................... $ 2,171,455 $ 2,177,160
Due after one year through five years........................ 27,762,163 28,202,077
Due after five years through ten years....................... 34,516,587 35,136,758
Due after ten years.......................................... 2,660,297 2,685,564
-------------- --------------
$ 67,110,502 $ 68,201,559
-------------- --------------
-------------- --------------
</TABLE>
The approximate percentage distribution of the Company's fixed maturity
investments by quality rating at December 31 is as follows:
<TABLE>
<CAPTION>
RATING 1998 1997
- ---------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
AAA......................................................................... 4.4% 26.8%
AA.......................................................................... 6.7 1.7
A........................................................................... 43.7 24.3
BBB......................................................................... 43.1 37.4
BB or Less.................................................................. 2.1 9.8
--------- ---------
100.0% 100.0%
--------- ---------
--------- ---------
</TABLE>
At December 31, 1998 and 1997, the Company had bonds which were rated less
than investment grade of $7.7 million and $6.7 million, respectively, having an
amortized cost of $7.8 million and $6.8 million, respectively.
The change in unrealized gains (losses), net of income tax on fixed
maturities for the years ended December 31 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -------------
<S> <C> <C> <C>
Fixed maturities................................... $ 8,099,422 $ 1,157,574 $ (1,371,579)
</TABLE>
At December 31, 1998, approximately 99% of the Company's mortgage loans were
commercial loans of which 51% were retail, and 48% were office buildings. The
Company specializes in making mortgage loans on either credit-oriented or
credit-anchored commercial properties, most of which are strip shopping centers
in smaller towns and cities. No single tenant's leased space represents more
than
F-26
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
10% of mortgage loans. All of the mortgage loans are on properties located in
the following states listed in decreasing order of significance: Alabama,
Tennessee, Florida, Colorado, Georgia, Texas and Arkansas.
Many of the mortgage loans have call provisions after three to ten years.
Assuming the loans are called at their next call dates, approximately $0.5
million would become due in 2000 to 2003.
At December 31, 1998, the average mortgage loan was $0.5 million, and the
weighted average interest rate was 9.2%. The largest single mortgage loan was
$1.9 million.
At December 31, 1998, the Company had no problem mortgage loans or
foreclosed properties. At December 31, 1997, the Company's problem mortgage
loans and foreclosed properties totaled $0.4 million. Since the Company's
mortgage loans are collateralized by real estate, any assessment of impairment
is based upon the estimated fair value of the real estate. Based on the
Company's evaluation of its mortgage loan portfolio, the Company does not expect
any material losses on its mortgage loans.
Policy loan interest rates generally range from 4.5% to 8.0%.
NOTE D -- FEDERAL INCOME TAXES
The Company's effective income tax rate varied from the maximum federal
income tax rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory federal income tax rate applied to pretax income......... 35.00% 35.00% 35.00%
Tax-exempt interest................................................ (3.98) (7.20) (7.33)
Other adjustments.................................................. (3.02) 6.20 6.33
--------- --------- ---------
Effective income tax rate.......................................... 28.00% 34.00% 34.00%
--------- --------- ---------
--------- --------- ---------
</TABLE>
The provision for federal income tax differs from amounts currently payable
due to certain items reported for financial statement purposes in periods which
differ from those in which they are reported for income tax purposes.
Details of the deferred income tax provision for the years ended December 31
are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ----------- -------------
<S> <C> <C> <C>
Deferred policy acquisition costs................. $ 14,616,912 $ (100,971) $ (530,008)
Benefit and other policy liability changes........ (11,991,104) (72,878) 1,698,144
Temporary differences of investment income........ 398,620 (199,660) (208,432)
Other items....................................... (2,085,442) 775,617 (1,458,895)
-------------- ----------- -------------
$ 938,986 $ 402,108 $ (499,191)
-------------- ----------- -------------
-------------- ----------- -------------
</TABLE>
F-27
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE D -- FEDERAL INCOME TAXES (CONTINUED)
The components of the Company's net deferred income tax liability as of
December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Deferred income tax assets:
Policy and policyholder liability reserves..................... $ 12,392,740 $ 401,636
Deferred policy acquisition costs.............................. 195,580
------------- ------------
12,392,740 597,216
------------- ------------
Deferred income tax liabilities:
Unrealized gain on investments................................. 5,276,789 516,942
Other.......................................................... 2,085,442
Deferred policy acquisition costs.............................. 14,421,332
------------- ------------
19,698,121 2,602,384
------------- ------------
Net deferred income tax liability................................ $ 7,305,381 $ 2,005,168
------------- ------------
------------- ------------
</TABLE>
The Company's income tax returns are included in the consolidated income tax
returns of PLC. The allocation of income tax liabilities among affiliates is
based upon separate income tax return calculations. At December 31, 1998 and
1997 no amounts were payable to PLC for income tax liabilities.
NOTE E -- RECENT ACQUISITIONS
In October 1998, the Company coinsured a block of life insurance policies
from Lincoln National Corporation. The policies represent the payroll deduction
business originally marketed and underwritten by Aetna.
This transaction has been accounted for as a purchase, and the result of
this transaction has been included in the accompanying financial statements
since the effective date of the agreement.
NOTE F -- COMMITMENTS AND CONTINGENT LIABILITIES
Under insurance guaranty fund laws, in most states, insurance companies
doing business therein can be assessed up to prescribed limits for policyholder
losses incurred by insolvent companies. The Company does not believe such
assessments will be materially different from amounts already provided for in
the financial statements. Most of these laws do provide, however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
A number of civil jury verdicts have been returned against insurers in the
jurisdictions in which the Company does business involving the insurers' sales
practices, alleged agent misconduct, failure to properly supervise agents, and
other matters. Increasingly these lawsuits have resulted in the award of
substantial judgments against the insurer that are disproportionate to the
actual damages, including material amounts of punitive damages. In addition, in
some class action and other lawsuits involving insurers' sales practices,
insurers have made material settlement payments. In some states (including
Alabama), juries have substantial discretion in awarding punitive damages which
creates the potential for unpredictable material adverse judgments in any given
punitive damage suit. The Company, like
F-28
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE F -- COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
other insurers, in the ordinary course of business, are involved in such
litigation or alternatively in arbitration. Although the outcome of any
litigation or arbitration cannot be predicted with certainty, the Company
believes that at the present time there are no pending or threatened lawsuits
that are reasonably likely to have a material adverse effect on the financial
position, results of operations, or liquidity of the Company.
NOTE G -- SHARE-OWNERS' EQUITY AND RESTRICTIONS
Dividends on common stock are noncumulative and are paid as determined by
the Board of Directors. At December 31, 1998, approximately $101.3 million of
share-owners' equity excluding net unrealized gains and losses represented net
assets of the Company that cannot be transferred in the form of dividends,
loans, or advances to Protective. In general, dividends up to specified levels
are considered ordinary and may be paid thirty days after written notice to the
insurance commissioner of the state of domicile unless such commissioner objects
to the dividend prior to the expiration of such period. Dividends in larger
amounts are considered extraordinary and are subject to affirmative prior
approval by such commissioner. The maximum amount that would qualify as ordinary
dividends to Protective by the Company in 1999 is estimated to be $5.1 million.
During 1998 Protective made a capital contribution of $95,374,516 consisting
of corporate bonds.
NOTE H -- PREFERRED STOCK
Prior to November 1998, the Company's preferred stock had a provision for an
annual minimum cumulative dividend, when and if declared, of $50.00 per share,
and additional dividends to the extent the Company's statutory earnings for the
immediately preceding year exceeded $1.0 million. The minimum dividend and any
accumulation was to be paid before any dividend on any other class of capital
stock was paid. The additional dividends were noncumulative and were in
preference to any other dividend on any other class of capital stock. Dividends
of $100,000 were declared and paid in each of 1998, 1997 and 1996 on the
preferred stock. As of December 31, 1998, all cumulative preferred dividends
have been paid. Effective November 3, 1998, the Company's articles of
incorporation were amended such that the provision for an annual minimum
cumulative dividend was removed.
During 1996, the Company's articles of incorporation were amended such that
the preferred stock is redeemable at $1,000 per share solely at the Company's
discretion. At December 31, 1995, the preferred stock was reported as
"Redeemable Preferred Stock", whereas at December 31, 1996, it is reported as a
component of share-owners' equity.
NOTE I -- RELATED PARTY MATTERS
The Company has no employees; therefore, the Company purchases data
processing, legal, investment, and other management services from PLC and other
affiliates. The cost of such services was $1.2 million in 1998, $1.2 million in
1997, and $1.4 million in 1996.
Receivables from related parties consisted of receivables from affiliates
under control of PLC in the amount of $287,629 at December 31, 1998 and $183,009
at December 31, 1997. The Company routinely receives from or pays to affiliates
under the control of PLC reimbursements for expenses incurred on one another's
behalf. Receivables and payables among affiliates are generally settled monthly.
F-29
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE J -- OPERATING SEGMENTS
PLC, through its subsidiaries, operates seven divisions whose principal
strategic focuses can be grouped into three general categories: Life Insurance,
Specialty Insurance Products, and Retirement Savings and Investment Products.
Each division has a senior officer of Protective responsible for its operations.
A division is generally distinguished by products and/or channels of
distribution. A brief description of each division the Company operates in
follows.
LIFE INSURANCE
ACQUISITIONS DIVISION. The Acquisitions Division focuses solely on
acquiring, converting, and servicing policies acquired from other companies.
These acquisitions may be accomplished through acquisitions of companies or
through the assumption or reinsurance of life insurance and related policies.
SPECIALTY INSURANCE PRODUCTS
DENTAL AND CONSUMER BENEFITS DIVISION. The Division's primary focus is on
indemnity and prepaid dental products. In 1997, the Division exited from the
traditional group major medical business, fulfilling the Division's strategy to
focus primarily on dental and related products.
FINANCIAL INSTITUTIONS DIVISION. The Financial Institutions Division
specializes in marketing credit life and disability insurance products through
banks, consumer finance companies and automobile dealers. The Division also
includes a small property casualty insurer that sells automobile service
contracts.
RETIREMENT SAVINGS AND INVESTMENT PRODUCTS
INVESTMENT PRODUCTS DIVISION. The Investment Products Division
manufactures, sells, and supports fixed and variable annuity products. These
products are primarily sold through stockbrokers, but are also sold through
financial institutions and the Individual Life Division's agency sales force.
CORPORATE AND OTHER
The Company has an additional business segment herein referred to as
Corporate and Other. The Corporate and Other segment primarily consists of net
investment income and expenses not attributable to the Divisions above
(including net investment income on capital).
The Company uses the same accounting policies and procedures to measure
operating segment income and assets as it uses to measure its consolidated net
income and assets. Operating segment income is generally income before income
tax. Premiums and policy fees, other income, benefits and settlement expenses,
and amortization of deferred policy acquisition costs are attributed directly to
each operating segment. Net investment income is allocated based on directly
related assets required for transacting the business of that segment. Realized
investment gains (losses) and other operating expenses are allocated to the
segments in a manner which most appropriately reflects the operations of that
segment. Unallocated realized investment gains (losses) are deemed not to be
associated with any specific segment.
Assets are allocated based on policy liabilities and deferred policy
acquisition costs directly attributable to each segment.
There are no significant intersegment transactions.
F-30
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE J -- OPERATING SEGMENTS (CONTINUED)
Operating segment income and assets for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
DENTAL AND
CONSUMER FINANCIAL INVESTMENT CORPORATE TOTAL NET
OPERATING SEGMENT INCOME ACQUISITIONS BENEFITS INSTITUTIONS PRODUCTS & OTHER ADJUSTMENTS(1) INCOME
----------- ----------- ----------- ----------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
Premiums and policy fees.......... $7,414,597 $1,503,364 $ 848,682 $ 501 $9,767,144
Net investment income............. 11,071,366 718,492 136,472 $(1,248,164) 10,678,166
Realized investment gains
(losses)........................ 127,769 127,769
Other income...................... (598) (598)
----------- ----------- ----------- ----------- ---------- -------------- ----------
Total revenues.................. 18,485,963 2,221,856 985,154 (97) (1,120,395) 20,572,481
----------- ----------- ----------- ----------- ---------- -------------- ----------
Benefits and settlement
expenses........................ 7,594,508 1,340,838 316,900 8,754 9,261,000
Amortization of deferred policy
acquisition costs............... 1,535,385 175,753 1,711,138
Other operating expenses.......... 5,947,115 144,257 105,307 50,140 6,246,819
----------- ----------- ----------- ----------- ---------- -------------- ----------
Total benefits and expenses..... 15,077,008 1,485,095 597,960 58,894 17,218,957
----------- ----------- ----------- ----------- ---------- -------------- ----------
Income before income tax.......... 3,408,955 736,761 387,194 (58,991) (1,120,395) 3,353,524
Income tax expense................ $ 938,986 938,986
----------- ----------- ----------- ----------- ---------- -------------- ----------
Net income........................ $2,414,538
----------- ----------- ----------- ----------- ---------- -------------- ----------
----------- ----------- ----------- ----------- ---------- -------------- ----------
1997
Premiums and policy fees.......... $4,231,380 $4,158,505 $ 25,948 $8,415,833
Net investment income............. 4,590,650 1,026,054 $ 617,141 6,233,845
Realized investment gains
(losses)........................ (59,889) (59,889)
Other income...................... 8,718 8,718
----------- ----------- ----------- ----------- ---------- -------------- ----------
Total revenues.................. 8,830,748 5,184,559 25,948 557,252 14,598,507
----------- ----------- ----------- ----------- ---------- -------------- ----------
Benefits and settlement
expenses........................ 5,984,374 3,080,800 10,588 9,075,762
Amortization of deferred policy
acquisition costs............... 312,874 7,414 320,288
Other operating expenses.......... 912,398 1,493,916 2,406,314
----------- ----------- ----------- ----------- ---------- -------------- ----------
Total benefits and expenses..... 7,209,646 4,574,716 18,002 11,802,364
----------- ----------- ----------- ----------- ---------- -------------- ----------
Income before income tax.......... 1,621,102 609,843 7,946 557,252 2,796,143
Income tax expense................ $ 950,689 950,689
----------- ----------- ----------- ----------- ---------- -------------- ----------
Net income........................ $1,845,454
----------- ----------- ----------- ----------- ---------- -------------- ----------
----------- ----------- ----------- ----------- ---------- -------------- ----------
1996
Premiums and policy fees.......... $4,540,107 $4,917,896 $9,458,003
Net investment income............. 5,569,799 1,049,427 $ (7,737) 6,611,489
Realized investment gains
(losses)........................ (28,070) (28,070)
Other income...................... 2,406 2,406
----------- ----------- ----------- ----------- ---------- -------------- ----------
Total revenues.................. 10,112,312 5,967,323 (35,807) 16,043,828
----------- ----------- ----------- ----------- ---------- -------------- ----------
Benefits and settlement
expenses........................ 5,813,515 3,861,725 9,675,240
Amortization of deferred policy
acquisition costs............... 346,710 346,710
Other operating expenses.......... 855,442 1,505,634 2,361,076
----------- ----------- ----------- ----------- ---------- -------------- ----------
Total benefits and expenses..... 7,015,667 5,367,359 12,383,026
----------- ----------- ----------- ----------- ---------- -------------- ----------
Income before income tax.......... 3,096,645 599,964 (35,807) 3,660,802
Income tax expense................ $1,244,673 1,244,673
----------- ----------- ----------- ----------- ---------- -------------- ----------
Net income........................ $2,416,129
----------- ----------- ----------- ----------- ---------- -------------- ----------
----------- ----------- ----------- ----------- ---------- -------------- ----------
</TABLE>
- ---------------
(1) Adjustments represent the recognition of income tax expense. There are no
asset adjustments.
F-31
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE J -- OPERATING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
DENTAL AND
CONSUMER FINANCIAL INVESTMENT CORPORATE TOTAL
ACQUISITIONS BENEFITS INSTITUTIONS PRODUCTS & OTHER ASSETS
----------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING SEGMENT ASSETS
1998
Investments and other assets....... $434,928,613 $6,642,241 $2,658,668 $ 774,504 $26,350,089 $471,354,115
Deferred policy acquisition
costs............................ 132,582,526 692,925 133,275,451
----------- ---------- ----------- ----------- ---------- -----------
Total assets....................... $567,511,139 $6,642,241 $3,351,593 $ 774,504 $26,350,089 $604,629,566
----------- ---------- ----------- ----------- ---------- -----------
----------- ---------- ----------- ----------- ---------- -----------
1997
Investments and other assets....... $76,644,539 $7,111,880 $20,698,754 $104,455,173
Deferred policy acquisition
costs............................ 1,606,596 $ 85,689 1,692,285
----------- ---------- ----------- ----------- ---------- -----------
Total assets....................... $78,251,135 $7,111,880 $ 85,689 $20,698,754 $106,147,458
----------- ---------- ----------- ----------- ---------- -----------
----------- ---------- ----------- ----------- ---------- -----------
1996
Investments and other assets....... $78,189,386 $12,870,675 $17,974,564 $109,034,625
Deferred policy acquisition
costs............................ 1,919,471 1,919,471
----------- ---------- ----------- ----------- ---------- -----------
Total assets....................... $80,108,857 $12,870,675 $17,974,564 $110,954,096
----------- ---------- ----------- ----------- ---------- -----------
----------- ---------- ----------- ----------- ---------- -----------
</TABLE>
NOTE K -- REINSURANCE
The Company assumes risks from and reinsures certain parts of its risks with
other insurers under yearly renewable term, coinsurance, and modified
coinsurance agreements. Yearly renewable term and coinsurance agreements are
accounted for by passing a portion of the risk to the reinsurer. Generally, the
reinsurer receives a proportionate part of the premiums less commissions and is
liable for a corresponding part of all benefit payments. Modified coinsurance is
accounted for similarly to coinsurance except that the liability for future
policy benefits is held by the original company, and settlements are made on a
net basis between the companies.
The Company has reinsured approximately $7.6 billion, $133 million, and $163
million in face amount of life insurance risks with other insurers representing
$12.6 million, $0.7 million, and $0.9 million of premium income for 1998, 1997,
and 1996, respectively. The Company has also reinsured accident and health risks
representing $0.9 million, $2.3 million, and $1.9 million of premium income for
1998, 1997, and 1996, respectively. In 1998 and 1997, policy and claim reserves
relating to insurance ceded of $21.9 million and $7.5 million respectively are
included in reinsurance receivables. Should any of the reinsurers be unable to
meet its obligation at the time of the claim, obligation to pay such claim would
remain with the Company. At December 31, 1998 and 1997, the Company had paid
$0.5 million and $0.2 million, respectively, of ceded benefits which are
recoverable from reinsurers.
F-32
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE L -- ESTIMATED MARKET VALUES OF FINANCIAL INSTRUMENTS
The carrying amount and estimated market values of the Company's financial
instruments at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ ----------------------
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNT VALUES AMOUNT VALUES
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Assets (see Notes A and C):
Investments:
Fixed maturities...................... $360,113,277 $360,113,277 $67,110,502 $68,201,559
Mortgage loans on real estate......... 7,900,221 8,511,779 10,902,986 11,649,144
Short-term investments................ 18,267,431 18,267,431 873,844 873,844
Cash.................................... 0 0 2,218,201 2,218,201
Liabilities (see Notes A):
Annuity deposits...................... 3,434,342 3,406,010 929,124 929,124
</TABLE>
Except as noted below, fair values were estimated using quoted market
prices.
The Company estimates the fair value of its mortgage loans using discounted
cash flows from the next call date. The Company believes the fair value of its
short-term investments approximates book value due to being short-term. The
Company estimates the fair value of its annuities using surrender values. The
Company believes it is not practicable to determine the fair value of its policy
loans since there is no stated maturity, and policy loans are often repaid by
reductions to policy benefits.
F-33
<PAGE>
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F COL. G COL. H
- --------------------------------- ------------ ------------ ---------- ------------- ---------- ----------- -----------
ANNUITY
DEFERRED FUTURE DEPOSITS AND BENEFITS
POLICY POLICY OTHER PREMIUMS NET AND
ACQUISITION BENEFITS AND UNEARNED POLICYHOLDERS' AND POLICY INVESTMENT SETTLEMENT
SEGMENT COSTS CLAIMS PREMIUMS FUNDS FEES INCOME (1) EXPENSES
- --------------------------------- ------------ ------------ ---------- ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1998:
Life Insurance Acquisitions...... $132,582,526 $439,215,364 $ 54,170 $ 8,600,060 $7,414,597 $11,071,366 $7,594,508
Specialty Insurance Products
Dental and Consumer Benefits... 172,903 189 6,445,537 1,503,364 718,492 1,340,838
Financial Institutions......... 692,925 213,835 2,432,918 848,682 136,472 316,900
Retirement Savings and Investment
Products
Investment Products............ 240,000 531,751 501 8,754
Corporate and Other.............. (1,248,164)
------------ ------------ ---------- ------------- ---------- ----------- -----------
TOTAL........................ $133,275,451 $439,842,102 $2,487,277 $15,577,348 $9,767,144 $10,678,166 $9,261,000
------------ ------------ ---------- ------------- ---------- ----------- -----------
------------ ------------ ---------- ------------- ---------- ----------- -----------
Year Ended December 31, 1997:
Life Insurance Acquisitions...... $ 1,606,596 $ 56,177,703 $ 463,232 $ 6,048,563 $4,231,380 $ 4,590,650 $5,984,374
Specialty Insurance Products
Dental and Consumer Benefits... 0 76,979 0 6,961,019 4,158,505 1,026,054 3,080,800
Financial Institutions......... 85,689 25,948 10,588
Corporate and Other.............. 0 0 0 0 0 617,141 0
------------ ------------ ---------- ------------- ---------- ----------- -----------
TOTAL........................ $ 1,692,285 $ 56,254,682 $ 463,232 $13,009,582 $8,415,833 $ 6,233,845 $9,075,762
------------ ------------ ---------- ------------- ---------- ----------- -----------
------------ ------------ ---------- ------------- ---------- ----------- -----------
Year Ended December 31, 1996:
Life Insurance Acquisitions...... $ 1,919,471 $ 59,483,455 $ 182,499 $ 6,028,180 $4,540,107 $ 5,569,799 $5,813,515
Specialty Insurance Products
Dental and Consumer Benefits... 0 76,979 0 12,891,670 4,917,896 1,049,427 3,861,725
Corporate and Other.............. 0 0 0 0 0 (7,737) 0
------------ ------------ ---------- ------------- ---------- ----------- -----------
TOTAL........................ $ 1,919,471 $ 59,560,434 $ 182,499 $18,919,850 $9,458,003 $ 6,611,489 $9,675,240
------------ ------------ ---------- ------------- ---------- ----------- -----------
------------ ------------ ---------- ------------- ---------- ----------- -----------
<CAPTION>
COL. A COL. I COL. J
- --------------------------------- ------------ ------------
AMORTIZATION
OF DEFERRED
POLICY OTHER
ACQUISITION OPERATING
SEGMENT COSTS EXPENSES (1)
- --------------------------------- ------------ ------------
<S> <C> <C>
Year Ended December 31, 1998:
Life Insurance Acquisitions...... $1,535,385 $5,947,115
Specialty Insurance Products
Dental and Consumer Benefits... 144,257
Financial Institutions......... 175,753 105,307
Retirement Savings and Investment
Products
Investment Products............ 50,140
Corporate and Other..............
------------ ------------
TOTAL........................ $1,711,138 $6,246,819
------------ ------------
------------ ------------
Year Ended December 31, 1997:
Life Insurance Acquisitions...... $ 312,874 $ 912,398
Specialty Insurance Products
Dental and Consumer Benefits... 0 1,493,916
Financial Institutions......... 7,414
Corporate and Other.............. 0 0
------------ ------------
TOTAL........................ $ 320,288 $2,406,314
------------ ------------
------------ ------------
Year Ended December 31, 1996:
Life Insurance Acquisitions...... $ 346,710 $ 855,442
Specialty Insurance Products
Dental and Consumer Benefits... 0 1,505,634
Corporate and Other.............. 0 0
------------ ------------
TOTAL........................ $ 346,710 $2,361,076
------------ ------------
------------ ------------
</TABLE>
(1) Allocations of Net Investment Income and Other Operating Expenses are based
on a number of assumptions and estimates and results would change if
different methods were applied.
S-1
<PAGE>
SCHEDULE IV -- REINSURANCE
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
- ------------------------------------------ --------- ---------- ---------- --------- -----------
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED TO
AMOUNT COMPANIES COMPANIES AMOUNT NET
--------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1998:
Life insurance in force (1)............. $ 282,331 $7,575,418 $7,914,524 $ 621,337 1,273.8%
--------- ---------- ---------- --------- -----------
--------- ---------- ---------- --------- -----------
Premiums and policy fees:
Life insurance.......................... $4,195,074 $12,616,610 $17,462,742 $9,041,206 193.1%
Accident and health insurance........... 1,542,679 858,678 41,937 725,938 5.8%
--------- ---------- ---------- ---------
TOTAL................................... $5,737,753 $13,475,288 $17,504,679 $9,767,144
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
Year Ended December 31, 1997:
Life insurance in force (1)............. $ 229,717 $ 133,080 $ 367,176 $ 463,813 79.2%
--------- ---------- ---------- --------- -----------
--------- ---------- ---------- --------- -----------
Premiums and policy fees:
Life insurance.......................... $2,926,434 $ 752,253 $2,124,374 $4,298,555 49.4%
Accident and health insurance........... 6,325,182 2,252,828 44,924 4,117,278 1.2%
--------- ---------- ---------- ---------
TOTAL................................... $9,251,616 $3,005,081 $2,169,298 $8,415,833
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
Year Ended December 31, 1996:
Life insurance in force (1)............. $ 247,048 $ 169,330 $ 549,583 $ 627,301 87.6%
--------- ---------- ---------- --------- -----------
--------- ---------- ---------- --------- -----------
Premiums and policy fees:
Life insurance.......................... $3,222,836 $ 910,593 $2,698,743 $5,010,986 53.9%
Accident and health insurance........... 6,245,784 1,857,606 58,839 4,447,017 1.3%
--------- ---------- ---------- ---------
TOTAL................................... $9,468,620 $2,768,199 $2,757,582 $9,458,003
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
</TABLE>
- -------------
(1) Dollars in thousands
S-2
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
All required financial statements are included in Part A and Part B of this
Registration Statement.
(b) Exhibits:
<TABLE>
<C> <S>
1. Resolution of the Board of Directors of Protective Life and Annuity Insurance Company
(formerly American Foundation Life Insurance Company) authorizing establishment of the
Variable Annuity Separate Account A of Protective Life (formerly American Foundation
Variable Annuity Separate Account A)*
2. Not applicable
3. (a) Form of Underwriting Agreement among the Company, the Account and Investment
Distributors, Inc.**
(b) Form of Distribution Agreement between Investment Distributors, Inc. and
broker/dealers**
4. (a) Form of Individual Flexible Premium Deferred Variable and Fixed Annuity Contract**
(b) Qualified Retirement Plan Endorsement*
(c) Individual Retirement Annuity Endorsement*
(d) Tax Sheltered Annuity Endorsement*
5. Form of Contract Applications**
6. (a) Certificate of Incorporation of the Company.*
(b) By-Laws of the Company.*
7. Not applicable
8. (a) Participation/Distribution Agreement (Protective Investment Company)**
Form of service agreement between Protective Life Insurance Company and the Company
(b) Participation Agreement (Oppenheimer Variable Account Funds)**
(c) Participation Agreement (MFS Variable Insurance Trust)**
(d) Participation Agreement (Calvert Variable Series Portfolios)*
(e) Participation Agreement (Van Eck Worldwide Insurance Trust)
9. Opinion and Consent of Steve M. Callaway, Esq.
10. (a) Consent of Sutherland, Asbill & Brennan, LLP
(b) Consent of PricewaterhouseCoopers LLP
11. No financial statements will be omitted from Item 23
12. Not applicable
13. Not applicable
14. Powers of Attorney
</TABLE>
- ------------
* Incorporated herein by reference to the initial filing of the Form N-4
Registration Statement, (File No. 333-41577) filed with the Commission on
December 5, 1997.
C-1
<PAGE>
** Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form N-4 Registration Statement (File No. 333-41577) filed with the
Commission on April 15, 1998.
ITEM 25. DIRECTORS AND OFFICERS OF DEPOSITOR.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS POSITION AND OFFICES WITH DEPOSITOR
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Drayton Nabers, Jr. Director
John D. Johns Director
Wayne E. Stuenkel President and Chief Actuary, and Director
R. Stephen Briggs Executive Vice President, and Director
Jim E. Massengale Executive Vice President, Acquisitions, and Director
Carolyn King Senior Vice President, Investment Products, and Director
Deborah J. Long Senior Vice President, General Counsel, Secretary, and
Director
Steven A. Schultz Senior Vice President, Financial Institutions, and
Director
A.S. Williams, III Executive Vice President, Investments, Treasurer, and
Director
J. Russell Bailey, Jr. Vice President, Dental and Consumer Benefits
Danny L. Bentley Senior Vice President, Dental and Consumer Benefits, and
Director
Richard J. Bielen Senior Vice President, Investments, and Director
Jerry W. DeFoor Vice President and Controller
Brent E. Fritz Vice President, Individual Life Product Development
James T. Helton III Vice President and Actuary, Dental and Consumer Benefits
T. Michael Presley Vice President and Actuary, Financial Institutions
David C. Stevens Vice President, Operations, Dental and Consumer Benefits
Carl S. Thigpen Vice President, Investments and Assistant Secretary
</TABLE>
- ------------
* Unless otherwise indicated, principal business address is 2801 Highway 280
South, Birmingham, Alabama 35223.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR AND
REGISTRANT
The registrant is a segregated asset account of the Company and is therefore
owned and controlled by the Company. All of the Company's outstanding voting
common stock is owned by Protective Life Corporation. Protective Life
Corporation is described more fully in the prospectus included in this
registration statement. Various companies and other entities controlled by
Protective Life Corporation may therefore be considered to be under common
control with the registrant or the Company. Such other companies and entities,
together with the identity of their controlling persons (where applicable), are
set forth in Exhibit 21 to Form 10-K of Protective Life Corporation for the
fiscal year ended December 31, 1998 (File No. 1-12332) filed with the Commission
on March 25, 1999.
C-2
<PAGE>
ITEM 27. NUMBER OF CONTRACTOWNERS.
As of the date of this filing, there were 52 contract owners of individual
flexible premium deferred variable and fixed annuity contracts offered by
Registrant.
ITEM 28. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article XI of the By-laws of the Company provides, in substance, that any of
the Company's directors and officers, who is a party or is threatened to be made
a party to any action, suit or proceeding, other than an action by or in the
right of the Company, by reason of the fact that he is or was an officer or
director, shall be indemnified by the Company against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such claim, action, suit
or proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Company and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. If the claim, action or suit is or was by or in the right
of the Company to procure a judgment in its favor, such person shall be
indemnified by the Company against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company, except
that no indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Company unless and only to the
extent that the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper. To the extent
that a director or officer has been successful on the merits or otherwise in
defense of any such action, suit or proceeding, or in defense of any claim,
issue or matter therein, he shall be indemnified by the Company against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith, not withstanding that he has not been successful on any
other claim issue or matter in any such action, suit or proceeding. Unless
ordered by a court, indemnification shall be made by the Company only as
authorized in the specific case upon a determination that indemnification of the
officer or director is proper in the circumstances because he has met the
applicable standard of conduct Such determination shall be made (a) by the Board
of Directors by a majority vote of a quorum consisting of directors who were not
parties to, or who have been successful on the merits or otherwise with respect
to, such claim action, suit or proceeding, or (b) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion or (c) by the
shareholders.
In addition, the executive officers and directors are insured by PLC's
Directors' and Officers' Liability Insurance Policy including Company
Reimbursement and are indemnified by a written contract with PLC which
supplements such coverage.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
C-3
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITER.
(a) Investment Distributors, Inc. ("IDI") is the principal underwriter of
the Contracts as defined in the Investment Company Act of 1940. IDI is
also principal underwriter for the Fund and for the Variable Annuity
Separate Account A of Protective Life.
(b) The following information is furnished with respect to the officers and
directors of Investment Distributors, Inc.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
BUSINESS ADDRESS* POSITION AND OFFICES POSITION AND OFFICES WITH REGISTRANT
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Briggs, Robert Stephen President, Chief Executive Officer, Executive Vice President Director
and Director
A.S. Williams, III Vice President Executive Vice President,
Investments, Treasurer, Director
Ballard, Michael B. Director None
Merrill, Lawrence G. Director None
King, Carolyn Secretary, Compliance Officer Senior Vice President, Investment
Products and Director
Callaway, Steve M. Director None
Janet Summey Assistant Secretary Assistant Vice President, Investment
Products
Bonnie Miller Assistant Secretary None
</TABLE>
- ------------
* Unless otherwise indicated, principal business address is 2801 Highway 280
South, Birmingham, Alabama, 35223.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts and records required to be maintained by Section 31(c) of the
Investment Company Act of 1940 and the rules thereunder are maintained by
Protective Life Insurance Company at 2801 Highway 280 South, Birmingham, Alabama
35223.
ITEM 31. MANAGEMENT SERVICES.
All management contracts are discussed in Part A or Part B.
ITEM 32. UNDERTAKINGS.
(a) Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never
more than sixteen (16) months old for so long as payments under the
variable annuity contracts may be accepted.
(b) Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space
that an applicant can check to request a Statement of Additional
Information, or (2) a postcard or similar written communication affixed
to or included in the Prospectus that the applicant can remove to send
for a Statement of Additional Information; and
(c) Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available
under this Form promptly upon written or oral request.
C-4
<PAGE>
(d) The Company represents that in connection with its offering of the
Contracts as funding vehicles for retirement plans meeting the
requirements of Section 403(b) of the Internal Revenue Code of 1986, it
is relying on a no-action letter dated November 28, 1988, to the
American Council of Life Insurance (Ref. No. IP-6-88) regarding Sections
22(e), 27(c)(1), and 27(d) of the Investment Company Act of 1940, and
that paragraphs numbered (1) through (4) of that letter will be complied
with.
(e) Protective Life hereby represents that the fees and charges deducted
under the Contract, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks
assumed by Protective Life.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets the
requirement of Securities Act Rule 485(b) for effectiveness of this registration
statement and has duly caused the amendment to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Birmingham, State of Alabama on April 30, 1999.
<TABLE>
<S> <C> <C>
VARIABLE ANNUITY ACCOUNT A OF PROTECTIVE LIFE
By: /s/ WAYNE E. STUENKEL
------------------------------------------
Wayne E. Stuenkel, PRESIDENT
PROTECTIVE LIFE AND ANNUITY INSURANCE
COMPANY (FORMERLY AMERICAN FOUNDATION LIFE
INSURANCE COMPANY)
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
(FORMERLY AMERICAN FOUNDATION LIFE INSURANCE
COMPANY)
By: /s/ WAYNE E. STUENKEL
------------------------------------------
Wayne E. Stuenkel, PRESIDENT
PROTECTIVE LIFE AND ANNUITY INSURANCE
COMPANY
</TABLE>
As required by the Securities Act of 1933, the amendment to this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ WAYNE E. STUENKEL President and Director
- ------------------------------ (Principal Executive April 30, 1999
Wayne E. Stuenkel Officer)
Vice President
/s/ JERRY DEFOOR (Principal Financial
- ------------------------------ Officer and Principal April 30, 1999
Jerry Defoor Accounting Officer)
*
- ------------------------------ Director April 30, 1999
R. Stephen Briggs
*
- ------------------------------ Director April 30, 1999
Jim E. Massengale
*
- ------------------------------ Director April 30, 1999
Wayne E. Stuenkel
*
- ------------------------------ Director April 30, 1999
A.S. Williams III
*
- ------------------------------ Director April 30, 1999
Steven A. Schultz
*
- ------------------------------ Director April 30, 1999
Deborah J. Long
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ Director April 30, 1999
Carolyn King
*
- ------------------------------ Director April 30, 1999
Richard J. Bielen
*
- ------------------------------ Director April 30, 1999
Danny L. Bentley
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ STEVE CALLAWAY
-------------------------
Steve Callaway
ATTORNEY-IN-FACT
</TABLE>
C-7
<PAGE>
PARTICIPATION AGREEMENT
Among
VAN ECK WORLDWIDE INSURANCE TRUST
VAN ECK SECURITIES CORPORATION
VAN ECK ASSOCIATES CORPORATION
and
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
THIS AGREEMENT, made and entered into to be effective on May 1, 1999, by
and among Protective Life and Annuity Insurance Company, (hereinafter the
"Company"), an ALABAMA corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto and
incorporated herein by this reference, as such Schedule A may from time to time
be amended by mutual written agreement of the parties hereto (each such account
hereinafter referred to as the "Account"), and VAN ECK WORLDWIDE INSURANCE
TRUST, an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts (hereinafter the "Fund"), VAN ECK SECURITIES
CORPORATION (hereinafter the "Underwriter"), a Delaware corporation and VAN ECK
ASSOCIATES CORPORATION (hereinafter the "Adviser"), a Delaware corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(hereafter referred to collectively as the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter the "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each representing the interest in a particular managed portfolio of
securities and other assets (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission (hereinafter the "SEC") (File No. 811-5083), granting Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding Order");
and
WHEREAS, the Fund is registered as an open-end management investment
company
Page 1
<PAGE>
under the 1940 Act and its shares are registered under the Securities Act of
1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Company has registered or will register certain variable life
insurance and variable annuity contracts (the "Contracts") under the 1933 Act,
unless such contracts are exempt from registration thereunder; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable life insurance and
variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act, unless such Account is exempt from
registration thereunder; and
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter the "NASD"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940 and any applicable state securities law; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund, the Underwriter and the Adviser agree as follows:
ARTICLE I
SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of the
Portfolios (which are listed on Schedule B attached hereto and incorporated
herein by this reference, as such Schedule B may from time to time be amended by
mutual written agreement of the parties hereto) which each Account orders,
executing such orders on a daily basis at the net asset value per share next
computed after receipt by the Fund or its designee of the order for the shares
of the Portfolios subject to the terms and conditions of this Agreement. For
purposes of this Section 1.1, the Company shall be the designee of the Fund for
receipt of such orders from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
order by 10:00 a.m., Eastern time, on the next following Business Day; however,
the company undertakes to use its best efforts to provide such notice to the
Fund by no later than 9:30 a.m. Eastern time. "Business Day" shall mean any day
on which the New York Stock
Page 2
<PAGE>
Exchange is open for business and on which the Fund calculates the Portfolios'
net asset values pursuant to the rules of the SEC.
1.2. The Fund agrees to make Portfolio shares available for purchase at
the applicable net asset value per share by the Company and its Accounts on
those days on which the Fund calculates net asset values pursuant to the rules
of the SEC and the Fund shall use reasonable efforts to calculate such net asset
values on each day on which the New York Stock Exchange is open for trading.
Notwithstanding the foregoing, the Board of Trustees of the Fund (hereinafter
the "Board") may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of shares of any Portfolio, if such action is
required by law or by regulatory authorities having jurisdiction, or if it is,
in the sole discretion of the Board, acting in good faith and in light of its
fiduciary duties under Federal and any applicable state laws, in the best
interests of the shareholders of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts or
other accounts (e.g., qualified retirement plans) as may be permitted so that
the Variable Insurance Products continue to qualify as a "life insurance,
annuity or variable contract" under Section 817(h) of the Internal Revenue Code
of 1986, as amended (hereinafter the "Code"). No shares of any Portfolio will
be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company, separate account or other account unless an agreement
containing provisions substantially the same as Article I, Section 2.5 of
Article II, Sections 3.4 and 3.5 of Article III, Article V and Article VII of
this Agreement is in effect to govern such sales.
1.5. Subject to its rights under Section 18(f) of the 1940 Act, the
Fund agrees to redeem for cash, on the Company's request, any full or fractional
shares of a Portfolio held by the Company, executing such requests on a daily
basis at the net asset value per share next computed after receipt by the Fund
or its designee of the request for redemption. For purposes of this Section 1.5,
the Company shall be the designee of the Fund for receipt of requests for
redemption from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives notice of such request for
redemption by 10:00 a.m., Eastern Time, on the next following Business Day;
however, the Company undertakes to use its best efforts to provide such notice
to the Fund by no later than 9:30 a.m. Eastern time. Payment of redemption
proceeds for any whole or fractional shares shall be made within seven days of
actual receipt of the redemption request by the Fund, or within such greater or
lesser period as may be permitted by law or rule, regulation, interpretive
position or order of the SEC; provided that if the Fund does not pay for the
Fund shares that are redeemed on the next Business Day after a request to redeem
shares is made, then the Fund shall apply any such delay in redemptions
uniformly to all holders of shares of that Portfolio. Payment shall be in
federal funds transmitted by wire pursuant to the instructions of the Company or
by a credit toward any shares purchased on the Business Day on which the
redemption payment is made.
Page 3
<PAGE>
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then-current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Company agrees that all
net amounts available in the Accounts which are listed in Schedule A attached
hereto and incorporated herein by this reference, as such Schedule A may from
time to time be amended by mutual written agreement of the parties hereto, shall
be invested in the Portfolios and in such other funds advised by the Adviser as
are listed in Schedule B, or in the Company's general account; provided that
such amounts may also be invested in an investment company other than the Fund
if (a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of the Portfolios of the Fund listed on Schedule B to
this Agreement; or (b) the Company gives the Fund and the Underwriter 45 days'
written notice of its intention to make such other investment company available
as a funding vehicle for the Contracts; or (c) such other investment company was
available as a funding vehicle for the Contracts prior to the date of this
Agreement and the Company so informs the Fund and Underwriter prior to their
signing this Agreement (a list of such funds appearing on Schedule C to this
Agreement); or (d) the Fund or Underwriter consents in writing to the use of
such other investment company.
1.7. The Company shall pay for Portfolio shares on the next Business
Day after an order to purchase such shares is made in accordance with the
provisions of this Article I. Payment shall be in federal funds transmitted by
wire or by a credit for any shares redeemed. For purposes of Sections 2.10 and
2.11, upon receipt by the Fund of the federal funds so wired, such funds shall
cease to be the responsibility of the Company and shall become the
responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income dividends or
capital gain distributions payable on the Portfolios' shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated, and shall use its
best efforts to make such net asset value per share available by 6:30 p.m.,
Eastern Time. If the Fund provides materially incorrect share net asset value
information, the Fund shall make an adjustment to the number of shares purchased
or redeemed for the Accounts to reflect the correct net asset value per share.
Any material error in the calculation or reporting of net asset value per share,
dividend or capital gains information shall be reported promptly upon discovery
to the Company.
Page 4
<PAGE>
Page 5
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act or exempt therefrom; that the Contracts will be
issued and sold in compliance in all material respects with all applicable
federal and state laws and that the sale of the Contracts shall comply in all
material respects with state insurance suitability requirements. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under the Insurance Code and Regulations of the State of
TENNESSEE, and has registered or, prior to any issuance or sale of the
Contracts, will, unless exempt from registration, register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts.
2.2. Subject to Article IV hereof, the Company represents that it
believes that the Contracts are currently and at the time of issuance will be
eligible for treatment as life insurance or annuity contracts under applicable
provisions of the Code and that it will make every effort to maintain such
treatment and that it will notify the Fund and the Underwriter promptly upon
having a reasonable basis for believing that the Contracts may have ceased to be
so treated or that they might not be so treated in the future.
2.3. The Company represents and warrants that all of its
directors/trustees, employees, investment advisers and other
individuals/entities dealing with money and/or securities of the Fund are and
shall continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund, in an amount not less than $5 million. The
aforesaid bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company. The Company shall notify the Fund, the
Underwriter and the Adviser in the event that such coverage no longer applies.
2.4. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement are registered under the 1933 Act, duly authorized for issuance
and sale in compliance in all material respects with the terms of this Agreement
and all applicable federal and state securities laws, and that, while shares of
the Portfolios are being offered for sale, the Fund is and shall remain
registered under the 1940 Act. The Fund shall amend its Registration Statement
under the 1933 Act and the 1940 Act from time to time as required in order to
effect the continuous offering of Portfolio shares. The Fund shall register or
otherwise qualify the shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.5. The Fund represents that each Portfolio is qualified as a
Regulated Investment Company under Subchapter M of the Code and that it will
make every effort to maintain such qualification (under Subchapter M or any
successor or similar provision) and that it will notify
Page 6
<PAGE>
the Company promptly upon having determined that any Portfolio may have ceased
to so qualify or that it might not so qualify in the future.
Page 7
<PAGE>
2.6. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. To the extent that it decides
to finance distribution expenses pursuant to Rule 12b-1, the Fund undertakes to
have a board of trustees, a majority of whom are not interested persons of the
Fund, formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.7. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees, expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund has disclosed or made available,
in writing, all information requested by Company and represents and warrants
that such written information is true and accurate in all material respects as
of the effective date of this Agreement. Without prior written notice to the
Company, the Fund will not make any changes in fundamental investment policies
or advisory fees, and shall at all times remain in compliance with federal
securities law as it applies to insurance products. The Company will use its
best efforts to provide the Fund with copies of amendments to provisions of
state insurance laws and regulations related to separate accounts and variable
products, which may affect Fund operations.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute Portfolio shares
to the Company in accordance with all applicable state and federal securities
laws, including, without limitation, the 1933 Act, the 1934 Act and the 1940
Act.
2.10. The Adviser represents and warrants that it is and shall remain
duly registered in all material respects under all applicable federal and state
securities laws and that it shall perform its obligations for the Fund in
compliance in all material respects with any applicable state and federal
securities laws.
2.11. The Fund, the Underwriter and the Adviser represent and warrant
that all of their directors/trustees, officers, employees, investment advisers
and other individuals/entities dealing with money and/or securities of the Fund
are and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund, in an amount not less than the
minimum coverage as required by Rule 17g-1 of the 1940 Act or related provisions
as may from time to time be promulgated. The aforesaid bond shall include
coverage for larceny and embezzlement and shall be issued by a reputable bonding
company. The Fund shall notify the Company in the event such coverage no longer
applies.
Page 8
<PAGE>
ARTICLE III
PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company (at the Underwriter's
expense) with as many copies of the Fund's current prospectus as the Company may
reasonably request. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a final copy of the new prospectus as set
in type at the Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if the prospectus
for the Fund is amended) to have the prospectus (or private offering memorandum,
if a Contract and its associated Account are exempt from registration) for the
Contracts and the Fund's prospectus printed together in one document (such
printing to be at the Company's expense unless otherwise agreed upon in writing
by the Company and the Underwriter or the Company and the Adviser).
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter (or in the Fund's
discretion, from the Fund), and the Underwriter (or the Fund), at its expense,
shall provide such Statement of Additional Information free of charge to the
Company and to any owner of a Contract or prospective owner who requests such
Statement.
3.3. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.4. If and to the extent required by law, the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote Portfolio shares in accordance with instructions
received from Contract owners; and
(iii) vote Portfolio shares for which no instructions have been
received in the same proportion as shares of such Portfolio
for which instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The Company
reserves the right to vote Fund shares held in any account in its own right, to
the extent permitted by law. The Company shall be responsible for assuring that
each of its separate accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth in the Shared
Funding Order and rules and regulations of the SEC, which standards will also be
provided to other Participating Insurance Companies.
Page 9
<PAGE>
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular, the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of trustees and with whatever rules the SEC
may promulgate with respect thereto.
ARTICLE IV
SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund, the Underwriter or the Adviser is named, at least
fifteen Business Days prior to its use. No such material shall be used if the
Fund or its designee reasonably objects in writing to such use within fifteen
business days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund, as such registration statement and prospectus may from time to time be
amended or supplemented, or in reports or proxy statements for the Fund, or in
sales literature or other promotional material provided to the Company by the
Fund or its designee or by the Underwriter, except with the permission of the
Fund or its designee. The Fund agrees to respond to any request for approval on
a prompt and timely basis.
4.3. The Fund, the Underwriter or their designee shall furnish, or
shall cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company reasonably objects in writing to
such use within fifteen business days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may from time to time be amended or
supplemented, or in published reports which are in the public domain or approved
by the Company for distribution to Contract owners, or in sales literature or
other promotional material approved by the Company or its designee, except with
the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests
Page 10
<PAGE>
for no-action letters, and all amendments to any of the above, that relate to
any of the Portfolios or their shares, promptly following the filing of such
document with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, promptly following the filing of such document with the SEC or
other regulatory authorities; and, if a Contract and its associated Account are
exempt from registration, the equivalents to the above.
4.7. For purposes of this Agreement, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published or designed for use in a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape or
electronic display, signs or billboards, motion pictures, or other public
media), sales literature (i.e., any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, reprints or
excerpts of any other advertisement, sales literature or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees.
ARTICLE V
FEES AND EXPENSES
5.1. The Fund and the Underwriter shall pay no fee or other
compensation to the Company under this Agreement, except as provided herein or
in any other written agreement.
5.2. Except as otherwise expressly provided in the Agreement, all
expenses incident to performance by the Fund under this Agreement shall be paid
by the Fund. The Fund shall see to it that all Portfolio shares are registered
and authorized for issuance in accordance with applicable federal law and, if
and to the extent deemed advisable by the Fund, in accordance with applicable
state laws prior to their sale. The Fund shall bear the expenses for the cost of
registration and qualification of the Portfolios' shares, preparation and filing
of the Fund's prospectus and registration statement, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any federal or state law and all taxes on the issuance
or transfer of the Portfolios' shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus to owners of Contracts issued by the Company and of distributing the
Fund's proxy materials and reports to such Contract owners.
Page 11
<PAGE>
ARTICLE VI
DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in such
a manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment or life insurance contracts and any
amendments or other modifications to such Section or Regulation. In the event of
a breach of this Article VI by the Fund, it will take all reasonable steps (a)
to notify Company of such breach and (b) to adequately diversify the Fund so as
to achieve compliance with the grace period afforded by Regulation 1.817-5.
ARTICLE VII
POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. A material irreconcilable conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance, tax
or securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretive letter or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of a Portfolio
are being managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance contract owners; or (f) a decision
by a Participating Insurance Company to disregard the voting instructions of
contract owners. The Board shall promptly inform the Company if it determines
that a material irreconcilable conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts to the
Board. The Company will assist the Board in carrying out its responsibilities
under the Shared Funding Order, by providing the Board with all information
reasonably necessary for the Board to consider any issues raised. This includes,
but is not limited to, an obligation by the Company to inform the Board whenever
any of the events in Section 7.1, as they pertain to the Company, occur (e.g., a
decision to disregard contract owner voting instructions).
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the material irreconcilable conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets
Page 12
<PAGE>
of any appropriate group (i.e., annuity contract owners, life insurance contract
owners or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change, and (2) establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested trustees of the Board. Any such
withdrawal and termination must take place within six months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Fund and the Underwriter shall continue to accept
and implement orders by the Company for the purchase (and redemption) of shares
of the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
that of other state regulators, then the Company will withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account within six months after the Board informs the Company in writing
that it has determined that such decision has created a material irreconcilable
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested trustees of the Board. Until
the end of that six month period, the Fund and the Underwriter shall continue to
accept and implement orders by the Company for the purchase (and redemption) of
shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested trustees of the Board shall determine whether any
proposed action adequately remedies a material irreconcilable conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the material
irreconcilable conflict. In the event that the Board determines that any
proposed action does not adequately remedy a material irreconcilable conflict,
then the Company will withdraw the Account's investment in the Fund and
terminate this Agreement within six months after the Board informs the Company
in writing of the foregoing determination; provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested trustees of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated
Page 13
<PAGE>
thereunder with respect to mixed or shared funding (as defined in the Shared
Funding Order) on terms and conditions materially different from those contained
in the Shared Funding Order, then (a) the Fund and/or the Participating
Insurance Companies, as appropriate, shall take such steps as may be necessary
to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3 as adopted, to
the extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3,
7.4 and 7.5 of this Agreement shall continue in effect only to the extent that
terms and conditions substantially identical to such Sections are contained in
such Rule(s) as so amended or adopted.
ARTICLE VIII
INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund, the
Underwriter and the Adviser and each trustee/director and officer thereof and
each person, if any, who controls the Fund, the Underwriter, or the Adviser
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company), expenses or litigation (including legal and other
expenses) (hereinafter referred to collectively as a "Loss"), to which the
Indemnified Parties may become subject under any statute or regulation, at
common law or otherwise, insofar as a Loss is related to the sale or acquisition
of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement, prospectus or private offering
memorandum for the Contracts or contained in the Contracts
or sales literature or other promotional materials for the
Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statement therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with written information furnished to the Company
by or on behalf of the Indemnified Party for use in the
registration statement or prospectus for the Contracts or in
the Contracts or in sales literature or any other
promotional materials or activities (or any amendment or
supplement to any of the foregoing); or
(ii) arise out of or as a result of statements or representa-
tions (other than statements or representations contained in
the registration statement, prospectus or sales literature
or other promotional materials of the Fund not supplied by
the Company, or persons under its control) or wrongful
conduct of the Company or persons under its control, with
respect to the sale or distribution of the Contracts or Fund
shares; or
Page 14
<PAGE>
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus or sales literature or other
promotional materials of the Fund (or any amendment or
supplement to any of the foregoing) or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if
such statement or omission was made in reliance upon or in
conformity with written information furnished to the Fund,
the Underwriter or the Adviser by or on behalf of the
Company; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of
this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company, as limited by and
in accordance with the provisions of Sections 8.1 (b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any Loss incurred or assessed against an Indemnified
Party as such may arise from such Indemnified Party's willful misfeasance, bad
faith or gross negligence in the performance of such Indemnified Party's duties,
or by reason of such Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to the Fund, the Underwriter or the Adviser,
whichever is applicable.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense thereof. The Company also shall be entitled
to assume the defense thereof, with counsel satisfactory to the Indemnified
Party named in the action. After notice from the Company to such Indemnified
Party of the Company's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Company will not be liable to such Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such
Indemnified Party independently in connection with the defense thereof other
than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
this Agreement, the issuance or sale of Portfolio shares or the Contracts or the
operation of the Fund.
Page 15
<PAGE>
Page 16
<PAGE>
8.2. INDEMNIFICATION BY THE FUND
8.2(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors/trustees and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any Loss to which the Indemnified Parties may become subject under any
statute or regulation, at common law or otherwise, insofar as a Loss is related
to the sale or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement, prospectus, statement of
additional information, sales literature or other
promotional materials of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon
and in conformity with written information furnished to the
Fund, the Underwriter or the Adviser by or on behalf of the
Indemnified Party for use in the registration statement,
prospectus, statement of additional information, sales
literature or other promotional materials or activities for
the Fund or the Contracts (or any amendment or supplement to
any of the foregoing); or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, statement of additional
information, sales literature or other promotional materials
for the Contracts not supplied by the Fund, the Underwriter,
the Adviser, or persons under their control) or wrongful
conduct of the Fund, the Underwriter, the Adviser, or
persons under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of the untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, statement of additional information
or private offering memorandum for the Contracts, or
contained in the Contracts or sales literature or other
promotional materials for the Contracts (or any amendment or
supplement to any of the foregoing) or arise out of or are
based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary
to make the statement or statements therein not misleading,
if such statement or omission was made in reliance upon or
in conformity
Page 17
<PAGE>
with written information furnished to the Company by or on
behalf of the Fund, the Underwriter or the Adviser, or
persons under their control; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the
diversification requirements specified in Article VI of this
Agreement);or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund, as limited by and in
accordance with the provisions of Sections 8.2(b) and 8.2(c)
hereof; or
(vi) arise out of or result from the material incorrect or
untimely calculation or reporting of the daily net asset
value per share or dividend or capital gain distribution
rate.
8.2(b). The Fund shall not be liable under this indemnification provision
with respect to any Loss incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith or
gross negligence in the performance of such Indemnified Party's duties, or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company, an Account, the Fund, the Underwriter or
the Adviser, whichever is applicable.
8.2(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Fund shall be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection with
the defense thereof other than reasonable costs of investigation.
8.2(d). The Company will promptly notify the Fund of the commencement of
any litigation or proceedings against the Indemnified Parties in connection with
this Agreement, the issuance or sale of Portfolio shares or the Contracts, the
operation of each Account or the
Page 18
<PAGE>
acquisition of shares of the Fund.
Page 19
<PAGE>
8.3. INDEMNIFICATION BY THE UNDERWRITER
8.3(a) The Underwriter agrees to indemnify and hold harmless the Company
and each of its directors/trustees and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.3)
against any Loss to which the Indemnified Parties may become subject under any
statute or regulation, at common law or otherwise, insofar as a Loss is related
to the sale or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement, prospectus, statement of
additional information, sales literature or other
promotional materials of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon
and in conformity with written information furnished to the
Fund, the Underwriter or the Adviser by or on behalf of the
Indemnified Party for use in the registration statement,
prospectus, statement of additional information, sales
literature or other promotional materials or activities for
the Fund or the Contracts (or any amendment or supplement to
any of the foregoing); or
(ii) arise out of or as a result of statements or representa-
tions (other than statements or representations contained in
the registration statement, prospectus, statement of
additional information, sales literature or other promo-
tional materials for the Contracts not supplied by the Fund,
the Underwriter, the Adviser, or persons under their
control) or wrongful conduct of the Fund, the Underwriter,
the Adviser, or persons under their control, with respect to
the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, statement of additional information
or private offering memorandum for the Contracts, or
contained in the Contracts or sales literature or other
promotional materials for the Contracts (or any amendment or
supplement to any of the foregoing) or arise out of or are
based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary
to make the statement or statements therein not misleading,
if such statement or omission was made in reliance upon or
in conformity
Page 20
<PAGE>
with written information furnished to the Company by or on
behalf of the Fund, the Underwriter, the Adviser, or persons
under their control; or
(iv) arise as a result of any failure by the Underwriter to
provide the services and furnish the materials under the
terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with
the diversification requirements specified in Article VI of
this Agreement);
(v) arise out of or result from any material breach of any
representation and/orwarranty made by the Underwriter in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter, as
limited by and in accordance with the provisions of Sections
8.3(b) and 8.3(c) hereof; or
(vi) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net asset
value per share or dividend or capital gain distribution
rate.
8.3(b). The Underwriter shall not be liable under this indemnification
provision with respect to any Loss incurred or assessed against an Indemnified
Party as such may arise from such Indemnified Party's willful misfeasance, bad
faith or gross negligence in the performance of such Indemnified Party's duties,
or by reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Company or an Account, whichever is
applicable.
8.3(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter shall be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the Indemnified Party named in the action. After notice from the Underwriter to
such Party of the Underwriter's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such Party under this
Agreement for any legal or other expenses subsequently incurred by such Party
independently in connection with the defense thereof other than reasonable costs
of investigation.
Page 21
<PAGE>
8.3(d). The Company will promptly notify the Underwriter of the
commencement of any litigation or proceedings against the Indemnified Parties in
connection with this Agreement, the issuance or sale of Portfolio shares or the
Contracts or the operation of each Account.
Page 22
<PAGE>
8.4. INDEMNIFICATION BY THE ADVISER
8.4(a) The Adviser agrees to indemnify and hold harmless the Company and
each of its directors/trustees and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.4)
against any Loss to which the Indemnified Parties may become subject under any
statute or regulation, at common law or otherwise, insofar as a Loss is related
to the sale or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement, prospectus, statement of
additional information, sales literature or other
promotional materials of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon
and in conformity with written information furnished to the
Fund, the Underwriter or the Adviser by or on behalf of the
Indemnified Party for use in the registration statement,
prospectus, statement of additional information, sales
literature or other promotional materials or activities for
the Fund or the Contracts (or any amendment or supplement to
any of the foregoing); or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, statement of additional
information, sales literature or other promotional materials
for the Contracts not supplied by the Fund, the Underwriter,
the Adviser, or persons under their control) or wrongful
conduct of the Fund, the Underwriter, the Adviser or persons
under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, statement of additional information
or private offering memorandum for the Contracts, or
contained in the Contracts, or sales literature or other
promotional materials for the Contracts (or any amendment or
supplement to any of the foregoing) or arise out of or are
based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary
to make the statement or statements therein not misleading,
if such statement or omission was made in reliance upon or
in conformity
Page 23
<PAGE>
with written information furnished to the Company by or on
behalf of the Fund, the Underwriter, the Adviser, or persons
under their control; or
(iv) arise as a result of any failure by the Adviser to provide
the services and furnish the materials under the terms of
this Agreement (including a failure by the Fund, whether
unintentional or in good faith or otherwise, to comply with
the diversification requirements specified in Article VI of
this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Adviser, as limited by and
in accordance with the provisions of Sections 8.4(b) and
8.4(c) hereof; or
(vi) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net asset
value per share or dividend or capital gain distribution
rate.
8.4(b). The Adviser shall not be liable under this indemnification
provision with respect to any Loss incurred or assessed against an Indemnified
Party as such may arise from such Indemnified Party's willful misfeasance, bad
faith or gross negligence in the performance of such Indemnified Party's duties,
or by reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Company or an Account, whichever is
applicable.
8.4(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser shall be entitled to participate,
at its own expense, in the defense thereof. The Adviser also shall be entitled
to assume the defense thereof, with counsel satisfactory to the Indemnified
Party named in the action. After notice from the Adviser to such party of the
Adviser's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Adviser will not be liable to such Indemnified Party under this Agreement for
any legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.4(d). The Company will promptly notify the Adviser of the commencement
of any litigation or proceedings against the Indemnified Parties in connection
with this Agreement, the issuance or sale of Portfolio shares or the Contracts
or the operation of each Account.
Page 24
<PAGE>
8.5. Except as otherwise expressly provided in the Agreement, no party
shall be liable to any other party for special, consequential, punitive or
exemplary damages, or damages of a like kind or nature.
Page 25
<PAGE>
ARTICLE IX
APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933 Act,
the 1934 Act and the 1940 Act and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and regulations
as the SEC may grant (including, but not limited to, the Shared Funding Order)
and the terms of this Agreement shall be interpreted and construed in accordance
therewith.
ARTICLE X
TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by six (6) months'
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio based upon
the Company's determination that shares of such Portfolio
are not reasonably available to meet the requirements of the
Contracts; or
(c) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event any of the Portfolio's shares are not registered,
issued or sold in accordance with applicable state and/or
federal law or such law precludes the use of such shares as
the underlying investment media of the Contracts issued or
to be issued by the Company; or
(d) termination by the Company by written notice to the Fund,
the Underwriter and the Adviser with respect to any
Portfolio in the event that such Portfolio ceases to qualify
as a "regulated investment company" under Subchapter M of
the Code or under any successor or similar provision, or if
the Company reasonably believes that the Fund will fail to
so qualify; or
(e) termination by the Company by written notice to the Fund,
the Underwriter and the Adviser with respect to any
Portfolio in the event that such Portfolio fails to meet the
diversification requirements specified in Article VI hereof;
or
(f) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both of the
Fund or the Underwriter shall determine, in their sole
judgment exercised in good faith, that the Company and/or
its affiliated companies has suffered a material adverse
change in its
Page 26
<PAGE>
business, operations, financial condition or prospects since
the date of this Agreement or is the subject of material
adverse publicity which is likely to have a material adverse
impact upon the business and operations of the Company; or
(g) termination by the Company by written notice to the Fund
and the Underwriter, if the Company shall determine, in its
sole judgment exercised in good faith, that the Fund, the
Adviser or the Underwriter has suffered a material adverse
change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject
of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of
the Fund, the Adviser, or the Underwriter; or
(h) termination by the Fund or the Underwriter by written
notice to the Company, if the Company gives the Fund and the
Underwriter the written notice specified in Section 1.6(b)
hereof and at the time such notice was given there was no
notice of termination outstanding under any other provision
of this Agreement and the investment company that is the
subject of Section 1.6(b) notice has investment objectives
or policies that are not substantially different from the
investment objectives and policies of the Portfolios of the
Fund listed on Schedule B to this Agreement; provided,
however, that any termination under this Section 10.1(h)
shall be effective ninety days after the notice specified in
Section 1.6(b) was given; or
(i) termination by the Company by written notice to the Fund
and the Underwriter or by the Fund or the Underwriter by
written notice to the Company, in the event that an
irreconcilable material conflict exists among the interests
of (1) all Contract owners of variable insurance products or
all separate accounts or (2) the interest of the
Participating Insurance Companies investing in the Fund as
delineated in Article VII of this Agreement; or
(j) termination by the Company by written notice to the Fund
and the Underwriter or by the Fund or the Underwriter by
written notice to the Company, in the event of the
non-terminating party's material breach of any provision of
this Agreement; or
(k) termination by the Company by written notice to the Fund
and the Underwriter, or by the Fund or the Underwriter by
written notice to the Company, upon receipt of any necessary
regulatory approvals or the vote of the Contract owners
having an interest in the Account (or any subaccount) to
substitute the shares of another investment company for the
corresponding Portfolio shares of the Fund in accordance
with the terms of
Page 27
<PAGE>
the Contracts for which those Portfolio shares had been
selected to serve as the underlying investment media. The
Company will give forty-five (45) days prior written notice
to the Fund and the Underwriter of the date of any proposed
vote or other action taken to replace the Fund's shares.
10.2. EFFECT OF TERMINATION. Notwithstanding termination of this
Agreement, the Fund and the Underwriter shall continue to make available
additional shares of the Fund pursuant to the terms and conditions of this
Agreement, for all Contracts in effect on the effective date of termination of
this Agreement (hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, the owners of the Existing Contracts shall be permitted to
retain investments in the Fund, reinvest dividends and redeem investments in the
Fund. If shares of the Fund continue to be made available after termination of
this Agreement pursuant to this Section 10.2, the provisions of this Agreement
shall remain in effect except for Section 10.1 and thereafter the Fund, the
Underwriter or the Company may terminate the Agreement, as so continued pursuant
to this Section 10.2, upon written notice to the other party, such notice to be
for a period that is reasonable under the circumstances but need not be for more
than ninety days (90). The parties agree that this Section 10.2 shall not apply
to any terminations under Section 1.2 of Article I or under Article VII, and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to the Contracts
(as opposed to Fund shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions; or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"); or (iii) as a
result of action by the Fund's Board, acting in good faith, upon ninety (90)
days' advance written notice to the Company and Contract Owners; or upon ninety
(90) days' advance written notice to the Fund of the Company's intention to do
so. Upon request, the Company will promptly furnish to the Fund and the
Underwriter the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Fund and the Underwriter) to the effect that any
redemption pursuant to clause (ii) above is a Legally Required Redemption, or is
as permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
In the event that the Company is to redeem shares pursuant to clause (iii)
above, the Fund will promptly furnish to the Company the opinion of counsel for
the Fund (which counsel shall be reasonably satisfactory to the Company) to the
effect that any such redemption is not in violation of the 1940 Act or any rule
or regulation thereunder, or is as permitted by an order of the SEC.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract Owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Underwriter ninety (90) days' advance written notice of its
intention to do so.
ARTICLE XI
NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail or next-day delivery to the other parties at the address of such parties
set forth below or at such other address as any party may from time to time
specify in writing to the other parties.
Page 28
<PAGE>
Page 29
<PAGE>
If to the Company:
2801 Highway 280 South
Birmingham, Alabama 35223
Attention: Steve M. Callaway, Senior Associate Counsel,
with a copy to Carolyn King, Senior Vice President
If to the Fund:
99 Park Avenue
New York, New York 10016
Attention: President, with a copy to the General Counsel
If to the Underwriter:
99 Park Avenue
New York, New York 10016
Attention: President, with a copy to the General Counsel
If to the Adviser:
99 Park Avenue
New York, New York 10016
Attention: President, with a copy to the General Counsel
ARTICLE XII
MISCELLANEOUS
12.1 The Company, the Adviser and the Underwriter each understand and
agree that the obligations of the Fund under this Agreement are not
binding upon the Board, any shareholder, officer or agent
personally, but bind only the Fund and the Fund's property.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party, until such time as it may come into the public domain.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
Page 30
<PAGE>
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including, without limitation, the SEC,
the NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
12.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereunder; provided, however, that the Underwriter may assign this Agreement or
any rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement.
12.9. Upon request, the Company shall furnish, or shall cause to be
furnished, to the Fund or its designee, copies of the following reports:
(a) the Company's most recent annual statement (prepared under
statutory accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP") if any;
(b) the Company's most recent quarterly statements (statutory) (and
GAAP, if any);
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders;
(d) any registration statement (without exhibits) and financial reports
of the Company filed with the SEC or any state insurance regulator.
Page 31
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
PROTECTIVE LIFE AND ANNUITY
INSURANCE COMPANY Attest:
By: By:
---------------------------
Name: Carolyn King Name: Steve M. Callaway
------------ -----------------
Title: Senior Vice President Title: Senior Associate Counsel
--------------------- ------------------------
VAN ECK WORLDWIDE INSURANCE TRUST Attest:
By: By:
---------------------------
Name: Name:
-------------------------
Title: Title:
------------------------
VAN ECK SECURITIES CORPORATION Attest:
By: By:
---------------------------
Name: Name:
-------------------------
Title: Title:
----------------------- ------------------------
Page 32
<PAGE>
VAN ECK ASSOCIATES CORPORATION Attest:
By: By:
------------------------ ---------------------------
Name: Name:
---------------------- -------------------------
Title: Title:
--------------------- ------------------------
Page 33
<PAGE>
SCHEDULE A
ACCOUNTS
Date Established by the Company's
Name of Account Board of Directors
- --------------- ------------------
Variable Annuity Account A of Protective
Life and Annuity Insurance Company 12/5/97
Page 34
<PAGE>
SCHEDULE B
PORTFOLIOS AND OTHER FUNDS
ADVISED BY ADVISER
I. PORTFOLIOS
Worldwide Hard Assets Fund
Worldwide Real Estate Fund
II. OTHER FUNDS ADVISED BY THE ADVISER
Not applicable
Page 35
<PAGE>
SCHEDULE C
OTHER INVESTMENT COMPANIES AVAILABLE
AS FUNDING VEHICLES FOR THE CONTRACTS
Protective Investment Company
Oppenheimer Variable Account Funds
MFS-Registered Trademark-Variable Insurance Trust
Calvert Variable Series, Inc.
Page 36
<PAGE>
[LOGO]
[LETTERHEAD]
April 29, 1999
Protective Life and Annuity Insurance Company
2801 Highway 280 South
Birmingham, Alabama 35223
Gentlemen:
With respect to the Post-Effective Amendment No. 1 to the Form N-4
Registration Statement to be filed by Protective Life and Annuity Insurance
Company (the "Company", formerly American Foundation Life Insurance Company)
and Variable Annuity Account A of Protective Life (the "Account", formerly
Variable Annuity Account A of American Foundation) with the Securities and
Exchange Commission for the purpose of registering under the Securities Act of
1933, as amended, individual flexible premium deferred variable and fixed
annuity contracts marketed as the Protective Variable Annuity (the
"Contracts"), I have examined such documents and such law as I considered
necessary and appropriate, and on the basis of such examination, it is my
opinion that:
1. The Company is a corporation duly organized and validly
existing as a stock life insurance company under the laws of the
State of Alabama and is duly authorized by the Department of
Insurance of the State of Alabama to issue the Contracts.
2. The Account is a duly authorized and existing separate account
established pursuant to the provisions of Section 27-38-1 of the
Alabama Code.
3. To the extent so provided under the Contracts, that portion of
the assets of the account equal to the reserves and other
contract liabilities with respect to the Account will not be
chargeable with liabilities arising out of any other business
that the Company may coduct.
4. The Contracts, when issued as contemplated by the Form N-4
registration statement, will constitute legal, validly issued
and binding obligations of the Company.
I hereby consent to the filing of this opinion as an exhibit to the
Form N-4 registration statement for the Contracts and the Account.
Very truly yours,
/s/ STEVE M. CALLAWAY
Steve M. Callaway
Senior Associate Counsel
<PAGE>
STEPHEN E. ROTH
DIRECT LINE: (202)383-0158
Internet: [email protected]
April 27, 1999
Board of Directors
Protective Life Insurance Company
2801 Highway 201 South
Birmingham, Alabama 35223
Directors:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the statement of additional information filed as part of
post-effective amendment number 1 (file number 333-41577) to the Registration
Statement on Form N-4 filed by Protective Life and Annuity Insurance Company
and Variable Annuity Account A of Protective Life with the Securities and
Exchange Commission. In giving this consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
Very truly yours,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ STEPHEN E. ROTH
-----------------------------------
Stephen E. Roth
<PAGE>
EXHIBIT 10(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form N-4 of our
report dated February 11, 1999, on our audits of the consolidated financial
statements and financial statement schedules of Protective Life Insurance
Company and Subsidiaries. We also consent to the inclusion of our report
dated March 17, 1999 on our audit of the financial statements of the Variable
Annuity Account A of Protective Life. We also consent to the reference to our
firm under the caption "Experts."
PricewaterhouseCoopers LLP
Birmingham, Alabama
April 29, 1999
<PAGE>
EXHIBIT 14
DIRECTORS'
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors
of Protective Life and Annuity Insurance Company, an Alabama corporation,
("Company") by his execution hereof or upon an identical counterpart hereof,
does hereby constitute and appoint John D. Johns, Steve M. Callaway or Jerry
W. DeFoor, and each or any of them, his true and lawful attorney-in-fact and
agent, for him and in his name, place and stead, to execute and sign the
Registration Statement on Form N-4 to be filed by the Company with respect to
the Protective Life Variable Annuity, an individual flexible premium deferred
variable and fixed annuity product, with the Securities and Exchange
Commission, pursuant to the provisions of the Securities Exchange Act of 1933
and the Investment Company Act of 1940 and, further, to execute and sign any
and all pre-effective and post-effective amendments to such Registration
Statement, and to file same, with all exhibits and schedules thereto and all
other documents in connection therewith, with the Securities and Exchange
Commission and with such state securities authorities as may be appropriate,
granting unto said attorney-in-fact and agent, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes of the undersigned might or could do in person, hereby ratifying and
confirming all the acts of said attorney-in-fact and agent or any of them
which they may lawfully do in the premises or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand
and seal this 30th day of April, 1999.
WITNESS TO ALL SIGNATURES:
/s/ DEBORAH J. LONG /s/ JACKIE ANDERSON
- ----------------------------------- --------------------------------------
Deborah J. Long Witness to Deborah J. Long's signature
/s/ WAYNE E. STUENKEL /s/ DANNY L. BENTLEY
- ----------------------------------- --------------------------------------
Wayne E. Stuenkel Danny L. Bentley
/s/ R. STEPHEN BRIGGS /s/ RICHARD J. BIELEN
- ----------------------------------- --------------------------------------
R. Stephen Briggs Richard J. Bielen
/s/ DEBORAH J. LONG /s/ CAROLYN KING
- ----------------------------------- --------------------------------------
Deborah J. Long Carolyn King
/s/ STEVEN A. SCHULTZ /s/ JIM E. MASSENGALE
- ----------------------------------- --------------------------------------
Steven A. Schultz Jim E. Massengale
/s/ A. S. WILLIAMS III /s/ JERRY DEFOOR
- ----------------------------------- --------------------------------------
A. S. Williams III Jerry DeFoor
